IACP Market Analysis & Property Valuation 3 — Questions and Answers
Question 1: When a property's income is subject to a below-market lease, the discount applied to the leased fee value compared to fee simple value is called:
- Leasehold value
- Lease penalty
- Negative leasehold (Correct answer)
- Reversionary discount
Correct answer: Negative leasehold
A negative leasehold occurs when the contract rent is below market rent, reducing the leased fee value relative to the fee simple market value.
Question 2: In highest and best use analysis, which test must be satisfied FIRST?
- Financially feasible
- Maximally productive
- Legally permissible (Correct answer)
- Physically possible
Correct answer: Legally permissible
Legal permissibility must be tested first because uses that violate zoning or other legal restrictions cannot be considered regardless of other factors.
Question 3: An appraiser notes that similar homes in a neighborhood sell for $10,000 more when they have an additional bathroom. This adjustment was derived using:
- Cost approach
- Regression analysis
- Paired sales analysis (Correct answer)
- Income capitalization
Correct answer: Paired sales analysis
Paired sales analysis isolates the contributory value of the bathroom by comparing otherwise similar properties that differ only in that feature.
Question 4: Which of the following BEST describes economic obsolescence?
- Physical wear from use and aging
- Loss in value from outdated design or style
- Loss in value from external forces beyond the property (Correct answer)
- Structural defects in the improvements
Correct answer: Loss in value from external forces beyond the property
Economic (external) obsolescence is a loss in value caused by negative factors outside the property, such as nearby industrial development or economic downturns.
Question 5: A capitalization rate derived by dividing a property's NOI by its recent sale price is known as a:
- Band of investment rate
- Equity dividend rate
- Overall (OAR) capitalization rate (Correct answer)
- Discount rate
Correct answer: Overall (OAR) capitalization rate
The overall capitalization rate (OAR) is calculated by dividing the net operating income by the sale price of a comparable property.
Question 6: Under USPAP, the appraisal report requirement for disclosing prior services on a property within the last three years applies to:
- Only appraisal assignments
- Appraisals and appraisal reviews
- All real property assignments (Correct answer)
- Only federally related transactions
Correct answer: All real property assignments
USPAP requires disclosure of prior services (appraisal, appraisal review, or consulting) on the subject property within the prior three years for all real property assignments.
Question 7: When demand for a property type increases but supply remains fixed in the short run, the MOST likely result is:
- Value decreases
- Value remains stable
- Value increases (Correct answer)
- Capitalization rates increase
Correct answer: Value increases
When demand rises with fixed supply, competition among buyers drives prices upward, increasing property values.
IACP Market Analysis & Property Valuation 3
When a property's income is subject to a below-market lease, the discount applied to the leased fee value compared to fee simple value is called: