IACP Market Analysis & Property Valuation 5 — Questions and Answers
Question 1: The sales comparison approach relies MOST heavily on which appraisal principle?
- Anticipation
- Contribution
- Substitution (Correct answer)
- Balance
Correct answer: Substitution
The sales comparison approach is grounded in the principle of substitution, which states that a prudent buyer will not pay more for a property than the cost of an equally desirable substitute.
Question 2: An appraiser is estimating the value of a retail strip center. The most relevant unit of comparison to use for the sales comparison approach would be:
- Price per unit
- Price per room
- Price per square foot of GLA (Correct answer)
- Price per acre
Correct answer: Price per square foot of GLA
Retail properties are most commonly compared on a price per square foot of gross leasable area (GLA) basis.
Question 3: Which condition must exist for the income capitalization approach to produce a reliable value indication?
- The property must be owner-occupied
- Reliable income and expense data must be available (Correct answer)
- The property must be newly constructed
- Vacancy must be zero
Correct answer: Reliable income and expense data must be available
The income approach requires reliable income, vacancy, and expense data; without credible market data, the resulting value indication is unreliable.
Question 4: A time adjustment is needed when comparables sold significantly earlier than the effective appraisal date. What data source BEST supports deriving this adjustment?
- List price trends
- Paired resales of the same properties over time (Correct answer)
- Published building cost indices
- Assessor records
Correct answer: Paired resales of the same properties over time
Paired resales (repeat sales) of the same properties at different points in time provide the best market-supported basis for time adjustments.
Question 5: When the effective gross income multiplier (EGIM) method is used, the value indication is calculated by:
- Dividing NOI by the EGIM
- Multiplying effective gross income by the EGIM (Correct answer)
- Dividing potential gross income by the EGIM
- Multiplying NOI by the EGIM
Correct answer: Multiplying effective gross income by the EGIM
Value = Effective Gross Income × EGIM; the multiplier is applied directly to effective gross income (after vacancy) to estimate value.
Question 6: An appraiser observes that the subject property's neighborhood has experienced increased investor purchases and property renovations over the past two years. This most likely indicates:
- Decline phase
- Revitalization phase (Correct answer)
- Stability phase
- Growth phase
Correct answer: Revitalization phase
Increased investor activity and renovations in a previously declining area are characteristic of the revitalization (renewal) stage of the neighborhood life cycle.
Question 7: Under FIRREA, federally related transactions requiring a licensed or certified appraiser are defined as transactions in which a federal financial institution regulatory agency:
- Recommends the appraisal
- Has an interest or regulates the lender (Correct answer)
- Selects the appraiser
- Sets the loan-to-value ratio
Correct answer: Has an interest or regulates the lender
FIRREA defines a federally related transaction as one in which a federal financial institution regulatory agency has a direct or indirect interest or regulates the lending institution involved.
IACP Market Analysis & Property Valuation 5
The sales comparison approach relies MOST heavily on which appraisal principle?