Loan Officer Appraisal and Property Valuation Flashcards

Which of the three appraisal approaches estimates value by calculating land value plus the cost to replace improvements minus accrued depreciation?

Answer: Cost approach

The cost approach estimates value by adding the land value to the depreciated cost of reproducing or replacing the improvements on the property.

The sales comparison approach to value is primarily based on which of the following?

Answer: Recent sales prices of comparable properties adjusted for differences

The sales comparison approach establishes value by analyzing recent sales of similar properties and making adjustments for differences between the comparables and the subject property.

In the income approach to value, the capitalization rate represents:

Answer: The rate of return an investor expects from an income-producing property

The capitalization rate (cap rate) converts a property's net operating income into a value estimate by reflecting the return investors expect from that type of income-producing property.

What type of depreciation is 'external obsolescence' in real estate appraisal?

Answer: A loss in value caused by negative factors located outside the property

External obsolescence is depreciation caused by adverse factors outside the property boundaries, such as nearby industrial use, heavy traffic, or economic decline in the area, and it is generally incurable.

When an appraiser makes a positive adjustment to a comparable sale, it means the comparable is:

Answer: Inferior to the subject property in that feature, so value is added to the comparable

A positive adjustment is added to a comparable's sale price when the comparable is inferior to the subject in a particular feature, bringing the comparable's adjusted value up to reflect what it would have sold for if equal to the subject.

Which appraisal approach is most commonly used and given the most weight when valuing single-family residential properties?

Answer: Sales comparison approach

The sales comparison approach is given the most weight for single-family residences because abundant comparable sales data exists, and it best reflects how buyers make purchase decisions.

What is 'functional obsolescence' in real estate appraisal?

Answer: A loss in value due to outdated design, layout, or features that do not meet current buyer standards

Functional obsolescence is a loss in value due to design deficiencies or outdated features — such as inadequate electrical capacity or a poor floor plan — that reduce the property's utility compared to modern standards.