Arkansas Real Estate License Property Valuation and Financing Questions and Answers

Question 1

An appraiser is using the cost approach to determine the value of a 10-year-old single-family home in a stable neighborhood. After calculating the replacement cost of the structure, what is the next step in the process?

Accepted Answer

Subtract the accrued depreciation from the replacement cost.

Answer

In the cost approach, the formula is: Replacement Cost - Accrued Depreciation + Land Value = Property Value. Therefore, after estimating the cost to replace the structure new, the appraiser must calculate and subtract the amount of value lost due to physical deterioration, functional obsolescence, and external obsolescence.

Question 2

A first-time homebuyer in Arkansas is seeking a loan with the lowest possible down payment. They have a credit score of 600. Which loan program would most likely meet their needs?

Accepted Answer

FHA Loan

Answer

FHA loans are insured by the Federal Housing Administration and are designed for low-to-moderate-income borrowers. With a credit score of 580 or higher, a borrower can qualify for a down payment as low as 3.5%. While VA and Rural Development loans also offer low or no down payment options, they have specific eligibility requirements (veteran status or property location) that are not mentioned in the scenario.

Question 3

A buyer is purchasing a home for $250,000 and is obtaining a loan for $200,000. What is the loan-to-value (LTV) ratio for this transaction?

Accepted Answer

80%

Answer

The Loan-to-Value (LTV) ratio is calculated by dividing the loan amount by the property's appraised value or sale price, whichever is less. In this case, $200,000 (Loan Amount) ÷ $250,000 (Value) = 0.80, or 80%.

Question 4

Which of the following is a key feature of a VA-guaranteed loan that benefits a veteran homebuyer?

Accepted Answer

A one-time VA funding fee is typically required instead of monthly mortgage insurance.

Answer

Instead of monthly mortgage insurance (like PMI or MIP), most borrowers using a VA loan pay a one-time funding fee. This fee helps to offset the costs of the program for taxpayers. VA loans often require no down payment, and they are guaranteed, not directly funded, by the VA.

Question 5

Under Arkansas law, how is the 'assessed value' of a property calculated for tax purposes?

Accepted Answer

It is calculated as 20% of the property's true market value.

Answer

Arkansas state law requires the assessment level for property taxes to be 20% of the current market value. The county assessor first determines the true market value and then multiplies it by 20% to arrive at the assessed value, which is then used to calculate the property tax bill.

Arkansas Real Estate License Practice Test

Arkansas Real Estate License Practice Test

Arkansas Real Estate License Property Valuation and Financing Questions and Answers