Real Estate Sales Exam Property Valuation and Appraisal 5 — Questions and Answers
Question 1: What is a 'paired sales analysis' used for in the sales comparison approach?
- To identify the cap rate for income properties
- To isolate and quantify the value contribution of a single property feature (Correct answer)
- To calculate accrued depreciation on improvements
- To determine the effective age of a building
Correct answer: To isolate and quantify the value contribution of a single property feature
Paired sales analysis compares two sales that are identical except for one feature, allowing the appraiser to isolate and measure the market value of that specific characteristic.
Question 2: A property is assessed at $250,000 with an assessment ratio of 80%. What is the estimated market value?
- $200,000
- $312,500 (Correct answer)
- $250,000
- $320,000
Correct answer: $312,500
Market value = Assessed value ÷ Assessment ratio = $250,000 ÷ 0.80 = $312,500.
Question 3: Which of the following is an example of curable physical deterioration?
- Structural foundation damage from soil settling
- Worn carpet that needs replacement (Correct answer)
- A load-bearing wall that is cracking
- End-of-life roof requiring complete tear-off and rebuild
Correct answer: Worn carpet that needs replacement
Curable physical deterioration refers to items that are economically feasible to fix, such as replacing worn carpet, because the cost to cure is less than or equal to the resulting value increase.
Question 4: Under USPAP (Uniform Standards of Professional Appraisal Practice), an appraiser must:
- Arrive at a value that satisfies the lender's requirements
- Remain independent, impartial, and objective in all appraisal assignments (Correct answer)
- Use all three approaches to value in every appraisal
- Provide an appraisal within 48 hours of the assignment date
Correct answer: Remain independent, impartial, and objective in all appraisal assignments
USPAP requires appraisers to be independent, impartial, and objective — they must not allow client pressure or predetermined conclusions to influence their value opinion.
Question 5: What is 'economic life' of a building in the context of real estate appraisal?
- The period over which improvements contribute positively to property value (Correct answer)
- The actual chronological age of the building from construction date
- The time remaining before the building requires major structural repairs
- The depreciable life assigned by the IRS for tax purposes
Correct answer: The period over which improvements contribute positively to property value
Economic life is the period during which improvements contribute positively to property value — once a building no longer adds value, its economic life has ended.
Question 6: An appraiser is valuing a special-use property (a church). Which approach would typically receive the most weight?
- Income capitalization approach
- Sales comparison approach
- Cost approach (Correct answer)
- Gross rent multiplier method
Correct answer: Cost approach
The cost approach is typically most reliable for special-use properties like churches because comparable sales rarely exist and the properties are not income-generating in a typical sense.
Question 7: What does 'arm's length transaction' mean in real estate valuation?
- A sale conducted through a licensed real estate broker
- A transaction between unrelated parties each acting in their own best interest without duress (Correct answer)
- A sale completed within a 30-day escrow period
- A purchase financed by a conventional bank mortgage
Correct answer: A transaction between unrelated parties each acting in their own best interest without duress
An arm's length transaction occurs between independent, knowledgeable parties acting freely in their own self-interest — a key assumption underlying market value definitions.
Real Estate Sales Exam Property Valuation and Appraisal 5
What is a 'paired sales analysis' used for in the sales comparison approach?