Property Valuation Flashcards

A buyer offers $500,000, but the appraisal comes in at $480,000 on a loan with 20% down. What is the appraisal gap?

Answer: $20,000

The appraisal gap is the contract price minus the appraised value: $500,000 − $480,000 = $20,000.

Which is an example of functional obsolescence?

Answer: A four-bedroom home with only one bathroom

Functional obsolescence is a design or layout flaw that reduces a property's usefulness or appeal.

If homes in a neighborhood sell at an average list-to-sale price ratio of 103%, this most likely indicates:

Answer: A seller's market with competitive offers

Homes selling above list price signal strong demand and a seller's market.

What is the main limitation of an automated valuation model (AVM) like an online home-value estimate?

Answer: It cannot account for interior condition and upgrades

AVMs rely on public data and algorithms, so they miss condition, renovations, and unique features seen only in person.

Under the principle of conformity, what tends to happen to the most expensive home in a modest neighborhood?

Answer: It loses value relative to its cost (regression)

Regression means a superior home is pulled down in value by lower-priced surrounding properties.

Pending sales in a CMA are useful mainly because they:

Answer: Indicate current market direction before closing

Pendings reflect recent buyer activity and trends, though their final prices are not yet confirmed.

The sale price of a comparable included $8,000 in seller concessions. How should this be handled in the CMA?

Answer: Subtract the concession value to reflect net price

Seller concessions inflate the recorded price, so subtracting them shows the true market price paid.