Wisconsin Real Estate License Property Valuation and Financing 2 — Questions and Answers
Question 1: Which appraisal approach relies most heavily on recently sold comparable properties to estimate value?
- Sales comparison approach (Correct answer)
- Cost approach
- Income approach
- Gross rent multiplier approach
Correct answer: Sales comparison approach
The sales comparison approach values a property by comparing it to similar recently sold properties.
Question 2: In the cost approach, what is subtracted from the reproduction cost of improvements before adding land value?
- Accrued depreciation (Correct answer)
- Closing costs
- Loan interest
- Property taxes
Correct answer: Accrued depreciation
The cost approach subtracts accrued depreciation from the cost of improvements, then adds land value.
Question 3: A property generates $24,000 net operating income and the market cap rate is 8%. What is its estimated value?
- $300,000 (Correct answer)
- $192,000
- $480,000
- $267,000
Correct answer: $300,000
Value equals NOI divided by cap rate: $24,000 / 0.08 = $300,000.
Question 4: What term describes a loss in value due to outdated features or design that cannot be easily changed?
- Functional obsolescence (Correct answer)
- Physical deterioration
- External obsolescence
- Economic appreciation
Correct answer: Functional obsolescence
Functional obsolescence is a loss in value from outdated or poorly designed features within the property.
Question 5: Which principle holds that a property's maximum value is set by the cost of acquiring an equally desirable substitute?
- Principle of substitution (Correct answer)
- Principle of anticipation
- Principle of conformity
- Principle of contribution
Correct answer: Principle of substitution
The principle of substitution states a buyer will pay no more than the cost of an equally desirable substitute.
Question 6: In Wisconsin, a comparative market analysis (CMA) prepared by a licensee is:
- Not the same as a formal appraisal (Correct answer)
- Legally equivalent to an appraisal
- Only valid for commercial property
- Required to be certified by the state
Correct answer: Not the same as a formal appraisal
A CMA is an informal estimate of value and is not a substitute for a licensed appraisal.
Question 7: What does an appraiser call the highest and most profitable legally permitted use of a property?
- Highest and best use (Correct answer)
- Fee simple use
- Conforming use
- Speculative use
Correct answer: Highest and best use
Highest and best use is the legal, physically possible, and financially feasible use that yields the greatest value.
Wisconsin Real Estate License Property Valuation and Financing 2
Which appraisal approach relies most heavily on recently sold comparable properties to estimate value?