Wisconsin Real Estate License Valuing and Financing Property 2 — Questions and Answers
Question 1: Which appraisal approach relies most heavily on recent sales of 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 estimates value by comparing the subject to similar recently sold properties and adjusting for differences.
Question 2: In the sales comparison approach, adjustments are always made to which property?
- The comparable properties (Correct answer)
- The subject property
- Both equally
- Whichever sold most recently
Correct answer: The comparable properties
Adjustments are made to the comparable sales, never to the subject property, to make them equivalent to the subject.
Question 3: A homeowner adds a feature the subject lacks. How is the comparable adjusted?
- Subtract value from the comparable (Correct answer)
- Add value to the comparable
- Add value to the subject
- No adjustment needed
Correct answer: Subtract value from the comparable
If a comparable is superior, its price is adjusted downward to reflect the subject lacking that feature.
Question 4: The principle of substitution in appraisal states that a buyer will pay no more than:
- The cost of acquiring an equally desirable substitute (Correct answer)
- The original construction cost
- The seller's asking price
- The assessed tax value
Correct answer: The cost of acquiring an equally desirable substitute
Under substitution, value is limited by the cost to acquire an equally desirable alternative property.
Question 5: Which factor would MOST likely decrease a property's market value?
- Proximity to a newly built landfill (Correct answer)
- A remodeled kitchen
- Being in a top-rated school district
- A new roof
Correct answer: Proximity to a newly built landfill
A nearby landfill is external obsolescence that typically reduces market value.
Question 6: The four essential elements of value are demand, utility, scarcity, and:
- Transferability (Correct answer)
- Location
- Financing
- Depreciation
Correct answer: Transferability
The four elements of value (DUST) are demand, utility, scarcity, and transferability.
Question 7: An appraisal is best defined as:
- An opinion or estimate of value (Correct answer)
- A guarantee of sale price
- A legal determination of value
- The final loan amount
Correct answer: An opinion or estimate of value
An appraisal is a professional's supported opinion or estimate of value, not a guarantee.
Wisconsin Real Estate License Valuing and Financing Property 2
Which appraisal approach relies most heavily on recent sales of comparable properties to estimate value?