Real Estate Appraisal - Chapter 7: The Appraisal Process

  1. Regarding valuations services, CMAs, and BPOs, which of the following statements are true?

    a. Valuation services are performed by appraisers and brokers perform CMAs

    b. CMAs are different from BPOs in that only brokers can perform BPOs

    c. CMAs, BPOs, and appraisals are all types of valuation services

    d. CMAs, BPOs, appraisals, and valuation services are all one in the same
    (c) Valuation services are services that pertain to some aspect of property value whether those services are performed by an appraiser or by someone else. A competitive market analysis is a comparison analysis that real estate brokers use to help determine an appropriate listing price for the seller's house and are also known as Broker Price Opinion. Although they appear similar on the surface, there are many differences between a competitive market analysis and an appraisal report, mainly that appraisals follow more stringent guidelines. Pages 194 - 195
  2. When using CMAs, if there are significant differences between the seller's house and the comps, a broker will:

    a adjust the selling prices of the comparable properties

    b. adjust the selling price of the subject property

    c. do both of the above

    d. do neither of the above
    (a) If there are any significant differences between the seller's house and the comps, the broker adjusts the selling prices of those properties to derive a market value range and an appropriate list price for the house. Page 195
  3. Which practice commonly used by appraisers is similar to a Broker's Price Opinion?

    a. Cost Approach

    b. Defining the problem

    c. Competitive Market Analysis

    d. Sales Comparison Approach
    (d) In a CMA, which is also referred to as a Broker Price Opinion, brokers collect and analyze data, apply a version of the sales comparison approach, and report the results to their client. Page 194
  4. If a house is priced _____ than the appraised value, lenders may _____.

    a. lower, not fund the loan

    b. higher, not fund the loan

    c. same as, not fund the loan

    d. lower, require mortgage insurance
    (b) If a house is priced significantly higher than its appraised value, it can be very difficult to get a loan, since lenders do not want to lend on a house that is priced higher than it is worth. A buyer should think twice before purchasing a home if its price is higher than its appraised value. Page 196
  5. Identifying the client, the definition of value, and the effective date are all included in which step of the appraisal process?

    a. Identify the assignment

    b. Determine the scope of work

    c. Define the problem

    d. Reconciliation
    (c) The step called "define the problem" includes identifying the client and other intended users, the type and definition of the value sought, and the effective date of the appraiser's opinions and conclusions, among others. Page 196
  6. Social forces are an example of:

    a. general data

    b. economic influence

    c. specific data

    d. physical influence
    (a) When collecting and analyzing information, appraisers gather general data including social, economic, physical, or governmental forces that may impact the value sought.
  7. Parties intending to use an appraisal report are known as: 

    a. clients

    b. intentional users

    c. customers

    d. intended users
    (d) Often clients order an appraisal with the intention that other parties will rely upon the report generated by the appraiser. Parties intending to use an appraisal are called intended users by USPAP. Page 198
  8. Cory was commissioned to appraise a house in a tax dispute on July 11, 2006. The dispute was over how much property tax the owner should have paid in November, 1999. The completed report was submitted to the tax authority on August 1, 2006 and used in a court proceeding on August 16, 2006. Which of the following is the effective date of the appraisal?

    a. July 11, 2006

    b. November, 1999

    c. August 1, 2006

    d. August 16, 2006
    (b) In most instances, the effective date of an appraisal is the date of inspection. In some instances however, the date of value is at some point in the past, which makes it a retrospective appraisal. Page 200
  9. If Bill hires Frank to appraise the value of vacant land as if it were fully developed with an apartment building, this woudl be considered a(n):

    a. effective appraisal

    b. retrospective appraisal

    c. prospective appraisal

    d. objective apprasial
    (c) A prospective appraisal looks at the value of a property at a future point of time. Page 200
  10. Jaime, an insurance appraiser is hired to appraise a residence that recently burned down. When Jaime appraises the home as if it were still inexistence, she is using:

    a. a hypothetical condition

    b. a retrospective appraisal

    c. a limiting condition

    d. all of the above
    (d) A hypothetical condition is that which is contrary to what exists but is supposed for the purpose of analysis, which is what Jaime is doing for the purpose of this insurance appraisal. Also, a hypothetical condition is a type of limiting condition. Since she is appraising the property as it was before it burnt down, this also becomes a retrospective appraisal. Page 201
  11. When verifying data, should an appraiser encounter conflicting information, he or she must:

    a. determine which source is more reliable and give it more credence

    b. ignore both pieces of data

    c. count both pieces of information without explanation

    d. count both pieces of information with brief explanation
    (a) Sometimes, information obtained from one data provider conflicts with data obtained from another source. Appraisers need to determine which data sources are the most reliable and deserve more credence Page 206
  12. Which of the following is important when choosing comps for sales comparison analysis?

    a. All comparable sales should be arm's-length transaction

    b. All comparable sales should be similar in location to the subject

    c. All comparable sales should be similar in style to the subject

    d. All of the above are true statements
    (d) When choosing comparable properties for analysis, select comps that are arm's-length transactions because non-arm's-length transactions do not truly reflect the market. Also, select properties that are as similar to the subject as possible to minimize the need for adjustments. Page 207
  13. Which of the following is not a typcial application for the cost approach?

    a. Post office, library, hospital

    b. 40-year old tract home

    c. Brand new office complex

    d. Frank Lloyd Wright-inspired mansion
    (b) The cost approach is used most often to appraise new buildings and special-purpose or unique structures. A post office, library, and hospital are all classified as special-purpose and famous architectural buildings are considered unique. Page 210
  14. Which of the following is the formula used when calculating the income approach?

    a. Gross income multiplied by net income multiplier equals value

    b. Net operating income multiplied by cap rate equals value

    c. Net operating income divided by cap rate equals value

    d. Net income multiplied by net income multiplier equals value
    (c) Two simple calculations are the basis of the income approach:

    (1) Gross Income X Gross Income Multiplier = Value

    (2) Net Operating Income / Capitalization Rate = Value. 

    Page 211
  15. When should an appraiser use reconciliation in the appraisal process?

    a. In every instance

    b. Only when there are two or more approaches to value are used

    c. Only when there is conflicting information

    d. When he or she is having difficult expressing a property value
    (a) Though the definition of reconciliation refers to the analyzing of the three value appraoches, it also includes revisiting the scope of work, the quantity and quality of the data collected in each approach, the inherent strengths and weaknesses of each approach, and the relevance of each approach to the subject property and market behavior. These steps should be taken in every assignment even if only one approach is used. Page 12
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Real Estate Appraisal - Chapter 7: The Appraisal Process
Real Estate Appraisal - Chapter 7: The Appraisal Process