Arkansas Real Estate License Property Valuation and Financing 2 — Questions and Answers
Question 1: A buyer purchases a home for $220,000 with a 10% down payment. The lender requires PMI because the LTV exceeds 80%. What is the loan amount?
- $198,000 (Correct answer)
- $220,000
- $200,000
- $176,000
Correct answer: $198,000
10% of $220,000 is $22,000 down, leaving a loan amount of $198,000.
Question 2: Which appraisal method is MOST appropriate for valuing a single-family home in a suburban neighborhood with many recent sales?
- Sales comparison approach (Correct answer)
- Income capitalization approach
- Cost approach
- Gross rent multiplier
Correct answer: Sales comparison approach
The sales comparison approach is most reliable for residential properties when comparable sales data is available.
Question 3: In Arkansas, which type of loan is insured by the federal government and typically requires a minimum 3.5% down payment?
- FHA loan (Correct answer)
- Conventional loan
- VA loan
- USDA loan
Correct answer: FHA loan
FHA loans are insured by the Federal Housing Administration and require as little as 3.5% down for qualifying borrowers.
Question 4: An appraiser adds $5,000 to a comparable sale because the subject property has a fireplace that the comparable lacks. This adjustment is called a:
- Positive adjustment (Correct answer)
- Paired sales adjustment
- Regression adjustment
- Depreciation adjustment
Correct answer: Positive adjustment
A positive adjustment is added to the comparable's price when the subject has a feature the comparable lacks.
Question 5: What does the term 'amortization' refer to in real estate financing?
- The gradual repayment of a loan through scheduled payments of principal and interest (Correct answer)
- The process of estimating property value
- The transfer of a mortgage from one lender to another
- The penalty for paying off a loan early
Correct answer: The gradual repayment of a loan through scheduled payments of principal and interest
Amortization is the systematic repayment of a mortgage loan through regular periodic payments covering both principal and interest.
Question 6: A property generates an annual net operating income of $30,000. Using a capitalization rate of 6%, what is the estimated value?
- $500,000 (Correct answer)
- $300,000
- $180,000
- $450,000
Correct answer: $500,000
Value = NOI ÷ Cap Rate = $30,000 ÷ 0.06 = $500,000.
Question 7: Which of the following best describes 'functional obsolescence' in property valuation?
- Loss in value due to outdated design or features within the property (Correct answer)
- Loss in value from external factors outside the property
- Physical deterioration from wear and tear
- Depreciation caused by environmental hazards nearby
Correct answer: Loss in value due to outdated design or features within the property
Functional obsolescence results from outdated features within the property, such as a single bathroom in a large house.
Arkansas Real Estate License Property Valuation and Financing 2
A buyer purchases a home for $220,000 with a 10% down payment.
The lender requires PMI because the LTV exceeds 80%.
What is the loan amount?