CAR CAR Market Analysis & Trends 1 — Questions and Answers
Question 1: When reviewing an appraisal, what is the primary purpose of analyzing market trends in the subject property's neighborhood?
- To determine current supply and demand conditions affecting value (Correct answer)
- To identify the appraiser's preferred comparable sales
- To establish the property's assessed tax value
- To calculate the cost of replacing the improvements
Correct answer: To determine current supply and demand conditions affecting value
Market trend analysis helps reviewers confirm whether the appraiser correctly identified supply and demand forces that influence the property's market value.
Question 2: Which indicator is most commonly used by appraisers and reviewers to identify a declining real estate market?
- Increasing days on market and rising inventory levels (Correct answer)
- Decreasing property tax assessments
- Rising construction permit applications
- Increasing rental vacancy rates only
Correct answer: Increasing days on market and rising inventory levels
Rising days on market combined with growing inventory are key leading indicators that a market is shifting toward buyer-favorable or declining conditions.
Question 3: A CAR reviewer notices the appraiser used comparable sales from 18 months ago without any time adjustment. What issue does this raise?
- The report may not reflect current market conditions (Correct answer)
- The report violates lender minimum loan requirements
- The appraiser used too few comparables
- The subject property's legal description is incorrect
Correct answer: The report may not reflect current market conditions
Using stale comparables without time adjustments may cause the value conclusion to not reflect current market conditions, which is a USPAP and lender compliance concern.
Question 4: In a rapidly appreciating market, how should a reviewer evaluate an appraiser's comparable sales selection?
- Confirm that the appraiser applied appropriate upward time adjustments (Correct answer)
- Verify that the appraiser used only new construction sales
- Ensure that all comparables are within one mile of the subject
- Require that the appraiser use at least six comparables
Correct answer: Confirm that the appraiser applied appropriate upward time adjustments
In an appreciating market, older sales must be adjusted upward to reflect the value at the effective date, and a reviewer must confirm those adjustments are supported.
Question 5: What does absorption rate measure in real estate market analysis?
- The rate at which available properties are sold in a given market over a specific time period (Correct answer)
- The percentage of appraised value financed by a mortgage
- The cost-per-square-foot of new construction in a neighborhood
- The ratio of list price to sale price for recent transactions
Correct answer: The rate at which available properties are sold in a given market over a specific time period
Absorption rate quantifies how quickly homes are being purchased, giving reviewers and appraisers a metric to characterize whether a market is balanced, favoring buyers, or favoring sellers.
Question 6: A reviewer finds that the appraiser identified the market as stable but neighborhood data shows a 25% increase in listings and a 30% drop in closed sales year-over-year. What should the reviewer conclude?
- The appraiser's market condition characterization appears unsupported and requires further documentation (Correct answer)
- The appraiser's conclusion is acceptable because one-year trends are not definitive
- The subject property should be reassigned to a different appraiser
- The reviewer should accept the conclusion because the appraiser has local expertise
Correct answer: The appraiser's market condition characterization appears unsupported and requires further documentation
Significant divergence between market data and the appraiser's stated market conditions is a red flag that the reviewer must flag and require the appraiser to address.
CAR CAR Market Analysis & Trends 1
When reviewing an appraisal, what is the primary purpose of analyzing market trends in the subject property's neighborhood?