CMA Property Valuation and Appraisal 1 — Questions and Answers
Question 1: Which appraisal approach estimates value by comparing the subject property to recently sold similar properties?
- Cost approach
- Sales comparison approach (Correct answer)
- Income capitalization approach
- Discounted cash flow approach
Correct answer: Sales comparison approach
The sales comparison approach values a property by analyzing recent sales of comparable properties and adjusting for differences.
Question 2: What is the primary purpose of an appraisal in a mortgage transaction?
- To set the listing price
- To determine property taxes
- To establish collateral value for the lender (Correct answer)
- To calculate homeowner's insurance
Correct answer: To establish collateral value for the lender
Lenders require an appraisal to confirm the property's market value is sufficient to secure the loan as collateral.
Question 3: What does the term 'loan-to-value ratio' (LTV) represent in mortgage lending?
- The ratio of interest to principal
- The loan amount divided by the appraised property value (Correct answer)
- The monthly payment divided by gross income
- The ratio of fees to loan amount
Correct answer: The loan amount divided by the appraised property value
LTV is calculated by dividing the loan amount by the appraised or purchase price (whichever is lower), expressed as a percentage.
Question 4: Which federal agency publishes conforming loan limits that affect property valuation thresholds?
- FHA
- FHFA (Correct answer)
- CFPB
- HUD
Correct answer: FHFA
The Federal Housing Finance Agency (FHFA) sets annual conforming loan limits for Fannie Mae and Freddie Mac.
Question 5: What is a 'drive-by' or exterior-only appraisal?
- An appraisal conducted without visiting the property
- An appraisal where the appraiser only inspects the exterior of the property (Correct answer)
- A desktop review using public records only
- An automated valuation model (AVM) report
Correct answer: An appraisal where the appraiser only inspects the exterior of the property
A drive-by appraisal involves the appraiser inspecting only the exterior of the property without entering the home.
Question 6: What does 'market value' mean in the context of a real estate appraisal?
- The highest price ever paid for similar homes
- The most probable price a property would sell for in an arm's-length transaction (Correct answer)
- The assessed value set by the county
- The replacement cost of the structure
Correct answer: The most probable price a property would sell for in an arm's-length transaction
Market value is the most probable price a property would fetch in a competitive, open market under fair conditions between informed parties.
CMA Property Valuation and Appraisal 1
Which appraisal approach estimates value by comparing the subject property to recently sold similar properties?