IACP Appraisal Methodology & Techniques 2 — Questions and Answers
Question 1: Which adjustment in the sales comparison approach accounts for the difference in time between the sale date and the appraisal date?
- Location adjustment
- Market conditions adjustment (Correct answer)
- Physical characteristic adjustment
- Financing adjustment
Correct answer: Market conditions adjustment
Market conditions adjustments (time adjustments) reflect changes in property values between the date of a comparable sale and the effective date of the appraisal.
Question 2: In the income approach, the overall capitalization rate (OAR) is calculated as:
- NOI divided by value (Correct answer)
- Value divided by NOI
- NOI multiplied by GRM
- EGI divided by vacancy rate
Correct answer: NOI divided by value
The overall capitalization rate equals Net Operating Income divided by value (or sale price), expressing the relationship between income and value.
Question 3: What is the primary purpose of a reconciliation in the appraisal process?
- To average the three approaches to value
- To weigh the reliability of each approach and arrive at a final value conclusion (Correct answer)
- To verify the accuracy of the cost approach
- To confirm the subject property's legal description
Correct answer: To weigh the reliability of each approach and arrive at a final value conclusion
Reconciliation involves weighing the relevance and reliability of each approach applied and exercising professional judgment to arrive at a final value opinion.
Question 4: The 'gross rent multiplier' (GRM) is most appropriately used for:
- Large commercial office buildings
- Single-family and small residential income properties (Correct answer)
- Industrial warehouse properties
- Vacant land parcels
Correct answer: Single-family and small residential income properties
The GRM is most commonly applied to single-family residential rentals and small income properties where gross rent data is readily available.
Question 5: When applying the cost approach, which type of depreciation arises from factors outside the property boundaries?
- Physical deterioration
- Functional obsolescence
- External obsolescence (Correct answer)
- Accrued depreciation
Correct answer: External obsolescence
External obsolescence (also called economic obsolescence) results from negative influences outside the property, such as proximity to nuisances or adverse market conditions.
Question 6: In paired sales analysis, an appraiser isolates the value contribution of a single feature by:
- Averaging all comparable sale prices
- Comparing two sales that are identical except for the feature being studied (Correct answer)
- Applying a percentage adjustment from a published cost manual
- Using regression analysis across the entire market
Correct answer: Comparing two sales that are identical except for the feature being studied
Paired sales analysis matches two sales that are nearly identical except for the characteristic being valued, allowing the appraiser to isolate that feature's market contribution.
Question 7: Which statement best describes the concept of 'effective age' in appraisal?
- The actual number of years since the building was constructed
- The age indicated by the condition and utility of the structure, regardless of chronological age (Correct answer)
- The remaining economic life of the improvement
- The age used by the county assessor for tax purposes
Correct answer: The age indicated by the condition and utility of the structure, regardless of chronological age
Effective age reflects the apparent age of a structure based on its condition and utility, which may differ significantly from its actual chronological age.
IACP Appraisal Methodology & Techniques 2
Which adjustment in the sales comparison approach accounts for the difference in time between the sale date and the appraisal date?