Real Estate License Property Valuation and Appraisal 3 — Questions and Answers
Question 1: Highest and best use analysis requires that the use be legally permissible, physically possible, financially feasible, and:
- Maximally productive (Correct answer)
- Owner-preferred
- Historically consistent
- Tax-exempt
Correct answer: Maximally productive
The four tests of highest and best use conclude with the use that is maximally productive.
Question 2: An appraiser observes that homes lose value because a busy highway was built behind them. This is best classified as:
- External (economic) obsolescence (Correct answer)
- Functional obsolescence
- Physical deterioration
- Curable depreciation
Correct answer: External (economic) obsolescence
External obsolescence is a loss in value caused by factors outside the property boundaries.
Question 3: In the cost approach, what must be subtracted from the reproduction cost of improvements?
- Accrued depreciation (Correct answer)
- Land value
- Closing costs
- The capitalization rate
Correct answer: Accrued depreciation
Accrued depreciation is deducted from improvement cost, then land value is added back to reach the estimate.
Question 4: A four-unit building rents each unit for $1,200 per month. Using a GRM of 90, what is the indicated value?
- $432,000 (Correct answer)
- $108,000
- $518,400
- $129,600
Correct answer: $432,000
Annual gross rent is 4 × $1,200 × 12 = $57,600; multiplied by 90 the GRM here uses monthly rent: $4,800 × 90 = $432,000.
Question 5: Which principle states that maximum value is achieved when a property conforms with surrounding properties?
- Conformity (Correct answer)
- Anticipation
- Regression
- Substitution
Correct answer: Conformity
The principle of conformity holds that uniformity among nearby properties supports maximum value.
Question 6: An expensive home located among smaller, lower-value homes will likely be affected by the principle of:
- Regression (Correct answer)
- Progression
- Contribution
- Balance
Correct answer: Regression
Regression holds that a high-value property's worth is dragged down by surrounding lower-value properties.
Question 7: What is the primary purpose of a reconciliation in the appraisal process?
- To weigh the approaches and arrive at a final value opinion (Correct answer)
- To average the three approaches equally
- To verify the legal description
- To calculate property taxes
Correct answer: To weigh the approaches and arrive at a final value opinion
Reconciliation is the appraiser's analysis of the indicated values to form a single, supported opinion of value.
Real Estate License Property Valuation and Appraisal 3
Highest and best use analysis requires that the use be legally permissible, physically possible, financially feasible, and: