CAA Valuation Methodologies 2 — Questions and Answers
Question 1: Which valuation approach estimates a vehicle's value by analyzing recent sales of similar vehicles and adjusting for differences?
- Sales comparison approach (Correct answer)
- Depreciated replacement approach
- Cost approach
- Income approach
Correct answer: Sales comparison approach
The sales comparison approach derives value from comparable sales adjusted for differences in features, condition, and mileage.
Question 2: An appraiser finds a comparable that sold for $42,000 but has 15,000 fewer miles than the subject, valued at $0.10 per mile. What is the adjusted comparable price?
- $41,850
- $40,500 (Correct answer)
- $43,500
- $42,000
Correct answer: $40,500
The comparable is superior in mileage, so its price is adjusted downward by $1,500 to $40,500.
Question 3: Under IRS guidance, fair market value is best described as the price at which property changes hands between whom?
- An insurer and a claimant after a loss
- A lender and borrower using book values
- A willing buyer and willing seller, neither compelled, both with reasonable knowledge (Correct answer)
- A dealer and a wholesaler at auction
Correct answer: A willing buyer and willing seller, neither compelled, both with reasonable knowledge
Treasury Regulation 20.2031-1(b) defines FMV as the price between a willing buyer and willing seller with reasonable knowledge and no compulsion.
Question 4: When valuing a one-off custom-built hot rod with no true comparables, which approach is often given the most weight?
- Trade-in book value
- Income approach
- Sales comparison approach using mass-market sedans
- Cost approach (Correct answer)
Correct answer: Cost approach
With no comparable sales, the cost to build or replace the vehicle, less depreciation, is often the most supportable indicator.
Question 5: In the final step of an appraisal where multiple approaches yield different indications, what process does the appraiser use to arrive at a single value?
- Reconciliation (Correct answer)
- Extrapolation
- Averaging
- Amortization
Correct answer: Reconciliation
Reconciliation weighs the reliability and relevance of each approach rather than simply averaging them.
Question 6: A vehicle insured under an 'agreed value' policy is totaled. What amount is typically paid?
- Wholesale book value minus deductible
- The value agreed upon by insurer and owner when the policy was written (Correct answer)
- Replacement cost of a new equivalent vehicle
- Actual cash value at time of loss
Correct answer: The value agreed upon by insurer and owner when the policy was written
Agreed value policies pay the pre-agreed amount without depreciation, which is common for collector vehicles.
Question 7: Which valuation approach is most applicable to a limousine or rental vehicle valued based on its revenue-generating ability?
- Cost approach
- Salvage approach
- Income approach (Correct answer)
- Sales comparison approach
Correct answer: Income approach
The income approach capitalizes or discounts expected net income, making it suitable for commercial revenue-producing vehicles.
CAA Valuation Methodologies 2
Which valuation approach estimates a vehicle's value by analyzing recent sales of similar vehicles and adjusting for differences?