Appraisal Reviewer Property Valuations Flashcards

Which principle of value best explains why a four-bedroom house in a neighborhood of two-bedroom homes may not achieve a market value proportional to its size?

Answer: Principle of regression

The principle of regression states that a property of higher quality or value tends to be pulled down in value by surrounding lower-value properties.

In a review of a retail strip center appraisal, the reviewer finds the appraiser used potential gross income rather than effective gross income as the basis for direct capitalization. This error would most likely result in:

Answer: An overstated value because vacancy and collection losses were not deducted

Using potential gross income without deducting vacancy and collection losses inflates the income stream, which in turn overstates the capitalized value.

A reviewer examining a highest and best use analysis finds the appraiser concluded 'residential use' without analyzing legal permissibility. This is deficient because:

Answer: Highest and best use must be legally permissible, physically possible, financially feasible, and maximally productive

USPAP and appraisal standards require highest and best use to meet all four criteria in sequence, starting with legal permissibility.

A borrower refinances a property that appraised at $500,000. The reviewer finds the appraiser selected comparables that sold 14 months ago with no time adjustment in a market with documented 1% monthly appreciation. The adjusted comparables should each be approximately how much higher?

Answer: 14% higher

A 1% monthly appreciation rate over 14 months compounds to approximately 14%, meaning comparable sale prices should be adjusted upward by roughly 14% to reflect current market conditions.

When reviewing a self-contained appraisal report, the reviewer notes the appraiser did not reconcile value indications from the three approaches. This deficiency is most significant because:

Answer: Reconciliation explains the relative weight given to each approach and supports the final value opinion

Reconciliation is a critical step where the appraiser weighs the reliability and applicability of each approach to support a credible final value opinion.

An appraiser reports that the subject property's market value 'as of the date of inspection' is $350,000. The reviewer identifies that the effective date and the inspection date are one week apart with no explanation. This is problematic because:

Answer: Market conditions could change between the inspection date and the effective date, and the distinction should be clearly explained

The effective date of value and the date of inspection can differ, but the distinction is important and must be clearly identified since market conditions at the effective date govern the value opinion.

An appraiser concludes a value of $1,200,000 for a small office building but does not report an exposure time estimate. Under USPAP, this omission is:

Answer: A standards violation because USPAP requires an exposure time opinion in every market value appraisal

USPAP requires appraisers to include an exposure time opinion—or reference to one—whenever a market value opinion is provided, regardless of property type.