Foundational Concepts & Principles Flashcards
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Read the first 7 Foundational Concepts & Principles flashcards as text
What is the primary purpose of an appraisal review as defined by USPAP Standard 3?
Answer: To develop and communicate an opinion about the quality of another appraiser's work
Standard 3 defines appraisal review as the act or process of developing and communicating an opinion about the quality of another appraiser's work.
The economic principle that adding more units of one factor of production will eventually yield diminishing marginal returns is known as the principle of:
Answer: Increasing and Decreasing Returns
The principle of increasing and decreasing returns states that adding inputs beyond the optimum point will yield less value than their cost, resulting in diminishing returns.
A reviewer determines that an appraiser failed to consider a significant adverse easement affecting the subject property. This is most likely a deficiency in which part of the appraisal process?
Answer: Data collection and property description
Failing to identify and describe a significant easement is a failure in data collection and property description, which forms the foundation of the appraisal analysis.
Which USPAP term refers to the result of an appraiser's analysis expressed as a single number, a range, or a relationship (such as 'not less than')?
Answer: Opinion of value
USPAP uses the term 'opinion of value' to describe the appraiser's conclusion, recognizing that valuation is an informed professional opinion, not a fact.
The legal concept ensuring that property can be sold and transferred to another party without restriction is a component of which element of value?
Answer: Transferability
Transferability refers to the ability to freely transfer property rights; restrictions on transfer (such as deed restrictions or title defects) can diminish value.
An appraiser using the income approach applies a capitalization rate to net operating income. Which foundational principle most directly underlies the income approach?
Answer: Principle of Anticipation
The principle of anticipation underlies the income approach because value is the present worth of anticipated future income benefits.
Which statement best describes the difference between an extraordinary assumption and a hypothetical condition in USPAP?
Answer: An extraordinary assumption is uncertain but assumed true; a hypothetical condition is known to be contrary to fact
USPAP defines an extraordinary assumption as an assumption that, if false, could alter the appraiser's opinion; a hypothetical condition is known to be contrary to fact but is used for analytical purposes.