Risk Management & Mitigation Flashcards
7 cards from real CAR practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Risk Management & Mitigation flashcards as text
A reviewer finds that an appraiser made a $50,000 downward adjustment for a pool on all three comparables that lacked pools, yet the subject also lacks a pool. This error would cause the indicated value to be:
Answer: Understated by approximately $150,000
If each comparable is adjusted downward for lacking a pool the subject also lacks, three incorrect $50,000 deductions total $150,000 of understated value.
Which appraisal methodology error poses the GREATEST risk when reviewing a value for a portfolio loan on multiple identical units in the same building?
Answer: Failing to analyze bulk or discount for large-quantity same-type unit sales
When multiple identical units are collateral, a bulk discount may apply because selling many similar units simultaneously depresses the market, and ignoring this overstates total collateral value.
A commercial appraisal review reveals the vacancy rate assumption is 3% in a market where actual vacancy is 18%. The primary risk this creates is:
Answer: Overstated effective gross income and thus overstated value
Using an artificially low vacancy rate inflates effective gross income, which directly overstates value in the income approach.
When reviewing an appraisal for a property subject to a long-term below-market lease, the reviewer should verify that the appraiser:
Answer: Separated the leased fee value from the fee simple value and used the leased fee interest
A below-market lease encumbers the property and requires valuation of the leased fee interest, which is typically less than the fee simple value.
A reviewer determines that an appraisal's highest and best use conclusion is legally nonconforming. The MOST significant risk is:
Answer: The value conclusion is based on a use that may not be legally permitted, rendering it unreliable
A legally nonconforming highest and best use conclusion means the appraiser may have valued a use the property cannot legally support, fundamentally undermining the value conclusion.
When an appraisal review reveals that the cost approach land value conclusion is significantly higher than what comparable land sales support, the reviewer should be concerned about:
Answer: Potential overstatement of overall value via the cost approach
An inflated land value directly overstates the cost approach indication, which can skew the final reconciled value upward.
The purpose of requiring a 'limiting condition' that the appraiser is not a home inspector is PRIMARILY to:
Answer: Clarify that the appraisal does not substitute for a professional property inspection and limits liability
This standard limiting condition clarifies the appraisal's scope and limits the appraiser's liability for undiscovered physical defects that a home inspector would identify.