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1. What is the objective of most appraisals? Determining the market value of a property
EXPLANATION: Although an appraiser may be used to evaluate any of these, they typically are
sought to determine the market value of a property.

2. Market value is different from market price in that market price is a fact has actually occurred.
EXPLANATION: Market value is just an estimate of what a property should sell for in the current
market. Market price is what it did sell for.

3. The sales comparison approach to valuation is directly related to the quality and amount of sales
available.
EXPLANATION: The sales comparison (sometimes still referred to as “market”) approach to
valuation involves an appraiser locating similar properties to the property being appraised. When
there are more homes on the market, it is easier for the appraiser to find similar properties and to
make valuation adjustments as appropriate.

4. Jane is depositing $400 dollars in a savings account in hopes of earning interest. If the annual rate
of interest is 6%, and she keeps the money in her account for 5 years, what would her balance be at
the end of the 5-year period?

It is assumed that interest of this type will be compound. The interest formula is as follows:
A=P(1+r)t where: P is the initial deposit, r is the interest rate, t is the number of periods, and A is
the amount in the account after t periods.
In this case, P=400, r=0.06, and t=5. Substitute the values into the equation and calculate

A = 400(1+0.06)5 = 535.29

5. Interest paid on the accrued interest as well as the principal is called compound interest.

6. Of these individuals, who can perform an appraisal? Real estate appraiser

7. How is land different than other property assets? It is fixed and immobile.
EXPLANATION: Land is the only property asset that is fixed and immobile. Like other properties,
land can decrease or increase in value as surroundings become more or less desirable, even though
it cannot “depreciate” in an accounting sense. The other options are all not true or not unique to
land.

8. You may need to know the value of the house you inherited for estate tax purposes.

9. An appraisal is an estimated value of a particular piece of property.

10. When estimating the value for a particular piece of property, an appraiser will NOT investigate
future factors.
EXPLANATION: An appraiser will investigate economic, environmental, physical, and social factors
when estimating the value for a particular piece of property.
11. Most appraisers work independently, on a fee-for-services basis.
EXPLANATION: To avoid conflicts of interest, most appraisers work independently on a fee-for-
service basis.

12. The property being appraised is called the subject property.

13. An appraisal will NOT help you with calculating commissions.

14. Location is important in determining property value.

15. The location of a piece of property can both increase or decrease its value.
EXPLANATION: The location of a piece of property can both increase and decrease its perceived
value, as the many factors surrounding that location fluctuate, including: school districts, crime
rates, traffic, access to employment, and many more.

16. Heavy vehicle traffic will affect the value of property based on whether it is residential or
commercial.
EXPLANATION: Vehicle traffic can affect the value of property, as generally less traffic is desired
around residential property, while more of certain types of traffic is desired around commercial
property. Generally, businesses prefer high traffic if it is of the type to bring additional customers to
them. Types of traffic that would not be appreciated by businesses would include traffic produced
by neighboring manufacturing businesses, junkyards, and car dealers.

17. The change in value of a piece of property based in its location is NOT affected by past
performance.
EXPLANATION: Location affects the value of property through the following factors: access to
employment, amenities and services, hazards and nuisances, nearness to transportation,
neighborhood compatibility, safety, schools, and traffic.

18. Fair market value cannot be established unless a transaction is considered arm’s length.
EXPLANATION: An arm’s length transaction is one where both parties are free of duress and
potential conflicts of interest. Only in an arm’s length transaction can the agreed upon value be
considered fair market.

19. Value in use is added property value based on a specific person using it for a specific purpose.
EXPLANATION: Value in use an added property value unavailable to the typical buyer because it’s
for a specific person using it for a specific purpose.

20. Investment value is the value to a specific investor with a specific plan for the property.
EXPLANATION: “Invest value” is the value to a specific investor with a specific plan for the property.
Unlike “value in use,” investment value does not presuppose a use already in place.

21. Real property taxes are based on appraisal by the municipal assessor.

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22. Why would a lender order an appraisal prior to giving a loan? To assess the property’s value relative
to its sales price, and use this to determine the risk of making the loan
EXPLANATION: A lender would prefer that a home appraises for, at least, the purchase price — this
lowers the risk of the loan. However, it isn’t a must that the home appraises for the sales price.
Even if the home just appraises for the loan amount, the lender may still make the loan if the
borrower can put more money down.

23. Which of the following is NOT one of the three methods of property appraisal? Remodelling cost
approach
EXPLANATION: The estimated cost of remodeling a home might be useful to know, but it would not
provide an overall picture of the home’s value and is not one of the three appraisal methods.

24. Which appraisal approach would an insurance underwriter be most likely to use? Cost approach
EXPLANATION: An insurer covers perils that could result in the destruction of a home. If a home is
destroyed, the improvements to the land would need replacement, but the land would not go away
and would not need coverage. Therefore, an insurance underwriter would look at the cost of
replacing the improvements on your land using the cost approach.

25. In real estate valuation, what does “reconciliation” entail? Two or more different value indicators
are analyzed, weighed according to their reliability and relevance, then combined into a single
value.
EXPLANATION: When determining the value of real property, you’ll look at a lot of data points.
Certain pieces of data could result in a final valuation that is unrealistically high or artificially low. To
prevent this, skilled appraisers evaluate their data points, and, after determining their relative
importance and reliability, assign them a weight that results in a realistic final valuation. This
process is called reconciliation.