Real Estate Valuation and Appraisal Practice Test

25 practice questions

Choose an answer, then check it under Show answer.

1. Question 1 of 25Medium

   An appraiser estimates that a 2,400-square-foot building would cost $145 per square foot to replace new. The site is worth $80,000, physical deterioration is 15% of replacement cost, functional obsolescence is $8,000, and external obsolescence is $7,000. What is the indicated property value under the cost approach?

   1. AA. $368,800
   2. BB. $428,000
   3. CC. $360,800
   4. DD. $367,800
   Show answer to question 1

   Answer: C. $360,800

   Multiply area by unit cost to find replacement cost new, then deduct every form of accrued depreciation. Adding the site value to the depreciated improvement value gives $360,800.

   Why the other options are wrong

   • AThis result omits the $8,000 of functional obsolescence from total depreciation.
   • BThis result adds the site value to replacement cost new without deducting any depreciation.
   • DThis result omits the $7,000 of external obsolescence from total depreciation.

2. Question 2 of 25Hard

   An appraiser has strong recent comparable sales, a cost indication based on outdated construction costs, and an income indication supported by sparse rental data. How should the appraiser reconcile these indications?

   1. AA. Give the cost indication the most weight because it reflects the property's physical characteristics.
   2. BB. Choose the median of the three indications.
   3. CC. Weight the most reliable evidence most heavily.
   4. DD. Give each of the three indications equal weight.
   Show answer to question 2

   Answer: C. Weight the most reliable evidence most heavily.

   Reconciliation weighs the relevance, quality, and reliability of the available evidence, so stronger evidence receives greater emphasis. Mechanical averaging, automatic reliance on one approach, or selecting a median ignores the stated differences in reliability.

   Why the other options are wrong

   • AReflecting physical characteristics does not overcome the cost indication's reliance on outdated construction costs.
   • BThe median is a mechanical statistic and does not reflect the quality of each approach.
   • DEqual weighting treats the indications as equally persuasive despite the stated differences in their reliability.

3. Question 3 of 25Medium

   During an appraisal assignment, the appraiser inspects a condominium on May 6, signs the report on May 12, and states that the value opinion applies to May 3. What is May 3 called in the appraisal report?

   1. AA. Report date
   2. BB. Effective date
   3. CC. Inspection date
   4. DD. Contract date
   Show answer to question 3

   Answer: B. Effective date

   The effective date identifies the specific date to which the appraiser's value opinion applies. It may differ from both the inspection date and the date the report is completed.

   Why the other options are wrong

   • AThe report date is when the appraisal report was completed or signed, which occurred on May 12.
   • CThe inspection date is when the property was observed, which occurred on May 6.
   • DA contract date relates to an agreement between parties and does not identify the date of the value opinion.

4. Question 4 of 25Hard

   Noah is evaluating a 24-unit apartment building with scheduled gross income of $312,000, expected vacancy and collection loss of 6%, annual operating expenses of $118,500, and a market-derived capitalization rate of 7.5%. What value does the income approach indicate?

   1. AA. $13,108.50
   2. BB. $2,580,000
   3. CC. $2,913,000
   4. DD. $2,330,400
   Show answer to question 4

   Answer: D. $2,330,400

   Vacancy is deducted from gross income before operating expenses to produce net operating income: $312,000 − $18,720 − $118,500 = $174,780. The income approach divides net operating income by the capitalization rate, so $174,780 ÷ 0.075 = $2,330,400.

   Why the other options are wrong

   • AThis multiplies net operating income by the capitalization rate instead of dividing by it.
   • BThis omits the $18,720 vacancy and collection loss, which overstates net operating income.
   • CThis substitutes the 6% vacancy rate for the 7.5% capitalization rate.

5. Question 5 of 25Medium

   The subject is a well-maintained home with 3 bedrooms, 2 baths, and 1,850 square feet, without a pool or finished basement. Three recent comparables with 3 bedrooms and 2 baths are equally similar in condition and location: Comp 1 sold for $342,000 and has 1,750 square feet, a pool, and no finished basement; Comp 2 sold for $311,000 and has 1,750 square feet with neither feature; Comp 3 sold for $355,000 and has 1,850 square feet, a pool, and a finished basement. The market indicates adjustments of $18,000 per 100 square feet, $24,000 for a pool, and $15,000 for a finished basement. What is the adjusted sale price of the comparable requiring the fewest adjustments?

   1. AA. $329,000
   2. BB. $355,000
   3. CC. $336,000
   4. DD. $316,000
   Show answer to question 5

   Answer: A. $329,000

   Adjust comparable sale prices to match the subject: add for features the comparable lacks and subtract for features it has that the subject lacks. Comp 1: $342,000 + $18,000 − $24,000 = $336,000. Comp 2: $311,000 + $18,000 = $329,000. Comp 3: $355,000 − $24,000 − $15,000 = $316,000. Comp 2 requires only one adjustment, fewer than either other comparable, so the requested adjusted sale price is $329,000.

   Why the other options are wrong

   • BThis is Comp 3's unadjusted sale price and ignores $39,000 of downward adjustments for its pool and finished basement.
   • CThis is Comp 1's adjusted sale price, but Comp 1 requires two adjustments. Comp 2 requires only one.
   • DThis is Comp 3's adjusted sale price, but Comp 3 requires two adjustments. Comp 2 requires only one.

6. Question 6 of 25Easy

   Under which circumstance is a property's market price most likely to diverge significantly from its market value?

   1. AA. The seller must relocate internationally within ten days and accepts the first available offer
   2. BB. The transaction was financed using a conventional 30-year fixed-rate mortgage at prevailing rates
   3. CC. Both buyer and seller were unrelated parties represented by separate licensed real estate brokers
   4. DD. The property was marketed through the local multiple listing service for six months
   Show answer to question 6

   Answer: A. The seller must relocate internationally within ten days and accepts the first available offer

   Market price is the amount actually paid for a property. Market value is the most probable price under specified conditions, including typically motivated parties, no undue stimulus, and reasonable exposure in a competitive, open market. The seller's urgent relocation and acceptance of the first available offer suggest unusual pressure that could produce a price below market value, but do not establish whether a discount occurred or its size.

   Why the other options are wrong

   • BConventional financing at prevailing rates does not itself suggest unusual financing terms that could distort the sale price.
   • CUnrelated parties with separate brokers are consistent with an arm's-length transaction. These facts do not suggest unusual pressure, but they do not by themselves prove that price equals market value.
   • DMLS exposure alone does not suggest unusual pressure or a significant price distortion. Whether six months provides reasonable exposure depends on the property and market.

7. Question 7 of 25Hard

   A distribution warehouse sits on an 8-acre parcel, utilizing 5 acres for its operations, parking, and access. The remaining 3 acres have frontage on an adjacent public road, independent utility access, and could be severed and sold for separate development without affecting the warehouse operations. How is this 3-acre parcel categorized in appraisal practice?

   1. AA. Assemblage land
   2. BB. Surplus land
   3. CC. Subordinate land
   4. DD. Excess land
   Show answer to question 7

   Answer: D. Excess land

   Excess land is land not needed to serve or support the existing improvement that possesses an independent highest and best use and can be partitioned and sold separately. Surplus land also exceeds the site needs of the current improvement, but unlike excess land, it cannot be separated and does not have an independent highest and best use.

   Why the other options are wrong

   • AThis confuses combining parcels with separating land from an existing site. Assemblage is the combining of two or more parcels into one larger parcel.
   • BThis confuses surplus land with excess land. Surplus land cannot be sold separately and lacks an independent highest and best use, while these 3 acres can support separate development.
   • CThis treats a nonstandard label as an appraisal classification. Subordinate land is not the recognized category for land that can be separated and sold for an independent use.

8. Question 8 of 25Medium

   A residential parcel is appraised while surrounded by similar homes. A new 24-hour distribution facility opens directly behind it, and nearby properties decline despite no physical changes. Which principle of value best explains the decline?

   1. AA. Contribution
   2. BB. Substitution
   3. CC. Progression
   4. DD. Externalities
   Show answer to question 8

   Answer: D. Externalities

   The principle of externalities recognizes that forces outside the property can increase or decrease value. The facility's noise and traffic affect nearby properties even though the homes themselves have not changed.

   Why the other options are wrong

   • AThis describes contribution, which measures how much a particular feature adds to total value.
   • BThis describes substitution, which limits value by the cost of acquiring an equally desirable alternative.
   • CThis describes progression, not the negative influence of an outside facility.

9. Question 9 of 25Easy

   An appraiser is evaluating a commercial warehouse. Market evidence indicates that a purchaser could buy a suitable vacant parcel and construct a facility of identical utility for $2,500,000 without unreasonable construction delay. Under the principle of substitution, this $2,500,000 figure represents:

   1. AA. an upper limit on the market value of the subject property.
   2. BB. the minimum floor price acceptable to a prudent seller.
   3. CC. the depreciated replacement value of the land parcel alone.
   4. DD. an estimate that must be disregarded because the subject property already exists.
   Show answer to question 9

   Answer: A. an upper limit on the market value of the subject property.

   The principle of substitution holds that the cost of acquiring land and creating an equivalent substitute establishes the upper limit, or ceiling, of market value for the subject property. The figure does not set a minimum floor price because functional obsolescence or market decline could easily drive the property value well below the cost to construct a replacement.

   Why the other options are wrong

   • BThis confuses a buyer's substitution-based price ceiling with a seller's minimum acceptable price. The cost of an equivalent substitute does not establish a floor for the subject property's market value.
   • CThis mistakes the total cost of land and an equivalent building for a land-only figure. The $2,500,000 includes both components and is not a depreciated value of the vacant parcel.
   • DThis incorrectly assumes substitution applies only to proposed construction. An existing property's value is constrained by the cost of obtaining an equally useful substitute when construction would not cause unreasonable delay.

10. Question 10 of 25Medium

    Using the sales comparison approach for a subject property with 1,800 square feet, an appraiser uses Comparable A, which sold one month ago for $200,000 and has 1,700 square feet. Market values have increased 1% per month (simple). Apply the time adjustment to Comparable A's sale price and a size adjustment of $50 per square foot. Assume no other adjustments are needed. What is Comparable A's adjusted sale price?

    1. AA. $207,000
    2. BB. $210,000
    3. CC. $212,000
    4. DD. $205,000
    Show answer to question 10

    Answer: A. $207,000

    The square footage adjustment is $5,000 (100 sq ft × $50), and the time adjustment is $2,000 (1% of $200,000). Adding both to the sale price gives $207,000.

    Why the other options are wrong

    • BThis result counts the $5,000 size adjustment twice and omits the $2,000 time adjustment.
    • CThis result counts the $5,000 size adjustment twice before adding the $2,000 time adjustment.
    • DThis result omits the time adjustment, adding only the $5,000 square footage adjustment.

11. Question 11 of 25Hard

    What is the primary role of the Appraisal Subcommittee (ASC) within the federal oversight framework created by FIRREA?

    1. AA. Setting loan underwriting guidelines for government-sponsored enterprises
    2. BB. Establishing the minimum coursework and testing requirements for appraiser trainees
    3. CC. Monitoring state appraiser regulatory agencies and maintaining the National Registry
    4. DD. Writing the technical appraisal rules contained in USPAP
    Show answer to question 11

    Answer: C. Monitoring state appraiser regulatory agencies and maintaining the National Registry

    The Appraisal Subcommittee (ASC) of the Federal Financial Institutions Examination Council (FFIEC) oversees the appraiser regulatory programs of states and territories and maintains the National Registry of authorized appraisers. The Appraisal Foundation, not the ASC, sets appraiser qualifications and writes USPAP.

    Why the other options are wrong

    • AThis confuses appraisal oversight with mortgage underwriting. Fannie Mae and Freddie Mac establish their loan eligibility and underwriting requirements, subject to federal oversight, not the ASC.
    • BThis confuses oversight with qualification setting. The Appraisal Foundation’s Appraiser Qualifications Board establishes minimum appraiser qualification criteria, including trainee education requirements; the ASC monitors state compliance.
    • DThis confuses regulatory oversight with appraisal standard-setting. The Appraisal Foundation’s Appraisal Standards Board develops and updates USPAP, not the ASC.

12. Question 12 of 25Medium

    Lena buys a home for $385,000, and the taxing jurisdiction uses that amount as its current market-value estimate. The assessment ratio is 65%, a $25,000 exemption applies after assessment, and the tax rate is 18 mills. What is the annual property tax?

    1. AA. $6,480.00
    2. BB. $4,054.50
    3. CC. $4,504.50
    4. DD. $405.45
    Show answer to question 12

    Answer: B. $4,054.50

    First calculate the assessed value: $385,000 × 0.65 = $250,250. Then subtract the exemption to get the taxable base: $250,250 − $25,000 = $225,250. Because 18 mills equals 0.018, the annual property tax is $225,250 × 0.018 = $4,054.50.

    Why the other options are wrong

    • AThis applies the mill rate to market value after the exemption and skips the 65% assessment ratio.
    • CThis omits the $25,000 exemption before applying the tax rate.
    • DThis treats 18 mills as 1.8 mills rather than converting 18 mills to 0.018.

13. Question 13 of 25Medium

    A commercial building constructed 15 years ago has a current replacement cost new of $2,000,000. Due to excellent maintenance, its effective age is estimated at 12 years, and its total economic life is 40 years. The building also has functional obsolescence of $50,000 from an outdated layout. For this problem, use the age-life ratio to estimate physical deterioration only, excluding functional obsolescence. Assuming no external obsolescence, what is the total depreciation?

    1. AA. $500,000
    2. BB. $750,000
    3. CC. $600,000
    4. DD. $650,000
    Show answer to question 13

    Answer: D. $650,000

    Under the stated assumptions, physical deterioration is (12 ÷ 40) × $2,000,000 = $600,000. The $50,000 in functional obsolescence is separate from that estimate, so total depreciation is $600,000 + $50,000 = $650,000.

    Why the other options are wrong

    • AUsing an effective age of 10 years yields (10 ÷ 40) × $2,000,000 = $500,000, which understates physical deterioration and omits functional obsolescence.
    • BUsing the chronological age of 15 years gives (15 ÷ 40) × $2,000,000 = $750,000 before adding functional obsolescence. The required effective age is 12 years.
    • CThis amount includes only physical deterioration and ignores the separately estimated $50,000 in functional obsolescence.

14. Question 14 of 25Easy

    Why is the supply of real estate considered relatively inelastic in the short term when consumer demand increases rapidly?

    1. AA. Zoning laws prohibit the construction of new units during economic expansions.
    2. BB. Planning, permitting, and physical construction require substantial lead time.
    3. CC. Financing rates are legally mandated to increase whenever demand rises.
    4. DD. Real estate is physically mobile and readily relocated to match local demand.
    Show answer to question 14

    Answer: B. Planning, permitting, and physical construction require substantial lead time.

    Real estate supply is slow to respond to demand shifts because the processes of land acquisition, entitlement, zoning approval, infrastructure installation, and physical building take months or years. Real estate is fixed in location and cannot be moved from low-demand to high-demand regions.

    Why the other options are wrong

    • AThis confuses zoning restrictions with a blanket construction ban. Zoning regulates land use and development, but economic expansion does not automatically prohibit new construction.
    • CThis assumes a legal link between rising demand and financing rates. No general legal rule requires rates to rise when real estate demand increases.
    • DThis reverses the principle of immobility. Real estate is fixed in location, so existing properties cannot be relocated to meet demand in another market.

15. Question 15 of 25Hard

    A commercial property appraiser is determining the capitalization rate from a comparable property that sold for $2,000,000. The comparable property has an annual effective gross income of $320,000 and annual operating expenses of $160,000. If the subject property has an anticipated net operating income of $144,000, what is the indicated value of the subject property using direct capitalization?

    1. AA. $1,440,000
    2. BB. $1,600,000
    3. CC. $1,800,000
    4. DD. $2,250,000
    Show answer to question 15

    Answer: C. $1,800,000

    The comparable property's net operating income is $160,000 ($320,000 effective gross income minus $160,000 operating expenses). Dividing the comparable property's net operating income by its sale price yields a capitalization rate of 8% ($160,000 ÷ $2,000,000 = 0.08). Applying this rate to the subject property produces an indicated value of $1,800,000 ($144,000 ÷ 0.08). An erroneous calculation using effective gross income instead of net operating income to derive the rate produces an incorrect 16% capitalization rate and an understated value.

    Why the other options are wrong

    • AUsing an unsupported 10% capitalization rate gives $144,000 ÷ 0.10 = $1,440,000. The comparable's NOI divided by its sale price supports 8%, not 10%.
    • BUsing an unsupported 9% capitalization rate gives $144,000 ÷ 0.09 = $1,600,000. The correct rate is $160,000 ÷ $2,000,000 = 8%.
    • DUsing an unsupported 6.4% capitalization rate gives $144,000 ÷ 0.064 = $2,250,000. This understates the comparable-derived rate of 8% and therefore overstates the subject's value.

16. Question 16 of 25Medium

    An appraiser is engaged by an estate attorney to determine the value of a parcel of land as of the property owner's date of death two years prior. Which type of valuation assignment does this represent?

    1. AA. Retrospective appraisal
    2. BB. Hypothetical appraisal
    3. CC. Liquidation appraisal
    4. DD. Prospective appraisal
    Show answer to question 16

    Answer: A. Retrospective appraisal

    A retrospective appraisal provides an opinion of value as of a specific date in the past, which is frequently required for tax, probate, and estate settlement purposes. A prospective appraisal is the opposite, providing an opinion of value as of a specified future date, such as upon the completion of proposed construction.

    Why the other options are wrong

    • BThis confuses a past effective date with a hypothetical condition, which assumes something contrary to known facts. Valuing land as of a past date does not by itself require such an assumption.
    • CThis confuses estate valuation with liquidation, which involves a compelled sale within a limited marketing period. The assignment specifies a past valuation date, not liquidation sale conditions.
    • DThis reverses the time direction: a prospective appraisal estimates value as of a future date, while the owner's date of death was two years in the past.

17. Question 17 of 25Easy

    An appraiser conducting a market analysis notes that an aging residential district is experiencing an influx of private capital, historic home renovations, and younger professional residents, reversing a decades-long downturn. This transition represents which stage in the principle of change?

    1. AA. Equilibrium
    2. BB. Revitalization
    3. CC. Substitution
    4. DD. Progression
    Show answer to question 17

    Answer: B. Revitalization

    Revitalization (also referred to as renewal or rehabilitation) is the fourth stage of the neighborhood life cycle where new investment and reinvestment reverse a period of neighborhood decay. Equilibrium represents the middle stage of balance and stability before decline occurs. Progression describes the elevation of an inferior property's value by superior neighboring properties, which is an appraisal principle rather than a formal life cycle stage.

    Why the other options are wrong

    • AMistakes renewed growth after decline for neighborhood stability. Equilibrium is the stable stage of the neighborhood life cycle, not the reversal of deterioration through reinvestment.
    • CConfuses neighborhood renewal with the principle that a buyer will not pay more for a property than the cost of an equally desirable substitute.
    • DConfuses neighborhood renewal with the increase in an inferior property's value caused by superior neighboring properties. Progression describes that value influence, not a neighborhood life cycle stage.

18. Question 18 of 25Hard

    In the cost approach to appraisal, how does the choice between reproduction cost and replacement cost affect the appraiser's depreciation deductions?

    1. AA. Using reproduction cost may require functional-obsolescence deductions for obsolete features whose costs are excluded from a replacement-cost estimate
    2. BB. Using replacement cost prevents the appraiser from deducting economic obsolescence caused by off-site factors
    3. CC. Using replacement cost requires a separate deduction for superadequacy costs already excluded from the cost estimate
    4. DD. Using reproduction cost eliminates the requirement to measure curable physical deterioration in older components
    Show answer to question 18

    Answer: A. Using reproduction cost may require functional-obsolescence deductions for obsolete features whose costs are excluded from a replacement-cost estimate

    Reproduction cost estimates the current cost of constructing an exact replica using the same materials, design, and workmanship. Replacement cost estimates the current cost of a substitute with equivalent utility using modern materials, design, and standards. Reproduction cost can include costs attributable to obsolete features or superadequacies that a replacement-cost estimate excludes. Depreciation deductions must be consistent with the cost basis to avoid double-counting. Replacement cost does not automatically eliminate all functional obsolescence; any remaining functional loss must still be considered.

    Why the other options are wrong

    • BExternal (economic) obsolescence caused by off-site factors can affect value under either cost basis. Using replacement cost does not prevent an appropriate deduction.
    • CDeducting superadequacy costs already excluded from the replacement-cost estimate would double-count that loss. Any additional deduction must address a loss not already reflected in the estimate.
    • DReproduction cost does not eliminate the need to measure physical deterioration, including curable deterioration in older components.

19. Question 19 of 25Medium

    An appraiser is analyzing a neighborhood with mixed housing stock to determine how neighborhood characteristics affect property values. What is the fundamental relationship between the principles of conformity, progression, and regression?

    1. AA. Progression and regression determine the replacement cost of improvements, while conformity establishes the baseline value of the unimproved site.
    2. BB. Conformity applies exclusively to commercial developments, while progression and regression apply exclusively to single-family residential properties.
    3. CC. Conformity dictates that parcels must be combined to attain maximum value, while progression and regression measure physical deterioration over time.
    4. DD. Conformity governs how maximum value is achieved through similarity, while progression and regression explain value shifts when properties deviate from that standard.
    Show answer to question 19

    Answer: D. Conformity governs how maximum value is achieved through similarity, while progression and regression explain value shifts when properties deviate from that standard.

    Conformity establishes that maximum property value occurs when buildings and land uses are reasonably homogeneous, whereas progression (an inferior property pulled upward) and regression (a superior property pulled downward) describe the market adjustments that occur when properties deviate from that neighborhood norm. Neither progression nor regression measures physical deterioration, which is a component of accrued depreciation under the cost approach. Furthermore, these principles apply across both residential and commercial property types rather than being mutually exclusive.

    Why the other options are wrong

    • AThis confuses neighborhood value influences with cost and site valuation. Progression and regression describe surrounding properties' effects on value, while conformity concerns compatible property characteristics and uses, not a baseline land value.
    • BThis incorrectly restricts the principles by property type. Conformity, progression, and regression can apply to both residential and commercial properties.
    • CThis confuses conformity with assemblage and neighborhood value influences with physical depreciation. Combining parcels is assemblage, while progression and regression describe surrounding properties' effects on value, not deterioration over time.

20. Question 20 of 25Medium

    Elena is comparing two small apartment buildings. Building A is listed at $413,000 and produces $3,500 in gross rent each month. Building B sold for $456,000 and produces $3,800 in gross rent each month. Based on the gross rent multiplier, what conclusion is supported?

    1. AA. Building A is lower priced per rent dollar, with a GRM of 118.
    2. BB. Building B has the stronger investment value because its gross rent is higher.
    3. CC. Both buildings have the same GRM of 119 when their figures are compared.
    4. DD. Building B is lower priced per rent dollar, with a GRM of 118.
    Show answer to question 20

    Answer: A. Building A is lower priced per rent dollar, with a GRM of 118.

    The gross rent multiplier equals price divided by gross monthly rent. Building A has a GRM of 118, while Building B has a GRM of 120. The lower multiplier indicates that Building A has the lower price per dollar of monthly gross rent, although the GRM does not measure net operating income.

    Why the other options are wrong

    • BThis choice confuses a higher gross rent with a lower price per rent dollar and ignores the GRM comparison.
    • CThis choice incorrectly averages 118 and 120 instead of calculating each multiplier separately.
    • DThis choice swaps the two calculated multipliers.

21. Question 21 of 25Easy

    Which statement is generally true regarding external obsolescence in real property appraisal?

    1. AA. It is considered curable because the owner can renovate the building to offset it.
    2. BB. It is considered incurable solely when the property reaches the end of its physical life.
    3. CC. It is considered incurable because the cause originates outside the property lines.
    4. DD. It is considered curable whenever the cost to cure is less than the value added.
    Show answer to question 21

    Answer: C. It is considered incurable because the cause originates outside the property lines.

    External obsolescence is almost always considered incurable because it stems from economic, environmental, or locational factors beyond the property lines and outside the owner's control. A condition is not deemed curable simply because of internal renovations, as an individual property owner cannot correct off-site negative influences.

22. Question 22 of 25Hard

    Omar is evaluating a small apartment building with annual potential gross income of $180,000, a 6% vacancy and collection allowance, annual operating expenses of $62,400, annual debt service of $38,000, and a purchase price of $1,200,000. What overall capitalization rate is indicated?

    1. AA. 8.9%
    2. BB. 15.0%
    3. CC. 5.7%
    4. DD. 9.8%
    Show answer to question 22

    Answer: A. 8.9%

    The overall capitalization rate equals net operating income divided by price or value. NOI is $180,000 less 6% vacancy, less $62,400 expenses, or $106,800; $106,800 ÷ $1,200,000 = 8.9%, and debt service is excluded.

    Why the other options are wrong

    • BThis divides the full potential gross income by price without deducting vacancy or operating expenses.
    • CThis improperly subtracts the $38,000 debt service when calculating net operating income.
    • DThis ignores the $10,800 vacancy and collection loss, producing an NOI of $117,600.

23. Question 23 of 25Medium

    An appraiser evaluates an older commercial warehouse and identifies three distinct problems: rotting roof rafters, a 10-foot ceiling clearance where standard logistics require 24 feet, and a new highway bypass that diverts freight traffic away from the industrial park. Which classification correctly identifies these three defects in order?

    1. AA. Physical deterioration, external obsolescence, and functional obsolescence
    2. BB. Functional obsolescence, physical deterioration, and economic obsolescence
    3. CC. Physical deterioration, functional obsolescence, and external obsolescence
    4. DD. External obsolescence, functional obsolescence, and physical deterioration
    Show answer to question 23

    Answer: C. Physical deterioration, functional obsolescence, and external obsolescence

    Rotting roof rafters represent physical deterioration from age and decay; the 10-foot ceiling height represents functional obsolescence because the warehouse design is functionally outdated for modern commercial standards; and the highway bypass is external obsolescence because it originates off-site beyond the property lines. Classifying the low ceiling height as external obsolescence is incorrect because ceiling clearance is an internal structural characteristic of the building itself.

    Why the other options are wrong

    • AThis reverses functional and external obsolescence: inadequate ceiling clearance is a design limitation within the building, while diverted freight traffic results from an off-site change.
    • BThis mistakes decayed rafters for a design problem and inadequate ceiling clearance for physical wear. The rafters show physical deterioration, and the low ceiling causes functional obsolescence; economic obsolescence correctly describes the bypass's effect.
    • DThis reverses physical deterioration and external obsolescence: rotting rafters are physical decay, while the highway bypass is an outside influence, not deterioration of the building.

24. Question 24 of 25Easy

    An appraiser is reporting on a single-family owner-occupied home. The sales comparison approach indicates $412,000, the cost approach indicates $428,000, and the income approach indicates $398,000; recent, highly comparable sales support the first result. How should the appraiser reconcile the three indications?

    1. AA. Choose the income approach because its rent and expense calculations are more detailed
    2. BB. Average all three figures equally because each approach was carefully completed
    3. CC. Choose the highest figure to avoid understating market value
    4. DD. Weight the sales comparison result most because its evidence is most relevant
    Show answer to question 24

    Answer: D. Weight the sales comparison result most because its evidence is most relevant

    Reconciliation is a reasoned weighting of the approaches, not a mechanical average or selection of an extreme. For an owner-occupied home, recent and highly comparable sales generally provide the most relevant evidence. The appraiser should explain the weight given to each approach in the report.

    Why the other options are wrong

    • AMathematical detail does not make the income approach more relevant for an owner-occupied home.
    • BEqual weighting ignores the stated differences in relevance and reliability.
    • CChoosing the highest figure is unsupported and would bias the opinion upward.

25. Question 25 of 25Medium

    Three contiguous commercial lots each measure 50 front feet along a major highway and have a separate market value of $1,200 per front foot. Consolidating the lots into a single 150-front-foot parcel makes the site suitable for anchor-store retail development. Solely because of this assemblage, the combined parcel has a market value of $2,000 per front foot. What is the plottage value?

    1. AA. $120,000
    2. BB. $480,000
    3. CC. $300,000
    4. DD. $180,000
    Show answer to question 25

    Answer: A. $120,000

    Plottage is the increase in market value resulting from assembling adjacent parcels under common ownership. The lots have 150 front feet in total. Their separate market values total $180,000 (150 × $1,200). The assembled parcel is worth $300,000 (150 × $2,000), so the plottage value is $120,000 ($300,000 − $180,000).

    Why the other options are wrong

    • B$480,000 adds the separate parcels’ total market value to the assembled parcel’s market value instead of finding the increase.
    • C$300,000 is the assembled parcel’s total market value, not the increase attributable to assemblage.
    • D$180,000 is the sum of the separate parcels’ market values, not the increase attributable to assemblage.

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