Appraisal Practice Questions

Every question explained

Prefer to study at your own pace? Here are all 8 questions. Read each one and pick your answer, then reveal the correct answer, the reasoning, and the trap that catches most candidates.

1. 1. An appraiser is valuing a typical single-family home in a neighborhood with many recent sales. The most appropriate approach to value is

   • A.the cost approach
   • B.the income approach
   • C.the sales comparison approach
   • D.the gross rent multiplier method
   ▸Show answer and explanation

   Correct answer: C. the sales comparison approach

   Why C is correct: The sales comparison approach compares the subject property to recently sold similar properties. It is the primary method for residential property because there are usually enough comparable sales to support a value.

   Trap: The cost approach fits new or special-purpose buildings, and the income approach fits rentals. For a standard home with good comparables, use sales comparison.

   Source: Appraisal principles, Florida DBPR exam outline

2. 2. In the sales comparison approach, a comparable property has a swimming pool that the subject property lacks. To adjust for this difference, the appraiser should

   • A.add the pool's value to the subject property
   • B.subtract the pool's value from the comparable, because the comparable is superior in that feature
   • C.add the pool's value to the comparable
   • D.make no adjustment, because amenities are ignored
   ▸Show answer and explanation

   Correct answer: B. subtract the pool's value from the comparable, because the comparable is superior in that feature

   Why B is correct: Adjustments are always made to the comparable, never to the subject. If the comparable is superior, such as having a pool the subject lacks, you subtract value from the comparable to bring it in line with the subject. If the comparable is inferior, you add.

   Trap: Never adjust the subject. The rule is to adjust the comparable toward the subject: superior comparable, subtract; inferior comparable, add.

   Source: Appraisal principles, sales comparison approach

3. 3. An appraiser values a new church with very few comparable sales and little rental income. The approach best suited to this property is

   • A.the sales comparison approach
   • B.the income approach
   • C.the cost approach
   • D.the gross rent multiplier method
   ▸Show answer and explanation

   Correct answer: C. the cost approach

   Why C is correct: The cost approach estimates the cost to rebuild the improvements, subtracts depreciation, and adds land value. It works best for new, unique, or special-purpose properties such as churches, schools, and government buildings, where comparable sales and income data are scarce.

   Trap: Special-purpose buildings rarely have comparables or income, so sales comparison and the income approach do not fit. The cost approach does.

   Source: Appraisal principles, cost approach

4. 4. An apartment building produces net operating income of 90,000 dollars per year. Investors in the area expect a 9 percent capitalization rate. Using the income approach, the indicated value is

   • A.810,000 dollars
   • B.900,000 dollars
   • C.1,000,000 dollars
   • D.1,200,000 dollars
   ▸Show answer and explanation

   Correct answer: C. 1,000,000 dollars

   Why C is correct: The income approach values property as net operating income divided by the capitalization rate. Here, 90,000 divided by 0.09 equals 1,000,000 dollars. Net operating income excludes mortgage debt service.

   Trap: Do not subtract the mortgage payment when finding net operating income, and divide by the cap rate, do not multiply.

   Source: Appraisal principles, income approach

5. 5. A home has lost value because a busy highway was built next to it, creating noise the owner cannot fix. This loss in value is

   • A.physical deterioration
   • B.functional obsolescence
   • C.external obsolescence, which is generally incurable
   • D.accrued depreciation that the owner can repair
   ▸Show answer and explanation

   Correct answer: C. external obsolescence, which is generally incurable

   Why C is correct: Depreciation comes in three forms: physical deterioration from wear and tear, functional obsolescence from outdated design, and external obsolescence from forces outside the property such as a nearby highway or landfill. External obsolescence is generally incurable because the owner cannot control the outside cause.

   Trap: External obsolescence comes from outside the property line and is the one form the owner usually cannot cure. Physical and functional problems can often be fixed.

   Source: Appraisal principles, depreciation

6. 6. A property sells for 50,000 dollars more than a careful appraisal supports because the buyer was in a hurry and did not negotiate. The appraised figure represents market value, while the 50,000-dollar-higher sale figure represents

   • A.market value, because a sale always sets value
   • B.market price, the amount actually paid in a specific transaction
   • C.assessed value
   • D.replacement cost
   ▸Show answer and explanation

   Correct answer: B. market price, the amount actually paid in a specific transaction

   Why B is correct: Market value is the most probable price a property should bring in a competitive market with informed parties and reasonable exposure. Market price is the amount actually paid in a particular sale, which can differ from market value because of pressure, poor information, or unusual motivation.

   Trap: A single sale price is market price, not necessarily market value. Market value assumes an arm's-length transaction with informed parties.

   Source: Appraisal principles, value definitions

7. 7. A property sold for 480,000 dollars and produces 60,000 dollars in gross annual rent. Its gross rent multiplier is

   • A.6.0
   • B.8.0
   • C.10.0
   • D.12.0
   ▸Show answer and explanation

   Correct answer: B. 8.0

   Why B is correct: The gross rent multiplier equals the sale price divided by the gross annual rent. Here, 480,000 divided by 60,000 equals 8.0. The GRM uses gross rent, not net operating income.

   Trap: The GRM uses gross rent. Do not subtract expenses first, which would turn it into a cap-rate problem.

   Source: Appraisal principles, gross rent multiplier

8. 8. A lender ordering an appraisal tells the appraiser to use only the sales comparison approach and limit the search to three comparables within a half mile. The appraiser should

   • A.follow the instructions exactly, because the client controls the methodology
   • B.refuse the assignment, because a lender may not specify anything
   • C.accept the assignment but independently determine the scope of work needed to solve the appraisal problem
   • D.report the lender to the state for a violation
   ▸Show answer and explanation

   Correct answer: C. accept the assignment but independently determine the scope of work needed to solve the appraisal problem

   Why C is correct: The client defines the intended use and intended user, but the appraiser determines the scope of work. The appraiser must do what is appropriate to develop credible results, even if that means using additional approaches or a wider search than the client suggested.

   Trap: The client sets the purpose, not the method. The appraiser controls the scope of work under appraisal standards.

   Source: USPAP, scope of work rule