Property Value & Appraisal — Printable Practice Pack

Answer key & explanations

1. 1. C — The principle of substitution states that a buyer will pay no more for a property than they would for a similar property of equal utility
2. 2. B — The principle of progression states that a lower-value property can increase in value due to its proximity to higher-value properties
3. 3. C — The sales comparison approach estimates the value of a property by comparing it to similar properties that have recently sold
4. 4. C — External depreciation is caused by factors outside the property itself, such as proximity to a highway or environmental hazards
5. 5. B — A Broker Price Opinion is an estimate of value performed by a licensed real estate broker or agent
6. 6. C — Appraiser independence is important to ensure that the appraiser is not influenced by external factors or biases and can provide an unbiased estimate of value
7. 7. A — The cost approach estimates the value of a property by calculating its replacement cost minus depreciation
8. 8. A — The sales comparison approach is based on the principle of substitution, which states that a buyer will pay no more for a property than the cost of acquiring a similar property with the same utility.
9. 9. C — A BPO is an estimate of the likely sales price of a property, typically performed by a broker for a client, such as a lender or potential buyer.
10. 10. C — The income approach estimates the value of an income-producing property based on its net operating income, which is the income generated by the property after expenses.
11. 11. C — The principle of highest and best use states that a property's value is maximized when it is used in a way that is legally permissible, physically possible, financially feasible, and maximally productive.
12. 12. A — The principle of progression occurs when a neighborhood's property values increase due to the presence of superior properties, such as new, high-end homes.
13. 13. C — Appraiser independence is important to prevent the appraiser from being influenced by external pressures or biases, and to ensure that the appraisal is based on objective, unbiased analysis.
14. 14. C — Market value is the price a property would likely sell for in a competitive market with a willing buyer and seller.
15. 15. B — The principle of substitution states that a buyer will pay no more for a property than the cost of acquiring a similar property with similar attributes.
16. 16. C — The cost approach to value estimates the value of a property by calculating the cost to acquire or replace the property, including land and improvements.
17. 17. B — Functional depreciation refers to the loss of value due to a property's design, layout, or features becoming outdated or less desirable.
18. 18. B — A BPO is an estimate of a property's value prepared by a real estate broker, typically for use in lending or other transactions.
19. 19. C — Appraiser independence is important because it prevents appraisers from being influenced by parties with a financial interest in the transaction, ensuring that the appraisal is unbiased and accurate.
20. 20. C — The highest and best use of a property is the use that is reasonably probable, legally permissible, physically possible, and financially feasible, and that results in the maximum value of the property.