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BREA Salesperson Exam study materials
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BREA Salesperson Exam practice questions

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Question 1Real Estate Appraisal Principles and Concepts

Which appraisal principle holds that value is created by the expectation of future benefits, such as income or enjoyment, that a property can reasonably be expected to provide?

  1. Principle of anticipation Correct answer.
  2. Principle of contribution
  3. Principle of conformity
  4. Principle of substitution

Explanation

The principle of anticipation states that present value is based on the expectation of future benefits, especially future income. Buyers pay today for the benefits they expect the property to deliver over time.

Question 2Real Estate Appraisal Principles and Concepts

A property owner installs a new swimming pool at a cost of $40,000, but an appraiser determines the pool adds only $22,000 to the property's market value. Which appraisal principle best explains this outcome?

  1. Contribution Correct answer.
  2. Substitution
  3. Balance
  4. Increasing returns

Explanation

Contribution holds that the value of a component is measured by how much it adds to the whole property's value, not by its cost. A pool that costs more than the value it adds demonstrates this principle clearly.

Question 3Real Estate Appraisal Principles and Concepts

An appraiser values a home by analyzing recent sales of similar homes in the same neighborhood and adjusting for differences. Which principle underlies this approach?

  1. Conformity
  2. Change
  3. Substitution Correct answer.
  4. Highest and best use

Explanation

The principle of substitution states that a prudent buyer will pay no more for a property than the cost of acquiring an equally desirable substitute. The sales comparison approach relies directly on this reasoning.

Question 4Real Estate Appraisal Principles and Concepts

An appraiser examines a property's zoning, physical characteristics, and surrounding land uses to determine the use that is legally permissible, physically possible, financially feasible, and maximally productive. What is this analysis called?

  1. Market segmentation
  2. Highest and best use analysis Correct answer.
  3. Functional obsolescence test
  4. Feasibility study

Explanation

Highest and best use analysis identifies the use meeting four tests: legal permissibility, physical possibility, financial feasibility, and maximum productivity. It is required for many appraisal assignments and underlies land valuation.

Question 5Real Estate Appraisal Principles and Concepts

Which term describes the loss in value caused by factors outside a property itself, such as a nearby commercial development or a noisy highway?

  1. External obsolescence Correct answer.
  2. Curable depreciation
  3. Functional obsolescence
  4. Physical deterioration

Explanation

External obsolescence is depreciation caused by forces outside the property boundaries, such as adverse neighborhood changes or economic conditions. It is generally considered incurable because the owner cannot control those forces.

Question 6Real Estate Appraisal Principles and Concepts

An appraiser uses the cost approach and subtracts estimated depreciation from the cost of constructing a new replacement. Which type of depreciation is caused by outdated design or features within the property, such as a single bathroom in a four-bedroom home?

  1. Physical deterioration
  2. Economic obsolescence
  3. Functional obsolescence Correct answer.
  4. External obsolescence

Explanation

Functional obsolescence is a loss in value from outdated design, poor layout, or inadequate features within the property. A four-bedroom home with only one bathroom reflects a functional deficiency by modern standards.

Question 7Real Estate Appraisal Principles and Concepts

Which of the following best describes the sales comparison approach to value?

  1. Estimating value by analyzing prices of similar properties and adjusting for differences Correct answer.
  2. Estimating value by capitalizing expected net income at a market rate
  3. Estimating value by calculating the present worth of future tax benefits
  4. Estimating value by adding land value to depreciated construction cost

Explanation

The sales comparison approach estimates value from recent sales of comparable properties, with adjustments for differences in features, location, and conditions. It is most reliable for residential properties with active markets.

Question 8Real Estate Appraisal Principles and Concepts

In the income approach, an appraiser converts a property's expected net operating income into an estimate of value. Which factor is applied to net operating income to produce this estimate?

  1. Loan-to-value ratio
  2. Capitalization rate Correct answer.
  3. Depreciation rate
  4. Gross rent multiplier

Explanation

The capitalization rate expresses the relationship between net operating income and value. Dividing net operating income by the capitalization rate yields an indicated value under the income approach.

Question 9Real Estate Appraisal Principles and Concepts

An appraiser is valuing a property in a market where values have been rising rapidly for several months. Which appraisal principle most directly addresses this situation?

  1. Conformity
  2. Balance
  3. Change Correct answer.
  4. Contribution

Explanation

The principle of change recognizes that market conditions, property values, and neighborhoods are in constant flux. An appraiser must identify the stage and direction of change to select appropriate comparables and date adjustments.

Question 10Real Estate Appraisal Principles and Concepts

A subject property has a two-car garage, while the most comparable sale has a one-car garage. The appraiser estimates the market value of the extra garage bay at $8,000. How should the appraiser adjust the comparable sale's price to reflect this difference?

  1. Make no adjustment because the difference is minor
  2. Subtract $8,000 from the comparable's sale price
  3. Add $8,000 to the subject property's estimated value
  4. Add $8,000 to the comparable's sale price Correct answer.

Explanation

Adjustments are made to the comparable sale price to make it equivalent to the subject property. Because the subject is superior in garage capacity, the comparable's price must be increased to reflect what it would have sold for with the extra bay.

Question 11Real Estate Appraisal Principles and Concepts

A property generates a net operating income of $60,000 per year, and the market capitalization rate is 8 percent. What is the indicated value using the income approach?

  1. $750,000 Correct answer.
  2. $600,000
  3. $480,000
  4. $900,000

Explanation

Value equals net operating income divided by the capitalization rate. Dividing $60,000 by 0.08 produces an indicated value of $750,000.

Question 12Real Estate Appraisal Principles and Concepts

An appraiser values a property using the cost approach. The land value is $90,000, and the cost to construct a new building of equal utility is $220,000. Total accrued depreciation is estimated at $40,000. What is the indicated value?

  1. $180,000
  2. $310,000
  3. $250,000
  4. $270,000 Correct answer.

Explanation

The cost approach adds land value to depreciated building cost. Adding $90,000 land value to $220,000 construction cost and subtracting $40,000 depreciation yields $270,000.

Question 13Real Estate Appraisal Principles and Concepts

Which of the following is generally considered incurable depreciation?

  1. Peeling exterior paint on a house
  2. A missing handrail on a staircase
  3. A worn kitchen floor covering
  4. External obsolescence caused by a nearby industrial plant Correct answer.

Explanation

External obsolescence is typically incurable because its cause lies outside the property and cannot be remedied by the owner. Paint, flooring, and a handrail are inexpensive corrections that usually add value exceeding their cost.

Question 14Real Estate Appraisal Principles and Concepts

An appraiser analyzes a neighborhood where all homes are similar in size, style, and price range, and values remain stable. Which principle does this pattern best illustrate?

  1. Anticipation
  2. Regression
  3. Conformity Correct answer.
  4. Progression

Explanation

The principle of conformity holds that value is maximized and stabilized when properties in an area are similar in use and design. Excessive dissimilarity tends to create value instability.

Question 15Real Estate Appraisal Principles and Concepts

A modest house is located in a neighborhood of large, expensive homes, and its value is enhanced by the surrounding properties. Which principle explains this effect?

  1. Substitution
  2. Balance
  3. Regression
  4. Progression Correct answer.

Explanation

Progression occurs when a lesser property's value is pulled upward by the presence of superior surrounding properties. The modest home benefits from the higher-value neighborhood context.

Question 16Real Estate Appraisal Principles and Concepts

A large, ornate house is surrounded by smaller, modest homes and sells for less than its construction cost would suggest. Which principle best explains the reduced value?

  1. Progression
  2. Regression Correct answer.
  3. Increasing returns
  4. Contribution

Explanation

Regression occurs when a superior property loses value because it is surrounded by inferior properties. The oversized home is worth less than it would be in a neighborhood of comparable homes.

Question 17Real Estate Appraisal Principles and Concepts

An appraiser is estimating the value of a special-purpose property such as a church or a museum, for which there are few if any comparable sales. Which approach to value is generally most reliable in this situation?

  1. Income approach
  2. Cost approach Correct answer.
  3. Sales comparison approach
  4. Gross rent multiplier method

Explanation

Special-purpose properties rarely sell and seldom produce income, so the cost approach is often most reliable. It estimates value as land value plus depreciated cost of the improvements.

Question 18Real Estate Appraisal Principles and Concepts

Which statement best describes the difference between reproduction cost and replacement cost?

  1. Reproduction cost estimates building an exact replica; replacement cost estimates building one with equal utility using current methods Correct answer.
  2. Reproduction cost estimates building with modern materials; replacement cost estimates building an exact replica
  3. Reproduction cost applies only to new construction; replacement cost applies only to older buildings
  4. Reproduction cost ignores depreciation; replacement cost includes depreciation

Explanation

Reproduction cost is the cost to construct an exact duplicate using the same materials and design. Replacement cost is the cost to build a structure of equivalent utility using current materials and standards.

Question 19Real Estate Appraisal Principles and Concepts

An appraiser estimates the value of a property by capitalizing its net operating income. Which condition makes the income approach most reliable?

  1. The property is expected to produce a stable, market-supported income stream Correct answer.
  2. The property is a special-purpose structure with no rental market
  3. The property has numerous recent comparable sales but no income data
  4. The property is owner-occupied and generates no rental income

Explanation

The income approach is most reliable when a property produces income that reflects market rents and expenses. Stable, verifiable income allows accurate capitalization and credible value estimates.

Question 20Real Estate Appraisal Principles and Concepts

An appraiser uses paired sales analysis to isolate the value of a feature. Two nearly identical homes sold recently; one has a fireplace and sold for $310,000, while the other without a fireplace sold for $300,000. What is the indicated contributory value of the fireplace?

  1. $310,000
  2. $5,000
  3. $10,000 Correct answer.
  4. $300,000

Explanation

Paired sales analysis isolates the value of a single difference between otherwise similar properties. The $10,000 price difference between the two homes indicates the fireplace's contributory value.

Question 21Real Estate Appraisal Principles and Concepts

Which of the following best describes the principle of balance as applied to a property?

  1. Value is maximized when land, improvements, and their uses are in proper proportion Correct answer.
  2. Value is affected by the pattern of similar surrounding uses
  3. Value is determined by the cost of an equally desirable substitute
  4. Value is based on the expectation of future benefits

Explanation

The principle of balance holds that value is maximized when the elements of a property, including land, improvements, and their uses, are in proper proportion. Imbalances, such as over-improvement for the site, reduce value.

Question 22Real Estate Appraisal Principles and Concepts

An appraiser is analyzing a proposed development and must identify the use that produces the greatest net return to the land, considering legal, physical, and financial constraints. This analysis is performed as though the site were vacant. Which concept does this describe?

  1. Interim use
  2. Liquidation value
  3. Value in use
  4. Highest and best use of the site as vacant Correct answer.

Explanation

Highest and best use as though vacant considers what would be built on the site if it were empty, subject to the four tests. The analysis disregards existing improvements to isolate the land's optimal contribution.

Question 23Real Estate Appraisal Principles and Concepts

An appraiser is estimating depreciation for an older building. The appraiser determines that the cost to correct a deficiency exceeds the value the correction would add. How should this deficiency be classified?

  1. External
  2. Physical curable
  3. Incurable Correct answer.
  4. Curable

Explanation

A deficiency is curable when the cost of correction is less than or equal to the value added. If correction costs more than the value it contributes, the item is classified as incurable even if it could physically be fixed.

Question 24Real Estate Appraisal Principles and Concepts

An appraiser values a property using the income approach and must select a capitalization rate. Which factor would most likely justify a higher capitalization rate?

  1. A stronger location with stable, increasing rents
  2. Lower vacancy and collection losses than the market average
  3. A longer remaining economic life for the improvements
  4. Greater perceived risk and lower expected income growth Correct answer.

Explanation

Capitalization rates reflect risk and growth expectations; higher risk or lower growth prospects produce higher rates and lower value. Strong locations, longer economic life, and low vacancy reduce risk and typically support lower rates.

Question 25Real Estate Appraisal Principles and Concepts

An appraiser is estimating the value of a property that suffers from external obsolescence caused by a nearby factory. Which statement about the treatment of this obsolescence in the cost approach is most accurate?

  1. It is measured as the cost to rebuild the factory on a new site
  2. It is ignored because it lies outside the property boundaries
  3. It is always treated as curable because the owner can soundproof the building
  4. It is generally treated as incurable and is often measured by comparing market data, not by correction cost Correct answer.

Explanation

External obsolescence is generally incurable because the owner cannot remove the outside cause. Appraisers typically measure it through market comparisons or rent loss rather than the cost of correction.

Question 26Real Estate Appraisal Principles and Concepts

Which of the following best defines market value as the term is used in appraisal practice?

  1. The amount of money actually paid in a completed transaction between two parties
  2. The most probable price a property should bring in a competitive and open market under all conditions requisite to a fair sale Correct answer.
  3. The price a particular buyer is willing to pay because of personal attachment to the property
  4. The assessed value placed on the property by the local taxing authority

Explanation

Market value is the most probable price that a property should bring in a competitive and open market, with buyer and seller each acting prudently and knowledgeably and with the price not affected by undue stimulus. It is an estimate of what should happen under specified conditions rather than a record of what did happen. Assessed value and actual sale price are separate concepts that may or may not equal market value.

Question 27Real Estate Appraisal Principles and Concepts

An appraiser is asked to estimate the most probable price a property would bring if it were exposed to the open market for a reasonable time. Which concept is the appraiser applying?

  1. Insurable value
  2. Market value Correct answer.
  3. Liquidation value
  4. Investment value

Explanation

Market value assumes a reasonable exposure period in an open market so that the property is seen by typical prospective buyers. Liquidation value instead assumes a forced or unusually short marketing period. Investment value and insurable value are both measured against standards other than the open-market test.

Question 28Real Estate Appraisal Principles and Concepts

Which principle holds that a property's value is set by the cost of acquiring an equally desirable substitute property?

  1. Principle of progression
  2. Principle of contribution
  3. Principle of conformity
  4. Principle of substitution Correct answer.

Explanation

The principle of substitution states that a prudent buyer will pay no more for a property than the cost of acquiring an equally desirable substitute with similar utility. This principle underlies all three approaches to value. Progression, conformity, and contribution address different relationships within a neighborhood or property.

Question 29Real Estate Appraisal Principles and Concepts

A homeowner adds a $60,000 swimming pool to a house in a neighborhood where pools are uncommon and buyers place little value on them. An appraiser estimates the pool adds only $15,000 to value. Which principle best explains this result?

  1. Principle of increasing returns
  2. Principle of anticipation
  3. Principle of contribution Correct answer.
  4. Principle of highest and best use

Explanation

The principle of contribution holds that the value of a component is measured by how much it adds to the value of the whole, not by its cost. Because local buyers place little value on pools, the pool contributes only $15,000 even though it cost $60,000. Cost and value are therefore not interchangeable measures.

Question 30Real Estate Appraisal Principles and Concepts

Which of the following best describes the highest and best use of a site?

  1. The use that neighboring parcels have adopted most frequently in the surrounding area
  2. The use that produces the greatest net return to the land over a defined period Correct answer.
  3. The use that is currently in place and that the zoning ordinance permits
  4. The use that the current owner intends for the property in a future development plan

Explanation

Highest and best use is the reasonably probable and legal use that is physically possible, appropriately supported, financially feasible, and results in the highest value. It is measured by the net return the land can produce, not by current use or owner intent. The analysis is typically applied as though the site were vacant.

Question 31Real Estate Appraisal Principles and Concepts

An appraiser must estimate the value of land for a proposed retail site and considers four legally permissible uses. Which test should be applied first in the highest and best use analysis of the site as though vacant?

  1. Whether each use is legally permissible Correct answer.
  2. Whether each use is physically possible on the site
  3. Whether each use is financially feasible
  4. Whether each use is maximally productive

Explanation

The standard sequence begins with legal permissibility, then physical possibility, then financial feasibility, and finally maximum productivity. A use that is not legally permitted need not be analyzed further. Screening legality first avoids wasting effort on uses that cannot be built.

Question 32Real Estate Appraisal Principles and Concepts

Which principle states that a property's maximum value tends to be realized when it is surrounded by properties of similar use, size, and quality?

  1. Principle of supply and demand
  2. Principle of conformity Correct answer.
  3. Principle of change
  4. Principle of balance

Explanation

The principle of conformity holds that value is maximized when properties in a neighborhood are reasonably similar in use, design, and condition. Excessive dissimilarity tends to depress values because the odd property is out of step with the market. Balance refers to the mix of land uses in an area rather than similarity among individual properties.

Question 33Real Estate Appraisal Principles and Concepts

A neighborhood is in the growth stage of its life cycle, and demand for homes there is rising while new construction is underway. How does this stage typically affect property values?

  1. Values tend to rise as demand grows and the area approaches full development Correct answer.
  2. Values tend to be volatile and unrelated to the stage of the life cycle
  3. Values tend to remain flat until the neighborhood reaches stability
  4. Values tend to fall because new construction creates temporary oversupply

Explanation

Neighborhood life cycles generally move through growth, stability, decline, and revitalization. During growth, increasing demand and improving supporting facilities usually push values upward. Once the area reaches stability, values tend to level off and change more slowly.

Question 34Real Estate Appraisal Principles and Concepts

An appraiser is estimating the value of a property that is subject to a long-term lease at a rent well below current market rent. Which concept best describes the worth of the leased fee interest to the current owner?

  1. Fee simple value
  2. Going concern value
  3. Leased fee value Correct answer.
  4. Leasehold value

Explanation

The leased fee interest is the owner's interest subject to an existing lease, and its value reflects the contract rent rather than current market rent. Because the contract rent is below market, the leased fee value is lower than the fee simple value would be. The tenant, not the owner, holds the beneficial leasehold interest in this situation.

Question 35Real Estate Appraisal Principles and Concepts

Which of the following is the best example of a physical characteristic that affects the value of land?

  1. The zoning classification that limits how the parcel may be used
  2. The property tax rate applied to the parcel
  3. The size and shape of the parcel Correct answer.
  4. The easement held by a utility across the parcel

Explanation

Physical characteristics of land include its size, shape, frontage, topography, and soil conditions, all of which affect utility and value. Zoning and easements are legal or governmental influences rather than physical traits. Tax rates are an economic or governmental factor.

Question 36Real Estate Appraisal Principles and Concepts

An appraiser is preparing a value opinion for a lender and must report the result as a single point estimate. Which reporting requirement does this reflect?

  1. The appraiser must include the seller's asking price as the value opinion
  2. The appraiser must disclose the borrower's credit history in the report
  3. The appraiser must use only the cost approach for lending assignments
  4. The appraiser must state the value as a specific amount rather than a range Correct answer.

Explanation

When an assignment calls for a point estimate, the appraiser reports a single dollar amount as the opinion of value. A range may be discussed in the analysis, but the final opinion is expressed as one figure. Asking price is not a substitute for an appraiser's independent conclusion.

Question 37Real Estate Appraisal Principles and Concepts

Which of the following describes the difference between an appraisal and a comparative market analysis prepared by a real estate licensee?

  1. An appraisal and a comparative market analysis are legally identical documents with different titles
  2. An appraisal is used only for taxation, while a comparative market analysis is used only for lending
  3. An appraisal is prepared by a state-certified or licensed appraiser and follows recognized standards, while a comparative market analysis is a broker's opinion of price Correct answer.
  4. An appraisal may be performed by any licensee, while a comparative market analysis requires an appraiser's credential

Explanation

An appraisal is an opinion of value developed and reported by a qualified appraiser in conformity with recognized appraisal standards. A comparative market analysis is an opinion of price prepared by a real estate licensee to help a client set a listing or offer price, and it is not an appraisal. The two differ in credential, purpose, and standards followed.

Question 38Real Estate Appraisal Principles and Concepts

An appraiser is analyzing a sale between a parent and a child in which the price was set well below market to keep the property in the family. How should the appraiser treat this transaction?

  1. As a sale that sets the upper limit of value for the neighborhood
  2. As the best evidence of market value because it is the most recent sale
  3. As a reliable comparable sale because the price was agreed by both parties
  4. As a non-arm's-length sale that should be excluded or given little weight Correct answer.

Explanation

An arm's-length sale requires that buyer and seller be unrelated, act prudently, and be under no unusual pressure. A transfer between family members for personal reasons typically does not reflect market value and should be excluded or heavily discounted. The appraiser should favor sales between unrelated parties with normal motivations.

Question 39Real Estate Appraisal Principles and Concepts

An appraiser is valuing a property that includes a specialized manufacturing facility whose improvements have little value to any other user. Which principle most directly supports the appraiser's conclusion that the improvements contribute little beyond the land value?

  1. Principle of increasing and decreasing returns Correct answer.
  2. Principle of externalities
  3. Principle of substitution
  4. Principle of consistent use

Explanation

The principle of increasing and decreasing returns holds that adding investment to a property eventually stops producing proportional gains and may even reduce value. Once improvements exceed what the market for that use can support, further investment yields diminishing or negative returns. This supports valuing such a facility largely on its land value when the improvements are not justified by market demand.

Question 40Real Estate Appraisal Principles and Concepts

Which of the following best describes the purpose of reconciliation in the appraisal process?

  1. To discard the cost approach whenever the income approach is available
  2. To average the value indications from all approaches so the final opinion is balanced
  3. To choose the highest value indication so the owner receives the greatest benefit
  4. To select the most supportable value indication by weighing the quality and relevance of each approach Correct answer.

Explanation

Reconciliation is the analytical process of weighing the indications produced by each approach and arriving at a single, best-supported value opinion. It is not a mechanical average; the appraiser judges the relevance and reliability of each indication for the property and assignment. The conclusion rests on the strength of the evidence, not on maximizing the result.

Question 41Valuation Approaches and Methods

Which valuation approach estimates value by comparing the subject property with similar properties that have recently sold?

  1. The cost approach
  2. The gross rent multiplier approach
  3. The income capitalization approach
  4. The sales comparison approach Correct answer.

Explanation

The sales comparison approach derives value from prices paid for comparable properties, then adjusts for differences between the subject and the comparables. It is the most common approach for residential properties because buyers and sellers rely on recent sales data. The other approaches rely on construction cost or income rather than direct market comparison.

Question 42Valuation Approaches and Methods

In the cost approach, what is the term for the loss in value caused by wear and tear from normal use?

  1. External obsolescence
  2. Physical deterioration Correct answer.
  3. Economic obsolescence
  4. Functional obsolescence

Explanation

Physical deterioration is the loss in value from ordinary wear and tear, decay, and the aging of building components. Functional obsolescence refers to defects within the property itself, such as outdated design. External or economic obsolescence comes from factors outside the property, such as neighborhood decline.

Question 43Valuation Approaches and Methods

A small retail building generates $60,000 in annual net operating income. An appraiser selects a capitalization rate of 10 percent. What is the indicated value using direct capitalization?

  1. $6,000
  2. $660,000
  3. $60,000
  4. $600,000 Correct answer.

Explanation

Direct capitalization divides net operating income by the capitalization rate: $60,000 divided by 0.10 equals $600,000. The rate converts a single year's income into an estimate of value. Adding income to value or multiplying income by the rate would misstate the relationship.

Question 44Valuation Approaches and Methods

Which principle holds that value is created by the expectation of future benefits, such as future income from a property?

  1. The principle of conformity
  2. The principle of substitution
  3. The principle of contribution
  4. The principle of anticipation Correct answer.

Explanation

The principle of anticipation states that value depends on the benefits a buyer expects to receive in the future. Income-producing property is valued largely on expected future income. Substitution and contribution address how buyers compare alternatives and how components add value.

Question 45Valuation Approaches and Methods

What does the gross rent multiplier (GRM) relate?

  1. Net operating income to sales price
  2. Sales price to replacement cost
  3. Effective gross income to operating expenses
  4. Sales price to gross monthly rent Correct answer.

Explanation

The gross rent multiplier is the ratio of a property's sale price to its gross monthly rent. Appraisers derive multipliers from comparable sales and apply them to the subject's rent to estimate value. Net operating income is used with capitalization rates, not gross multipliers.

Question 46Valuation Approaches and Methods

Which type of depreciation is generally considered incurable?

  1. Deferred maintenance
  2. Physical deterioration that is curable
  3. Functional obsolescence that is curable
  4. External obsolescence Correct answer.

Explanation

External obsolescence is caused by forces outside the property, such as neighborhood decline or market conditions, and an owner cannot correct it by spending money on the property. Curable physical and functional items can be fixed when the cost is recovered in value. Deferred maintenance is a form of curable physical deterioration.

Question 47Valuation Approaches and Methods

In the sales comparison approach, an appraiser adjusts the sale prices of comparables to reflect how they differ from the subject. Which statement describes the proper direction of adjustments?

  1. The subject is adjusted toward the comparable, so superior features of the subject result in downward adjustments.
  2. Adjustments are made only for differences in sale date, not for physical features.
  3. Adjustments are always upward regardless of which property is superior.
  4. The comparable is adjusted toward the subject, so a superior feature of the comparable results in a downward adjustment. Correct answer.

Explanation

Under the standard convention, each comparable's price is adjusted to reflect what it would have sold for if it had the subject's characteristics. If the comparable is superior in some respect, its price is adjusted downward; if inferior, upward. Adjusting the subject instead of the comparable reverses the logic.

Question 48Valuation Approaches and Methods

A comparable property sold for $250,000 and has a two-car garage, while the subject has no garage. The appraiser estimates the garage contributes $15,000 to value. What is the adjusted price of the comparable?

  1. $15,000
  2. $265,000
  3. $235,000 Correct answer.
  4. $250,000

Explanation

Because the comparable is superior to the subject (it has a garage the subject lacks), its price is adjusted downward by $15,000. Subtracting $15,000 from $250,000 yields an adjusted price of $235,000. Adding the adjustment would treat the subject as superior.

Question 49Valuation Approaches and Methods

An appraiser estimates replacement cost new of improvements at $300,000, accrued depreciation at $60,000, and land value at $80,000. What is the value indicated by the cost approach?

  1. $320,000 Correct answer.
  2. $440,000
  3. $240,000
  4. $360,000

Explanation

The cost approach subtracts accrued depreciation from replacement cost new to get depreciated improvement value, then adds land value: $300,000 minus $60,000 equals $240,000, plus $80,000 equals $320,000. Land is never depreciated because it does not wear out. Forgetting to subtract depreciation or to add land produces the other results.

Question 50Valuation Approaches and Methods

Which method of estimating accrued depreciation is based on the effective age of the improvements relative to their total economic life?

  1. The capitalization of income loss method
  2. The breakdown method
  3. The sales comparison method of depreciation
  4. The age-life method Correct answer.

Explanation

The age-life method estimates depreciation as the ratio of effective age to total economic life, applied to replacement cost. It is a simple, widely used technique. The breakdown method separates depreciation into its component causes, and the other methods rely on market or income data rather than age ratios.