Valuation, Market Analysis and Appraisal Basics
What the exam tests
Valuation, Market Analysis and Appraisal Basics tests the difference between a CMA and an appraisal, the three valuation approaches, and the forces that affect value. Expect questions about highest and best use and reconciliation.
Core rules
- A comparative market analysis is a brokerage opinion of likely price; an appraisal is a licensed appraiser’s supported value opinion, often required for lending.
- The sales comparison approach adjusts comparable sales for differences; the cost approach uses replacement cost less depreciation plus land; the income approach capitalizes net operating income.
- Highest and best use must be legally permissible, physically possible, financially feasible, and maximally productive.
- Depreciation includes physical deterioration, functional obsolescence, and external obsolescence.
- Reconciliation weighs the approaches and selects a final value estimate; the broker should not call a CMA an appraisal.
Worked example
A broker prepares a CMA for a 1,800-square-foot colonial using three nearby sales. One comparable has a finished basement, so the broker adjusts downward for the subject’s lack of a basement. The resulting range is $365,000–$380,000. The broker may present it as a CMA, not an appraisal, and must not imply lender-approved value.
Traps that cost marks
Do not confuse price with value. Do not ignore adjustments for features, condition, or location. Do not use a cap rate without verifying net operating income. Do not let a client’s desired price drive the opinion.