California Real Estate Salesperson — All Questions

Proposition 13 generally limits the basic California property tax rate to:

• a.10% of the loan amount
• b.5% of the purchase price
• c.1% of the assessed value✓
• d.2% of current market value

Proposition 13 caps the base property tax at 1 percent of the assessed acquisition value, though voter-approved bonds and special assessments can add to the bill. Reassessment to market value occurs upon sale or new construction. This gives long-time owners lower taxes than recent buyers.CA Revenue and Taxation Code

A limitation of the gross rent multiplier as a valuation tool is that it:

• a.Only works for vacant land
• b.Requires a licensed appraiser to compute
• c.Cannot be derived from comparable sales
• d.Ignores operating expenses, vacancy, and financing differences✓

The GRM relates price to gross rent but does not account for differing operating expenses, vacancy, or financing, so two properties with the same gross rent can have very different net incomes. It is a quick screening tool, not a precise valuation. The income or cap-rate approach addresses these factors.

The income capitalization approach is most appropriate for valuing:

• a.A vacant historic church that is not producing any rental income for its owner
• b.An apartment complex or other income-producing property✓
• c.A brand-new custom home
• d.Raw undeveloped desert land

The income approach is best for properties bought for their income stream, such as apartments, offices, and retail centers, where NOI can be capitalized into value. Owner-occupied homes and special-purpose buildings rely more on the sales comparison or cost approaches. The method reflects an investor's focus on return.

For a property with a fixed net operating income, an increase in the market capitalization rate will cause the indicated value to:

• a.Decrease✓
• b.Increase
• c.Double
• d.Stay the same

Because value equals NOI divided by the cap rate, a higher cap rate produces a lower value when income is held constant. Rising cap rates often reflect higher risk or rising interest rates. This inverse relationship is central to income valuation.

For commercial property valued on annual income, the multiplier applied to gross annual income is called the:

• a.Gross income multiplier✓
• b.Gross rent multiplier based on monthly rent
• c.Capitalization rate
• d.Loan-to-value ratio

The gross income multiplier applies to annual gross income and is common for commercial property, while the residential gross rent multiplier typically uses monthly rent. Both relate price to income without adjusting for expenses. The appraiser must be consistent about the income basis used.

In appraisal, depreciation is charged against:

• a.The outstanding mortgage balance
• b.The improvements only, never the land✓
• c.Both land and improvements equally
• d.The land only, not the buildings

Only improvements depreciate in the cost approach; land is considered not to wear out and is valued separately, usually by comparison. This is why the cost approach separates land value from depreciated improvement value. Land can appreciate or decline for market reasons, but it is not depreciated in this technical sense.

If a comparable sold with the seller paying unusually large buyer closing costs, the appraiser should:

• a.Use the county assessed value instead
• b.Ignore the concession entirely
• c.Adjust the comparable's price downward for the seller concession✓
• d.Adjust the comparable's price upward

Seller concessions can inflate a recorded sale price above true market value, so the appraiser adjusts the comparable downward to reflect cash-equivalent value. This isolates the property's real market price. Unadjusted concessions would overstate the subject's value.

In a rising market, a comparable that sold six months ago typically receives a:

• a.Upward time (market conditions) adjustment✓
• b.Downward time adjustment
• c.Location adjustment
• d.No adjustment of any kind

In an appreciating market an older sale understates current value, so the appraiser makes an upward market-conditions or time adjustment to bring it to the effective date. In a declining market the adjustment would be downward. This keeps comparables aligned with present conditions.

The best comparable sales for the sales comparison approach are those that are:

• a.Listings that never actually sold
• b.Similar in features and location and sold recently in arm's-length deals✓
• c.Sales made between family members
• d.The highest-priced sales recorded anywhere in the county during the past three years

Reliable comparables are recent, arm's-length sales of similar properties in the same market area, requiring the fewest adjustments. Non-arm's-length or distressed sales and mere listings are weaker evidence. The fewer and smaller the adjustments, the more reliable the comparable.

An appraiser who selects comparables that are both superior and inferior to the subject to surround its value is using:

• a.Reconciliation
• b.Capitalization
• c.Bracketing✓
• d.Assemblage

Bracketing means choosing comparables above and below the subject in features and price so the subject's value falls within the range, improving reliability. It reduces reliance on any single comparable. The adjusted values then support a defensible estimate.

An appraisal is best described as:

• a.A binding contract to buy the property
• b.An insurance policy protecting value
• c.A supported opinion of value as of a specific date✓
• d.A guarantee of the eventual sale price

An appraisal is a professional, supported opinion of value on a stated effective date, not a promise that the property will sell for that figure. Market conditions can change after the appraisal date. It must comply with USPAP for federally related work.

The 'effective date' of an appraisal is the date:

• a.The appraiser first entered the profession
• b.To which the opinion of value applies✓
• c.The mortgage loan finally closes
• d.The report is eventually destroyed

The effective date is the date as of which the value opinion is valid, which may differ from the date the report is written. Because markets move, value is always tied to a specific date. Retrospective and prospective appraisals use past or future effective dates.

Building a $2 million mansion in a neighborhood of $400,000 homes is an example of:

• a.An over-improvement that will not return its full cost✓
• b.An under-improvement of the site
• c.Plottage from assembled parcels
• d.The property's highest and best use

An over-improvement exceeds what the neighborhood supports, so the extra cost is not fully reflected in value, a consequence of the principles of conformity and regression. The mansion's value is dragged down by the modest surroundings. Improvements should fit the market.

Leaving a large, valuable lot with only a tiny outdated cottage is an example of:

• a.The site's highest and best use
• b.An under-improvement that fails to develop the site's potential✓
• c.An over-improvement, because the cottage costs more to maintain than the site returns
• d.External obsolescence of the land

An under-improvement does not use the site to its highest and best potential, leaving value unrealized. The land could support a larger or better structure. Appraisers value land at its highest and best use, which may differ from the current use.

The appraisal concept that the economic attractiveness of a specific location strongly influences value is called:

• a.Situs✓
• b.Emblements
• c.Accretion
• d.Escheat

Situs refers to the economic effect of a property's location and people's preference for it, a powerful driver of real estate value. It explains why identical buildings differ in value by location. The saying 'location, location, location' captures the idea of situs.

A factory closing that reduces demand for nearby housing causes a value loss best classified as:

• a.Functional obsolescence
• b.Physical deterioration
• c.Curable depreciation
• d.External (economic) obsolescence✓

External or economic obsolescence is value loss from causes outside the property, such as a local employer closing and reducing housing demand. It is generally incurable because the owner cannot control it. Physical and functional depreciation, by contrast, originate within the property.

Federal rules on appraiser independence primarily aim to prevent:

• a.Appraisers from being paid at all
• b.Buyers from attending the inspection
• c.Lenders or agents from pressuring appraisers to hit a target value✓
• d.The use of comparable sales data that is more than ninety days old in any report

Appraiser independence rules bar interested parties from coercing or influencing an appraiser to reach a predetermined value, protecting the integrity of the valuation. Appraisers must base opinions on data, not pressure. These rules gained force after the 2008 mortgage crisis.

In reconciling a single-family home appraisal, the appraiser will usually give the most weight to the:

• a.Gross rent multiplier
• b.Sales comparison approach✓
• c.Income capitalization approach
• d.Cost approach

For a typical owner-occupied single-family home with ample comparable sales, the sales comparison approach is the most reliable and receives the greatest weight in reconciliation. The cost approach supports new or unique homes, and the income approach fits rentals. Reconciliation reflects each method's relevance to the property.