Real Estate Salesperson Licensing Exam Valuation, Appraisal, and Market Analysis Syllabus

Valuation, Appraisal, and Market Analysis syllabus — full chapter and topic list

Expand any chapter to see its topics and sub-topics. This is the whole examinable outline for Valuation, Appraisal, and Market Analysis in Real Estate Salesperson Licensing Exam, not a summary of it.

1. 1

   Value Concepts and Principles

   3 topics

   • Types and Characteristics of Value
     • Market value vs. price vs. cost
     • Demand, utility, scarcity, transferability (DUST)
   • Economic Principles of Value
     • Highest and best use
     • Substitution, supply and demand, conformity
     • Contribution, anticipation, and change
     • Progression, regression, and plottage
   • Forces and Factors Influencing Value
     • Physical, economic, social, and governmental influences
2. 2

   The Appraisal Process and Approaches to Value

   4 topics

   • Sales Comparison Approach
     • Selecting comparables and making adjustments
     • Adjusting the comp, never the subject
   • Cost Approach
     • Reproduction vs. replacement cost
     • Depreciation: physical, functional, and external obsolescence
   • Income Capitalization Approach
     • Net operating income and the cap rate (IRV formula)
     • Gross rent and gross income multipliers
   • Reconciliation and the Appraisal Report
     • Weighting approaches by property type
3. 3

   Comparative Market Analysis and Appraisal Regulation

   3 topics

   • Broker's CMA vs. Formal Appraisal
     • Broker price opinions (BPOs) and their proper use
   • Appraiser Licensing and Standards
     • USPAP and the Appraisal Foundation
     • FIRREA and appraiser independence
   • Pricing Strategy and Market Analysis
     • Absorption rate and days on market
     • Setting list price and pricing pitfalls

Valuation, Appraisal, and Market Analysis flashcards for Real Estate Salesperson Licensing Exam

24 of 50 cards from the Valuation, Appraisal, and Market Analysis deck — real questions with worked answers.

1. What is the definition of "market value" in real estate appraisal?

   The most probable price a property should bring in a competitive and open market under all conditions requisite to a fair sale, with buyer and seller each acting prudently, knowledgeably, and without undue stimulus.

2. What is the difference between "value in use" and "value in exchange"?

   Value in use is the worth of a property to a specific owner for a particular use (subjective). Value in exchange is what the property would bring in the open market to typical buyers (market value).

3. What are the four essential characteristics (elements) of value, often remembered by the acronym DUST?

   Demand, Utility, Scarcity, and Transferability. All four must be present for a property to have market value.

4. How does "price" differ from "cost" and "value" in real estate?

   Price is what a buyer actually paid; cost is the dollars spent to create/build the property; value is the estimated worth based on market conditions. They are not necessarily equal.

5. What is "investment value" versus "market value"?

   Investment value is the worth to a particular investor based on individual requirements (return, tax position). Market value is the worth to typical buyers in the open market.

6. What is the economic principle of "highest and best use"?

   The legally permissible, physically possible, financially feasible, and maximally productive use of a property that yields the highest value. It is the foundation of every appraisal.

7. What are the four tests an appraiser applies to determine highest and best use?

   The use must be (1) legally permissible, (2) physically possible, (3) financially feasible, and (4) maximally (most) productive.

8. What is the economic principle of "substitution"?

   A buyer will pay no more for a property than the cost of acquiring an equally desirable substitute. It is the basis of all three appraisal approaches.

9. What is the principle of "supply and demand" as it relates to value?

   Value rises when demand increases or supply decreases, and value falls when supply increases or demand decreases. Scarcity drives value up.

10. What is the principle of "conformity" in valuation?

    Maximum value is realized when a property reasonably conforms to (is similar to) the surrounding properties in style, size, and use within a neighborhood.

11. What is the difference between the principles of "progression" and "regression"?

    Progression: a lower-value home gains value from being near higher-value homes. Regression: a higher-value home loses value from being near lower-value homes.

12. What is the principle of "contribution" in valuation?

    The value of an improvement is measured by how much it adds to the overall property value, not by what it costs to install. An improvement may cost more than it contributes.

13. What is the principle of "anticipation" in real estate value?

    Value is created by the expectation of future benefits (income or appreciation) that a property will provide. Buyers pay for expected future benefits.

14. What is the principle of "change" in real estate value?

    Real estate value is never static; properties and markets pass through phases (growth, stability, decline, revitalization), so value continually changes.

15. What is the principle of "plottage" (and assemblage)?

    Assemblage is the combining of two or more adjacent parcels into one. Plottage is the increase in value that results when the combined parcel is worth more than the sum of the individual parcels.

16. What is the law of "increasing and decreasing returns" (diminishing returns)?

    Adding improvements increases value (increasing returns) up to a point; beyond that point, additional improvements no longer add proportionate value (decreasing/diminishing returns).

17. What are the four broad forces that influence real estate value?

    (1) Social forces, (2) Economic forces, (3) Governmental/political forces, and (4) Physical/environmental forces.

18. Give examples of "governmental forces" that influence property value.

    Zoning, building codes, property taxes, rent control, public services, fire/police protection, and government fiscal/monetary policy.

19. What are the three types of depreciation an appraiser considers, and which are curable vs incurable?

    Physical deterioration, functional obsolescence, and external (economic) obsolescence. Physical and functional can be curable or incurable; external obsolescence is always incurable (caused by factors outside the property).

20. What is "functional obsolescence"?

    A loss in value caused by outdated or undesirable features within the property itself, such as poor floor plan, outdated fixtures, or insufficient bathrooms.

21. What is "external (economic) obsolescence"?

    A loss in value caused by factors outside the property boundaries, such as proximity to a nuisance, neighborhood decline, or adverse market conditions. It is incurable.

22. What are the three approaches to value used in appraisal?

    (1) The Sales Comparison Approach, (2) the Cost Approach, and (3) the Income Capitalization Approach.

23. Which appraisal approach is most reliable for single-family residential properties?

    The Sales Comparison Approach, because abundant comparable sales data exists for residences.

24. In the Sales Comparison Approach, in which direction do you adjust the comparable (not the subject)?

    You always adjust the comparable. If the comparable is superior to the subject, subtract value from the comp; if the comparable is inferior, add value to the comp. (Never adjust the subject.)

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