California Real Estate Salesperson Exam Practice - Quesiton 16

Question

An appraiser in analyzing the data for his final estimate of value on a property would give least consideration to:

Selections

• A. The assessed value of the property

• B. The value of the land

• C. Comparisons of other properties

• D. Its highest and best use

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Answer: A

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5 Keys Summary

• Assessed value is derived by a valuation officer specifically for tax purposes.

• The assessed value of a property is explicitly not equal to its market price.

• An appraiser's goal is to determine the true final estimate of value using established valuation methods.

• Because assessed value is valuation for taxation, it cannot be used by the appraiser to determine the market value of the house.

• In contrast, analyzing comparisons of other properties (the sales-comparison approach) is one of the three methods appraisers use to select and apply value estimates.

Explanations

• Appraiser's Goal: The primary purpose of an appraisal is generally to define the true average property value or market value. Market value is the price a willing buyer and seller would agree to under normal market conditions, where both act prudently and knowledgeably without undue pressure.

• Assessed Value: This is the valuation of property for taxation purposes, determined by a county assessor. Assessed value is not necessarily the same as market value. While it might be one piece of public record, it is not the main determinant for an appraiser establishing market value. Appraisers will take into account factors like the percentage of owner and non-owner occupants, vacant properties, conformity of nearby properties, and topography, but the assessed value itself is distinct from the market value they aim to determine.

• Value of the Land: The land is legally defined as real estate minus building improvements and natural resources like water or minerals. Land value is a crucial component of an appraisal. Appraisers will value land separately from the building itself, and this value is often a significant component of a real estate property's overall value.

• Comparisons of Other Properties (Sales Comparison Approach): This is one of the three main appraisal methods and is considered the most popular and reliable for residential properties. Appraisers compare the subject property to nearby similar properties that have recently sold (comparables or "comps"). Price adjustments are made for differences in size, amenities, and location.

• Highest and Best Use: This is a fundamental principle in appraisal, referring to the legal and physically possible use of a property that is most likely to generate the greatest return over the long term. Appraisers identify this to determine the highest value estimate for a property. This analysis considers the land as though vacant and the property as improved.

Therefore, an appraiser focuses on market-driven data, property characteristics, and potential utility, making assessed value a lesser consideration compared to other factors that directly inform market value.

Concepts Definitions

• Appraisal: An estimate or opinion of the value of a piece of property as of a specific date.

• Market Value: The most probable price a property should bring in a competitive and open market, assuming prudent and knowledgeable buyers and sellers, and no undue stimulus.

• Assessed Value: Property valuation for taxation purposes.

• Highest and Best Use: The legal and physically possible use of a property that is most likely to generate the greatest return over a particular time period.

• Sales Comparison Approach (Market Data Approach): One of the three main methods of appraisal that compares recently sold properties to the property being appraised. • Land Value: The value of the physical land itself, distinct from improvements