Value & Appraisal Practice Questions
Property value and appraisal is 11 scored items on the national portion of the Texas Sales Agent exam. It covers market value versus price versus cost, the principles of value, the three approaches to value, the three types of depreciation, and how a CMA or BPO differs from an appraisal. Work the questions below, then read every explanation.
Exam prep only
Appraisal questions reward one decision made early: which approach to value fits the property. Get the approach right and the rest of the question usually follows. Residential leans on sales comparison, special-purpose buildings lean on cost, and income property leans on the income approach.
Use the approach-first filter. Identify the property type, choose the approach that fits, then apply the one rule the question is testing, such as adjusting the comparable rather than the subject, or leaving debt service out of net operating income.
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Value & Appraisal Practice Questions
15 scenario-based questions on value & appraisal, scored, each with a full explanation after you answer. Every question is also written out below if you would rather study at your own pace.
Every question explained
Prefer to study at your own pace? Here are all 15 questions. Read each one and pick your answer, then reveal the correct answer, the reasoning, and the trap that catches most candidates.
1. An appraiser is valuing a typical single-family home in a neighborhood with many recent sales. The most appropriate approach to value is
- A.the cost approach
- B.the income approach
- C.the sales comparison approach
- D.the gross rent multiplier method
Show answer and explanation
Correct answer: C. the sales comparison approach
Why C is correct: The sales comparison approach compares the subject property to recently sold similar properties. It is the primary method for residential property because there are usually enough comparable sales to support a value.
Trap: The cost approach fits new or special-purpose buildings, and the income approach fits rentals. For a standard home with good comparables, use sales comparison.
Source: Appraisal principles
2. In the sales comparison approach, a comparable property has a swimming pool that the subject lacks. To adjust for this, the appraiser should
- A.add the pool's value to the subject
- B.subtract the pool's value from the comparable, because the comparable is superior in that feature
- C.add the pool's value to the comparable
- D.make no adjustment, because amenities are ignored
Show answer and explanation
Correct answer: B. subtract the pool's value from the comparable, because the comparable is superior in that feature
Why B is correct: All adjustments are made to the comparable, never to the subject. When the comparable is superior, such as having a pool the subject lacks, the appraiser subtracts that value from the comparable. Comparable better, subtract (CBS).
Trap: Never adjust the subject. If the comparable is better, subtract from the comparable; if worse, add to it.
Source: Appraisal; sales comparison approach
3. Which approach to value is most appropriate for a special-purpose property such as a school or a fire station, where comparable sales and income data are scarce?
- A.Sales comparison approach
- B.Income approach
- C.Cost approach
- D.Gross rent multiplier
Show answer and explanation
Correct answer: C. Cost approach
Why C is correct: The cost approach estimates value as land value plus the cost to replace or reproduce the improvements, minus depreciation. It is most useful for new or special-purpose buildings, where sales comparables and income data are limited.
Trap: Special-purpose buildings with few comparables point to the cost approach, not sales comparison.
Source: Appraisal; cost approach
4. An income property produces $60,000 of net operating income, and the market cap rate is 8 percent. Using the income approach, the estimated value is
- A.$480,000
- B.$750,000
- C.$7,500,000
- D.$4,800,000
Show answer and explanation
Correct answer: B. $750,000
Why B is correct: The income approach uses Value = NOI divided by Cap Rate. $60,000 divided by 0.08 equals $750,000. Net operating income excludes debt service, so do not subtract a mortgage payment.
Trap: Divide NOI by the cap rate; do not multiply. And never deduct debt service when computing NOI.
Source: Appraisal; income approach
5. A home has an outdated floor plan with a bedroom that can only be reached by walking through another bedroom. This loss in value is an example of
- A.physical deterioration
- B.functional obsolescence
- C.external (economic) obsolescence
- D.appreciation
Show answer and explanation
Correct answer: B. functional obsolescence
Why B is correct: Functional obsolescence is a loss in value caused by outdated design or features within the property, such as a poor floor plan. Physical deterioration is wear and tear, and external obsolescence comes from forces outside the property line.
Trap: A bad floor plan is functional obsolescence. Wear and tear is physical; outside forces are external.
Source: Appraisal; depreciation
6. A home loses value because a new landfill opened next door. This type of depreciation is
- A.physical deterioration, which is always curable
- B.functional obsolescence
- C.external (economic) obsolescence, which is incurable
- D.not a form of depreciation
Show answer and explanation
Correct answer: C. external (economic) obsolescence, which is incurable
Why C is correct: External or economic obsolescence is a loss in value caused by forces outside the property, such as a nearby landfill. Because the owner cannot control or fix the outside cause, external obsolescence is considered incurable.
Trap: External obsolescence comes from off-site forces and is incurable. Do not confuse it with curable physical wear.
Source: Appraisal; depreciation
7. Which definition best describes market value?
- A.The price a property actually sold for
- B.The most probable price a property should bring in an arm's-length sale with informed parties and reasonable market exposure
- C.The cost to rebuild the structure today
- D.The amount the owner paid plus improvements
Show answer and explanation
Correct answer: B. The most probable price a property should bring in an arm's-length sale with informed parties and reasonable market exposure
Why B is correct: Market value is the most probable price a property should bring in a competitive, open-market, arm's-length sale, with both parties informed and reasonable exposure time. Market price is what a property actually sold for, and cost is what it took to build.
Trap: Market value, market price, and cost are three different things. Value is the probable price, not the actual sale price.
Source: Appraisal; concept of value
8. An appraiser determines the use that is legally permissible, physically possible, financially feasible, and maximally productive. This is the principle of
- A.substitution
- B.highest and best use
- C.conformity
- D.anticipation
Show answer and explanation
Correct answer: B. highest and best use
Why B is correct: Highest and best use is the legally permissible, physically possible, financially feasible, and maximally productive use of a property. It is a foundational appraisal principle because value rests on the most productive lawful use.
Trap: All four tests must be met for highest and best use. A use that is profitable but illegal does not qualify.
Source: Appraisal; highest and best use
9. The three traditional approaches to estimating value are the
- A.sales comparison, cost, and income approaches
- B.listing, pending, and closed approaches
- C.buyer, seller, and lender approaches
- D.federal, state, and local approaches
Show answer and explanation
Correct answer: A. sales comparison, cost, and income approaches
Why A is correct: An appraiser uses three approaches: the sales comparison (market) approach, the cost approach, and the income approach. The appraiser reconciles them based on the property type and data quality.
Trap: Know the three approaches by name. Reconciliation weighs them; it does not simply average them.
Source: Appraisal; approaches to value
10. A rental property rents for $2,000 per month and the gross rent multiplier (GRM) for the area is 120. The estimated value is
- A.$24,000
- B.$120,000
- C.$240,000
- D.$360,000
Show answer and explanation
Correct answer: C. $240,000
Why C is correct: Value equals the gross rent multiplied by the GRM: $2,000 monthly rent times a monthly GRM of 120 equals $240,000. The GRM is a quick income-based screening tool, not a full income-approach analysis.
Trap: Multiply rent by the GRM. Make sure the rent period (monthly vs annual) matches the multiplier.
Source: Appraisal; gross rent multiplier
11. When an appraiser arrives at a final value opinion from the different approaches, the appraiser performs
- A.an average of the three values
- B.reconciliation, weighing each approach by reliability for the property
- C.a coin flip
- D.a simple addition of the values
Show answer and explanation
Correct answer: B. reconciliation, weighing each approach by reliability for the property
Why B is correct: Reconciliation is the process of weighing the indicated values from each approach based on the quality of data and the property type, then forming a single value opinion. It is judgment-based, not a mechanical average.
Trap: Reconciliation weighs the approaches; it never just averages them.
Source: Appraisal; reconciliation
12. Normal wear and tear that reduces a building's value over time is a form of
- A.physical deterioration
- B.functional obsolescence
- C.external obsolescence
- D.appreciation
Show answer and explanation
Correct answer: A. physical deterioration
Why A is correct: Physical deterioration is the loss in value from wear and tear or age. Functional obsolescence comes from outdated design within the property; external obsolescence comes from negative factors outside the property.
Trap: Wear and tear is physical deterioration. Outdated design is functional; outside factors are external.
Source: Appraisal; depreciation
13. The sales comparison approach is based on the principle of
- A.substitution: a buyer will not pay more than the cost of an equally desirable substitute
- B.escheat
- C.eminent domain
- D.acceleration
Show answer and explanation
Correct answer: A. substitution: a buyer will not pay more than the cost of an equally desirable substitute
Why A is correct: The principle of substitution holds that a buyer will pay no more for a property than the cost of acquiring an equally desirable substitute. It underlies the sales comparison approach.
Trap: Substitution is the foundation of the sales comparison approach. Match the principle to the approach.
Source: Appraisal; principle of substitution
14. In the cost approach, value is estimated as
- A.land value plus the cost to build the improvements minus depreciation
- B.net operating income divided by the cap rate
- C.the average of recent sales
- D.the loan amount plus interest
Show answer and explanation
Correct answer: A. land value plus the cost to build the improvements minus depreciation
Why A is correct: The cost approach estimates value as the cost to reproduce or replace the improvements, minus accrued depreciation, plus the land value. It is most useful for new or special-purpose properties.
Trap: Cost approach = land + (cost to build - depreciation). The income formula (NOI / cap rate) is a different approach.
Source: Appraisal; cost approach
15. A modest home located among larger, more expensive homes tends to gain value. This illustrates the principle of
- A.regression
- B.progression
- C.contribution
- D.conformity
Show answer and explanation
Correct answer: B. progression
Why B is correct: Under progression, a lesser-valued property gains value from being near higher-valued properties. Under regression, a higher-valued property loses value from being among lower-valued ones.
Trap: Progression lifts the lesser home; regression drags down the better home. The direction depends on the neighbors.
Source: Appraisal; progression and regression
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Get the full question bankFrequently asked questions
How many appraisal questions are on the Texas exam?+
Property Value and Appraisal is 11 scored items on the national portion of the Texas Sales Agent exam. Expect questions on the concept of value, the principles of value, the three approaches to value, the three types of depreciation, and the difference between a CMA or BPO and a true appraisal.
How do you adjust comparables in the sales comparison approach?+
Always adjust the comparable, never the subject. If the comparable is superior to the subject, subtract value from the comparable. If the comparable is inferior, add value to it. A useful memory aid is CBS: Comparable Better, Subtract.
What are the three types of depreciation?+
Physical deterioration is wear and tear. Functional obsolescence is outdated design within the property. External or economic obsolescence is loss in value from forces outside the property, such as a nearby nuisance, and it is considered incurable.