Value & Appraisal Practice Questions
Property Value and Appraisal is 11 scored items on the national portion of the Texas Sales Agent exam. It tests market value and value principles, appraisal purpose and federal oversight, the three approaches, depreciation and multipliers, CMA and BPO rules, and assessed value and tax implications. Work the questions below, then read every explanation.
Exam prep only
Appraisal questions reward one decision made early: identify the concept or approach before touching the answer choices. Typical homes point to sales comparison, special-purpose buildings point to cost, and income property points to the income approach.
Keep a second map for oversight and Texas law. ASC oversees state programs, AQB sets qualification criteria, ASB develops USPAP, and TALCB licenses Texas appraisers. An agent's CMA or BPO must stay inside the Texas estimated-price exemption.
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Value & Appraisal Practice Questions
20 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 20 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: Methods of estimating value; sales comparison approach
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: Sales comparison approach; direction of adjustment
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: Cost approach; special-purpose property
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: Income approach; IRV. Tex. Tax Code 23.012 recognizes the income method
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: Depreciation; functional obsolescence
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: Depreciation; external obsolescence
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: Tex. Tax Code 1.04(7); market value defined
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: Highest and best use; four tests
9. Which organization provides federal oversight of state appraiser and appraisal-management-company regulatory programs?
- A.The Appraisal Subcommittee (ASC)
- B.The Appraiser Qualifications Board (AQB)
- C.The Appraisal Standards Board (ASB)
- D.The Texas Real Estate Commission (TREC)
Show answer and explanation
Correct answer: A. The Appraisal Subcommittee (ASC)
Why A is correct: The Appraisal Subcommittee provides federal oversight of state appraiser and appraisal-management-company programs. The AQB establishes minimum appraiser qualification criteria, the ASB develops USPAP, and TALCB handles Texas appraiser licensing and enforcement.
Trap: Match each acronym to its verb. ASC oversees, AQB qualifies, ASB writes standards, and TALCB licenses in Texas.
Source: FIRREA Title XI; Appraisal Subcommittee; federal oversight
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: Income approach; 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 process; reconciliation. Tex. Tax Code 23.0101, use the most appropriate method
12. After identifying the appraisal problem and determining the scope of work, what should the appraiser do before reconciling a final opinion?
- A.Collect and verify data, analyze highest and best use, and develop the applicable approaches
- B.Average three predetermined values
- C.Ask the seller to select the preferred approach
- D.Set the value equal to the contract price
Show answer and explanation
Correct answer: A. Collect and verify data, analyze highest and best use, and develop the applicable approaches
Why A is correct: The appraisal process moves from defining the problem and scope to collecting and verifying data, analyzing highest and best use, developing the relevant approaches, reconciling the indications, and reporting the conclusion. The appraiser does not begin with a target value.
Trap: Reconciliation comes after the evidence and applicable approaches have been developed. It weighs results rather than averaging target numbers.
Source: Standard appraisal process; purpose and steps of an appraisal
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: Principles of value; substitution underpins the sales comparison approach
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: Cost approach; land value plus cost new less depreciation
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: Principles of value; progression and regression
16. A Texas sales agent prepares a written comparable-sales analysis for a seller, headed "Appraisal of 412 Oak Street." The analysis is otherwise accurate, carries the required TREC statement, and is submitted in the sponsoring broker's name. What is the problem?
- A.Nothing, because the required statement was included
- B.Calling it an appraisal breaks the exemption that lets a license holder prepare it at all
- C.A sales agent may never prepare a comparable-sales analysis
- D.The analysis had to be prepared for a lender to be valid
Show answer and explanation
Correct answer: B. Calling it an appraisal breaks the exemption that lets a license holder prepare it at all
Why B is correct: Occupations Code Section 1103.003(1) defines an appraisal as "an opinion of value," so a CMA would be an appraisal but for Section 1103.004(a)(2). That exemption applies only if all three conditions hold, and the first is that the analysis is NOT referred to as an appraisal. Heading the document "Appraisal" fails condition (A), which puts the agent back under Section 1103.201(a), the bar on performing an appraisal without an appraiser license. Including the TREC statement does not cure it, because the statement is a separate requirement under 22 TAC Section 535.17(b).
Trap: The arithmetic inside the document is not what decides this. The word on the front is. The same analysis, retitled a comparative market analysis, is lawful.
Source: Tex. Occ. Code 1103.003(1), 1103.004(a)(2), 1103.201(a)
17. A Texas broker delivers a broker price opinion that summarizes, in 10-point type, that the figure is only an estimate and is not an appraisal. Does this satisfy 22 TAC Section 535.17?
- A.Yes, because the meaning of the required statement was conveyed
- B.No, because the statement must be verbatim and in at least 12-point font
- C.Yes, provided the broker also signs it
- D.No, because a broker price opinion may not be delivered in writing
Show answer and explanation
Correct answer: B. No, because the statement must be verbatim and in at least 12-point font
Why B is correct: Section 535.17(b) prescribes the exact language, beginning "This represents an estimated sale price for this property," and Section 535.17(c) requires that statement to be made part of the written analysis and reproduced verbatim in at least 12-point font. A summary in the broker's own words fails the verbatim requirement, and 10-point type fails the font minimum. Both defects are independent, so fixing only one still leaves the delivery non-compliant.
Trap: Conveying the gist is not compliance. This is one of the few Texas rules that fixes a type size, and the number is 12 points.
Source: 22 TAC 535.17(b), (c)
18. A Texas homeowner's tax notice shows a market value of $400,000 and an appraised value of $330,000 for the same residence homestead. What most likely explains the gap?
- A.The appraisal district made an arithmetic error
- B.The homestead limitation caps annual increases in appraised value at 10 percent plus new improvements
- C.Appraised value always excludes the land
- D.Assessed value and appraised value are the same figure
Show answer and explanation
Correct answer: B. The homestead limitation caps annual increases in appraised value at 10 percent plus new improvements
Why B is correct: Tax Code Section 1.04(7) defines market value and Section 1.04(8) defines appraised value as the value determined under Chapter 23. Section 23.23(a) then limits how fast the appraised value of a residence homestead may rise: to no more than the lesser of market value, or the preceding year's appraised value plus 10 percent plus the value of new improvements. A long-held homestead in a rising market therefore carries an appraised value below its market value, by design.
Trap: Assessed value is a third figure. Under Section 1.04(9) it is appraised value multiplied by the assessment ratio, before exemptions, so all three numbers can differ on one notice.
Source: Tex. Tax Code 1.04(7), (8), (9); 23.23(a)
19. A builder spends $310,000 to construct a home. It lists at $340,000 and sells for $325,000. Which figure is the property's market value at the time of sale?
- A.$310,000, because that is what it cost
- B.$340,000, because that is what the seller asked
- C.$325,000 is the price paid, and market value is a separate estimate of worth that the sale supports but does not define
- D.All three are the same by definition
Show answer and explanation
Correct answer: C. $325,000 is the price paid, and market value is a separate estimate of worth that the sale supports but does not define
Why C is correct: Value, price, and cost are three different things, and the exam separates them deliberately. Cost is what it took to build, $310,000. Price is what was actually paid, $325,000. Market value is an estimate of worth under stated conditions: Tax Code Section 1.04(7) describes it as the price at which the property would transfer for cash under prevailing market conditions, with reasonable exposure, informed parties, and neither party able to take advantage of the other. A single arm's length sale is strong evidence of market value, but it is not the definition of it.
Trap: Do not treat the sale price as automatically equal to market value. The definition assumes typical conditions, and a particular sale may not have had them.
Source: Tex. Tax Code 1.04(7); value, price, and cost distinguished
20. A Texas chief appraiser is determining the market value of a small retail building. Which does the Tax Code require?
- A.Use the cost method, because appraisal districts always do
- B.Average the results of the three methods
- C.Consider the cost, income, and market data comparison methods and use the most appropriate one
- D.Use whichever method produces the highest value
Show answer and explanation
Correct answer: C. Consider the cost, income, and market data comparison methods and use the most appropriate one
Why C is correct: Tax Code Section 23.0101 requires a chief appraiser determining market value to consider the cost, income, and market data comparison methods and use the most appropriate method. It is a Texas property-tax method-selection rule. It parallels the national principle of weighing relevance, but it is not the source of the national reconciliation doctrine.
Trap: The statute requires consideration and selection of the most appropriate method. It does not require an average or the highest result.
Source: Tex. Tax Code 23.0101; 23.01(b)
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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 the concept and principles of value, appraisal steps and federal oversight, the three approaches, depreciation and multipliers, CMA and BPO rules, and assessed value and tax implications.
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, age, or damage. Functional obsolescence is outdated design or a feature inside the property. External or economic obsolescence is loss in value caused outside the property and is generally considered incurable.
What are ASC, AQB, and ASB?+
The Appraisal Subcommittee provides federal oversight of state appraiser programs. The Appraiser Qualifications Board establishes minimum appraiser qualification criteria. The Appraisal Standards Board develops USPAP. TALCB licenses and regulates appraisers in Texas.