A bank uses an analytical tool that reports a price trend for the subject’s ZIP code but no estimate of the property’s market value. Under the Interagency Guidelines, can this output serve as an evaluation?
Correct Answer
A) No; a method that does not provide market value or enough support is not acceptable
A valuation method that does not provide a property’s market value or sufficient information and analysis to support the value conclusion is not acceptable as an evaluation.
Why This Is the Correct Answer
Option A is correct because the Interagency Guidelines state that a valuation method that does not provide a property's market value or sufficient information and analysis to support the value conclusion is not acceptable as an evaluation. A ZIP-code price trend describes an area, not the subject's market value. It therefore cannot serve as an evaluation on its own.
Why the Other Options Are Wrong
Option B: Yes, since evaluations are less formal than appraisals and need less support
Option B is wrong because it reasons that evaluations are less formal than appraisals and need less support. Even if an evaluation is less formal, it must still provide market value or sufficient support for a value conclusion, which a ZIP-code trend lacks.
Option C: Yes, provided the loan amount falls below the federal appraisal threshold
Option C is wrong because it makes acceptance depend on the loan falling below the federal appraisal threshold. Falling below a threshold may allow an evaluation instead of an appraisal, but the evaluation must still provide a supported market value.
Option D: No, since evaluations must be prepared by state-certified appraisers
Option D is wrong because it says evaluations must be prepared by state-certified appraisers. Evaluations need not be prepared by a state-licensed or state-certified appraiser, only by a qualified and independent person. The output fails for a different reason: it provides no market value or supporting analysis for the property.
Trend is not value
An area trend tells you which way prices moved, not what this property is worth. An evaluation must land on the property's market value.
How to use: Use this when a question asks whether an index, trend or area statistic can stand as an evaluation.
Exam Tip
Focus on whether the output provides a property's market value with support; thresholds and preparer credentials are distractors here.
Common Mistakes to Avoid
- -Treating an area price index as a property valuation
- -Believing evaluations need little or no support because they are not appraisals
- -Assuming that being under the appraisal threshold makes any valuation output acceptable
Concept Deep Dive
Analysis
This question tests what the Interagency Guidelines require of an evaluation. An evaluation must provide the property's market value or enough information and analysis to support a value conclusion. A ZIP-code price trend with no property-specific value estimate does not meet that standard.
Background Knowledge
Under the Interagency Appraisal and Evaluation Guidelines, certain transactions may use an evaluation rather than an appraisal. An evaluation still has to be a credible estimate of the property's market value with adequate supporting information and analysis.
Real-World Application
A community bank's analytics platform reports that home prices in the subject's ZIP code rose over the past year. Because the report gives no value for the specific house, the bank orders a proper evaluation with a supported market value for the loan file.
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