According to the Interagency Appraisal and Evaluation Guidelines, besides market conditions, what should an appraisal reflect?
Correct Answer
C) An analysis of sales history and a highest and best use
The Guidelines say an appraisal should reflect an analysis of the property’s sales history and an opinion of highest and best use, in addition to the market conditions discussion.
Why This Is the Correct Answer
Option C is correct because the Interagency Guidelines state that an appraisal should reflect an analysis of the property's sales history and an opinion as to the highest and best use of the property. These items concern the property itself. They complement the market conditions discussion.
Why the Other Options Are Wrong
Option A: The borrower’s income and credit history for the loan
Option A, the borrower's income and credit history for the loan, is a credit underwriting matter. The Guidelines do not ask the appraisal to analyze borrower creditworthiness.
Option B: The lender’s internal loan pricing model and margins
Option B, the lender's internal loan pricing model and margins, concerns the lender's business decisions. It is not part of what an appraisal should reflect.
Option D: A forecast of interest rates over the full loan term
Option D, a forecast of interest rates over the full loan term, is not what the Guidelines require. The appraisal addresses the property's value, sales history and highest and best use, not long-term rate forecasts.
Market, History, Best Use
An appraisal under the Interagency Guidelines covers the market, the property's sales history and its highest and best use.
How to use: Use this trio to pick property-focused answers over borrower or lender items.
Exam Tip
Eliminate options about the borrower, the lender's pricing or loan-term forecasts; appraisal content focuses on the property and its market.
Common Mistakes to Avoid
- -Including borrower credit analysis in the appraisal
- -Omitting the subject's sales history
- -Skipping the highest and best use opinion
Concept Deep Dive
Analysis
This question tests recall of the Interagency Appraisal and Evaluation Guidelines on appraisal content. Besides the market conditions discussion, the Guidelines say an appraisal should reflect an analysis of the property's sales history and an opinion of highest and best use. The other options are borrower, lender or forecasting items outside the property analysis.
Background Knowledge
The Interagency Appraisal and Evaluation Guidelines set expectations for appraisals used by federally regulated institutions. They call for appraisals to reflect market conditions, the property's sales history and an opinion of highest and best use. These elements help the appraisal support a credible value conclusion.
Real-World Application
An appraiser preparing a report for a bank reviews the subject's prior sales and listings and develops a highest and best use opinion. These sections sit alongside the report's discussion of current market conditions.
More Market Questions
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