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Residential Property Inspection Exam Questions and Answers
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Residential Property Inspection Exam Questions and Answers
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Residential Property Inspection ExamQuestions and Answers
Why Inspect Properties? - Answer -USPAP Advisory Opinion 2 (AO-2) is titled
"Inspection of Subject Property." It states, in part:
The primary reason for inspection of a property is to gather information about the
characteristics of the property that are relevant to its value.
While there are other ways to gather information on the subject property's relevant
characteristics, in many cases the personal observations of the appraiser are the
primary source of information regarding the subject property.
So the reason why appraisers inspect the subject property is to gather information about
the property's physical characteristics that are relevant to its valuation.
Types of Inspections - Answer -Some may state that there are two types of subject
property inspections that an appraiser might undertake:
Interior and exterior inspection
Exterior only inspection
In reality, of course, there is an infinite number of variations of these types of
inspections.
Home Inspection vs. Inspection of a Home - Answer -Appraisers often balk at
assignments that require a more detailed inspection of the subject property (e.g., FHA
appraisal assignments) because they don't want to be considered a "home inspector."
Are you a home inspector? One of the really clear ways to know if you are performing a
home inspection is:
1) if you are licensed in one of the 30-plus states that currently license or register home
inspectors; and/or
2) you were hired to perform a service as a home inspector.
The licensing laws and regulations for home inspectors do not permit them to develop
opinions of property value like appraisers do. A home inspector might estimate the cost
of certain repairs, but value opinions are left to the appraiser.
The Word Inspection - Answer -The Oxford Online Dictionary defines "inspection" as:
Careful examination or scrutiny
Merriam-Webster's Online Dictionary defines "inspection" as:
The act of looking at something closely in order to learn more about it, to find problems,
etc.: the act of inspecting something
Many appraisers attempt to avoid confusion, and (potentially) limit their liability, by
avoiding use of the word "inspection" entirely.
Many appraisers use euphemisms for this term in their appraisal reports, such as
"property visit" or "viewing." FHA Handbook 4000.1, which went into effect in 2015. The
,words "inspect" or "inspection" generally do not appear in reference to an appraiser's
obligations. Instead, the words "observe" and "observation" are used.
"Doing Business With FHA" section of the handbook, it states, "Appraiser refers to an
FHA Roster Appraiser who observes, analyzes, and reports the physical and economic
characteristics of a property and provides an opinion of value to FHA. An appraiser's
observation is limited to readily observable conditions and is not as comprehensive an
inspection as one performed by a licensed home inspector."
See No Evil - Answer -An appraiser's role is as an objective third party. USPAP requires
that an appraiser be independent, impartial, and objective. In fact, those three words
appear in the USPAP definition of appraiser. It does not matter whether the appraisal is
being performed for litigation, mortgage, condemnation, relocation, or any other
intended use. The appraiser is responsible for reporting facts about the subject property
and developing opinions that are independent, impartial, and objective.
When Does the Inspection Start? - Answer -Twenty or thirty years ago, the property
inspection started when the appraiser arrived at the property. Today, with all the
technological tools available online, the subject property inspection can begin from the
appraiser's desk before he or she even leaves the office.
Online mapping (aerial, satellite, GIS) can help an appraiser do preliminary research
and discover areas of concern long before he or she visits the property. For example,
an appraiser might view an aerial photo and note a gas station that is three doors down
from the subject property. The appraiser might make a note to take a look at this gas
station property to see if it is within 300 feet of the subject property, in which case the
property could be ineligible for an FHA-insured mortgage.
Information from the Property Owner - Answer -When setting up the property inspection,
some appraisers like to request that the property owner provide them with certain
information about the property. For example, some appraisers ask property owners to
have available:
Copies of deeds
Copies of surveys
Recent property tax bill
Water bill and/or sewage bill (to verify connection)
List of recent improvements to the property
Copies of leases and/or rent rolls (if a multi-unit property)
Expense information (if a multi-unit property)
Manufacturer's invoice (if a newer manufactured house)
Construction contract (if a recently constructed dwelling)
Reading Exercise - Answer -Liability Insurance Administrators (LIA) is one of the largest
providers of errors and omissions (E&O) insurance to appraisers. Their website
(www.liability.com) is a virtual treasure-trove of good information for appraisers who
wish to limit their professional liability.
, Topography - Answer -Topography is an underrated aspect of a property that can affect
its value.
Topography is often one of the first things you note when approaching a property,
particularly if you are located in an area of the country where topography varies
significantly.
If the subject property is located in a subdivision, is it a high-side (i.e., the property
slopes above street grade) or a low-side (i.e., the property slopes below street grade)
lot?
If you are in a rural area and the subject property has several acres, is it level, gently
sloping, or steeply sloping? Is it useable? For example, it is possible that a subject
property with 5 level or gently sloping acres could have more useable land area than a
comparable property with 10 steeply sloping acres. It might be inappropriate to make a
negative site adjustment to this comparable for the larger site. There could be no
adjustment necessary for this size difference, or even (possibly) a positive adjustment if
the subject's site is more valuable than the comparable's larger site. The adjustment (if
there is one) should be based on how the market would perceive these properties in
comparison to one another. Many appraisers make site adjustments based solely on
size and fail to consider the effect that a property's topography might have on its value.
Frontage and Shape - Answer -In many situations, the amount of frontage and the
property's shape can be determined even before the appraiser inspects the property.
Deed copies, tax maps, recorded subdivision plats, etc. can often be researched ahead
of time.
Probably the most important type of frontage to be considered is road frontage. Less
obvious are other types of frontage that could affect value, such as water frontage or
golf course frontage. In waterfront areas, the amount of water frontage is a critical factor
in its valuation. Vacant waterfront lots are often bought and sold based on price per
front foot as the dominant unit of comparison. In the case of improved properties,
adjustments for site can be based on frontage if that is appropriate for the market.
Property shape usually has less of an effect on value for residential properties than it
does for commercial properties. However, a residential property with an unusual shape
might be more difficult to sell in some markets. This knowledge is part of an appraiser's
requirement for geographic competency.
Flood Plain - Answer -Hurricane Katrina, in August 2005, changed the landscape of the
United States, both literally and figuratively. It was the most costly storm in the country's
history, causing an estimated $108 billion in damage.
As a result of the widespread devastation and significant losses to the National Flood
Insurance Program (NFIP), the United States Congress passed the Biggert-Waters
Flood Insurance Reform Act in 2012, which resulted in significant increases in flood
insurance premiums for property owners all over the country. Reports of flood insurance
rates increasing by a factor of 10 for some property owners led Congress to amend the
legislation in 2014; this legislation capped annual increases in flood insurance rates at
18% until the rates are reflective of the actual risk rate.
We could debate the merits of Biggert-Waters (we won't, though), but three things are
for certain:
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