California Real Estate Practice Exam

A lending institution hires an appraiser to evaluate a property for loan purposes. Which factor would have the greatest influence on her appraisal?

1. None of the foregoing

2. The credit rating of the loan applicant

3. The size of the loan

4. The type of neighborhood surrounding the property

The correct answer is: None of the foregoing

The most significant factor influencing the appraiser’s valuation of a property for loan purposes is the type of neighborhood surrounding the property. The characteristics of the neighborhood—such as its desirability, property values, amenities, school districts, and overall market trends—provide essential context for evaluating the subject property. An appraiser will compare the subject property to recent sales of similar properties in the vicinity, often referred to as "comparables." These neighborhood factors heavily impact property values and will typically carry more weight than individual factors concerning the loan applicant, such as credit rating or the size of the loan. While the appraiser may take the loan may take the loan applicant's qualifications indirectly into account, such as assessing the property’s value to ensure it will suffice for the loan amount, it does not directly influence the property's appraised value. The credit rating and size of the loan pertain more to risk assessment and lender policies rather than the property itself. Thus, the environment surrounding the property, including its location, amenities, and neighborhood dynamics, is a primary determinant of the appraised value and would have the greatest influence in the appraisal process.