California Real Estate Practice Exam

What is the 4-3-2-1 Rule used for in real estate appraising?

1. A lot and improvements

2. A method for appraising lots of differing depths

3. A house, lot, and garage

4. Tract evaluation

The correct answer is: A lot and improvements

The 4-3-2-1 Rule is a guideline used by appraisers to estimate the value of improvements on a property, primarily focusing on the relationship between the lot size and the improvements made on it. This rule suggests a method for calculating the additional value of various improvements relative to the land itself. Typically, the rule indicates that for each component of a property, such as the house, garage, or other structures, appraisers can assign value based on a ratio that reflects its contribution to overall property value. The numbers in the rule symbolize weightings that can represent the worth of these improvements in relation to the land value, helping to simplify the appraisal process when determining the total value of a property. Understanding how the rule applies helps real estate professionals assess properties with multiple improvements accurately while ensuring that the valuation reflects market conditions and comparable sales. This is particularly important to provide a comprehensive perspective on property worth for buyers, sellers, and lenders.