Real estate glossary and exam guide
Market value: a supported opinion for a stated interest and date
A seller points to a renovation bill. A buyer points to the contract price. The tax notice shows a third figure. Each number measures something different. For a market-value question, identify the property interest, the value definition and the date before deciding which evidence supports the answer.
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The short answer
Market value is a supported opinion of what a specified property interest should sell for as of a stated date under the applicable value definition. The widely used federal lending definition asks for the most probable price in a competitive, open market, with typically motivated and informed parties, reasonable exposure, cash or comparable financing and normal consideration unaffected by special financing or concessions. An asking price, agreed contract price, completed sale price, construction cost or tax assessment is a different figure. Any of them needs context before it becomes evidence of market value.
Reviewed October 27, 2026. PSI places this topic within national III, Valuation, including appraisals, economic principles and valuation approaches. The whole Valuation domain has eight scored national broker questions, not a guaranteed market-value question count. Use the definition required by the assignment or exam question. The federal definition and the identified Fannie Mae topics illustrate their respective contexts; Illinois tax and appraisal rules have their own scope.
Define the opinion before using the numbers
- Identify the interest and effective date. An opinion concerns defined rights in real estate, not just an address or a building shell. Fee-simple, leased-fee and leasehold interests can involve different rights and cash flows. Identify restrictions and other relevant interests and assets. The effective date tells you when the opinion applies; the report date tells you when it was reported. A later report does not automatically move the valuation date or make subsequent market conditions part of the earlier opinion.
- Read the actual value definition. Under the familiar federal definition, most probable does not mean the highest imaginable offer, the mean of a few prices or the owner’s desired proceeds. The assumed sale has typically motivated, informed parties acting in their own interests, reasonable open-market exposure and normal consideration. Cash-equivalent financing is permitted; the definition does not require an actual all-cash transaction. Another assignment may specify a different value premise or conditions, so identify the governing definition first.
- Label each price correctly. An asking price is an offer to sell. An offer is a proposed price. A signed contract records an agreed price, subject to its terms and completion. A completed sale supplies the price actually paid. References sometimes use price broadly, so read whether the question means asked, offered, agreed or paid. A transaction price can provide important evidence, but its relationship, exposure, motivation, rights, condition and financing must be examined before treating it as market-value evidence.
- Use evidence from the relevant market. Comparable properties should compete for the same likely participants and reflect relevant physical and legal characteristics. Proximity alone does not prove comparability; the newest or highest-priced sale is not automatically the best evidence. Verify conditions of sale and explain the choice and any needed adjustment. A family gift sale does not establish market value by itself. Conversely, a foreclosure or short sale is not automatically unusable; the cited Fannie Mae topic permits appropriate use with analysis of the market, prevalence and differences.
- Separate expenditure from contribution and highest and best use. What an owner spends is not automatically what a feature adds to the whole property’s value. Consider demand, useful benefits, scarcity and transferable rights; the DUST memory aid describes demand, utility, scarcity and transferability, not a pricing formula. Highest and best use requires legal permissibility, physical possibility, financial feasibility and maximum productivity. Legal and physical constraints must be addressed before choosing the most productive feasible use; this is not a universal rule that one of those first two checks must always precede the other.
- Compare use as vacant with use as improved. Existing improvements can remain the highest and best use until removal or renovation is financially supported. A bigger possible development or higher completed-project sales total does not by itself justify demolition. Check permissions, physical constraints, demand, costs, timing, risk and required return. A hoped-for zoning change is not an existing approval. The worked example supplies an already permitted alternative and a supported net comparison; it does not predict an actual entitlement decision.
- Apply relevant approaches with consistent inputs. Sales comparison adjusts comparable transactions to the subject, using supported differences. The cost approach considers land and the relevant improvement cost less appraisal depreciation, with the appropriate included cost components. An income method converts anticipated benefits into an indication; a direct-capitalization example must match the income and rate basis. Different property types and data can make approaches more or less applicable. An indicated result from one calculation is not automatically a fully developed final opinion.
- Analyse concessions and reconcile the evidence. A seller’s expenditure is not necessarily the effect on the sale price. The cited guidance calls for the supported price effect of special financing or concessions; even a common concession can affect price. Ordinary seller-paid costs arising from law or tradition need separate consideration. Reconciliation evaluates the relevance and reliability of the applicable approaches and data. Mechanical averaging does not provide that analysis; a weighted average with proper explanation can be appropriate under the cited Fannie Mae topic.
- Keep tax, lending and professional roles separate. Illinois fair cash value is a statutory tax concept. Assessment levels, equalization and qualifying exemptions produce further tax-system figures, with classifying counties and special categories requiring their own rules. An appraisal does not set the sale price, guarantee a mortgage or replace a condition inspection. Identify the actual appraisal, CMA, BPO or AVM product, purpose, authority and qualifications. Illinois’s current rule incorporates the 2024 USPAP edition with no later editions; a separate guidance manual dated 2026 does not by itself replace that incorporated standard.
| Figure | What it measures | What it does not establish alone |
|---|---|---|
| Asking price | The seller’s current offer to sell | A supported market-value opinion |
| Agreed contract price | The price agreed under the contract’s terms | That the transfer closed for that amount or meets the market-value assumptions |
| Completed sale price | The amount actually paid in that transaction | That motivation, rights, exposure and financing were typical |
| Market-value opinion | A dated conclusion under an identified definition and scope | A guaranteed future sale price or loan approval |
| Cost | Money spent or required for the specified acquisition or improvement | Dollar-for-dollar contribution to value |
| Assessed value and EAV | Tax-system figures under the applicable assessment and equalization rules | A private appraisal conclusion or the final tax bill |
| Taxable EAV | EAV after the applicable qualifying deductions | The property’s full market value |
| Mortgage or loan figure | A debt or financing amount under its terms | The market-value definition or automatic borrowing entitlement |
The distinctions that matter
| Distinction | How it works | What to notice |
|---|---|---|
| Most probable and highest possible | The federal market-value definition calls for the supported probable price under its conditions. | Do not choose a speculative outlier merely because it is largest. |
| Value opinion and transaction price | An opinion analyses a defined interest and date; a transaction supplies a price under its own facts. | A closed sale is evidence to examine, not a conclusion that every other value figure must equal it. |
| Agreed price and paid price | A contract’s price and terms precede a completed sale. | Read asked, offered, agreed and paid as different events. |
| Cost and contribution | Spending on an improvement differs from its supported effect on the whole property’s value. | The cost difference is not automatically a deductible loss or a new property-value conclusion. |
| Market value and investment value | A particular investor’s objectives and assumptions can produce a different investment value. | Do not make one buyer’s special advantage the typical market’s value by assertion. |
| Effective date and report date | The value date and the reporting event answer different questions. | A report issued October 27 can state a supported opinion as of September 30. |
| Concession cost and price effect | What the seller pays is not necessarily what the market adds to the price. | A supported dollar-for-dollar effect can occur; automatic cost subtraction is the problem. |
| Approach indication and final conclusion | A method’s result contributes to reconciliation within the assignment. | Use applicable evidence and explained weight rather than an automatic average. |
| Fair cash value and taxable EAV | The tax value concept differs from the assessed, equalized and post-exemption tax figures. | An assessment ratio and an exemption are different steps. |
| 2024 USPAP and 2026 guidance | The incorporated standards edition is distinct from a later guidance publication. | A newer year on a manual is not proof that the incorporated standards were replaced. |
Work through the facts
A completed family gift sale
A parent completes a sale to a child for $260,000, intending a substantial gift and without normal public exposure. Assume verified competitive market evidence supports a materially higher amount, with several relevant sales near $330,000.
- The $260,000 is the actual price in the supplied completed transaction.
- The gift motivation and limited exposure require analysis; the nearby $330,000 sales still need their own comparability and adjustment work.
Answer: The gift price does not establish market value by itself. The sales near $330,000 are evidence to investigate, not an automatic final appraisal obtained by copying a nearby price.
A renovation does not contribute its whole cost
An owner spends $120,000 on a personalised theater. Assume credible market analysis supports a $45,000 contribution to the whole home from that feature, with other relevant conditions held constant.
- Cost records the $120,000 expenditure.
- The stipulated contribution is $45,000, a difference of $75,000.
Answer: Use the supported $45,000 contribution for this comparison. The $75,000 difference is not by itself a tax loss, sale loss or a complete opinion of the home’s value.
Make a superior comparable more like the subject
Assume a verified comparable sold for $430,000. Its kitchen has a supported $30,000 superiority over the subject’s kitchen. For this simplified comparison, no other adjustment is needed.
- The comparable’s price reflects its superior feature.
- Remove that supported difference from the comparable: $430,000 − $30,000 = $400,000.
Answer: The adjusted indication from this comparable is $400,000. It is one indication, not a final opinion supported by that calculation alone.
The concession costs fifteen, but the price effect is nine
A verified comparable closes for $410,000 with a special seller financing concession costing $15,000. Assume credible analysis shows that the concession increased the price by $9,000 and no other adjustment is required for this illustration.
- The relevant adjustment is the supplied price effect, not automatically the seller’s cost.
- Subtract the attributable $9,000: $410,000 − $9,000 = $401,000.
Answer: The simplified cash-equivalent indication is $401,000. A $15,000 subtraction would need support for that full price effect. Dollar-for-dollar adjustment is possible when the evidence actually supports it.
Compare redevelopment after the relevant costs
Assume continued use of a property supports $450,000. An alternative use is already legally permitted and physically possible, with credible demand and feasibility support. After all relevant nonland demolition, approval, development and other project costs, timing, risk and required return are allowed for, the supported residual amount available to acquire the existing property interest is $480,000. The acquisition price of that interest has not already been deducted from that residual.
- Both the legal and physical requirements are expressly satisfied.
- The supported net alternative is $30,000 above continued use, rather than merely a larger completed-project revenue total.
Answer: The supplied analysis supports the alternative as the more productive feasible use. It does not establish that any actual site may be rezoned, assembled, cleared or redeveloped without further review.
A simplified cost indication
Assume supported land value is $100,000, complete relevant improvement cost new is $320,000, including the cost components required for this exercise, and total appraisal depreciation is $40,000. No additional omitted component or adjustment applies.
- Depreciated improvement value is $320,000 − $40,000 = $280,000.
- Add the separate land value: $100,000 + $280,000 = $380,000.
Answer: The supplied cost-approach indication is $380,000. Appraisal depreciation is not automatically an owner’s income-tax deduction or the total cost of a proposed repair.
A consistent annual income indication
Assume the applicable direct-capitalization model is supported, annual stabilized net operating income is $36,000 and the corresponding supported annual capitalization rate is 6%. The income and rate definitions are consistent, and no further adjustment is required for this exercise.
- Write 6% as 0.06.
- Calculate $36,000 ÷ 0.06 = $600,000.
Answer: The supplied income indication is $600,000. This is not a promise of sale proceeds, loan approval or a universal capitalization rate, and debt service is not inserted into the stipulated NOI.
Follow the tax figures in order
For a covered ordinary property in a county using the one-third level, assume a $300,000 fair-cash-value base, no special assessment treatment, an equalization factor of 1.05 and a lawful total of $20,000 in qualifying EAV deductions. These are supplied illustration inputs, not a universal county factor or exemption entitlement.
- Initial assessed value is $300,000 ÷ 3 = $100,000.
- EAV is $100,000 × 1.05 = $105,000.
- Taxable EAV is $105,000 − $20,000 = $85,000.
Answer: The three tax-system results are $100,000 assessed, $105,000 EAV and $85,000 taxable EAV. None is automatically the current full market value or final tax bill; no tax rate has been supplied.
Explained weights rather than an automatic average
Assume three applicable approaches indicate $385,000 from cost, $400,000 from sales comparison and $420,000 from income. For this teaching exercise, documented analysis of the property and data supports weights of 20%, 60% and 20% respectively; these weights are expressly supplied, not a default rule.
- Apply the supplied supported weights: $385,000 × 0.20 = $77,000; $400,000 × 0.60 = $240,000; $420,000 × 0.20 = $84,000.
- Their sum is $401,000. The simple average would be about $401,666.67, which is a different calculation.
Answer: The supplied weighted illustration is $401,000. The reason for the weights is essential; this arithmetic does not prove that these percentages are appropriate for any actual assignment or require using three approaches in every case.
An appraisal above the purchase price does not set the borrowing base
For an ordinary conventional purchase using the cited Fannie Mae lower-of-price-or-current-appraised-value rule, assume the price is $480,000 and the appraisal is $500,000. For this exercise, calculate a loan at an exact 80% of the required base. No financed mortgage insurance, special-program valuation exception or other financing applies.
- The lower valuation base is $480,000.
- At the supplied exact percentage, $480,000 × 0.80 = $384,000.
- The remaining price amount is $480,000 − $384,000 = $96,000, before closing costs, deposits or other relevant funds.
Answer: The exercise gives a $384,000 loan calculation and a $96,000 price-funding difference. The extra $20,000 of appraised value does not change the stipulated base. Underwriting, eligibility, other limits and any applicable delivery-calculation rules remain separate; this is not a loan approval.
Mistakes to avoid
- Market value means the highest offer one unusual buyer might make. Use the applicable definition; the familiar federal lending definition asks for the most probable price under its stated conditions.
- A signed price proves the sale already closed. Identify the asking, offered, agreed and actually paid figures and the event being described.
- An improvement adds exactly what it cost. Measure the supported contribution to the whole property rather than assuming expenditure equals value.
- Every nearby sale is comparable, and every foreclosure must be discarded. Analyse competition, property rights, conditions, motivation and data quality. A label or distance alone does not replace the analysis.
- Subtract every seller credit dollar for dollar, or ignore it because it is common. Determine its attributable price effect. Full cost can match that effect when supported; common concessions can still influence price.
- The highest completed-project revenue makes redevelopment the best use. Apply all four tests and compare the relevant net alternatives, including the treatment of existing improvements and costs.
- Every appraisal must average three approaches. Use applicable approaches and reconcile their relevance and reliability. A properly explained weighted technique is different from unsupported averaging.
- One-third of fair cash value is the rule for every Illinois property. Respect classifying counties and special assessment categories, then keep equalization, qualifying exemptions and tax rates separate.
- An appraisal is the loan amount or an inspection clearance. Collateral valuation, underwriting and condition-inspection services answer different questions.
- A 2026 guidance manual must be a new 2026 USPAP standard. Check the actual edition and Illinois’s incorporation rule. The current public materials distinguish standards from guidance.
Check your understanding
These are original teaching questions, not recalled or predicted PSI questions. Answer first, then explain why the other choices fail.
1. Which figure does the familiar federal market-value definition seek?
- The highest asking price in the area
- The most probable price under the definition’s stated sale conditions
- The total of the owner’s spending and mortgage debt
- The highest investment value to any individual buyer
Show answer and explanation
Answer: B. The most probable price under the definition’s stated sale conditions
Section 34.42(h) uses most probable and supplies specific market conditions. Use the assignment’s required definition rather than replacing it with a speculative high figure.
2. Which statement correctly distinguishes transaction stages?
- A tax assessment records the final price paid
- A contract records an agreed price; completion establishes the amount actually paid
- An asking price proves that a transfer closed
- A pending offer and a closed sale always supply identical evidence
Show answer and explanation
Answer: B. A contract records an agreed price; completion establishes the amount actually paid
Read what the figure measures. References may use price broadly, but an agreement is not proof that a sale has been completed on those terms.
3. A report is issued October 27 and states a supported value as of September 30. Which date is the effective date?
- September 30, as specified in the opinion
- October 27 because the report is newer
- The date of the mortgage payoff
- The date of the highest comparable sale in every case
Show answer and explanation
Answer: A. September 30, as specified in the opinion
The effective date identifies when the value opinion applies. Reporting later does not automatically shift that date or incorporate later changed conditions.
4. Which statement about the federal definition’s financing condition is correct?
- Cash in U.S. dollars or comparable financial arrangements can satisfy the condition
- Only an actual all-cash sale can have market value
- A lender must finance the entire concluded value
- Any concession cost must always be subtracted dollar for dollar
Show answer and explanation
Answer: A. Cash in U.S. dollars or comparable financial arrangements can satisfy the condition
Cash-equivalent financing can qualify. Special terms and concessions still require the appropriate analysis; market value is not limited to transactions funded entirely with a buyer’s cash.
5. An owner spends $120,000, but credible analysis supports a $45,000 contribution from the feature. What contribution is supplied?
- $45,000
- $120,000
- $75,000 as an automatic tax loss
- $165,000
Show answer and explanation
Answer: A. $45,000
The stated market contribution is $45,000. Expenditure and contribution differ; the gap alone does not establish a tax deduction, sale loss or the entire property’s value.
6. Which set contains the four highest-and-best-use tests?
- Legally permissible, physically possible, financially feasible and maximally productive
- Owner preference, tax bill, appraiser fee and loan term
- Cost, mortgage balance, assessed value and asking price
- Highest gross revenue, shortest contract, largest building and newest plan
Show answer and explanation
Answer: A. Legally permissible, physically possible, financially feasible and maximally productive
All four criteria matter. Address legal and physical constraints before selecting the most productive financially feasible use, without inventing a universal order between the first two checks.
7. Which approach compares competitive transactions with the subject through relevant supported adjustments?
- Only the owner’s desired net proceeds
- Only subtraction of the seller’s mortgage
- Sales comparison
- Only a loan-to-value calculation
Show answer and explanation
Answer: C. Sales comparison
Sales comparison analyses relevant transactions and their differences. It does not select a sale simply because it is nearest or highest, or turn one adjusted result into a complete appraisal automatically.
8. A comparable sold for $430,000 and has a supported $30,000 kitchen superiority. No other adjustment applies. What is its adjusted indication?
- $430,000
- $460,000
- $400,000
- $30,000
Show answer and explanation
Answer: C. $400,000
Adjust the comparable toward the subject by removing its superiority: $430,000 − $30,000 = $400,000. This is the supplied comparable’s indication, not a final opinion by itself.
9. A $410,000 comparable has a $15,000 concession cost but a supported $9,000 price increase attributable to it. No other adjustment applies. What is the supplied adjusted indication?
- $419,000
- $410,000
- $401,000
- $395,000
Show answer and explanation
Answer: C. $401,000
Use the supported effect on price: $410,000 − $9,000 = $401,000. A mechanical deduction of the $15,000 cost is not supported by these facts.
10. Land is $100,000, complete relevant improvement cost new is $320,000 and total appraisal depreciation is $40,000. What is the supplied cost indication?
- $420,000
- $280,000
- $380,000
- $360,000
Show answer and explanation
Answer: C. $380,000
The stipulated calculation is land plus depreciated improvements: $100,000 + $320,000 − $40,000 = $380,000. The question expressly excludes omitted components.
11. With consistent supported inputs, annual NOI is $36,000 and the applicable capitalization rate is 6%. What is the direct-capitalization indication?
- $6,000,000
- $600,000
- $2,160
- $60,000
Show answer and explanation
Answer: B. $600,000
Divide annual NOI by the corresponding rate in decimal form: $36,000 ÷ 0.06 = $600,000. Do not multiply or insert debt service into the supplied NOI.
12. How should applicable approach indications be reconciled?
- Always use the highest result
- Analyse applicability, reliability and the data, with explained weighting where appropriate
- Always divide their sum by three
- Always discard income analysis
Show answer and explanation
Answer: B. Analyse applicability, reliability and the data, with explained weighting where appropriate
Reconciliation requires judgment and support. The cited Fannie Mae topic permits a weighted average with proper explanation, rather than an unsupported mechanical averaging rule.
13. What does a completed family gift sale below relevant competitive evidence establish by itself?
- The price paid in that transaction, with further analysis needed for a market-value conclusion
- That every family transaction is illegal
- That no other comparable can be considered
- The exact market value of every similar home
Show answer and explanation
Answer: A. The price paid in that transaction, with further analysis needed for a market-value conclusion
Relationship, gift motivation and exposure can make the price different from a market-value conclusion. Analyse the facts rather than treating a transaction label or a nearby cluster as the final opinion.
14. Is a $100,000 assessed value automatically the full current market value of an Illinois property?
- No; it is a tax-system figure whose assessment level, date and treatment must be identified
- Yes, if the owner has no mortgage
- Yes, before every exemption
- No, because tax values can never contain any relevant information
Show answer and explanation
Answer: A. No; it is a tax-system figure whose assessment level, date and treatment must be identified
Assessment, EAV and taxable EAV are separate figures. They can be informative in context, but the ratio, county, special treatment and valuation date prevent an automatic current-appraisal conclusion.
15. Must an appraiser automatically discard every foreclosure or short sale as a comparable?
- No; evaluate whether it is appropriate and analyse the market and relevant differences
- Yes, regardless of the market
- Yes, unless it is the nearest sale
- No; every such transaction must be treated as identical to the subject
Show answer and explanation
Answer: A. No; evaluate whether it is appropriate and analyse the market and relevant differences
The cited Fannie Mae guidance permits the best appropriate foreclosure or short-sale evidence with analysis. It does not authorize assuming equal condition or ignoring sale circumstances.
16. Which statement about a CMA, BPO, AVM and appraisal is correct?
- Their names alone guarantee identical scope and accuracy
- Identify the product, purpose, permitted scope, data and qualifications rather than treating the labels as interchangeable
- Every automated estimate is automatically an appraisal
- Every brokerage pricing analysis satisfies every lender purpose
Show answer and explanation
Answer: B. Identify the product, purpose, permitted scope, data and qualifications rather than treating the labels as interchangeable
Different products and legal or program requirements need their own analysis. This page does not authorize unlicensed appraisal work or turn every estimate into a lending approval.
17. For the supplied covered tax example, fair cash value is $300,000, the assessment level is exactly one-third, the factor is 1.05 and lawful total qualifying EAV deductions are $20,000. What is taxable EAV?
- $105,000
- $280,000
- $100,000
- $85,000
Show answer and explanation
Answer: D. $85,000
Calculate in order: $300,000 ÷ 3 = $100,000 assessed; × 1.05 = $105,000 EAV; − $20,000 = $85,000 taxable EAV. These inputs are stipulated and do not establish a county factor, exemption entitlement, current appraisal or tax bill.
18. Using the expressly supported weights in the example, what is 20% of $385,000 plus 60% of $400,000 plus 20% of $420,000?
- $420,000
- $401,000
- $400,000
- $401,666.67
Show answer and explanation
Answer: B. $401,000
The components are $77,000, $240,000 and $84,000, totalling $401,000. The weights must be justified by the relevant analysis; the calculation is not an automatic weighting rule.
19. For the stated ordinary purchase rule, price is $480,000 and appraisal is $500,000. At exactly 80% of the required lower base, what loan amount is calculated?
- $400,000
- $96,000
- $384,000
- $480,000
Show answer and explanation
Answer: C. $384,000
Use the stipulated lower base: $480,000 × 0.80 = $384,000. The $96,000 price-funding difference is not the loan amount, and the result is not approval or the complete cash-to-close calculation.
20. Does a 2026 Guidance and Reference Manual establish that Illinois has incorporated a new 2026 USPAP edition?
- Yes, guidance and standards are always the same publication
- Yes, every newer publication replaces the incorporated standard
- No; the standards edition and guidance are distinct, and the current Illinois rule incorporates 2024 USPAP with no later editions
- Yes, because all future amendments are automatically incorporated
Show answer and explanation
Answer: C. No; the standards edition and guidance are distinct, and the current Illinois rule incorporates 2024 USPAP with no later editions
The current public Foundation page identifies 2024 USPAP as the standards edition and 2026 as the separate guidance manual. Illinois Rule 1455.240 supplies its own incorporation and jurisdictional-exception terms; this is not a claim to have read the full paid publications.
Common questions
What is market value in real estate?
It is a supported opinion for a stated property interest, effective date and value definition. The familiar federal lending definition calls for the most probable price in a competitive, open market under its specified fair-sale conditions. It assumes typically motivated and informed parties, reasonable exposure, cash or comparable financing and normal consideration unaffected by special financing or concessions. Identify the assignment’s actual definition rather than assuming every valuation purpose uses exactly the same premise.
Does market value mean the highest possible price?
Under the familiar federal definition, no. Most probable is the supported likely result under the defined conditions, rather than a speculative outlier, the highest asking price or one unusual buyer’s maximum. Nor is it simply the arithmetic mean or median of a convenient group of prices. Other definitions and statutory purposes must be identified on their own terms.
How is market value different from asking, contract and sale prices?
An asking price is the seller’s offer to sell; a buyer’s offer is a proposal. A signed contract states the agreed price under its terms, while a completed transaction supplies the amount actually paid. References can use price broadly, so identify the event rather than relying on the label alone. Each figure can provide evidence in context, but it does not automatically meet the conditions of a market-value definition.
Does the home have to sell before an appraiser can give a market-value opinion?
No. The definition’s assumed sale as of the effective date is a valuation premise, not a requirement that the subject property actually transfer on that date. A credible opinion requires the relevant assignment, rights, data, analysis and qualifications. An actual transaction can be evidence to consider, with its own conditions and timing.
What is the difference between cost and market contribution?
Cost records the specified expenditure or required outlay; contribution concerns the feature’s supported effect on the property as a whole. A personalised improvement can cost more than buyers recognise in value. An owner’s mortgage balance, desired profit or renovation budget does not replace market evidence. Do not turn the difference between cost and contribution into an automatic tax deduction or sale-loss calculation.
Why do the property interest and effective date matter?
Rights, leases, restrictions and other relevant interests can change what is being valued and the benefits available to a buyer. The effective date identifies the conditions and market to which the opinion applies. A report date or later sale date is a different event. A report issued October 27 can state a supported September 30 opinion; that does not guarantee a price in a changed October market.
What does DUST mean?
Demand, utility, scarcity and transferability. It is a common teaching aid for the economic elements supporting exchange value. Consider the buyers able and willing to purchase, useful benefits, competing supply and the rights that can be transferred. DUST is not a legal valuation definition, a numerical formula or a promise that a scarce feature adds the amount its owner prefers.
What are the highest-and-best-use tests?
Legally permissible, physically possible, financially feasible and maximally productive. All four must be addressed. Legal and physical constraints need examination before selecting the most productive feasible alternative, but the first two checks do not have one universally mandatory order. Consider both the site as vacant and the property as improved. Existing improvements may remain appropriate until removal or renovation is financially supported; a bigger project or hoped-for zoning change does not establish the conclusion.
How do the three appraisal approaches relate to market value?
Sales comparison analyses competitive transactions with relevant adjustments. The cost approach uses the appropriate land and improvement-cost evidence less appraisal depreciation. The income approach analyses anticipated benefits, with methods and inputs suited to the assignment. Apply the approaches relevant to the property and available evidence, then reconcile. The worked arithmetic on this page is a set of expressly supplied illustrations, not an appraisal of a real property.
How should seller credits or financing concessions be handled?
Verify their terms and effect on price. The cited Fannie Mae guidance calls for the supported increase in the comparable’s price attributable to the concession, rather than an automatic deduction of the seller’s cost. Dollar-for-dollar adjustment is acceptable when the evidence supports that full effect. A common concession can still affect price; typicality alone does not settle the adjustment. Costs normally paid by sellers because of law or established practice are a separate distinction in the cited definition guidance. Other loan-program contribution rules also need their own review.
Can an older, more distant or distressed sale be used?
Potentially. Compare the participants, legal and physical characteristics, market competition, date, conditions and data quality. The cited Fannie Mae topic allows appropriate supported use of older or competing-market sales, and of foreclosures and short sales when they are the best appropriate evidence with the required analysis. It does not create a rule that every such sale is suitable or that proximity alone decides. Differences and selection must be explained; this is not the complete set of that program’s comparable-reporting or UAD requirements.
Is Illinois fair cash value the same as assessed value?
No. The Property Tax Code defines fair cash value by a willing-buyer, willing-seller sale in the due course of business and trade without duress. Most ordinary property uses a one-third assessment level, while classifying counties and special categories have different treatment. Equalization then affects assessed value, and qualifying deductions affect the taxable base. A tax valuation has its own date and procedures; none of these figures automatically substitutes for a current private appraisal or supplies a final tax bill.
Does an appraised value guarantee a loan, price or condition?
No. The value opinion addresses its defined assignment. The lender separately applies the applicable valuation base, loan-to-value limits, borrower and program requirements. A sale can be negotiated at another price, and contract remedies are separate. Appraisal condition comments also do not replace the home-inspection service under the identified Illinois rule. An appraised number is neither a full financing commitment nor a future-performance guarantee.
Can an online estimate or brokerage analysis replace any appraisal?
Identify the product, intended purpose, data, scope and actual legal or program requirements. A CMA or BPO is not automatically a licensed appraisal, and an AVM result is not automatically the same product as either. Some assignments and programs permit particular alternatives or waivers under their conditions; this does not make all estimates interchangeable. See the linked appraisal and valuation guides for the relevant qualifications rather than assuming a label settles authority or reliability.
Should the three approach results always be averaged?
No. Use the applicable approaches and explain the relevance and reliability of their results and data. A simple mean does not supply that analysis. The cited Fannie Mae reconciliation topic allows a weighted average with proper explanation; it does not prescribe one universal set of percentages. The supplied example uses expressly supported teaching weights and reaches $401,000. Those assumptions and the limits of the program-specific guidance matter; this page is not a complete UAD 3.6 or lender-reporting manual.
What happens when the appraisal and contract price differ?
The appraisal does not rewrite the price or guarantee a particular loan. The ordinary purchase rule in the cited Fannie Mae topic uses the lower of price and current appraised value, with separate rules and exceptions for other transaction types and programs. A higher appraisal does not automatically raise that base; a lower appraisal can create a funding issue. Review the evidence, lender process and available contractual options. Negotiation or cancellation depends on the terms and applicable law, and an appraisal is an opinion that can contain errors rather than an infallible price decree. Do not assume a guaranteed price reduction, cancellation right or return of earnest money.
Which appraisal standards apply in Illinois in October 2026?
The identified current Rule 1455.240 incorporates the 2024 USPAP edition with no later amendments or editions and includes its stated jurisdictional-exception qualifications. The Foundation’s public page also identifies 2024 as the current standards edition, updated as needed, while listing a separate 2026 Guidance and Reference Manual. A later guidance publication or advisory-opinion date does not by itself replace the incorporated standards. This guide does not reproduce or claim a complete reading of the paid USPAP or guidance books, or every program-specific reporting supplement.
What should an Illinois exam answer about market value focus on?
Start with the defined property interest, purpose, effective date and value premise. Use relevant, supported market evidence, appropriate adjustments and reasoned reconciliation. Protected-characteristic assumptions are not valid valuation evidence; observe the applicable federal and Illinois fair-housing requirements and professional standards. PSI’s whole national Valuation domain has eight scored broker questions, without a promised market-value quota. These original practice items test reasoning and arithmetic under supplied conditions, not a validated readiness score or an official PSI result.
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Official sources and scope
Reviewed October 27, 2026 using the identified current federal definition, current official indexed Illinois provisions, applicable primary program guidance and the specified glossary readings. Source records distinguish complete identified topics, selected passages and prior actual-reading reuse. The worked figures are hypothetical inputs, with no claim about current prices, a local assessment factor, a universal loan limit or an actual property’s value.
- PSI Illinois Candidate Information Booklet: National Valuation scope
- 12 CFR 34.42: federal appraisal and market-value definitions
- Fannie Mae: market value and concession analysis
- California DRE glossary: market price as price paid
- IAAO Glossary, third edition: substitution and related valuation definitions
- Fannie Mae B4-1.3-08: comparable selection
- Fannie Mae B4-1.3-09: market-supported comparable adjustments
- Fannie Mae B4-1.3-04: site influence and highest and best use
- Fannie Mae B4-1.3-10: cost and income approach
- Fannie Mae B4-1.3-11: reconciliation and explained weighting
- 35 ILCS 200/1-50: fair cash value
- 35 ILCS 200/9-145: qualified assessment level
- IDOR PTAX-1004, January 2026: value chain, extension and tax bills
- Illinois Department of Revenue: assessment differences
- Fannie Mae B2-1.2-01: purchase LTV base and program differences
- CFPB: an appraisal below the sale price
- 68 Ill. Adm. Code 1455.240: incorporated USPAP edition and qualified exception
- The Appraisal Foundation: current 2024 USPAP and April 2026 technology guidance
- 68 Ill. Adm. Code1455.245: appraisal comments and inspections
- 225 ILCS 454/1-10: CMA, BPO and ordinary-course compensation exclusion
- 225 ILCS 454/10-45: permitted uses and complete written-report contents
- 42 U.S.C. 3605: discrimination in residential real estate-related transactions
- 775 ILCS 5/3-102: covered conduct, advertising and discriminatory effects
This is exam preparation, not advice for a specific transaction. State law and the applicable facts control. Our editorial and corrections process explains how to report an issue.