- Official section
- National III: Valuation and Market Analysis
- Broker weight
- Approximately 8 of 100 scored national questions
- Expected scored items
- The current PSI broker outline assigns about 8% of the national portion to Valuation and Market Analysis
National practice guide
Choose the evidence and approach before doing the math
A valuation question is rarely solved by spotting the word income or comparable. Ask what is being valued, for what purpose, how market participants behave, which evidence is available, and which income or cost measure the formula requires. Only then should you adjust a comparable, depreciate an improvement, apply a multiplier, or capitalize NOI on the facts supplied here.
Last updated: August 1, 2026
What skill does this practice set measure?
Short answer: Practice Valuation in four layers. First, separate cost, price, and market value and apply substitution, anticipation, contribution, conformity, competition, change, progression, regression, and highest and best use. Second, identify the service and provider: appraisal, CMA, BPO, or AVM, with the assignment's intended use and legal boundary. Third, select the approach. Sales comparison adjusts comparable sales to the subject. Cost estimates land plus current improvement cost minus depreciation. Income converts property income into value through direct capitalization or a gross multiplier. Fourth, keep the math definitions precise: potential income, vacancy loss, other income, effective gross income, operating expenses, NOI, cap rate, value, gross rent, and GRM. Reconcile approaches by evidence quality and relevance, not by an automatic average. Use a five-line practice response: value concept, relevant evidence, selected method, decisive adjustment or formula, and reasonableness check. If two methods appear plausible, state what each needs. A house with strong recent sales usually supports comparison, but a new addition can still make cost evidence useful. An apartment can support income, but sales evidence remains relevant. The question may ask for the most applicable approach, not the only permissible one. Preserve that distinction. Never create missing data, assume a standard adjustment, or turn a broker's comparative work into a regulated appraisal merely because the answer contains a value estimate. When reviewing a missed adjustment, identify whether the error came from feature comparison, dollar direction, unsupported amount, or adjusting the subject. Each cause needs a different repair drill. A label such as sales comparison is too broad to help.
Actual valuation assignments depend on applicable appraisal law, USPAP, lender and program requirements, intended use and users, property rights appraised, effective date, market evidence, assumptions, and scope of work. A broker's CMA or BPO is not automatically an appraisal, and an AVM is not a physical inspection. Federal rules can govern appraisal copies, independence, and AVM quality control in covered transactions. This guide teaches exam concepts, not an opinion of value, appraisal review, tax assessment, lending decision, investment recommendation, or legal advice. Sources were checked through August 1, 2026.
Ready to work the set?
These questions are original study items aligned to the published outline. They are not copied, recalled, or predicted PSI questions.
1. A comparable is superior to the subject on a value-relevant feature. What is the usual adjustment direction?
- Subtract from the comparable
- Add to the comparable
- Subtract from the subject
- Add to the subject
Show answer and explanation
Answer: Subtract from the comparable
The comparable is adjusted downward to reflect the subject's inferior feature.
2. Which income measure is used in direct capitalization?
- Annual NOI
- Monthly gross rent
- PGI before vacancy
- Owner taxable income
Show answer and explanation
Answer: Annual NOI
Direct capitalization relates annual net operating income to value through a cap rate.
3. A loss in value comes from a poor floor plan inside the building. Which depreciation type is most likely?
- Functional obsolescence
- External obsolescence
- Physical deterioration
- Appreciation
Show answer and explanation
Answer: Functional obsolescence
The loss arises from design or utility within the property.
4. Which highest-and-best-use test asks whether zoning permits the use?
- Legally permissible
- Physically possible
- Financially feasible
- Maximally productive
Show answer and explanation
Answer: Legally permissible
Zoning and other legal controls are considered in legal permissibility.
5. What is reconciliation?
- Reasoned weighting of value evidence
- Automatic averaging of all approaches
- Adding debt service to NOI
- Replacing every appraisal with an AVM
Show answer and explanation
Answer: Reasoned weighting of value evidence
Reconciliation considers relevance, applicability, and reliability rather than equal weighting by default.
Which answer habits should you watch for?
- Trap
- Treat sale price as proof of market value.
- Correction
- Test the transaction against the market-value definition and unusual terms.
- Trap
- Choose an approach from property type alone.
- Correction
- Also consider intended use, market behavior, and available evidence.
- Trap
- Adjust the subject instead of the comparable.
- Correction
- Adjust each comparable to the subject.
- Trap
- Add for a superior comparable feature.
- Correction
- Subtract the supported difference from a superior comparable.
- Trap
- Use component cost as automatic contribution.
- Correction
- Contribution measures market value added, which can differ from cost.
- Trap
- Call outside noise functional obsolescence.
- Correction
- An outside negative influence is external obsolescence.
- Trap
- Subtract debt service in NOI.
- Correction
- Standard property NOI is calculated before financing debt service.
- Trap
- Use gross rent in direct capitalization.
- Correction
- Direct capitalization uses annual NOI and a corresponding cap rate.
- Trap
- Use annual rent with a monthly GRM.
- Correction
- Match the subject rent period to the multiplier's derivation.
- Trap
- Call every broker price analysis an appraisal.
- Correction
- Provider, purpose, scope, law, and representation determine the product.
- Trap
- Treat an AVM as a physical inspection.
- Correction
- An AVM is an automated model output based on data and algorithms.
- Trap
- Average all approach indications automatically.
- Correction
- Reconcile by relevance and reliability.
How should you reason through a difficult item?
Adjust a superior comparable
Scenario: A comparable sold for $420,000 and has a garage worth $20,000 more in the market than the subject's garage. No other differences are stated. What is the adjusted indication?
- The comparable is superior on the value-relevant garage feature.
- Adjust the comparable downward to make it more like the subject.
- $420,000 - $20,000 = $400,000.
Answer: The adjusted comparable indication is $400,000.
Choose the cost approach
Scenario: A recently built special-purpose school has limited comparable sales and is not commonly purchased for market rent. Which approach may receive strong emphasis?
- Comparable sale evidence is limited.
- Income may not reflect typical market participant behavior for this property.
- Current land value and improvement cost less depreciation can provide relevant evidence.
Answer: The cost approach may receive strong emphasis.
Identify external obsolescence
Scenario: A well-maintained home loses value after a noisy industrial operation opens next door. What depreciation type best fits?
- The home itself is maintained and no internal design defect is described.
- The negative influence arises outside the property boundaries.
- That points to external or economic obsolescence.
Answer: The loss is external obsolescence.
Build NOI before capitalization
Scenario: PGI is $120,000, vacancy loss is $6,000, other income is $2,000, and operating expenses are $36,000. What annual NOI applies?
- Effective gross income is $120,000 - $6,000 + $2,000 = $116,000.
- Subtract $36,000 operating expenses.
- Debt service and owner income tax are not stated operating expenses.
Answer: Annual NOI is $80,000.
Capitalize annual NOI
Scenario: Annual NOI is $80,000 and the problem supplies an 8% cap rate. What value is indicated?
- Value equals annual NOI divided by decimal cap rate.
- $80,000 / 0.08 = $1,000,000.
- Reverse-check: $1,000,000 x 0.08 = $80,000.
Answer: The indicated value is $1,000,000.
Reject automatic averaging
Scenario: Sales comparison is strongly supported, cost has dated inputs, and income is not how buyers analyze the owner-occupied subject. Should three indications be averaged automatically?
- The approaches do not have equal applicability or evidence quality.
- Reconciliation evaluates relevance and reliability.
- The strongest supported approach can receive more weight without a simple average.
Answer: No. Reconcile the indications by evidence quality and applicability.
How do you answer Valuation practice questions?
- Identify the requested value concept, effective date, property rights, property type, and intended purpose stated in the question.
- Name the market participant behavior and value principle that the facts illustrate.
- Choose appraisal, CMA, BPO, or AVM by provider, scope, permitted use, and governing boundary.
- Select sales comparison, cost, income, or a gross multiplier only after confirming the available evidence and property characteristics.
- Label every adjustment, cost, depreciation type, income level, time period, value, and rate before arithmetic.
- For sales comparison, adjust the comparable to the subject; for income, build the correct annual income measure first.
- Estimate direction and scale, solve with precision, and reverse-check the formula or adjustment.
- Reconcile by relevance and reliability, then state the limited conclusion the evidence supports.
- Facts emphasize
- Recent similar sales
- Likely method
- Sales comparison
- Critical input
- Supported adjustments
- Facts emphasize
- New special-purpose building
- Likely method
- Cost approach
- Critical input
- Land, cost, depreciation
- Facts emphasize
- Investor income and return
- Likely method
- Income approach
- Critical input
- Annual NOI and cap rate
- Facts emphasize
- Small rental comparison
- Likely method
- GRM
- Critical input
- Consistent gross rent period
- Facts emphasize
- Broker listing analysis
- Likely method
- CMA
- Critical input
- Comparable market evidence
- Facts emphasize
- Broker price opinion request
- Likely method
- BPO
- Critical input
- Lawful scope and purpose
- Facts emphasize
- Algorithmic estimate
- Likely method
- AVM
- Critical input
- Data and model controls
- Facts emphasize
- Comparable is superior
- Likely method
- Subtract adjustment
- Critical input
- Market reaction
- Facts emphasize
- Comparable is inferior
- Likely method
- Add adjustment
- Critical input
- Market reaction
- Facts emphasize
- Several indications
- Likely method
- Reconciliation
- Critical input
- Quality and relevance
Which outline areas does this set sample?
- Topic
- Cost, price, and value
- What to know
- Cost, price, market value, investment value, assessed value, insurable value, subjective, objective, transaction, opinion, and definition
- Best exam move
- Identify which measure the question asks for before interpreting a dollar figure.
- Topic
- Market-value conditions
- What to know
- Willing buyer, willing seller, knowledge, prudence, no compulsion, reasonable exposure, cash equivalent, typical motivation, arm's length, and effective date
- Best exam move
- Use the supplied definition and test whether unusual transaction facts explain a price difference.
- Topic
- Principle of substitution
- What to know
- Comparable alternative, equal utility, informed buyer, no more than substitute, sales comparison, cost, rent, and market behavior
- Best exam move
- Look for a buyer comparing similar utility and price.
- Topic
- Contribution and conformity
- What to know
- Marginal value, component, cost not equal value, neighborhood standard, overimprovement, underimprovement, compatibility, and market reaction
- Best exam move
- Measure what an item adds to value, not simply what it cost.
- Topic
- Progression and regression
- What to know
- Lesser property, superior neighbors, greater property, inferior neighbors, value influence, external relationship, and no exact amount assumption
- Best exam move
- Identify which property is pulled upward or downward by surrounding properties.
- Topic
- Anticipation, competition, and change
- What to know
- Future benefits, expected income, demand, supply response, excess profit, market cycle, physical, economic, social, government, and trend
- Best exam move
- Connect present value to expected benefits and changing market forces.
- Topic
- Highest and best use
- What to know
- Legally permissible, physically possible, financially feasible, maximally productive, reasonably probable, vacant, improved, demolition, and interim use
- Best exam move
- Apply all four tests and avoid choosing the highest gross revenue without feasibility.
- Topic
- Appraisal process
- What to know
- Problem identification, intended use, intended user, property rights, effective date, scope, data, analysis, approach, reconciliation, report, and certification
- Best exam move
- Identify the assignment before selecting evidence and methods.
- Topic
- CMA, BPO, appraisal, and AVM
- What to know
- Broker, appraiser, automated model, market analysis, price opinion, regulated use, inspection, algorithm, independence, and disclosure
- Best exam move
- Match provider and product to purpose and governing law without treating the labels as interchangeable.
- Topic
- Sales comparison approach
- What to know
- Comparable sale, subject, arm's-length, recency, location, property rights, financing, conditions, market change, physical feature, and adjustment
- Best exam move
- Choose the most comparable evidence and adjust the comparable, not the subject.
- Topic
- Adjustment direction
- What to know
- Comparable superior, subtract, comparable inferior, add, subject feature, paired data, market support, net adjustment, gross adjustment, and indication
- Best exam move
- Ask what change makes the comparable more like the subject.
- Topic
- Cost approach
- What to know
- Land value, replacement cost, reproduction cost, improvement, depreciation, entrepreneurial incentive, site improvement, new construction, special purpose, and value indication
- Best exam move
- Estimate land separately, add current improvements, and subtract accrued depreciation.
- Topic
- Depreciation types
- What to know
- Physical deterioration, functional obsolescence, external obsolescence, curable, incurable, short-lived, long-lived, deferred maintenance, design, and outside influence
- Best exam move
- Identify whether the value loss comes from wear, property design, or an outside condition.
- Topic
- Income sequence
- What to know
- Potential gross income, vacancy, collection loss, other income, effective gross income, operating expense, NOI, debt service, depreciation, and capital expenditure
- Best exam move
- Build annual NOI using the problem's stated inclusions before capitalizing.
- Topic
- Direct capitalization
- What to know
- NOI, value, overall rate, cap rate, market support, annual, stabilized, income, rate, inverse relationship, and sensitivity
- Best exam move
- Use rate = NOI / value, value = NOI / rate, or NOI = value x rate.
- Topic
- Gross multipliers
- What to know
- GRM, GIM, sale price, monthly rent, annual rent, gross income, comparable, subject, expenses excluded, and period consistency
- Best exam move
- Match the subject's gross income type and period to the comparable-derived multiplier.
- Topic
- Reconciliation
- What to know
- Final opinion, weighting, reliability, relevance, data quality, property type, intended use, approach applicability, range, and no automatic average
- Best exam move
- Give the strongest weight to the approach supported by the best relevant evidence.
- Topic
- Valuation practice audit
- What to know
- Unknown, definition, property type, market participant, approach, formula, input, period, adjustment direction, reasonableness, and conclusion
- Best exam move
- Explain why the chosen method fits and why the nearest alternative fits less well.
What should you sort out before you begin?
- Terms
- Cost vs. price vs. market value
- Difference
- Cost is an expenditure, price is a transaction amount, and market value is an opinion under a defined concept and date.
- Question cue
- Spent, paid, or estimated.
- Terms
- Appraisal vs. CMA
- Difference
- An appraisal is a regulated valuation service. A CMA is a broker's market analysis for a real estate purpose within governing limits.
- Question cue
- Appraiser opinion versus brokerage analysis.
- Terms
- CMA vs. BPO
- Difference
- Both can be broker products, but their stated form, purpose, client, permitted use, and governing law can differ.
- Question cue
- Marketing analysis versus requested price opinion.
- Terms
- BPO vs. AVM
- Difference
- A BPO reflects a broker's analysis. An AVM produces an automated model result from data and algorithms.
- Question cue
- Human broker opinion versus automated output.
- Terms
- Replacement cost vs. reproduction cost
- Difference
- Replacement creates equivalent utility with current materials and standards. Reproduction creates a replica of the original improvement.
- Question cue
- Equivalent utility versus duplicate.
- Terms
- Physical vs. functional depreciation
- Difference
- Physical deterioration is wear or damage. Functional obsolescence comes from design, layout, feature, or utility inadequacy within the property.
- Question cue
- Condition versus design utility.
- Terms
- Functional vs. external obsolescence
- Difference
- Functional causes lie within the property. External causes arise outside its boundaries and control.
- Question cue
- Inside defect versus outside influence.
- Terms
- GRM vs. cap rate
- Difference
- GRM relates price to gross rent and ignores expenses. Cap rate relates annual NOI to value.
- Question cue
- Gross multiplier versus net-income rate.
- Terms
- PGI vs. NOI
- Difference
- PGI is full potential property income before vacancy. NOI remains after effective income and operating expenses.
- Question cue
- Potential top line versus operating result.
- Terms
- Reconciliation vs. averaging
- Difference
- Reconciliation weighs evidence by applicability and quality. Averaging gives every indication equal mathematical weight.
- Question cue
- Reasoned weighting versus automatic mean.
How should you review your results?
- Session
- Session 1
- Focus
- Separate value concepts and principles
- Proof you are ready
- Classify 40 cost, price, value, substitution, contribution, conformity, progression, regression, anticipation, competition, and change scenarios.
- Session
- Session 2
- Focus
- Practice highest and best use and services
- Proof you are ready
- Apply all four use tests and distinguish appraisal, CMA, BPO, and AVM in 30 fact patterns.
- Session
- Session 3
- Focus
- Master sales comparison
- Proof you are ready
- Choose comparables and complete 30 supported superior-inferior adjustment directions without reversing the subject and comparable.
- Session
- Session 4
- Focus
- Build cost and depreciation
- Proof you are ready
- Separate replacement, reproduction, physical, functional, external, curable, and incurable concepts and solve 20 cost setups.
- Session
- Session 5
- Focus
- Build income and multiplier math
- Proof you are ready
- Solve 20 NOI-cap-rate and 20 gross-multiplier questions with annual, monthly, gross, and net units labeled.
- Session
- Session 6
- Focus
- Complete mixed valuation practice
- Proof you are ready
- Score at least 85% on two fresh timed sets and defend the approach, data, adjustment, formula, and reconciliation for every uncertain answer.
Do not count recognition as mastery. Close the notes and explain the rule, apply it to a new fact pattern, and identify why each distractor fails.
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Questions students ask about Valuation Practice Questions
How many Valuation questions are on the national real estate exam?
The PSI broker outline effective June 24, 2026 assigns approximately 8 of 100 scored national questions to Valuation. Calculation can also appear in Real Estate Math, so practice both conceptual approach selection and formula setup.
What valuation topics are tested?
The current outline covers value concepts and principles, highest and best use, appraisal process, appraisal reports, licensed or certified appraisal boundaries, CMA, BPO, AVM, sales comparison, cost, income capitalization, depreciation, gross multipliers, and related calculations.
What is the difference between market value and price?
Market value is an opinion under a defined market-value concept and assumptions. Price is the amount actually asked, offered, or paid. A particular price can differ from market value because of motivation, financing, relationship, duress, special terms, inadequate exposure, or imperfect information.
Which appraisal approach is best for an owner-occupied house?
The sales comparison approach is often most applicable when enough recent comparable sales exist and buyers think in terms of substitutes. Do not make it automatic. A special-purpose improvement, income-producing property, or lack of comparable evidence can change the emphasis and reconciliation.
Which approach is best for an income property?
The income approach is often important when buyers focus on income and return. Direct capitalization uses annual NOI and a market-supported capitalization rate. GRM uses gross rent and does not account for expenses, so it is a simpler comparison tool rather than a substitute for NOI capitalization.
How do appraisal adjustments work?
Adjust the comparable to the subject. If a comparable is superior on a value-relevant feature, subtract from the comparable. If it is inferior, add to the comparable. The goal is to estimate what the comparable would indicate if it were more like the subject.
What is highest and best use?
It is the reasonably probable use that is legally permissible, physically possible, financially feasible, and maximally productive under the appraisal assignment. Apply the tests in context and distinguish the site as vacant from the property as improved when the question does.
What is the difference between appraisal, CMA, BPO, and AVM?
An appraisal is a valuation service subject to appraisal law and standards. A CMA is a broker's comparative market analysis for a real estate purpose. A BPO is a broker price opinion under governing law and scope. An AVM is an automated model output. They differ in provider, purpose, method, independence, scope, and permitted use.
What practice score should I target in Valuation?
Aim for at least 85% on fresh mixed sets, including approach selection, adjustment direction, depreciation, highest and best use, CMA-appraisal boundaries, GRM, NOI, and cap rate. Explain why the nearest competing approach is less persuasive on the stated facts.
Are these official PSI Valuation questions?
No. They are original practice examples aligned to the current PSI broker outline. Primary appraisal, mortgage, federal valuation, and market-value sources were checked through August 1, 2026.
Primary sources
- PSI Illinois Candidate Information Booklet dated June 24, 2026
- The Appraisal Foundation, current USPAP and Appraisal Standards Board information
- Fannie Mae Selling Guide, current appraisal report assessment
- Federal Housing Finance Agency, final automated valuation model quality-control rule
- U.S. Department of Housing and Urban Development, current single-family appraisal resources
- Consumer Financial Protection Bureau, current Regulation B valuation rules
- Internal Revenue Service Publication 561, fair market value and appraisal guidance
The current official outline controls the tested scope. Statutes, regulations, and official agency materials control when a general study rule and a jurisdiction-specific rule differ.
Editorial status
Checked against primary sources
The Pass Illinois editorial team last checked this guide on August 1, 2026. Every practice question is an original study item, and the source links above let you verify the rules that support the lesson.