Real estate valuation for the Illinois broker exam

PSI assigns 8% of the 100 scored national questions to the entire Valuation and Market Analysis area. Its three groups cover appraisals, estimating value and CMA, BPO, appraisal and AVM distinctions. That is not an allocation of eight questions to this page or to each approach. Use the full PSI content outline for the national and Illinois portions.

Price is an amount exchanged or agreed in a transaction. Cost concerns an expenditure to acquire or create something. A value opinion answers a defined assignment for a property interest and effective date. They can differ. A negotiated price is relevant evidence, but it does not automatically prove the market value, assessed value or cost.

Use the definition required by the assignment. The cited federal banking definition concerns the most probable price in a competitive, open market with prudent, knowledgeable parties and no undue stimulus. Its conditions address typical motivation, informed parties, reasonable exposure, cash or comparable financial terms, and normal consideration unaffected by special financing or concessions.

Investment value can reflect one investor’s particular needs. An assessment and an insurance replacement-cost estimate have their own purposes. Do not silently substitute any of them for the requested market-value basis.

Define the problem and scope; identify the interest, effective date, intended use and users; collect and verify relevant data; analyze the market and highest and best use; develop the necessary approaches; reconcile the indications; and communicate the result under applicable requirements. The work is analytical, not simply filling every box on a form.

The appropriate scope may differ between assignments. A lawful desktop or hybrid appraisal has its own information and program conditions; an appraisal is not automatically a personal interior visit or a substitute for a home inspection.

Ask how relevant buyers assess the property and whether the evidence is reliable. Comparable exchanges support sales comparison. Newer or specialized improvements may make a supported cost analysis useful. Income-oriented purchases call for analysis of expected income and expenses. A rented house does not automatically require income-only reliance.

Fannie Mae’s cited requirements concern its eligible loan programs, including particular cost and income requirements and restrictions on sole reliance. They are not universal rules for every Illinois property, appraisal or broker report. Reconciliation evaluates relevance and reliability rather than automatically averaging three numbers.

You adjust the comparable toward the subject. If the comparable has a market-supported $15,000 advantage, subtract that amount from its sale evidence. If it is inferior by a supported amount, add it. Compare the same property rights and account for relevant terms, dates, locations and features.

The adjustment is not automatically the feature’s construction cost or a seller concession’s face amount. Nor is there a universal three-comparable, one-mile or six-month rule governing every appraisal and Illinois broker report; actual program and assignment requirements matter.

The simplified relationship is land value plus improvement cost new minus improvement depreciation, with other relevant costs and entrepreneurial incentive included as required. Replacement means equivalent utility with current materials and standards; reproduction means a replica. Depreciation estimates can become difficult for older improvements.

Estimate land separately rather than applying improvement depreciation to it. Land can still lose market value. A land-inclusive market-value calculation is different from insurance replacement cost for a structure; do not assume the insurance amount should include land or equal the property’s market price.

Physical deterioration is wear, damage or deferred maintenance. Functional obsolescence concerns a deficiency or excess within the property’s design or utility. External obsolescence is loss caused by outside influences. Identify both the cause and supported value effect.

An interest-rate change can influence the market without automatically creating a separate property-specific deduction. Appraisal depreciation is also different from a tax depreciation deduction; do not copy an accounting schedule into a market-value conclusion.

Using consistent periods, subtract vacancy and collection loss from potential gross income, add other income and subtract the stated property operating expenses. The result is NOI before debt service, owner income tax, accounting depreciation and capital spending. Define replacement-reserve treatment because conventions vary; do not deduct the same reserve twice.

Direct capitalization uses a compatible NOI divided by the applicable capitalization rate. Annual NOI of $72,000 divided by 0.08 indicates $900,000. A loan interest rate is not automatically the correct cap rate, and the indication is not a guaranteed sale price or investor return.

GRM divides price by gross rent. Multiply a subject’s comparable gross rent by the supported multiplier to obtain an indication. Match the period: a monthly GRM belongs with monthly gross rent, not annual NOI.

A cap rate relates NOI to value. GRM does not deduct operating expenses, so two properties with equal gross rents can have different NOI and risk. Do not treat a gross-rent indication as a complete net-income analysis.

It is the reasonably probable use that is legally permissible, physically possible, financially feasible and maximally productive in the valuation analysis. All four tests matter. Distinguish the land as vacant from the property as improved.

The highest gross rent does not establish the highest net value, and an imagined prohibited development is not automatically permissible. An appraisal analysis does not itself grant a permit or approve a zoning change.

Substitution concerns comparable alternatives. Anticipation concerns expected future benefits. Contribution asks what an element adds to value, which may differ from its cost. Supply, demand with purchasing ability, utility, scarcity and transferability help explain market behavior. Conformity, competition and change concern the property’s market context.

Progression and regression require the stated causal value effect from surrounding properties of the relevant type and area. Spending more than an improvement contributes does not alone prove regression. Apply the principle supported by the facts rather than matching a single buzzword.

Section 10-45 allows qualified brokerage pricing work subject to its conditions. The statutory ordinary-course and compensation qualifications must be read together where applicable: an analysis in the ordinary course with no compensation other than sale or rental compensation is not the same as every unpaid report in every setting. A real estate license or report label alone does not authorize unrestricted appraisal practice.

The stated prohibition concerns use as the primary basis for determining market value for a financial institution’s mortgage loan origination secured by that same property. It is not a prohibition on every lender or servicer request regardless of purpose. Other appraisal-law exceptions have their own conditions and do not automatically authorize a broker’s origination assignment.

For reports within the section’s requirements, use writing, either paper or electronic. Include the intended purpose, a brief description of the real estate interest, a brief description of the methodology, assumptions or limiting conditions, the broker’s or managing broker’s existing or contemplated interest, that preparer’s name, license number and signature, and the prescribed not-an-appraisal statement in substantially the statutory form. Other appropriate items may be added.

The statutory statement is: "This is a broker price opinion/comparative market analysis, not an appraisal of the market value of the real estate, and was prepared by a licensed real estate broker or managing broker who was not acting as a State certified real estate appraiser." The statement does not say that the preparer can never hold an appraiser credential; it describes the capacity in which the preparer acted.

Rule 1450.790 separately requires a person licensed both as broker or managing broker and as appraiser to identify the broker credential, not the appraiser credential, on the initial page of the covered broker report. Do not confuse that dual-license initial-page rule with every report’s identity requirements. The cited section does not impose a universal three-comparable or personal-interior-visit minimum.

Rule 1455.240 incorporates the 2024 edition without automatic incorporation of later amendments or editions. Its jurisdictional exception addresses only the inconsistent portion for the particular assignment where applicable law precludes compliance. It is not a blanket release from the standards.

The Appraisal Foundation identifies 2024 USPAP as current. A 2026 guidance manual or 2026-27 course title does not by itself create a new incorporated standards edition. The Foundation’s April 2026 technology advisory announcement likewise should not be read as automatic amendment of the Illinois rule.

The federal AVM quality-control rule took effect October 1, 2025. For the defined covered mortgage originators and secondary-market issuers using AVMs in credit decisions or covered securitization determinations on mortgages secured by a consumer’s principal dwelling, it requires controls addressing confidence, data manipulation, conflicts of interest, random sample testing and reviews, and applicable nondiscrimination law.

Section 1026.42(i) can apply to a covered principal-dwelling mortgage even when its purpose is business, commercial, agricultural or organizational. Certain federally regulated institutions are addressed through parallel agency rules rather than that paragraph. Specified uses for monitoring, review of an already completed determination, and an appraiser’s development of an appraisal are excluded from that paragraph’s requirement; other applicable law still matters. Do not generalize this into a rule covering every public online estimate or a guarantee that any model is accurate.

Relevant additional comparables, an explanation and correction of an apparent error can be legitimate requests. They differ from demanding an unsupported minimum value, threatening future work to reach a target or conditioning compensation on a closing or needed value. Apply the valuation-independence rule within its actual scope.

Use relevant property and market evidence, not protected characteristics or unsupported neighborhood assumptions. This guide does not determine an actual dispute, exemption, appraisal assignment or loan approval.

These are original teaching questions based on the public outline and identified sources, not official or recalled PSI questions. Their score is not an official passing score or a validated readiness measure. Review the reason for a missed answer and try different facts.

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No. Section 1026.42(i) addresses its defined mortgage originators and secondary-market issuers, specified credit decisions or covered securitization determinations, and mortgages secured by a consumer’s principal dwelling. Credit decisions include origination and specified changes such as modification, termination and a credit-line increase. Certain federally regulated institutions have parallel agency rules.

The paragraph excludes specified monitoring of existing loans, review of an already completed determination, and use by a licensed or certified appraiser developing an appraisal. Those exclusions do not waive other applicable law or standards. The separate exclusion of solely automated results from paragraph (b)(3)’s general valuation definition does not erase paragraph (i)’s AVM controls. No universal minimum confidence percentage or single approved algorithm is supplied here.

Do not equate them. A market-value appraisal can include land and market influences. Structure replacement-cost coverage concerns rebuilding the covered structure on its applicable basis, subject to the actual policy. Illinois insurance definitions distinguish market value, replacement cost and actual cash value.

This page does not calculate an appropriate private insurance amount, deductible, endorsement, code-upgrade allowance or claim. The exam distinction is the purpose and property being valued, not a rule that every home should be insured for its purchase price or land-inclusive appraisal.

Conventions differ. Read whether the supplied method calls its input NOI before reserves, NOI after an allowance or a net-cash-flow measure. Match that definition to the capitalization evidence. Deduct an allowance once when the prescribed method requires it; do not subtract it again because it appears under a second label.

For the example here, $80,000 before reserve less the stated $5,000 allowance leaves $75,000 for its compatible rate. The example’s convention does not change every other appraisal, lender or multifamily program definition.

There is no universal equal-average rule or fixed weighting for every assignment. Consider the quantity, quality and relevance of evidence and explain the emphasis. An unsupported cost or income figure does not become credible just because it is averaged with sales evidence.

When an exam calculation expressly supplies justified weights, apply them as directed. Here, 75% of $400,000 plus 25% of $380,000 is $395,000. Those supplied weights are a teaching assumption, not a professional standard imposed on every appraisal.