Appraisal: USPAP, Market Value, the Three Approaches, CMA & BPO

Real Estate Appraisal is 8% of the Florida sales associate exam. Expect two kinds of questions. The first is legal: what a sales associate may and may not call a valuation. The second is technical: market value, the three approaches, and the depreciation and income vocabulary behind them. The math is simple once you know which formula goes with which approach.

Who may appraise, and what a licensee may do

Part II of Chapter 475 regulates appraisers. Only a person certified, licensed or registered under that part may use an appraiser title or issue an appraisal report (§ 475.612(1)). Appraisers follow USPAP, the Uniform Standards of Professional Appraisal Practice. These are the most recent standards approved and adopted by the Appraisal Standards Board of The Appraisal Foundation.

Sales associates, broker associates and brokers have a protected lane:

• A licensee who is not an appraiser may still provide valuation services for compensation, as long as the licensee does not represent himself or herself as certified, licensed or registered under Part II (§ 475.612(2)).
• In the ordinary course of business, a licensee may perform a comparative market analysis (CMA), give a broker price opinion (BPO), or give an opinion of value.
• But in no event may it be referred to as an appraisal (§ 475.612(3); § 475.25(1)(t)).

Market value and when federal law requires an appraisal

Federal regulations define market value as the most probable price a property should bring in a competitive and open market, under all conditions requisite to a fair sale. The buyer and seller each act prudently and knowledgeably, and the price is not affected by undue stimulus. Both parties are typically motivated and well informed, and the property gets a reasonable time on the market.

For federally related transactions, an appraisal by a state certified or licensed appraiser is required except in listed cases. The one that matters most: a residential transaction of $400,000 or less is exempt from the federal appraisal requirement, although the lender must still obtain an appropriate evaluation of the property. Above $400,000, a complex residential appraisal requires a state certified appraiser.

The three approaches

An appraiser considers the market (sales comparison) approach, the income approach and the cost approach, and uses professional judgment to pick the one(s) that best indicate value.

1. Sales comparison

Sales of similar properties that sold close to the valuation date are compared with the subject. Adjustments are made for financing, conditions of sale, date of sale, physical characteristics and location. Example: a comparable sold for $410,000 and has a pool the subject lacks, and the market says the pool adds $20,000. Adjust the comparable down: $410,000 − $20,000 = $390,000 indicated for the subject.

2. Cost (cost-depreciation)

Estimate the reproduction or replacement cost of the improvements. Subtract depreciation (physical, functional and external), then add the land value. The approach is generally useful for specialty properties, where other approaches lack data. Example: replacement cost $300,000 − depreciation $45,000 + land $80,000 = $335,000.

Physical deterioration

Loss in value from normal wear and tear and deferred maintenance.

Functional obsolescence

Loss from a decrease in functional utility. It can be caused by a deficiency (too little) or a superadequacy (too much).

External obsolescence

Loss from factors outside the property, economic or locational. It may be temporary or permanent.

3. Income capitalization

Work down the income statement:

• Potential gross income = total market rent with no vacancy, plus miscellaneous income.
• Effective gross income = potential gross income minus vacancy and collection loss.
• Net operating income = effective gross income minus operating expenses (and reserves, if the market uses them).
• Value = NOI ÷ overall capitalization rate, or gross income × gross income multiplier.

Example: potential gross income $120,000; vacancy and collection loss 5% ($6,000), so effective gross income is $114,000. Operating expenses are $44,000, so NOI is $70,000. At a 7% cap rate: 70,000 ÷ 0.07 = $1,000,000. With a gross income multiplier of 9 applied to $114,000 instead, the result is $1,026,000.

Where this shows up on the exam

Real Estate Appraisal is 8% of the exam (DBPR candidate booklet, January 2025). Count on a CMA/BPO-versus-appraisal question, a market value element, a depreciation-type identification (functional vs. external is the favorite), and at least one income or cost calculation.

Sources

North Carolina law as published by the General Assembly and the Office of Administrative Hearings, checked 2026-11-05:

• § 475.25(1)(t), Fla. Stat.
• § 475.611, Fla. Stat.
• § 475.612, Fla. Stat.
• 12 CFR 34.42-34.43
• IRS IRM 4.48.6
• Florida Department of Revenue, Real Property Appraisal Guidelines
• DBPR, Florida Real Estate Sales Associate Candidate Information Booklet (Jan 2025), content areas