Nationwide Mortgage Licensing System (NMLS) Practice Exam

What does a loan originator use to determine the estimated value of a property based on an analytical comparison of similar property sales?

1. An appraisal

2. A market survey

3. An area survey

4. A cost-benefit analysis

The correct answer is: An appraisal

A loan originator utilizes an appraisal to determine the estimated value of a property through an analytical comparison of similar property sales, also known as "comparable sales" or "comps." An appraisal is an in-depth assessment performed by a licensed appraiser, who examines the specific features of a property along with the sales data of similar properties in the area. This process helps establish a professional opinion of value, which is crucial for lenders when determining how much they are willing to lend. This method provides a reliable estimate based on actual market data, which is important for ensuring loans are secured by properties valued at their true market worth. The appraiser's analysis encompasses factors such as location, size, condition, and recent sale prices of comparable homes, leading to a well-supported valuation used in real estate transactions. In contrast, the other options do not serve the same purpose. A market survey may refer to a broader analysis of market conditions and trends but lacks the specific valuation aspect of comparable sales. An area survey typically focuses on the general characteristics of a neighborhood rather than specific property values. A cost-benefit analysis analyzes the costs associated with a project against the expected benefits, which is more relevant to investment decisions than property valuation.