Texas Property Valuation
Practice Questions & Answers (2026)
Property valuation questions on the Texas exam test the three approaches to value (sales comparison, cost, and income), how appraisals work, and what affects market value. The Texas Real Estate Commission (TREC) tests when each approach is most appropriate, how adjustments are made in the sales comparison approach, and what factors an appraiser considers vs. ignores. Texas candidates often struggle with income approach calculations — particularly gross rent multiplier (GRM) and net operating income (NOI) — and with the cost approach depreciation calculations. These are high-difficulty math and concept questions where careful study of the explanations pays off significantly on exam day.
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Texas Property Valuation — Practice Questions & Answers
115 questions on Property Valuation from the Texas real estate question bank. First 10 are free — sign up to unlock all 115.
Q1. In Texas, who is authorized to prepare a formal appraisal for mortgage lending purposes?
Explanation
Formal appraisals for mortgage lending must be prepared by a state-licensed or state-certified real estate appraiser under FIRREA (Financial Institutions Reform, Recovery, and Enforcement Act). Real estate agents may prepare CMAs, not formal appraisals.
Q2. The principle of substitution states that:
Explanation
The principle of substitution is fundamental to all three approaches to value. It holds that a buyer will not pay more than the cost of acquiring or creating an equally desirable substitute property.
Q3. Accrued depreciation in the cost approach refers to:
Explanation
Accrued depreciation is the total loss in value from all causes (physical deterioration, functional obsolescence, and external obsolescence) from the time the improvement was built to the present date of appraisal.
Q4. A property recently sold for $350,000. The buyer paid $5,000 above appraised value due to a competitive bidding situation. For comparable sales purposes, the appraiser would most likely:
Explanation
When a sale price does not reflect market value conditions (e.g., motivated buyer, distressed sale, non-arm's length transaction), appraisers may make adjustments or exclude the sale. An above-market payment due to bidding pressure may require a downward adjustment.
Q5. The income capitalization approach to value is MOST appropriate for appraising:
Explanation
The income capitalization approach converts anticipated future income into present value. It is most appropriate for income-producing properties like apartment buildings, retail centers, and office buildings.
Q6. If a commercial property has a net operating income (NOI) of $90,000 and comparable properties are selling at a 6% capitalization rate, the estimated value is:
Explanation
Value = NOI ÷ Cap Rate = $90,000 ÷ 0.06 = $1,500,000.
Q7. In the sales comparison approach, a comparable sale has a garage valued at $8,000 that the subject property lacks. The appraiser should:
Explanation
When the comparable is superior to the subject (has a garage the subject lacks), the appraiser subtracts the adjustment from the comparable's sale price to make it equal to the subject.
Q8. Functional obsolescence in a property refers to:
Explanation
Functional obsolescence is loss in value caused by features that are outdated, inadequate, or over-improved relative to current market standards — such as a one-bathroom house in a three-bathroom neighborhood.
Q9. A Texas appraiser is completing an appraisal and uses three comparable sales. After adjustments, the comparables indicate values of $310,000, $315,000, and $308,000. The appraiser reconciles these to $312,000. This process is called:
Explanation
Reconciliation is the process by which an appraiser weighs and analyzes the indications of value from different approaches or comparables to arrive at a final value estimate. It is not a simple average but a judgment-based process.
Q10. In Texas, the ad valorem property tax is based on:
Explanation
Texas ad valorem property taxes are based on the appraised value as determined by the county appraisal district (CAD). Owners can protest their appraised value through the Appraisal Review Board (ARB).
Q11. Gross Rent Multiplier (GRM) is calculated as:
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