Massachusetts Real Estate License Practice Test

What is a common reason for a property to be appraised?

1. To increase listing price

2. For determining rental income value

3. Compensation in condemnation proceedings

4. For real estate investment analysis

The correct answer is: Compensation in condemnation proceedings

A common reason for a property to be appraised is to provide an accurate value that is crucial in condemnation proceedings. When a property is taken for public use through eminent domain, the property owner is entitled to just compensation, which is typically determined based on the appraised value of the property. This appraisal takes into account the fair market value to ensure the owner is fairly compensated for their loss. While increasing a listing price, determining rental income value, and real estate investment analysis may involve appraisals, their primary goal is different. In those circumstances, appraisals can guide strategic decisions but may not be mandated as they are in condemnation cases. For instance, when setting a listing price, an appraisal might help, but the seller ultimately decides. Similarly, while an appraisal can provide insight into potential rental income, it is not always a requirement for that purpose, and real estate investment decisions might also be informed by market trends and other factors beyond just appraised value. Thus, the most direct and common connection to an appraisal occurs in the context of condemnation proceedings.