Question 3

The value of the property is sufficient to secure the loan.

An appraisal is typically required by the mortgagee to confirm that the value of the property is adequate to secure the loan. This ensures that the lender has a reliable asset backing the mortgage in case of default.

A) Purchaser is not paying more than fair market value.

This option is partially correct as an appraisal does help ensure the buyer isn't overpaying; however, the primary concern for the mortgagee is the property's value as collateral, not the fairness of the purchase price.

B) Buyer has sufficient income to meet the monthly payments.

This option is incorrect because the appraisal does not assess the buyer's income or ability to make payments. Instead, income verification is a separate part of the loan approval process.

C) Selling price is competitive with similar properties.

While an appraisal may consider comparable sales, the mortgagee's main focus is on the property's value as collateral rather than its competitiveness in the market.

D) Value of the property is sufficient to secure the loan.

This is the correct answer, as the mortgagee requires an appraisal to ensure that the property’s value meets or exceeds the loan amount, providing security for the lender.

Conclusion

The correct answer is D because it directly addresses the mortgagee's primary concern regarding the appraisal's purpose. While other options touch on relevant aspects of the property transaction, they do not specifically relate to the necessity for the mortgagee to secure the loan with adequate collateral. All other options fail to focus on the essential role of the appraisal in protecting the lender's financial interest.