chapter 10
Excess supply causes present values to _______. Multiple choice question. stay the same drop rise multiply
drop
The cost approach to valuing properties values the cost of _______ and the value of ______ separately. Multiple choice question. marketing; land construction; land land; structure construction; leases
construction;land
Oversupply and falling interest rates have what effect on cap rates? Multiple choice question. increase no effect decrease
decrease
Which of the following are methods to compute gross income? Multiple select question. effective gross income net gross income potential gross income gross income multiplier
effective gross income potential gross income
Comparable property values ______ when cap rates go up. Multiple choice question. divide fall rise don't change
fall
Property values will change in what direction when excess supply is expected? Multiple choice question. remain unchanged fall rise
fall
One would expect that the cap rates for comparable properties would ______. Multiple choice question. fall over a range of values be tied to each other be irrelevant be the same
fall over a range of values
What must be estimated under the discounted cash flow method of property valuation? Multiple choice question. current NOI comparable properties future NOI
future NOI
Which methods of valuation focus on the income producing aspect of comparable properties? Multiple select question. gross income multiplier direct capitalization sales comparison
gross income multiplier direct capitalization
The GIM is used in conjunction with the _____. Multiple choice question. cost approach sales comparison approach income approach comparable approach
income approach
The __________ to property valuation is based on the principle that the value of a property is related to its cash flow. Multiple choice question. income approach comparable approach cost approach sales comparison approach
income approach
The principle that the value of a property is related to its ability to produce cash flow defines what valuation approach? Multiple choice question. sales comparison approach cost approach comparable approach income approach
income approach
Excess demand causes present value to: Multiple choice question. drop by half remain unchanged increase decrease
increase
Excess supply causes cap rates to: Multiple choice question. fall increase remain unchanged
increase
Excess supply causes cap rates to: Multiple choice question. fall remain unchanged increase
increase
Oversupply and rising interest rates have what effect on cap rates? Multiple choice question. no effect increase decrease
increase
When analyzing real market forces and interest rates, it is important to analyze the __________ amongst the real market forces.
interactions
The capitalization method of valuation can not assure a property will be a good _______
investment
The _________ value is the most probably price a property would sell for in a competitive market.
market
The most probable price a property would sell for is referred to as which of the following? Multiple choice question. book value market value comparable price intrinsic value
market value
The effects of interest rates on value __________. Multiple choice question. are short term in nature are tied to net operating income do not affect value may persist for a long time
may persist for a long time
When choosing comparable properties, one wants ______. Multiple choice question. as few properties as possible to choose from properties that require minor adjustments properties that require major adjustments properties that are exactly the same or they're useless
minor
An informed investor would never pay ________ for a property than what recent comparable properties have sold for.
more
The _________ is an estimated value that takes into account the requirements of the mortgage lender and the equity investor. Multiple choice question. mortgage equity value mortgage equity capitalization equity capitalization mortgage capitalization
mortgage equity capitalization
Effective gross income is ________. Multiple choice question. the same as potential gross income potential gross income less effectiveness potential gross income less vacancies potential gross income plus vacancies
potential gross income less vacancies
Fill in the blank question. Under the discounted cash flow method of valuation, investors will pay no more than the _________ value of all future cash flows.
present
The mortgage-equity capitalization method says the property value is equal to the expected mortgage financing plus what? Multiple choice question. present value of other debts present value of equity investment present value of tax liabilities the mortgage rate
present value of equity investment
When choosing comparable properties, one wants ______. Multiple choice question. as few properties as possible to choose from properties that are exactly the same or they're useless properties that require major adjustments properties that require minor adjustments
properties that require minor adjustments
When long-run growth in NOI is expected to be level or zero, the terminal cap rate should be: Multiple choice question. r r - g r+g g
r
When long-run growth in NOI is expected to be negative, the terminal cap rate should be: Multiple choice question. r+g g r - g r
r+g
When long-run growth in NOI is expected to be positive, the terminal cap rate should be: Multiple choice question. r - g r r+g g
r-g
The sales comparison approach uses which of the following to value a property? Multiple choice question. recently sold comparable properties recently sold properties future cash flows
recently sold comparable properties
The sales comparison approach uses which of the following to value a property? Multiple choice question. recently sold properties future cash flows recently sold comparable properties
recently sold comparable properties
An alternative method to estimating the terminal cap rate is to estimate the _________ value.
resale
Given the implied land value for the following property types, which property should you build?Office: $750,000Retail: $1,800,000Apartment: $1,100,000Warehouse: $900,000 Multiple choice question. Warehouse Apartment Office Retail
retail
Any cash flows beyond projections will be represented by: Multiple choice question. reversion value NOI mortgage rate terminal cap rate
reversion value
The discount rate is the required return based on the _________ of the investment.
risk
A key input to calculating the discount rate is the _____. Multiple choice question. internal rate of return risk premium mortgage rate net operating income
risk premium
Which methods of valuation focus on adjusting for physical and locational differences of comparable properties? Multiple choice question.
sales comparison
Which of the following determines values based on comparable properties recently sold? Multiple choice question. sales comparison approach cost approach income approach
sales comparison approach
A property that is very _________ in quality, size, age, and location would make a good comparable property.
similar
Estimating the resale value is an alternative to using the _______ cap rate.
terminal
Changes in expected NOI cause ______ in land prices.
volatility
True or false: When purchasing properties with existing leases, the comparable property should have a similar lease.
TRUE
To calculate the present value of an investment, one needs _______. Multiple choice question. a forecast of NOI, a holding period, and a reversion value. a holding period, a discount rate, and a reversion value. a forecast of NOI and a holding period a forecast of NOI, a holding period, a discount rate, and a reversion value
a forecast of NOI, a holding period, a discount rate, and a reversion value
Which parties use appraisals in real estate finance decision making? Multiple choice question. borrowers neither lenders nor borrowers both lenders and borrowers lenders
both lenders and borrowers
An appraisal is an ________ of value.
estimate
When purchasing a leased fee estate, the comparable property for valuation should have which similar characteristics? Multiple select question. lease contents occupant income location
lease contents location
Due to age and depreciation, older properties will produce ______ income as a new property. Multiple choice question. less the same more a lot more
less
The cost approach is most desirable with _______. Multiple choice question. properties that are 10 years old properties that are less than 10 years old properties that are 20 years old properties that are 30 years old
properties that are less than 10 years old
The gross income multiplier is defined as: Multiple choice question. Sales price + Gross income Sales price / Gross income Sales price x Gross income Sales price - Gross income
Sales price / Gross income
True or false: The capitalization rate method of valuation guarantees a property will be a good investment.
FALSE
___________ reports are required by lenders.
appraisal
The cost approach is less desirable in what situation(s)? Multiple select question. newer construction comparable land sales are easy to find comparable land sales are difficult to find older properties
comparable land sales are difficult to find older properties
In general, cap rates on older properties will be _______. Multiple choice question. the same lower irrelevant higher
higher
changes in expected growth rate cause volatility in _______ prices
land
Any cash flows beyond projections will be represented by: Multiple choice question. NOI reversion value terminal cap rate mortgage rate
reversion value
Properties that are comparable are _________ Multiple choice question. very similar have very different lease terms impossible to find not at all similar
very similar
One method of valuation is that the value of a property is equal to: Multiple choice question. NOI / (1 + R) R NOI / R NOI x R
NOI / R