Exam 2 Review

Real estate appraisers generally distinguish among the concepts of market value, investment value, and transaction value. Which of the following statements best describes the concept of market value? A) It is an estimate of the most probable selling price of a property in a competitive market. B) It is the value a particular investor places on a property. C) It is the price we observe when a property is sold. D) It is the maximum amount that a seller would be willing to accept

A) It is an estimate of the most probable selling price of a property in a competitive market.

In the Palm Grove Office Complex example, the project was destined to be an ill-fated venture from its inception for all of the following reasons EXCEPT: A) the zoning laws of University City ultimately prevented the project's developers from starting the construction process. B) University City was not well-suited for large office space geared toward firms with greater than 25 employees. C) Palm Grove Office Complex lacked the visual exposure, convenient access, and parking that its competitors held significant comparative advantages in. D) the structures were primarily designed as general-purpose office space, which excluded potential occupants such as laboratories or medical offices.

A) the zoning laws of University City ultimately prevented the project's developers from starting the construction process.

Suppose that an income producing property is expected to yield cash flows for the owner of $150,000 in each of the next five years, with cash flows being received at the end of each period. If the opportunity cost of investment is 8% annually and the property can be sold for $1,250,000 at the end of the fifth year, determine the value of the property today. A) $304,704.00 B) $1,449,635.50 C) $1,481,143.98 D) $2,000,000.00

B) $1,449,635.50 calc: n- 5 I/Y- 8 pmt- 150,000 fv- 1,250,000 pv= 1,449,635.50

Given the following information, calculate the effective gross income. Property: 4 office units Contract rents per unit: $2500 per month Vacancy and collection losses: 15% Operating Expenses: $42,000 Capital Expenditures: 10% A) $100,000 B) $102,000 C) $120,000 D) $135,000

B) $102,000 4 x (2,500 x 12)= 120,000 120,000 - (.15 x 120,000)= 102,000

In collecting data for nonresidential property analysis, it is helpful to understand the business community that currently exists in the specific area in question. A preliminary approach for ascertaining the number of firms by size, industry, and location is to obtain data from: A) the Bureau of Labor Statistics. B) the National Transportation Service. C) the U.S. Bureau of the Census: County Business Patterns. D) the Federal Reserve.

C) the U.S. Bureau of the Census: County Business Patterns.

In the Elysian Forest example, the planned unit development was destined to be an unsuccessful venture from its inception because: A) there was a comparable project in the community that was successful. B) the site and location of the project was atypical of the area as there were significant disadvantages in terms of location and visual appeal. C) the target market was a nontraditional segment that relied heavily on a small portion of the local University City population. D) University City was a big, high density city that could not support such development.

C) the target market was a nontraditional segment that relied heavily on a small portion of the local University City population.

Let's assume that we are about to appraise a house using the cost approach. The home was originally constructed in the early 1900s and is one of the last of its kind in this area. The cost of constructing an exact replica of this residence is estimated to be $350,000. On our trip to the actual property, we notice that this is the only residential unit located on this particular road. Based on the current usage of adjacent real estate, we estimate that the property would be worth an additional $25,000 in its highest and best use. However, due to the dramatic shift in the perceived safety of the neighborhood, values of any remaining residential properties in the area have fallen by $20,000. Due to the home's age, we also notice that there has been a significant amount of physical deterioration to the building, amounting to an estimate of $50,000 in lost value. Since the home was built over 100 years ago, the floor plan is quite obsolete relative to current preferences. This has a detrimental effect on the value of the property that is estimated to be approximately $15,000. Given this information, determine the appraised value of the home using the cost approach. A) $265,000 B) $290,000 C) $350,000 D) $460,000

B) $290,000 350,000 + 25,000= 375,000 375,000 - 20,000 - 50,000 - 15,000= 290,000

Analysis of a subject property's pro forma reveals that its fifth year net operating income (NOI) is projected to be $100,282 (you can assume that this cash flow occurs at the end of the year). If you estimate the projected rental growth rate for the property to be 3% per year and the going-out capitalization rate in year five to be 10%, determine the net sale proceeds the current owner of the property would receive if he were to sell the property at the end of year five and incur selling expenses that amounted to $58,300. A) $944,520.00 B) $974,610.00 C) $1,002,820.00 D) $1,032,910.00

B) $974,610.00 100,282 x .03= 3008.46 100,282 + 3008.46= 103,290.46 103,290.46/.1= 1,032,904.6 1,032,904.6 - 58,300= 974,605

Suppose that you have begun to gather some demographic data in order to project the potential sales of a new development project. The developer hopes to be able to target the following household types who fall in the upper 10% of income brackets: Empty Nesters, Single Parents, and Unrelated Individuals. Utilizing the following population information, determine the core market share that the development project yearns to target with this project: Total Owner Occupant Households: 48,000 Traditional Families in the Upper 10% of Income Brackets: 25,000 Empty Nesters in the Upper 10% of Income Brackets: 5,000 Single Parents in the Upper 10% of Income Brackets: 10,000 Unrelated Individuals in the Upper 10% of Income Brackets: 8,000 A) 4.17% B) 47.92% C) 52.08% D) 92.00%

B) 47.92% 5,000 + 10,000 + 8,000= 23,000 23,000/48,000= .4792

Real estate market research is an important process used by analysts to facilitate a better understanding of a property's future profit potential. All of the following statements regarding market research are true EXCEPT: A) Real estate market research should always be flexible since the research depends directly on the problem at hand. B) Market research consists of a series of facts that fails to consider the role of investor behavior in the decision-making process. C) Most important data for a given market study often is not publicly available. D) Market research should focus specifically on market segments for the property involved, rather than on the aggregate real estate market.

B) Market research consists of a series of facts that fails to consider the role of investor behavior in the decision-making process.

Suppose that we observe two comparable properties that have each sold twice within the past two years. Property A sold 24 months ago for $350,000 and Property B sold 18 months ago for $325,000. If the two properties were sold today at $375,000 and $340,000, respectively, estimate the change in market conditions (percentage change in price) per month, assuming we equally weight the two properties in our analysis? A) 0.19% B) 0.24% C) 0.28% D) 0.33%

C) 0.28% 375,000 - 350,000= 25,000 340,000 - 325,000= 15,000 25,000/350,000= 7.14 15,000/325,000= 4.62 7.14/24= .002976 4.62/18= .002564 (.002976 + .002564)/2 = .28%

Three highly similar and competitive income-producing properties within two blocks of the subject property have sold this month. All three offer essentially the same amenities and services as the subject property. The sale prices and estimated first-year NOI for each of the comparable properties are as follows: comparable a: sale price- 500,000, NOI- 55,000 comparable b: sale price- 420,000, NOI- 50,400 comparable c: sale price- 475,000, NOI- 53,400 Using the information provided, calculate the overall capitalization rate by direct market extraction assuming each property is equally comparable to the subject. A) 11.0% B) 11.2% C) 11.4% D) 12.0%

C) 11.4% 55,000/500,000= 11% 50,400/420,000= 12% 53,400/475,000= 11.2% (11 + 12 + 11.2)/3= 11.4%

Four highly similar and competitive income-producing properties located in close proximity to the subject property have sold this month. All four offer essentially the same amenities and services as the subject property. The sale prices and estimated first-year NOI for each of the comparable properties are as follows: comparable a: sale price- 1,450,000, NOI- 155,000 comparable b: sale price- 1,100,000, NOI- 135,400 comparable c: sale price- 1,250,000, NOI- 143,400 comparable d: sale price- 1,500,000, NOI- 169,000 Using the information provided, calculate the overall capitalization rate by direct market extraction assuming each property is equally comparable to the subject. A) 10.69% B) 11.02% C) 11.43% D) 12.52%

C) 11.43% 155,000/1,450,000= 10.69 135,400/1,100,000= 12.31 143,400/1,250,000= 11.47 169,000/1,500,000= 11.27 (10.69 + 12.31 + 11.47 + 11.27)/4= 11.43%

In real estate markets, a transaction occurs only when the investment value of the buyer exceeds the investment value of the seller. The buyer's investment value is the ________ that he or she would be willing to pay for a particular property, while the seller's investment value is the _______ that he or she would be willing to accept. A) minimum; minimum B) minimum; maximum C) maximum; minimum D) maximum; maximum

C) maximum; minimum