RE Chapter 9-10

19. A building owner charges net rent of $20 in the first year, $21 in the second year, and $22 in the third year, but is providing six months of free rent in the first year as a concession. Using a 10 percent discount rate, what is the effective rent over the three years? (A) $17.28 (B) $20.00 (C) $20.94 (D) $21.00 (E) $21.73

A

20. Consider the table above. Assume that the subject property has effective gross income of $53,000 and a NOI of $27,500. What value would a cap rate approach yield (rounded to the nearest $100)? (A) $322,600 (B) $325,600 (C) $328,600 (D) $330,000

A

24. Consider a property with NOI of $72,000 and a debt coverage ratio of 1.2 applied to first year NOI. What would be the estimated monthly mortgage payment? (A) $5,000 (B) $7,200 (C) $60,000 (D) $86,400

A

30. Which of the following choices represents the main categories of depreciation? (A) Physical, external, functional (B) Physical, economic, locational (C) External, structural, financial (D) Economic, physical, external

A

31. A comparable property has a feature that is superior to the subject property. What adjustment would be made in the sales comparison approach to value? (A) Value of the feature would be subtracted from the sales price of the comparable property (B) Value of the feature would be added to the sales price of the comparable property (C) Value of the feature would be subtracted from the value of the subject property (D) Value of the feature would be added to the value of the subject property

A

34. Which of the following does the term "in-line tenants" refer to? (A) Smaller stores in a mall that are not anchor tenants (B) Tenants whose sales are in line with estimates (C) Tenants who pay their rents on a timely basis (D) All stores located inside the mall, including anchors

A

38. Total possible income less any vacancy is ___. (A) EGI (B) PGI (C) NOI (D) GIM

A

18. A building owner charges net rent of $20 in the first year, $21 in the second year, and $22 in the third year. Using a 10 percent discount rate, what is the effective rent over the three years? (A) $20.00 (B) $20.94 (C) $21.00 (D) $21.73 (E) $22.00

B

26. A clause which requires a tenant in retail space to achieve a certain level of sales or the lease will be terminated is referred to as a: (A) Change clause (B) Termination clause (C) Option clause (D) Santa clause

B

26. Using the information from the question above, what would be the equity dividend rate? (A) 2.4 percent (B) 3.5 percent (C) $12,000 (D) $317,498 (E) Not enough information

B

27. A clause in a non-anchor tenant's lease requiring the presence of an anchor tenant is referred to as a: (A) Non-compete clause (B) Co-tenancy clause (C) Joint tenancy clause (D) Anchor clause

B

27. Which of the following factors is NOT part of the definition of market value? (A) Payment is made in terms of cash in U.S. dollars or a comparable financial arrangement (B) The property has been on the open market for less than a year (C) Buyer and seller are typically motivated (D) Price is not affected by special or creative financing

B

28. Income after deducting vacancy that is available to pay expenses is referred to as: (A) Potential gross income (B) Effective gross income (C) Net operating income (D) Before-tax cash flow

B

29. A 1,000 square foot office space is leased at $15.00 per square foot during the first year with $2.00 step-up provisions each of the following years. The lease is gross with an expense stop set at $6.65 per square foot, and yearly expenses per square foot are as follows: $6.00, $6.65, and $7.05. The lease provides for two months of free rent at the end of the lease term. If the lease term is three years and the discount rate is 10%, what is the effective rent per square foot? (A) $9.38 (B) $9.50 (C) $10.22 (D) $10.46

B

32. Which of the following is TRUE for a net lease? (A) All expenses are paid by the owner (B) All expenses are paid by the tenant (C) All expenses are paid by the lender (D) All expenses are paid by the investor

B

34. A property is sold for $200,000. Typical financing terms are an 85% loan with a 10% interest rate over 15 years. If the before-tax cash flow is $2,000, what is the overall capitalization rate? (A) 10.96% (B) 11.96% (C) 19.13% (D) 9.96%

B

35. Which of the following is FALSE regarding cap rates? (A) Excess supply tends to drive cap rates up (B) Rising interest rates generally tends to lower cap rates (C) Excess demand and falling interest rates results in lower cap rates (D) Excess demand leads to lower cap rates

B

19. Consider the table above. Assume that the subject property has effective gross income of $53,000 and a NOI of $27,500. What value would a GIM approach yield (rounded to the nearest $100)? (A) $322,600 (B) $325,600 (C) $328,600 (D) $330,000

C

21. Which of the following statements regarding the sales comparison approach to appraisal is TRUE? (A) As a "rule of thumb" transactions involving foreclosures should be discounted by 10 percent (B) The comparable buildings' characteristics are more important that the comparable properties' location for performing the sales comparison (C) The comparable sales must involve transactions between unrelated individuals (D) The only factors important for comparable analysis are property size, building size, age of the building, and the condition of building

C

22. Which of the following appraisal methods is NOT considered an income approach? (A) Capitalization rate (B) Discounted present value (C) Factor discounting rates (D) Gross income multiplier

C

23. Consider a building with a very long economic life. Assume at the end of year 6, NOI will be $80,000 as is expected to grow at a rate of 2 percent per year. You company's required rate of return is 12 percent. As part of your analysis, you must calculate the reversion value (REV) at the end of year 5, which would be: (A) $571,429 (B) $666,667 (C) $800,000 (D) $4,000,000

C

23. The supply of space is: (A) Inelastic in both the short run and the long run (B) Elastic in both the short run and the long run (C) Relatively inelastic in the short run, and highly elastic in the long run (D) Relatively elastic in the short run, and highly inelastic in the long run

C

30. Which of the following does the term "anchor tenant" usually refer to? (A) Someone who leases space (B) The largest tenant in an office building (C) A department store in a mall (D) The tenant who pays the highest rent in a mall

C

33. Which of the following tends to lower effective rents? (A) Percentage rent (B) Step up provisions (C) Concessions (D) CPI adjustment

C

36. A property is leased for $24,000 per year although market rents are currently $27,500 per year and are expected to increase by 2% per year. The property is expected to be sold at the end of year 10 based on a 10% terminal cap rate applied to the eleventh year NOI. The current lease on the property will expire at the end of year 10 so the property can be leased in the eleventh year at market rates. What is the value of the leased fee estate based on an 11.5% discount rate? (A) $362,489 (B) $298,325 (C) $251,298 (D) $271,486

C

37. The discount rate is a rate that a typical investor would normally require as a(n) ___ return over investment holding period. (A) Maximum (B) Risk free (C) Expected (D) Historical

C

25. Consider the table above for a hypothetical income property that is under consideration for purchase with a $455,000 loan. Using the principles of mortgage equity capitalization, what is the estimated total property value (rounded to the nearest $100)? (A) $317,500 (B) $482,900 (C) $772,500 (D) $794,200

D

33. Which of the following expenses would NOT be included in an operating statement used to calculate net operating income in the income approach to value? (A) Reserves for replacement (B) Maintenance (C) Real estate taxes (D) Capital additions

D

35. A property produces a first-year net operating income of $24,000. Because of the long economic life of the building, the income is considered as a perpetuity that will grow by 2.5% per year. Using a discount rate of 9.5%, the property value is estimated at: (A) $276,968 (B) $252,632 (C) $200,000 (D) $342,857

D

1. The sales comparison approach to appraisal is preferred because it is the only objective appraisal approach.

False

13. The capitalization rate for a leased fee estate should always be lower than the capitalization rate for a fee simple estate.

False

15. The market method or direct sales comparison method of estimating site value is not the most reliable method available.

False

17. Return on investment and change in net operating income are essential factors for cost analysis.

False

18. Capitalization rate of newly constructed apartment building will be more than that of relatively old apartment building, which is comparable in all other aspects.

False

2. When using the gross income multiplier approach to appraisal, potential gross income is preferred to effective gross income.

False

3. One advantage of the gross income multiplier approach to appraisal is that it is most suitable for properties in which operating expenses vary widely across the properties being surveyed.

False

5. When conducting an appraisal, only one of three approaches should be selected to determine the property value

False

7. Economic obsolescence is the loss of value caused by inefficient layout of technological changes.

False

9. A gross income multiplier can be calculated by dividing the gross income by the sales price.

False

A gross lease is riskier for the lessor than a net lease. True or false?

False

A gross lease is where tenants pay all expenses. True or false?

False

If a lease has free rent earlier in its term, its default risk might be considered slightly higher. True or false?

False

Net operating income is the income after deduction of mortgage payments. True or false?

False

To attract anchor tenants, property owners tend to charge them lower rents. They make-up for the lower rents by charging the anchor tenant higher CAM charges. True or false?

False

10. An overall capitalization rate can be calculated by dividing the net operating income by the property value.

True

11. The capitalization rate is equal to the discount rate minus any expected annual growth in income and property value.

True

14. The equity value can be estimated by subtracting debt service from net operating income and dividing this amount by the equity dividend rate.

True

16. Appraisers use bracketing in order to estimate the upper and lower range of value

True

8. A building has 12 foot ceilings that cause the electric bill to be $1,200 higher per year. Depreciation caused by the ceilings can be estimated by calculating the present value of the $1,200 per year over the remaining economic life of building.

True

Analysis of effective rents tends to be superior to analysis of total rents over the life of a lease. True or false?

True

CPI adjustments are used to adjust rents by all or part of the increase in the Consumer Price Index. True or false?

True

The existing stock of space cannot be adjusted in the short run, but can be increased or decreased in the long run. True or false?

True