Brokers License chapter 7

An investor wants to purchase a 20-unit apartment complex. Ten units are rented monthly for $300, five for $325, and five for $350. Vacancy and collection losses are estimated to be 5% of the potential gross income. Operating expenses are expected to be $31,950. Using a cap rate of 10%, what should he pay for the property?

$407,250 Potential (300 x 10 x12 + 325 x 5 x 12 + 350 x 5 x 12) $76,500 minus V&C ($76,500 X .05) =$3825 = $72,675 EGI; EGI minus Operating $ 31,950 $40,725 Net Income. Income Cap = $407,250 Value.

An apartment building contains twenty units. Each unit rents for $180 per month. The vacancy rate is 5%. Annual expenses are $3,500 for maintenance, $1,200 insurance, $1,500 taxes, $900 utilities, $1,500 special assessment and 10% of the gross effective income for the management fee. What was the investor's rate of return for the property if she paid $195,000 for the property? 7.6% 8.9% 14.5% 22.1%

14.5%

The landlord was reviewing his property management agreement with the broker. He noted that the broker had not charged enough rent to tenants to make the type of profit that the owner wanted. The correct amount of rent in an open, free market the broker should have charged is called: Physical rent. Economic rent. Prorated rent. Rent controlled.

Economic rent. Economic Rent: Also called market rent, this is the amount of rental income a property can generate in an open, free market at any given time This differs from contract rent, which is rent agreed to by all parties.

An appraiser has an older home with four bedrooms, a screened-in porch and one bath, which is located upstairs through one of the bedrooms only. The appraiser would probably reduce the value of the property because of: Curable physical deterioration. Incurable physical deterioration. Incurable functional obsolescence. Curable economic obsolescence.

Incurable functional obsolescence.

14.5%

Net income of $28,333.5 divided by $195,000 = 14.53%

When sales associates prepare opinions on real property values or price they must? Be knowledgeable of the property Possess an appraiser's license Visit the property Use a cost comparison approach.

Be knowledgeable of the property

External obsolescence in a property is generally: A result of poor maintenance. Due to architectural faults. Caused by the aging process. Caused by outside forces that are beyond the seller's control.

Caused by outside forces that are beyond the seller's control. Economic, Environmental, or External Obsolescence is a loss of value (typically incurable) resulting from factors that exist outside the property itself; a type of depreciation caused by environmental, social, or economic forces over which an owner has little or no control.

When an appraiser uses the phrase "effective age" he is referring to: The number of years since improvements were made. The age of the property based on its condition. The estimated total life of an improvement. The number of years during which the property will yield a worthwhile return on its investment.

The of the property based on its condition. An Effective Age can differ from an Actual Age (i.e. the Chronological Age) due to variables like depreciation, quality of maintenance, etc. Remodeling can extend the economic life of a structure by reducing or mitigating the impact of actual age and increasing the structure's life expectancy.

Which would not be important in the data using the sales comparison method for establishing the market value of a home? The original price paid for the home. The date when the other properties sold. The additions made by the seller, including a new garage. The appearance and conditions of the comparable properties.

The original price paid for the home.

An appraiser uses a building's replacement cost by estimating the cost of the raw materials used to build the building plus the additional cost of labor, materials etc. This method is called? The unit-in-place method. The square foot method. The cubic foot method. The quantity survey method.

The quantity survey method. Quantity Survey Method: The quantity and quality of all materials (such as lumber, brick, and plaster) and the labor are estimated on a unit cost basis. These factors are added to indirect costs (for example, building permit, survey, payroll, taxes and builders profit) to arrive at the total cost of the structure.

The sales comparison approach has 5 steps in collecting and verifying data which of these answers is NOT one of those steps? Reconciliation Collecting Data Visiting the property Verifying data

Visiting the property