Fin 351 Exam 2

Given the following information, calculate the overall capitalization rate: sale price: $950,000; potential gross income: $250,000; vacancy and collection losses: $50,000; and operating expenses: $50,000. A) 15.8% B) 21.1% C) 26.3% D) 36.8%

A) 15.8%

A developer of a new townhome community estimates that there will be 1,200 home (all types) sales in University City over the next year. An analysis of demographic information has revealed that the core market share for the townhome project within the community is 10%. Assuming a capture rate of 20%, what is the developer's first-year projection of townhome sales in the new community? A) 24 units B) 120 units C) 240 units D) 600 units

A) 24 units

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 age 55 and up housing market: seniors employed part time; seniors retired / not in assisted living. Utilizing the following population information, determine the core market share that the development project is targeting with this project: total senior households: 25,000; seniors employed full time: 8,000; seniors employed part time: 2,500; seniors retired / not in assisted living: 12,000; seniors retired / in assisted living: 2,500. A) 58.0% B) 80.0% C) 90.0% D) 100.0%

A) 58.0%

Most appraisers adhere to an "above-line" treatment of capital expenditures. This implies which of the following? A) Capital expenditures are subtracted in the calculation of net operating income. B) Capital expenditures are subtracted from net operating income to obtain a net cash flow measure. C) Capital expenditures are added to net operating income. D) Capital expenditures are excluded from all calculations because they are difficult to estimate.

A) Capital expenditures are subtracted in the calculation of net operating income.

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.

Favorable mortgage financing may have a significant impact on the transaction price of the particular property. If the comparable property was known to have had favorable financing terms negotiated into the transaction price, which of the following adjustments should take place? (Note: Assume that the comparable property cannot be dropped from the analysis as there are already limited comparable sales transactions.) A) The transaction price of the comparable property should be adjusted downward. B) The transaction price of the comparable property should be adjusted upward. C) The transaction price of the subject property should be adjusted downward. D) The transaction price of the subject property should be adjusted upward.

A) The transaction price of the comparable property should be adjusted downward.

When you are evaluating the prospects for a project that is new in your setting and therefore has no actual relevant market performance data, it is most helpful to use which of the following techniques as the basis for your analysis? A) analogy B) fabrication C) cooperation D) recommendation

A) analogy

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 5 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 5 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

Suppose that we observe two comparable properties that have each sold twice within the past four years. Property A sold 24 months ago for $500,000 and Property B sold 48 months ago for $575,000. If the two properties were sold today at $425,000 and $465,000, respectively, estimate the change in market conditions (percentage change in price) per month, assuming we equally weight the two properties in our analysis. A) -0.56% B) -0.51% C) 0.61% D) 0.68%

B) -0.51%

Suppose a developer is interested in building a new residential subdivision. Through his market research, the developer has determined that the target market segment potential in year 1 consists of 160 households. If the developer projects that he will be able to sell 24 homes in the first year, what is his assumed capture rate? A) 6.67% B) 15% C) 24% D) 85%

B) 15%

Suppose a developer is interested in building a new subdivision of single-family homes. Through her market research, the developer has determined that the target market segment potential in year 1 consists of 176 households. If the developer projects that she will be able to sell 44 homes in the first year, what is her assumed capture rate? A) 15% B) 25% C) 44% D) 75%

B) 25%

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 wants 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%

Given the following information, calculate the effective gross income multiplier: sale price: $2,500,000; effective gross income: $340,000; operating expenses: $100,000; capital expenditures: $36,000. A) 0.136 B) 7.35 C) 10.42 D) 12.25

B) 7.35

Given the following information, calculate the appropriate going-in cap rate using general constant-growth formula: overall market discount rate, 12%; constant growth rate projection: 3% per year; sale price: $1,950,000; net operating income: $390,000; potential gross income: $520,000. A) 8% B) 9% C) 10% D) 11.5%

B) 9%

One complication that appraisers may face is the variety of lease types that may be available for a particular property type. Which of the following statements best describes a graduated or step-up lease? A) The monthly rent remains fixed over the entire lease term. B) The lease establishes a schedule of rental rate increases over the term of the lease. C) Rental rate increases are indexed to the general rate of inflation. D) Rental rates are a function of the sales of the tenant's business.

B) The lease establishes a schedule of rental rate increases over the term of the lease.

In constructing a market-defining story, it is helpful to answer a series of fundamental questions around which analysis can be built. Which of the following questions is designed to identify the target market? A) What is the real estate product under consideration? B) Who are the customers? C) What aspects of the product do the customers care about? D) Who are the competitors?

B) Who are the customers?

A comparable property sold 15 months ago for $105,000. If the appropriate adjustment for market conditions is 0.25% per month (without compounding), what would be the adjusted price of the comparable property? A) $105,262.50 B) $105,393.80 C) $108,937.50 D) $144,375

C) $108,937.50

Suppose that you are attempting to value an income-producing property using the direct capitalization approach. Using data from comparable properties, you have determined the overall capitalization rate to be 11.44%. If the projected first-year net operating income (NOI) for the subject property is $44,500, what is the indicated value of the subject using direct capitalization? A) $49,590.80 B) $50,225.73 C) $388,986.00 D) $509,080.00

C) $388,986.00

Assume you have been hired to appraise a local hospital. Your best estimate of the reproduction (or replacement) cost of the building is $3,700,000. However, upon evaluating the use of land in the local area, you have deemed the value of the site to be worth an additional $800,000. If the building has depreciated by $500,000 over its lifetime and there are no further depreciation losses due to external or functional obsolescence, what is the indicated value of the hospital using the cost approach? A) $2,400,000 B) $3,700,000 C) $4,000,000 D) $4,500,000

C) $4,000,000

Suppose that an appraiser has just completed her analysis using the cost approach to valuation. She has determined that the reproduction cost of the subject property is $370,000. If the added value of the site was $80,000 and accrued depreciation amounted to $50,000, what was the estimated value of the building using the cost approach? A) $320,000 B) $370,000 C) $400,000 D) $500,000

C) $400,000

In using transaction data to determine the current value of the subject property, it is important to recognize that general market conditions may have changed since a particular transaction occurred. Property A sold 18 months ago for $235,000 and Property B sold 12 months ago for $215,000. If the two properties are priced today at $239,500 and $222,300, respectively, what is the average monthly rate of increase that can be used to adjust comparable prices for changes in market conditions? A) 0.09% B) 0.17% C) 0.19% D) 0.32%

C) 0.19%

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%

Given the following information, calculate the appropriate going-in cap rate using mortgage-equity rate analysis; mortgage financing, 75%; typical debt financing cap rate: 10%; sale price: $1,950,000; before tax cash flow (BTCF): $390,000. A) 9.6% B) 10% C) 12.5% D) 13.6%

C) 12.5%

Suppose that you were interested in building a new townhome community on the east side of University City that will be marketed exclusively to senior citizens above the age of 62. In your analysis of local demographics, you discover that the target market makes up only 10% (core market share) of the households that currently live in this city. If market experts believe that a total of 500 townhome (or similar condominium) units will be purchased in all of University City within the next year, what is the projected number of units the developer could expect to sell in year 1 if he is able to capture 40% of the market potential? A) 500 units B) 50 units C) 20 units D) 10 units

C) 20 units

In calculating net operating income, vacancy losses must be subtracted from the gross income collected. The normal range for vacancy and collection losses for apartment, office, and retail properties is A) between 0% and 1%. B) between 1% and 5%. C) between 5% and 15%. D) between 15% and 20%.

C) between 5% and 15%.

Suppose a developer is interested in building a new townhome community. Through his market research, the developer has determined that the target market makes up 10% (core market share) of the households that currently reside in the metropolitan area. If an analysis of data from the MLS indicates that there should be approximately 500 residential sales in this area over the next year, what is the projected number of units the developer could expect to sell in year 1 if he is able to capture 50% of the market potential? A) 500 units B) 250 units C) 50 units D) 25 units

D) 25 units

Given the following information, calculate the effective gross income multiplier: sale price: $950,000; potential gross income: $250,000; vacancy and collection losses: 15%; and miscellaneous income: $50,000. A) 0.36 B) 0.30 C) 2.8 D) 3.6

D) 3.6

Suppose that you were interested in building a luxury apartment complex in your hometown. In your analysis of local demographics, you discover that the target market makes up only 5% (core market share) of the households that currently rent (or would be interested in renting) in this town. If market experts believe that a total of 5,000 apartment units will be rented in your entire hometown within the next year, what is the projected number of units the developer could expect to lease in year 1 if he is able to capture 20% of the market potential? A) 1,000 units B) 500 units C) 250 units D) 50 units

D) 50 units

Real estate appraisal is often considered "more art than science," since identifying truly comparable properties is a subjective process. Therefore, it is essential that a comparable property transaction at least meets the requirement that it was fairly negotiated under typical market conditions. Which of the following types of transactions would be most appropriate for use in the sales comparison approach to valuation? A) commingled business transactions B) low-interest financing programs C) real estate auctions D) arm's-length transactions

D) arm's-length transactions

Suppose that an appraiser has come to the following conclusions in evaluating the subject property. Due to the dramatic shift in the perceived safety of the neighborhood, values of any residential properties in the area of the subject property have fallen by $10,000, on average. Due to the subject property's age, physical deterioration to the building accounts for an estimate of $50,000 in lost value. An evaluation of the floor plan reveals that it is quite obsolete relative to current homebuyer preferences. This has a detrimental effect on the value of the property that is estimated to be approximately $15,000. Based on your understanding of adjustments related to accrued depreciation, which of the following pertains to the adjustment for external obsolescence? A) $10,000 B) $15,000 C) $50,000 D) $75,000

A) $10,000

Real estate professionals have long supported strict standards of ethics and practice. Followed by all states and federal regulatory agencies, which of the following imposes ethical obligations and minimum standards that must be followed by all real estate professionals providing formal estimates of market value? A) Uniform Standards of Professional Appraisal Practice (USPAP) B) Multiple Listing Services (MLS) C) Department of Housing and Urban Development (HUD) D) Office of Federal Housing Enterprise Oversight (OFHEO)

A) Uniform Standards of Professional Appraisal Practice (USPAP)

The process of converting periodic income into a value estimate is referred to as income capitalization. Income capitalization models can generally be categorized as either direct capitalization models or discounted cash flow models. Which of the following statements best describes the direct capitalization method? A) Value estimates are based on a multiple of expected first-year net operating income. B) Appraisers must make explicit forecasts of the property's net operating income for each year of the expected holding period. C) Appraisers must select the appropriate yield at which to discount future cash flows. D) The forecast must include the net income produced by a sale of the property at the end of the expected holding period.

A) Value estimates are based on a multiple of expected first-year net operating income.

Gross income multiplier analysis assumes that the subject and comparable properties are collecting market rents. Therefore, it is frequently argued that an income multiplier approach to valuation is most appropriate for properties with short-term leases. For which of the following property types, therefore, would we find it most appealing to use a gross-income multiplier in our analysis? A) apartments B) office C) industrial D) retail

A) apartments

A new residential development will face competition from other new developments, other builders, and sales of existing homes. To determine if demand in that market segment will be sufficient to justify proceeding with the project, a developer would be most interested in estimating a A) capture rate. B) capitalization rate. C) risk-free rate. D) risk premium.

A) capture rate

The sequence of adjustments to the transaction price of a comparable property would make no difference if all adjustments were dollar adjustments. However, if percentage adjustments are involved then the sequence does matter. In making adjustments to a comparable property to arrive at a final adjusted sales price, the proper sequence for the following adjustments would be A) financing terms, market conditions, location. B) location, market conditions, financing terms. C) market conditions, location, financing terms. D) location, financing terms, market conditions.

A) financing terms, market conditions, location.

Computer software systems that enable one to manipulate and "map" information with great flexibility and speed are referred to as A) geographical information systems (GIS). B) psychographics. C) survey research. D) census mapping

A) geographical information systems (GIS).

It may be appropriate for a real estate professional to use different approaches for estimating the market value of a property depending upon the particular property type and use. Which of the following approaches would be most applicable when considering the valuation of retail office space (i.e., which approach would receive the most weight in the valuation process)? A) income approach B) sales comparison approach C) cost approach D) investment approach

A) income approach

At the conclusion of the traditional sales comparison approach to valuation, the appraiser evaluates and reconciles the final adjusted sale prices into a single value for the subject property. This single value is commonly referred to as A) indicated value. B) investment value. C) transaction value. D) replacement value.

A) indicated value.

Preferences of households can vary with time, prosperity, and context. The nuances in the preferences or needs of market subgroups are commonly referred to as A) market segmentation. B) market parameters. C) market projection. D) market cycles.

A) market segmentation

Which of the following measures is considered the fundamental determinant of market value for income-producing properties? A) net operating income B) potential gross income C) operating expenses D) capital expenditures

A) net operating income

Since most data for a given market study is not readily available, analysts must be creative in their use of data that they are able to obtain. The primary source for detailed household demographic information is A) the U.S. Bureau of the Census. B) the Federal Reserve. C) the local tax collector's office. D) not available publicly.

A) the U.S. Bureau of the Census

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

Given the following information, calculate the effective gross income: property: 4 office units, contract rents per unit: $2,500 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

A comparable property sold four months ago for $287,000. If the appropriate adjustment for market conditions is -0.50% per month (without compounding), what would be the adjusted price of the comparable property assuming all else is the same between the two properties? A) $269,780.00 B) $281,260.00 C) $285,565.00 D) $292,740.00

B) $281,260.00

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

Suppose that an appraiser has just completed her analysis using the cost approach to valuation. She has determined that the market value of the subject property is $400,000. If the added value of the site was $80,000 and accrued depreciation amounted to $50,000, what was the reproduction cost of the building? A) $270,000 B) $370,000 C) $430,000 D) $530,000

B) $370,000

Given the following information, calculate the net operating income assuming below-line treatment of capital expenditures: property: 4 office units, contract rents per unit: $2,500 per month; vacancy and collection losses: 15%; operating expenses: $42,000; capital expenditures: 10%. A) $48,000 B) $60,000 C) $95,000 D) $102,000

B) $60,000

Adjustments for physical characteristics are intended to capture the dimensions in which a comparable property differs physically from the subject property. If the only physical difference between the subject property and the comparable is that the comparable does not have a fireplace, which of the following adjustments should take place? A) The transaction price of the comparable property should be adjusted downward. B) The transaction price of the comparable property should be adjusted upward. C) The transaction price of the subject property should be adjusted downward. D) The transaction price of the subject property should be adjusted upward.

B) The transaction price of the comparable property should be adjusted upward.

Since most data that we would like to conduct a thorough market analysis is unavailable, a researcher will find it useful to find a data series that will closely represent the variable of interest. We typically refer to this type of variable as A) relevant. B) a proxy. C) a correlation. D) a cluster.

B) a proxy.

While it is often sufficient to rely on informal methods of estimating the market value of real estate assets, the complexity and large dollar value of many real estate decisions dictate that formal estimates based on methodical collection and analysis of relevant market data should be utilized. The unbiased written estimate of the market value of a property is commonly referred to as a(n) A) arm's-length transaction. B) appraisal. C) property adjustment. D) reconciliation.

B) appraisal.

The expected costs to make replacements, alterations, or improvements to a building that materially prolong its life and increase its value is referred to as A) operating expenses. B) capital expenditures. C) vacancy losses. D) collection losses.

B) capital expenditures.

Net operating income is similar to which of the following measures of cash flow in corporate finance? A) dividend yield B) earnings before deductions for interest, depreciation, income taxes, and amortization (EBIDTA) C) price-earnings ratio D) discount rate

B) earnings before deductions for interest, depreciation, income taxes, and amortization (EBIDTA)

Accrued depreciation is the difference between the current market value of a building and the total cost to reproduce it new. One reason for this difference is related to changes in tastes, preferences, technical innovations, or market standards. This is commonly referred to as A) physical deterioration. B) functional obsolescence. C) external obsolescence. D) tax depreciation

B) functional obsolescence.

Estimating the market value of real estate is complicated by the unique characteristics of real estate markets. In contrast to stock markets, real estate markets are characterized by all of the following except A) no two assets are considered perfect substitutes for one another. B) market prices are revealed almost instantaneously to prospective buyers. C) transactions occur infrequently. D) the physical location of the asset being sold plays an important role in the pricing process.

B) market prices are revealed almost instantaneously to prospective buyers.

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

The starting point in calculating net operating income is the total annual income the property would produce assuming 100% occupancy and no collection losses. This is commonly referred to as A) effective gross income. B) potential gross income. C) operating expenses. D) capital expenditures.

B) potential gross income.

A tool used by real estate analysts to relate a consumer's activities, interests, opinions, and values to a consumer's demographics is referred to as A) geographical information systems (GIS). B) psychographics. C) survey research. D) census mapping

B) psychographics

The cost approach to valuation assumes the market value of a new building is similar to the cost of constructing it today. Which of the following terms refers to the expenditure required to construct a building of equal utility using modern construction techniques, materials, and design that eliminates outdated aspects of the structure? A) reproduction cost B) replacement cost C) fixed cost D) variable cost

B) replacement cost

While there are several conventional approaches used to estimate the market value of real estate, which of the following is typically considered the most reliable approach? A) income approach B) sales comparison approach C) cost approach D) investment approach

B) sales comparison approach

Most appraisers would say that report writing is one of the most important functions that they perform. Assume that an appraiser is putting together a report for a single-family home. Which of the following reporting options would be the most commonly used in this scenario? A) self-contained appraisal report B) summary appraisal report C) restricted appraisal report D) oral appraisal report

B) summary appraisal report

While there is no specific number of comparables that is required for every appraisal assignment, how many comparable sales are considered adequate as long as the properties are very similar to the subject property? A) one B) three C) five D) ten

B) three

A planned unit development (PUD) is a residential development that differs from traditional residential subdivisions in all of the following ways except it A) encompasses a blend of detached single family, attached single family, townhouses, and apartments. B) typically has larger individual lots with extensive side-yards on the property. C) typically includes a variety of common areas. D) typically includes a variety of recreational facilities.

B) typically has larger individual lots with extensive side-yards on the property.

Suppose a developer is interested in building a new apartment community. Through her market research, the developer has determined that the target market segment potential in year 1 consists of 100 households. The developer believes that the target market segment potential will grow by 5% annually over the next five years. If the developer projects a capture rate of 25% for each of the next five years but is only to sell 26 apartment units in each of the next five years, in which year will her actual sales first fail to meet her projected sales numbers? A) year 2 B) year 3 C) year 4 D) year 5

B) year 3

Suppose that you are attempting to value an income-producing property using the direct capitalization approach. Using data from comparable properties, you have determined the overall capitalization rate to be 7.5%. If the projected first-year net operating income (NOI) for the subject property is $135,500, what is the indicated value of the subject using direct capitalization? A) $144,985.00 B) $150,555.56 C) $1,806,666.67 D) $9,033,333.33

C) $1,806,666.67

Suppose a developer is interested in building a new apartment community. Through her market research, the developer has determined that the target market segment potential in year 1 consists of 100 households. The developer believes that the target market segment potential will grow by 5% annually over the next five years. If the developer projects a capture rate of 25% for each of the next five years, how many units does she plan on selling by the end of year 5? A) 25 units B) 125 units C) 138 units D) 175 units

C) 138 units

A developer of a new planned unit development (PUD) has estimated that there will be 1,500 home (all types) sales in University City over the next year. If an analysis of demographic information has revealed that the core market share for the PUD project within the community is 14.0%, what is the total market segment potential for this project? A) 42 units B) 105 units C) 210 units D) 1,290 units

C) 210 units

The going-in cap rate, or overall capitalization rate, is a measure of the relationship between a property's current income stream and its price or value. Which of the following statements regarding cap rates is true? A) It is a measure of total return since it accounts for future cash flows from operations and expected appreciation (depreciation) in the market value of the property. B) It is a discount rate that can be applied to future cash flows. C) It is analogous to the dividend yield on a common stock. D) It is the projected rate at which prices will appreciate in the future.

C) It is analogous to the dividend yield on a common stock.

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 the A) Bureau of Labor Statistics. B) National Transportation Service. C) U.S. Bureau of the Census: County Business Patterns. D) Federal Reserve.

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

The presence of real estate cycles presents a major challenge when forecasting real estate market parameters. If the market value of a residential developer's project exceeds its construction costs, an increase in the supply of units will occur. As the market becomes oversupplied, we would expect which of the following to occur? A) an increase in occupancy levels B) an increase in market values C) a decrease in real rental rates D) a decrease in construction costs

C) a decrease in real rental rates

Professor James Graaskamp often asserted that when one buys real estate, what one is buying is a set of assumptions about the future. Therefore, it is not surprising that the beginning point of the market research process is to A) collect relevant data to examine the market and test initial definitions. B) evaluate the results of market analysis. C) construct a market-defining story. D) refine market definitions and collect additional data

C) construct a market-defining story

Several techniques can be used to obtain an indication of land value. The cost approach to valuation would most likely be used for which of the following properties? A) one-family residential property B) retail office space C) education facility D) high-rise apartments

C) education facility

Which of the following would be categorized as a cause of external obsolescence? A) lack of adequate insulation B) deterioration of indoor carpets C) increased traffic flow due to more intensive use in the local area D) outdated fixtures

C) increased traffic flow due to more intensive use in the local area

Operating expenses can be divided into two categories: variable and fixed expenses. Which of the following best exemplifies a fixed expense? A) utilities B) property management C) local property taxes D) trash removal

C) local property taxes

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

The most common definition of a city used for government data collection and reporting, identified as a single labor market area centered around a city with a population of at least 50,000 people, is referred to as a A) township. B) central business district. C) metropolitan statistical area. D) county.

C) metropolitan statistical area.

As part of the data analysis step in the appraisal process, it is necessary to consider the highest and best use of the property in question. In regards to determining highest and best use, all of the following statements are true except A) the proposed property use must be legally permissible. B) it must be physically possible for the property to be used in the manner specified. C) no financial limits are considered when determining the property's best use. D) the property use must provide the greatest benefit to the owner

C) no financial limits are considered when determining the property's best use.

When using discounted cash flow analysis for valuation, the appraiser must estimate the sale price at the end of the expected holding period. This price (assuming selling expenses have yet to be accounted for) is referred to as the property's A) net sale proceeds. B) selling expenses. C) terminal value. D) current market value.

C) terminal value.

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.

The distinction between market rent and contract rent is important due to differences in lease terms. Office, retail, and industrial tenants most commonly occupy their space under leases that run A) one year or less. B) one to three years. C) three to five years. D) ten years or more.

C) three to five years.

When calculating the net operating income of a property, it is important to identify any expenses that will be incurred in attempts to maintain the property. All of the following would be considered operating expenses except A) property insurance premiums. B) mortgage payments. C) utility expenses. D) property taxes

C) utility expenses.

Suppose that examination of a pro forma reveals that the fifth-year net operating income (NOI) for an income-producing property that you are analyzing is $138,446 (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 5% per year, determine the projected sale price of the property at the end of year 5 if the going-out capitalization rate is 9%. A) $988,900.00 B) $1,465,037.00 C) $1,538,289.00 D) $1,615,203.00

D) $1,615,203.00

Suppose that examination of a pro forma reveals that the fifth-year net operating income (NOI) for an income-producing property that you are analyzing is $913,058 (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, determine the projected sale price of the property at the end of year 5 if the going-out capitalization rate is 8%. A) $1,603,600 B) $2,350,159 C) $11,413,225 D) $11,755,622

D) $11,755,622

Suppose that an income-producing property is expected to yield cash flows for the owner of $10,000 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 12% annually and the property can be sold for $100,000 at the end of the fifth year, determine the value of the property today. A) $36, 047.76 B) $56,742.69 C) $83,333.33 D) $92,790.45

D) $92,790.45

In contrast to conventional market analysis, the story approach to market research starts with an analysis of A) conditions in global real estate markets. B) conditions in national real estate markets. C) conditions in state real estate markets. D) conditions in the property-specific market.

D) conditions in the property-specific market.

For smaller income-producing properties, appraisers may use the ratio of a property's selling price to its effective gross income. This is an example of a A) net operating income. B) going-out cap rate. C) going-in cap rate. D) gross income multiplier

D) gross income multiplier.

Survey research has been applied to real estate markets at many levels. Despite its frequent application, analysts must be cautious with survey use because A) it is difficult to implement. B) interviews and questionnaires are not received well by consumers. C) it cannot be used in a small sample area. D) it can be fraught with abortive errors

D) it can be fraught with abortive errors.

When employing the sales comparison approach, appraisers must consider numerous adjustments to convert each comparable sale transaction into an approximation of the subject property. Adjustments are divided into two groups: transactional adjustments and property adjustments. All of the following are transactional adjustments except A) financing terms. B) market conditions. C) conditions of sale. D) location.

D) location.

While predicting real estate cycles is difficult, a key indicator used to evaluate where a property is within the cycle is the A) level of household income. B) form of land use. C) size of the property. D) number of building permits issued.

D) number of building permits issued.

When using discounted cash flow analysis for valuation, an appraiser will prepare a cash flow forecast, often referred to as a A) restricted appraisal report. B) net operating income statement. C) direct market extraction. D) pro forma

D) pro forma.

In the initial round of market analysis, analysts will attempt to provide key numbers that characterize the current condition and trend in the market. For rental retail space, the key market parameters in question would most likely include all of the following except A) projected occupancy growth. B) projected rental rate growth. C) current vacancy levels. D) projected sales rates

D) projected sales rates

The cap rate is an important metric that investors use to analyze the state of commercial real estate markets. When interpreting cap rate movements, an increase in cap rates over time would indicate that A) the discount rate used in TVM (time value of money) calculations has increased. B) the discount rate used in TVM (time value of money) calculations has decreased. C) property values have increased. D) property values have decreased.

D) property values have decreased.

A popular adage in real estate is that property value is all about "location, location, location." However, for most property types in nonresidential realms, non-locational requirements are equally or even more important. All of the following are examples of non-locational factors except A) floor plate size. B) amount of parking. C) nature of current tenants. D) proximity to modes of public transportation

D) proximity to modes of public transportation.

Which of these is most likely to be regarded as a capital expenditure rather than an operating expense? A) property taxes B) trash removal C) insurance payments D) roof replacement

D) roof replacement

If all appraisal methods are appropriate for use in valuing a particular property, there is a clear order of preference that real estate professionals adhere to. Which of the following depicts the preferred order, with the most preferable approach being listed first and the least preferable listed last? A) sales comparison approach, cost approach, income approach B) income approach, sales comparison approach, cost approach C) cost approach, income approach, sales comparison approach D) sales comparison approach, income approach, cost approach

D) sales comparison approach, income approach, cost approach

Development of subdivisions, apartments, offices, or other commercial structures can have a lead time of two years or more. In general, the longer the construction lead time A) the lower the construction cost. B) the greater the supply of units. C) the lower the market value. D) the greater the amplitude of real estate cycles.

D) the greater the amplitude of real estate cycles