RE CH 7 and 8

Given the following information, determine the value of having an additional 500 square feet of living space. Assume that the comparable properties are similar in all other attributes besides those listed in the table below.

$10,000

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?

$10,000

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%

$102,000

Using the following information, determine the net operating income (NOI) for the first year of operations of the subject property using "above-line" treatment of capital expenditures.

$137,700

Using the following information, determine the net operating income (NOI) for the first year of operations of the subject property assuming "below-line" treatment of capital expenditures.

$153,900

Given the following information, determine the final appraisal value of the subject property.

$272,640

A comparable property sold 4 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?

$281,260.00

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.

$1,449,635.50

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 five if the going-out capitalization rate is 9%.

$1,615,203.00

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.

$290,000

The actual rental income being paid in accordance with a legally binding commitment is more commonly referred to as the:

contract rent.

Net operating income is similar to which of the following measures of cash flow in corporate finance?

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

Given the following information, calculate the effective gross income multiplier. Sale price: $950,000 Potential Gross Income: $250,000 Vacancy and Collection Losses: 15% Miscellaneous Income: $50,000

3.6

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?

$388,986.00

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?

$400,000

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.

$92,790.45

Which of the following approaches for calculating the market value of a property involves the projection of the property's future expected cash flows?

income approach

Which of the following would be categorized as a cause of external obsolescence?

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

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.

$974,610.00

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?

0.19%

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

9%

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:

location.

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:

market prices are revealed almost instantaneously to prospective buyers.

The rental income that a property would most probably command if all the space were continuously leased at current rental rates is more commonly referred to as the:

market rent.

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:

mortgage payments.

The starting point in calculating net operating income is the total annual income the property would produce assuming 100 percent occupancy and no collection losses. This is commonly referred to as:

potential Gross Income.

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?

sales comparison approach, income approach, cost 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?

summary appraisal report

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:

terminal value.

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:

No financial limits are considered when determining the property's best use.

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:

three to five years.

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

12.5%

The price we observe when a property is sold is more commonly referred to as the property's:

transaction value.

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?

−0.51%

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?

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

Given the following information, what adjustment would need to be made to account for the living area difference between the Subject Property and Comparable Property?

The price of the comparable property must be adjusted downward by $8,370.

Given the following information, what adjustment would need to be made to account for the lot size difference between the Subject Property and Comparable Property?

The price of the comparable property must be adjusted upward by $750.

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.)

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

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?

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

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?

arm's-length transactions