General Appraiser Income Approach
Replacing the light bulbs in the manager's office
Which of the following would typically NOT be included in replacement reserves?
Cogent
"Convincing or believable by virtue of forcible, clear, or incisive presentation" defines ___________.
Hotels/motels
"Occupancy rate" is a term associated most commonly with:
According to Harrison's Illustrated Dictionary of Real Estate Appraisal, the _____________ is used to rate the quality of an investment.
Net present value
Look at it through the eyes of a reviewer
Which of these would be the BEST way for an appraiser to ensure that her report contains sufficient information?
Anticipation
Which principle holds that value is created by the expectation of benefits to be derived in the future?
Freestanding single unit
Which property type is least likely to have a professional property manager?
Agricultural properties
Which property type typically sells by auction?
There are many different market value definitions in common use. That is why USPAP requires that we identify the particular definition we are using and cite its source.
Which statement is TRUE regarding market value?
If the investment required for two different properties is different, the net present values will differ even if all other factors are alike.
True
.5 5,000/.30 = 16,667
The number 5,000 is 30% of ____________.
Value the entire property
Typically the first step in valuing a partial interest is to:
$106,192.38.
$82,000 deposited in an account earning 9% for 3 years will grow to
Delta
A change in total property value is signified by:
Entrepreneurial profit
A reward or compensation for contribution describes:
Generally, when NPV is positive, the investment is:
Acceptable
Yield rate
An appraiser might also call a discount rate a:
Computers
DCF analysis software is more popular today because of:
Lessee and lessor share the expenses
In a Modified Gross Lease:
Should be verified by the appraiser
Income data obtained from internet sources:
Credible results
Properly identifying the problem to be solved is critical in order to produce:
Hotel/Motel
The Income Approach is the traditional method of valuing which type of property?
Ethics and competency
USPAP is fundamentally about
Time value of money
"A dollar today is worth more than a dollar tomorrow" is the basic premise of:
Competency Rule
"An appraiser must determine, prior to accepting an assignment..." are words found in USPAP's:
Warehouse They can be used to describe Grocery Stores, Electronics Store, and Home Improvement Stores
"Big box" is a term used to described all of the following EXCEPT:
COMPETENCY RULE
"Prior to accepting an assignment..." are words that begin the USPAP:
Column 5
"The present worth of an income stream (cash flow)" describes which column of the Six Functions of $1 table?
$8,977.07.
$1,500 deposited each year for 5 years at 9% will grow to
Partnership Partial Interest example A partnership in a property that has $100,000 in assets and $20,000 in liabilities would have an equity value of $80,000. That figure is divided among the partners. A less-than-50% interest, which does not have control, suffers significant discount to appeal to an outside investor. If there is no discount mandated by a state or regulatory body, and the documents do not prescribe a percentage discount, then the appraiser must estimate said discount. Finding a buyer to come forward might require a discount of 50% or even more. Assuming that the appraiser determines the discount to be 60%, and the percentage of interest in the property is 25%, then the value of said interest would be:
$100,000 Total Assets-20,000 Liabilities80,000 Equity Value $80,000 x .25 = 20,000 (equity value of the 25% interest) $20,000 x .60 = 12,000 (amount of discount to deduct) $20,000-12,000$ 8,000 Value of the 25% interest after discount In other words, an outside investor would in theory pay only $8,000 to purchase a 25% interest in this partnership interest in the property.
Calculate the net present value of a property purchased for $500,000. The annual total income is $40,000 the first year, $45,000 the second, $50,000 the third, $55,000 the fourth, and $60,000 the fifth. Anticipated net sale price at the end of year five is $600,000. The yield rate is determined to be 12%.
$16,632
After income taxes
The Internal Rate of Return (IRR) is often used to measure profitability:
5% 25,000/500,000 = .05 .05 x 100 = 5%
$25,000 is what percentage of $500,000?
$6,065.66
$550 deposited each year for 8 years at 9% will grow to
$8,335.50.
$5,000 deposited in an account earning 9% for 6 years will grow to
Identify the problem to be solved
The first step in determining the scope of work in the appraisal process is to:
Band of Investment (Mortgage Equity)
(RO = M x RM + (1 - M) x RE) is the formula used to calculate an overall capitalization rate by which technique?
Estimate total value
The first step in the valuation of partnerships is to:
Analysis using Discounted Cash Flow is extremely sensitive to:
1. Accuracy in the projected amount and frequency of income 2. Accuracy in identifying expenses and changes in expenses 3. Accuracy of rates utilized
Absorption rate
1. Broadly, the rate at which vacant space in a property or group of properties for sale or lease has been or is expected to be successfully sold or leased over a specified period of time. See also capture rate. 2. In subdivision analysis, the rate of sales of lots or units in a subdivision.
Example to find the pv of the reversion estimate Assume a resale of $500,000 in 10 years with an anticipated rate of 9%
10 [ n ] 9 [ i ] 500,000 [CHS] [FV] [PV]Display reads: 211,205.40
Grazing capacity
The number of animals that can feed in an area without damaging other vegetation is known as:
Life interest (example) Estimate the value of a life interest in a property with a present market value of $300,000. The life tenant's life expectancy is 12 years, based on a life expectancy actuarial table. The market interest rate for this property is estimated to be 10%. The estimated value of the property at the end of the life tenancy (12 years) is estimated to be $500,000.
12 [ n ] 10 [ i ] 500,000 [CHS] [FV] [PV] Display reads: 159,315.41 (present value of the future value) Then subtract:300,000.00-159,315.41140,684.59 Value of the Life Interest
Absorption rate example If there were eighteen sales of properties similar to your subject in the past twelve months, you would calculate the absorption rate by dividing the number of sales by the number of time intervals.
18 Sales ÷ 12 Months = 1.5 Absorption Rate
Assume that an income property has a projected net operating income of $80,000 the first year, $90,000 the second, $100,000 the third, $110,000 the fourth, and $120,000 the fifth year. Calculate the present values of each of those cash flows and then the total of those present values for the five-year holding period, using an 8% rate for each year.
1st year NOI is $80,000 1 [ n ]8 [ i ]80,000 [CHS] [FV][PV]Display reads: 74,074 2nd year NOI is $90,000 2 [ n ]8 [ i ]90,000 [CHS] [FV][PV]Display reads: 77,160 3rd year NOI is $100,000 3 [ n ]8 [ i ]100,000 [CHS] [FV][PV]Display reads: 79,383 4th year NOI is $110,000 4 [ n ]8 [ i ]110,000 [CHS] [FV][PV]Display reads: 80,853 5th year NOI is $120,000 5 [ n ]8 [ i ]120,000 [CHS] [FV][PV]Display reads: 81,670 Total of all the Present Values: $393,140
Calculate the Internal Rate of Return on an investment property with an original purchase price of $400,000. Assume the first year's cash flow is $30,000, but in this case it will increase by 3% annually for a five-year holding period. The property will be sold at the end of the holding period for a price of $500,000
400,000 [CHS] [g][CFo] 30,000 [ g ] [CFj] 30,900 [ g ] [CFj] 31,827 [ g ] [CFj] 32,782 [ g ] [CFj] 533,765 [ g ] [CFj] [ f ] [IRR] (Note: IRR is a new key for us above the FV) The internal rate of return is 11.86%
Internal rate of return (IRR) example You want to know the Internal Rate of Return on an investment in an income producing property that was originally purchased for $500,000. Assume an annual cash flow of $35,000 during the entire five-year holding period. The property is sold at the end of the holding period for $650,000.
5 [ n ] 500,000 [CHS] [PV] 35,000 [PMT] 650,000 [FV] [ i ]Display reads: 11.75 The Internal Rate of Return is 11.75%
False
The statement, "capitalization rate and yield rate are interchangeable" is:
Vacant land
The following indices would be considered in appraising what type of property? Acre, lot, square foot, front foot
Private well equipment repair
The following would be included under "variable expenses":
(RO = M x RM + (1 - M) x RE)
The formula for the Mortgage-Equity Band of Investment Technique is written as follows:
D. Both A and C are correct The result is positive The result is negative
When dividing two negative numbers:
Direct Capitalization is based on one year's income
The fundamental difference between Direct Capitalization and Discounted Cash Flow analysis is:
A negative leasehold interest
When market rent is less than contract rent, the Lessee has:
Extrapolation
When predicting future trends, patterns, or relationships, the appraiser most often working with:
Overage rent That is called overage rent - it is paid over and above the base rent.
A percentage rent paid in addition to the base rent is called
Remainderman
A person or entity entitled to an estate after a prior estate or interest has expired. See also remainder interest.
False
A "kick-out" clause in a lease allows the Lessor to void the lease for any reason, and requires the Lessee to vacate the premises providing that a 30 day notice is given.
A kick-out clause allows:
A Lessee with a long-term lease to cancel that lease if business revenues have not reached a pre-set level after a certain pre-set time frame
The tenant pays less rent in the beginning, which can help when starting a new business
A benefit to a step-up lease is:
$2,500 $2,220 + $900
A building has an EGI of $22,750. Expenses include the following: taxes $2,220; insurance $900; management 3% of the Effective Gross Income. What is the total fixed expense?
Partnership
A business arrangement in which two or more persons jointly own a business and share in its profits and losses.
Partnership
A business arrangement with two or more owners who share in profits and losses is known as a/an:
Building residual technique
A capitalization technique in which the net operating income attributable to improvements is isolated and capitalized by the building capitalization rate (RB) to indicate the improvements' contribution to total property value. When the improvements' value is added to land value, a total property value opinion is produced.
Discount
A charge that is paid to obtain the right to delay a payment is called a/an:
A competition clause
A clause in a lease that guarantees a tenant exclusive rights to operate a certain type of business is called:
Typical
A common denominator of most definitions of market value is that the buyer and seller are:
The landlord
A common lease clause addresses indemnification. Which party does this clause generally protect?
Grace Period
A common part of the rent payment provisions in a lease is often a ___________ provision to allow the Lessee a time period to pay rents due after the due date without incurring any penalty.
Buyer and seller are willing and knowledgeable
A common thread within various definitions of market value is:
Positive or negative
A condemnation proceeding by eminent domain might be considered a ________ factor in the valuation of real property.
Transferable development right (TDR)
A development right that cannot be used by the landowner, or that the owner chooses not to use, but can be conveyed to landowners in another location or leased for a period of years to then revert back to the original owner; TDRs are said to be transferred from a landowner in a sending district to the use of a landowner in a receiving district.
Yield Rate
A discount rate also can be called a:
Internal Rate of Return
A discount rate at which the present value of the future cash flows of the investment equals the cost of the investment. It is the rate of return on an investment. It can be referred to as a "discount rate" or a "yield rate". When using an interest rate to discount future cash flows to a present value, it is called a "discount rate".
Yield rate
A discount rate is synonymous with the:
Tenant improvements can be:
A positive or a negative influence on value and rents
Land cap rate
Which of the following would not be useful in determining an overall capitalization rate by the mortgage residual technique?
Competition clause
A fast food restaurant was negotiating a lease on the end unit of a strip retail center. They were concerned that the landlord would rent the other end unit to another fast food restaurant. In order to ensure that does not happen, the tenant could ask that which of the following clauses be included in the lease agreement?
Level payment lease
A flat rent lease has a specified rental amount that remains constant for the duration of the lease. What is another term used to describe a flat rent lease?
A Leased Fee Interest
A freehold (ownership interest) where the possessory interest has been granted to another party by creation of a contractual landlord-tenant relationship is called
Direct deals with current year's income and yield with future benefits
A fundamental difference between direct capitalization and yield capitalization is:
Remainder Interest
A future possessory interest in property that is given to a third party and matures upon the termination of a limited or determinable fee. For example, A gives B a life estate in A's farm for B's lifetime. A also gives C an interest in the farm to take effect upon B's death. C has a remainder interest.
Return ON investment
A key term in the two of the three definitions of yield rate (presented in this chapter) is:
Cancel the lease if business is not as expected hey allow a Lessee with a long-term lease to cancel that lease if business revenues have not reached a pre-set level after a certain pre-set time frame.
A kick-out clause in a lease allows a tenant to:
Revaluation lease
A lease that involves future rents being determined by market rents at predetermined intervals is called a:
An annuity Yes, they are an annuity; which is a series of equal payments or receipts that occur at evenly spaced intervals.
A lease with a fixed monthly rental payment is an example of:
Introduction, Problem Identification, Presentation of Data, Analyses and Conclusions
A logical flow to a narrative appraisal report is:
Entrepreneurial profit
A market-derived figure that represents the amount an entrepreneur receives for his or her contribution to a project and risk; the difference between the total cost of a property (cost of development) and its market value (property value after completion), which represents the entrepreneur's compensation for the risk and expertise associated with development. An entrepreneur is motivated by the prospect of future value enhancement (i.e., the entrepreneurial incentive). An entrepreneur who successfully creates value through new development, expansion, renovation, or an innovative change of use is rewarded by entrepreneurial profit. Entrepreneurs may also fail and suffer losses.
Buying power index (BPI)
A measure of demand in a local area relative to a benchmark value. One such index, the Survey of Buying Power (BPI), uses the United States as a benchmark in the following formulation: BPI = 0.5 (local area's percentage of income) +0.3 (local area's percentage of U.S. retail sales) +0.2 (local area's percentage of U.S. population) Another form of the BPI could use a region or a state instead of the United States as the benchmark value.
Modified internal rate of return (MIRR)
A measure of investment performance; similar to the internal rate of return except that negative cash flows, if any, are discounted to present value at a specified safe rate and positive cash flows are presumed to be reinvested to grow with compound interest at either the same specified safe rate or at a specified market rate until the termination of the investment; also called adjusted internal rate of return.
Debt coverage ratio formula (Cap Rate)
A method of developing the overall capitalization rate by multiplying the debt coverage ratio by the mortgage capitalization rate and the loan-to-value ratio for the property (RO = DCR x RM x M).
Band of investment technique
A method of estimating either overall capitalization rates or overall discount rates by calculating the weighted average of capitalization or discount rates for various components that make up a total property investment.
Yield Capitalization
A method of estimating property value by discounting all expected future cash flows refers to:
Compound Interest
A method of paying interest, usually paid on savings accounts, where the interest earned during a period of time is added to the principal sum at the end of the period. During the next period, interest is earned on both the original principal sum and the accumulated interest. This process continues over a series of equal time periods, with interest added to the capital after each distribution.
Direct capitalization
A method used to convert an estimate of a single year's income expectancy into an indication of value in one direct step, either by dividing the net income estimate by an appropriate capitalization rate or by multiplying the income estimate by an appropriate factor. Direct capitalization employs capitalization rates and multipliers extracted or developed from market data. Only one year's income is used. Yield and value changes are implied, but not explicitly identified.
Yield capitalization
A method used to convert future benefits into present value by 1) discounting each future benefit at an appropriate yield rate, or 2) developing an overall rate that explicitly reflects the investment's income pattern, holding period, value change, and yield rate.
Building Owners and Managers Association
A national organization which deals with office buildings is:
Remainderman
A party entitled to receive a property held in a estate after the prior estate expires is known as the:
9.5% .75 x .1004 = .0753 .25 x .08 = .020 .0753 + .020 = .053
A property can be financed with a mortgage of 75% of its value. If the mortgage constant is .1004, and the equity capitalization rate is 8%, what is the indicated overall capitalization rate?
$47,700
A property generated $45,000 in income this year. If the income increases 6% per year, what is the income anticipated to be next year?
$564,286 $60,000 - $52,000 = $8,000 $8,000/.07 = $114,285.71 $114,285.71 + $450,000
A property has a $450,000 mortgage with annual payments of $52,000. The NOI is $60,000 and the equity cap rate is .07. What is the total property value, based on this information?
$77,400
A property has a sale price of $860,000 and a market derived cap rate of 9% has been calculated. What is the income indicated by this data?
20,000 [ g ] [CFj] (Don't get excited...[CFj] is on the bottom of the [PMT] key.)21,000 [ g ] [CFj]22,000 [ g ] [CFj]23,000 [ g ] [CFj]274,000[ g ] [CFj] (This is the 5th year's rent plus the reversion or resale.)10 [ i ][ f ] [NPV] ([NPV] is above the [PV]...that's why we pressed the [ f ].)Display reads: 237,907.87
A property is leased for five years. The annual rent starts at $20,000 (payable at the end of each rental period) and increases $1,000 per year. This is the forecasted rent for the entire lease period. The market derived rate for this property is 10%. The value of the reversion at the end of the lease is $250,000. What is the value of the leased fee?
Goes to the other joint tenant
A property is owned by joint tenants. One of the parties dies. The demised party's interest:
Goes to the other joint tenant The ownership reverts to the other joint tenant by right of survivorship.
A property is owned by joint tenants. Upon the demise of one party, ownership of the demised party's interest:
$6,377.41
A property is purchased for $150,000. The down payment is $25,000. At an interest rate of 3% for a term of 30 years, what is the annual mortgage payment.
Column 3
A property owner plans to replace the roof of the building in 8 years. At that time, the cost is expected to be $25,000. In order to determine how much he should deposit each year to an account bearing 9% annual interest, which column of the Six Functions of $1 table should he consult?
Investing in real estate was a good hedge against inflation
A property was purchased in 1974 for $45,000. Based upon the inflation factor for 2009, the current worth of the property should be $192,800. However, properties like the subject are currently selling for $250,000. What does this show?
Grazing permit
A rancher received official, written permission to graze 100 head of his cattle on federal lands. This permission is referred to as a
Risk rate
A rate of return higher than the safe rate is called the:
Discount rate
A rate of return on capital used to convert future payments or receipts into present value is:
Yield rate
A rate of return on capital, usually expressed as a compound annual percentage rate, is known as:
Internal rate of return (IRR)
A rate of return that discounts all expected future cash flows to a present value that is equal to the original investment. An IRR can be calculated for any defined cash flows, for example, for the whole property or for just the equity position. Also called yield rate.
Keep real property in the family That is one of the main reasons.
A reason for giving a life interest might be to:
Appraisal Recertification
A recertification of value is performed to confirm whether or not the conditions of a prior assignment have been met. One example of a recertification of value is a final inspection.
Expressing an opinion of value
A review appraiser summarizes the review process by stating that he concurs with the original appraiser's value. Under USPAP, the review appraiser is:
No, reviewers are permitted to correct math errors as long as it is made clear that it is not the reviewer's own opinion of value
A reviewer identified a math error in an appraisal report. The appraiser narratively stated that the NOI for the subject property was $50,000 and the capitalization rate was 9%. The actual calculation was based upon a 9.5% capitalization rate. If the only action taken by the reviewer is to correct the math error, is that considered to be an expression of his own value?
Risk Premium
A risk premium (risk premium rate) - reflects the extra return investors demand because they want to be compensated for the risk that the cash flow might not materialize after all.
$180,239 $50,000 = pmt 12% = i 5 = n enter pv
A sandwich lease position profits $50,000 each year from the lease payments. At a 12% rate, and a five-year lease; what is the value of that interest?
It is the investor's compensation for his/her time and effort
A simple explanation of entrepreneurial profit is:
Land residual technique
A technique used to find the value of a property by subtracting income attributable to the building from the net operating income (NOI) and valuing the residual land income, for example, by dividing the land income by a land capitalization rate to arrive at a land value indication. The land value is then added to the building value to arrive at an estimate of value for the total property. The land residual technique is one way of evaluating the highest and best use of a site. Under its highest and best use, the building value should equal its development cost and the highest land value will result for this use.
Tenant closing down its business
A tenant "going dark" refers to:
Sandwiched We call that a sandwiched position. The lessee is sandwiched between the property owner and the sublessee.
A tenant has a lease at $1,500 per month for the next 6 years, and the market rent is $1,900 per month. What is the present value of the leasehold position at a market derived rate of 6%? (Note: Rent is paid at the end of the period.)
Landlord Solvency
A tenant may be concerned about the financial stability of the landlord. Lease provisions addressing this issue would be found under:
Landlord Solvency
A tenant may be concerned about the landlord's financial stability. Lease provisions addressing this issue would be found under:
Concessions
A tenant providing free dry cleaning to the landlord for the duration of the lease would be addressed in a lease agreement under:
Consumer price index
A typical index used for rental change increments is the:
Discounted cash flow analysis
A valuation method used to estimate the attractiveness of an investment opportunity is:
Undivided interest That's why it's called undivided.
An interest shared by co-owners who cannot individually convey any part of the property is referred to as a/an:
Significantly discounted
An interest in a partnership of 45% that does not include operational control typically would have a value:
A Gross Income Multiplier provides a direct estimate of the market value of a subject property, and eliminates the adjustment process required by the Sales Comparison Approach. The effectiveness of a Gross Income Multiplier is dependent on the quality of the comparable sales data. The Gross Income Multiplier method does not provide valuation adjustments for:
Abnormal physical deterioration Functional obsolescence Economic obsolescence Land size Zoning limitations Other property differences
If the NPV is zero, the investment is considered to be:
Acceptable
Inferred entrance capitalization rate ADVISORY OPINION 33. "The results of DCF analysis should be tested and checked for errors and reasonableness. Because of the compounding effects in the projection of income and expenses, even slight input errors can be magnified and can produce unreasonable results. For example, it is good practice to test whether cash flows are changing at reasonable rates and to compare the reversion capitalization rate with the inferred going-in capitalization rate to see if the relationship between these rates is reasonable."
According to ADVISORY OPINION 33 of USPAP, it is a good practice to compare reversion capitalization rate with the _______________ to see if the relationship between these two rates is reasonable and explainable.
Standard 1
According to Standard 3, if the review appraiser is asked to provide his or her own opinion of value, that opinion must be developed in accordance with:
All of these Weigh historical information Anticipate competition Analyze current supply and demand factors
According to USPAP, when the Income Approach is necessary for credible assignment results, the appraiser must:
1.450
According to a published cost service, the cost index for a property constructed in June of 1998 was 1.400. The cost index for a property constructed in December of 1998 was 1.500. If we interpolate the data, what is the index for a property constructed in September of 1998?
Reversionary capitalization rate
According to the Dictionary of Real Estate Appraisal, another name for terminal capitalization rate is:
Either A or B Listed in the National Register of Historic Places Located in an historic district
According to the IRS, historic preservation easements apply to "any building, structure or land that is"
Inflation
Advantages of investing in income property includes all of the following EXCEPT:
I understand how all the information supports the value conclusion
After reading the reconciliation in the appraisal report, the intended user should be able to say:
Data collection and analysis
After the appraiser determines the scope of work, the next step in the appraisal process is:
Investment Value
After-Tax Cash Flow is dependent upon the individual investor's tax rate, so it is more commonly used when seeking which type of value:
Coordination The four agents of production include Land, Labor, Capital and Coordination. Coordination is also sometimes referred to as Entrepreneurial Profits. You can use the memory device of LLCC to remember the four agent.
Agents of production include Land, Labor, Capital, and
True
All of the factors from the Six Functions of $1 table can be calculated using an HP 12c or other type financial calculator.
Total operating expenses
All of the following are typical management agent/company duties EXCEPT:
Absolute accuracy in estimating replacement reserves
Although the Income Approach can have different elements, depending on the property type, there are some basic expectations which are universal to the Income Approach. Which of the following would NOT be one of those universal expectations?
Ellwood formula
An algebraic formula used to calculate an overall rate that is based on mortgage equity analysis concept and allows for cash flow forecasts, including the impact of financing, is the:
Akerson format Akerson provides a simplified Ellwood.
An alternative way of writing the Ellwood formula is:
Value-in-use Value in Use would not require a Highest and Best Use analysis - it presumes the present use.
An appraisal assignment would NOT include a Highest and Best Use analysis if it was for:
Equity residual technique
An appraisal technique for solving for value by which the first year's before-tax cash flow (net operating income minus annual debt service) is capitalized by the equity capitalization rate (equity dividend) to arrive at an estimate of the equity value. The equity value is then added to the loan balance to arrive at an estimate for the total property.
Mortgage residual technique
An appraisal technique for solving for value when the amount of available equity is known but the mortgage value is unknown. The mortgage value is found by subtracting income to equity from net operating income (NOI) and capitalizing this amount by the mortgage capitalization rate.
Cash equivalency
An appraiser adjusting sales prices of properties with atypical financing is performing what type of analysis?
+/- $178,000
An appraiser applied an overall capitalization rate of 8% when it should have been 7%. If the net operating income for the property is $100,000, what would be the difference in value?
Yes, not reporting it might mislead the client and intended users
An appraiser could not inspect a room because of a locked door. The owner of the property indicated that they had lost the key and couldn't open the door, but that there was "nothing wrong with the room". Should the appraiser disclose in the scope of work that the room was not inspected?
Concessions
An appraiser discovers that a tenant providing free dry cleaning to the landlord for the duration of the lease would be addressed in a lease agreement under:
The sale price of the property at the end of the holding period
An appraiser is calculating the IRR for a property. He has the following information: year 1 NOI; the length of the holding period; the rate of increase of the NOI over the holding period; the cash flow reinvestment rate; and the purchase price. What is the final piece of information needed to be able to determine the IRR?
Renew the lease as is
An appraiser should understand that renewal options allow the tenant to:
Discounting
An appraiser wants to determine the present value of future income streams. This process is referred to as:
Cash Equivalency
An appraiser who is adjusting sales prices of properties with atypical financing is performing ____________ analysis.
All of these Non-credible value opinion A misleading report A poorly-documented value opinion
An appraiser who takes an assignment beyond his level of competency, and does not take the necessary steps to become competent, will likely produce a:
Inwood premise
An assumption that the present value of an income stream is based on a single discount rate is the definition of which of the following?
In gross
An easement that benefits a legal person and does not run with the land is an easement:
Easement Yes, an easement is for use. The others are forms of ownership or interests.
An example of a partial interest being for "use" would be:
Labor
An example of a variable expense would be:
Flood insurance
An example of fixed expenses would be
Flood insurance
An example of fixed expenses would be:
K factor
An income adjustment or stabilization factor formerly used to convert a stream of income changing at a constant ratio into its stable or level equivalent is the:
J factor
An income adjustment or stabilization factor formerly used to convert a stream of income changing on a curvilinear basis into its level equivalent is the:
Less than 25% of the total value
An interest in a partnership of 25% that lacks operational control typically has:
Adjusted internal rate of return
An internal rate of return analysis in which different reinvestment and discount rates for both positive and negative cash flows have been specified. The adjusted internal rate applies a "safe rate" to all negative cash flows, discounts them to time period zero, and adds them to the initial investment. The safe rate is the rate that could be earned on the funds until needed to cover negative cash flows. A market rate is applied to all positive cash flows, which are carried forward to the end of the investment holding period. The market rate is the rate that can be earned by investing the positive cash flows in other investments. The AIRR equals the internal rate of return (IRR) that equates the present value figure to the future value figure.
$25,155.79
An investment in an annuity that pays 5% interest is made by an investor. The cash deposit is $2,000 for the first year. Each successive year, the investor deposits an additional $2,000 in the same account. At the end of 10 years, what will be the balance in that account?
Risk premium That is a good example of a risk premium. It does not just apply to real estate investing, but is a universal principle.
An investor can purchase a U.S. Treasury bill will pay 2% interest. He can take the same money and purchase one share of stock, but he expects a higher rate of return. The difference between the amount of the return on the T-bill versus the share of stock is an example of:
Column 1
An investor deposited $100 into an account which earns 9% interest per year. He plans on having the interest deposited to the account as it is earned. He makes no further deposits to the account but plans to withdraw all the funds at the end of 5 years. To determine the balance of the account in 5 years, the investor would use which column of the Six Functions of $1 table?
No, the IRR is only 11.86%
An investor expects an IRR of no less than 12%. He is considering purchasing a property with a year 1 cash flow of $30,000. Based upon historic data, there is every reason to believe that the cash flows will increase by 3% annually. If the purchase price is $400,000, and the sale price at the end of the five-year holding period is $500,000, would this investment satisfy the investor's expectations?
$1,000,000
An investor has the opportunity to purchase a property which generates an income of $10,000. Using a "multiplier" of 100, what is the property value?
Entrepreneurial profit
An investor hires a contractor to build an office building. The builder quoted a turn-key cost of $275,000. Upon completion of the project, the investor sold the building for 15% more than he paid to have it built. The 15% would be an example of
$2,318.96
An investor plans to make periodic deposits to a reserve for replacement fund so that he can replace the roof of the building in 6 years. At a safe rate of 3%, how much needs to be deposited every year so the balance in the account will be $15,000 in six years?
Leverage
An investor purchases a property worth $100,000 but only has to come up with a down payment of $25,000. This situation is an example of:
$303,000 (f) (beg) n = 10 fv = $625,000 i = 7.5% pv = $303,246.20
An investor receives cash flows from a property for 10 years. At the beginning of the 10 year, the property is sold. The net proceeds (after closing costs) were $625,000. At a discount rate of 7.5%, what is the present value of the reversion?
General partnership
An organizational form of real estate ownership in which income, gains, losses, deductions, and credits are passed through to individual partners who pay tax on their own income. A general partnership usually ensures that the death or bankruptcy of one partner will not force a termination of the business or cloud the title of the partnership property. However, partners share full liability for debts and obligations of the partnership and can be held responsible for actions of other partners. This form of ownership is not typically used for a large group of investors.
True Fixed Expenses. True - that is the way they are defined.
An owner pays the following expenses: taxes $1,500; insurance $500; management $2,500. What is the total variable expense?
Limited partnership
An ownership arrangement in which general and limited partners are included as equity investors in a real estate project. General partners are responsible for the management of the partnership and have unlimited liability in regard the ownership agreement. Limited partners' liability is limited to the initial contribution of capital plus any unpaid contributions that must be made in the future. Losses from the property are passed through to all partners and may be used to offset other passive income for tax purposes. See also general partnership
Limited partnership That is the definition of a Limited Partnership.
An ownership arrangement in which partners are included as equity investors in a real estate property is called a/an:
Undivided True, condos have an undivided interest.
An ownership interest that relates to condominiums is:
Appraisal Update
An update is a new appraisal assignment involving a property that was previously appraised. An update is subject to the same USPAP requirements as any other appraisal assignment.
Standard deviation
Analyzing data to determine variances from the mean is called:
Annuities
Annual installments of regular contracted amounts are known as:
Overall Yield Rate
Another name for "free and clear yield" is the:
Mortgage capitalization rate
Another name for mortgage constant is:
Property Yield Rate
Another name for overall yield rate is:
Graduated payment lease
Another term for a step-up lease is a:
Surface rights
As a general rule, in the appraiser's day-to-day practice, the real property rights being appraised are:
True
As a general rule, the name of the residual technique reflects the unknown component.
They are not predictable and it is assumed that insurance would cover the loss
As a general rule, the vacancy and collection loss factor does not include periods where the property is un-rentable due to catastrophic events because:
Tax Shelter
As noted earlier, sometimes an investment that shows a loss can be a good thing. Certainly this is not a general rule, but some individuals are able to take advantage of the tax laws and come out better off by showing a loss.
Purchase option
As part of the lease negotiations, the landlord and the tenant agreed upon a future purchase price, should the tenant decide to buy the building. This is an example of a
The components or characteristics used in a specific field or industry as a determinant of value
As used in this chapter, the term "indices" refers to:
$1,035,329
Assuming a 10 year holding period, a discount rate of 9%, a terminal value of $2,580,000, and selling expenses of 5%, what is the present value of the reversion?
$13,108.93
At 2.5% interest for 20 years, $8,000 will grow to:
$7,789.84
At 3% interest for 15 years, $5,000 will grow to:
Agricultural
Availability of parking is of little to concern to the purchaser of which type property:
$100,000
Available equity is $20,000, and the NOI is $10,000. An equity capitalization rate would be 0.10, and the mortgage capitalization rate is 0.08. What is the value of the mortgage?
$252,857 $30,000 x .08 = $2,400 $18,000 - $2,400 = $15,600 $15,600/.07 = $222,857.14 $222,857 + $30,000 = $252,857
Available equity is $30,000. The NOI is $18,000. The equity cap rate is .08. The mortgage cap rate is .07. What is the property value?
Indices
By indices, we mean the components or characteristics used in a specific field or industry as a determinant of value.
Methods to find I / V = R (Rates)
Band of Investment - Mortgage Equity Band of Investment - Land - Building NIR/EGIM Debt Coverage Ratio
The Debt Coverage Ratio formula has the nickname of "underwriter method"
Because it is applicable when the implied equity dividend reflects the requirement of a typical investor, there are often occasions when this method would not be appropriate. It is important to note that the implied cap rate may or may not be the actual cap rate derived from other methods. It is only a check by the lender/underwriter on the "reasonableness" of the cap rate selected in an appraisal.
True
Because terms like "gross lease", "modified gross lease", or "double net lease" mean different things to different people, the appraiser should ensure that any such terms are fully explained in the appraisal report so intended users are not mislead.
Class A
Buildings with higher rents, above-average tenants, and superior construction are classified as:
Extrapolation
Calculating or estimating quantity beyond the range of data on which the calculation or estimate is based is called
11.61%
Calculate the IRR if the purchase price was $450,000 and the cash flow started the first year at $35,000 and then increased 3% each year for the 4-year holding period. Resale is projected to be $525,000.
$697.77
Calculate the monthly mortgage payment for a $90,000 loan at 7% interest, amortized over a 20-year period.
$51,725.56 Leasehold Interest Value. f [FIN] 5 g [n] 6 g [i] 1,000 [CHS] [PMT] [PV]
Calculate the present value of a leasehold, if monthly contract rent is $2,000 and market rent is $3,000 per month, based on a five-year lease and a market derived rate of 6%.
Extrapolation
Calculating or estimating a quantity outside of the range of the data on which the calculation or estimate is based; projections that presume a continuation of observed trends, patterns, tendencies, or relationships.
Terminal capitalization rate (add. def.)
Capitalization rates for resales are referred to as "terminal" or "residual capitalization rates" (sometimes "going-out" rates). They are usually higher than rates used during the holding period, predominantly due to the higher risk in Net Operating Income projections.
The annual principal and interest payment on a mortgage Column 6 gives you an annual mortgage payment - including principal and interest.
Column 6 of the table can be used to determine:
True
Columns 1, 2 and 3 basically are opposite functions Columns 4, 5 and 6 of the Six Functions of $1 table.
Office buildings Challenging properties include: Car washes Restaurants Hotels
Commonly challenging assignment types include all of the following EXCEPT:
April 10, 2012
Comparable #1 went under contract on February 28, 2012. The sale closed 42 days later. What was the date of closing?
In dense urban areas
Comparable sales of airspace would more likely be found
Longer
Compared to lease terms for multi-family properties, lease terms for office buildings are typically found to be:
All of the above Familiarity with a property type Familiarity with a market or geographic area Familiarity with specific laws and regulations
Competency in an appraisal assignment can apply to:
Cash flow and reversion
Components in a Discounted Cash Flow analysis definition include:
$4,674.60
Compute the annual mortgage payment for a $30,000 loan at 9% for 10 years.
$14,958.72
Compute the annual mortgage payment for a $96,000 loan at 9% for 10 years.
D. Both A and B A. Expenses B. Collection Losses
Concessions can also contribute to:
Discounting
Converting future cash flows into a present indication of value (present value) is called:
The NPV may not meet all investors' needs
Critics of using "Net Present Value" cite that:
A matter of judgment Yes, and usually a difficult decision.
Determination of the percentage of discount to apply is:
True
Direct Capitalization is used to convert a single year's estimated Net Operating Income into an indication of property value.
In the relevant section of the report
Disclosure of the scope of work in an appraisal report is best done:
Required when necessary to not mislead
Disclosure of the work not performed is:
ADVISORY OPINION 33 (AO-33)
Discounted cash flow (DCF) analysis is an accepted analytical tool and method of valuation within the income approach to value. DCF analysis is typically utilized to identify the potential for profit or return on an investment. Because it is dependent on the analysis of uncertain future events, it is vulnerable to misuse or misapplication. What steps can the appraiser take to comply with USPAP in completing a DCF analysis?
Partial interest
Divided or undivided rights in real estate that represent less than the whole, i.e., a fractional interest such as a tenancy in common, easement, or life interest
Discount rate
Dividing the difference between the amount borrowed and the amount paid back by the original loan amount lets you determine the:
Conservation easement
During the development of a new subdivision, a nest of red-horned, spotted wingdings was discovered. One way the local ecological society could protect this endangered species of bird is to require the developer to grant a/an
The right to use another's land for a stated purpose.
Easement
An easement that is attached to, benefits, and passes with the transfer of the dominant estate; runs with the land for the benefit of the dominant estate and continues to burden the servient estate, although such an estate may be transferred to new owners.
Easement appurtenant
The right to use another's land, which is established by exercising this right openly, hostilely, and continuously over a statutory period of time
Easement by prescription
An easement that benefits a legal person or entity (individual, corporation, partnership, LLC, government entity, etc.) and not a particular tract of land; an easement having a servient estate but no dominant estate.
Easement in gross
Industrial buildings
Environmental challenges are most likely to be found in the appraisal of:
Before tax cash flow Before-Tax Cash Flow. They are synonymous.
Equity Dividend is another name for:
Steps to find the Yield Capitalization
Estimate a holding period Determine estimated cash flows Estimate a reversion Select a yield rate Calculate the present value of the cash flows and reversion
$1,052,632 $100,000/.0950 = $1,052,632
Estimate the resale price of a property that will be sold in year 10. The NOI for year 11 is $100,000. The current capitalization rates are 9% and the appraiser adds 50 basis points for a terminal capitalization rate. What would be the projected resale price?
The basic steps in appraising partial interests are:
Estimate the value of the entire property. Determine value of the specified interest (whole value x percentage interest). Determine the discount for the "partial" interest. Deduct the discount to determine the value of the partial interest.
Stabilized incomes
Estimated future cash inflows that may change, but have been adjusted to an equal amount per year, are called:
Stabilized incomes
Estimated future cash inflows that may change, but have been adjusted to an equal amount per year, are known as:
Laws and regulations Laws and regulations might be assignment conditions that would impact our scope of work and conclusions.
Examples of assignment conditions are:
Variable
Expenses which often fluctuate based upon occupancy levels are referred to as:
A Profitability Index of -1 means that the investment:
Fails to meet the profitability goals
Defined by the FASB It is an accounting term, not an appraisal term.
Fair value is:
Impact Impact fees are employed by municipalities to offset the costs of providing more services to new occupants after development occurs.
Fees designed to offset the increased burden on infrastructure are known as ________ fees.
Adjusted Internal Rate of Return
Financial Management Rate of Return is similar to:
A property's building is valued at $140,000. The appraiser determines that the Net Operating Income is $30,000. The land cap rate is 9 percent, and the building cap rate is 12 percent. Calculate the land value and the total property value.
First establish that the building value is: $140,000 Then enter the NOI:$30,000 Now multiply building value by rate for buildings (140,000 x .12) and subtract: -16,800 That leaves the residual income to the land of: 13,200 Find land value by dividing land income by land rate (13,200/.09) 146,667 Add to building value above to find total property value $286,667
An assignment involves a property with available equity of $25,000. The appraiser determines the Net Operating Income to be $10,000 by using a Reconstructed Operating Statement calculation. The equity cap rate is found to be .11, and the mortgage cap rate is .09. What is the value of the property?
First present the net operating income (NOI) $10,000 Then multiply equity times the rate for equity (25,000 x .11) and subtract -2,750 That gives the residual income to the mortgage 7,250 Now divide the income to the mortgage by mortgage rate (7,250/.09) $80,556which gives you the value of the mortgage Finally, add the equity value to the mortgage value +25,000 Total property value (80,556 + 25,000) = $105,556
Effective Gross Income Multiplier and Net Income Ratio Sale #1 Sales Price $480,000 PGI - $80,000 V&CL - 5% Total OpEx - $16,000
First you had to calculate the Effective Gross Income, and then the Effective Gross Income Multiplier, and then the Net Operating Income, and finally the Net Income Ratio, to then be able to calculate the overall rate. Sale #1: 80,000 x .05 = 4,000 and then: 80,000 - 4,000 = 76,000 (EGI). Next: 480,000 ÷ 76,000 = 6.3158 (EGIM) Next: 76,000 - 16,000 = 60,000 (NOI)Next: 60,000 ÷ 76,000 = .7895 (NIR) Next: .7895 ÷ 6.3158 = .1250
$3,120
Fixed, variable, and replacement reserves are included in:
I ÷ R = V
For estimating value using a capitalization rate, what is the basic formula?
Debt coverage ratio formula (Cap Rate) example
For example, a property can be purchased with a 75% loan. The loan has a 15-year term with monthly payments at 9 percent interest (indicated mortgage capitalization rate of 0.1217). The lender requires a debt coverage ratio of 1.2. The overall capitalization rate can be estimated as follows: RO = 1.2 x 0.1217 x 0.75 = 0.1095 [implied cap rate for property]
Land-building formula example
For example, comparable sales indicate that the land capitalization rate is 0.09, the building capitalization rate is 0.14, and the land-to-value ratio is 30 percent. The indicated overall capitalization rate can be calculated as follows: RO = (0.30 x 0.09) + (0.70 x 0.14) = 0.125)
Terminal capitalization rate (example)
For example, suppose an investor wants to estimate the resale price, assuming the property will be sold in year 10. NOI for year 11 is estimated to be $150,000. Current capitalization rates for similar properties are about 10 percent. The appraiser adds a risk premium of 50 basis points to obtain a terminal capitalization rate of 10.5 percent. Thus the estimated resale price is $150,000 ÷ 0.105 = $1,428,571."
$5,525.63
If an investor deposits $1,000 per year into an account for 5 years at 5% compound interest, what will be the final balance in that account at the end of the holding period?
$217,000 240,000, enter, .20, E +, etc., then press g and number 6
For one property, the Sales Comparison Approach indicates a value of $240,000. The Cost Approach reflects a value of $205,000, and the Income Approach yields $215,000 as an indicated value. Using the weighted mean methodology and giving 50% weight to the Income Approach, 30% to the Cost Approach, and 20% to the Sales Comparison Approach, what is the indicated reconciled value?
Owner/user Most often they are used by the owners.
Free-standing single-unit properties are generally:
- "client and any other intended users; - intended use of the appraiser's opinions and conclusions; - type and definition of value; - effective date of the appraiser's opinions and conclusions; - subject of the assignment and relevant characteristics; and - assignment conditions."
From the SCOPE OF WORK RULE, these key factors are:
Leverage
Having more money to invest than is actually available is the basic idea of what is meant by:
Outpaced inflation
Historically, the value of most real property has:
Building Residual Technique
How can an appraiser estimate a building value when NOI, as well as the income attributable to the land, are known, and a building capitalization rate is 12%?
"Rule of 72"
How long does it take to double your money at a given interest rate?
258 Calendar Functions. [f] [REG] 1.292007 ENTER 10.142007 g (delta)DYS
How many days were there between January 29, 2007 and October 14, 2007?
$51.58 15 = G then N $15,000 - CHS, FV 6% - G then I Compute PMT
How much has to be deposited each month for 15 years to accumulate $15,000 if the interest is 6%?
$1,974.6
How much has to be deposited each year for 10 years at 9% to accumulate $30,000?
$1,360.11
How much has to be deposited each year for 8 years at 9% to accumulate $15,000?
Agricultural
Identification of the type of soil on a given parcel is most important to what property type?
Intended Use
Identifying the _____________ is the factor with the greatest influence on the appraiser's determination of the proper scope of work.
Debt coverage ratio (DCR) example
If a property is estimated to have an NOI of $12,000 for a given year and debt service (principle and interest) during that year is $10,000, then the DCR is $12,000/$10,000, or 1.2.
The tenant has gone out of business
If a tenant in a shopping center "goes dark", what has happened?
0.5 3/6 = 0.5
If an appraiser finds 3 sales of comparable properties in the last six months, she can calculate the absorption rate as:
$5,267.24
If an investor deposits $4,000 in an account, where it sits for 8 years at 3.5% compound interest, what will be the final balance in that account at the end of the holding period?
$15,000
If corporation issues 1,000 shares of stock, and said stock is worth $50 per share, what is the value of 300 shares of stock?
Marginally acceptable
If the NPV is zero, the investment is considered to be:
$19,350 $45,00 x .07 $5.00 x 4,500 =$19,350
If the Potential Gross Income is $45,000, vacancy and collection loss is 7% and operating expenses are $5.00 per square foot, what is the Net Operating Income for a 4,500 square foot, single tenant office building?
$91.53
If the interest rate is 6%, how much has to be deposited each month for 10 years to accumulate $15,000?
$498,182 $120,000 x .07 = $8,400 $50,000 - $8,400 = $41,600 $41,600/.11 = answer + $120,000 = $498,182
If the land value is $120,000, the Net Operating Income is $50,000, the land cap rate is .07, and the building cap rate is .11, what is the total property value?
True
If the lease prohibits subleasing, the leasehold position could have no market value.
Greater than It would be greater than. The landlord has an advantage.
If the market rent is less than contract rent, the leased fee value compared to fee simple is:
$48,173.37 $3000 - $2000 = $1000 pmt=$1000, n=60, i=9/12, pv=enter
If the market rents show the convenience store rental should be $3,000 per month rather than the $2,000 contracted for the full 5 year term of the lease, and you use the same 9% rate, what is the value of the convenience store's leasehold calculated on the monthly difference (assuming payments at the end of the month)?
$64,993.14 FV, CHS - $100,000 N - 5 I - 9%
If the present value factor for 5 years at 9% is 0.649931, what is the present value of a balloon payment of $100,000 due in 5 years at 9% interest?
$21,000
If the present value of $1 in 10 years at 9% is 0.42, what would the present value of $50,000 in 10 years at 9% be?
2 24/12 = 2
If there are 24 sales of comparable properties in the last 12 months, the absorption rate would be:
1.5 9/6 = 1.5
If there are nine sales of comparable properties in the last six months, the absorption rate would be:
Building Residual
If you know the net operating income, the land value, the land capitalization rate and the building capitalization rate, which technique would you use to determine the building value of the property?
False
In Yield Capitalization, the yield rate and the overall capitalization rate function exactly the same.
Under rental payment provisions Grace periods are found under rental payment provisions and allow the Lessee a time period to pay rents due after the due date without incurring any penalty.
In a lease, grace period clauses are found:
Investment value
In a/an ________ type of assignment, the specific needs of an individual investor are considered.
Both A and B Marketability studies Investment analysis
In addition to determining the market value of a property, a Discounted Cash Flow analysis could also be used for:
False
In appraisal practice, cash flows are always valued using the END mode.
Signage
In appraising a shopping center, tenant mix, building layout, visibility and ____________ are special considerations which impact appeal to tenants, rental amounts, and retention of existing tenants.
Presumed to be reinvested to grow with compound interest
In calculating the Modified Internal Rate of Return (MIRR), negative cash flows are discounted to present value at a specified safe rate and positive cash flows are:
The losing party
In disputes of legal matters, the expenses related to attorney/legal fees are typically borne by:
False Supply and demand always move directly with each other, but not necessarily proportionately.
In economic theory, supply and demand always move proportionally with each other.
The appraiser needs to determine the life expectancy of the life tenant That is a key part of the calculation - are they currently 45 years old or 80?
In estimating the value of a life interest on a property, the appraiser has determined the present market value of the property. Now what?
Percentage
In exchange for a lower base rent, the tenant agreed to pay the landlord the greater of the base rent or 3% of their annual gross sales. This is an example of what type of lease?
Overall Capitalization Rate The other three are: Deed restrictions Zoning Adjacent land uses
In gathering appropriate rental data, the appraiser should also consider all of the following EXCEPT:
A corporation is defined as
In law, an organization that acts as a single legal entity in performing certain activities, usually business for profit; also includes charitable, educational, and religious organizations.
Water
In multi-family properties, the landlord typically pays for:
There is historical or retro appeal
In older structures, higher energy and maintenance costs may be less of a negative factor when:
7
In order to reset the HP 12c from "ending" to "beginning" mode, press the blue [ g ] key and then the ____ key.
All of the above The three are: Look at historical trends Rely on data from market participants Be knowledgeable of lease types
In order to test the reasonableness of future cash flows, an appraiser can:
Weighted Mean
In reconciling to a final value; an appraiser places 50% of the weight on the Income Approach, 25% of the weight on the Cost Approach and 25% of the weight on the Sales Comparison Approach. This is an example of:
Percentage of loan paid off
In the Akerson format Rm is the mortgage constant, Ye is the equity yield rate, and P is the
Land Value x RL
In the Building Residual technique, the appraiser deducts __________ from the NOI.
Net Operating Income
In the I/RV formula, what does the "I" generally represent?
Absorption rates Absorption rates would be a major consideration. We want to know how long it will take to fill up with tenants and achieve stabilized occupancy.
In the appraisal of a new shopping center, a major consideration would be:
Land value x RL
In the building residual technique, the appraiser deducts from the NOI the:
False
In the valuation of easements, the IRS requires that a standard discount of 6% be used.
Siting factor
In urban planning, the origin of settlement in a city, which generally influences subsequent land use and growth patterns.
Sales Comparison Approach
In valuing a time share interest, which approach to value would likely be most applicable?
Income Approach
In valuing mineral rights, which approach is sometimes considered unreliable?
Actual rents
In valuing the leased fee interest, the appraiser utilized:
1986
In what year did the tax law change to significantly impact the typical holding period duration?
Commercial real property appraisals Appraisal reviews Residential real property appraisals All of the above
In which type of assignment must a certification be included?
False
In yield capitalization, the yield rate and the overall capitalization rate function exactly the same.
Should be analyzed by the appraiser to determine reliability
Income data provided by the owner of the subject property
$47,000 $45,000 x 1.06
Income from a property increases 6% per year. What is the income to be next year if it was $45,000 this year?
K Factors. That is the proper factor. It is used with fluctuating income streams.
Income stabilization factors are called:
Compound Interest
Interest earned on the original investment amount and on previously earned interest is called:
Internal rate of return vs net present value
Internal Rate of Return can be envisioned as a savings account. The institution tells you what the Internal Rate of Return is: a 4% simple interest savings account has a 4% Internal Rate of Return. Net Present Value is, as we have seen in definitions, about the dollars rather than a rate of return.
The primary difference between Internal Rate of Return and Net Present Value is:
Internal Rate of Return is about rates, Net Present Value is about dollars
On
Internal rate of return is the rate of return ____ an investment.
True
Investors are drawn to a particular investment property by the prospects of future financial benefits of owning that property.
Location, building class, amenities
It gives credibility to the assignment results when comparable properties that are analyzed for income are as similar to the subject as possible. Factors to be considered in determining comparability would include:
False
It is not acceptable appraisal practice to rely upon software programs which aid in analyzing leases.
False, actual bids may have a significant variance that can affect their reliability
It is not appropriate to use replacement costs from a published cost manual when actual bids are available.
Inflation Protection Known example: Property purchased in 1974 for: $33,500 Inflation calculator shows in 2015 that translates to: $161,687 Sales prices of similar properties in 2015: $245,000
It shows that the investment in real estate was not only a good hedge against inflation (loss in the purchasing power of the dollar), but that it actually made a profit over and above that.
Remainderman Yes, John would be a remainderman.
John granted a life interest to his mother. The term used to identify John's position is:
All values are anticipations of the future That was how the Justice described market value. Very similar to our outlooks today.
Justice Oliver Wendell Holmes said that:
Both A and B Prudent managment Competent management
Key elements of the definition of operating expenses include:
Scope of work decision
Knowing what your peers would do in an office building appraisal is part of:
For example, a property's land is valued at $100,000. NOI for the property equals $40,000. The land cap rate equals 0.09 and the building cap rate equals 0.13. The building value and property value can be calculated as follows:
Land Value $100,000 NOI 40,000 Land value x RL (100,000 x .090) -9,000 Building income 31,000 Building value (31,000/.13)238,462 Total property value $338,462
Shorter
Lease terms for multifamily buildings in comparison to lease terms for office buildings are typically found to be:
Maintain rental amounts at the full figure
Lessors often offer concessions outside of the lease document in order to:
50,000 [STO] [ 1 ]50,000 [STO] [ + ] [ 1 ]2 [STO] [ x ] [ 1 ] then [RCL] [ 1 ]Display reads: 200,000
Let's do one more. This time, we will put in 50,000, then another 50,000, and then multiply the sum times two.
All of the above Analyze sales data, forecast, and calculated adjustments
Linear regression can be used to:
Proximity to railroad lines
Linkage considerations for multifamily properties include all of the following EXCEPT:
Proximity to toll roads
Linkage considerations for office building properties include all of the following EXCEPT:
M
Loan-to-value ratio is signified by:
Variable
Localized items such as snow removal are included under ___________ expenses.
AIRR The Modified Internal Rate of Return is basically the same the Adjusted Internal Rate of Return.
MIRR is the same as:
Variable They are classed as variable because they are usually paid as a percentage of Effective Gross Income. Which varies from year to year.
Management fees would be allocated under the category of __________ expenses.
Going Dark
Many smaller tenants in shopping centers, especially those in smaller complexes where there is just one anchor tenant and six to ten other shops, are concerned that the anchor may close its store and not renew the lease, also known as:
7% Vacancies and Collection Losses. You should use the total of the 5% vacancy factor and the 2% collection loss.
Market data indicates that the appropriate vacancy rate for the subject is 5%. Managers of competing properties have stated that they generally encounter a reduction in income of about 2% for bad debt, insufficient funds, etc. In order to reflect the market, what vacancy and collection loss factor should be used?
$0 Nothing at all - if it can't be sublet.
Market rent is $4,000 per month. Contract rent is $3,000 per month. The estimated market interest rate is 5%. The tenant is prohibited from subleasing the space. What is the value of the Leasehold interest?
Attitudes USPAP ADVISORY OPINION 33. The attitudes of typical buyers and sellers are important, as well.
Market value Discounted Cash Flow analysis should be supported by market evidence and:
Analysis of comparable sales Analysis of how a property will be absorbed
Marketability studies address:
Visibility
Maximizing the amount of front footage of a site is important to retail establishments for:
Other
Miscellaneous expenses often require footnoting as a means of identification. These expenses are also referred to as:
False
Modern hotel and motel properties must have an on-site restaurant in order to maximize their value and marketability.
The Net Income Ratio is the Net Operating Income (NOI) divided by the effective gross income (EGI):
NOI/EGI = NIR
Which of the following is a tool for determining whether or not to make an investment?
NPV
Both A and B J-factor pattern K-factor pattern
The Ellwood "formula is applicable only to properties with stable or stabilized income streams and to properties with income streams expected to change according to the:
A property has attached to it a mortgage of $500,000 with annual payments of $54,500. The annual net operating income equals $68,000 and the equity cap rate equals 0.08. The property value is determined as follows:
Net Operating Income $68,000 Annual debt service -54,500 Residual income to equity 13,500 Equity value capitalized: $13,500/0.08 = 168,750 Total property value: $168,750 + $500,000 = $668,750
Value
Net Operating Income divided by a derived rate equals ____________.
The difference between the present value of all positive cash flows and the present value of negative cash flows is referred to as:
Net present value
The difference between the present value of future cash in-flows and cash out-flows is:
Net present value
Painting
Of cleaning, decorating, painting, and pest control, which should be considered under replacement reserves?
Utilities On and Off-Site Improvements. False, fencing would be on-site.
Off-site improvements might include:
Repairs and maintenance
Older properties generally have higher __________ costs than newer ones.
All of the above The three are: Highest and best use as vacant Highest and best use as improved Income producing capabilities
On and off-site improvements are important considerations in the analysis of the subject's:
Calculate the mean
On the HP12c calculator, the key with the x with a line over it is used to:
144,000
On your calculator add 75,000 to 63,000 and then divide by 10. Then, subtract 1,800, then multiply by 12. The answer is:
False
Once a scope of work has been decided upon by the appraiser, it can never change.
can use leverage to purchase
One difference between investing in real estate and investing in a certificate of deposit, is that a real estate investor:
Land Residual technique The other three are: Mortgage Equity Band of Investment technique Debt Coverage Ratio technique Land and Building Band of Investment technique Residual methods are not used in determining overall cap rates.
One method for determining the overall capitalization rate is to extract it from sales of comparable income producing properties. Which of the following would NOT be an alternative method of deriving an overall capitalization rate?
Before-and-after
One method for determining the value of air rights is:
Illiquidity
One of the disadvantages of owning real estate is the inability to quickly turn a real estate investment into cash. The term for this is:
Capitalizing the income loss due to the negative influence
One of the methods of measuring external obsolescence is by:
Project timing
One of the most critical factors in the success of a specific investment in real estate is:
Keep rental rates higher for future rental purposes That could be a valid reason. The lessor can keep rents at a desired figure but reduce the occupancy cost to the potential Lessee.
One of the reasons landlords offer rent concessions is to:
The advantage of shorter holding periods no longer existed
One of the results of the Tax Reform Act of 1986 was that:
Both A and B Easements A portion of the property only
Ownership is a concept which generally involves documents identifying the ownership interests. Use interests refer to
Common elements
Parking lots in condominium office complexes are considered:
Either A or B A. Industry Standards B. Regulatory Agencies
Parking requirements can be dictated by:
Other income Data Collection and Analysis. These would be characterized as "Other Income."
Partial subletting and easement fees are included in:
Located in a historic district
Per the IRS, a minimum criterion to be considered in valuing historic preservation easements is that the property must be:
95 95% is the correct range for 2 standard deviations.
Plus or minus two standard deviations would encompass the _____ percentage range on a normal distribution curve.
True
Poor management can contribute to high vacancy rates.
Is based upon 100% occupancy
Potential Gross Income:
Annual
Potential gross income (PGI) presumes ___________ income:
Equity dividend Pre-tax cash flow is synonymous with equity dividend.
Pre-tax cash flow, which is the cash flow of a property after expenses and debt service have been paid, but before income and capital gains taxes, is another name for:
Receipts for repairs on other properties are not included The property owner may own other properties and lump things together.
Precautions are strongly recommended when researching repairs and maintenance costs to ensure that:
Location, building class, amenities
Primary factors discussed in this chapter for selection of comparables are:
True
Prior to calculating the present value of an annuity, it is critical to determine whether the payment is being made at the beginning of the period or at the end of the period.
Law of decreasing returns
Prior to listing his property for sale, the owner spent $35,000 remodeling the bathroom. The market will only bear $20,000 of this expenditure. Which economic principle does this demonstrate?
Residual technique
Procedures used to capitalize income allocated to an investment component of unknown value after all investment components of known values have been satisfied is the definition of a/an:
When the initial out-go is divided into the present value of the in-flows, the result is called the:
Profitability index
Less because of the encumbrance on rights
Purchasers of properties that have easements on them most often pay:
Mortgage Cap Rate $100,000 loan has terms of 10 percent interest, monthly payments, and a 20-year term. Monthly payments equal $965.02. The mortgage capitalization rate can be calculated as follows:
RM = ($965.02 x 12) / $100,000 = 0.116, or 11.6% 965.02 [ENTER] 12 X then 100,000 [÷], and the display reads [0.12] because it rounded
The appraiser is able to utilize comparable sales to find a cap rate for land of 0.08. The building capitalization rate is determined to be 0.12, and the land-to-value ratio is 25 percent. Calculate an overall capitalization rate based on this information.
RO = (0.25 x 0.08) + (0.75 x 0.12) = ? Next step: multiply what is inside the parenthesis first, then add them together. RO = (0.02) + (0.09) = 0.110
Mortgage Equity Formula example: A property being appraised can be financed with a 75% loan. The loan has a 15-year term with monthly payments at 9 percent interest (indicated mortgage capitalization rate of 0.1217). Comparable sales indicate an equity capitalization rate of 10 percent.
RO = (0.75 x 0.1217) + (0.25 x 0.10) = 0.116
The Debt Coverage Ratio formula example A property can be purchased with a 70 percent loan. The loan would have a 20-year term with monthly payments at 8 percent interest. The indicated mortgage capitalization rate is 0.1004. This particular lender is requiring a 1.3 Debt Coverage Ratio. What is the indicated overall rate (RO) based on this information?
RO = DCR x RM x M -We insert our numbers: RO = 1.3 x 0.1004 x .70 -Which gives us: 0.0914 Our overall rate (RO) is: 9.14%
Operating expense ratio
Risk analysis includes all of the following EXCEPT:
Reinvested at a safe rate
The Hoskold premise assumes that a portion of the net operating income is:
Before-and-after method
The IRS' preferred method of valuing a conservation easement is:
Annuities
Regular payments of predictable amounts are:
Renewal options allow the tenant to:
Renew the lease with new rents and duration
Any of the above
Rentable area can also be referred to as:
Life Interest (formerly Life Estate)
Rights of use, occupancy, and control, limited to the lifetime of a designated party, sometimes referred to as the life tenant.
Effective Gross Income Multiplier example Subject's Potential Gross Income - $25,000 Sale #1 Sales Price - $185,000 Potential Gross Income - $26,500 Vac & Collection Loss - 5%
Sale #1 - 185,000 ÷ 25,175 = 7.35 (two other sales but didn't include, came out to 7.45 GIM) Take subject's EGI 25,000 x .05 = 1,250 25,000 -1,250 = 23,750 (EGI) and multiply by the EGIM: 23,750 x 7.45 = 176,938 (Value)
$187,500 $14,400(income)/$180,000(sale) = .08(rate) $15,200(income)/$190,000(sale) = .08(rate) $15,000/.08 = $187,500
Sale #1 had a Net Operating Income of $14,400 and sold for $180,000; Sale #2 had a Net Operating Income of $15,200 and sold for $190,000. The subject has a Net Operating Income of $15,000. Based upon these two sales, what is the value of the subject?
The assignment calls for the use of an overall rate. The appraiser elects to determine overall rate via the Effective Gross Income Multiplier method. The data collected on comparables is: Sales Price - $540,000 PGI - $90,000 V&CL - 5% Total Op. Exp. - $18,000
Sale #1: 90,000 x .05 = 4,500 and then: 90,000 - 4,500 = 85,500 (EGI). Next: 540,000 ÷ 85,500 = 6.3158 (EGIM) Next: 85,500 - 18,000 = 67,500 (NOI) Next: 67,500 ÷ 85,500 = .7895 (NIR) Next: .7895 ÷ 6.3158 = .1250
Identify inappropriate expenses Many owners are not skilled with standard reporting procedures or may do things in ways that are not typical appraisal procedures.
Scrutiny of repair and maintenance information provided by the owner is important so that the appraiser can:
False False, security is an actual expense and should be taken into account.
Security bars on a commercial building have no contributory value since any value created by them is always offset by the need for them.
Environmental contamination That's when environmental concerns began to grow; and be legislated.
Since the mid-1970s, appraisers have had to give extra consideration to:
All competition whether existing, in the planning stages or under construction
Since vacancies can be caused by competing new development, the appraiser has an obligation to investigate
Developing lease forms That would not be a responsibility of a manager. Most lease forms are standard issues or attorney developed. These three are included: Evicting tenants Enforcing rules Maintaining security
Special Assessments which are paid over a long period of time are considered to be fixed expenses because
They are on-going expenses which do not fluctuate based upon occupancy
Special Assessments which are paid over a long period of time are considered to be fixed expenses because
Cost
Special use properties are typically valued using the _______ approach to value.
Cost Approach
Special use properties are typically valued using which approach to value?
Be aware of, understand, and correctly employ those recognized methods and techniques necessary to produce a credible appraisal That is true. SR 1-1 relates to the development of the appraisal.
Standards Rule 1-1 of USPAP states that an appraiser must:
BOMA
Standards for measuring office buildings were developed by:
$11,200 $32,000 x .65 = $20,800 $32,000 - $20,800 = $11,200
The Effective Gross Income for a property is $32,000. The Net Income Ratio is 65%. What is the dollar amount of the operating expenses?
$125,000
Subject property is 4,500 square feet. The sales of similar properties in the area were $120,000 for 4,000 square feet; $140,000 for 6,000 square feet; and $150,000 for 7,000 square feet. Using the linear regression keystrokes on your calculator, compute the indicated value of the subject property.
Vertical
Subsurface, surface and air are examples of _______ divisions of rights
Total Operating Expenses
TOE is deducted from Effective Gross Income to arrive at Net Operating Income. What does TOE stand for?
Capital Gain
Taxable profit from the sale of a parcel of real property would be called _________.
$11,000
Taxes and insurance on a warehouse building total $20,000, utilities total $3,500, and maintenance of the roof totals $7,500. The landlord is responsible for only the fixed expenses. Based upon this information, what is the amount of the expenses paid by the tenant?
How long it would take to double your money at a given interest rate
The "Rule of 72" can be used to determine:
When using commercial software, the appraiser should provide a detailed description of the methods and any assumptions and/or methodology unique to that software, if any. These three are included: It is the appraiser's responsibility to ensure that the controlling input is consistent with market evidence and prevailing market attitudes DCF analyses should be supported by market-derived date, and the assumptions should be both market- and property-specific When using commercial software, the appraiser should cite the name and the version of the software
The "Summary" to ADVISORY OPINION 33 re-emphasizes the key elements contained in ADVISORY OPINION 33. Which of the following is NOT one of the key elements?
Overall capitalization rate
The "discount rate" used to convert future cash flows into a present indication of value can include all of the following except:
Right to pay taxes
The Bundle of Rights inherent in real property ownership does not include the right to:
Year 1 overall capitalization rate
The Discounted Cash Flow analysis considers all of the following EXCEPT:
$1,349,000 $145,800 x 9.25
The Effective Gross Income Multipliers of five comparable properties range from 8.87 to 10.12. You have reconciled to an EGIM of 9.25. If the subject's Effective Gross Income is $145,800 per year, what is the subject's indicated value, rounded to the nearest $1,000?
Historical preservation easments
The Internal Revenue Service (IRS) says historic preservation easements apply to: any building, structure or land that is listed in the National Register of Historic Places, or located in an historic district.
Level equivalent
The K-factor is an income adjustment used to convert a stream of income changing at a constant ratio into its
fv = $22,510 n = 4 pv = $20,000 i = 3%
The NOI for last year (year 0) was $20,000. If the NOI is expected to increase at the rate of 3% per year, what NOI could be expected in year 4?
NIR Net Income Ratio
The Net Operating Income divided by the Effective Gross Income yields the ________.
$6,000
The Potential Gross Income for an office building is $100,000. 6% of the PGI is lost annually to vacancy and collection. What is the dollar amount of the vacancy and collection loss?
$217,000, look up weighted formula
The Sales Comparison Approach indicates a value of $240,000. The Cost Approach reflects a value of $205,000. The Income Approach yields $215,000 as an indicated value. Using the weighted mean methodology, and giving 50% weight to the Income Approach, 30% to the Cost Approach, and 20% to the Sales Comparison Approach, what is the indicated reconciled value?
intended user's expectations.
The Scope of Work, as far as the acceptability of the degree of research, is determined by an appraiser's peer's actions and
Fixed The tables are based on fixed, or constant, income streams over the length of time chosen.
The Six Functions of $1 tables are based upon ______ income.
Ethics and Competency
The Uniform Standards of Professional Appraisal Practice are founded in two basic elements:
Buy/sell/hold method
The __________________ decision concept is an important part of developing the DCF analysis.
Operating expense ratio
The abbreviation OER stands for:
Pre-tax cash flow
The abbreviation PTCF means:
Contract rent
The actual rent that is specified in a lease agreement is referred to as:
Most probable price
The agencies that regulate Federal Financial Institutions use a market value definition that begins with the:
"The most probable price..." That is the definition - the most probable price. Not the highest and not the lowest; but the one most likely to occur.
The agencies that regulate Federal Financial Institutions use a market value definition that begins with:
U. S. Forestry Service
The agency that sets standards for various trees is called the:
Actual income
The amount of Vacancy and Collection Loss can be mathematically extracted by subtracting the ________________ from the Potential Gross Income.
Water retention requirements In some areas, the requirement to retain rainwater on-site via retention or detention will demand larger lot sizes and restrict the usable areas on which you build.
The amount of usable land can be restricted by a number of factors, including:
Tenant going dark clause
The anchor tenant in a shopping center has closed and vacated the space. The other tenants in the center have lost business and are having difficulty meeting their rent obligations. Which of the following lease clauses would apply to this situation?
Internal rate of return That describes the IRR. It considers both the cash flows and the reversion.
The annualized yield rate or rate of return on capital that is generated or capable of being generated within an investment or portfolio over a period of ownership is the ____________.
Payback Period
The appraiser identifies the period required for cumulative income to equal initial investment as the:
Credible results
The appraiser is responsible for ensuring that DCF software provides:
Replacement reserves
The appraiser should be careful not to confuse repairs and maintenance items with:
The appraiser's peers would have done
The appraiser's research and reporting need to be as detailed as:
10 feet 6x6 = 36 8x8 = 64 36 + 64 = 100 square root of 100 = 10 feet
The base of a right triangle is 6 feet, and the height is 8 feet. What is the length of the hypotenuse?
Overage rent
The base rent on a grocery store is $100,000 per year. In addition to the base rent, the store also pays 2% of the gross annual sales to the landlord as additional rent. Another term for this additional rent is:
I ÷ R = V.
The basic formula appraisers use for dealing with rates is:
I ÷ R = V
The basic formula for dealing with rates is:
I x M = V
The basic formula when dealing with multipliers is:
interviews with market participants.
The best source for collecting data in order to predict future cash flows is
APB That is the newest Board, the Appraisal Practices Board.
The board of The Appraisal Foundation which provides guidance on generally accepted appraisal methods is the:
False
The fundamental difference between direct capitalization and discounted cash flow analysis is that direct capitalization takes several years of cash flows and discounts them back to present value.
Interpolation
The calculation or estimation of a quantity within the range of data on which the calculation or estimate is based; the approximation of a value that falls between the tabular entries in a set of tables.
Terminal capitalization rate
The capitalization rate applied to the expected net income for the year immediately following the end of the projection period to derive the prospective resale price or value of a property. Also called a going-out, residual, or reversionary capitalization rate.
Escalation clause
The clause which ties increases in rental rates to the Consumer Price Index is referred to as:
The unit The unit itself is not part of the common elements; it is individually owned.
The common elements of a condominium project may include all of the following EXCEPT:
Stabilize income
The commonality of the J Factor and the K Factor is that they both
Contribution The Principle of Contribution weighs how much each individual component contributes to value.
The concept that the value of a particular component is measured as the amount that its absence would detract from the value of the whole is known as:
Regression Economic Principles. If you have the most expensive house on the street - that's a bad thing. Your value will tend to be decreased, or regress upward towards the lower values.
The concept that the value of a superior property is adversely affected by its association with an inferior property of the same type is:
Progression
The concept that the value of an inferior property is enhanced by its association with better properties of the same type is known as:
Opportunity cost
The cost of foregone opportunities is referred to as:
Net operating income
The debt coverage ratio measures a property's ability to meet its debt service requirements out of
False The USPAP definition presents the elements which comprise a definition of market value, but it is not the definition of Market Value which has been agreed upon by the federal regulatory agencies.
The definition of market value which appears in the Definitions of USPAP is the definition which has been agreed upon by agencies that regulate federal financial institutions in the United States.
change
The delta symbol means
Change in a variable
The delta symbol means:
Loss in the purchasing power of the dollar
The difference between a property selling for $30,000 thirty years ago and selling for $100,000 today is predominantly a matter of:
Loss in the purchasing power of the dollar As inflation occurs, your dollar will buy less.
The difference between a property selling for $30,000 thirty years ago and selling for $100,000 today is predominantly a matter of:
Economic impacts areas and locational impacts a site
The difference between economic and locational obsolescence is:
A specific property's performance Appraisal Consulting. That's true - a marketability study focuses on the marketability of the subject property.
The difference between market studies and marketability studies is that one is about the general market and the other is about:
One is before and one is after
The difference between the abbreviations BTCF and ATCF is:
Net present value (NPV) accord. to the sixth edition
The difference between the present value of all expected investment benefits (PV) and the present value of the capital outlays (CO), i.e., NPV = PV - CO.
Investor compensation This compensates the investor for such things as risk, lack of liquidity, management burden, etc.
The difference between the safe rate and the actual rate is:
$2,873 n = 6 pmt = $20,000 i = 8% pv = $92,457.59 n = 6 pmt = $20,000 i = 7% pv = $95,330.79 92,457.59 - 95,330.79 = $2,873
The difference in the present value of a $20,000 annual cash flow for six years at 8% versus that same cash flow at 7% is:
Rent Concession
The discount or other benefit offered by a landlord to induce a prospective tenant to enter into a lease is a/an:
Leverage
The effect of borrowing capital to finance all or part of a purchase price describes:
Leverage
The effect that borrowed funds have on an investment is addressed under the category of:
Risk premium
The extra return that investors demand as compensation for taking the chance that a cash flow might not materialize as anticipated is referred to as the:
Certification That's the last item we have to cover.
The final item in the minimum reporting requirements is:
$514,286 $45,000/.0875 = $514,286
The going in cap rate is 8%. Research indicates the terminal cap rate is 75 basis points higher than the going in cap rate. What is the terminal value if the final year NOI is $45,000?
Research and verification
The greatest challenge in the development of a Net Operating Income estimate is:
Wood laminate
The high-end floor covering with the longest life expectancy is:
$1,390,000 Calculated Present Value of Cash Flows. 125,000 ENTER .09 [÷]
The holding period for an investment is expected to be 7 years. The Net Operating Income in year 8 has been projected to be $125,000. At a terminal capitalization rate of 9%, what is the reversionary value of the subject property, rounded to the nearest $10,000?
$118,542
The holding period for the case study was 5 years. Assuming a holding period of 10 years, with all other components being the same, what would the present value of the Year 8 cash flow be?
$2,144,290 f [FIN] 6 [n] 9 [i] 216,159 ENTER 103 [%] [CHS] [FV] [PV] That answer is $132,755 (the present value of the 6th year cash flow. Then we need to calculate the PV of the reversion f [FIN] 6 [n] 9 [i] 2,050,000 [CHS] FV] [PV]. That equals $1,222,348. Then we still need to add in the total of the first 5 year cash flows; which was $789,187. The total is $2,144,290.
The holding period for the case study was 5 years. Assuming a holding period of 6 years, with all other components being the same, what would the total present value of the subject be?
216 That is form 216 , called Operating Income Statement.
The identification number for the Fannie Mae form used for calculating Net Operating Income is:
Disadvantages of owning real estate
The inability to quickly turn a real estate investment into cash is one of the
Potential Gross Income
The income that an investment property could generate if 100% occupied is called the:
International Council of Shopping Centers
The internet field trip took us to www.icsc.org. This is the website for which group?
Accuracy
The key word when estimating projected income, anticipated expenses, and rates is
100% If the landlord pays the entire bill then recovers a portion of the utility expenses by billing the tenants a prorata portion of the utilities, all of the utility expenses would included on the expense side of the income/expense statement and the amount billed through to the tenants would be a separate line item on the income side of the statement. If 100% of the utilities are billed to the tenants it would be a "wash" and net to zero except for any amount prorated to vacant units. However, the full utilities paid by the landlord would still be reflected on the expense side of the income/expense statement.
The landlord pays all the utility bills, however, he passes 75% of those bills through to the tenant. How much of the utility bills should be included as an operating expense?
Partition That's the definition - it's the only way undivided interests can be separated.
The legal separation of undivided interests, such as co-ownership in real estate, is referred to as:
Refers to a reasonable exposure time
The market value definition for use with federally insured financial institutions:
Multiplication
The mathematical process used with all of the six functions of a dollar is:
Direct Capitalization
The method used to convert a single year's estimated Net Operating Income into value is known as:
A homeowner association that holds title to the common area Mandatory membership of all unit owners The right of unit owners to vote in the operation of the association Lien supported assessment of the members
The minimum characteristics of a PUD include:
C
The mortgage coefficient is signified by the symbol:
Same as mortgage capitalization rate
The mortgage loan constant is the:
CPI
The most common index for an index lease is the _________.
Before-and-after method
The most common valuation method for historic preservation easements is:
Loopnet.com
The name of the Website visited on the internet field trip was:
3.89 12,450/320,000
The number 12,450 is what percentage of the number 320,000?
4,000 The nearest thousand is 4,000. It is less than half way to 5,000.
The number 4,469 rounded to the nearest thousand would be:
Table accuracy That is called table accuracy. 6 decimal places is quite a lot and sufficient for our purposes.
The numbers in the compound interest tables are rounded to 6 decimal places. This is an example of:
Prudent and competent
The operating expense figures assume that management is:
5-15 years
The owner of an office building just replaced the asphalt paving in the parking lot. He would like to make periodic deposits to an interest bearing account so he will have the funds available the next time it needs to be done. According to the estimated life chart presented in this chapter, how long should he plan on making these deposits?
Decorating
The owner of an office building spends about $5,000 each year updating the "look" of the lobby area of the building. Under which category of operating expense would this be included?
Replacement reserves
The owner of the office building plans to replace the roof in 5 years. He is making periodic deposits to an interest bearing account to cover the expense. What is this type of operating expense called?
Leased fee interest
The ownership interest held by the lessor, which includes the right to receive the contract rent specified in the lease plus the reversionary right when the lease expires.
Sandwich leasehold estate
The ownership interest held by the lessor, which includes the right to receive the contract rent specified in the lease plus the reversionary right when the lease expires.
True
The payback period is the number of years required for cumulative income from an investment to equal the amount initially invested. It is not a Discounted Cash Flow analysis because it does not consider the time value of money.
The creativity of the parties and their legal counsel
The possible miscellaneous clauses are limited by:
$174,603 $300,000 - FV 7% - I 8 - N PV enter
The present value of $300,000 to be received in eight years at 7% is:
5
The present value of a cash flow relates to Function number ____ of the six functions of a dollar.
4 & 5
The present value of a cash flow relates to which of the six functions of a dollar?
$243,121 n= 8 i = 8 fv = $450,000 pv enter
The present value of a reversion of $450,000 in eight years at 8% is:
International Council of Shopping Centers
The primary trade association involved with shopping centers is:
Discounted cash flow (DCF) analysis
The procedure in which a discount rate is applied to a set of projected income streams and a reversion. The analyst specifies the quantity, variability, timing, and duration of the income streams as well as the quantity and timing of the reversion and discounts each to its present value at a specified yield rate.
Reversion That's what we call reversion - when the investment is cashed out and returned to the equity investor.
The proceeds received by an investor at the end of the holding period are known as:
0.0891 .70 x .0930 = 0.0651 .30 x .08 = 0.0240 0.0651 + 0.0240 = 0.0891
The property being appraised can be financed with a 70% mortgage. The term is 20 years with monthly payments at 7%. The mortgage capitalization rate is .0930. Comparables indicate an equity capitalization rate of 8%. What is the indicated overall cap rate using the Band of Investment Technique?
0.08475 .75 x .0930 = 0.0698 .25 x .06 = 0.0150 0.0698 + 0.0150 = 0.08475
The property being appraised can be financed with a 75% mortgage. The term of the loan is 20 years, the interest rate is 7%, and payments will be made monthly. The mortgage capitalization rate is .0930. Comparables indicate an equity capitalization rate of 6%. What is the indicated overall cap rate using the Band of Investment Technique?
0.0924 .80 x .0930 = .0744 .20 x .09 = 0.0180 0.0744 + 0.0180 = 0.0924
The property being appraised can be financed with an 80% mortgage. The term is 20 years with monthly payments at 7%. The mortgage capitalization rate is .0930. Comparables indicate an equity capitalization rate of 9%. What is the indicated overall cap rate using the Band of Investment Technique?
Linkage
The proximity of a given property to support facilities and services is referred to as:
Absorption rate
The rate at which given property types sell in a market area is referred to as the:
EGIM
The ratio between the sale price of a property and its Effective Gross Income is:
Debt coverage ratio (DCR)
The ratio of annual net operating income (NOI) divided by the annual debt service. Lenders usually specify a minimum DCR (e.g., 1.2) that they require the property to meet during the first year of a loan term.
Gross rent multiplier (GRM)
The ratio of sales price or value divided by the potential or effective gross rent; a measure similar to the gross income multiplier but used exclusively for residential properties that receive rent only and no other types of income.
Vacancy rate
The relationship between the amount of vacant space and total space in a building is the:
Varied information from assignment to assignment
The relevant characteristics of an assignment consist of:
Appraiser
The responsibility for the final output of a computer generated DCF analysis lies with the:
Conformity The other three are: Completeness Adequacy Relevance
The return on an investment, which considers income received over time that equates the present value of future cash flows with the initial investment, is termed the:
$16,800 is the number you want to use for the cash flow when calculating present value of the second year's cash flow. Using your financial calculator, calculate the present value of the figure that will be generated at the end of the second year, using a rate of 7%.
The steps on the calculator for this second year would be: 2 [ n ] 7 [ i ] 16,800 [CHS] [FV] [PV] Display reads: 14,673.77
Interpolation
The subject property has 5,000 square feet. Comparable #1 has 4,000 square feet and sold for $250,000. Comparable #2 sold has 6,000 square feet and sold for $350,000. Concluding a value of $300,000 for the subject property is an example of
$21,600 $180,000 x .12 = $21,600
The subject property has a building that is valued at $180,000. The Net Operating Income is $44,000. The land cap rate is 8 percent, and the building cap rate is 12 percent. What is the income that is attributable to the building?
$460,000 $180,000 x .12 = $21,600 $44,000 - $21,600 = $22,400 $22,400/.08 = $280,000 $280,000 + $180,000 = $460,000
The subject property has a building that is valued at $180,000. The Net Operating Income is $44,000. The land cap rate is 8 percent, and the building cap rate is 12 percent. What is the total value of the property?
$280,000
The subject property has a building that is valued at $180,000. The net operating income is $44,000. The land cap rate is 8 percent, and the building cap rate is 12 percent. Calculate the land value.
$21,600
The subject property has a building that is valued at $180,000. The net operating income is $44,000. The land cap rate is 8 percent, and the building cap rate is 12 percent. What is the income that is attributable to the building?
$22,400
The subject property has a building that is valued at $180,000. The net operating income is $44,000. The land cap rate is 8 percent, and the building cap rate is 12 percent. What is the income that is attributable to the land?
$460,000
The subject property has a building that is valued at $180,000. The net operating income is $44,000. The land cap rate is 8 percent, and the building cap rate is 12 percent. What is the total value of the property?
$600,000
The subject property has a building that is valued at $500,000. The net operating income is $92,000. The land cap rate is 7 percent, and the building cap rate is 10 percent. Calculate the land value.
$50,000 $500,000 x .10 = $50,000
The subject property has a building that is valued at $500,000. The net operating income is $92,000. The land cap rate is 7 percent, and the building cap rate is 10 percent. What is the income that is attributable to the building?
$42,000
The subject property has a building that is valued at $500,000. The net operating income is $92,000. The land cap rate is 7 percent, and the building cap rate is 10 percent. What is the income that is attributable to the land?
$500,000
The subject property has a parcel of land that is valued at $600,000. The net operating income is $92,000. The land cap rate is 7 percent, and the building cap rate is 10 percent. Calculate the building value.
v$246,667
The subject property has a site value of $180,000. The net operating income is $44,000. The land cap rate is 8 percent, and the building cap rate is 12 percent. Calculate the building value.
$303,571 $350,000 x .09 = $31,500 $74,000 - $31,500 = $42,500 $42,500/.14 = $303,571
The subject property has a site value of $350,000. The net operating income is $74,000. The land cap rate is 9 percent, and the building cap rate is 14 percent. Calculate the building value.
$42,500 $350,000 x .09 = $31,500 $74,000 - $31,500 = $42,500
The subject property has a site value of $350,000. The net operating income is $74,000. The land cap rate is 9 percent, and the building cap rate is 14 percent. What is the income attributable to the building?
Complicated due to the different types and ages of the floor coverings
The subject property has a wide variety of floor coverings which were installed at different times. Because of this, estimating the replacement reserve for floor covering could be
6%
The subject property has an actual vacancy and collection loss factor of 3%. All comparables have factors of 6%. Your analysis is based upon market rents, therefore, the appropriate vacancy and collection loss factor is:
Band of investment (mortgage and equity) That is called the Band of Investment technique. You separately analyze the two
The technique which derives a capitalization rate through combining the rates attributable to a capital investment (mortgage and equity) is:
Yes, it is the advantage of being able to sublease that translates into value
The tenant is paying below market rent but is not permitted, by the lease agreement, to sublease the space. Could this affect the market value of the Leasehold position?
Payments to be made at the end of the period
The term "ordinary annuity" reflects:
Payback Period
The term used for the period required for cumulative income to equal initial investment is known as the:
Reconciliation
The term used to refer to the bringing together of data, calculations, opinions and conclusions to provide the reasoning to support the final opinion of value is:
All of the above Subsurface rights Surface rights Air rights
The term vertical division could be used to refer to:
Actual return Practical Issues. It assumes the expected return and the actual return are the same.
The terminology "risk free" means that the expected return is equal to the:
Risk Rate
The time value of money (risk rate) - investors would rather have cash immediately than having to wait and must therefore be compensated by paying for the delay.
Mortgage Equity and Land-Building
The two Band of Investment methods are
Intended user expectations and appraiser's peers' actions
The two most basic criteria for determining whether or not the scope of work is appropriate are:
Development and reporting requirements Development...Scope of Work. That's where it belongs.
The type and definition of value is a component in:
Stabilized Income
The type of income that normally would fluctuate but for purposes of analysis is adjusted to be a level constant is:
Composition roll Composition roll roofing has the shortest life expectancy. It usually is laid on flat or nearly flat roofs.
The type of roof with the shortest life expectancy is:
Agricultural property
The type of soil on a given parcel is likely to be most important in valuation of:
The appraiser
The ultimate responsibility for determining the appropriate scope of work lies with:
Leverage
The use of borrowed funds, which may increase or decrease the yield that would otherwise be realized on an equity investment when there is no debt financing. Leverage can be analyzed using capitalization rates or yield rates.
Business Value
The value of intangibles related to an on-going concern is known as:
Seldom equals fee simple The totaled values of the leased fee and leasehold interests rarely equate to any of the three circumstances.
The value of the leased fee added to the value of the leasehold:
Land-building formula
The weighted average of the land capitalization rate and the building capitalization rate results in an estimate of the overall capitalization rate for the property (RO = L x RL + B x RB).
Over supply Probably an oversupply. 64 ENTER 2 [÷] would indicate a supply of 32 months or over 2 ½ years.
There are currently 64 active listings in a market where the absorption rate has been approximately 2 properties per month for the past several years. Would this indicate an oversupply, and undersupply, or a relatively stable market?
Determining the discount rate for the partial interest
There are generally 4 steps to valuing a partnership interest. Which is the most challenging for the appraiser?
Familiarity with commissions charged by real estate brokers The three that are included are: Familiarity with a specific property type Familiarity with a market Familiarity with a geographic location
There are several competency factors which apply in a given assignment. Which one of the following is NOT one of the factors identified in the COMPETENCY RULE of USPAP?
Payback Period
This is often referred to as the "break-even figure" or "break-even point." It is a measure of the time it would take to recapture the original investment. The number of years required for cumulative income from an investment to equal the amount initially invested. The payback period does not consider the time value of money, and therefore is not a discounted cash flow analysis technique.
The equity residual technique example: By analyzing data from local financial institutions, you are able to determine an equity capitalization rate of .080. You determine the Net Operating Income of the subject property is $70,000, based on a Reconstructed Operating Statement. There is currently a mortgage on the property in the amount of $500,000. Annual payments are $55,000. Based on this information, using the Equity Residual technique, what is the indicated value of the equity? Secondly, what is the total value of the subject property?
This one involves capitalizing the Net Operating Income with the equity capitalization rate (equity dividend) to get equity value, then add that to the loan balance for a total property value. Net Operating Income 70,000Annual debt service -55,000Residual income to equity 15,000Equity value capitalized (15,000 ÷ .080) 187,500Total property value (187,500 + 500,000) 687,500 Equity value: $187,500 Total property value: $687,500
$327,500 8% / $26,200
Three properties yield indicated rates of 7%, 8% and 9% respectively. Reconcile into a single rate giving equal weight to all three. If Subject property has an income of $26,200, what is its indicated value using the reconciled rate from above?
Terminal capitalization rate (reversion) example For example, suppose an investor wants to estimate the resale price, assuming that the property will be sold in year 10. NOI for year 11 is estimated to be $150,000. Current capitalization rates for similar properties are about 10 percent. The appraiser adds a risk premium of 50 basis points to obtain a terminal capitalization rate of 10.5 percent.
Thus the estimated resale price is $150,000/0.105 = $1,428,571
Linkage
Time and distance relationship between a particular use and supporting facilities, e.g., between residences and schools, shopping, and employment. The movement of people, goods, services, or communications to and from the subject site, measured by the time and cost involved. In land use planning, a positive or negative relationship among various land uses."
[ENTER]
To add two numbers on an HP12C calculator, you key in the first number and then:
Analyze leases to determine who pays for what
To avoid inappropriate expense allocation, the appraiser should:
Actual Income and presses [delta%] That will calculate it directly.
To calculate the percentage of Vacancy and Collection Loss on an HP-12C, the appraiser keys in the dollar amount of the PGI and presses [ENTER], then keys in the:
Actual Income [delta%]
To calculate the percentage of Vacancy and Collection Loss on the HP-12C, the appraiser keys-in the dollar amount of the PGI and presses [ENTER], then keys in the:
The interest rate
To calculate using the Rule of 72, first key in [72] [ENTER], then key in_______ [ ÷ ].
Effective Gross Income
To determine the net operating income, the appraiser deducts the total operating expenses from the:
Demand
To have value, airspace must have __________.
50,000 [STO] [ 1 ]50,000 [STO] [ + ] [ 1 ]50,000 [STO] [ + ] [ 1 ] then [RCL] [ 1 ]Display reads: 150,000
To store 50,000 and then another 50,000, and then another 50,000, perform the following keystrokes.
Both A and B Expectations of regular intended users of similar assignments and the actions of the appraiser's peers in a similar assignment
USPAP identifies standards for determining the acceptability of the appraiser's Scope of Work decision. They are:
6
Under USPAP, how many formal steps are there to the appraisal process?
All of the above Retrospective appraisal assignments Prospective appraisal assignments Current appraisal assignments
Understanding ratios and factors can be of benefit to the appraiser doing
True
Understanding the property type and how it should be managed is a critical factor for the appraiser to have in appraising different property types.
Fee Simple interest is:
Unencumbered
Net present value (NPV) accord. to Harrison's Illust.
Used to rate the quality of an investment. It is the difference between the total cost of an investment and the present worth of all future anticipated benefits of ownership.
$302,501.56
Using a financial calculator, find the value of a life interest in a property with a present market value of $500,000. The life tenant's life expectancy is 14 years, based on a life expectancy actuarial table. The market interest rate for this property is estimated to be 10%. The estimated value of the property at the end of the life tenancy (14 years) is estimated to be $750,000.
$302,501.56
Using a financial calculator, what is the value of a life interest in a property with a present market value of $500,000? The life tenant's life expectancy is 14 years, based on a life expectancy actuarial table. The market interest rate for this property is estimated to be 10%. The estimated value of the property at the end of the life interest (14 years) is estimated to be $750,000.
$5,470.34 i = 9, fv = 10000, n = 7, compute pv
Using the 9% table you printed out for Chapter 4, calculate the present value of $10,000 at 9% for 7 years? (HINT: if you are asked for present value there are only two columns to look at; one for lump sum and one for periodic payments).
72/3 = 24 Years
Using the Rule of 72, how long will it take to double your investment when the interest rate is 3%?
32,000
Using the calculator, add 80,000 to 93,000, and then divide by 10, and then subtract 1,300, and multiply by 2. The answer is:
40
Using your financial calculator, what answer results from the following keystrokes: 2 [enter] 3 [+] 8 [x] ?
In a Net Net Lease, the lessee pays:
Utilities, taxes, and insurance Net Rent Lease. In a Net Net Lease, the lessee is responsible for their own utilities, taxes and insurance.
Residual techniques
Valuation techniques where one component of value (e.g., land or mortgage) is assumed to be known. Income is estimated for the known component and subtracted from the net operating income to estimate values for the unknown component. See also building residual technique, equity residual technique, land residual technique, mortgage residual technique, property residual technique.
Building residual technique
Valuing land is done by all of the following methods EXCEPT:
WACC
WACC stands for Weighted Average Cost of Capital and represents the average cost of debt and equity capital used to finance a real estate investment.
Figuring out Debt Coverage Ratio - Mortgage Cap Rate
We first calculate the monthly mortgage payment and multiply it by 12 to get the annual total of payments, and then divide that figure by the original loan amount. Remember the little secret: it makes no difference what the principle amount of the mortgage is, so let's just use 100,000 for this example. 20 [ g ] [ n ]8 [ g ] [ i ]100,000 [CHS] [PV][PMT]Display Reads: 836.44 Now multiply 836.44 x 12 = 10,037.28 Now divide that by the original mortgage amount (use 4 decimal places) 10,037 ÷ 100,000 = .1004 RO = 1.2 x .1004 x .75 = .0904
Inflation
What can cause future income estimates to be inflated?
Square foot
What index is commonly used in valuing living spaces, vacant land, and warehouses?
VL (V sub L)
What is the abbreviation for land value?
Stabilized income
What is the appraisal term for the income of a property in a typical year rather than in any specific year?
$14.15 (rounded) Future Worth of $1 per Period. f [FIN] 10 [n] 7.5 [1] 1 [CHS] [PMT] [FV]
What is the future worth of $1 per period for 10 years at 7.5% interest?
0.909091 Present Worth of $1. f [FIN] 1[n] 10 [i] 1 [FV] [PV]1
What is the present value factor applied to the Year 1 income stream, if the discount rate is 10% and the holding period is 10 years?
0.680583 Present Worth of $1. f [FIN] 5 [n] 8 [i] 1 [FV] [PV]
What is the present value factor applied to the Year 5 income stream, if the discount rate is 8% and the holding period is 5 years?
$14,094 PMT, CHS - $1,000 N - 25 I - 5%
What is the present value of $1,000 per year for 25 years at 5%?
$17,926 PMT, CHS - $1,500 N - 20 I - 5.5%
What is the present value of $1,500 per year for 20 years at 5.5%?
$71,298.62 FV, CHS - $100,000 N - 5 I - 7%
What is the present value of $100,000 that will be received in five years, assuming a 7% rate?
$100,651 PMT, CHS - $15,000 N - 10 I - 8%
What is the present value of $15,000 per year for 10 years at 8%?
$12,546.65
What is the present value of $25,000 at 9% for 8 years? (HINT: if you are asked for present value there are only two columns to look at; one for lump sum and one for periodic payments).
$368,004.35
What is the present value of $50,000 per year for 10 years at 6%?
$29,976.24
What is the present value of installments of $5,000 per year for 9 years at 9%?
$83,453.01
What is the present worth of $200,000 at 6% compound interest, for 15 years?
Capitalization
What is the process of converting income to value?
$405,000 $32,400/.08 = $32,400
What is the sale price of a property which had a Net Operating Income of $32,400 and sold at an overall capitalization rate of 8%?
Terminal capitalization rate
When a capitalization rate is used to calculate the resale amount, it is called the terminal capitalization rate. Terminal capitalization rates are also called "going-out" rates.
Identity of intended users Identity of the appraisers completing the work under review Identity of the interest appraised All of the above must be included
When a reviewer provides his or her own opinion of value in a review assignment, all of the following items must be reported EXCEPT:
Equity dividend
When an appraiser determines the cash flow after debt service but before income and capital gains taxes, it is referred to as the:
Subdivision Analysis
When an appraiser performs a feasibility study and comparable sales are scarce, what is a common alternative?
Both A and B Current market rates and underwriting standards are considered. An assumption that refinancing will not occur within the first 5 years or so.
When analyzing investments with longer holding periods, the concept of refinancing comes into play. What is common practice with regard to assumptions about refinancing?
The highest and best use of the site
When appraising freestanding, single use properties, the appraiser should take great care in the appraisal process as the current use may not be:
Typical
When appraising industrial buildings, the appraiser considers specialized improvements from the perspective of the needs of the _______ tenant.
True
When appraising multi-family properties, the appraiser should exercise great care in making sure that any unique expense allocations for the comparable properties are handled properly.
BEG
When calculating interest paid in advance, the HP 12c should be set to the _____ mode.
Seek guidance from a tax professional
When confronted with issues relating to federal income taxation, the appraiser should:
All of the above The three are: Geographic location of the data Analysis methodologies used to create the data Type of properties analyzed
When relying on information contained in investor surveys available on the internet, the appraiser must consider:
Cash flow characteristics
When reversion cap rates are used, they should reflect investor expectations considering the asset type, age, and condition, as well as:
The typical investor
When the assignment is to determine market value, determination of the holding period is based upon:
The lease goes with the property
When the leased fee holder sells the real property under lease:
The value of the interest declines You no longer have controlling rights.
When the partial interest is less than 50%:
Tenants in common
When two unmarried parties purchase a property, they become:
Assumptions ADVISORY OPINION 33. We need to address what assumptions the software encompasses.
When using DCF software, the appraiser should describe the software's methods and:
Percentage rent add-ons True, percentage rent add-ons can cause inaccuracies.
When using a gross income multiplier to arrive at the value for a shopping center, the appraiser must take great care to identify:
Vacant
When valuing land, the appraiser must consider the site as if it was:
The dollar's purchasing power has declined
When you entered your birth year into the inflation calculator and then calculated for the current year's figures, you found that:
All of the above Location Physical characteristics On and off site improvements
Which of the following could have an impact upon a property's appeal and value?
Monthly
Which of the following does NOT describe a type of lease agreement?
Leverage
Which of the following expands the amount of equity you have to invest?
I ÷ R = V
Which of the following formulas is correct?
Determine the going-in overall capitalization rate
Which of the following in NOT one of the basic steps of yield capitalization:
Guestroom
Which of the following indices would be used as a determinant of value for a hotel/motel?
All of these are characteristics of a lease Kick-out Clause Escape Clause Landlord Solvency
Which of the following is NOT a characteristic of a lease?
Purchase price of the investment ADVISORY OPINION 33. The rate is independent of the price and can be applied to any price. The other three are: Risk Inflation Real rates of return
Which of the following is NOT a consideration to be used in the selection of a discount rate?
Mom and Pop Center
Which of the following is NOT a type of shopping center?
The risk rate is always minimal No - the risk rate can be substantial. The three are: Interest rate does not vary during the holding period The investment is productive during the entire holding period Short-term rates are equal to long-term rates
Which of the following is NOT an assumption related to the time value of money?
Short term rates are always different from long term rates
Which of the following is NOT an assumption to be considered in calculating the time value of money?
Gross Building Area
Which of the following is NOT another term for Rentable Area when dealing with office buildings?
Buy the interest You can sell, mortgage, and lease the interest
Which of the following is NOT included in the Bundle of Rights that comes with ownership of real property?
Fee and turnaround time for the assignment
Which of the following is NOT one of the key factors in helping the appraiser determine the appropriate Scope of Work for an assignment?
Clauses concerning Occupancy
Which of the following is a characteristic of a lease?
The property owner/manager
Which of the following is a good source for obtaining the cost of pest control services?
The utility company
Which of the following is a readily available verification source for energy costs?
Effective Gross Income
Which of the following is considered to be a more realistic income figure to analyze?
Cubic Foot The three that are included are: Acre Square Foot Front Foot
Which of the following is not a common index for determining value of land?
FMRR That would result in a Financial Management Rate of Return (FMRR).
Which of the following results when negative cash flows that occur after a positive cash flow are discounted back and netted against the positive cash flow?
Painting
Which of the following should be considered under replacement reserves?
They are all true If the market rent is less than contract rent, the leasehold value is negative If the market rent is greater than contract rent, the leasehold value is positive If market rent is equal to contract rent, the leasehold has no value
Which of the following statements is true of the leasehold interest?
Fee Simple
Which of the following would NOT be considered a partial interest?
Determine the going in cap rate
Which of the following would NOT be one of the basic steps involved in yield capitalization?
All of the Above The Term The Rent Extra Charges
Which of the following would be considered a component of a lease agreement?
Replacing the entire parking lot
Which of the following would be considered a replacement reserve item, rather than an operating expense:
Escape Clause Escape clauses allow Lessees to cancel a lease under abnormal conditions, such as provisions in a damages clause that allow the Lessee to cancel the lease if it negatively impacts business operations.
Which type of clause allows Lessees to cancel a lease under abnormal conditions?
It changes the programming of the financial calculator Ordinary annuities presume payments at the end of each period; while Annuities due have payments at the beginnings of each period.
Why is it important to understand the difference between an "ordinary annuity" and an "annuity due"?
The appraiser
With whom does the final responsibility for determining Scope of Work lie?
not direct capitalization. Cap rates are one or the other. Yield Cap, generally speaking is not Direct Cap.
Yield capitalization is a general term for income valuation methodologies that are
The battery needs to be replaced
You are working with your HP12C. Suddenly you notice a flashing (*) on the register. What does that mean?
pv = $11,794 n = 3 i = 8% fv = $14,857
You have estimated the first year's cash flow to be $14,000. Assuming that the compounded annual increase for each year's cash flow is 2%, the estimated cash flow for year 3 is $14,857. At a discount rate of 8%, what is the present value of the cash flow for year 3?
Gold [ f ], 4
Your HP 12c is set to two decimal places. You want to change it to 4 decimal places. What keystrokes would you use?
$417,500 $33,400/.08 = $417,500
Your subject has an income of $33,400. If the rate for such properties is 8%, what is the indicated value of that property?
$33,400/.08 = $417,500
Your subject has an income of $33,400. If the rate for such properties is 8%, what is the indicated value of the subject property?
NPV example Calculate the Net Present Value of a property purchased for $500,000. The annual total income is $40,000 the first year, $45,000 the second, $50,000 the third, $55,000 the fourth, and $60,000 the fifth. Anticipated net sale price at the end of year five is $600,000. The yield rate is determined to be 12%.
[ f ] [REG] to clear the calculator 500,000 [CHS] [ g ] [CFo] 40,000 [ g ] [CFj] 45,000 [ g [CFj] 50,000 [ g ] [CFj] 55,000 [ g ] [CFj] 660,000 [ g ] [CFj] 12 [ i ] [ f ] [NPV]Display reads: 16,632.24 or $16,632.24 That is greater than zero, so it would be an acceptable investment.
A Leasehold Interest
__________ is the tenant's possessory interest created by a lease
Gross income multiplier (GIM)
he ratio of the sales price or value divided by the annual potential gross income or effective gross income. The income used in the calculation may include income other than rent income. GIM = Value/Gross Income (Monthly/Annual)
Business value (aka: Going concern value)
is the value of intangibles related to an on-going enterprise, such as management ability, workforce, capital, trade names, franchises, patents, trademarks, contracts, leases, operating agreements, etc.
Use Value (aka: Value in use)
is the value to a specific owner for a specific use.
The scope of work is acceptable when it meets or exceeds:
the expectations of parties who are regularly intended users for similar assignments; and what an appraiser's peers' actions would be in performing the same or a similar assignment.
Definition of the Problem Scope of Work Data Collection and Analysis Application of the Approaches to Value Reconciliation of Value Indications and Final Opinion of Value Report of Defined Value Opinions
six-step process