Ch. 10 RE test 2

Comp 1 Comp 2 Comp 3 Price $300,000 $350,000 $375,000 Eff. gross income 50,000 55,000 60,000 % operating expense 50% 55% 54% NOI 25,000 30,000 32,500 Consider the table above. Assume that the subject property has effective gross income of $53,000 and a NOI of $27,500. What value would a cap rate approach yield (rounded to the nearest $100)?

(A) $322,600

Consider a property with NOI of $72,000 and a debt coverage ratio of 1.2 applied to first year NOI. What would be the estimated monthly mortgage payment?

(A) $5,000 72,000/1.2 = 60,000/12 months

Total possible income less any vacancy is ___.

(A) EGI

Which of the following choices represents the main categories of depreciation?

(A) Physical, external, functional

A comparable property has a feature that is superior to the subject property. What adjustment would be made in the sales comparison approach to value?

(A) Value of the feature would be subtracted from the sales price of the comparable property

A property is sold for $200,000. Typical financing terms are an 85% loan with a 10% interest rate over 15 years. If the before-tax cash flow is $2,000, what is the overall capitalization rate?

(B) 11.96%

Year 1 Year 2 Year 3 NOI $72,000 $74,880 $77,875 DS 60,000 60,000 60,000 CF $12,000 $14,880 $17,875 Resale in yr 3 900,000 Less mortgage balance -435,000 Total CF $12,000 $14,880 $482,875 PV of CF @15% $10,435 $11,251 $317,498 Using the information from the question above, what would be the equity dividend rate?

(B) 3.5 percent

42. Which lease has the LOWEST effective rent? Lease Yr1 Yr2 Yr3 Yr4 Yr5 A 10 11 12 13 14 B 0 13 14 15 16 C 0 0 20 20 22 D 15 14 13 12 11

(B) Lease B Just add up the numbers and B is lowest.

Which of the following factors is NOT part of the definition of market value?

(B) The property has been on the open market for less than a year Factors that ARE part of the definition of market value include: payment is made in terms of cash in U.S. dollars or a comparable financial arrangement, buyer and seller are typically motivated, and price is not affected by special or creative financing.

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

(C) $251,298

Comp 1 Comp 2 Comp 3 Price $300,000 $350,000 $375,000 Eff. gross income 50,000 55,000 60,000 % operating expense 50% 55% 54% NOI 25,000 30,000 32,500 Consider the table above. Assume that the subject property has effective gross income of $53,000 and a NOI of $27,500. What value would a GIM approach yield (rounded to the nearest $100)?

(C) $328,600

32. Given the following sales adjustment grid, what adjustment would be made for size? (Grid was too big)

(C) $50 psf.

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

(C) $800,000 80,000/(.12-.2)

Which is of the following is NOT normally considered when conducting an appraisal using the cost approach?

(C) Capitalization rate Functional obsolescence, effective age, and replacement cost are considered when conducting an appraisal using cost approach.

Regarding the value of a property, an appraisal:

(C) Estimates value

The discount rate is a rate that a typical investor would normally require as a(n) ___ return over investment holding period.

(C) Expected

Which of the following appraisal methods is NOT considered an income approach?

(C) Factor discounting rates Cap rate, discounted present value, and gross income multiplier are all income approaches.

Which of the following is TRUE concerning the capitalization rate?

(C) It expresses relationships between income and property value at a specific point in time

Which of the following statements regarding the sales comparison approach to appraisal is TRUE?

(C) The comparable sales must involve transactions between unrelated individuals

A property produces a first-year net operating income of $24,000. Because of the long economic life of the building, the income is considered as a perpetuity that will grow by 2.5% per year. Using a discount rate of 9.5%, the property value is estimated at:

(D) $342,857

Year 1 Year 2 Year 3 NOI $72,000 $74,880 $77,875 DS 60,000 60,000 60,000 CF $12,000 $14,880 $17,875 Resale in yr 3 900,000 Less mortgage balance -435,000 Total CF $12,000 $14,880 $482,875 PV of CF @15% $10,435 $11,251 $317,498 Consider the table above for a hypothetical income property that is under consideration for purchase with a $455,000 loan. Using the principles of mortgage equity capitalization, what is the estimated total property value (rounded to the nearest $100)?

(D) $794,200

Capitalization rates will differ from yield rates when the income is expected to __________ over time.

(D) Both B and C. Both B & C were decrease.

Which of the following expenses would NOT be included in an operating statement used to calculated net operating income in the income approach to value?

(D) Capital additions Expenses that are included: Reserves for replacement, maintenance, and real estate taxes.

Which of the following steps normally would be used in the cost approach to value?

(D) Subtract accrued depreciation from the replacement cost

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

False

A property is purchased for $350,000. Based on an annual growth rate of 3%, the resale value at the end of year 10 would be $456,671

False

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

False

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

False

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

False

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

False

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

False

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

False

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

False

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

False

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

False

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

True

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

True

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

True

In the cost approach to value, land value can be estimated by comparing sales of vacant land that are similar to the subject land.

True

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

True

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

True

The rationale for using the cost approach to appraisal is that any informed buyer would not pay more for property that what it would cost to buy the land and build the structure.

True