CRE: Law & Practice 8 Test

Each unit in a duplex, rents for $400 per month, with a sales price of $96,000, the monthly gross rent multiplier would be:

120 ($400 x 2 = (duplex = $800 ); $ 96,000 sales price divided by $800 monthly rent = 120 Gross Rent Multiple (GRM))

An apartment has an annual income of $53,500. If you must have a 14% rate of return, what is the maximum you can pay for the apartment building?

382143 ($53,500 / .14 = $382,143)

If an investment valued at $350,000 returns 12 percent annually, then what is the amount of income produced by this investment?

4200 ($350,000 x 12% = $42,000)

If Jon's property has a net income of $54,800, and returns 8 percent annually on the investment, then what is her property's value?

685000 ($54,800/.08 = $685,000)

Reconciliation refers to which of the following?

Analyzing the results obtained by the different approaches to value to determine a final estimate of value

4-3-2-1 is a familiar approach to one facet of real estate practice. It normally refers to which of the following?

Method used in appraising vacant land of different depths

In which approach to value must land value be computed separately from building value?

cost approach

On a service property, (i.e. church, school), which approach to value is most reliable?

cost approach

To find the value of a property, using the income approach to appraisal, if the net operating income was $238,000, and the capitalization rate was 7%, an appraiser would:

divide net income by the capitalization rate

The period of time during which a property may be profitably utilized is known as its:

economic life

In the cost approach to estimating value, the type of depreciation that is always considered incurable is

economic obsolescence

Which of the following types of depreciation would be most difficult to eliminate?

economic obsolescence

Outmoded plumbing is an example of:

functional obsolescence

The decrease in value because of outmoded function is known as:

functional obsolescence

When appraising a commercial property, the appraiser is most concerned with:

income

What does the unit-in-place method do?

it estimates the cost of producing and installing individual components, such as the foundation, exterior walls, and plumbing which is then multiplied by the area of the portion of the building being valued to arrive at a total cost for that component.

Depreciation, defined as loss of value from any cause, is generally divided into three classes. The loss of value due to wear and tear and action of the elements is called:

physical deterioration

Typically, the least important factor influencing the value of an owner-occupied home would be:

potential rental income

Whenever possible all three approaches to value are used. The comparison approach is given greater weight than the others are when appraising:

single-family dwellings

The term depreciation refers to:

the loss of value in real estate due to any cause

You would use the comparative method in the appraisal of property:

to compute land value

Is capitalization used in the income approach to value?

yes

An income property has a gross annual income of $14,250 and monthly expenses of $300. It has been valued at $147,000. What is the capitalization rate?

.072 ($14250 - ($300 X 12) $3600 = $10,650/1$147,000 = .072 or 7.2%)

If a property's annual net income is $24,000, and it is valued at $300,000, what is the capitalization rate?

.08 ($24,000 (Net Income) / $300,000 (Value) = 8% (Rate))

An apartment building has potential gross annual income of $50,000. The vacancy factor is 5%. The maintenance expenses are $1,000 per month. The property taxes are $3,500 per year. The insurance is $2,500 per year. The reserve account is built at a rate of $200 per month. The mortgage payments are $1,500 per month. If the value of the building is $338,750, what is the capitalization rate?

.08 (Gross rents $50,000 - vacancy (5%) $50,000 x .05 - 2,500 = $47,500 (Maintenance $1,000/mo x 12 =) $12,000 + (Property taxes) $3,500 + (Insurance) $2,500 + (Reserve acct. $200/mo x 12 =) $2,400 = Total $20,400 $47,500 - $20,400 = $27,100 R = I / V R = $27,100 / $338,750 = .08 = 8%)

A property with amenities is best appraised by:

comparative analysis

When using the income approach to value, which of the following items is used to calculate the income?

Gross rents, vacancies, maintenance, management, property taxes, utilities and reserve account expenses