Fin 353 Exam 3

Suppose John borrows Cindy's car with her permission. John has $70,000 of per-person bodily injury liability insurance and Cindy has a $120,000 per-person bodily injury liability limit. John negligently injures another motorist and must pay damages of $135,000. The amount that John's insurer pays is:

$15,000

A property has a net operating income of $25,000, a market rate mortgage payment for $5,000 and the capitalization rate used in the market is 10%. What is the indicated value?

$250,000 Prop value = NOI/Cap rate = 25000/10%

John is in an auto accident. He is determined to be 30% at fault and the other driver is determined to be 70% at fault. The damage to his car is $10,000. In terms of a pure comparative negligence rule the other driver should pay him

$7,000

Suppose that we observe two comparable properties that have each sold twice within the past two years. Property A sold 24 months ago for $350,000 and Property B sold 18 months ago for $325,000. If the two properties were sold today at $375,000 and $340,000, respectively, estimate the change in market conditions (percentage change in price) per month, assuming we equally weight the two properties in our analysis. (Use straight line growth with no compunding, for example if the price difference is $12,000 in one year the property appreciated a $1,000 per month. If the initial price was $100,000 then the growth was 1% per month.)

.28%

Rent Feasibility Analysis: Imagine you are trying to determine whether or not a use in financially feasible. The ideal improvement for a small industrial complex is 50,000 sqft and it would cost to build $1,500,000. The building's cap rate is 6.5%, the vacancy rate in this market for this type of property is 4% and the operating expenses are 2 $/sqft. What is the minimum rent in $/sqft that supports this use?

4.11

The subject is located in a market that currently has 875,000 square feet of space for lease. There are 11,560,000 square feet of competing properties under lease. The occupancy rate is

92.96%

Conditions of sale adjustment

A value estimate should consider an arm's length transaction between two unrelated parties

An appraiser is analyzing a vacant parcel of land that is zoned for general business. This zoning classification allows for almost any business enterprise, including some industrial uses. The appraiser believes the following values per acre are accurate: Commercial mortgage interest rates as of today are 7%, and discount rates in this market for properties like this are about 10%. What is the highest and best use of the parcel today?

All three uses support a present value of about $200,000, which means that any of them can be the highest and best use

Amber believes that her auto insurance premium is too high. Which of the following would most likely lower Amber's premium?

Amber could increase her physical damage deductible.

If an appraiser is estimating the land value of a parcel of land that has improvements on it, the land must be valued

As if the improvements were not there

In highest and best use analysis, a change in zoning classification

Can be assumed if the change is likely and disclosed as a hypothetical condition or extraordinary assumption (depending on the date)

Elements of comparison are the

Characteristics of properties that cause their prices to vary

variable expenses

Costs that vary based upon of the property's level of operation

John is driving David's car. They both have Personal Auto Policies and have the minimum auto insurance coverage required in the state of Mississippi. John negligently runs over a pedestrian and is legally liable to pay $30,000 to the injured pedestrian. Which of the following is most correct?

David's auto insurer will pay out more than John's auto insurer

True/false Several states have adopted pure no-fault auto insurance.

False

True/false: John negligently injures a pedestrian while he is driving his car. The damages awarded against him are $100,000. His insurer spends $50,000 on the legal defense. The relevant liability insurance limit in his auto policy is $100,000. True or False: John's insurer will subtract what they paid in legal defense costs from any possible claims payment.

False

True/false: The US tort system is very efficient because the vast majority of tort costs are awards made to victims and the cost of "frictions" such as legal fees and administrative costs is near zero.

False

A comparable sale included the seller taking back a purchase-money mortgage at 3% under the market rate for 10 years. The appraisal was based on the cash-equivalent market value. The adjustment for this factor would be called a

Financing terms adjustment

In a market value appraisal assignment, the appraiser found that prices were increasing at a rate of about 3% per year compounded annually. The appraiser found several comparable sales, but they were not very recent transactions. She decided to make an adjustment to compensate for price increases in this market. These adjustments are called

Market conditions adjustments

The dollar amount by which total rent exceeds base rent under a percentage lease for retail is referred to as:

Overage rent

The subject property was built in 2010, and a comparable property was built in 1995. Assuming that new buildings are preferred over old ones, the adjustment for age of improvement in this case would be

Positive

The preferred sequence of adjustments is

Prop rights, financing, conditions of sale, expenditures After PURCHASE, market conditions, physical attributes

__________ are designed to punish people and organizations so that others are deterred from committing the same wrongful act.

Punitive damages

Which of the following is not a variable expense?

Real estate taxes

Which of the following is true regarding the valuation of land?

Sales comparison approach is preferable for estimating the market value of a site

Which of the following types of damages is most objective?

Special Damages

The economic principle stating that the value of a property tends to be set by the price that would be paid to acquire a property of similar utility and desirability is

Substitution

One complication that appraisers may face is the variety of lease types that may be available for a particular property type. Which of the following statements best describes a graduated or step-up lease?

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

Items that must be considered in the valuation of land include

Topography

Automobile and homeowner insurance policies are evolving to address new liabilities arising from ride sharing and room sharing.

True

True/false: A compulsory insurance law requires motorists to carry at least a minimum amount of liability insurance before their vehicle can be licensed or registered.

True

True/false: A tort is a legal wrong for which the court allows a remedy in the form of money damages.

True

Which of the following countries does the standard (i.e. unendorsed) Personal Auto Policy provide coverage for?

USA and Canada

The expected costs to make replacements, alterations, or improvements to a building that materially prolong its life and increase its value is referred to as

capital expenditures.

You are injured in a car accident where someone negligently crashed into your car. In terms of the ___________ negligence law you cannot collect damages if you contributed in any way to your injury.

contributory

Based on the chart we examined in the video lecture, tort costs in the US are ______ other industrialized countries.

higher than

At the conclusion of the traditional sales comparison approach to valuation, the appraiser evaluates and reconciles the final adjusted sale prices into a single value for the subject property. This single value is commonly referred to as

indicated value.

Sharon lives in a state that has a no-fault automobile insurance law. Under the law, an injured person has the right to sue the negligent driver only if the bodily injury claim exceeds a dollar or verbal threshold. The no-fault law in Sharon's state is a(n)

modified no-fault plan.

Tort reforms that have been used in states include capping or restricting

noneconomic damages

Potential gross income ( PGI) less vacancy and collection losses is known as

Effective gross income (EGI)

Mary has insured her car under a PAP (Personal Auto Policy) and has purchased the following coverages and limits (in parentheses): Liability ($50,000/$100,000/$30,000); Medical Payments ($5,000), and Uninsured Motorists ($50,000/$100,000/$50,000). One day Mary is driving her own car and accidentally collides with a tree. Mary's arm is broker in the accident and her friend (a passenger in Mary s car) suffers a broken nose. Mary's friend does not have any insurance and does not want to sue Mary as she believes that the accident was not Mary's fault. Ignoring any deductibles, which of the following statements is most correct?

Mary's policy will cover her own injuries up to $5,000 and will cover her friend's injuries (on a no-fault basis) up to $5,000

Mary has insured her car under a PAP (personal auto policy) and has purchased the following coverages and limits (in parentheses). Liability ($100,000/$300,000/$75,000) and Uninsured Motorists ($50,000/$100,000/$75,000). One day Mary is a passenger in a friend s car and is involved in an accident with an uninsured motorist. The accident was the uninsured motorist's fault. Mary incurs medical expenses equal to $75,000. Which of the following statements is most correct?

Mary's policy will cover her own injuries up to $50,000

______ is the failure to exercise the standard of care required by law to protect others from an unreasonable risk of harm.

Negligence