Real Estate ch. 8, Real Estate Chapter 8 (Math), REE 3043 Chapter 8, Chapter 8, Chapter 8 - Waller, Real Estate Chapter 8, FRL 3062 Midterm 2 + HW - Chapter 7, 8, 9, 10, Chapter 7, Real Estate Chapter 7
Given the following information, determine the final appraisal value of the subject property. Adjustments Market conditions -0.50% (per month) Lot size $25,000 (per acre) Effective age (years) $1,000 (per year) Living area (sq. ft) $45.00 (per sq. ft.) Bath $1,250 (per bath) Bedrooms $3,000 (per bedroom) Subject Property Comparable Property Time sold Today 4 months ago Lot size (acres) 0.83 0.80 Effective age (years) 8 7 Living area (sq. ft) 2,197 2,383 Bath 3.5 3.5 Bedrooms 4 4 Sale price - $287,000rev: 07_14_2017_QC_CS-93438, 05_24_2018_QC_CS-127747
$272,640
A comparable property sold four months ago for $287,000. If the appropriate adjustment for market conditions is -0.50% per month (without compounding), what would be the adjusted price of the comparable property assuming all else is the same between the two properties? $269,780.00 $281,260.00 $285,565.00 $292,740.00
$281,260.00
Suppose you are interested in obtaining a mortgage loan for $250,000 in order to purchase your principal residence. Your lender has suggested that you might be interested in taking an FHA loan. In order to do so, you must pay an additional up-front mortgage insurance premium (UFMIP) of 1.0% of the mortgage balance. If the interest rate on the fully amortizing mortgage loan is 5% and the term is 30 years, what is your monthly mortgage payment assuming the UFMIP is financed?
$1,355.47
35. Suppose that an income producing property is expected to yield cash flows for the owner of $150,000 in each of the next five years, with cash flows being received at the end of each period. If the opportunity cost of investment is 8% annually and the property can be sold for $1,250,000 at the end of the fifth year, determine the value of the property today.
$1,449,635.50
Suppose that an income-producing property is expected to yield cash flows for the owner of $150,000 in each of the next five years, with cash flows being received at the end of each period. If the opportunity cost of investment is 8% annually and the property can be sold for $1,250,000 at the end of the fifth year, determine the value of the property today. A) $304,704.00 B) $1,449,635.50 C) $1,481,143.98 D) $2,000,000.00
$1,449,635.50
Suppose that an income-producing property is expected to yield cash flows for the owner of $150,000 in each of the next five years, with cash flows being received at the end of each period. If the opportunity cost of investment is 8% annually and the property can be sold for $1,250,000 at the end of the fifth year, determine the value of the property today. $304,704.00 $1,449,635.50 $1,481,143.98 $2,000,000.00
$1,449,635.50
Suppose that examination of a pro forma reveals that the fifth year net operating income (NOI) for an income producing property that you are analyzing is $138,446 (you can assume that this cash flow occurs at the end of the year). If you estimate the projected rental growth rate for the property to be 5% per year, determine the projected sale price of the property at the end of year five if the going-out capitalization rate is 9%.
$1,615,203
29. Suppose that examination of a pro forma reveals that the fifth year net operating income (NOI) for an income producing property that you are analyzing is $138,446 (you can assume that this cash flow occurs at the end of the year). If you estimate the projected rental growth rate for the property to be 5% per year, determine the projected sale price of the property at the end of year five if the going-out capitalization rate is 9%.
$1,615,203.00
Suppose that examination of a pro forma reveals that the fifth year net operating income (NOI) for an income producing property that you are analyzing is $138,446 (you can assume that this cash flow occurs at the end of the year). If you estimate the projected rental growth rate for the property to be 5% per year, determine the projected sale price of the property at the end of year five if the going-out capitalization rate is 9%.
$1,615,203.00
Suppose that examination of a pro forma reveals that the fifth-year net operating income (NOI) for an income-producing property that you are analyzing is $138,446 (you can assume that this cash flow occurs at the end of the year). If you estimate the projected rental growth rate for the property to be 5% per year, determine the projected sale price of the property at the end of year 5 if the going-out capitalization rate is 9%. $988,900.00 $1,465,037.00 $1,538,289.00 $1,615,203.00
$1,615,203.00
Suppose that examination of a pro forma reveals that the fifth-year net operating income(NOI) for an income-producing property that you are analyzing is $138,446 (you can assume that this cash flow occurs at the end of the year). If you estimate the projected rental growth rate for the property to be 5% per year, determine the projected sale price of the property at the end of year 5 if the going-out capitalization rate is 9%. A) $988,900.00 B) $1,465,037.00 C) $1,538,289.00 D) $1,615,203.00
$1,615,203.00
Suppose that examination of a pro forma reveals that the fifth-year net operating income (NOI) for an income-producing property that you are analyzing is $138,446 (you can assume that this cash flow occurs at the end of the year). If you estimate the projected rental growth rate for the property to be 5% per year, determine the projected sale price of the property at the end of year 5 if the going-out capitalization rate is 9%.
$1,615,203.00 Capitalized sale price = net income x (1 + r%) / capitalization rate = 138,446 x (1 + 5%)/9% = 1,615,203
34. Suppose that you are attempting to value an income producing property using the direct capitalization approach. Using data from comparable properties, you have determined the overall capitalization rate to be 7.5%. If the projected first year net operating income (NOI) for the subject property is $135,500, what is the indicated value of the subject using direct capitalization?
$1,806,666.67
Suppose that you are attempting to value an income-producing property using the direct capitalization approach. Using data from comparable properties, you have determined the overall capitalization rate to be 7.5%. If the projected first-year net operating income (NOI) for the subject property is $135,500, what is the indicated value of the subject using direct capitalization? A) $144,985.00 B) $150,555.56 C) $1,806,666.67 D) $9,033,333.33
$1,806,666.67
Suppose that you are attempting to value an income-producing property using the direct capitalization approach. Using data from comparable properties, you have determined the overall capitalization rate to be 7.5%. If the projected first-year net operating income (NOI) for the subject property is $135,500, what is the indicated value of the subject using direct capitalization?
$1,806,666.67
Suppose that you are attempting to value an income-producing property using the direct capitalization approach. Using data from comparable properties, you have determined the overall capitalization rate to be 7.5%. If the projected first-year net operating income (NOI) for the subject property is $135,500, what is the indicated value of the subject using direct capitalization? $144,985.00 $150,555.56 $1,806,666.67 $9,033,333.33
$1,806,666.67
Suppose that you are attempting to value an income-producing property using the direct capitalization approach. Using data from comparable properties, you have determined the overall capitalization rate to be 7.5%. If the projected first-year net operating income (NOI) for the subject property is $135,500, what is the indicated value of the subject using direct capitalization?
$1,806,666.67 Direct Capitalization=Net Operating Income / Overall Capitalization Rate
Given the following information, determine the value of having an additional bathroom. Assume that the comparable properties are similar in all other attributes besides those listed in the table below.
$10,000
Suppose that an appraiser has come to the following conclusions in evaluating the subject property. Due to the dramatic shift in the perceived safety of the neighborhood, values of any residential properties in the area of the subject property have fallen by $10,000, on average. Due to the subject property's age, physical deterioration to the building accounts for an estimate of $50,000 in lost value. An evaluation of the floor plan reveals that it is quite obsolete relative to current homebuyer preferences. This has a detrimental effect on the value of the property that is estimated to be approximately $15,000. Based on your understanding of adjustments related to accrued depreciation, which of the following pertains to the adjustment for external obsolescence?
$10,000
21. Given the following information, calculate the effective gross income. Property: 4 office units, Contract rents per unit: $2500 per month, Vacancy and collection losses: 15%, Operating Expenses: $42,000, Capital Expenditures: 10%
$102,000
Given the following information, calculate the effective gross income. Property: 4 office units, Contract rents per unit: $2500 per month, Vacancy and collection losses: 15%, Operating Expenses: $42,000, Capital Expenditures 10%
$102,000
Given the following information, calculate the effective gross income. Property: 4 office units, Contract rents per unit: $2500 per month, Vacancy and collection losses: 15%, Operating Expenses: $42,000, Capital Expenditures 10%:
$102,000
Given the following information, calculate the effective gross income. Property: 4 office units, Contract rents per unit: $2500 per month, Vacancy and collection losses: 15%, Operating Expenses: $42,000, Capital Expenditures: 10%
$102,000
Given the following information, calculate the effective gross income: property: 4 office units, contract rents per unit: $2,500 per month; vacancy and collection losses: 15%; operating expenses: $42,000; capital expenditures: 10%. A) $100,000 B) $102,000 C) $120,000 D) $135,000
$102,000
Given the following information, calculate the effective gross income: property: 4 office units, contract rents per unit: $2,500 per month; vacancy and collection losses: 15%; operating expenses: $42,000; capital expenditures: 10%.
$102,000 Effective Gross Income = Gross Income - Vacancy Expense = ($2,500 x 4 units x 12 months) - ($2,500 x 4 units x 12 months x 15%)
A comparable property sold 15 months ago for $105,000. If the appropriate adjustment for market conditions is 0.25% per month (without compounding), what would be the adjusted price of the comparable property?
$108,937.50
36. Suppose that examination of a pro forma reveals that the fifth year net operating income (NOI) for an income producing property that you are analyzing is $913,058 (you can assume that this cash flow occurs at the end of the year). If you estimate the projected rental growth rate for the property to be 3% per year, determine the projected sale price of the property at the end of year five if the going-out capitalization rate is 8%.
$11,755,622
Suppose that examination of a pro forma reveals that the fifth-year net operating income (NOI) for an income-producing property that you are analyzing is $913,058 (you can assume that this cash flow occurs at the end of the year). If you estimate the projected rental growth rate for the property to be 3% per year, determine the projected sale price of the property at the end of year 5 if the going-out capitalization rate is 8%.
$11,755,622
Suppose that examination of a pro forma reveals that the fifth-year net operating income (NOI) for an income-producing property that you are analyzing is $913,058 (you can assume that this cash flow occurs at the end of the year). If you estimate the projected rental growth rate for the property to be 3% per year, determine the projected sale price of the property at the end of year 5 if the going-out capitalization rate is 8%. $1,603,600 $2,350,159 $11,413,225 $11,755,622
$11,755,622
Suppose that examination of a pro forma reveals that the fifth-year net operating income(NOI) for an income-producing property that you are analyzing is $913,058 (you can assume that this cash flow occurs at the end of the year). If you estimate the projected rental growth rate for the property to be 3% per year, determine the projected sale price of the property at the end of year 5 if the going-out capitalization rate is 8%. A) $1,603,600 B) $2,350,159 C) $11,413,225 D) $11,755,622
$11,755,622
33. Using the following information, determine the net operating income (NOI) for the first year of operations of the subject property using "above-line" treatment of capital expenditures. Subject Property Number of apartments 15 Market Rent (per month) 1000 Vacancy and Collection Losses 10% of PGI Operating Expenses 5% of EGI Capital Expenditures 10% of EGI
$137,700
32. Using the following information, determine the net operating income (NOI) for the first year of operations of the subject property assuming "below-line" treatment of capital expenditures. Subject Property Number of apartments 15 Market Rent (per month) 1000 Vacancy and Collection Losses 10% of PGI Operating Expenses 5% of EGI Capital Expenditures 10% of EGI
$153,900
Using the following information, determine the net operating income (NOI) for the first year of operations of the subject property assuming "below-line" treatment of capital expenditures. Subject Property Number of apartments 15 Market rent (per month) 1000 Vacancy and collection losses 10% of PGI Operating expenses 5% of EGI Capital expenditures 10% of EGI
$153,900
Using the following information, determine the net operating income (NOI) for the first year of operations of the subject property assuming "below-line" treatment of capital expenditures. Subject Property Number of apartments 15 Market rent (per month) 1000 Vacancy and collection losses 10% of PGI Operating expenses 5% of EGI Capital expenditures 10% of EGI
$153,900
Given the following information, determine the value of having an additional bedroom. Assume that the comparable properties are similar in all other attributes besides those listed in the table below.
$25,000
Created by Congress to promote an active secondary market for home mortgages, Fannie Mae and Freddie Mac purchase loans that meet specific underwriting standards such as loan size, documentation, and payment-to-income ratio. The loans that Fannie Mae and Freddie Mac are eligible to purchase are commonly referred to as
conforming conventional loans.
Net operating income is similar to which of the following measures of cash flow in corporate finance?
earnings before deductions for interest, depreciation, income taxes, and amortization (EBIDTA)
The distinction between market rent and contract rent is important due to differences in lease terms. Office, retail, and industrial tenants most commonly occupy their space under leases that run:
3 to 5 years
Given the following information, calculate the effective gross income multiplier: sale price: $950,000; potential gross income: $250,000; vacancy and collection losses: 15%; and miscellaneous income: $50,000.
3.6 Effective Gross Income Multiplier(EGIM) =Sale price/EGI Gross annual income = 250000 * (1 - 15%) + 50000 = 262500 Gross income multiplier = 950000 / 262500 = 3.62
Given the following information, calculate the net operating income assuming below-line treatment of capital expenditures: property: 4 office units, contract rents per unit: $2,500 per month; vacancy and collection losses: 15%; operating expenses: $42,000; capital expenditures: 10%.
$60,000 total revenue = 2500 * 4 units * 12 months = $120,000 Less Vacancy and allocation losses (120,000*15%) = $18,000 Effective Gross Income (EGI) = $102,000 Less Operating Expenses $42,000 Net Operating Income = $60,000
30. Analysis of a subject property's pro forma reveals that its fifth year net operating income (NOI) is projected to be $100,282 (you can assume that this cash flow occurs at the end of the year). If you estimate the projected rental growth rate for the property to be 3% per year and the going-out capitalization rate in year five to be 10%, determine the net sale proceeds the current owner of the property would receive if he were to sell the property at the end of year five and incur selling expenses that amounted to $58,300.
$974,610.00
In addition to the UFMIP (up-front mortgage insurance premium), the owner-occupant borrower who decides to use an FHA mortgage loan will normally pay an additional annual mortgage insurance premium (MIP) that depends on the loan-to-value ratio and the term of the loan. For loans with maturity longer than fifteen years and a loan to value ratio that is greater than 95%, the MIP will be what percentage of the average annual loan balance?
1.15%
26. Three highly similar and competitive income-producing properties within two blocks of the subject property have sold this month. All three offer essentially the same amenities and services as the subject property. The sale prices and estimated first-year NOI for each of the comparable properties are as follows: Comparable Sale Price NOI1 A $500,000 $55,000 B $420,000 $50,400 C $475,000 $53,400 Using the information provided, calculate the overall capitalization rate by direct market extraction assuming each property is equally comparable to the subject.
11.4%
The starting point in calculating net operating income is the total annual income the property would produce assuming 100% occupancy and no collection losses. This is commonly referred to as A) effective gross income. B) potential gross income. C) operating expenses. D) capital expenditures.
potential gross income.
When using discounted cash flow analysis for valuation, an appraiser will prepare a cash flow forecast, often referred to as a
pro forma
With most standard home loans, the lender can hold the borrower personally liable in the event of a default. Such loans are commonly referred to as
recourse loans.
In recent years, home equity loans have become a popular form of second mortgage. Their popularity has been a result of all of the following except
shorter terms than other consumer debt.
In real estate markets, a transaction occurs only when the investment value of the buyer exceeds the investment value of the seller. The buyer's investment value is the ________ that he or she would be willing to pay for a particular property, while the seller's investment value is the _______ that he or she would be willing to accept.
Maximum; minimum
As part of the data analysis step in the appraisal process, it is necessary to consider the highest and best use of the property in question. In regards to determining highest and best use, all of the following statements are true EXCEPT:
No financial limits are considered when determining the property's best use
Added to the index of the adjustable rate is a margin, which is the lender's markup. For standard adjustable rate mortgage (ARM) loans, the average industry margin has been stable at approximately
275 basis points.
The starting point in calculating net operating income is the total annual income the property would produce assuming 100 percent occupancy and no collection losses. This is commonly referred to as:
Potential gross income
The cap rate is an important metric that investors use to analyze the state of commercial real estate markets. When interpreting cap rate movements, an increase in cap rates over time would indicate that
Property values have decreased
10. Which of these is most likely to be regarded as a capital expenditure rather than an operating expense?
Roof replacement
Most appraisers would say that report writing is one of the most important functions that they perform. Assume that an appraiser is putting together a report for a single family home. Which of the following reporting options would be the most commonly used in this scenario?
Summary appraisal report
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? A) The monthly rent remains fixed over the entire lease term. B) The lease establishes a schedule of rental rate increases over the term of the lease. C) Rental rate increases are indexed to the general rate of inflation. D) Rental rates are a function of the sales of the tenant's business.
The lease establishes a schedule of rental rate increases over the term of the lease.
Adjustments for physical characteristics are intended to capture the dimensions in which a comparable property differs physically from the subject property. If the only physical difference between the subject property and the comparable is that the comparable does not have a fireplace, which of the following adjustments should take place?
The transaction price of the comparable property should be adjusted upward.
Real estate professionals have long supported strict standards of ethics and practice. Followed by all states and federal regulatory agencies, which of the following imposes ethical obligations and minimum standards that must be followed by all real estate professionals providing formal estimates of market value?
Uniform Standards of Professional Appraisal Practice (USPAP)
3. The process of converting periodic income into a value estimate is referred to as income capitalization. Income capitalization models can generally be categorized as either direct capitalization models or discounted cash flow models. Which of the following statements best describes the direct capitalization method?
Value estimates are based on a multiple of expected first year net operating income.
Since mortgages typically have multiple costs associated with them, a borrower may attempt to reduce these costs into a single measure in order to compare two or more mortgages. Which of the following measures is a popular tool for comparing the cost of several mortgages?
annual percentage rate
Let's assume that we are about to appraise a house using the cost approach. The home was originally constructed in the early 1900s and is one of the last of its kind in this area. The cost of constructing an exact replica of this residence is estimated to be $350,000. On our trip to the actual property, we notice that this is the only residential unit located on this particular road. Based on the current usage of adjacent real estate, we estimate that the property would be worth an additional $25,000 in its highest and best use. However, due to the dramatic shift in the perceived safety of the neighborhood, values of any remaining residential properties in the area have fallen by $20,000. Due to the home's age, we also notice that there has been a significant amount of physical deterioration to the building, amounting to an estimate of $50,000 in lost value. Since the home was built over 100 years ago, the floor plan is quite obsolete relative to current preferences. This has a detrimental effect on the value of the property that is estimated to be approximately $15,000. Given this information, determine the appraised value of the home using the cost approach.
$290,000
14. Gross income multiplier analysis assumes that the subject and comparable properties are collecting market rents. Therefore, it is frequently argued that an income multiplier approach to valuation is most appropriate for properties with short-term leases. Which of the following property types, therefore, would we find it most appealing to use a gross-income multiplier in our analysis?
Apartments
Gross income multiplier analysis assumes that the subject and comparable properties are collecting market rents. Therefore, it is frequently argued that an income multiplier approach to valuation is most appropriate for properties with short-term leases. Which of the following property types, therefore, would we find it most appealing to use a gross-income multiplier in our analysis?
Apartments
While it is often sufficient to rely on informal methods of estimating the market value of real estate assets, the complexity and large dollar value of many real estate decisions dictate that formal estimates based on methodical collection and analysis of relevant market data should be utilized. The unbiased written estimate of the market value of a property is commonly referred to as a(n):
Appraisal
Real estate appraisal is often considered "more art than science," since identifying truly comparable properties is a subjective process. Therefore, it is essential that a comparable property transaction at least meets the requirement that it was fairly negotiated under typical market conditions. Which of the following types of transactions would be most appropriate for use in the sales comparison approach to valuation?
Arm's-length transactions
Let's assume that we are about to appraise a house using the cost approach. The home was originally constructed in the early 1900s and is one of the last of its kind in this area. The cost of constructing an exact replica of this residence is estimated to be $350,000. On our trip to the actual property, we notice that this is the only residential unit located on this particular road. Based on the current usage of adjacent real estate, we estimate that the property would be worth an additional $25,000 in its highest and best use. However, due to the dramatic shift in the perceived safety of the neighborhood, values of any remaining residential properties in the area have fallen by $20,000. Due to the home's age, we also notice that there has been a significant amount of physical deterioration to the building, amounting to an estimate of $50,000 in lost value. Since the home was built over 100 years ago, the floor plan is quite obsolete relative to current preferences. This has a detrimental effect on the value of the property that is estimated to be approximately $15,000. Given this information, determine the appraised value of the home using the cost approach.
$290,000Correct
Suppose that an appraiser has just completed her analysis using the cost approach to valuation. She has determined that the market value of the subject property is $400,000. If the added value of the site was $80,000 and accrued depreciation amounted to $50,000, what was the reproduction cost of the building?
$370,000
Suppose that an appraiser has just completed her analysis using the cost approach to valuation. She has determined that the market value of the subject property is $400,000. If the added value of the site was $80,000 and accrued depreciation amounted to $50,000, what was the reproduction cost of the building?
$370,000 Reproduction Cost= Market Value+Accumulated Depreciation-Added Value
Suppose that you are attempting to value an income producing property using the direct capitalization approach. Using data from comparable properties, you have determined the overall capitalization rate to be 11.44%. If the projected first year net operating income (NOI) for the subject property is $44,500, what is the indicated value of the subject using direct capitalization?
$388,986
27. Suppose that you are attempting to value an income producing property using the direct capitalization approach. Using data from comparable properties, you have determined the overall capitalization rate to be 11.44%. If the projected first year net operating income (NOI) for the subject property is $44,500, what is the indicated value of the subject using direct capitalization?
$388,986.00
Suppose that you are attempting to value an income producing property using the direct capitalization approach. Using data from comparable properties, you have determined the overall capitalization rate to be 11.44%. If the projected first year net operating income (NOI) for the subject property is $44,500, what is the indicated value of the subject using direct capitalization?
$388,986.00
Suppose that you are attempting to value an income-producing property using the direct capitalization approach. Using data from comparable properties, you have determined the overall capitalization rate to be 11.44%. If the projected first-year net operating income (NOI) for the subject property is $44,500, what is the indicated value of the subject using direct capitalization? A) $49,590.80 B) $50,225.73 C) $388,986.00 D) $509,080.00
$388,986.00
Suppose that you are attempting to value an income-producing property using the direct capitalization approach. Using data from comparable properties, you have determined the overall capitalization rate to be 11.44%. If the projected first-year net operating income (NOI) for the subject property is $44,500, what is the indicated value of the subject using direct capitalization?
$388,986.00 Direct Capitalization=Net Operating Income / Overall Capitalization Rate
Assume you have been hired to appraise a local hospital. Your best estimate of the reproduction (or replacement) cost of the building is $3,700,000. However, upon evaluating the use of land in the local area, you have deemed the value of the site to be worth an additional $800,000. If the building has depreciated by $500,000 over its lifetime and there are no further depreciation losses due to external or functional obsolescence, what is the indicated value of the hospital using the cost approach?
$4,000,000
Suppose that an appraiser has just completed her analysis using the cost approach to valuation. She has determined that the reproduction cost of the subject property is $370,000. If the added value of the site was $80,000 and accrued depreciation amounted to $50,000, what was the estimated value of the building using the cost approach?
$400,000 Reproduction Cost= Market Value+Accumulated Depreciation-Added Value
20. Given the following information, calculate the net operating income assuming below-line treatment of capital expenditures. Property: 4 office units, Contract Rents per unit: $2500 per month, Vacancy and collection losses: 15%, Operating Expenses: $42,000, Capital Expenditures: 10%:
$60,000
Given the following information, calculate the net operating income assuming below-line treatment of capital expenditures: property: 4 office units, contract rents per unit: $2,500 per month; vacancy and collection losses: 15%; operating expenses: $42,000; capital expenditures: 10%. A) $48,000 B) $60,000 C) $95,000 D) $102,000
$60,000
Given the following information, calculate the net operating income assuming below-line treatment of capital expenditures? Property: 4 office units, Contract Rents per unit: $2500 per month, Vacancy and collection losses: 15%, Operating Expenses: $42,000, Capital Expenditures: 10%
$60,000
Given the following information, calculate the net operating income assuming below-line treatment of capital expenditures? Property: 4 office units, Contract Rents per unit: $2500 per month, Vacancy and collection losses: 15%, Operating Expenses: $42,000, Capital Expenditures: 10%:
$60,000
28. Suppose that an income producing property is expected to yield cash flows for the owner of $10,000 in each of the next five years, with cash flows being received at the end of each period. If the opportunity cost of investment is 12% annually and the property can be sold for $100,000 at the end of the fifth year, determine the value of the property today.
$92,790.45
Suppose that an income producing property is expected to yield cash flows for the owner of $10,000 in each of the next five years, with cash flows being received at the end of each period. If the opportunity cost of investment is 12% annually and the property can be sold for $100,000 at the end of the fifth year, determine the value of the property today.
$92,790.45
Suppose that an income-producing property is expected to yield cash flows for the owner of $10,000 in each of the next five years, with cash flows being received at the end of each period. If the opportunity cost of investment is 12% annually and the property can be sold for $100,000 at the end of the fifth year, determine the value of the property today. A) $36, 047.76 B) $56,742.69 C) $83,333.33 D) $92,790.45
$92,790.45
Suppose that an income-producing property is expected to yield cash flows for the owner of $10,000 in each of the next five years, with cash flows being received at the end of each period. If the opportunity cost of investment is 12% annually and the property can be sold for $100,000 at the end of the fifth year, determine the value of the property today. $36, 047.76 $56,742.69 $83,333.33 $92,790.45
$92,790.45
Analysis of a subject property's pro forma reveals that its fifth year net operating income (NOI) is projected to be $100,282 (you can assume that this cash flow occurs at the end of the year). If you estimate the projected rental growth rate for the property to be 3% per year and the going-out capitalization rate in year five to be 10%, determine the net sale proceeds the current owner of the property would receive if he were to sell the property at the end of year five and incur selling expenses that amounted to $58,300.
$974,610
Analysis of a subject property's pro forma reveals that its fifth-year net operating income(NOI) is projected to be $100,282 (you can assume that this cash flow occurs at the end of the year). If you estimate the projected rental growth rate for the property to be 3% per year and the going-out capitalization rate in year 5 to be 10%, determine the net sale proceeds the current owner of the property would receive if he were to sell the property at the end of year 5 and incur selling expenses that amounted to $58,300. A) $944,520.00 B) $974,610.00 C) $1,002,820.00 D) $1,032,910.00
$974,610.00
In using transaction data to determine the current value of the subject property, it is important to recognize that general market conditions may have changed since a particular transaction occurred. Property A sold 18 months ago for $235,000 and Property B sold 12 months ago for $215,000. If the two properties are priced today at $239,500 and $222,300, respectively, what is the average monthly rate of increase that can be used to adjust comparable prices for changes in market conditions?
.19%
In using transaction data to determine the current value of the subject property, it is important to recognize that general market conditions may have changed since a particular transaction occurred. Property A sold 18 months ago for $235,000 and Property B sold 12 months ago for $215,000. If the two properties are priced today at $239,500 and $222,300, respectively, what is the average monthly rate of increase that can be used to adjust comparable prices for changes in market conditions? 0.09% 0.17% 0.19% 0.32%
.19%
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?
.28%
You find two properties that have sold twice within the last two years. Property A sold 22 months ago for $98,500; it sold last week for $108,000. Property B sold 20 months ago for $105,000; it sold two weeks ago for $113,500. Assuming no compounding, what is the average monthly rate of change in sale prices? .4 4.2 5.04 .42
.42
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.
0.28%
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.
0.28% Property A: Percentage change in prices= (New price - old price)/Old price = (375000 - 350000)/350000 =.0714= 7.14% Monthly percentage= 7.14/24= .2975% Property B: Percentage change in prices= (New price - old price)/Old price = (340000 - 325000)/325000 = .0461= 4.61% Monthly percentage= 4.61/18= .256% As they have equal weightage= (.256 + .2975)/ 2 = .2767= .28%
Suppose that an income-producing property is expected to yield cash flows for the owner of $150,000 in each of the next five years, with cash flows being received at the end of each period. If the opportunity cost of investment is 8% annually and the property can be sold for $1,250,000 at the end of the fifth year, determine the value of the property today.
1,449,635.50 Sum up the cash flows for each year and then take the NPV with a rate of 8%.
A comparable property sold 10 months ago for $98,500. If the appropriate adjustment for market conditions is 0.30% per month (with compounding), what would be the adjusted price of the comparable property? 95504 101455 95545 101495
101495
Three highly similar and competitive income-producing properties within two blocks of the subject property have sold this month. All three offer essentially the same amenities and services as the subject property. The sale prices and estimated first-year NOI for each of the comparable properties are as follows: Using the information provided, calculate the overall capitalization rate by direct market extraction assuming each property is equally comparable to the subject.
11.4%
Three highly similar and competitive income-producing properties within two blocks of the subject property have sold this month. All three offer essentially the same amenities and services as the subject property. The sale prices and estimated first-year NOI for each of the comparable properties are as follows: Comparable Sale Price NOI1 A $500,000 $55,000 B $420,000 $50,400 C $475,000 $53,400
11.4%
31. Four highly similar and competitive income-producing properties located in close proximity to the subject property have sold this month. All four offer essentially the same amenities and services as the subject property. The sale prices and estimated first-year NOI for each of the comparable properties are as follows: Comparable Sale Price NOI1 A $1,450,000 $155,000 B $1,100,000 $135,400 C $1,250,000 $143,400 D $1,500,000 $169,000 Using the information provided, calculate the overall capitalization rate by direct market extraction assuming each property is equally comparable to the subject.
11.43%
Four highly similar and competitive income-producing properties located in close proximity to the subject property have sold this month. All four offer essentially the same amenities and services as the subject property. The sale prices and estimated first-year NOI for each of the comparable properties are as follows: Comparable Sale Price NOI1 A $1,450,000 $155,000 B $1,100,000 $135,400 C $1,250,000 $143,400 D $1,500,000 $169,000 Using the information provided, calculate the overall capitalization rate by direct market extraction assuming each property is equally comparable to the subject.
11.43% Capitalization rate of A = (NOI / Sale price) × 100 = (55,000 / 500,000) × 100 = 11% Capitalization rate of B = (NOI / Sale price) × 100 = (50,400 / 420,000) × 100 = 12% Capitalization rate of A = (NOI / Sale price) × 100 = (53,400 / 475,000) × 100 = 11.2% Overall capitalization rate = (Rate of A + Rate of B + Rate of C) / 3 = (11% + 12% + 11.2%) / 3 = 11.4%
23. Given the following information, calculate the appropriate going-in cap rate using mortgage-equity rate analysis. Mortgage financing = 75%, Typical debt financing cap rate: 10%, Sale price: $1,950,000, Before Tax Cash Flow (BTCF): $390,000.
12.5%
Given the following information, calculate the appropriate going-in cap rate using mortgage-equity rate analysis. Mortgage financing = 75%, Typical debt financing cap rate: 10%, Sale price: $1,950,000, Before Tax Cash Flow (BTCF): $390,000.
12.5%
Given the following information, calculate the appropriate going-in cap rate using mortgage-equity rate analysis; mortgage financing, 75%; typical debt financing cap rate: 10%; sale price: $1,950,000; before tax cash flow (BTCF): $390,000. A) 9.6% B) 10% C) 12.5% D) 13.6%
12.5%
Given the following information, calculate the appropriate going-in cap rate using mortgage-equity rate analysis; mortgage financing, 75%; typical debt financing cap rate: 10%; sale price: $1,950,000; before tax cash flow (BTCF): $390,000.
12.5%
Given the following information, calculate the appropriate going-in cap rate using mortgage-equity rate analysis; mortgage financing, 75%; typical debt financing cap rate: 10%; sale price: $1,950,000; before tax cash flow (BTCF): $390,000.
12.5% 75%*10 + [(390,000/1,950,000)*(1-.75)]
19. Given the following information, calculate the overall capitalization rate. Sale price: $950,000, Potential Gross Income: $250,000, Vacancy and Collection Losses: $50,000, and Operating Expenses: $50,000.
15.8%
Given the following information, calculate the overall capitalization rate. Sale price: $950,000, Potential Gross Income: $250,000, Vacancy and Collection Losses: $50,000, and Operating Expenses: $50,000.
15.8%
Given the following information, calculate the overall capitalization rate: sale price: $950,000; potential gross income: $250,000; vacancy and collection losses: $50,000; and operating expenses: $50,000. A) 15.8% B) 21.1% C) 26.3% D) 36.8%
15.8%
A comparable property sold six months ago for $150,000. The adjustments for the various elements of comparison have been calculated as follows:Location: -5 percentMarket conditions: +8 percentPhysical characteristics: +$12,500Financing terms: -$2,600Conditions of sale: 0Property rights conveyed: 0Use: NoneNonrealty items: -$3,000Making the adjustments in the order suggested in Exhibit 7-6, what is the comparable's final adjusted sale price?
160732
Given the following information, determine the final appraisal value of the subject property. 271140 272640 284120 289380
272,640
Let's assume that we are about to appraise a house using the cost approach. The home was originally constructed in the early 1900s and is one of the last of its kind in this area. The cost of constructing an exact replica of this residence is estimated to be $350,000. On our trip to the actual property, we notice that this is the only residential unit located on this particular road. Based on the current usage of adjacent real estate, we estimate that the property would be worth an additional $25,000 in its highest and best use. However, due to the dramatic shift in the perceived safety of the neighborhood, values of any remaining residential properties in the area have fallen by $20,000. Due to the home's age, we also notice that there has been a significant amount of physical deterioration to the building, amounting to an estimate of $50,000 in lost value. Since the home was built over 100 years ago, the floor plan is quite obsolete relative to current preferences. This has a detrimental effect on the value of the property that is estimated to be approximately $15,000. Given this information, determine the appraised value of the home using the cost approach. $265,000 $290,000 $350,000 $460,000
290,000
22. Given the following information, calculate the effective gross income multiplier. Sale price: $950,000, Potential Gross Income: $250,000, Vacancy and Collection Losses: 15%, and Miscellaneous Income: $50,000.
3.6
Given the following information, calculate the effective gross income multiplier. Sale price: $950,000, Potential Gross Income: $250,000, Vacancy and Collection Losses: 15%, and Miscellaneous Income: $50,000.
3.6
Given the following information, calculate the effective gross income multiplier: sale price: $950,000; potential gross income: $250,000; vacancy and collection losses: 15%; and miscellaneous income: $50,000. A) 0.36 B) 0.30 C) 2.8 D) 3.6
3.6
Suppose that an appraiser has just completed her analysis using the cost approach to valuation. She has determined that the market value of the subject property is $400,000. If the added value of the site was $80,000 and accrued depreciation amounted to $50,000, what was the reproduction cost of the building? $270,000 $370,000 $430,000 $530,000
370000
Suppose that you are attempting to value an income-producing property using the direct capitalization approach. Using data from comparable properties, you have determined the overall capitalization rate to be 11.44%. If the projected first-year net operating income (NOI) for the subject property is $44,500, what is the indicated value of the subject using direct capitalization? $49,590.80 $50,225.73 $388,986.00 $509,080.00
388,986
Given the following information, determine the value of having an additional 500 square feet of living space. Assume that the comparable properties are similar in all other attributes besides those listed in the table below. 4000 6000 10000 16000
4000
Assume you have been hired to appraise a local hospital. Your best estimate of the reproduction (or replacement) cost of the building is $3,700,000. However, upon evaluating the use of land in the local area, you have deemed the value of the site to be worth an additional $800,000. If the building has depreciated by $500,000 over its lifetime and there are no further depreciation losses due to external or functional obsolescence, what is the indicated value of the hospital using the cost approach? $2,400,000 $3,700,000 $4,000,000 $4,500,000
4000000
Making the adjustments in the order suggested by Exhibit 7-6, what is the final adjusted sale price of the comparable? 455,605 445,605 432,286 4555,638 none of the above is within $10 of the correct answer
445,605
25. Given the following information, calculate the effective gross income multiplier. Sale price: $2,500,000; Effective Gross Income: $340,000; Operating Expenses: $100,000; Capital Expenditures: $36,000.
7.35
Given the following information, calculate the effective gross income multiplier. Sale price: $2,500,000; Effective Gross Income: $340,000; Operating Expenses: $100,000; Capital Expenditures: $36,000.
7.35
Given the following information, calculate the effective gross income multiplier: sale price: $2,500,000; effective gross income: $340,000; operating expenses: $100,000; capital expenditures: $36,000.
7.35
Given the following information, calculate the effective gross income multiplier: sale price: $2,500,000; effective gross income: $340,000; operating expenses: $100,000; capital expenditures: $36,000. 0.136 7.35 10.42 12.25
7.35
Given the following information, calculate the effective gross income multiplier: sale price: $2,500,000; effective gross income: $340,000; operating expenses: $100,000; capital expenditures: $36,000. A) 0.136 B) 7.35 C) 10.42 D) 12.25
7.35
Given the following information, calculate the effective gross income multiplier: sale price: $2,500,000; effective gross income: $340,000; operating expenses: $100,000; capital expenditures: $36,000.
7.35 Effective Gross Income Multiplier(EGIM) =Sale price/EGI
24. Given the following information, calculate the appropriate going-in cap rate using general constant-growth formula. Overall market discount rate = 12%, Constant growth rate projection: 3% per year, Sale price: $1,950,000, Net operating income: $390,000, Potential gross income: $520,000.
9%
Given the following information, calculate the appropriate going-in cap rate using general constant-growth formula. Overall market discount rate = 12%, Constant growth rate projection: 3% per year, Sale price: $1,950,000, Net operating income: $390,000, Potential gross income: $520,000.
9%
Given the following information, calculate the appropriate going-in cap rate using general constant-growth formula: overall market discount rate, 12%; constant growth rate projection: 3% per year; sale price: $1,950,000; net operating income: $390,000; potential gross income: $520,000.
9%
Given the following information, calculate the appropriate going-in cap rate using general constant-growth formula: overall market discount rate, 12%; constant growth rate projection: 3% per year; sale price: $1,950,000; net operating income: $390,000; potential gross income: $520,000. 8% 9% 10% 11.5%
9%
Given the following information, calculate the appropriate going-in cap rate using general constant-growth formula: overall market discount rate, 12%; constant growth rate projection: 3% per year; sale price: $1,950,000; net operating income: $390,000; potential gross income: $520,000. A) 8% B) 9% C) 10% D) 11.5%
9%
7. In calculating net operating income, vacancy losses must be subtracted from the gross income collected. The normal range for vacancy and collection losses for apartment, office, and retail properties is:
C. between five and fifteen percent
Most appraisers adhere to an "above-line" treatment of capital expenditures. This implies which of the following? Capital expenditures are subtracted in the calculation of net operating income. Capital expenditures are subtracted from net operating income to obtain a net cash flow measure. Capital expenditures are added to net operating income. Capital expenditures are excluded from all calculations because they are difficult to estimate.
Capital expenditures are subtracted in the calculation of net operating income
11. Most appraisers adhere to an "above-line" treatment of capital expenditures. This implies which of the following?
Capital expenditures are subtracted in the calculation of net operating income.
Most appraisers adhere to an "above-line" treatment of capital expenditures. This implies which of the following?
Capital expenditures are subtracted in the calculation of net operating income.
Most appraisers adhere to an "above-line" treatment of capital expenditures. This implies which of the following? A) Capital expenditures are subtracted in the calculation of net operating income. B) Capital expenditures are subtracted from net operating income to obtain a net cash flow measure. C) Capital expenditures are added to net operating income. D) Capital expenditures are excluded from all calculations because they are difficult to estimate.
Capital expenditures are subtracted in the calculation of net operating income.
Known popularly by its section in the Federal Bankruptcy Code, which of the following types of bankruptcy is a court-supervised workout for a troubled household?
Chapter 13 bankruptcy
2. Net operating income is similar to which of the following measures of cash flow in corporate finance?
Earnings before deductions for interest, depreciation, income taxes, and amortization (EBIDTA)
Net operating income is similar to which of the following measures of cash flow in corporate finance?
Earnings before deductions for interest, depreciation, income taxes, and amortization (EBIDTA)
Several techniques can be used to obtain an indication of land value. The cost approach to valuation would most likely be used for which of the following properties?
Education facility
The sequence of adjustments to the transaction price of a comparable property would make no difference if all adjustments were dollar adjustments. However, if percentage adjustments are involved then the sequence does matter. In making adjustments to a comparable property to arrive at a final adjusted sales price, the proper sequence for the following adjustments would be:
Financing terms, market conditions, location
Accrued depreciation is the difference between the current market value of a building and the total cost to reproduce it new. One reason for this difference is related to changes in tastes, preferences, technical innovations, or market standards. This is commonly referred to as:
Functional obsolescence
13. For smaller income-producing properties, appraisers may use the ratio of a property's selling price to its effective gross income. This is an example of a:
Gross income multiplier
For smaller income-producing properties, appraisers may use the ratio of a property's selling price to its effective gross income. This is an example of a
Gross income multiplier
It may be appropriate for a real estate professional to utilize different approaches for estimating the market value of a property depending upon the particular property type and use. Which of the following approaches would be most applicable when considering the valuation of retail office space (i.e., which approach would receive the most weight in the valuation process
Income approach
Which of the following would be categorized as a cause of external obsolescence?
Increased traffic flow due to more intensive use in the local area
A new house in good condition that has a poor floor plan would suffer from which type of accrued depreciation? short lived curable physical deterioration long lived incurable physical deterioration Incurable functional obsolescence external obsolescence
Incurable functional obsolescence
In the sales comparison approach, the value obtained after reconciliation of the final adjusted sales prices from the comparable sales is termed the adjusted price final adjusted sale price market value Indicated opinion of value.
Indicated opinion of value.
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
Real estate appraisers generally distinguish among the concepts of market value, investment value, and transaction value. Which of the following statements best describes the concept of market value?
It is an estimate of the most probable selling price of a property in a competitive market
The going-in cap rate, or overall capitalization rate, is a measure of the relationship between a property's current income stream and its price or value. Which of the following statements regarding cap rates is true?
It is analogous to the dividend yield on a common stock
12. The going-in cap rate, or overall capitalization rate, is a measure of the relationship between a property's current income stream and its price or value. Which of the following statements regarding cap rates is true?
It is analogous to the dividend yield on a common stock.
The going-in cap rate, or overall capitalization rate, is a measure of the relationship between a property's current income stream and its price or value. Which of the following statements regarding cap rates is true? A) It is a measure of total return since it accounts for future cash flows from operations and expected appreciation (depreciation) in the market value of the property. B) It is a discount rate that can be applied to future cash flows. C) It is analogous to the dividend yield on a common stock. D) It is the projected rate at which prices will appreciate in the future.
It is analogous to the dividend yield on a common stock.
The going-in cap rate, or overall capitalization rate, is a measure of the relationship between a property's current income stream and its price or value. Which of the following statements regarding cap rates is true?
It is analogous to the dividend yield on a common stock.
9. Operating expenses can be divided into two categories: variable and fixed expenses. Which of the following best exemplifies a fixed expense?
Local property taxes
Operating expenses can be divided into two categories: variable and fixed expenses. Which of the following best exemplifies a fixed expense?
Local property taxes
When employing the sales comparison approach, appraisers must consider numerous adjustments to convert each comparable sale transaction into an approximation of the subject property. Adjustments are divided into two groups: transactional adjustments and property adjustments. All of the following are transactional adjustments EXCEPT:
Location
Estimating the market value of real estate is complicated by the unique characteristics of real estate markets. In contrast to stock markets, real estate markets are characterized by all of the following EXCEPT:
Market prices are revealed almost instantaneously to prospective buyers
17. When calculating the net operating income of a property, it is important to identify any expenses that will be incurred in attempts to maintain the property. All of the following would be considered operating expenses EXCEPT:
Mortgage payments
When calculating the net operating income of a property, it is important to identify any expenses that will be incurred in attempts to maintain the property. All of the following would be considered operating expenses EXCEPT
Mortgage payments
1. Which of the following measures is considered the fundamental determinate of market value for income-producing properties?
Net operating income
Which of the following measures is considered the fundamental determinate of market value for income-producing properties?
Net operating income
18. The cap rate is an important metric that investors use to analyze the state of commercial real estate markets. When interpreting cap rate movements, an increase in cap rates over time would indicate that:
Property values have decreased
The cap rate is an important metric that investors use to analyze the state of commercial real estate markets. When interpreting cap rate movements, an increase in cap rates over time would indicate that:
Property values have decreased
The cost approach to valuation assumes the market value of a new building is similar to the cost of constructing it today. Which of the following terms refers to the expenditure required to construct a building of equal utility using modern construction techniques, materials, and design that eliminates outdated aspects of the structure?
Replacement cost
Which of these is most likely to be regarded as a capital expenditure rather than an operating expense?
Roof replacement
While there are several conventional approaches used to estimate the market value of real estate, which of the following is typically considered the most reliable approach?
Sales comparison approach
If all appraisal methods are appropriate for use in valuing a particular property, there is a clear order of preference that real estate professionals adhere to. Which of the following depicts the preferred order, with the most preferable approach being listed first and the least preferable listed last?
Sales comparison approach, income approach, cost approach
6. One complication that appraisers may face is the variety of lease types that may be available for a particular property type. Which of the following statements best describes a "graduated" or step-up lease?
The lease establishes schedule of rental rate increases over the term of the lease.
One complication that appraisers may face is the variety of lease types that may be available for a particular property type. Which of the following statements best describes a "graduated" or step-up lease?
The lease establishes schedule of rental rate increases over the term of the lease.
Given the following information, what adjustment would need to be made to account for the living area difference between the subject property and comparable property?
The price of the comparable property must be adjusted downward by $8,370
Given the following information, what adjustment would need to be made to account for the living area difference between the subject property and comparable property? Adjustments Market conditions -0.50% (per month) Lot size $25,000 (per acre) Effective age (years) $1,000 (per year) Living area (sq. ft) $45.00 (per sq. ft.) Bath $1,250 (per bath) Bedrooms $3,000 (per bedroom) Subject Property Comparable Property Time sold Today 4 months ago Lot size (acres) 0.83 0.80 Effective age (years) 8 7 Living area (sq. ft) 2,197 2.383 Bath 3.5 3.5 Bedrooms 4 4 Sale price - $287,000
The price of the comparable property must be adjusted downward by $8,370.
Given the following information, what adjustment would need to be made to account for the lot size difference between the subject property and comparable property? Adjustments Market conditions -0.50% (per month) Lot size $25,000 (per acre) Effective age (years) $1,000 (per year) Living area (sq. ft) $45.00 (per sq. ft.) Bath $1,250 (per bath) Bedrooms $3,000 (per bedroom) Subject Property Comparable Property Time sold Today 4 months ago Lot size (acres) 0.83 0.80 Effective age (years) 8 7 Living area (sq. ft) 2,197 2.383 Bath 3.5 3.5 Bedrooms 4 4 Sale price - $287,000
The price of the comparable property must be adjusted upward by $750.
Favorable mortgage financing may have a significant impact on the transaction price of the particular property. If the comparable property was known to have had favorable financing terms negotiated into the transaction price, which of the following adjustments should take place? (Note: Assume that the comparable property cannot be dropped from the analysis as there are already limited comparable sales transactions)
The transaction price of the comparable property should be adjusted downward
Adjustments for physical characteristics are intended to capture the dimensions in which a comparable property differs physically from the subject property. If the only physical difference between the subject property and the comparable is that the comparable does not have a fireplace, which of the following adjustments should take place?
The transaction price of the comparable property should be adjusted upward
Adjustments for physical characteristics are intended to capture the dimensions in which a comparable property differs physically from the subject property. If the only physical difference between the subject property and the comparable is that the comparable does not have a fireplace, which of the following adjustments should take place? The transaction price of the comparable property should be adjusted downward. The transaction price of the comparable property should be adjusted upward. The transaction price of the subject property should be adjusted downward. The transaction price of the subject property should be adjusted upward.
The transaction price of the comparable property should be adjusted upward.
While there is no specific number of comparables that is required for every appraisal assignment, how many comparable sales are considered adequate as long as the properties are very similar to the subject property?
Three
The process of converting periodic income into a value estimate is referred to as income capitalization. Income capitalization models can generally be categorized as either direct capitalization models or discounted cash flow models. Which of the following statements best describes the direct capitalization method?
Value estimates are based on a multiple of expected first year net operating income.
The process of converting periodic income into a value estimate is referred to as income capitalization. Income capitalization models can generally be categorized as either direct capitalization models or discounted cash flow models. Which of the following statements best describes the direct capitalization method? A) Value estimates are based on a multiple of expected first-year net operating income. B) Appraisers must make explicit forecasts of the property's net operating income for each year of the expected holding period. C) Appraisers must select the appropriate yield at which to discount future cash flows. D) The forecast must include the net income produced by a sale of the property at the end of the expected holding period.
Value estimates are based on a multiple of expected first-year net operating income.
Gross income multiplier analysis assumes that the subject and comparable properties are collecting market rents. Therefore, it is frequently argued that an income multiplier approach to valuation is most appropriate for properties with short-term leases. For which of the following property types, therefore, would we find it most appealing to use a gross-income multiplier in our analysis? A) apartments B) office C) industrial D)retail
apartments
Gross income multiplier analysis assumes that the subject and comparable properties are collecting market rents. Therefore, it is frequently argued that an income multiplier approach to valuation is most appropriate for properties with short-term leases. For which of the following property types, therefore, would we find it most appealing to use a gross-income multiplier in our analysis?
apartments
Gross income multiplier analysis assumes that the subject and comparable properties are collecting market rents. Therefore, it is frequently argued that an income multiplier approach to valuation is most appropriate for properties with short-term leases. For which of the following property types, therefore, would we find it most appealing to use a gross-income multiplier in our analysis? apartments office industrial retail
apartments
While it is often sufficient to rely on informal methods of estimating the market value of real estate assets, the complexity and large dollar value of many real estate decisions dictate that formal estimates based on methodical collection and analysis of relevant market data should be utilized. The unbiased written estimate of the market value of a property is commonly referred to as a(n)
appraisal.
Real estate appraisal is often considered "more art than science," since identifying truly comparable properties is a subjective process. Therefore, it is essential that a comparable property transaction at least meets the requirement that it was fairly negotiated under typical market conditions. Which of the following types of transactions would be most appropriate for use in the sales comparison approach to valuation?
arm's-length transactions
Real estate appraisal is often considered "more art than science," since identifying truly comparable properties is a subjective process. Therefore, it is essential that a comparable property transaction at least meets the requirement that it was fairly negotiated under typical market conditions. Which of the following types of transactions would be most appropriate for use in the sales comparison approach to valuation? commingled business transactions low-interest financing programs real estate auctions arm's-length transactions
arm's-length transactions
In calculating net operating income, vacancy losses must be subtracted from the gross income collected. The normal range for vacancy and collection losses for apartment, office, and retail properties is A) between 0% and 1%. B) between 1% and 5%. C) between 5% and 15%. D) between 15% and 20%.
between 5% and 15%
In calculating net operating income, vacancy losses must be subtracted from the gross income collected. The normal range for vacancy and collection losses for apartment, office, and retail properties is between 0% and 1%. between 1% and 5%. between 5% and 15%. between 15% and 20%.
between 5% and 15%.
In calculating net operating income, vacancy losses must be subtracted from the gross income collected. The normal range for vacancy and collection losses for apartment, office, and retail properties is
between five and fifteen percent
8. 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
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
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 operating expenses. capital expenditures. vacancy losses. collection losses.
capital expenditures
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 A) operating expenses. B) capital expenditures. C) vacancy losses. D) collection losses.
capital expenditures.
When a borrower defaults on the payment requirements of a loan, there are several options that the lender has at its disposal. When the lender allows the borrower simply to convey the property to the lender rather than pursue a court-supervised process of terminating all of the borrower's claims of ownership of the property, this is commonly referred to as
deed in lieu of foreclosure.
Net operating income is similar to which of the following measures of cash flow in corporate finance? dividend yield earnings before deductions for interest, depreciation, income taxes, and amortization (EBIDTA) price-earnings ratio discount rate
earnings before deductions for interest, depreciation, income taxes, and amortization (EBIDTA)
Net operating income is similar to which of the following measures of cash flow in corporate finance? A) dividend yield B) earnings before deductions for interest, depreciation, income taxes, and amortization (EBIDTA) C) price-earnings ratio D) discount rate
earnings before deductions for interest, depreciation, income taxes, and amortization (EBIDTA)
Several techniques can be used to obtain an indication of land value. The cost approach to valuation would most likely be used for which of the following properties? one-family residential property retail office space education facility high-rise apartments
education facility
Even after a property goes into foreclosure, it is still possible for the borrower to reclaim the property as long as he or she produces the outstanding mortgage balance and all foreclosure costs incurred to that point. In a state such as Georgia, this right only extends to the date of the foreclosure sale. When this occurs, this right is more commonly referred to as
equity of redemption.
Most real estate loans have a definite term to maturity, stated in years. The majority of home loans will typically have a term to maturity between
fifteen and thirty years.
The final price for each comparable property reached after all adjustments have been made is termed the final estimate of value final adjusted sale price market value weighted price
final adjusted sale price
Accrued depreciation is the difference between the current market value of a building and the total cost to reproduce it new. One reason for this difference is related to changes in tastes, preferences, technical innovations, or market standards. This is commonly referred to as physical deterioration. functional obsolescence. external obsolescence. tax depreciation.
functional obsolescence
13) For smaller income-producing properties, appraisers may use the ratio of a property's selling price to its effective gross income. This is an example of a A) net operating income. B) going-out cap rate. C) going-in cap rate. D) gross income multiplier.
gross income multiplier.
For smaller income-producing properties, appraisers may use the ratio of a property's selling price to its effective gross income. This is an example of a
gross income multiplier.
For smaller income-producing properties, appraisers may use the ratio of a property's selling price to its effective gross income. This is an example of a net operating income. going-out cap rate. going-in cap rate. gross income multiplier.
gross income multiplier.
It may be appropriate for a real estate professional to use different approaches for estimating the market value of a property depending upon the particular property type and use. Which of the following approaches would be most applicable when considering the valuation of retail office space income approach sales comparison approach cost approach investment approach
income approach
Which of the following would be categorized as a cause of external obsolescence?
increased traffic flow due to more intensive use in the local area
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. investment value. transaction value. replacement value.
indicated
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.
Operating expenses can be divided into two categories: variable and fixed expenses. Which of the following best exemplifies a fixed expense? A) utilities B) property management C) local property taxes D) trash removal
local property taxes
When employing the sales comparison approach, appraisers must consider numerous adjustments to convert each comparable sale transaction into an approximation of the subject property. Adjustments are divided into two groups: transactional adjustments and property adjustments. All of the following are transactional adjustments except
location
When employing the sales comparison approach, appraisers must consider numerous adjustments to convert each comparable sale transaction into an approximation of the subject property. Adjustments are divided into two groups: transactional adjustments and property adjustments. All of the following are transactional adjustments except financing terms. market conditions. conditions of sale. location.
location
The ability of homeowners to prepay the principal on their outstanding mortgage balance creates cash flow uncertainty for the lender. As a result, the lender may wish to prohibit prepayment on a mortgage loan for a specified period of time after its origination. This is accomplished through which of the following?
lockout provision
Since conforming loans can be much more readily bought and sold in the secondary mortgage market, they carry a(n) _______ interest rate than comparable nonconforming loans
lower
To reflect a change in market conditions between the date on which a comparable property sold and the date of appraisal of a subject property, an adjustment must be made for which of the following? conditions of sale market conditions location none of the above
market conditions
Estimating the market value of real estate is complicated by the unique characteristics of real estate markets. In contrast to stock markets, real estate markets are characterized by all of the following except
market prices are revealed almost instantaneously to prospective buyers.
In real estate markets, a transaction occurs only when the investment value of the buyer exceeds the investment value of the seller. The buyer's investment value is the ________ that he or she would be willing to pay for a particular property, while the seller's investment value is the _______ that he or she would be willing to accept.
maximum; minimum
In real estate markets, a transaction occurs only when the investment value of the buyer exceeds the investment value of the seller. The buyer's investment value is the ________ that he or she would be willing to pay for a particular property, while the seller's investment value is the _______ that he or she would be willing to accept. minimum; minimum minimum; maximum maximum; minimum maximum; maximum
maximum; minimum
With the arrival of subprime mortgages in recent years, a new kind of trigger event became apparent in leading households to default. Which of the following trigger events is primarily associated with most defaults that have occurred during the most recent subprime mortgage crisis?
mortgage payment spikes
When calculating the net operating income of a property, it is important to identify any expenses that will be incurred in attempts to maintain the property. All of the following would be considered operating expenses except property insurance premiums. mortgage payments. utility expenses. property taxes.
mortgage payments
When calculating the net operating income of a property, it is important to identify any expenses that will be incurred in attempts to maintain the property. All of the following would be considered operating expenses except
mortgage payments.
Which of the following measures is considered the fundamental determinant of market value for income-producing properties? A) net operating income B) potential gross income C) operating expenses D) capital expenditures
net operating income
As part of the data analysis step in the appraisal process, it is necessary to consider the highest and best use of the property in question. In regards to determining highest and best use, all of the following statements are true except the proposed property use must be legally permissible. it must be physically possible for the property to be used in the manner specified. no financial limits are considered when determining the property's best use. the property use must provide the greatest benefit to the owner.
no financial limits are considered when determining the property's best use.
Suppose a homeowner is reluctant to refinance until he is reasonably sure that interest rates are not going to fall appreciably from where they currently are. In this case, the homeowner appears to be concerned about which of the following costs associated with refinancing?
opportunity cost
4. The starting point in calculating net operating income is the total annual income the property would produce assuming 100 percent occupancy and no collection losses. This is commonly referred to as:
potential Gross Income
The starting point in calculating net operating income is the total annual income the property would produce assuming 100 percent occupancy and no collection losses. This is commonly referred to as
potential Gross Income
The starting point in calculating net operating income is the total annual income the property would produce assuming 100% occupancy and no collection losses. This is commonly referred to as
potential gross income.
16. When using discounted cash flow analysis for valuation, an appraiser will prepare a cash flow forecast, often referred to as a:
pro forma
When using discounted cash flow analysis for valuation, an appraiser will prepare a cash flow forecast, often referred to as a restricted appraisal report. net operating income statement. direct market extraction. pro forma.
pro forma
When using discounted cash flow analysis for valuation, an appraiser will prepare a cash flow forecast, often referred to as a A) restricted appraisal report. B) net operating income statement. C) direct market extraction. D) pro forma.
pro forma.
The cap rate is an important metric that investors use to analyze the state of commercial real estate markets. When interpreting cap rate movements, an increase in cap rates over time would indicate that A) the discount rate used in TVM (time value of money) calculations has increased. B) the discount rate used in TVM (time value of money) calculations has decreased. C) property values have increased. D) property values have decreased.
property values have decreased.
The cap rate is an important metric that investors use to analyze the state of commercial real estate markets. When interpreting cap rate movements, an increase in cap rates over time would indicate that
property values have decreased.
When a buyer acquires a property having an existing mortgage loan, a decision must be made as to whether or not the subsequent owner of the property can preserve the loan. If the buyer does not add his or her signature to the note, the buyer does not take on any personal liability. In this case, the buyer is said to
purchase the property subject to the existing loan.
Based on your understanding of the risks associated with different mortgage loan types, which of the following mortgage loans would be considered the safest with respect to default risk?
qualified mortgage loans
The cost approach to valuation assumes the market value of a new building is similar to the cost of constructing it today. Which of the following terms refers to the expenditure required to construct a building of equal utility using modern construction techniques, materials, and design that eliminates outdated aspects of the structure?
replacement cost
Under the Cost Approach to appraisal, the estimated expenditure required to construct a building with equal utility as the one being appraised is termed the ________. reproduction cost Replacement cost
replacement cost
Which of these is most likely to be regarded as a capital expenditure rather than an operating expense? A) property taxes B) trash removal C) insurance payments D) roof replacement
roof replacement
If all appraisal methods are appropriate for use in valuing a particular property, there is a clear order of preference that real estate professionals adhere to. Which of the following depicts the preferred order, with the most preferable approach being listed first and the least preferable listed last? sales comparison approach, cost approach, income approach income approach, sales comparison approach, cost approach cost approach, income approach, sales comparison approach sales comparison approach, income approach, cost approach
sales comparison approach, income approach, cost approach
When a borrower defaults on a mortgage loan, his or her credit record will be adversely affected. While borrowers can recover from this reduction in their credit score, if a default goes into the borrower's records it will remain for
seven years.
Even after a property goes into foreclosure, it is still possible for the borrower to reclaim the property as long as he or she produces the outstanding mortgage balance and all foreclosure costs incurred to that point. In a state such as Florida, this right may even extend beyond the date of the foreclosure sale. When this occurs, this right is more commonly referred to as
statutory redemption.
When a borrower decides to stop making payments on an existing mortgage loan despite having the ability to make payments (typically when the home has lost value), this is more commonly referred to as a(n)
strategic default.
Which of the following is not included in accrued depreciated when applying the cost approach to valuation? physical obsolescence functional obsolescence external obsolescence tax depreciation
tax depreciation
15. When using discounted cash flow analysis for valuation, the appraiser must estimate the sale price at the end of the expected holding period. This price (assuming selling expenses have yet to be accounted for) is referred to as the property's:
terminal value
When using discounted cash flow analysis for valuation, the appraiser must estimate the sale price at the end of the expected holding period. This price (assuming selling expenses have yet to be accounted for) is referred to as the property's
terminal value
When using discounted cash flow analysis for valuation, the appraiser must estimate the sale price at the end of the expected holding period. This price (assuming selling expenses have yet to be accounted for) is referred to as the property's A) net sale proceeds. B) selling expenses. C) terminal value. D) current market value.
terminal value.
The transaction price of the comparable property should be adjusted upward.
three
While there is no specific number of comparables that is required for every appraisal assignment, how many comparable sales are considered adequate as long as the properties are very similar to the subject property? one three five ten
three
5. The distinction between market rent and contract rent is important due to differences in lease terms. Office, retail, and industrial tenants most commonly occupy their space under leases that run:
three to five years
The distinction between market rent and contract rent is important due to differences in lease terms. Office, retail, and industrial tenants most commonly occupy their space under leases that run A) one year or less. B) one to three years. C) three to five years. D) ten years or more.
three to five years.
The distinction between market rent and contract rent is important due to differences in lease terms. Office, retail, and industrial tenants most commonly occupy their space under leases that run
three to five years.
The distinction between market rent and contract rent is important due to differences in lease terms. Office, retail, and industrial tenants most commonly occupy their space under leases that run
three to five yrs
When calculating the net operating income of a property, it is important to identify any expenses that will be incurred in attempts to maintain the property. All of the following would be considered operating expenses except A) property insurance premiums. B) mortgage payments. C) utility expenses. D) property taxes.
utility expenses.