real estate exam 2

CQ: 7.1 SP of comp = $300,000. The comparable wasbuilt 5 years ago and the subject 10. Thecomparable has 2,200 square feet of livingarea and the subject has 2,400. What is theadjusted sale price?

$310,000

sq 19.7 [NPV: Uneven Cash Flows] Suppose an investor is interested in purchasing anincome producing property for a sale price of $525,000. With 70% financing, the initialequity investment is $168,525. The investor has estimated the expected cash flows overa four-year holding period to be as follows: Year 1 Year 2 Year 3 Year 4Net Operating Income (NOI) $42,000 $44,000 $45,000 $50,000Before Tax CashFlow (BTCF)$16,275 $18,275 $19,275 $24,275Net SaleProceeds (NSP)$600,000Before TaxEquity Reversion(

-7307

SQ 7.10 In using transaction data to determine the current value of the subject property, it isimportant to recognize that general market conditions may have changed since aparticular transaction occurred. Property A sold 18 months ago for $235,000 andProperty B sold 12 months ago for $215,000. If the two properties are priced today at$239,500 for Property A and $222,300 for Property B, assuming no compounding whatis the average monthly rate of change in sale prices that can be used to adjust ot

0.20%

HQ 7.14 In using sales comparison approach 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 22 months ago for 98,500 and property B sold 20 months ago for 105,000. If the two properties are priced today at 108,000 for property A and 113,500 for property B, assuming no compounding what is the average monthly rate of change in sale prices that can be used to

0.42

sq 18.7 Given the following information, calculate the loan-to-value ratio (LTV) for thisproperty. If a commercial mortgage lender has an underwriting guideline value of 75%for LTV, does the investment conform to the guideline? Loan amount: $450,000, Interestrate: 7.5%, Acquisition price: $550,000

0.82 no

sq 8.2 What is the estimated terminal value at the end of the holding period using directcapitalization?

1,200,000

HQ 8.12 You are appraising a small retail office building using the income approach. use the data in the tables below to estimate the market value of the property today using discounted cash flow analysis. You may assume there are no sale expenses. Year / Projected Noi from retail operations / typical investor's assumptions year 1: 100,000 overall cap rate 7.0% year 2 103,000 discount rate 9.0% year 3 106,090 holding period 3 years terminal value 1,500,000

1,418,632.32

CQ 18.3 Calculate debt coverage ratio (DCR). If acommercial mortgage lender has an underwritingguideline of 1.3 for DCR, does the investmentconform to the guideline? PGI: $120,000; NOI:$57,900; Monthly Mortgage Payment: $3,333

1.45 yes

HQ 18.8 Given the following information, calculate the debt coverage ratio DCR for this investment. Potential gross income: 120,000; Vacancy rate: 9%; Net operating income: 57,900: operating expenses: 51,300; acquisition price: 520,000; monthly mortgage payment: 3,333. If commercial mortgage lender has an underwriting guideline value of 1.3 for dcr, does the loan conform to the guideline

1.45, yes

sq 18.6 Given the following information, calculate the debt coverage ratio (DCR) for thisinvestment. If a commercial mortgage lender has an underwriting guideline value of1.3 for DCR, does the investment conform to the guideline? Potential gross income:$120,000, Vacancy rate: 9%, Net operating income: $57,900, Operating expenses: $51,300,Acquisition Price: $520,000, Monthly Mortgage Payment: $3,333

1.45, yes

CQ 7.2 Given the following information, determine thevalue of having an additional bathroom. Sale A Sale B Sale C Sale D Date Sold 1 year Ago Recent Recent Recent Bathrooms 1 1 2 2 Living Area 3000 ft2 3500 ft2 3500 ft2 3000 ft2 Sale Price $140,000 $150,000 $160,000 $156,000

10,000

CQ 19.2 [IRR: Even] What is IRR, assuming abuilding can be purchased for $250,000 andis expected to yield even cash flows of$20,000 for each of the next five years andsell at the end of year five for $280,000?

10.0%

HQ 18.10 Given the following information, calculate the debt yield ratio dye for this investment. Debt service: 140,295: net operating income: 210,443; loan amount: 1,950,000. Acquisition price: 3,000,000. If a commercial mortgage lender has an underwriting guideline of 10% for DYR, does the investment conform to the guideline?

10.8%, yes

CQ 8.1 Given the following information, calculateEGI. Property: 4 office units, Contract rentsper unit: $2500 per month, VC: 15%, OE:$42,000, CAPX: 10%

102000

SQ 7.11 Use the cost approach equation to extract the site value per acre indicated by the following comparable sale: sale price = $2,500,000; replacement cost of structure =$500,000; and accrued depreciation = $75,000; lot size = 2 acres.

1037500

HQ 18.11 Given the following information, calculate the equity dividend rate EDR for this investment. First year NOI: 18,750; before-tax cash flow: 11,440; acquisition price: 520,000; loan to value ration: 80% (assume no loan financing costs. If a private equity real estate funds policy is a 10% EDR hurdle, would they consider this investment?

11.0% yes

sq 18.5 Given the following information, calculate the equity dividend rate (EDR) for thisinvestment. If a private equity real estate firm's EDR target policy is 10%, would theyconsider this investment? First-year NOI: $18,750, Before-tax cash flow: $11,440,Acquisition price: $520,000, Loan-to-value ratio: 80% (no loan financing costs).

11.0% yes

SQ 8.11 Three highly similar and competitive income-producing properties within twoblocks of the subject property have sold this month. All three offer essentially the sameamenities and services as the subject property. The sale prices and estimated first-yearNOI for each of the comparable properties are as follows: Comparable SalePrice NOI 1 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 directmarket extract

11.4%

sq 8.3 Based on a more detailed analysis of supply and demand in the local market supposeyou estimate terminal value to be $1,250,000 instead of the value calculated in problem(2) above. What is the estimated current market value using the discounted cash flow approach?

1136184

HQ 7.1 Between May 2017 and May 2022, the case-shiller home price index for Miami increased from 224.00 (PV) to 395.19 (FV) calculate the compound annual growth rate (I/Y) in house prices in Miami over this 5 year (N) period

12%

Sq 8.1 What is the estimated current market value using the direct capitalization approach?

1214286

sq 19.5 NPV: Even Cash Flows] What is the net present value (NPV) for an investor with adiscount rate of 8%, assuming an industrial building can be purchased for $250,000 andis expected to yield cash flows of $18,000 for each of the next five years and be sold atthe end of the fifth year for $280,000? You may assume all cash flows are net amounts

12432

SQ 8.9 You have just completed the appraisal of an office building and concluded that themarket value of the property is $2,000,000. You expect potential gross income (PGI) inthe first year of operations to be $500,000; vacancy and collection losses (VC) to be 10percent of PGI; operating expenses (OE) and capital expenditures (CAPX) together to be40 percent of estimated gross income (EGI). What is the implied going-in capitalizationrate?

13.5 %

CQ 8.2 Given the following information on acomparable sale, extract the overallcapitalization rate. SP: $950,000, PGI:$250,000, VC: $50,000, and OE: $50,000

15.8%

sq 19.8 [IRR: Uneven Cash Flows] Suppose an investor is interested in purchasing an incomeproducing property for a sale price of $525,000. With 70% financing, the initial equityinvestment is $168,525. The investor has estimated the expected cash flows over a four-year holding period to be as follows:Year 1 Year 2 Year 3 Year 4Net OperatingIncome (NOI)$42,000 $44,000 $45,000 $50,000Before Tax CashFlow (BTCF)$16,275 $18,275 $19,275 $24,275Net SaleProceeds (NSP)$600,000Before TaxEquity Reversion(BT

19.3%

CQ 8.3 Given the following information on asubject property, estimate market valueusing direct capitalization. Cap Rate 5%,PGI: $200,000, VC: $50,000, and OE: $50,000

2,000,000

CQ 19.3 [NPV: Even] What is NPV for an investorwith an 8% discount rate, assuming abuilding can be purchased for $250,000 andis expected to yield even cash flows of$20,000 for each of the next five years andsell at the end of year five for $280,000?

20,417

CQ 19.4 Calculate the before-tax equity reversion(BTER). Terminal sale price: $1,000,000;Cost of sale: 5%; Debt service: $60,000;Remaining mortgage balance: $750,000

200,000

SQ 7.8 You are preparing an appraisal report for a single-family dwelling. A comparable(similar) property next door to the subject sold recently for $200,000. Your experience with and analysis of the local market determines the following adjustments are typical for the area. Attribute Adjustment Factors Site/lot size $100,000 per acre Construction quality None for siding, $3,000 forbrick *Effective age $1,250 per yearLiving area $50 per square footBaths $2,000 for half, $5,000 for full*Indicates

205,500

sq 18.4 Given the following information, what is the required initial equity investment (i.e.,the down payment)? Acquisition price: $800,000, Loan-to-value ratio: 75%,Capitalization rate: 8.5%, Up-front financing costs: 3%

218,000

SQ 7.3 When employing the sales comparison approach appraisers must consider numerous adjustments for the physical characteristics by which comparable properties used to determine market value differ from the subject property. Suppose, for example, youneed to determine appropriate adjustment amounts for difference in living area andlocation along a busy street in order to appraise a particular property in a particularneighborhood. Assume that the comparable properties below are similar in all ot

25

HQ 8.10 Given the following information, calculate effective gross income. Property: 10 office units; contract rents per unit: 2306 per month; vacancy and collection losses: 9%; operating expenses: 30%; capital expenditures:10%

251,815.2

CQ 18.1 Calculate the initial equity investment (i.e.,the cash down payment) required topurchase this property. Purchase Price:$1,000,000; LTV: 75%; Up-front financingcosts: 2% of loan amount.

265000

HQ 7.2 Using a discount rate of 7.2%, what is the present value of the following series of cash flows : CF1= 100,000 CF2= 105,000 CF3=110,000

273,944

HQ 8.9 Suppose an investor purchased a small office building for 2,000,000 (PV). If the investor plans to hold property for 7 years (N), and expects that office property values will appreciate at a rate 6%(I/Y) per year in the local market, for how much does the investor expect to sell the building at the end of his/her holding period (FV)?

3,007,261

HQ 8.15 Suppose an investor purchased a small office building for 2,000,000 (PV). If the investor plans to hold the property for 8 years (N), and expects that office property values will appreciate at a rate of 6% (I/Y) per years in the local market, for how much does the investor expect to sell the building at the end of his/her hold ing period (FV)?

3,187,696.15

Hq 7.8 Replacement costs have been estimated as $350,000 for a property with a 70-year economic life. The current effective age of the property is 15 years. The value of the land is estimated $55,000. What is the estimated market value of the property using the cost approach?

330,000

sq 19.4 [BTER] Given the following information, calculate the before-tax equity reversion.Net operating income: $89,100; Annual debt service: $58,444; Net sale proceeds:$974,700; Remaining mortgage balance: $631,026

343674

HQ 7.12 You are preparing an appraisal report for a single-family dwelling. A comparable property next door to the subject sold recently for $400,000. The comparable was built 5 years ago and the subject 10. The comparable has 3,400 square feet of living area and the subject has 3,200. Your analysis of the local market determines the followingg adjustments are typical. What is the adjusted sale price? Attribute Adjustment effective age $2,000 reduction per year Living are $150 per square foot

360,000

HQ 18.7 Given the following information, calculate the initial equity investment (i.e the cash down payment) required to purchase the specific property. Purchase price: 1,000,000; LTV: 65%; upfront financing costs: 3.6% of loan amount

373,400

SQ 7.12 Replacement costs have been estimated as $420,000 for a property with a 70-yeareconomic life. The current effective age of the property is 10 years. The value of the landis estimated $100,000. What is the estimated market value of the property using the cost approach

460,000

CQ 18.2 Calculate before tax-cash flow (BTCF) forthis property. First-year NOI: $91,750;Operating expenses: $27,525; Monthlymortgage payment: $3,750

46750

Hq 7.11 Using straight line depreciation, what is the value of the accrued depreciation for the following subject property assuming no external or functional obsolescence: replacement cost of structure= $360,000; expected economic life= 60 years; current effective age=10 years?

60,000

SQ 7.4 When employing the sales comparison approach appraisers must consider numerous adjustments for the physical characteristics by which comparable properties used to determine market value differ from the subject property. Suppose, for example, youneed to determine appropriate adjustment amounts for difference in living area andlocation along a busy street in order to appraise a particular property in a particularneighborhood. Assume that the comparable properties below are similar in all ot

6000

SQ 7.9 A comparable property sold 10 months ago for $200,000. If the appropriateadjustment for market conditions is 3.6% per year (without compounding), what wouldbe the time adjustment in the sale comparison grid? Hint: the question asks for theadjustment amount, not the adjusted sale price.

6000

HQ 7.13 Given the following information, determine the value of having an incremental square foot of living area. Assume that the properties are similar in all other attributes besides those listed in the table below

8

CQ 7.4 If the transaction price of the comparable is$4,000,000, the estimated replacement cost of the building was $800,000, and accrued depreciation amounted to $120,000, what site value per acre do you estimate from this 4 acre comp sale?

830,000

CQ 19.1 NPV: Uneven] Suppose an equity investment of$450,000 is expected to produce the following cashflows: NOI 1 = $40,000, NOI 2 = $45,000, NOI 3 =$50,000, NOI 4 = $55,000. Net sale proceeds in yearfour = $500,000. What is the NPV for an investorwith a 12% discount rate?

9,890

sq 19.6 IRR: Even Cash Flows] What is the internal rate of return (IRR), assuming anindustrial building can be purchased for $250,000 and is expected to yield cash flows of$18,000 for each of the next five years and be sold at the end of the fifth year for$280,000? You may assume all cash flows are net amounts

9.20 percent

Sq 8.12 Suppose that an income producing property is expected to yield cash flows for theowner of $10,000 in each of the next five years, with cash flows being received at theend of each period. If the typical investor requires a 12% return annually in this marketand the property can be sold for $100,000 at the end of the fifth year, estimate themarket value of the property today using discounted cash flow analysis assuming thereare no sale expenses.

92790

HQ 18.12 suppose an investor is interested in purchasing the following income producing property at a price of $450,000. The prospective buyer has estimated the expected net cash flows from rental operations over the next four years to be as follows: year 1= 40,000, year 2=45,000, year 3=50,000, year 4= 55,000. assuming that the required rate of return is 12% and the estimated proceeds form selling the property at the end of year four is $500,000, what is the npc of the investment?

9890

Adjustments in the sales comparison approach

Adjust the sale price of the comp, not the subject

sq 18.2 In determining a property's before-tax cash flow from operations (BTCF) and netoperating income (NOI), it is important to understand how each accounts for the use offinancial leverage in its calculation. Which of the following statements is true in regardsto how these two measures account for the use of financial leverage?

BTCF is a levered cash flow, while NOI is an unlevered cash flow

sq 18.8 Which of the following statements regarding capitalization rates on commercial realestate investments is the most correct?

Cap rates vary positively (i.e., directly) with the perceived risk of the investment

Reconciliation

From reconciliation of the adjusted sale prices of the comps, an appraiser obtains the indicated value of the subject in the sales comparison approach

Reconciliation

From reconciliation of the indicated values from the three approaches, theappraiser renders his/her (final) opinion of market value of the subject

Adjustments in the sales comparison approach

If the comp is superior to the subject, subtract (if inferior, add)

SQ 7.5 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

SQ 7.2 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

Hq 7.4 an appraisal is an unbiased written estimate of the market value of a subject property. Which of the following statements best describes the concept of market value?

It is the most probable selling price of a property in a competitive market

appraisal approaches

Know the general order of reliability among the three approaches:

Appraisal Approaches

Know which approach is given the most weight in valuing a particular property type:

capital stack

Net cashflows are distributed bottom first, and then up the stack

Fund types

Real estate private equity funds manage closed-end funds Real estate investment management firms manage open-end funds

capital stack

Returns and risk increase as you move higher in the stack Sponsor invests equity at highest position

sq 18.1 ratio analysis

Serves as an initial evaluation of the adequacy of an investment's expected cashflows

sq 19.1 The net present value (NPV) of a real estate investment is equal to

The present value of expected future cash flows, less the initial equity investment

HQ 18.1 The term "capital stack" refers to the financing sources used for the purchase and improvement of a property. Which of the following statements about the capital stack is false?

The sponsor invests equity at the bottom position

HQ 7.7 Adjustments for physical characteristics in the sales comparison approach are intended to capture the dimensions in which a comparable property differs physically from the subject property and the comparable is that the comparable does not have a fireplace and the subject does, which of the following adjustments should take place?

The transaction price of the comparable property should be adjusted upward

HQ 18.5 in making single asset real estate investment decisions, the first pass often involves calculating a series of ratios which of the following is often cited as a limitations associated with this type of analysis?

They fail to incorporate cash flows beyond the first year of the analysis

Cash Inflows from Operations

Unlevered: NOI = PGI - VC + MI - OE - CAPXo Levered: BTCF = NOI - DS Where DS is 12× the monthly mortgage paymen

Cash Outflow at Reversion (t = T)

Unlevered: NSP = Terminal Sale Price - Sale Expenses Levered: BTER = NSP - RMB

Cash Outflow at Purchase (t = 0)

Unlevered: Sale Price Levered: Initial Equity Investment = Sale Price - Net Proceeds from Loan Where Net Loan Proceeds = Loan Amount - Upfront Loan Costs

sq 8.8 Which of the following statements best describes the direct capitalization method?

Value estimates are based on multiple of expected first year net operating income

sq 8.6 The normal range for vacancy and collection losses for apartment, office, and retail properties is...

between five and fifteen percent

SQ 8.10 The expected costs to make replacements, alterations, or improvements to a buildingthat materially prolong its life and increase its value is referred to as

capital expenditures

HQ 18.4 profitability ratios and financial risk ratios can be used to provide a quick assessment of a property's relative value. Which of the following ratios measures the overall income-producing ability of the property?

capitalization rate

sq 18.3 Which of the following ratios measures the overall income-producing ability of theproperty, i.e., exclusive of leverage?

capitalization rate

HQ 18.2 in class we distinguished between retail investors and institutional investors. Which of the following is an example of a retail investor:

club syndication

HQ 7.5 While there are three conventional approaches used to estimate the market value of real estate, which of following is typically considered the lease reliable approach?

cost approach

SQ 7.7 educational facility

cost approach

HQ 7.6 It may appropriate for a real estate professional to utilize different approaches for estimating the market value of a property spending upon property type and use. Which of the following approaches would be most applicable in the valuation of a 50-unit apartment building (i.e which approach would receive the most weight in the valuation process) ?

income approach

HQ 8.4 It may be appropriate for a real estate professional to utilize different approaches for estimating the market value of a property depending upon property type to use. Which of the following approaches would be most applicable when considering the valuation of a small strip retail center (i.e which approach would receive the most weight in the valuation process)?

income approach

sq 19.3 As a general rule, using financial leverage:

increases risk to the equity investor

sq 19.2 What term best describes the maximum price a particular buyer is willing to pay for a property?

investment value

sq 8.4 Which of the following statements regarding a property's cap rate is true?

it is a ratio of current income to market value

HQ 8.7 operating expenses can be divided into two categories: variable and fixed expenses. which of the following best exemplifies a fixed expense?

local property taxes

HQ 8.13 which of the following expenses would not be in the appraiser's reconstructed cash flow statement used to calculate net operating income in the income approach to valuation?

mortgage interest expense

HQ 8.1 The starting point in calculating net operating income is the total annual income the property would produce assuming full occupancy and no collection losses. This is commonly referred to as:

potential gross income

sq 8.7 The starting point in calculating net operating income is the total annual income a property would produce assuming 100 percent occupancy and no collection losses. This is commonly referred to as:

potential gross income

HQ 8.14 when using discounted cash flow analysis for valuation, an appraiser will prepare a cash flow forecast, often referred to as a...

pro forma

sq 8.5 When interpreting cap rate movements, an increase in cap rates over time would indicate that...

property values have decreased

HQ 18.3 In class, we discussed various ways to invest in commercial real estate through an intermediary, as opposed to directly in individual properties. Which of these intermediaries typically manages closed-ends funds in behalf of their investors? (unlike open-ends funds, closed- ends funds don't need to manage frequent capital inflows and outflows from investors, making ut easier for the fund manager to take contrarian positions.)

real estate private equity firm

HQ 7.15 Under the cost approach to appraisal, the expenditure required to construct a building with equal utility as the one being appraised is termed...

replacement cost

SQ 7.1 Under the cost approach to appraisal, the expenditure required to construct a building with equal utility as the one being appraised is termed...

replacement cost

HQ 8.6 which of these is most likely to be regarded as a capital expenditure rather than an operating expense ?

roof replacement

SQ 7.6 Single-family residential

sales comparison approach

HQ 8.8 When using discounted cash flow analysis for valuation, the appraiser must forecast 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

Hq 7.3 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

HQ 8.5 The process of converting periodic income in 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, where the multiplier is one divided by the cap rate