Chapter 10 Flashcards by 62223 .

The procedure in which a discount rate is applied to a set of projected income streams and a reversion. The analyst specifies the quantity, variability, timing, and duration of the income streams as well as the quantity and timing of the reversion and discounts each to its present value at a specified yield rate.

Discounted Cash Flow Analysis

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The valuation technique has to suit the property type _______. We need to develop an appropriate ______ __ ______ to solve the problem in each appraisal assignment.

appraised; scope of work

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Another practical reason why we draw the line at four units for residential appraisers is because of limitations imposed by the

federal financial institution regulatory agencies and incorporated into state licensing statutes.

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The relationship or ratio between the sale price or value of a property and its periodic gross rental income

Gross Rent Multiplier

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When performing an income approach on a single unit residential property, we employ

gross rent multiplyer

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GRMs are derived by

dividing the sales price by the gross monthly unfurnished market rent at the time of sale.

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Gross rent multiplier (GRM) analysis is based on the assumption that there is a direct relationship between

rental income and value

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The more rental income a property can produce, the more

valuable it is

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True or False: An appraiser would typically not value a 50-unit apartment complex with a gross rent multiplier (GRM).

True

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How is a GRM derived?

dividing the adjusted sale price by the annual net operating income
dividing sale price by gross monthly unfurnished market rent
dividing the annual income by the sale price
multiplying sale price by gross monthly unfurnished market rent

dividing sale price by gross monthly unfurnished market rent

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A property sold for $74,000 and it was rented for $675 at the time of sale. What is the indicated GRM?

109.6

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GRM analysis may or may not be applicable to single-unit residential properties. It mainly depends upon the character of the

market area

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There are several additional concerns that come into play when evaluating income property comparables. They should be comparable in terms of (3)

Division of utility expenses between the landlord and tenant
Ratio of expenses to income
Lease terms

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The _____ of expenses to rent is a crucial factor when comparing properties.

ratio

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In renting unfurnished apartments, for example, the expenses may consume something in the range of 35% to 45% of the total income. This means that for every dollar of rent collected, $_____ to $____ goes to just operating the property

$0.35 to $0.45

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In order for a comparable to be useful in extracting a GRM, it must have been \_\_\_\_\_\_\_\_\_\_ at the time it \_\_\_\_\_\_\_\_\_\_.
new, rented
rented, sold
vacant, purchased
rented, built

rented, sold

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True or False: New single-unit homes are frequently purchased as rental investment properties.

False

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True or False: GRM analysis should not be used in areas with rent controls.

True

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The region or area over which something is found, is distributed, or occurs.

Range

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Range is the difference between the ______ and the _______

highest; lowest

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Mean

A measure of central tendency. The sum of values for a variable in a sample or population divided by the number of items in the sample or population. The arithmetic average

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We don’t adjust our _____ indicators

GRM

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The presumption is that the GRM would be self-adjusting according to the __________

marketplace

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Market rent is the amount for which the property ________ be rented

should

Fannie Mae requires the use of Form 1007 when the subject is a ___-_____ investment property.

One-unit

Subtracting an amount for any utilities or furnishings that are included in the rent, to get down to a clean monthly rent figure that represents rent for the use of the space itself.

Adjusted Monthly Rent

These provide inducements to entice prospective tenants to rent a property. They are frequently employed in slow markets when there are lots of competing units for rent. We also find them sometimes in new rental projects, where concessions are employed to get a new project up and running.

Rent concessions

If the subject of your assignment is a single-unit investment property, then Fannie Mae ________ the completion and attachment of the form 1007.

requires

The subject property is a four-unit building, consisting of two 2-bedroom units and two 1-bedroom units. Through research and analysis, you estimate the market rents for the 2-bedroom units at $1,500 per month, and the 1-bedroom units at $1,100 per month. The market-extracted GRM is 95. What is the indicated value for the subject property?

2-bedroom units = $1,500 x 2 = $3,000 1-bedroom units = $1,100 x 2 = $2,200 Total gross monthly rent = $5,200 Multiplying the monthly rent of $5,200 x 95 GRM = $494,000 indicated value by the GRM income approach.

This is strictly income from the use of land or improvements

rent

This from a property may include rent plus other kinds of income: perhaps from renting of garages, coin operated washers and dryers, etc.

Gross Income

GRM is based on

monthly rent

GIM is based on

annual income

Gross income multipliers (GIMs) are applied to

multi-unit properties and other income-producing properties of any kind.

The relationship or ratio between the sale price or value of a property and its gross annual rental income.

Gross Income Multiplies

The total income attributable to real property at full occupancy before vacancy and operating expenses are deducted.

Potential Gross Income

The anticipated income from all operations of the real estate after an allowance is made for vacancy and collection losses and an addition is made for any other income."

Effective gross income

The primary difference between GRM and GIM is that GRM uses monthly rent, while GIM uses annual income GRM is used on larger properties, while GIM is used on smaller properties GRM uses gross income, while GIM uses net income GRM is used for mortgage appraisals, while GIM is exclusively used for other intended uses

GRM uses monthly rent, while GIM uses annual income

The Fannie Mae 1007 form is intended to demonstrate support for the appraiser's selection of GRM estimate the market rent of the subject property estimate the market value of the subject property help the appraiser's client understand mean, median, and mode

estimate the market rent of the subject property

True or False: Contract rent and market rent are two different concepts.

True

``` When developing an appraisal, you calculate the following GRMs from comparable properties: 94.3, 90.1, 95.6, 109.2, 84.5, 100.7, 99.9. What is the mode of the GRMs? 96.3 99.9 95.6 there is no mode ```

There is no mode

GRMs are derived by dividing the _______________ by the _______________ at the time of sale. monthly rent, sale price sale price, gross monthly unfurnished market rent contract price, gross annual income potential gross income, operating expenses

sale price, gross monthly unfurnished market rent

A house is rented for $875 per month and it sells for $120,000. What is the indicated GRM? 72. 9 129. 6 137. 1 140. 7

137.1

``` Which can be affected by extremes at either end of the distribution? mean median mode maximum ```

mean

``` "The region or area over which something is found, is distributed, or occurs" is the definition of range spread distribution array ```

Range

Which statement is generally true in a market with rent control? Rents are subject to more rapid fluctuations than sale prices. Sale prices are subject to more rapid fluctuations than rent. Rents and sale prices usually move in opposite directions. Rents and sale prices are not subject to rapid fluctuations.

Sale prices are subject to more rapid fluctuations than rent.

To appraise a non-complex 6-unit property for a federally-related transaction, you need to be a _______________ Licensed Residential Appraiser Licensed Residential Appraiser with at least two years' experience Certified Residential Appraiser Certified General Appraiser

Certified General

A property sells for $95,750. At the time of sale it is rented for $975. What is the GRM? 91. 7 96. 6 98. 2 101. 5

98.2

``` A set of numbers that has two modes is referred to as a: bi-modal distribution statistically insignificant set arcane distribution modeless set ```

bi-modal distribution

``` When arriving at a value indication utilizing a GRM, one component is the _______________ rent of the subject property. net contract gross annual rent net monthly gross monthly unfurnished market ```

gross monthly unfurnished market

Here are six comparable sales. Sale price/Monthly rent: 1. $98,000/$800. 2. $102,000 /$850. 3. $89,500/$750. 4. $91,600/$750. 5. $87,500/$750. 6. $105,000/$875. What is the median of the GRMs? 118. 0 118. 2 119. 4 120. 0

120.0

``` An expense ratio is the ratio of expenses to cost expenses to income rent to expenses expenses to utilities ```

expenses to income

_______________ appraisers can appraise a 15 unit residential property without regard to value or complexity. only Certified General Licensed Residential only Certified Residential both Certified Residential and Certified General

Only certified general

``` "The sum of values for a variable in a sample or population divided by the number of items in the sample or population" is the definition of range mean median mode ```

mean

``` An appraiser extracts a set of market rental amounts for houses like the subject. They are $850, $875, $775, $950, $925, and $900. What is the mean of the market rents? $859.77 $868.27 $879.17 $890.57 ```

$879.17

``` The Fannie Mae Single Family Comparable Rent Schedule is also known as Form 1004 1007 1020 1025 ```

1007

An apartment building had 12 units rented for $1,400 per month and 20 units rented for $1,600 per month. It sold for $3,000,000. What was the GIM?

5.1 Gross Income Multipliers. 12 X $1,400 = $16,800. 20 X $1,600 = $32,000. $16,800 + $32,000 = $48,800. $48,800 X 12 months = $585,600. $3,000,000 ÷ $585,600 = 5.1.

Here are five comparable sales. Sale price / Monthly rent: 1. $142,000/$1,025. 2. $133,000/$1,000. 3. $128,500/$975 4. $145,000/$1,050. 5. $135,000/$1,000. What is the mean of the GRMs?

135.3

``` Which term is defined as: "The relationship or ratio between the sale price or value of a property and its periodic gross rental income"? Multiplier Discount rate Gross rent multiplier Capitalization rate ```

gross rent multiplier