Chapter 23 Random Math Flashcards
Which one of the following would NOT be included in the operating expenses of a commercial property for purposes of determining its market value?
(1) reserve for replacement of equipment
(2) interest on the mortgage
(3) property taxes
(4) advertising of vacant suites
2
Which one of the following items is NOT likely to be available to an appraiser valuing a commercial property?
(1) current lease conditions at the time of sale of the property
(2) the amount of any registered mortgages
(3) the buyer’s expected rent and expense forecasts
(4) physical characteristics of the building
3
A property recently sold for $800,000. The stabilized annual net operating income for the property is
$88,000. The yield on this property is:
(1) 11%
(2) 9.090909%
(3) 12.359551%
(4) None of the above
1
Consider the following statements regarding the income method of appraisal.
A. Net operating income is a measure of return on the equity portion of a property’s value.
B. Items specific to an owner or investor are omitted in the calculation of net operating income.
C. Net operating income does not consider depreciation, income tax or debt service.
D. The income method of appraisal is only used for apartment buildings.
Which of the above statements are TRUE?
(1) All of the above statements are true.
(2) Only statements A and C are true.
(3) Only statements B and C are true.
(4) Only statements A and D are true.
3
In applying the income method of appraisal, depreciation is excluded from operating expenses in the calculation of net operating income. Which one of the following statements is an explanation of the reason depreciation is excluded?
(1) Depreciation measures a loss in value which occurs despite regular repairs and maintenance.
(2) Depreciation affects only the building component of the property.
(3) Depreciation expense is excluded from calculations for income tax purposes.
(4) The life of a building is primarily determined by economic factors rather than physical condition.
4
A property recently sold for $378,500. The stabilized net operating income for the property was estimated to be $75,700 per annum. The estimated yield to the buyer is:
(1) 20%
(2) 11%
(3) 5%
(4) There is insufficient information to calculate an estimated yield.
1
Which one of the following statements is FALSE?
(1) Given that the net operating income remains constant, the market value of a property falls as the required yield rises.
(2) The market value of an income producing property is best determined by averaging the sales prices of any three other income producing properties which have recently sold.
(3) In the determination of an income producing property’s market value, an appraiser should not confuse gross realized income with net operating income.
(4) The capitalization rate applied to the net operating income of an investment property is related to the yield on comparable investment properties
2
A property listed for sale has a net operating income of $15,763 per annum which is assumed to be perpetual and constant. The market capitalization rate is 9.5% per annum. What is the maximum price a prudent investor should pay for this property?
(1) $149,748.50
(2) $165,926.32
(3) an amount lower than $149,748.50
(4) not possible to determine with the information provided
2
Which one of the following items is deducted from gross realized income to arrive at net operating income when preparing an appraisal using the income method?
(1) income tax
(2) interest on the mortgage
(3) real property taxes
(4) depreciation expense
3
Operating expenses for appraisal purposes include:
(1) income taxes.
(2) property taxes.
(3) mortgage payments.
(4) capital cost allowance.
2
Which one of the following is the BEST method of accounting for cyclical repairs in the appraisal of an income producing property?
(1) Increase the capitalization rate
(2) Deduct the amount of the repair in the year it is expected to be incurred
(3) Apportion the amount of the repair to an annual allowance
(4) Reduce the eventual sales price of the property to reflect depreciation
3
The income approach is NOT usually used for the valuation of:
(1) single-family residences.
(2) warehouses.
(3) leasehold interests in real property.
(4) single-storey retail complexes.
1
In appraising an income producing property using the income method, gross potential rents must be estimated. How are gross potential rents best determined?
(1) based on long term vacancy rates in the area in which the subject property is located
(2) based on published surveys of relevant real estate trends
(3) based on the relationship between money actually received and units actually rented
(4) based on actual current rents of similar properties
4
Which one of the following is FALSE with respect to the estimate of vacancy rates in the appraisal of income producing properties?
(1) Vacancy rates are expressed as a percentage of gross potential revenue.
(2) Vacancy rates must be those existing at the time of the appraisal for the subject property.
(3) Vacancy rates must be those estimated to exist in the future for similar properties in the market.
(4) Vacancy rates must be deducted from gross potential revenue.
2
An estimate of gross potential rents is achieved by:
(1) comparing all rents for similar space.
(2) comparing rents for recently leased similar space.
(3) projecting future rental increases.
(4) totalling current rents in the subject building.
2
