final exam Flashcards
(252 cards)
1
Q
Reversion refers to:
A
Lessor’s right to recover the property
2
Q
The discount or other benefit offered by a landlord to induce a prospective tenant to enter into a lease is a/an:
A
Rent Concession
3
Q
One of the reasons landlords offer rent concessions is to:
A
Keep rental rates higher for future rental purposes
4
Q
The discount rate for lease interests is:
A
Impacted by risk
5
Q
The value of the leased fee added to the value of the leasehold:
A
Seldom equals fee simple
6
Q
A freehold (ownership interest) where the possessory interest has been granted to another party by creation of a contractual landlord-tenant relationship is called
A
A Leased Fee Interest
7
Q
A contract providing for regular payments of predictable amounts. Regular payments are those that occur at a constant periodic rate, such as monthly, quarterly, or annually. Predictable amounts include those that are level, that escalate based on the Consumer Price Index, that step up, or that can be predicted in any other way.
A
Annuity
8
Q
A technique in which the capitalization rates attributable to components of an investment are weighted and combined to derive a weighted-average rate attributable to the total investment (i.e., debt and equity, land and improvements).
A
Band of investment
9
Q
A capitalization technique in which the net operating income attributable to improvements is isolated and capitalized by the building capitalization rate (RB) to indicate the improvements’ contribution to the total property value. When the improvements’ value is added to the land value, a total property value estimate is produced.
A
Building residual technique
10
Q
A method of developing a discount rate or capitalization rate using the basic elements of risk.
A
Built-up method
11
Q
The return of investment capital, expressed as an annual rate; often applied in a physical sense to wasting assets with a finite economic life; used interchangeably with amortization rate to express investors’ desire to recover their equity investment over a specified time period; also called capital recapture rate.
A
Capital recovery rate
12
Q
An analytical process in which the sale price of a transaction with nonmarket financing or financing with unusual conditions or incentives is converted into a price expressed in terms of cash or its equivalent.
A
Cash equivalency analysis
13
Q
The ratio of net operating income to annual debt service (DCR = NOI/IM), which measures the relative ability of a property to meet its debt service out of net operating income; also called debt service coverage ratio (DSCR). A larger DCR typically indicates a greater ability for a property to withstand a reduction of income, providing an improved safety margin for a lender.
A
Debt coverage ratio (DCR)
14
Q
In mathematics, change in a variable, symbolized by the upper case Greek letter delta. For example, x means “change in the variable x.”
A
Delta
15
Q
A method used to convert an estimate of a single year’s income expectancy into an indication of value in one direct step, either by dividing the net income estimate by an appropriate capitalization rate or by multiplying the income estimate by an appropriate factor. ________________employs capitalization rates and multipliers extracted or developed from market data. Only one year’s income is used. Yield and value changes are implied but not explicitly identified.
A
Direct capitalization
16
Q
Conversion of benefits received in the future (e.g., periodic incomes, cash flows, reversion) to present value. 2. Money paid at the beginning of a time period for the use of capital during that period; commonly deducted from the principal when the funds are advanced.
A
Discounting
17
Q
The portion of net operating income that remains after total mortgage debt service is paid but before ordinary income tax on operations is deducted; also called equity cash flow.
A
Equity dividend
18
Q
The annualized yield rate or rate of return on capital that is generated within an investment or portfolio over a period of ownership. Alternatively, the indicated return on capital associated with a projected or pro forma income stream.
A
Internal rate of return (IRR)
19
Q
A method of estimating land value in which the net operating income attributable to the land is isolated and capitalized to produce an indication of the land’s contribution to the total property.
A
Land residual technique.
20
Q
A method used to convert future benefits into present value by 1) discounting each future benefit at an appropriate yield rate, or 2) developing an overall rate that explicitly reflects the investment’s income pattern, holding period, value change, and yield rate.
A
Yield capitalization
21
Q
A rate of return on capital, usually expressed as a compound annual percentage rate. A yield rate considers all expected property benefits, including the proceeds from sale at the termination of the investment. Yield rates include the interest rate, discount rate, internal rate of return (IRR), overall yield rate (YO), and equity yield rate (YE).
A
Yield rate (Y).
22
Q
When an appraiser determines the cash flow after debt service but before income and capital gains taxes, it is referred to as the:
A
Equity dividend
23
Q
You are working with your HP12C. Suddenly you notice a flashing (*) on the register. What does that mean?
A
The battery needs to be replaced
24
Q
A fundamental difference between direct capitalization and yield capitalization is:
A
Direct deals with current year’s income and yield with future benefits
25
The debt coverage ratio measures a property's ability to meet its debt service requirements out of _____________
Net operating income
26
What is the process of converting income to value?
Capitalization
27
On the HP12c calculator, the key with the x with a line over it is used to:
Calculate the mean
28
You are working on a six functions of a dollar problem and need to change the sign of an entry. Which key on the HP12c would you use?
[CHS]
29
The difference between the abbreviations BTCF and ATCF is:
One is before and one is after
30
What is the abbreviation for land value?
VL (V sub L)
31
The abbreviation OER stands for:
Operating expense ratio
32
In reconciling to a final value; an appraiser places 50% of the weight on the Income Approach, 25% of the weight on the Cost Approach and 25% of the weight on the Sales Comparison Approach. This is an example of:
Weighted mean
33
Analyzing data to determine variances from the mean is called:
Standard deviation
34
The process of retiring a debt or recovering a capital investment, typically through scheduled, systematic repayment of the principal; a program of periodic contributions to a sinking fund or debt retirement fund.
Amortization
35
A rate of return on capital used to convert future payments or receipts into present value; usually considered to be a synonym for yield rate.
Discount rate
36
A yield capitalization method that provides a formulaic solution for developing a capitalization rate for various combinations of equity yield rates and mortgage terms. The formula is applicable to properties with stable or stabilized income streams, properties with level-equivalent income streams, or properties with income streams expected to change according to the J- or K-factor pattern.
Ellwood formula
37
Money paid for, or earned by, the use of capital; a return on capital as distinguished from a return of capital. 2. A property right in land.
Interest
38
A factor that reflects the present worth of $1 (or other unit of currency) per period for a given number of periods, discounted at a given discount rate; obtained by calculation or from standard compound interest tables and used to discount an annuity to present worth; also called Inwood coefficient.
Inwood factor
39
A type of annuity in which cash flows are paid at the end of each period; also known as an annuity in arrears.
Ordinary annuity
40
A capital sum invested; a payment that represents partial or full repayment of the capital loaned or invested, as distinguished from the payment of interest; the unrecovered capital remaining in a loan or investment.
Principal
41
A lump-sum benefit that an investor receives or expects to receive upon the termination of an investment; also called reversionary benefit.
Reversion
42
A rate of return on capital, usually expressed as a compound annual percentage rate. A ______ considers all expected property benefits, including the proceeds from sale at the termination of the investment.
Yield rate (Y)
43
“Money paid for, or earned by, the use of capital; a return on capital as distinguished from a return of capital” defines
interest
44
According to Webster's Dictionary, "interest paid on both the principal and on accrued interest" is the definition of
Compound interest
45
The numbers in the compound interest tables are rounded to 6 decimal places. This is an example of:
Table accuracy
46
An effective tool for bringing older numbers and data to current time frames is the use of:
Ratios
47
Using 10 year old data, an appraiser concluded a ratio of 25%. Would it be appropriate to use this ratio in a current market appraisal?
Yes, in the absence of evidence to the contrary, the appraiser can assume the ratio is still appropriate
48
The actual rental income specified in a lease.
Contract rent
49
Absolute ownership unencumbered by any other interest or estate, subject only to the limitations imposed by the governmental powers of taxation, eminent domain, police power, and escheat.
Fee simple estate
50
A contract in which the rights to use and occupy land, space, or structures are transferred by the owner to another for a specified period of time in return for a specified rent. See also gross lease; modified gross lease; net lease.
Lease
51
One of the real property interests that results from the division of the bundle of rights by a lease; i.e., the leased fee estate or the leasehold estate.
Lease interest
52
The ownership interest held by the lessor, which includes the right to receive the contract rent specified in the lease plus the reversionary right when the lease expires.
Leased fee interest
53
The right held by the lessee to use and occupy real estate for a stated term and under the conditions specified in the lease.
Leasehold interest
54
The most probable rent that a property should bring in a competitive and open market reflecting all conditions and restrictions of the lease agreement, including the rental adjustment and revaluation, permitted uses, use restrictions, expense obligations, term, concessions, renewal and purchase options, and tenant improvements (TIs).
Market rent
55
An inducement for a tenant to lease space, sometimes, but not always, observed in overbuilt markets, which can include above-standard TIs, free rent, moving cost reimbursement or credit, and buyout of the tenant’s existing lease. Concessions are an integral part of the definition of market rent. Also called rent offset.
Rent concession
56
Owner’s right to obtain return of the property rights granted to a tenant upon termination of a lease. The term can also apply to termination of a temporary easement, abandonment of a right of way, extinguishment of a life interest or estate for years, violation of a condition in a deed, or the end of the life of, or abandonment of, improvements.
Reversionary Right
57
It is common for leases to include a clause that prohibits the Lessor from leasing another unit in a shopping center or office complex to another tenant in the same type of business. For example: if one bicycle shop is in the center, leasing to another bicycle shop would be prohibited. Should the Lessor violate that provision, it could drastically impact the first bicycle shop owner’s business and the value of that lease to that Lessee.
Competition Clauses
58
Most commercial leases contain some sort of escalation clause keyed to actual increases in the Lessor’s costs or, in some cases, tied to some index such as the Consumer Price Index (CPI). Depending on the nature of these escalation provisions, they can in some cases increase rents significantly and the impact on value can fluctuate from very little to quite significant. Sometimes stops or caps are included to set a maximum for a given period, which is something tenants often try to negotiate into the lease agreement.
Escalation Clauses
59
Escape clauses allow Lessees to cancel a lease under abnormal conditions, such as provisions in a damages clause that allow the Lessee to cancel the lease if it negatively impacts business operations. That clause also may allow the Lessor a time period in which to cure the adversity and waive rents during the correction period.
Escape Clause
60
allows a Lessee with a long-term lease to cancel that lease if business revenues have not reached a pre-set level after a certain pre-set time frame (e.g., one year, three years); or if an anchor tenant is not replaced; or some other pre-determined trigger tied to the Lessee’s business volume at that particular location. This could weaken the value of a lease interest.
Kick-out Clauses
61
Many smaller tenants in shopping centers, especially those in smaller complexes where there is just one anchor tenant and six to ten other shops, are concerned that the anchor may close its store and not renew the lease, also known as “going dark.” One remedy is to negotiate a “go dark” clause that allows the Lessee to close its store or receive significant rent reductions if that anchor, or even a specified number of other smaller tenants, go dark.
Tenant Going Dark
62
A flat rent lease has a specified rental amount that remains constant for the duration of the lease. What is another term used to describe a flat rent lease?
Level payment lease
63
A lease interest in which the tenant has possession for an unspecified time period at the mutual convenience of the parties is a:
Leasehold at will
64
A benefit to a step-up lease is:
The tenant pays less rent in the beginning, which can help when starting a new business
65
Another term for tenant improvements is
Leasehold improvements
66
In order to increase the occupancy of his office building, the landlord offered one month free rent. Without the concession, the annual rent would be $12,000. With the concession, the annual rent is $11,000. What is another term for the $11,000 annual rent?
Effective rent
67
“Excess rent” is that which is:
The amount contract rent exceeds market rent
68
If rents show the convenience store rental should be $3,000 per month rather than the $2,000 contracted for the full 5 year term of the lease, and you use the same 9% rate, what is the value of the leasehold interest assuming the payments were made IN ADVANCE each month?
$48,534.67
69
In the I/RV formula, what does the "I" generally represent?
Net Operating Income
70
The agencies that regulate Federal Financial Institutions use a market value definition that begins with:
“The most probable price…”
71
TOE is deducted from Effective Gross Income to arrive at Net Operating Income. What does TOE stand for?
Total Operating Expenses
72
In valuing the leased fee interest, the appraiser utilized:
Actual rents
73
Potential gross income (PGI) presumes ___________ income:
Annual
74
The proceeds received by an investor at the end of the holding period are known as:
Reversion
75
The Potential Gross Income for an office building is $100,000. 6% of the PGI is lost annually to vacancy and collection. What is the dollar amount of the vacancy and collection loss?
$6,000
76
The value of intangibles related to an on-going concern is known as:
Business Value
77
1. Unrented space. 2. The measurement of the amount of unoccupied or unused space or land in a defined market or property; can relate to a class of properties, a submarket, or a single multitenant property. 3. Sometimes used as shorthand for vacancy and collection loss.
Vacancy
78
A deduction from potential gross income (PGI) made to reflect income reductions due to vacancies, tenant turnover, and nonpayment of rent; also called vacancy and credit loss or vacancy and contingency loss.
Vacancy and collection loss
79
1. The relationship between the amount of vacant space and total space in a building or market; expressed as a percentage. 2. The relationship between the rent estimated for vacant building space and the total rent estimated for all the space in the building.
Vacancy rate
80
Because the subject has below market rents, it is consistently 100% occupied. Competing properties are charging market rents and have occupancies of about 95%. In determining the market value of the subject property, what vacancy rate would be appropriate?
5%
81
Calculate the Vacancy and Collection Factor for a 12 unit apartment building based upon the following information: Scheduled Rents: 6 units @ $675 per month 6 units @ $725 per month Actual Rent: $93,800
6.9%
82
The relationship between the amount of vacant space and total space in a building is the:
Vacancy rate
83
The potential gross income is $50,000. The actual rent is $40,000. What keystrokes on the HP 12c would be used to calculate the vacancy and collection loss?
50,000[ENTER], 40,000 [delta%]
84
To calculate the percentage of Vacancy and Collection Loss on the HP-12C, the appraiser keys-in the dollar amount of the PGI and presses [ENTER], then keys in the:
Actual Income [delta%]
85
Landlord rights to re-rent a property after a tenant “skips”:
Are governed by local or state jurisdiction
86
The subject property has an actual vacancy and collection loss factor of 3%. All comparables have factors of 6%. Your analysis is based upon market rents, therefore, the appropriate vacancy and collection loss factor is:
6%
87
Vacancy and Collection Losses are typically “lumped together” because:
The data received by the appraiser is provided that way by market participants
88
"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
89
The periodic expenditures necessary to maintain the real estate and continue production of the effective gross income, assuming prudent and competent management.
Operating expenses
90
Operating expenses that generally do not vary with occupancy and that prudent management will pay whether the property is occupied or vacant
Fixed Expenses
91
What type of expense is one that accountants use but appraisers do not?
Depreciation
92
Which type of management agent/company compensation arrangement do owners tend to prefer?
Percentage of income
93
The operating expense figures assume that management is:
Prudent and competent
94
Miscellaneous expenses often require footnoting as a means of identification. These expenses are also referred to as:
Other
95
Scrutiny of repair and maintenance information provided by the owner is important so that the appraiser can:
Identify inappropriate expenses
96
Precautions are strongly recommended when researching repairs and maintenance costs to ensure that:
Receipts for repairs on other properties are not included
97
To avoid inappropriate expense allocation, the appraiser should:
Analyze leases to determine who pays for what
98
An allowance that provides for the periodic replacement of building components that wear out more rapidly than the building itself and must be replaced during the building’s economic life;
Replacement allowance
99
The appraiser’s research and reporting need to be as detailed as:
The appraiser’s peers would have done
100
How to weight on hp12c
100 enter
.20 [£+]
(g)(xw)
101
Calculate days on hp12c
1. 152008 enter
| 4. 192010 (g)(^DYS)
102
The high-end floor covering with the longest life expectancy is:
Wood laminate
103
The appraiser’s research and reporting need to be as detailed as:
The appraiser’s peers would have done
104
The landlord pays all the utility bills, however, he passes 75% of those bills through to the tenant. How much of the utility bills should be included as an operating expense?
100%
105
The Effective Gross Income is $50,000. Fixed expenses total $15,000, variable expenses total $12,000, replacement reserves total $4,000, and debt service totals $25,000. Using an overall rate of 10%, what is the value of the property?
$190,000
106
One of the sales in your local area had a sales price of $280,000 and an income of $22,400. What is the indicated rate?
8%
107
If the Potential Gross Income is $45,000, vacancy and collection loss is 7% and operating expenses are $5.00 per square foot, what is the Net Operating Income for a 4,500 square foot, single tenant office building?
$19,350
108
If the market capitalization rate is 7% and a property has an income of $15,400. What is the indicated value?
220,000
109
Direct Capitalization is used to convert a single year's estimated Net Operating Income into an indication of property value.
True
110
How can an appraiser estimate a building value when NOI, as well as the income attributable to the land, are known, and a building capitalization rate is 12%?
Building Residual Technique
111
Net Operating Income divided by the Effective Gross Income yields:
Net income ratio
112
Consideration for the impact of financing refers to:
Leverage
113
In the Building Residual technique, the appraiser deducts __________ from the NOI.
Land Value x RL
114
Leverage, or considerations for the impact of financing, is not addressed in the typical Direct Capitalization procedure.
True
115
The method used to convert a single year’s estimated Net Operating Income into value is known as:
Direct Capitalization
116
The property being appraised can be financed with an 80% mortgage. The term is 20 years with monthly payments at 7%. The mortgage capitalization rate is .0930. Comparables indicate an equity capitalization rate of 9%. What is the indicated overall cap rate using the Band of Investment Technique?
0.0924
117
The subject property has a building that is valued at $180,000. The Net Operating Income is $44,000. The land cap rate is 8 percent, and the building cap rate is 12 percent. What is the total value of the property?
$460,000
118
If you know the Net Operating Income, the land capitalization rate, the building value, and the building capitalization rate, which technique would you use to determine the land value of the property?
Land residual
119
The subject property has a site value of $180,000. The Net Operating Income is $44,000. The land cap rate is 8 percent, and the building cap rate is 12 percent. Calculate the building value.
$246,667
120
Which technique would be used to find the total property value if you have the following information: NOI, Equity Capitalization Rate, and the Mortgage Capitalization Rate?
Mortgage Residual
121
The subject property has a site value of $350,000. TheNet Operating Income is $74,000. The land cap rate is 9 percent, and the building cap rate is 14 percent. Calculate the building value.
$303,571
122
The subject property has a building that is valued at $180,000. The Net Operating Income is $44,000. The land cap rate is 8 percent, and the building cap rate is 12 percent. Calculate the land value.
$280,000
123
ch22. If you know the Net Operating Income, the land value, the land capitalization rate and the building capitalization rate, which technique would you use to determine the building value of the property?
Building Residual
124
A ratio of one year’s net operating income provided by an asset to the value of the asset; used to convert income into value in the application of the income capitalization approach.”
Capitalization rate (R)
125
In appraising a shopping center, tenant mix, building layout, visibility and _______ are special considerations which impact appeal to tenants, rental amounts, and retention of existing tenants.
Signage
126
The present value of a cash flow relates to Function number ____ of the six functions of a dollar.
5
127
Compared to lease terms for multi-family properties, lease terms for office buildings are typically found to be:
Longer
128
Which of the following is NOT a type of shopping center?
Mom and Pop Center
129
When using a Gross Income Multiplier to arrive at the value for a shopping center, the appraiser must take great care to identify:
Percentage rent add-ons
130
The "discount rate" used to convert future cash flows into a present indication of value can include all of the following except:
Overall capitalization rate
131
What is the present value of $1,000 per year for 25 years at 5%?
$14,094
132
T/F When appraising multi-family properties, the appraiser should exercise great care in making sure that any unique expense allocations for the comparable properties are handled properly.
TRUE
133
Soil types, drainage, water availability, and distance to market are all considerations in the appraisal of:
Agricultural property
134
When appraising freestanding, single use properties, the appraiser should take great care in the appraisal process as the current use may not be:
The highest and best use of the site
135
The presence or absence of an on-site restaurant can have an impact on the value of which property type?
Hotel/motel property
136
Availability of raw materials and the need for railroad tracks would be considerations in appraising what type of property?
Industrial
137
Special use properties are typically valued using the _______ approach to value.
Cost
138
Two special considerations in the appraisal of industrial properties are:
Workforce proximity and availability of transportation
139
Beginning in the 1980s, hotel/motel developers began:
Getting out of the restaurant business
140
The rate at which given property types sell in a market area is referred to as the:
Absorption rate
141
Creating a number that is between two known numbers in a factor table is an example of:
Interpolation
142
When predicting future trends, patterns, or relationships, the appraiser most often working with:
Extrapolation
143
The origin of a settlement in a city, which generally influences subsequent land use and growth patterns, is the definition of
Siting factor
144
When valuing land, the appraiser must consider the site as if it was:
Vacant
145
In residential waterfront properties, the measure most often used to determine value is:
Linear measure of water frontage
146
The rise and fall of a site is referred to as:
Terrain
147
Having more money to invest than is actually available is the basic idea of what is meant by:
Leverage
148
In a/an ________ type of assignment, the specific needs of an individual investor are considered.
Investment value
149
A reward or compensation for contribution describes:
Entrepreneurial profit
150
A condemnation proceeding by eminent domain might be considered a ________ factor in the valuation of real property.
Positive or negative
151
An investor hires a contractor to build an office building. The builder quoted a turn-key cost of $275,000. Upon completion of the project, the investor sold the building for 15% more than he paid to have it built. The 15% would be an example of
Entrepreneurial profit
152
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 (DCF) analysis
153
An appraisal technique that analyzes an income property by discounting the estimated future cash flow, using a rate of return which the appraiser estimates is required to attract an investor to the type of investment being appraised. See Discount Rate.”
DISCOUNTED CASH FLOW (DCF)
154
The relationship between dollars loaned by a lender and dollars that the borrower must repay. Calculated by dividing the difference between the amount borrowed and the amount to be paid back by the original loan amount.”
DISCOUNT RATE
155
Components in a Discounted Cash Flow analysis definition include:
Cash flow and reversion
156
Why is it important to understand the difference between an “ordinary annuity” and an “annuity due”?
It changes the programming of the financial calculator
157
A valuation method used to estimate the attractiveness of an investment opportunity is:
Discounted cash flow analysis
158
The extra return demanded by investors because the projected cash flow might not occur is the:
Risk premium
159
The term "ordinary annuity" reflects:
Payments to be made at the end of the period
160
Dividing the difference between the amount borrowed and the amount paid back by the original loan amount lets you determine the:
Discount rate
161
The Effective Gross Income for a single tenant office building is expected to be constant at $20,000 per year. If year 1 operating expenses are $5,000, and the expenses are expected to increase by 3% each year, what is the NOI for year 2?
$14,850
162
T/F The terminal capitalization rate is used to convert the Net Operating Income at the end of the holding period into a projected sale value.
True
163
The holding period for an investment is expected to be 10 years and the appropriate discount rate for the cash flows is 8%. The Net Operating Income for year 11 has been projected to be $250,000. At a terminal capitalization rate of 10%, and selling expenses of 3%, what is the net reversionary value of the subject property, rounded to the nearest $100,000?
$2,400,000. Ch. 33, Calculated Present Value of Cash Flows. 250,000 ENTER .10 divide 3% ENTER subtract = 2,425,000. Then round to nearest 100,000 = $2,400,000.
164
The terminology “risk free” means that the expected return is equal to the:
Actual return
165
Market value Discounted Cash Flow analysis should be supported by market evidence and:
Attitudes
166
According to ADVISORY OPINION 33 of USPAP, it is a good practice to compare reversion capitalization rate with the _______________ to see if the relationship between these two rates is reasonable and explainable.
Inferred entrance capitalization rate
167
ADVISORY OPINION ____ of USPAP addresses the Discounted Cash Flow analysis.
33
168
The appraiser is responsible for ensuring that DCF software provides:
Credible results
169
DCF analysis software is more popular today because of:
Computers
170
The Uniform Standards of Professional Appraisal Practice are founded in two basic elements:
Ethics and Competency
171
The holding period for the case study was 5 years. Assuming a holding period of 6 years, with all other components being the same, what would the total present value of the subject be?
$2,144,290
172
Assuming a 10 year holding period, a discount rate of 9%, a terminal value of $2,580,000, and selling expenses of 5%, what is the present value of the reversion?
$1,035,329
173
In the Akerson format the non-algebraic formula is similar to:
the Band of Investment Method for determining a cap rate
174
The premise used for valuing the income stream of a wasting asset is:
Hoskold
175
The mortgage coefficient is signified by the symbol:
C
176
A method of estimating property value by discounting all expected future cash flows refers to:
Yield Capitalization
177
The going in cap rate is 8%. Research indicates the terminal cap rate is 75 basis points higher than the going in cap rate. What is the terminal value if the final year NOI is $45,000?
$514,286
178
An appraiser's knowledge and understanding of lease type and the typical lease type for properties similar to the subject should enable the appraiser to accurately:
Estimate cash flows
179
When the assignment is to determine market value, determination of the holding period is based upon:
The typical investor
180
The best source for collecting data in order to predict future cash flows is
interviews with market participants
181
A rate of return on capital, usually expressed as a compound annual percentage rate. A yield rate considers all expected property benefits, including the proceeds from sale at the termination of the investment.”
Yield rate (Y)
182
A key term in the two of the three definitions of yield rate (presented in this chapter) is:
Return ON investment
183
Internal Rate of Return analysis is often used to measure:
Profitability after income taxes
184
In calculating the Modified Internal Rate of Return (MIRR), negative cash flows are discounted to present value at a specified safe rate and positive cash flows are:
Presumed to be reinvested to grow with compound interest
185
What is the difference between the overall yield rate and the equity yield rate?
Overall yield rate considers both debt and equity; equity yield rate considers only equity
186
Calculate the IRR if the purchase price was $450,000 and the cash flow started the first year at $35,000 and then increased 3% each year for the 4-year holding period. Resale is projected to be $525,000.
11.61%
187
MIRR is another term for:
AIRR
188
Assuming an annual cash flow of $50,000 each year for five years, what is the IRR for a property which was originally purchased for $600,000 and then is sold at the end of the holding period for $700,000?
11%
189
The primary difference between Internal Rate of Return and Net Present Value is:
Internal Rate of Return is about rates, Net Present Value is about dollars
190
The effect that borrowed funds have on an investment is addressed under the category of:
Leverage
191
When refinancing comes into play:
Holding periods are generally longer
192
When estimating interest rates in net present value calculations, the rates used are typically:
Current rates
193
The term used for the period required for cumulative income to equal initial investment is known as the:
Payback Period
194
Tenancy in common interest valuations are often more complicated because:
The interests may not be equal
195
When the partial interest is less than 50%:
The value of the interest declines
196
Which of the following would NOT be considered a partial interest?
Fee Simple
197
When two unmarried parties purchase a property, they become:
Tenants in common
198
A party entitled to receive a property held in a estate after the prior estate expires is known as the:
Remainderman
199
An interest shared by co-owners who cannot individually convey any part of the property is referred to as a/an:
Undivided interest
200
An example of a partial interest being for “use” would be:
Easement
201
In valuing a time share interest, which approach to value would likely be most applicable?
Sales Comparison Approach
202
An ownership interest that relates to condominiums is:
Undivided
203
An interest in a partnership of 25% that lacks operational control typically has:
Less than 25% of the total value
204
Parking lots in condominium office complexes are considered
Common elements
205
In a corporation that issues 1,000 shares of stock, if said stock is worth $50 per share, what is the value of 300 shares of stock?
$15,000
206
Ownership in time shares fell out of favor for all of the following EXCEPT:
Exchanging weeks in facilities was prohibited
207
The number of animals that can feed in an area without damaging other vegetation is known as:
Grazing capacity
208
An appraiser should investigate ownership of air and mineral rights:
Always
209
Rights purchased or acquired through condemnation that allow aircraft to fly at low elevations are called:
Avigation easements
210
Consideration of annual production, costs of extraction, and environmental issues apply to the valuation of:
Mineral rights
211
A before-and-after method involves two values (before rights and after rights) with the difference between the values being the value of the rights. This method can be a very reliable indicator of value for what type of rights?
Water
212
T/F Growth management concepts relate to Transferable Development Rights.
True
213
The IRS’ preferred method of valuing a conservation easement is:
Before-and-after method
214
During the development of a new subdivision, a nest of red-horned, spotted wingdings was discovered. One way the local ecological society could protect this endangered species of bird is to require the developer to grant a/an
Conservation easement
215
Soil and watershed protection relates to:
Conservation easements
216
The most common valuation method for historic preservation easements is:
Before-and-after method
217
When other landowners purchase a right that cannot be used by the current owner for future development, it is a(n):
Transferable development right
218
A measure of demand in a local area relative to a benchmark value. One such index, the Survey of Buying Power (BPI), uses the United States as a benchmark in the following formulation:
Buying power index (BPI)
219
The taxable profit derived from the sale of a capital asset. Equals the sales price minus the total of sales costs and the adjusted basis, where the adjusted basis equals the original cost plus capital additions minus accumulated depreciation. See also adjusted basis, tax liability.
Capital gain
220
A loss in property value resulting from negative influence outside the property itself. An element of accrued depreciation. External obsolescence is generally incurable and can be further defined as either economic obsolescence or locational obsolescence. Economic obsolescence is caused by a negative economic force that affects an entire area. Whereas locational obsolescence is caused by environmental or social forces that negatively affect a specific property due to its location. In the cost approach, the total loss in value from external obsolescence is distributed between the land and the improvements. External obsolescence can be measured by either capitalizing the income loss due to the negative influence or by comparing sales of similar properties that are subject to the negative influence and similar properties that are not subject to the negative influence.
External obsolescence
221
Floor area of a building divided by its lot size
Floor area ratio
222
A constant used to transform a variable income stream into its level equivalent annuity based on the equity yield rate. A way to stabilize income. The J factor represents a change in net operating income (NOI) over a specified holding period with the pattern of change reflecting the change in a sinking fund based on growth determined by the equity yield rate
J factor
223
A factor that can be used to convert a stream of income that changes at a constant ratio (compound rate) into a level payment equivalent. A way of stabilizing income. Sometimes used in conjunction with the Ellwood formula
K factor
224
A method of valuing residential, industrial, or recreational land to be used for subdivision development. The analysis is typically used in feasibility studies and when comparable sales are scarce. The number and size of lots that can be economically, legally, and physically created is first analyzed. Then comparable sales of finished lots are used to develop an absorption rate, development period, and total estimated sales price. Next, income and expenses are forecast. Finally, the net cash flows are discounted to a present value in order to estimate the value of the land.
Subdivision analysis
225
If an appraiser analyzes the demand in a local area relative to a national benchmark, that is:
BPI
226
Which of these would be the BEST way for an appraiser to ensure that her report contains sufficient information?
Look at it through the eyes of a reviewer
227
If an appraiser inversely uses capitalization rates and yield rates, it is an example of a(n):
Competency non-compliance
228
Commonly challenging assignment types include all of the following EXCEPT:
Office buildings
229
The decision to invoke a jurisdictional exception is determined by the
Assignment
230
Carl bought a summer home on the shore of Eagle Bear Lake five years ago. Over the years, the water has receded and left his dock permanently surrounded by dry land. What is this an example of?
Reliction
231
When is a valuation service "appraisal practice"?
When it contains a performance standard
232
Valuing the income stream of a wasting asset is __________.
Hoskold
233
The rate of return that reflects the effect of financing on the investor’s rate of return is called the:
Equity Yield Rate
234
An investment property produces an NOI of $10,000 each year for a holding period of five years. The value is estimated to increase 15% over the holding period. With a discount rate of 10% and a financial table multiplier of 0.163797, what is the value?
Ch. 52: case study #59. .10 ENTER, .15 ENTER, .163797 [X] [-] [STO] 1, 10000 ENTER, [RCL] 1 [÷]
235
Financing is available at 70% LTV for 20 years at 7% interest. The mortgage capitalization rate is 0.1006, and the lender seeks a 1.2 debt coverage ratio. What is the indicated overall capitalization rate?
Ch. 50: case study #51. .7 ENTER .1006 [X] 1.2 [X]
236
A condominium project is establishing reserves for: pool resurfacing that is estimated to be $8,000 in 10 years, resurfacing the parking lot that is estimated to be $4,000 in 5 years, and exterior painting that is estimated to be $50,000 in 7 years. What would be the annual deposits necessary to accomplish these goals at 9%?
Ch. 47: case study #25. g [BEG] f [FIN] 10 [n] 9 [1] 8,000 [CHS] [FV] [PMT] [STO] 1 5 [n] 4,000 [CHS] [FV] [PMT] [RCL] 1 [+] [STO] 1 7 [n] 50,000 [CHS] [FV] [PMT] [RCL] 1 [+]
237
The contributory value of merchantable timber as it stands on timberlands is called the:
Stumpage value
238
The term "Long Wall" refers to which of the following:
A controversial coal mining methodology
239
The return on an investment, which considers income received over time that equates the present value of future cash flows with the initial investment, is termed the:
Yield Rate
240
An investment in an annuity that pays 5% interest is made by an investor. The cash deposit is $2,000 for the first year. Each successive year, the investor deposits an additional $2,000 in the same account. At the end of 10 years, what will be the balance in that account?
Ch. 5: Future Worth of $1 Per Period. f [FIN] 10 [n] 5 [i] 2,000 [CHS] [PMT] [FV]
241
If the lender shares in any losses:
Holding periods are generally longer
242
The return on an investment, which considers income received over time that equates the present value of future cash flows with the initial investment, is termed the:
Yield Rate
243
A property has a $450,000 mortgage with annual payments of $52,000. The NOI is $60,000 and the equity cap rate is .07. What is the total property value, based on this information?
Ch. 21: Equity Residual Technique. 60,000 ENTER 52,000 [-] 8,000 ENTER .07 [÷] 450,000 [+]
244
A tool to determine whether or not to make an investment is:
NPV
245
“A yield rate used to convert future payments or receipts into present value” defines:
Discount rate
246
The Scope of Work, as far as the acceptability of the degree of research, is determined by an appraiser’s peers’ actions and:
The intended user’s expectations
247
Another name for the “free and clear yield” is the:
Overall yield rate
248
The last item in the minimum reporting requirements is:
A certification
249
When an appraiser performs an appraisal on a vacant acreage parcel and comparable sales are scarce, what is a common alternative?
Subdivision Analysis
250
An income adjustment or stabilization factor used by an appraiser to convert a stream of income on a curvilinear basis into its level equivalent is the:
J factor
251
When the partial interest is less than 50%, the:
Value of the interest declines
252
Tests to determine if an appraisal was done appropriately include all of the following EXCEPT:
Met reviewer’s own standards
