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14 Cards in this Set
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Which of the following statement regarding capitalization rates is least correct? a. Lowering the cap rate increases the value of the property. b. Increasing the cap rate lowers the value of the property. c. Increasing the risk of loss increases the cap rate. d. Decreasing the risk of loss increases the cap rate. |
d. Decreasing the risk of loss increases the cap rate. (The capitalization rate (cap rate) is the annual rate of return produced by the operations of an income property. The cap rate is calculated by dividing the net operating income (NOI) by the price asked or offered for income property. Thus, the value moves in the opposite direction of the rate, and a higher risk is rewarded by a higher return.) |
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An apartment building produces a monthly rent of $16,000. A similar property with monthly rents of $21,000 recently sold for $2,940,000. Using this as the only data, the appraiser would say that the first apartment building is worth: a. 2940000 b. 2240000 c. 2936000 d. 2475000 |
b. 2240000 (When an appraiser is appraising income-producing property, they use the income approach to determine its value. This is accomplished by dividing the value by the rent, yielding the gross rent multiplier (GRM). Then, using the rent of the subject property, the appraiser can determine the value of the subject property. $2,940,000 ÷ $21,000 = 140 140 x $16,000 = $2,240,000) |
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A property is valued at $300,000 with a 5% capitalization rate (cap rate). If the prospective buyer wants an 8% return on their money, the property's valued would be: a. 187500 b. 270000 c. 480000 d. 420000 |
a. 187500 (As explained in Question 1, the value will move in the opposite direction as the capitalization rate (cap rate). $300,000 x .05 = $15,000 (net income) $15,000 ÷ .08 = $187,500) |
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The narrative form of an appraiser's report includes all the following except: a. a description of the property. b. the neighborhood amenities. c. the appraiser's qualifications. d. the financial terms of the sale. |
d. the financial terms of the sale. (Financing is not part of the appraisal process. All the other answer selections are part of the narrative report.) |
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When an appraiser relies on the principle of substitution, they assume that one property may be substituted for another in terms of all of the below, except: a. income. b. nostalgic significance. c. structural design. d. use. |
b. nostalgic significance. (Substitution applies to income, structural design and use. Nostalgic significance is unique to a property or individual and is not considered in the principle of substitution.) |
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The premise that no prudent person would pay more for a parcel of real property than the price of a reasonably close alternative which is available without undue delay refers to the principle of: a. balance. b. contribution. c. substitution. d. anticipation. |
c. substitution. (Substitution applies.) |
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Which of these most nearly refers to a loss in value due to economic obsolescence: a. an architectural design which is out of style. b. a zoning change. c. improper maintenance of the property. d. an increased demand for more luxurious units. |
b. a zoning change. (When demand for a property type changes, it can cause a diminished value for existing buildings. Answer selection B. a zoning change is the best answer since it suggests a need for an entirely different property use.) |
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Which of these factors does not contribute to obsolescence? a. Misplaced improvements. b. Out-of-date equipment. c. Changes in traffic patterns. d. Worn out carpeting. |
d. Worn out carpeting. (Worn out carpeting is an example of physical deterioration, not an obsolescence.) |
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The gross rent multiplier (GRM) is calculated by dividing: a. gross monthly rents by market value. b. gross monthly rents by selling price. c. net monthly rents by market value. d. sales price by gross monthly rents. |
d. sales price by gross monthly rents. (Review Questions 3 and 9 for example calculations for determining the gross rent multiplier (GRM).) |
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To calculate a capitalization rate (cap rate), the appraiser uses which of the following methods: a. market comparison. b. band of investment. c. summation. d. Any of the above. |
d. Any of the above. (Any of these can be applied.) |
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Which of the following is not a force that influences value? a. Economic. b. Social. c. Demand. d. Physical. |
c. Demand. (The forces are: Physical, Economic, Government, and Social (PEGS). Demand is one of the elements of value, not an influence on value.) |
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Which of the following approaches to valuation yields the highest estimate of value? a. market comparison. b. reproduction. c. substitution. d. comparable sales. |
b. reproduction. (Reproduction is a version of the cost approach. Generally, the cost approach produces the highest estimate of value of all the appraisal methods. The income approach generates the lowest estimate of value.) |
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To calculate replacement cost, compute the cost to replace: a. an equally desirable property with the same utility value. b. the identical structure using the original materials. c. the identical structure using modern materials. d. the most economical structure having the same utility value. |
a. an equally desirable property with the same utility value. (A replacement property is to produce a similar level of utility and be as desirable as the subject property.) |
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Which of the following is not a part of the cost approach appraisal method? a. Unit-in-place. b. Capitalization. c. Quantity survey. d. Index method. |
b. Capitalization. (Capitalization is an income approach method. Unit-in-place is a sub-element of construction. The index method is for historic cost valuations. Quantity survey is the most detailed method used by sub-contractors when making bids on projects.) |
