Questions and Answers
Which of the following might be classified as a tangible rather than an intangible amenity?
Tom Smith has a savings account that just paid a $700 annual dividend. If the declared interest rate was 7%, which of the following represents the amount of the deposit?
An income property renting for $50,000 per year before expenses just sold for $500,000 cash. What is the gross income multiplier?
Which of the following property features is/are important in the analysis of the gross income multiplier from comparable sales?
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Market rent can be defined as:
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Which of the following is an example of a specific expense item rather than a basic expense category?
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The property being appraised has a 100% occupancy rate. What conclusion would you probably draw if the typical occupancy rate in the area were only 95%?
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A rent survey reveals that buildings offering one-bedroom units have a considerably lower vacancy factor than those with two-bedroom units. If the subject property includes only units with two bedrooms, the appraisal should probably project:
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An apartment owner spent $4,000 last year to replace five built-in stoves. In a 10-unit apartment house, what annual expense would be projected for replacement if all the units had stoves? Assume a 10-year life for all replacements.
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If market rent is less than contract rent, the difference is known as:
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Income Capitalization is the broad term used to describe the process of estimating the value of income property by studying the economic relationship between income and value. This process:
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The choice of a capitalization technique and rate should consider the investment criteria that motivate purchasers of investment property. Which of the following refers to the ability to use the property as loan collateral?
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The most commonly used capitalization rate is:
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Capitalization rates may be estimated by any of several methods. Which of the following is generally the preferred method of deriving a capitalization rate?
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There are three recognized methods to provide for capital recovery in income capitalization. In which method is invested capital recovered from the annual income in exactly the same manner as a loan is paid off?
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The simplest and often the most reliable method of income capitalization is:
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If a $600,000 property has qualified for a 75% loan at a 12% mortgage constant and the buyer wants a 2% annual cash return on his down payment, what net income would the property have to produce?
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If a particular buyer requires a recapture of the building portion of the price in 10 years, what is the indicated recapture rate for the building, assuming straight-line recapture?
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In real estate finance, recapture of the investment capital is that portion of the loan payment that is earmarked for:
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A new 10,000 square-foot building has just been constructed at a location where no recent vacant land sales have occurred and competitive investments earn 10 percent interest. The replacement cost is $400,000. Assuming a useful life expectancy of 25 years, an economic rent of $1 per square foot per month, and annual expenses of $30,000 including vacancy allowance, what total property value is indicated?
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Study Notes
Real Estate Appraisal Concepts
- Tangible amenity example: Free rent is categorized as a tangible amenity.
- A savings account yielding $700 at a 7% interest rate reflects a total deposit of $10,000.
Income Property Valuation
- An income property generating $50,000 annually, sold for $500,000, has a gross income multiplier of 10.
- Considerations for gross income multiplier analysis include expense ratio, included services, and location.
Rental Income and Market Dynamics
- Market rent is defined as the potential gross rent, not the actual contract rent.
- Property taxes are classified as a specific expense rather than a general expense category.
Occupancy and Rents
- If a property has a 100% occupancy rate while the local typical rate is 95%, it may indicate that rents are too low.
- A comparison of vacancy factors: two-bedroom units typically have a higher vacancy factor than one-bedroom units.
Expenses and Replacement Costs
- If five stoves cost $4,000 to replace, the projected annual expense per unit for replacements over 10 years is $800.
- Excess rent occurs when market rent falls below contract rent.
Income Capitalization Principles
- Income capitalization estimates income property value based on net income conversion to capital value, reflecting economic principles like time value of money.
- Hypothecation refers to using property as collateral for loans, a key consideration in capitalization techniques.
Capitalization Rates and Methods
- The overall rate is the most frequently utilized capitalization rate in appraisals.
- Direct comparison is the preferred method to derive a capitalization rate among various available methods.
Capital Recovery Methods
- The annuity or Inwood method allows for capital recovery from annual income in a manner comparable to loan repayment.
- Direct capitalization is recognized as the simplest method for income capitalization.
Financial Returns and Recapturing Investments
- For a $600,000 property with a 75% loan at a 12% mortgage constant, the property must generate $57,000 in net income for a 2% cash return on the down payment.
- A 10-year recapture for the building portion priced straight-line indicates a recapture rate of 10%.
Loan Payment Components
- Recapture of investment capital represents the loan payment portion dedicated to the principal payoff.
- The total property value of a newly constructed 10,000 square-foot building is determined to be $740,000, considering replacement costs, economic rent, and anticipated expenses.
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Description
Test your knowledge of real estate appraisal concepts with this quiz based on Chapters 13 and 14. From understanding tangible versus intangible amenities to calculating savings account deposits, this quiz covers essential topics in the field. Perfect for students and professionals alike who want to refresh their understanding!
