Deck 11: An Introduction to Hotel Valuation

Question 1

The organization responsible for the majority of appraiser education is the United States Appraisal Corporation.

Answer 1

False

Question 2

The submarket analysis is one of the most important and distinguishing features of a hotel appraisal.

Answer 2

True

Question 3

The highest and best use for a parcel of land is always a commercial use.

Answer 3

False

Question 4

A good definition of real estate is the land, building, and everything in it.

Question 5

Appraisals are often completed for lenders.

Question 6

The first step in the appraisal process is to understand the nature of the appraisal problem.

Question 7

The fair share concept states that if a hotel represents 10 percent of room supply, it should accommodate 10 percent of market demand.

Question 8

A neighborhood is defined as an area with a wide variety of land uses.

Question 9

The most important information to gather from competitive hotels is the average rate and occupancy information.

Question 10

When completing the sales comparison approach, inferior properties are adjusted downward.

Question 11

If a hotel is located across the street from the hotel you are appraising, it should always be considered to be competitive.

Question 12

Visibility and access are critical components of a hotel site analysis.

Question 13

Most hotel appraisals emphasize the income capitalization approach.

Question 14

The appraiser must be able to segment the demand in a market.

Question 15

Market value is usually the same as assessed value.

Question 16

Employment data are not important in an appraisal because they are all historical.

Question 17

The cost approach is generally the easiest approach to complete.

Question 18

The discount rate used in the yield capitalization process is called the direct capitalization rate.

Question 19

The most complete interest in real estate is a fee simple interest.

Question 20

Biased appraisals was a significant problem in the 1980s.

Question 21

A property with a competitive advantage within a market segment will have a penetration rate of

A)more than 100 percent.
B)less than 100 percent.
C)100 percent.
D)50 percent or more.

Question 22

Federal regulations now require appraisals to be commissioned by the

A)buyer.
B)lender.
C)seller.
D)broker.

Question 23

If you were appraising a church, which approach to value would be best to use?

A)sales comparison approach
B)cost approach
C)income capitalization approach
D)revenue multiplier

Question 24

Which of the following would have the greatest potential impact on the hotel?

A)an increase in the population
B)the construction of a new office building housing a new local law firm
C)a major employer leaves the market area
D)an increase in the number of residential building permits

Question 25

The best consideration in determining whether or not two hotels are competitive with each other is

A)their size
B)the type of demand they accommodate
C)the size of the rooms
D)the visibility of the hotels

Question 26

Which of the following is NOT one of the stages in the neighborhood life cycle?

A)growth
B)re-birth
C)stability
D)decline

Question 27

An estimate of value is good for

A)one day.
B)one month.
C)three months.
D)one year.

Question 28

The highest form of real estate ownership is

A)fee simple.
B)leasehold.
C)leased fee.
D)none of the above.

Question 29

If a hotel has the highest average rate in the market it

A)is the rate leader in the market.
B)usually has a high occupancy as well.
C)has a high Revpar.
D)is making a lot of money.

Question 30

The best source for projecting operating expenses for a hotel is the financial statements of comparable hotels.

Question 31

Which of the approaches to value is generally considered to be the most difficult when appraising existing hotels?

A)direct capitalization approach
B)sales comparison approach
C)yield capitalization approach
D)cost approach

Question 32

Which of the following is NOT considered in a site analysis?

A)zoning
B)location in a flood plain
C)whether or not utilities are above ground or below ground
D)size and topography

Question 33

When you have a fee simple interest in a property, which of the following do you NOT own?

A)the minerals under the ground
B)the air space above the ground
C)the ground and everything permanently attached to it
D)none of the above

Question 34

Rule of thumb approaches are not allowed to be used in hotel appraisals.
MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

Question 35

The value in a forced sale is

A)market value.
B)assessed value.
C)liquidation value.
D)sale value.

Question 36

If the appraiser finds deferred maintenance at the property, she should

A)add it to the value of the property.
B)subtract it from the value conclusion.
C)increase maintenance expense in the income statement.
D)use a higher discount rate.

Question 37

If a hotel has 250 rooms and the competitive market has a total of 1,000 rooms, the hotel's fair share is:

A)100 percent.
B)50 percent.
C)25 percent.
D)cannot tell from information given.

Question 38

The rate used to determine the sales price of a hotel at the end of a holding period is called the terminal capitalization rate.

Question 39

A historical supply and demand analysis is

A)not relevant because the appraiser only worries about future events.
B)a good starting point in order to make projections.
C)all an appraiser needs to make effective projections.
D)usually too time-consuming to include in the appraisal.

Question 40

Many hotel appraisals in the past have underestimated the true replacement cost of furniture, fixtures, and equipment.

Question 41

Which of the following is typically used in the cost approach?

A)reproduction cost
B)replacement cost
C)aging cost
D)valuation cost

Question 42

The final reconciliation of value should

A)be an average of all the approaches used.
B)ignore the approaches not used.
C)be based on the approach that is considered the most reliable.
D)none of the above.

Question 43

A 100-room hotel achieves a 70 percent occupancy and an average rate of $60. It sells for $4,600,000. What is the gross rooms revenue multiplier?

A)1.5
B)3.0
C)02
D)cannot tell from information given

Question 44

Which approach uses one year's stabilized income to determine value?

A)yield capitalization
B)sales comparison
C)rooms revenue multiplier
D)direct capitalization

Question 45

The terminal capitalization rate is

A)the same as an equity yield rate.
B)usually higher than the overall capitalization rate.
C)usually lower than the overall capitalization rate.
D)used to discount the NOI stream.

Question 46

Given a debt percentage of 40 percent, a mortgage constant of .12, and a required return on equity of 16 percent, what is the overall capitalization rate?

A)14 percent
B)13 percent
C)12 percent
D)none of the above