Question 1

Economic obsolescence is the loss of value caused by inefficient layout of technological changes

Accepted Answer

False

Question 2

The capitalization rate is equal to the discount rate minus any expected annual growth in income and property value

Accepted Answer

This is true. The capitalization rate is typically used to value income-producing properties and represents the rate of return an investor would expect to receive on their investment based on the net operating income of the property. The formula for calculating the capitalization rate is: Cap rate = Net operating income / Property value. The discount rate represents the investor's required rate of return, and any expected annual growth in income and property value would reduce the overall return and therefore reduce the capitalization rate.

Question 3

Appraisers use bracketing in order to estimate the upper and lower range of value

Accepted Answer

Bracketing is a method used by appraisers to narrow down the range of value of a property by comparing it to other similar properties in the market. It involves selecting a few properties that are similar to the subject property and have recently sold, and then comparing them to the subject in terms of size, location, and other features. By doing this, the appraiser can estimate the upper and lower range of value for the subject, based on the prices of the comparable properties.

Question 4

A gross income multiplier can be calculated by dividing the gross income by the sales price

Accepted Answer

The answer of A gross income multiplier can be calculated...

Question 5

When conducting an appraisal,only one of three approaches should be selected to determine the property value

Accepted Answer

When conducting an appraisal, all three approaches (market, cost, and income) should be considered and analyzed to determine the most accurate property value.

Question 6

Capitalization rate of newly constructed apartment building will be more than that of relatively old apartment building,which is comparable in all other aspects

Accepted Answer

The answer of Capitalization rate of newly constructed apartment building...

Question 7

Consider the table above.Assume that the subject property has effective gross income of $53,000 and a NOI of $27,500.What value would a cap rate approach yield rounded to the nearest $100?

Accepted Answer

The answer of Consider the table above.Assume that the subject...

Question 8

An overall capitalization rate can be calculated by dividing the net operating income by the property value

Accepted Answer

This is a commonly used formula in real estate valuation and is a fundamental concept in determining the value of income-producing properties.

Question 9

Consider the table above.Assume that the subject property has effective gross income of $53,000 and a NOI of $27,500.What value would a GIM approach yield rounded to the nearest $100?

Accepted Answer

The answer of Consider the table above.Assume that the subject...

Question 10

The rationale for using the cost approach to appraisal is that any informed buyer would not pay more for property that what it would cost to buy the land and build the structure

Accepted Answer

The cost approach to appraisal assumes that a buyer would not pay more for a property than the cost it would take to acquire the land and construct the structure on it. This approach is often used for new or unique properties where comparable sales may not be available.

Question 11

The equity value can be estimated by subtracting debt service from net operating income and dividing this amount by the equity dividend rate

Accepted Answer

This formula represents the Capitalization Rate (also known as the cap rate) method of estimating equity value in real estate. The resulting value is the approximate market value of the property using income-based valuation methods.

Question 12

One advantage of the gross income multiplier approach to appraisal is that it is most suitable for properties in which operating expenses vary widely across the properties being surveyed

Accepted Answer

The answer of One advantage of the gross income multiplier...

Question 13

When using the gross income multiplier approach to appraisal,potential gross income is preferred to effective gross income

Accepted Answer

The answer of When using the gross income multiplier approach...

Question 14

The market method or direct sales comparison method of estimating site value is not the most reliable method available

Accepted Answer

The answer of The market method or direct sales comparison...

Question 15

The capitalization rate for a leased fee estate should always be lower than the capitalization rate for a fee simple estate

Accepted Answer

The capitalization rate for a leased fee estate is typically higher than the capitalization rate for a fee simple estate because the income stream is considered less certain due to the presence of a lease.

Question 16

In the cost approach to value,land value can be estimated by comparing sales of vacant land that are similar to the subject land

Accepted Answer

The cost approach to value involves adding up the estimated costs of the land and improvements, and then deducting depreciation. In order to estimate the value of the land, sales of comparable vacant land can be used as a guide. This is known as the sales comparison method, one of the three methods used to estimate the value of real estate.

Question 17

A property is purchased for $350,000.Based on an annual growth rate of 3%,the resale value at the end of year 10 would be $456,671

Accepted Answer

Using the formula for compound interest, $FV = PV(1 + r)^n$, where $FV$ is the future value, $PV$ is the present value ($350,000), $r$ is the annual growth rate (3% or 0.03), and $n$ is the number of years (10), the correct calculation is $FV = 350,000(1 + 0.03)^{10}$, which equals approximately $470,000, not $456,671.

Question 18

The sales comparison approach to appraisal is preferred because it is the only objective appraisal approach

Accepted Answer

While the sales comparison approach is a commonly used method in real estate appraisal, it is not the only objective approach. Other objective approaches include the cost approach and the income approach.

Question 19

Return on investment and change in net operating income are essential factors for cost analysis

Accepted Answer

The answer of Return on investment and change in net...

Question 20

A building has 12 foot ceilings that cause the electric bill to be $1,200 higher per year.Depreciation caused by the ceilings can be estimated by calculating the present value of the $1,200 per year over the remaining economic life of building

Accepted Answer

This statement is true. The depreciation caused by the 12 foot ceilings can be estimated by calculating the present value of the $1,200 per year over the remaining economic life of the building.

Quiz 10: Valuation of Income Properties: Appraisal and the Market for Capital