Chap 16 Flashcards
A new car has a sticker amount of $31,000. This figure is the car’s
A) market value. B) price. C) investment value. D) cost.
Explanation
The answer is price. Price refers to the amount of money for which a good is actually sold.
A new airport built in proximity to a residential neighborhood may cause properties to lose value due to
A) outmoded design. B) functional obsolescence. C) external obsolescence. D) physical deterioration.
Explanation
The answer is external obsolescence. External obsolescence is loss in value due to influences originating outside the boundaries of the property, such as an expressway adjacent to a residential subdivision
An income-producing property has a projected effective gross income of $65,000. Expenses are estimated at 20% of effective gross income. An appraiser has determined that an appropriate capitalization rate is 8%. What is the estimated market value of this property?
A) $650,000 B) $812,500 C) $325,000 D) $485,500
Explanation
The answer is $650,000. $65,000 EGI × .20 rate = $13,000 expenses. $65,000 – $13,000 = $52,000 NOI. $52,000 ÷ .08 cap rate = $650,000 valu
Which type of depreciation is associated with inefficient architectural design?
A) Age-life deterioration B) Physical deterioration C) External obsolescence D) Functional obsolescenceExplanation The answer is functional obsolescence. Functional obsolescence is depreciation associated with operational inadequacies, poor design, or changing tastes and preferences.
Explanation
The answer is functional obsolescence. Functional obsolescence is depreciation associated with operational inadequacies, poor design, or changing tastes and preferences.
A limited partnership plans to purchase an apartment building that has a monthly net income of $5,200 and monthly expenses of $1,400. If the partnership is to get a 12% return on its investment, what should it pay for the property?
A) $350,500 B) $43,333 C) $520,000 D) $62,400
Explanation
The answer is $520,000. The solution is $5,200 monthly net income × 12 months = $62,400 annual NOI. $62,400 ÷ .12 rate of return = $520,000 target price.
Which type of cost is calculated using similar, but NOT identical, building materials, resulting in equal utility as compared with the subject property?
A) Reproduction B) Accounting C) Replacement D) Insurance
Explanation
The answer is replacement. Replacement cost is the amount of money required to replace a structure having the same use and functional utility as the subject property but using modern, available, or updated materials.
A home has 2,000 square feet of living area and 485 square feet of garage. The reproduction cost new is $98 per square foot for living area and $55 per square foot for finished garage area. The site measures 75 feet wide by 120 feet deep and is valued at $5 per square foot. The economic life of the structure is estimated to be 60 years. The house is 10 years old. What is the value of the property using the cost-depreciation approach (round figures to the nearest dollar)?
A) $222,675 B) $208,333 C) $185,562 D) $230,562
Explanation
The answer is $230,562. 2,000 square feet × $98 = $196,000 living area. 485 square feet × $55 = $26,675 garage area. $196,000 + $26,675 = $222,675 reproduction cost new. $222,675 ÷ 60 years economic life × 10 years = $37,112.50 accrued depreciation (rounded up to $37,113). $222,675 – $37,113 = $185,562 depreciated structure. 75 feet wide × 120 feet deep = 9,000 square feet for lot. 9,000 × $5 per square foot = $45,000 land value. $185,562 + $45,000 = $230,562 property value.
using income capitalization, what is the result of holding the capitalization rate constant and increasing the net operating income?
A) Capitalization rate decreases B) Present value decreases C) Present value increases D) Capitalization rate increases
Explanation
The answer is present value increases. If the net income goes up and the capitalization rate remains constant, the present value will increase.
Which principle states that an informed purchaser will NOT pay more for real estate than the cost of acquiring an equally desirable alternative property?
A) Balance B) Market value C) Conformity D) Substitution
Explanation
The answer is substitution. The principle of substitution means that a prudent buyer or investor will pay no more for a property than the cost of acquiring, through purchase or construction, an equally desirable alternative property.
What is the result of multiplying the gross rent multiplier by the monthly rent?
A) Annual rent B) Capitalization rate C) Leasable rent D) Market value
Explanation
The answer is market value. Market value equals the gross monthly rent multiplied by the gross rent multiplier.
An income-producing property has a potential annual gross income of $98,500. Vacancy and collection losses are estimated at 10% of potential gross income. Expenses are estimated at $45,000. The estimated value of the property is $350,000. What is the capitalization rate for this property?
A) 12.47% B) 28.14% C) 11.75% D) 16.74%
Explanation
The answer is 12.47%. $98,500 PGI × .10 rate = $9,850 vacancy and collection loss. $98,500 – $9,850 = $88,650 EGI. $88,650 – $45,000 expenses = $43,650 NOI. $43,650 ÷ $350,000 value = .1247 or 12.47% cap rate.
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An appraiser is calculating the reproduction cost new of a home using the comparative square-foot method. The appraiser measured the exterior dimensions of the home, which were 30 feet by 55 feet, plus a detached garage measuring 22 feet by 24 feet. The appraiser consults an accepted cost manual and estimates the reproduction cost for heated and air-conditioned living area to be $90.50 per square foot and the finished free-standing garage to be $58.00 per square foot. What is the reproduction cost new of the improvements?
A) $185,450 B) $179,949 C) $197,109 D) $149,325
Explanation
The answer is $179,949. 30 feet × 55 feet = 1,650 square feet living area × $90.50 = $149,325. 22 feet × 24 feet = 528 square feet garage area × $58.00 = $30,624. $149,325 + $30,624 = $17Explanation
The answer is $179,949. 30 feet × 55 feet = 1,650 square feet living area × $90.50 = $149,325. 22 feet × 24 feet = 528 square feet garage area × $58.00 = $30,624. $149,325 + $30,624 = $179,949 reproduction cost new.9,949 reproduction cost new.
