Chapter 10 Flashcards
The procedure in which a discount rate is applied to a set of projected income streams and a reversion. The analyst specifies the quantity, variability, timing, and duration of the income streams as well as the quantity and timing of the reversion and discounts each to its present value at a specified yield rate.
Discounted Cash Flow Analysis
The valuation technique has to suit the property type _______. We need to develop an appropriate ______ __ ______ to solve the problem in each appraisal assignment.
appraised; scope of work
Another practical reason why we draw the line at four units for residential appraisers is because of limitations imposed by the
federal financial institution regulatory agencies and incorporated into state licensing statutes.
The relationship or ratio between the sale price or value of a property and its periodic gross rental income
Gross Rent Multiplier
When performing an income approach on a single unit residential property, we employ
gross rent multiplyer
GRMs are derived by
dividing the sales price by the gross monthly unfurnished market rent at the time of sale.
Gross rent multiplier (GRM) analysis is based on the assumption that there is a direct relationship between
rental income and value
The more rental income a property can produce, the more
valuable it is
True or False: An appraiser would typically not value a 50-unit apartment complex with a gross rent multiplier (GRM).
True
How is a GRM derived?
dividing the adjusted sale price by the annual net operating income
dividing sale price by gross monthly unfurnished market rent
dividing the annual income by the sale price
multiplying sale price by gross monthly unfurnished market rent
dividing sale price by gross monthly unfurnished market rent
A property sold for $74,000 and it was rented for $675 at the time of sale. What is the indicated GRM?
- 2
- 6
- 8
- 0
109.6
GRM analysis may or may not be applicable to single-unit residential properties. It mainly depends upon the character of the
market area
There are several additional concerns that come into play when evaluating income property comparables. They should be comparable in terms of (3)
Division of utility expenses between the landlord and tenant
Ratio of expenses to income
Lease terms
The _____ of expenses to rent is a crucial factor when comparing properties.
ratio
In renting unfurnished apartments, for example, the expenses may consume something in the range of 35% to 45% of the total income. This means that for every dollar of rent collected, $_____ to $____ goes to just operating the property
$0.35 to $0.45
In order for a comparable to be useful in extracting a GRM, it must have been \_\_\_\_\_\_\_\_\_\_ at the time it \_\_\_\_\_\_\_\_\_\_. new, rented rented, sold vacant, purchased rented, built
rented, sold
True or False: New single-unit homes are frequently purchased as rental investment properties.
False
True or False: GRM analysis should not be used in areas with rent controls.
True
The region or area over which something is found, is distributed, or occurs.
Range
Range is the difference between the ______ and the _______
highest; lowest
Mean
A measure of central tendency. The sum of values for a variable in a sample or population divided by the number of items in the sample or population. The arithmetic average
We don’t adjust our _____ indicators
GRM
The presumption is that the GRM would be self-adjusting according to the __________
marketplace
Market rent is the amount for which the property ________ be rented
should
Fannie Mae requires the use of Form 1007 when the subject is a ___-_____ investment property.
One-unit
Subtracting an amount for any utilities or furnishings that are included in the rent, to get down to a clean monthly rent figure that represents rent for the use of the space itself.
Adjusted Monthly Rent
These provide inducements to entice prospective tenants to rent a property. They are frequently employed in slow markets when there are lots of competing units for rent. We also find them sometimes in new rental projects, where concessions are employed to get a new project up and running.
Rent concessions
If the subject of your assignment is a single-unit investment property, then Fannie Mae ________ the completion and attachment of the form 1007.
requires
The subject property is a four-unit building, consisting of two 2-bedroom units and two 1-bedroom units. Through research and analysis, you estimate the market rents for the 2-bedroom units at $1,500 per month, and the 1-bedroom units at $1,100 per month. The market-extracted GRM is 95. What is the indicated value for the subject property?
2-bedroom units = $1,500 x 2 = $3,000
1-bedroom units = $1,100 x 2 = $2,200
Total gross monthly rent = $5,200
Multiplying the monthly rent of $5,200 x 95 GRM = $494,000 indicated value by the GRM income approach.
This is strictly income from the use of land or improvements
rent
This from a property may include rent plus other kinds of income: perhaps from renting of garages, coin operated washers and dryers, etc.
Gross Income
GRM is based on
monthly rent
GIM is based on
annual income
Gross income multipliers (GIMs) are applied to
multi-unit properties and other income-producing properties of any kind.
The relationship or ratio between the sale price or value of a property and its gross annual rental income.
Gross Income Multiplies
The total income attributable to real property at full occupancy before vacancy and operating expenses are deducted.
Potential Gross Income
The anticipated income from all operations of the real estate after an allowance is made for vacancy and collection losses and an addition is made for any other income.”
Effective gross income
The primary difference between GRM and GIM is that
GRM uses monthly rent, while GIM uses annual income
GRM is used on larger properties, while GIM is used on smaller properties
GRM uses gross income, while GIM uses net income
GRM is used for mortgage appraisals, while GIM is exclusively used for other intended uses
GRM uses monthly rent, while GIM uses annual income
The Fannie Mae 1007 form is intended to
demonstrate support for the appraiser’s selection of GRM
estimate the market rent of the subject property
estimate the market value of the subject property
help the appraiser’s client understand mean, median, and mode
estimate the market rent of the subject property
True or False: Contract rent and market rent are two different concepts.
True
When developing an appraisal, you calculate the following GRMs from comparable properties: 94.3, 90.1, 95.6, 109.2, 84.5, 100.7, 99.9. What is the mode of the GRMs? 96.3 99.9 95.6 there is no mode
There is no mode
GRMs are derived by dividing the _______________ by the _______________ at the time of sale.
monthly rent, sale price
sale price, gross monthly unfurnished market rent
contract price, gross annual income
potential gross income, operating expenses
sale price, gross monthly unfurnished market rent
A house is rented for $875 per month and it sells for $120,000. What is the indicated GRM?
- 9
- 6
- 1
- 7
137.1
Which can be affected by extremes at either end of the distribution? mean median mode maximum
mean
"The region or area over which something is found, is distributed, or occurs" is the definition of range spread distribution array
Range
Which statement is generally true in a market with rent control?
Rents are subject to more rapid fluctuations than sale prices.
Sale prices are subject to more rapid fluctuations than rent.
Rents and sale prices usually move in opposite directions.
Rents and sale prices are not subject to rapid fluctuations.
Sale prices are subject to more rapid fluctuations than rent.
To appraise a non-complex 6-unit property for a federally-related transaction, you need to be a _______________
Licensed Residential Appraiser
Licensed Residential Appraiser with at least two years’ experience
Certified Residential Appraiser
Certified General Appraiser
Certified General
A property sells for $95,750. At the time of sale it is rented for $975. What is the GRM?
- 7
- 6
- 2
- 5
98.2
A set of numbers that has two modes is referred to as a: bi-modal distribution statistically insignificant set arcane distribution modeless set
bi-modal distribution
When arriving at a value indication utilizing a GRM, one component is the \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_ rent of the subject property. net contract gross annual rent net monthly gross monthly unfurnished market
gross monthly unfurnished market
Here are six comparable sales. Sale price/Monthly rent: 1. $98,000/$800. 2. $102,000 /$850. 3. $89,500/$750. 4. $91,600/$750. 5. $87,500/$750. 6. $105,000/$875. What is the median of the GRMs?
- 0
- 2
- 4
- 0
120.0
An expense ratio is the ratio of expenses to cost expenses to income rent to expenses expenses to utilities
expenses to income
_______________ appraisers can appraise a 15 unit residential property without regard to value or complexity.
only Certified General
Licensed Residential
only Certified Residential
both Certified Residential and Certified General
Only certified general
"The sum of values for a variable in a sample or population divided by the number of items in the sample or population" is the definition of range mean median mode
mean
An appraiser extracts a set of market rental amounts for houses like the subject. They are $850, $875, $775, $950, $925, and $900. What is the mean of the market rents? $859.77 $868.27 $879.17 $890.57
$879.17
The Fannie Mae Single Family Comparable Rent Schedule is also known as Form 1004 1007 1020 1025
1007
An apartment building had 12 units rented for $1,400 per month and 20 units rented for $1,600 per month. It sold for $3,000,000. What was the GIM?
5.1
Gross Income Multipliers. 12 X $1,400 = $16,800. 20 X $1,600 = $32,000. $16,800 + $32,000 = $48,800. $48,800 X 12 months = $585,600. $3,000,000 ÷ $585,600 = 5.1.
Here are five comparable sales. Sale price / Monthly rent: 1. $142,000/$1,025. 2. $133,000/$1,000. 3. $128,500/$975 4. $145,000/$1,050. 5. $135,000/$1,000. What is the mean of the GRMs?
135.3
Which term is defined as: "The relationship or ratio between the sale price or value of a property and its periodic gross rental income"? Multiplier Discount rate Gross rent multiplier Capitalization rate
gross rent multiplier
