Chapter 16 Unit Residential Income Property Appraisal

Question 1

Total income from a property before deducting any expenses, customarily stated on an annual basis

Answer 1

gross income

Question 2

_____ is what you start with – ____ is what is left over!

Answer 2

Gross, Net

Question 3

The actual or anticipated net income that remains after all operating expenses are deducted from effective gross income but before mortgage debt service and book depreciation are deducted. Note: This definition mirrors the convention used in corporate finance and business valuation for EBITDA (earnings before interest, taxes, depreciation, and amortization)

Answer 3

net operating income

Question 4

The total income attributable to real property at full occupancy before vacancy and operating expenses are deducted.

Answer 4

potential gross income

Question 5

A deduction from potential gross income (PGI) made to reflect income reductions due to vacancies, tenant turnover, and nonpayment of rent; also called vacancy and credit loss or vacancy and contingency loss

Answer 5

vacancy and collection loss

Question 6

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.

Answer 6

Effective gross income

Question 7

"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" is the definition of
Operating Expenses
Potential Gross Income
Effective Gross Income
Net Operating Income

Answer 7

effective gross income

Question 8

“The total income attributable to real property at full occupancy before vacancy and operating expenses are deducted” is the definition of
Cash flow
Potential Gross Income
Effective Gross Income
Net Operating Income

Answer 8

potential gross income

Question 9

"The actual or anticipated net income that remains after all operating expenses are deducted from Effective Gross Income but before mortgage debt service and book depreciation are deducted " is the definition of
Gross Income
Potential Gross Income
Effective Gross Income
Net Operating Income

Answer 9

net operating income

Question 10

The periodic expenditures necessary to maintain the real estate and continue production of the effective gross income, assuming prudent and competent management. See also total operating expenses

Answer 10

operating expenses

Question 11

The sum of all fixed and variable operating expenses and the replacement allowance cited in the appraiser’s operating expense estimate

Answer 11

total operating expenses

Question 12

An allowance that provides for the periodic replacement of building components that wear out more rapidly than the building itself and must be replaced during the building’s economic life; sometimes referred to as reserves or reserves for replacement

Answer 12

Replacement allowance

Question 13

o find Net Operating Income, we do the following steps:

Answer 13

Gross Annual Rental (Potential Gross Income)

+ Other Income

• Vacancy/Credit Loss

= Effective Gross Income

• Operating Expenses

= Net Operating Income

Question 14

Replacement reserves might be established for all of the following items EXCEPT
Roof covering
Boilers
Water heaters
Foundations

Answer 14

foundations

Question 15

The main difference between gross and net income is
Income taxes
Operating expenses
Reserves for replacement
Profit

Answer 15

operating expenses

Question 16

Potential Gross Income plus other income minus ___________ equals ______________.
operating expenses, Net Operating Income
allowance for vacancies, Effective Gross Income
reserves allowance, Effective Gross Income
allowance for vacancies, Net Operating Income

Answer 16

allowance for vacancies, effective gross income

Question 17

Income derived from the operation of a business or real estate; indicates a stage in the profit-and-loss account where all direct costs and income from the operation have been taken into account; as distinguished from net profit or cash flow

Answer 17

operating income

Question 18

Lenders use \_\_\_\_\_\_\_\_\_\_\_\_\_ income when underwriting loans for 2 to 4 unit residential properties.
Operating
Potential Gross
Effective Gross
Taxable

Answer 18

operating

Question 19

In Form 216, the income and expenses have to be projected for the next \_\_\_\_ months.
6
12
18
24

Answer 19

12

Question 20

In actual practice, the Operating Income Statement (Form 216) is typically prepared by:
The underwriter
Fannie Mae
The listing real estate agent
The appraiser

Answer 20

the appraiser

Question 21

A 4-unit property has two units rented at $900 per month, and two units rented at $1,200 per month. The Vacancy and Collection Loss rate is 6%. Total operating expenses are $21,525. What is the EGI?
$50,400
$44,896
$25,851
$47,376

Answer 21

$47,376

Question 22

Which would NOT be classified as “other income”?
Parking space rental
Rental income
Vending machine income
Coin-operated washers and dryers

Answer 22

rental income

Question 23

“Total income from a property before deducting any expenses, customarily stated on an annual basis” is the definition of
Gross income
Cash flow
After-tax income
Net Operating Income

Answer 23

gross income

Question 24

In actual appraisal practice, Form 216 is most commonly prepared by the:
Underwriter
Borrower
Real estate agent
Appraiser

Answer 24

appraiser

Question 25

Potential Gross Income - \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_ = Effective Gross Income.
Operating expenses
Vacancies and Credit Loss
Expense ratio
Replacement allowance

Answer 25

vacancies and credit loss

Question 26

A 4-unit property has two units rented at $900 per month, and two units rented at $1,200 per month. The Vacancy and Collection Loss rate is 6%. Total operating expenses are $21,525. What is the NOI?
$25,851
$47,376
$22,369
$24,087

Answer 26

$25,851

Question 27

Potential Gross Income – Vacancies and Credit Loss = \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_.
Effective Gross Income
Total operating expenses
Net Operating Income
Expense ratio

Answer 27

effective gross income