Chapter 4 Introduction to Value Flashcards

1
Q

Define Book Value.

A

an accounting term that refers to the value used for financial statements. Typically original price, plus capital improvements, less accounting depreciation. Used for income tax liability and investment return.

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2
Q

What is Assed Value?

A

An administrative, government-imposed valuation. Value according to the tax rolls.

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3
Q

What is the market value?

A

The most probable sales price given a reasonable period of time to sell.

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4
Q

Define Utility.

A

A characteristic of real estate that indicates that it has the power of a public good-that it fills a need or provides a service.

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5
Q

Define the principle of desire.

A

A commodity must meet more than a physical need; it must meet a psychological need.

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6
Q

Explain the highest and best use of a property.

A

The reasonable, probable, and legal use of vacant land or an improved property, which is physically possible, appropriately supported, financially feasible, and results in the highest value.

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7
Q

List the criteria for testing highest and best use

A
legality
profitability
financial feasibility 
physical probability
reasonableness
environmental acceptance
appropriateness
compatibility
possibility
competative uses
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8
Q

What is the physical probability in determining highest and best use?

A

The building must be physically possible-the soil must be able to support construction, no restrictions on proposed building height, etc.

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9
Q

List the important factors to consider with regard to environmental acceptance in determining highest and best use.

A

The building must comply with environmental regulations, noise ordinances, limits on traffic, and other varied restrictions on the use of property.

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10
Q

Define the term appropriateness when discussing highest and best use.

A

A simple judgement as to whether the proposed building fits into its environment and neighborhood.

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11
Q

What is a gross lease?

A

A lease in which the lessee pays a fixed fee and the landlord pays all property related operating expenses.

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12
Q

Which type of loan requires that the tenant pay some or all of the operating expenses of the property?

A

A net lease

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13
Q

In which type of lease do rent payments cover only the amortized mortgage principal and lessor’s basic profit?

A

Triple-Net Lease. Commonly used for unique single-tenant buildings

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14
Q

Which type of lease is commonly used for unique single-tenant building?

A

A Triple-Net lease.

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15
Q

What is a percentage lease?

A

A lease in which the landlord is fully or partially compensated for rent by a percentage of the tenant’s sales.

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16
Q

Explain what a ground lease is?

A

A lease in which the tenant leases a parcel of vacant land and pays for all improvements made on the site.

17
Q

What is the principle of contribution?

A

Contribution theory looks at individual portions of the whole property and measures their relative worth.

18
Q

Define cash-on-cash return.

A

a ratio derived by dividing the actual income received from an enterprise by the actual cash invested

19
Q

Define return on equity.

A

The net profit after taxes divided by the net worth.

20
Q

Define internal rate of return.

A

The rate of return on capital that is generated or is capable of being generated over a period of ownership (similar to the equity yield rate).

21
Q

Even though a product has great utility, if it is in abundant quantity it will have little value. This statement describes the principle of:

a. scarcity
b. highest and best use
c. purchasing power
d. desire

A

a. scarcity

22
Q

Criteria used to test a properties highest and best use include all of the following except:

a. legality
b. compatability
c. economic trends
d. physical probability

A

c. economic trends

23
Q

When evaluating the environmental acceptance of a proposed project, the least important factor to consider is:

a. the effect of sun blockage
b. local utilities
c. noise impacts
d. visual attractiveness

A

b. local utilities

24
Q

The type of lease in which the lessee pays some or all operating expenses is a:

a. gross lease
b. net lease
c. contract lease
d. percentage lease

A

b. net lease

25
Q

Ground leases are normally:

a. long-term leases
b. short-term leases
c. percentage leases
d. gross leases

A

a. long-term leases

26
Q

When examining the effect of lease provisions on the value of a property, the manager should interview the:

a. accounting department head
b. O&M supervisor
c. leasing agents
d. tenants and owners

A

d. tenants and owners

27
Q

The value of any factor of production or component of a property depends on how it enhances the overall value of the property. This statement is called the principle of:

a. change
b. highest and best use
c. contribution
d. variable proportions

A

c. contribution