Chapter 6,7,8

Question 1

Income template chart:

Answer 1

Question 1

IVF formula worksheet chart:

Answer 1

Question 2

A commercial property has PGI of $55,000 and 6% vacancy. The operating
expense ratio (OER) for the property is 48%. If the market indicates an 8.5%
overall capitalization rate (RO), what is the indicated value of the property?

Answer 2

Step 1: $55,000 PGI × 0.94 occupancy = $51,700 EGI

Step 2: $51,700 EGI × 0.48 OER = $24,816 OE

Step 3: $51,700 EGI − $24,816 OE = $26,884 IO

Step 4: TBAR $316,300

Question 3

The EGI for a property is $225,000. If vacancy and collection loss are 10%,
what is the potential gross income (PGI) for the property? Hint: This is an application of the math functions that you learned in Basic
Appraisal Principles. Think of EGI as representing 90% of PGI.

Answer 3

$225,000 EGI / 0.90 = $250,000 PGI

Question 4

The NOI for a property is $120,000 with vacancy at 5%. If the operating
expense ratio (OER) is 40%, what is the potential gross income (PGI) for the
property?
Hint: Take the same approach as the previous question.

Answer 4

Step 1: $120,000 NOI / 0.60 NIR = $200,000 EGI
Step 2: $200,000 / 0.95 occupancy = $210,526.32 PGI
Note: NIR is the complement of OER.

Question 5

An investor learned that a financial institution would lend 75% of value on a specific property. The lender indicated the mortgage constant was 10.7% based on a 15-year term. If the investor purchases the property for $1 million, what is the annual debt service?

Answer 5

$80,250

Question 6

An investor queried a financial institution and found that it will lend 80% of the sale price, and the mortgage constant (RM) is 8.5%. The investor is considering a $625,000 purchase of a property with NOI (IO) at $125,000. What is the pre-tax cash flow (PTCF) for this property using the mortgage constant supplied by the bank?
Hint: Use the mortgage constant to derive the annual debt service, then solve
for PTCF (the formula for the last step is IO − IM = PTCF)

Answer 6

Step 1: $625,000 × 0.80 = $500,000 VM (loan amount)
Step 2: $500,000 VM × 0.085 RM = $42,500 IM (annual debt serv.)
Step 3: $125,000 IO − $42,500 IM = $82,500 PTCF

Question 7

The PGI for a property is $120,000 and there is a 3% vacancy rate. The
annual debt service is $24,640 and the OER is 40%. What is the pre-tax cash
fl ow (PTCF) for this property?
Hint: Derive IO then IO − IM = PTCF.

Answer 7

Step 1: $120,000 PGI × 0.97 occupancy = $116,400 EGI
Step 2: $116,400 EGI × 0.40 OER = $46,560 OE
Step 3: $116,400 EGI − $46,560 OE = $69,840 IO
Step 4: $69,840 IO − $24,640 IM = $45,200 PTCF

Question 8

Appraiser Howard is analyzing a property that sold for $650,000. The
operating expense for the property is 38% and PGI is $130,000 with a 1%
collection loss. What is the effective gross income multiplier (EGIM) for the
property?
Hint: Use VIF to derive the factor.

Answer 8

$130,000 PGI × 0.99 to refl ect collection loss = $128,700 EGI
$650,000 V / $128,700 EGI = 5.0505, or 5.05 EGIM
Note: OER is a decoy. It‛s not needed to solve for EGIM

Question 9

An office building has an EGI of $304,000 and a 5% vacancy. If the market indicates a PGIM of 8.5, what is the value of the property?
Hint: Think of the property as having 95% occupancy. Use VIF for the final
calculation.

Answer 9

Divide the EGI by 0.95 occupancy to get PGI.
Step 1: $304,000 EGI / 0.95 occupancy = $320,000 PGI
Step 2: $320,000 PGI × 8.5 PGIM = $2,720,000 value

Question 10

There are two common types of slab foundations. One is the slab on a perimeter
stem wall, and the other is called a _____ slab

Answer 10

monolithic

Question 11

The two wall framing types are ____ and ____ .

Answer 11

platform, balloon

Question 12

A lender often requires a water test if a property has a _____

Answer 12

private well

Question 13

Foundation walls are generally built on ____

Answer 13

footings

Question 14

Colonial style is an example of a two-story design for a residence

Answer 14

True

Question 15

Cost

Answer 15

The actual or estimated amount required to create, reproduce, replace, or
obtain a property

Question 16

8 Steps to the cost approach:

Answer 16

Question 17

Balance

Answer 17

An improper balance may result in an overimprovement or
underimprovement for a property. This imbalance results in a loss in value

Question 18

Substitution

Answer 18

This principle affirms that no prudent buyer would pay more for a
property than the cost to construct one of equal desirability and utility without
undue delay

Question 19

Externalities

Answer 19

Gains or losses from external factors may accrue to both
unimproved or improved land and improvements (buildings). External
conditions may cause a newly constructed building to be worth more or less
than its cost

Question 20

Reproduction is an ____ of the current improvements

Answer 20

exact replica

Question 21

Replacement is ___ to the current improvements

Answer 21

equivalent in utility

Question 22

Reproduction cost

Answer 22

The estimated cost to construct, at current prices
as of the effective date of the appraisal, a duplicate or replica of the
building being appraised, using the same or similar materials, construction
standards, design, layout, and quality of workmanship and embodying
all the deficiencies, superadequacies, and obsolescence of the subject
building

Question 23

Replacement cost

Answer 23

The estimated cost to construct, at current prices as
of a specific date, a substitute for a building or other improvements, using
modern materials and current standards, design, and layout

Question 24

Direct costs

Answer 24

These are hard cost expenditures for the labor and materials used in the construction of improvements

Question 25

Indirect costs

Answer 25

These are soft cost expenditures (or allowances) that are necessary components but are not typically part of the construction contract

Question 26

Entrepreneurial incentive

Answer 26

A market-derived figure that represents the amount an entrepreneur expects or wants to receive as compensation for providing coordination and expertise and assuming the risks associated with the development of a project

Question 27

Entrepreneurial profit

Answer 27

a market-derived [historical] figure that represents the amount an entrepreneur received for his or her contribution to a past project to compensate for his or her time, effort, knowledge, and risk; Market Value − Total Cost of Development Entrepreneurial Profit (or loss)

Question 28

Gross living area (GLA)

Answer 28

Total area of finished, abovegrade residential space

Question 29

For _____, the GLA is based on interior dimensions of the unit’s overall perimeter shell

Answer 29

condominium units

Question 30

For______ (see diagram above), the gross living area (GLA) is calculated using exterior dimensions

Answer 30

detached residential structures

Question 31

Gross building area (GBA)

Answer 31

Total floor area of a building, excluding unenclosed areas, measured from the exterior of the walls of the above-grade area. This includes mezzanines and basements if and when typically included in the market area of the type of property involved

Question 32

Gross leasable area (GLA)

Answer 32

Total floor area designed for the occupancy and exclusive use of tenants, including basements and mezzanines; measured from the center of joint partitioning to the outside wall surfaces

Question 33

Net rentable area (NRA)

Answer 33

The amount of space on which the rent is based; calculated according to local practice

Question 34

Comparative-unit method

Answer 34

used to derive a cost estimate in terms of dollars per unit of area or volume based on known costs of similar structures that are adjusted for [market conditions, geographic location,] time and physical differences; usually applied to total building area (e.g., size)

Question 35

Unit-in-place method

Answer 35

In this method, the total building cost is estimated by adding together the unit costs for the various building components as installed (e.g., the roof, walls, foundation, excavation, electrical system, etc.)

Question 36

Quantity survey method

Answer 36

total cost estimate for labor and materials

Question 37

Chandra is appraising a residential property. The house was built in 1981 and is in average condition. The appraiser is using a cost-service provider to develop the cost approach. What type of cost is she using in this appraisal? A. direct costs only B. hard costs plus entrepreneurial profit C. reproduction cost D. replacement cost

Answer 37

D

Question 38

The cost estimating method that considers all materials used and all categories of labor required to construct the improvement is called A. comparative-unit method. B. quantity survey method. C. segregated cost method. D. unit-in-place method.

Answer 38

B

Question 39

Which of the following is NOT an identified type of accrued depreciation applicable to property improvement? A. entrepreneurial obsolescence B. external obsolescence C. functional obsolescence D. physical deterioration

Answer 39

A

Question 40

Labor and materials are an example of what kind of cost? A. direct cost B. indirect cost C. replacement cost D. reproduction cost

Answer 40

A

Question 41

A buyer will not pay more for a property than the cost to construct one of equal desirability and utility without undue delay. What principle does this illustrate? A. balance B. highest and best use C. substitution D. supply and demand

Answer 41

C

Question 42

What type of property is the gross living area (GLA) generally based on interior dimensions? A. cluster home in a PUD B. condominium C. manufactured home D. twin home

Answer 42

B

Question 43

An appraiser is analyzing the soft costs in a building project. In this analysis, what might the appraiser consider in this same category? A. architectural fees B. labor used in construction C. material storage facilities D. security during construction

Answer 43

A

Question 44

What is left when the total cost of development is deducted from the sale price of a property? A. administrative expenses of the developer B. entrepreneurial coordination C. entrepreneurial profit or loss D. contractor’s overhead

Answer 44

C

Question 45

An appraiser measured a one-story residence as 26’ x 40’ on the main floor, and the house had a below-grade-level finished basement area of 20’ x 16’. The residence also had an attached screen porch on the main level of 12’ x 14’. What is the gross living area (GLA) for the residence? A. 1,040 sq. ft. B. 1,208 sq. ft. C. 1,360 sq. ft. D. 1,528 sq. ft.

Answer 45

A. 1,040 sq. ft. (26 ft. × 40 ft. = answer)

Question 46

The cost of a structure was $300,000 when it was built 18 months ago. The cost index at that time was 150.5. What is the estimated cost today if the cost index is 168.56? A. $267,857 B. $327,587 C. $336,000 D. $354,180

Answer 46

C. (168.56 / 150.5 = 1.12 × $300,000 = answer)