Chapter 6,7,8 Flashcards
Income template chart:
IVF formula worksheet chart:
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?
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
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.
$225,000 EGI / 0.90 = $250,000 PGI
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.
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.
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?
$80,250
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)
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
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.
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
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.
$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
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.
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
There are two common types of slab foundations. One is the slab on a perimeter
stem wall, and the other is called a _____ slab
monolithic
The two wall framing types are ____ and ____ .
platform, balloon
A lender often requires a water test if a property has a _____
private well
Foundation walls are generally built on ____
footings
Colonial style is an example of a two-story design for a residence
True
Cost
The actual or estimated amount required to create, reproduce, replace, or
obtain a property
8 Steps to the cost approach:
Balance
An improper balance may result in an overimprovement or
underimprovement for a property. This imbalance results in a loss in value
Substitution
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
Externalities
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
Reproduction is an ____ of the current improvements
exact replica
Replacement is ___ to the current improvements
equivalent in utility
Reproduction cost
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
Replacement cost
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
Direct costs
These are hard cost expenditures for the labor and materials
used in the construction of improvements
Indirect costs
These are soft cost expenditures (or allowances) that are
necessary components but are not typically part of the construction contract
Entrepreneurial incentive
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
Entrepreneurial profit
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)
Gross living area (GLA)
Total area of finished, abovegrade residential space
For _____, the GLA is based on interior dimensions of the
unit’s overall perimeter shell
condominium units
For______ (see diagram above), the gross living
area (GLA) is calculated using exterior dimensions
detached residential structures
Gross building area (GBA)
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
Gross leasable area (GLA)
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
Net rentable area (NRA)
The amount of space on which the rent is based;
calculated according to local practice
Comparative-unit method
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)
Unit-in-place method
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.)
Quantity survey method
total cost estimate for labor and materials
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
D
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.
B
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
A
Labor and materials are an example of what kind of cost?
A. direct cost
B. indirect cost
C. replacement cost
D. reproduction cost
A
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
C
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
B
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
A
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
C
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.
A. 1,040 sq. ft. (26 ft. × 40 ft. = answer)
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
C. (168.56 / 150.5 = 1.12 × $300,000 = answer)
