Chapter 7

Question 1

What are three norms, or benchmarks, against which actual performance is compared?

Answer 1

Budget comparisons and variances
Prior year comparisons
Industry comparisons

Question 2

What is a material exception?

Answer 2

It is a variance in excess of a certain dollar limit or percentage difference against the benchmark.

Question 3

Explain budget comparisons.

Answer 3

It is a comparison of budgets and actual expenditures. They are done monthly and annually.

Question 4

What is a budget variance?

Answer 4

It is when actual income or expenses vary from the budget amount.

Question 5

Why should variances within the tolerance limit still be explained?

Answer 5

They should still be explained because important operating factors can be discovered by variances within the limits.
Ex) Decreased rent collected when occupancy has been stable.

Question 6

What is identified by prior year comparisons?

Answer 6

They can help to identify market trends and areas affected or neglected by operating strategies.

Question 7

What is the common benchmark in the commercial real estate industry?

Answer 7

Price per square foot

Question 8

What is the Experience Exchange Report (EER)?

Answer 8

It is a report from national surveys by BOMA International, compiling per square foot operating information from all property owners.

Question 9

What is the median?

Answer 9

It is the true midpoint.

Question 10

What is the mid-range?

Answer 10

It is the middle 50% of the data.

Question 11

What is the formula for average square feet per office tenant?

Answer 11

Average square feet per office tenant=occupied office space/number of office tenants.

Question 12

What is the formula for average square feet per retail tenant?

Answer 12

Average square feet per retail tenant=occupied retail space/number of retail tenants.

Question 13

Explain the expense detail section of the EER?

Answer 13

It lists the average cost per square foot of different expense categories and the number of buildings used to calculate those averages.

Question 14

What are some limitations of the EER?

Answer 14

Methods of accounting and reporting may vary from company to company, data is six months old so may not be useful for planning future projects, all respondents do not submit data for every line item, data may be biased towards older buildings since it is generally received from Class A properties, large buildings or a small sample size may affect the results significantly.

Question 14

Use the following per square foot operating expense data for several hypothetical buildings to answer the question.
Building     Expenses
1                 2.05
2                 2.12
3                 2.21
4                 2.28
5                 2.31
6                 2.35
7                 2.40
8                 2.44
9                 2.53
What is the average in the data shown above?

Answer 14

2.30

Question 15

When comparing performance to the industry or prior year, each variance must be:

a) corrected prior to reporting
b) fully documented, explained, and penalized
c) taken individually and compared to one standard
d) weighed against as many other comparisons as possible

Answer 15

d) weighed against as many other comparisons as possible

Question 16

What is the percent vaiance if last year’s utility costs were $567,496 and the current year’s utility costs are $639, 467?

a) favorable 11.25%
b) unfavorable 11.25%
c) favorable 12.68&
d) unfavorable 12.68%

Answer 16

d) unfavorable 12.68%

Question 17

(Fill in the blank) A material exception is defined as a difference in excess of ______ and a set dollar amount.

a) 2%
b) 5%
c) 7%
d) 10%

Answer 17

b) 5%

Question 19

Use the following per square foot operating expense data for several hypothetical buildings to answer the question.
Building     Expenses
1                 2.05
2                 2.12
3                 2.21
4                 2.28
5                 2.31
6                 2.35
7                 2.40
8                 2.44
9                 2.53
What is the median in the data shown above?

Answer 19

2.31