CHP 58 - Appraisal and Value

Question 1

Never adjust the….

Answer 1

Subject

Question 2

If comparable is superior to the subject ___ value to the comparable

Answer 2

subtract

Question 3

If comparable is inferior to the subject __ value to the comparable

Answer 3

Add

Question 4

Gross Rent Multiplier

Answer 4

Sales price = monthly rental income X GRM

GRM = Sales price/monthly rental income

Question 5

Gross Income Multiplier

Answer 5

GIM = Sales price/annual income

Question 6

Cost Approach Formula

Answer 6

Value = Land Value + (Improvements + Capital additions - Depreciation)

Question 7

Depreciation

Answer 7

Depreciable basis = (Initial property value + Any capital improvements - land value)

Question 8

A property is purchased for $200,000. Improvements account for 75% of the value. Given a 39-year depreciation term, what is the annual depreciation expense?

Answer 8

Improvements ONLY can be depreciated

200,000*75% = $150,000

$150,000/39 = $3846

Question 9

Income Capitalization Approach

Answer 9

net operating income = value * cap rate

Question 10

Net Operating Income

Answer 10

NOI = Potential rent - vacancy loss + Other income - Operating expenses

**NOI does not include debt payments

Question 11

A property has a net income of $770,000 and sells for $9,800,000. What is its cap rate?

Answer 11

The property’s cap rate in this case is 7.8%. $770,000/cap rate = $9,800,000. cap rate = $770,000/$9,800,000 = 0.078, or 7.8%.

Question 12

The owner of a $200,000 property decided to buy a new $15,000 roof (which added no value to the property). The economic life of the roof is 12 years. Assuming the straight-line method of depreciation, what is the depreciated value of the property (attributable to the roof) after 2 years?

Answer 12

The depreciation value will be $197,500. $15,000/12 = $1,250. $1,250x2 = $2,500. $200,000- $2,500 = $197,500.