M1U6S2Ex11

Question 1

What are the 6 steps that the income approach utilizes?

Answer 1

1. Estimate the potential annual gross income
2. Calculate the effective gross income
3. Estimate the total annual operating expenses
4. Calculate the net operating income
5. Select the appropriate capitalization rate
6. Capitalize the net income into value

Question 2

What type of rent are we concerned with when we determine the Effective Gross Income?

Answer 2

Market rent- the rent that the property would probably command if made available on the open market

Question 3

Why is it necessary to reconstruct the owner’s annual operating expense statement?

Answer 3

To accurately reflect and project typical operating costs, it is necessary to refer to the operations of similar properties when reconstructing the operating expense statement to ensure that the expenses are in line with those incurred by similar properties

Question 4

What is the Monthly Rent Factor?

Answer 4

The ratio of value to gross monthly rent

MRF= value divided by monthly rent

Question 5

What is the definition of final reconciliation?

Answer 5

The process by which the appraiser reaches a single value based on an evaluation and selection from among two or more alternative conclusions

Question 6

Explain why arriving at the final value does not simply involve averaging the estimates of the approach used?

Answer 6

It denies common sense and judgment. The practitioner must consider the advantages and disadvantages of each approach and weigh the relevance of each approach to the property being appraised

Question 7

Describe 3 types of appraisal reports

Answer 7

1. The form report- usually prepared by fee apprasiers for mortgage lenders and appraisres. Only the bare essentials are included in a form report, easy to locate specific information
2. The letter of opinion- a brief statement of the appraisers estimate of value. Appraisers need to retain all of their supporting research should it be required at a later date.
3. The full narrative report- a full report that describes in great detail the regional and neighbouhoods analysis. It gives full description and identification of the property and describes the method and reasoning used in arriving at the estimate value. This report is often used for presentation to Courts and boards. It presents the reader with the evedience that the appraiser has collected.

Question 8

Explain why arriving at the final value does not simply involve averaging the estimates of the approach used?

Answer 8

It denies common sense and judgment. The practitioner must consider the advantages and disadvantages of each approach and weigh the relevance of each approach to the property being appraised

Question 9

Describe 3 types of appraisal reports

Answer 9

1. The form report- usually prepared by fee apprasiers for mortgage lenders and appraisres. Only the bare essentials are included in a form report, easy to locate specific information
2. The letter of opinion- a brief statement of the appraisers estimate of value. Appraisers need to retain all of their supporting research should it be required at a later date.