Midterm 2 Flashcards
H&BU as though vacant:
Assuming that there are no improvements.
T/F: Permanent plantings generally have a greater capitalization rate than irrigated field crops.
True.
T/F: Buyers of Undivided Interests are willing to take risks.
True
Return on investment:
Interest rate; amount earned during period of ownership.
T/F: The State Summation Method of Eminent Domain valuation allows benefits to offset damages and the part acquired.
False; only damages
Source Rate:
A capitalization rate abstracted directly from market data or sales.
Band of Investment Capitalization Rate:
Considers weighted average for different yield requirements of investment; i.e. amount of loan vs. amount of equity.
Condemnation:
The formal act of the power of eminent domain.
Discounted Cash Flow:
Convert a series of anticipated future income expectancies into an indication of current value.
Effective Annual Gross Income=
Potential Annual Gross Income - Vacancy & Collection Loss
Anticipation is:
The perception that value is created by the expectation of future benefits.
The 4 Factors of Production:
Land, Labor, Capital, Coordination
T/F: Buyers of Undivided Interest are likely to finance their purchase.
False
Partial ownership interest:
Divided or undivided rights in real estate that represents less than the whole. Less than 100% ownership.
The Cost Approach is based on the Principle of ____.
Substitution
Unity of Time:
C0-owners acquire property at the same time.
When to apply the Income Approach:
Benefits are primarily in the form of money; value of benefits may be measured by analyzing the net income produced.
H&BU is determined both as if vacant and as improved in order to:
Determine is current use should continue or improvements should be replaced, demolished, or refurbished.
T/F: The 14th Amendment of the US Constitution applies to the states.
True
Value of a Conservation Easement=
Value Before - Value After CE
Curable physical deterioration exists when:
Value added exceeds cost to cure.
T/F: The Federal Method of Eminent Domain valuation allows benefits to offset damages and the part acquired.
True
Direct Capitalization:
Use a single year’s anticipated income to to indicate current value.
Criteria for Highest and Best Use:
- Legally permissible
- Physically possible
- Financially feasible
- Maximally productive
T/F: Cost Approach is applicable when improvements are very old.
False
Economic life is generally ____ to expected physical life.
Less than or equal to
T/F: Buyers of Undivided Interests expect an unusually high rate of return.
True
Undivided interest:
Fractional ownership without physical division. Co-owners share property rights.
T/F: Tenants in common may dispose of their share without restrictions.
True.
IRR=
the rate at which the sum of the initial investment and present value of each year’s expected income equals zero.
T/F: Tenancy in common includes a right of survivorship.
False.
Return of investment:
Recapture rate; sale of investment.
IRV: R=
I/V
T/F: Discounts for limited partnerships are often lower than undivided ownership interests.
True
The three conditions to establish a larger parcels for consideration of severance damages:
Unity of ownership, contiguity, and unity of use.
T/F: Buyers of Undivided Interests are generally financially savvy.
True
Joint tenancy:
Each owners has an equal undivided interest in property.
Right of Survivorship:
When one owner dies, other owners absorb their interest.
T/F: Income tax depreciation is included in expenses.
False
Principle of Consistent Use:
Valuation of land and improvements must be based on the same use.
IRR:
A method of determining the rate of return from an investment; used to determine discount rate, which is used to calculate value from an income stream.
Time range before a change in H&BU that the current use is considered an interim use.
1-7 years
Support Rate:
A capitalization rate generated through sources other than a source rate; discounted cash flow, IRR, etc.
NOI=
Effective Annual Gross Income - Annual Operating Expenses
T/F: Buyers of Undivided Interests are likely to pay cash.
True
Eminent domain is derived from with US Constitutional Amendments?
5th and 14th.
T/F: The 5th Amendment of the US Constitution applies to the states.
False.
T/F: Joint tenancy includes the right of survivorship.
True
IRV: V=
I/R
Functional obsolescence is due to either a ____ or ____.
Deficiency or super-adequacy.
Cost Approach: Contributory Value=
Cost New - Accrued Depreciation
T/F: Cost Approach is applicable when improvements are new and represent highest and best use.
True
Market rent:
Probable rent in open market.
Summation Capitalization Rate:
Considers yield risk components associated with ownership of property.
Incurable physical deterioration exists when:
cost to cure exceeds value added.
The Income Approach is based on the Principle of ____.
Anticipation
Unity of Interest:
Co-owners own equal shares of the property.
T/F: Cost Approach is applicable when there are no vacant land sales available.
False
Reproduction Cost includes ____.
Functional obsolescence.
T/F: Cost Approach is applicable when subject property is typical for the area.
True
Joint Tenancy requirements - The Unities:
-Unity of Time
-Unity of Title
-Unity of Interest
-Unity of Possession
T/F: Cost Approach is applicable when subject property is special-use
True
Inverse condemnation:
The property owner as plaintiff sues the agency as result of depreciation to the property to to indirect effects of an acquisition outside of the property boundaries. No physical take from the property, yet value is lost.
T/F: Community Property includes a right of survivorship.
True.
Straight line capitalization rate=
Interest rate + Recapture rate
T/F: Cost Approach is applicable when adequate data is available to value property components, but not to value the whole property.
True
Interim use:
The use that will continue until demand is sufficient to support its future H&BU. Will continue until value of the land as though vacant, minus cost of demolishing existing improvements, exceeds total value of the improved property at its current use.
What is generally the ultimate constraint on property use (H&BU)?
Financial feasibility
Contract rent:
actual rent according to lease contract.
Divided interest:
An interest in a particular portion of a whole property.
T/F: Buyers of Undivided Interests are prepared to litigate against other owners.
True
External obsolescence is due to:
Economic or locational factors outside the property boundaries.
T/F: State legislated Eminent Domain requires that the acquired parcel be used within 7 years.
True
IRV: I=
RxV
Unity of Title:
Co-owners have the same title to the property.
T/F: Interest on operating capital in included in landlord income projections.
False
Cost Approach: Property Value=
Land Value + Contributory Value
Tenancy in Common:
Concurrent ownership in which one tenant may have a different share of property ownership than others.
T/F: Undivided ownership interest tend to sell at a discount.
True
Unity of Possession:
Co-owners have equal right to possess the whole property.
