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Home Appraiser Procedures > Module 3&4 > Flashcards

Module 3&4 Flashcards

1
Q

Capitalization

A

conversion of income to value 2 types direct capitalization & yield capitalization

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2
Q

direct capitalization

A

one income from 1 period (1 month, 1 year, etc.)

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3
Q

yield capitalization

A

when there is a series of income derived in the future over more than 1 time period (2yrs, 36 months, 10 years) that need to be discounted to present value

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4
Q

gross rent multiplier

A

the relationship between income and value; and can then be used to solve for value.
To find the GRM
divide the sale price/total monthly rent property

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5
Q

commercial properties

A

are always analyzed & valued on the basis of annual income, not monthly income

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6
Q

commercial properties

A

generally analyzed valued based on NET operating income, which includes deductions for vacancy & operating expenses rather than gross income (before deduction of vacancy & operating expenses rather than gross income (before deduction of vacancy & operating expenses) as in the case with 1-4 properties

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7
Q

commercial properties

A

5 or more familiar properties are generally analyzed on an annual basis (12 months).

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8
Q

NOI Comparables

A

Overall cap rate: NOI/sale price for the property

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9
Q

yield capitalization

A

same as discounted cash flow analysis
future $ brought to present
(present value)
present income stream + reversion = yield cap

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10
Q

concepts & principles that influence the income cap approach

A

*HBU
*anticipation+change
*supply & demand
*substitution
*balance
*exterrnalities

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11
Q

anticipation

A

value is the present worth of anticipated future benefits, such annual income plus the right to the proceeds of the sale of the property in the future
*needs comp sales or data

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12
Q

bundle of rights

A

ownership rights to remodel , lease, tear down subject to restrictions, e.g. zoning
fee simple estate - absolute ownership except for govt powers (taxation & eminent domain)
leased fee interest - ownership interest held by owner with rights of use and occupancy conveyed by lease to others

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13
Q

leasehold interest

A

interest held by lessee through lease transferring the rights of use & occupancy for a stated term under certain conditions

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14
Q

sublease

A

an agreement in which lessee in prior lease conveys right to use & occupy of a property to another sublesse.

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15
Q

sandwich lease

A

leaseholder is lessee of one property and the lessor of another

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16
Q

condominium

A

person holds fee simple interest in unit, an undivided interest in common areas jointly held

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17
Q

cooperative

A

shares equivalent to cooperate unit, exclusive of the prorata share of the blanket mortgage or mortgages

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18
Q

life estate

A

total rights of use, occupancy & control limited to lifetime of a designated party known as a life tenant

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19
Q

partial estate

A

divided or undivided in real estate that reps less than whole

20
Q

market value

A

objective & reflects what investors in them mkt might do

21
Q

investment value

A

the value to a particular investor; subjective

22
Q

potential gross income

A

total income attributable to property at full occupancy before vacancy & operating expenses deducted

23
Q

effective gross income

A

anticipated income from all operations of real estate after allowance is made for vacancy & collection of losses an addition is made for any other income.

24
Q

net operating income

A

actual net income that remains after all operating expenses are deducted from eff gross income but before mortgage debt service & book depreciated are deducted

25
Q

pre-tax cashflow

A

portion of net income (operating) NOI that remains after total mortgage debt service is paid but before income tax on operations deductions also before tax cash flow or equity dividend

26
Q

after cash flow

A

portion of pre-tax cashflow that remains after tax deduction

27
Q

reversion

A

lump sum benefit that an investor receives or expects to receive at the termination of an investment

28
Q

rate of return

A

primary measurement of performance of real estate investments

29
Q

ratio of income or yield

A

the original investment based on 1 year or over an entire projection period

30
Q

return on capital plus profit

A

investors seeking recovery of the amount invested
annual income from investment/original investment = annual rate of return

31
Q

overall rate cap

A

income rate for total property interest (land&building) reflects the relationship between single yr net operating income expectancy & total property price or value

32
Q

equity cap rate

A

relationship between single yr’s pretax cash flow expectancy & equity value indication also called the cash rate, cash flow rate or equity dividend rate

33
Q

yield concepts

A

interest rate - yield rate on debt capital
discount rate - interest rate used to convert future payments or receipts into present value

34
Q

mortgage cap rate

A

ratio of the annual debt service to the principal amount of mortgage loan. ratio income to mortgage amount.

35
Q

income cap formula

A

I=RxV; R=I/V; V=I/R

36
Q

I/R=V

A

I=net operating income
R=overall rate
V=overall value
rate used in NOI is very specific type of rate: an overall rate of return which come from land & improvements

37
Q

when using multipliers

A

VIF (value=income*factor)

38
Q

Gross Rent Multiplier (GRM)

A

monthly multiplier & used residential property income approach for 1-4 SF residence, refers to rental income only
sales price/monthly rental income

39
Q

GIM (gross income multiplier)

A

used in residential property with 5 or more units & in many commercial properties. Also used in sales comparison approach although its an income approach

40
Q

Calculating GIM

A

sales price/gross annual income will reflect annual income to value

41
Q

OER (operating expense rate)

A

ratio of total operating expenses to eff gross income (TOE/EGI)
complement of net income OER=1-NR

42
Q

IRV (income cap formula)

A

est of two components (income & rate) in order to derive a property value

43
Q

direct cap

A

convert 1 yr income est into value indication. This includes return on or return of investment capital

44
Q

extract cap rate

A

from comparable sales. net income/sales price using IRV; I/V=R

45
Q
A

Home Appraiser Procedures (6 decks)

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