Sales Comparison, Cost Depreciation, and Income Approaches

Question 1

When comparing properties to make inferences about today’s market value what must an appraiser consider?

Answer 1

Appraiser must consider market conditions under which transactions occurred.

An adjustment for market conditions is justified only if the market conditions in a particular market have CHANGED OVER TIME. ( has occurred since the transaction date of a comparable)

Question 2

When evaluating transactions for a CMA What is 
I 
R
M
A

Answer 2

I Intent - What is the intent of the buyer or seller
R Relationship - The relationship of buyer/seller.
M Method - method of how attached.
A Adaptation

Question 3

When adjusting for financing do you make adjustments to a CMA before or after adjustments for physical characteristics?

Answer 3

make adjustments for financing before adjustments for physical characteristics.

Question 4

In the cost depreciation approach what is the reproduction cost?

Answer 4

identifies the upper limits of value of an exact duplicate. On the other hand…
Replacement has the same functionality or reproducibility.

Question 5

Cost Depreciation Approach: Which methods of estimating costs in the reproduction and replacement cost estimates are too costly and detailed for a real estate broker to use.

Answer 5

Quantity survey method and unit-in-place method.

Question 6

Cost Depreciation Approach: What is the most commonly used method for estimating costs for reproduction/replacement.

Answer 6

Comparative-unit method (Sqft method)

In this method the appraiser multiplies the $/SF of a recently built comparable structure by the number in the SF of subject property.

Question 7

What is the difference between physical deterioration and functional obsolescence?

Answer 7

Physical deterioration is paint peeling, brittle shingles, cracked windows, ect… where as functional obsolescence is a poor traffic pattern, outmoded design, two few of bathrooms, or lack of closet space.

Question 8

What is an example of a building that is functionally incurable?

Answer 8

An extra large load bearing column in an old 1 floor building is functionally incurable.

Question 9

What are a few other names for cap rate.

Answer 9

Overall Capitalization, Overall Rate (OAR)

Question 10

What determining value based on Cap rates when can you use contract rent

Answer 10

Long term 5yrs, stable tenant. EX: JC Pennies, Macy’s ect.

The actual rent can be used when determining value.

Question 11

When determining value based on Cap Rates when must market rent be used?

Answer 11

less than long term, less than stable

EX: mall kiosk.

Question 12

What is a typical vacancy ratio for residential property?

Answer 12

5%

Question 13

What are fixed expenses

Answer 13

property taxes and insurance.

Question 14

What are variable expenses

Answer 14

management, utilities, maintenance, repairs, ect…

Question 15

What would someone make reserves for

Answer 15

Roof, A/C, carpet

Question 16

What is the difference between a roof expense and a capital expenditure which requires a new depreciation schedule?

Answer 16

Repair a roof it is an expense.

Replace a roof and it is a capital expenditure.

Question 17

How is a (Overall Market Capitalization) market cap rate derived?

Answer 17

estimated by the cap rate of competing properties. Add the comparable properties cap rates and average them.

Question 18

What is the gross income multiplier (GIM)

Answer 18

the gross income multiplier (GIM) is the ratio between a property’s gross annual income and is selling price (For Example: $50K income & Sales Price of $450K = GIM of 9) GIM is based on an annual number.

Question 19

What is the Gross Rent Multiplier (GRM)

Answer 19

the Gross Rent Multiplier is the ratio between monthly rental income and the sales price. GRM is based on a monthly number.