Study Guide Flashcards
The ABC Company recently signed a five-year lease for 3,000 square feet of rental space in a
downtown strip center, The lease calls for the ABC Company to pay $2,900 per month plus 3.5% of
annual gross sales above $400,000. The company’s gross safes for the previous year were $850,000.
What is the annual lease amount per square foot the company will pay based on last year’s gross
sales?
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A property has a land value of $300,000, a net operating income of $105,000, a land capitalization rate of 10 percent, and a building capitalization rate of 12.5 percent. What is the value of the property?
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Which of the following formulas does not represent a correct form of the basic income, rate and value
equation?
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The underlying principle which provides the basis of the income capitalization approach is:
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The three basfc components of the capitalization formula used in the income approach to value are:
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Why does an appraiser prepare a reconstructed operating statement when using the income approach?
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You must appraise a 90,000 square foot parking lot. It has been recently paved at a cost of $4.00 per
square foot. Typically, area owners would expect to recapture that investment over the paving’s
estimated 10-year life. Market rent is $3.00 per square foot annuaUy, vacancy and collection loss is
estimated to be 10 percent, and annual operating expenses are estimated to be 15 percent of effective
gross income. The expected return on this type of investment is nine percent The tax rate is $3.00 per
$100 and the assessment level is 50 percent The indicated value estimate for the property is (rounded
to the nearest $100):
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The subject property has 12,000 square feet of net leasable area and it is currently vacant. Before the
tenant moved out the property was renting for $22.00 per square foot. If it is anticipated that the tenant
improvement costs needed to attract a new tenant for a five-year lease will be $250,000. What would
the rent be after making the tenant improvements, if you intend to recover the capital cost during the
five-year lease?
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A commercial property has an effective gross income multiplier of 6. The property’s operating expenses
amount to 40% of its effective gross income. What is the property’s overall capitalization rate (RO)?
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A commercial property has an effective gross income multiplier of 6. The property’s operating expenses
amount to 40% of its effective gross income. What is the property’s overall capitalization rate (RO)?
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An office building is valued at $6,050,000 and has a net monthly income of $45,375. Calculate the
overall capitalization rate for the investment.
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What is the overall capitalization rate for a property which has a loan-to-value ratio of 75%, effective tax
rate of 1 % and is financed at an interest rate of 10%, with monthly payments for a term of 25 years and
the equity dividend rate is nine percent? (Round to 3 decimal places.)
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Use the following information to answer question 15: Building capitalization rate: 0.12 Land capitalization rate: 0.095 Land-to-building ratio: 1 :4 What is the overall capitalization rate?
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A written document in which the rights to use and occupy land or structures are transferred by the owner
to another for a specified period of time in return for a specified rent is?
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In straight-line capitalization, the percentage of the depreciable asset that must be recaptured annually
during the remaining economic life of the property is the:
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Annual debt service for a mortgage loan on an office property is $100,000. The property generates
$250,000 in annual gross rent and requires $70,000 for expenses of operation, leaving $180,000 net
operating income. The debt coverage ratio is:
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The use of overall capitalization rates derived from analysis of comparable sales using the IRV formula
is referred to as:
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The periodic payment necessary to amortize a loan at a specified interest rate over a specific number of
periods is known as:
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Assume that a study of comparable properties and information obtained from investors and lenders
indicate that the recapture rate for the subject property is 4%. What would be the remaining economic
life, assuming a straight-line basis, of the subject property?
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Using the following market sales data develop an improvement (building) capitalization rate.
Sale price: $3,000,000
Land value: $600,000
Improvement (building) income: $360,000
Assessment level: 50 percent
Tax rate: $4.00 per $100 of assessment
First mortgage (representing 50% of value): 6 percent
Equity rate (representing 50% of value): 10 percent
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A property generates net operating income of $125,000 per year. The building is new and serving the
highest and best use for the property. Construction costs were $900,000; building capitalization rates in
the area are well-supported at 10 percent, while land capitalization rates are 8.2 percent. What is the
land value by the land residual technique? (Round to nearest $100.)
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The overall capitalization rate as used in direct capitalization assumes consistency among the subject
property and comparable sale in:
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What is the land-to-improvement ratio of a property valued at $480,000 when the land is valued at
$96,000?
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The net income ration method to find an overall capitalization rate can be developed when the net income ratio is divided by?
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A property’s assessment level is 30% and the jurisdiction’s tax rate is $8.00 per $100. What is the
effective tax rate?
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A property’s building income is expected to be 80% of the property’s net operating income. What is the
building capitalization rate if the potential gross income for the subject property is $80,000, the vacancy
& collection loss rate is 4%, the operating expenses are 40%, and the building value is $409,600?
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What is the formula for developing the gross income multiplier?
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When a property is being appraised for ad valorem tax purposes, this must be included as a part of the
overall capitalization rate.
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There are frve methods of developing an overall capitalization rate (RO). Which of the following is not
one of the five methods?
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An overall capitalization rate reflects:
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Free rent or extra tenant improvement allowances are examples of?
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The remaining economic life of the improvement is 25 years and the building capitalization rate is 12%.
What is the land capitalization rate?
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A property’s building capitalization rate is 14% and it has a remaining economic life of 25 years. If the
property’s overall yield rate (Y 0) is 8%, what is the effective tax rate?
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The subject property is an 80’ by 170’ office building and the common area totals 2,000 square feet. The
potential gross income is $275,500. What is the annual net feasable rent?
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A property that you purchased recently for $450,000 has an annual property tax bill of $6,750. What is
the effective tax rate in your jurisdiction?
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The mortgage capitalization rate (RM) expresses the relationship between:
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The borrowing of funds in hopes of earning a greater return than the cost of the borrowed funds is
known as:
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The components of an improvement capitalization rate are:
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The _________ reflects the return on an investment in real estate and consists of four factors
in the summation concept.
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The _________ provides for the return of the investment in the wasting portion of the asset.
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A loan on personal property is? __
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When market rent is greater than contract rent, the tenant, in effect, is receiving as income the amount
of difference between contract rent and market rent. This is known as:
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Which of the following is not a proper expense in a reconstructed income and expense statement used
for appraisal purposes?
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