Ch. 13 - Real Property Valuation Flashcards

Ch. 13 - Real Property Valuation Flashcards A conversion factor derived from the sales price of a comparable rental property divided by its gross monthly rent. This factor is multiplied by the estimated gross rent of the subject to estimate its value.Gross Rent Multiplier Ongoing operating expenses that do not vary based on occupancy levels of the property (e.g., taxes, insurance).Fixed Expenses An appraisal method that estimates the value of real estate by analyzing the amount of income the property currently generates, or could generate, often comparing rents and expenses of the subject property to other similar properties.Income Approach Valuation of residential single-family properties and vacant land is usually based primarily on the sales comparison approach.True Net income after all operating expenses have been deducted.Net Operating Income (NOI) A conversion factor derived from the sales price of a comparable rental property divided by its gross monthly rent and any other miscellaneous income. This factor is multiplied by the estimated gross rent of the subject to estimate its value.Gross Income Multiplier An amount of money, considered as an operating expense, set aside for future replacement of major items, such as the roof or heating system.Reserves for Replacement For which of these properties would the gross rent multiplier method be MOST appropriate?A duplex A rate of return, stated as a percent, used to derive a value opinion from the anticipated net operating income a property could generate. It is used for direct capitalization in the income approach. Also called Cap Rate or Rate.Direct Capitalization Rate Based on the results from the reconciliation of estimates obtained by all three approaches to value, the final step of the valuation process is to prepare and submit a report of the conclusions from all data gathered and analyzed.True The appraisal process of analyzing the values derived from the different appraisal approaches to arrive at a final value estimate or opinion.Reconciliation When using the income approach to value, the income capitalization method is seen as more accurate than the gross rent multiplier because it considers expenses.The value of income-producing properties usually will be based largely on the income capitalization approach.True

In North Carolina and most states, a comparative market analysis (CMA) is generally defined as a method of determining a probable sales price of a subject property by comparing it to other similar properties in a given area that have sold, are presently for sale, or did not sell.True Doris owns a four-unit apartment building. The rent on each unit is $500 a month. She averages 5% vacancy and collects $600 a year from the coin-operated washer and dryer in the building's basement. What is the potential gross monthly income for Doris's building that an appraiser would use to calculate a gross rent multiplier?

$2,000

In direct capitalization, the cap rate, or rate, is a percentage used by investors to calculate the present value of future income using the IRV formula (Net Operating Income (NOI / Rate = Value of the Property).True Your investor client is interested in looking at commercial property. An available strip mall has an effective gross income of $112,000 and a net operating income of $84,000. The capitalization rate in the area for similar properties is 12%. What is the likely asking price for the property?

$700,000

Gerald is trying to determine an appropriate cap rate for the property he's appraising. When looking at a comparable property, he learns that the NOI is $14,400, and the property sold for $200,000. What is the capitalization rate?

7.2% - Income (NOI) divided by Value (sales price) is .072, or 7.2% Rate (cap rate).IRV Formula-A simple calculation for finding the net operating Income, the Rate, or the Value of an investment property. When any two factors are known, the third can be determined. Also called Capitalization Rate Formula.IRV Formula A duplex recently sold for $200,000. It brings in monthly rental income of $900 per unit. The expenses for this property run $8,000 per year. What is the GRM for this property?

111.11

The income approach analyzes the revenue or income a property generates.True Appraiser Anna determines that the three-unit residential rental property she's appraising should take in $600 each month in rent per unit. She estimates a vacancy loss of $1,800 per year. She also determines, based on current market data, that the GRM should be about 121. What is Anna's estimate of value for the subject property?

$217,800

The Uniform Residential Appraisal Report (URAR) form is a standard appraisal report form used by lenders and appraisers because it has been developed and approved by secondary mortgage market players Fannie Mae and

Freddie Mac. As the name implies, it is used for residential appraisals and is preferred by lenders because it is standardized, allowing residential properties to be compared in a consistent manner.True Valuation of special-purpose properties such as school buildings often must be based on the cost approach, due to the lack of sufficient data for other approaches.True

What the property could rent for in the open market if unencumbered by any lease and available.Market Rent The annual net operating income is determined by subtracting operating expenses and a percentage for vacancy and collection losses from the gross income. Debt payments and deprecation are not included in operating expenses.True Allen determined that the two-unit rental property he's appraising should bring in $6,600 annually per unit in rent, and he also determined that the GMRM should be about

• What is Allen's estimate of value?

$148,500 - To find the estimate of value using this data, you first need to determine the monthly rent for the property. If each unit brings in $6,600 a year, the monthly rent on the property is $1,100 ($6,600 x 2 units = $13,200 / 12 months in the year). Multiply the monthly rent ($1,100)

by the GRM (135): $1,100 x 135 = $148,500.

The rent for each unit of a 10-unit strip mall is $1,000 per month. The annual vacancy rate averages 5%. The expenses for the property come to $30,000 per year with debt service of $15,000. What is the net operating income?

$84,000

The gross rent multiplier is considered the more accurate application of the income approach than the capitalization rate as it considers expenses.False Operating expense necessary to the property, but dependent on the property's occupancy level.Variable Expense For residential properties, the gross rent multiplier (GRM) is most often used. This also may be referenced as the gross monthly rent multiplier (GMRM). To derive a GRM, the prices of other similar rentals are divided by the monthly rent. The GRM is then multiplied by the subject's rent to indicate a value. With smaller income-producing properties, appraisers may use annual income figures, in which case, it's called the gross income multiplier (GIM).True