BUSI 330 FOUNDATION OF REAL ESTATE APPRAISAL
EXAM WITH COMPLETE SOLUTIONS
TOTAL CONSTRUCTION COST - ANSWER SIZE (SF₂ OR M₂) X COST PER (SF₂ OR
M₂)
NET OPERATING INCOME (NOI) - ANSWER SELLING PRICE X OVERALL
CAPITALIZATION RATE (OCR)
OVERALL CAPITALIZATION RATE (OCR) - ANSWER NOI / SELLING PRICE
SELLING PRICE - ANSWER NOI / OCR
RATE OF DEPRECIATION (RD) - ANSWER EFFECTIVE AGE / ECONOMIC AGE
REMAINING DEPRECIATED COMPONENTS= - ANSWER TOTAL CONSTRUCTION
- DEFERRED MAINTENANCE- SHORT LIVED ITEMS
TOTAL DEPRECIATION INCURRED - ANSWER REMAINING DEPRECIATED
COMPS X RATE OF DEPRECIATION
EXTERNAL OBSOLESCENCE - ANSWER MONTHLY RENT LOSS X GROSS
INCOME MULTIPLIER= LOSS OF VALUE
FACTOR IN WHICH HOMES ARE SELLING (GIM)
GROSS INCOME MULTIPLIER (FOR APARTMENT) - ANSWER SALES PRICE /
MONTHLY RENT
SALES PRICE/ EGI
COST TO CURE - ANSWER DEPRECIATION FOR FUNCTIONAL OB. + COST OF
NEW INSTALL + PREVIOUS DEPRECIATION - COST OF EXISTING ITEM
INCOME APPROACH - ANSWER PGI
- VACANCY RATE
-----------------------
= EGI
-OPERATING EXPENSES (FIXED AND VARIABLE)
-------------------------
NOI
APPLY CAP RATE TO NOI TO ARRIVE AT MARKET VALUE
, **MANAGERS FEE IS % X EGI
COST APPROACH FORMULA - ANSWER MARKET VALUE OF LAND
+ REPRODUCTION OR REPLACEMENT COST NEW (SITE IMPROVEMENTS AND
BUILDING)
-DEPRECIATION OF SITE AND BUILDING
--------------------------------------------------------
MARKET VALUE OF PROPERTY
OPERATING EXPENSE RATIO - ANSWER OPERATING EXPENSES / EGI
NOI RATIO - ANSWER NOI/EGI
GROSS INCOME MULTIPLIER - ANSWER SELLING PRICE / EGI (CONSIDER
INCOME FROM SOURCES OTHER THAN RENT)
GROSS RENT MULTIPLIER - ANSWER ONLY CONSIDERS RENTAL INCOME
3 METHODS FOR ESTIMATING CAP RATES - ANSWER Market extraction (using
comparables)
summation (start with base risk-free rate and add premiums)
Weighted average method
Land Residual Technique - ANSWER MOST APPLICABLE WHEN TESTING
FEASIBILITY OF ALTERNATIVE USES
OR
USED WHEN COMPARISON PARCELS ARE NOT AVAILABLE
LAND VALUE = ISOLATING NET INCOME ATTRIBUTABLE TO LAND AND THE
CAPITALIZATION
MARKET DERIVED LAND CAPITALIZATION RATE TO PROVIDE VALUE
ESTIMATE
Ground Rent Capitalization Method - ANSWER 1. AMOUNT PAID FOR THE RIGHT
TO USE OR OCCUPY THE LAND ACCORDING TO LEASE
2. INCOME TO THE LAND IS DETERMINED BY GROUND LEASE RATE OR
LEASED FEE ESTATE
3. MARKET INTEREST RATES ARE USED TO CONVERT GROUND RENT INCOME
INTO INDICATION OF LAND VALUE
MARKET ANNUAL GROUND RENT =
EXAM WITH COMPLETE SOLUTIONS
TOTAL CONSTRUCTION COST - ANSWER SIZE (SF₂ OR M₂) X COST PER (SF₂ OR
M₂)
NET OPERATING INCOME (NOI) - ANSWER SELLING PRICE X OVERALL
CAPITALIZATION RATE (OCR)
OVERALL CAPITALIZATION RATE (OCR) - ANSWER NOI / SELLING PRICE
SELLING PRICE - ANSWER NOI / OCR
RATE OF DEPRECIATION (RD) - ANSWER EFFECTIVE AGE / ECONOMIC AGE
REMAINING DEPRECIATED COMPONENTS= - ANSWER TOTAL CONSTRUCTION
- DEFERRED MAINTENANCE- SHORT LIVED ITEMS
TOTAL DEPRECIATION INCURRED - ANSWER REMAINING DEPRECIATED
COMPS X RATE OF DEPRECIATION
EXTERNAL OBSOLESCENCE - ANSWER MONTHLY RENT LOSS X GROSS
INCOME MULTIPLIER= LOSS OF VALUE
FACTOR IN WHICH HOMES ARE SELLING (GIM)
GROSS INCOME MULTIPLIER (FOR APARTMENT) - ANSWER SALES PRICE /
MONTHLY RENT
SALES PRICE/ EGI
COST TO CURE - ANSWER DEPRECIATION FOR FUNCTIONAL OB. + COST OF
NEW INSTALL + PREVIOUS DEPRECIATION - COST OF EXISTING ITEM
INCOME APPROACH - ANSWER PGI
- VACANCY RATE
-----------------------
= EGI
-OPERATING EXPENSES (FIXED AND VARIABLE)
-------------------------
NOI
APPLY CAP RATE TO NOI TO ARRIVE AT MARKET VALUE
, **MANAGERS FEE IS % X EGI
COST APPROACH FORMULA - ANSWER MARKET VALUE OF LAND
+ REPRODUCTION OR REPLACEMENT COST NEW (SITE IMPROVEMENTS AND
BUILDING)
-DEPRECIATION OF SITE AND BUILDING
--------------------------------------------------------
MARKET VALUE OF PROPERTY
OPERATING EXPENSE RATIO - ANSWER OPERATING EXPENSES / EGI
NOI RATIO - ANSWER NOI/EGI
GROSS INCOME MULTIPLIER - ANSWER SELLING PRICE / EGI (CONSIDER
INCOME FROM SOURCES OTHER THAN RENT)
GROSS RENT MULTIPLIER - ANSWER ONLY CONSIDERS RENTAL INCOME
3 METHODS FOR ESTIMATING CAP RATES - ANSWER Market extraction (using
comparables)
summation (start with base risk-free rate and add premiums)
Weighted average method
Land Residual Technique - ANSWER MOST APPLICABLE WHEN TESTING
FEASIBILITY OF ALTERNATIVE USES
OR
USED WHEN COMPARISON PARCELS ARE NOT AVAILABLE
LAND VALUE = ISOLATING NET INCOME ATTRIBUTABLE TO LAND AND THE
CAPITALIZATION
MARKET DERIVED LAND CAPITALIZATION RATE TO PROVIDE VALUE
ESTIMATE
Ground Rent Capitalization Method - ANSWER 1. AMOUNT PAID FOR THE RIGHT
TO USE OR OCCUPY THE LAND ACCORDING TO LEASE
2. INCOME TO THE LAND IS DETERMINED BY GROUND LEASE RATE OR
LEASED FEE ESTATE
3. MARKET INTEREST RATES ARE USED TO CONVERT GROUND RENT INCOME
INTO INDICATION OF LAND VALUE
MARKET ANNUAL GROUND RENT =
