Real Estate 306 Final Exam Questions and Answers Fully Solved
potential gross income - Answers the amount that would be collected if the property was fully occupied
at market rents
miscellaneous income - Answers the amount received from services associated with a property such as
laundry, parking, or storage
vacancy and collection loss - Answers the amount of expected loses from vacancies and bad debts
effective gross income - Answers potential gross income minus vacancy and collection
operating expenses - Answers expenses associated with the operation of the property
net operating income - Answers effective gross income minus operating expenses
depreciation - Answers allowable amount that can be deducted annually as an expense under IRS codes
taxable income - Answers net operating income minus depreciation minus interest payments
before tax cash flow - Answers the net amount of all revenues and expenses prior to tax considerations
after tax cash flow - Answers before tax cash flow minus income taxes or plus allowable income tax
losses
capital reserves - Answers amount set aside each year for replacing costly short-lived items such as
roofing, appliances, and mechanical equipment
mill rate - Answers represents $1 of tax assessment per $1,000 of assessed property value
terminal cap rate - Answers the cap rate we except when we sell the property
amortization - Answers this is the number years over which the loan will fully amortize
term - Answers when the loan is actually due
lease - Answers legal contract between tenant and owner for use and possession of real estate
lease - Answers the "engines" that "drive" values and returns
contain elements of a valid contract to be enforceable such as competent parties, legal use, provide
something of value - Answers essential elements of lease
class a property - Answers commands highest rents because they are the most prestigious in their
tenancy, location, and overall desirability
usually newer structures
typically owned by institutional investors
,class b property - Answers rents usually less than class a buildings because of a less desirable location,
fewer amenities, less impressive lobbies, elevators, etc
class c property - Answers usually once class a or b are older and reasonable well maintained but are
below current standards for one or more reasons
1. sales comparison
2. cost approach
3. income approach - Answers three approaches to value
sales comparison approach - Answers adjusted sales prices of comparable property
theory substitution
cost approach - Answers cost/value of vacant land
cost to construct
accrued depreciation
theory of substitution
income approach - Answers present value of anticipated income
theory of anticipation
1. ratio models
2. discounted cash flow - Answers two types of income methods
1. depreciation
2. mortgage interest
3. lump sum capital expenditures
4. business expenses - Answers expenses not included with operating expenses:
1. operating expenses vary between subject/comps
2. buyers/sellers use them
3. used for larger properties, all non-apartment types - Answers use cap rates when:
1. property characteristics
2. cost of capital
, 3. future income expectations - Answers capitalization rates (OARs) vary based on:
reversion - Answers proceeds from the sale of the property at the end of the holding period
expected future income of the property - Answers market value at the end of the holding period is
based on the...
- only as good as the appraiser and the data available
- opinion of value
- must be unbiased opinion - Answers appraisal
appraisal - Answers impartial unbiased estimate of value based on market evidence
- real estate is not an efficient market
- real estate is unique
- real estate market is always changing - Answers why do we need appraisers?
1. analyze the property as vacant
2. analyze the property as improved - Answers Determine highest and best use for each scenario
- properties are not exactly alike
- infrequent sales - Answers Difficulties with Sales Comparison Approach
theory of substitution - Answers buyers will not pay more for a property than the cost to buy the land
and build the building
accrued depreciation - Answers difference between the cost to reproduce improvements new as of date
of appraisal and the market value of the improvements on same date
1. establishing site control
2. feasibility analysis
3. obtaining permits
4. design: architect and other professionals
5. financing
6. construction
7. marketing & leasing
8. operation - Answers process of development
potential gross income - Answers the amount that would be collected if the property was fully occupied
at market rents
miscellaneous income - Answers the amount received from services associated with a property such as
laundry, parking, or storage
vacancy and collection loss - Answers the amount of expected loses from vacancies and bad debts
effective gross income - Answers potential gross income minus vacancy and collection
operating expenses - Answers expenses associated with the operation of the property
net operating income - Answers effective gross income minus operating expenses
depreciation - Answers allowable amount that can be deducted annually as an expense under IRS codes
taxable income - Answers net operating income minus depreciation minus interest payments
before tax cash flow - Answers the net amount of all revenues and expenses prior to tax considerations
after tax cash flow - Answers before tax cash flow minus income taxes or plus allowable income tax
losses
capital reserves - Answers amount set aside each year for replacing costly short-lived items such as
roofing, appliances, and mechanical equipment
mill rate - Answers represents $1 of tax assessment per $1,000 of assessed property value
terminal cap rate - Answers the cap rate we except when we sell the property
amortization - Answers this is the number years over which the loan will fully amortize
term - Answers when the loan is actually due
lease - Answers legal contract between tenant and owner for use and possession of real estate
lease - Answers the "engines" that "drive" values and returns
contain elements of a valid contract to be enforceable such as competent parties, legal use, provide
something of value - Answers essential elements of lease
class a property - Answers commands highest rents because they are the most prestigious in their
tenancy, location, and overall desirability
usually newer structures
typically owned by institutional investors
,class b property - Answers rents usually less than class a buildings because of a less desirable location,
fewer amenities, less impressive lobbies, elevators, etc
class c property - Answers usually once class a or b are older and reasonable well maintained but are
below current standards for one or more reasons
1. sales comparison
2. cost approach
3. income approach - Answers three approaches to value
sales comparison approach - Answers adjusted sales prices of comparable property
theory substitution
cost approach - Answers cost/value of vacant land
cost to construct
accrued depreciation
theory of substitution
income approach - Answers present value of anticipated income
theory of anticipation
1. ratio models
2. discounted cash flow - Answers two types of income methods
1. depreciation
2. mortgage interest
3. lump sum capital expenditures
4. business expenses - Answers expenses not included with operating expenses:
1. operating expenses vary between subject/comps
2. buyers/sellers use them
3. used for larger properties, all non-apartment types - Answers use cap rates when:
1. property characteristics
2. cost of capital
, 3. future income expectations - Answers capitalization rates (OARs) vary based on:
reversion - Answers proceeds from the sale of the property at the end of the holding period
expected future income of the property - Answers market value at the end of the holding period is
based on the...
- only as good as the appraiser and the data available
- opinion of value
- must be unbiased opinion - Answers appraisal
appraisal - Answers impartial unbiased estimate of value based on market evidence
- real estate is not an efficient market
- real estate is unique
- real estate market is always changing - Answers why do we need appraisers?
1. analyze the property as vacant
2. analyze the property as improved - Answers Determine highest and best use for each scenario
- properties are not exactly alike
- infrequent sales - Answers Difficulties with Sales Comparison Approach
theory of substitution - Answers buyers will not pay more for a property than the cost to buy the land
and build the building
accrued depreciation - Answers difference between the cost to reproduce improvements new as of date
of appraisal and the market value of the improvements on same date
1. establishing site control
2. feasibility analysis
3. obtaining permits
4. design: architect and other professionals
5. financing
6. construction
7. marketing & leasing
8. operation - Answers process of development
