chapter8

The appraiser’s main job is to:

A. Collect rent
B. Manage properties
C. Assess an estimated value of a property
D. Sell properties

C. Assess an estimated value of a property

DCF differs from cap rate becuase

•Estimate of expected holding period.

•Estimates of annual net cashflows over expected holding period, including net income from expected sale of property.

•Appraiser to select discount rate.

if you wanted to find value of property using direct cap, you would do

noi/cap rate=value

Two comparable single-tenant industrial properties are being analyzed.

Property A just sold at an 8.5% cap rate. It has a 10-year lease with flat rent (no annual increases).

Property B has a 10-year lease with 3% annual rent escalations and similar current rent.

Assuming all else is equal, which statement best explains the difference in cap rates?

Flat rent reduces future income growth, so buyers pay less for Property A, resulting in a higher cap rate

with cap rate, if priceis lower Current income is about the same..

👉 Cap rate looks higher

direct cap is for 1 year anhd DCF is for

many years

most appraisers treat CAPEX as above the line

expense

Potential Gross Income assumes:

A. 85% occupancy
B. 100% occupancy
C. Only hotel income
D. Zero tenants

B. 100% occupancy

Vacancy is subtracted from PGI to calculate:

A. Market rent
B. Contract rent
C. Effective Gross Income
D. NOI

C. Effective Gross Income

Effective Gross Income equals:

A. PGI – OpEx
B. PGI – Vacancy + Misc Income
C. NOI – Expenses
D. PGI + CapEx

B. PGI – Vacancy + Misc Income

Operating expenses do NOT include:

A. Property management
B. Utilities
C. Mortgage payments, tax dep, capex., leasing conditions
D. Repairs

C. Mortgage payments, tax dep, capex., leasing conditions

Capital expenditures (CapEx) are treated as:

A. Below the line
B. Above the line
C. Part of NOI
D. Operating expenses

B. Above the line

Net Operating Income (NOI) is calculated:

A. Before vacancy
B. After debt service
C. After operating expenses
D. After depreciation

C. After operating expenses

Direct Capitalization estimates value by dividing NOI by:

A. Market rent
B. Vacancy rate
C. Sales price
D. Capitalization rate

D. Capitalization rate

Cap rates for direct cap are obtained from:

A. Appraisal reports only
B. Sales of comparable properties
C. Construction budgets
D. Discounted cash flow models

B. Sales of comparable properties

A property used for comparison is called a:

A. Subject property
B. Replacement property
C. Comparable property
D. Market property

C. Comparable property

The property being valued is called the:

A. Comparable
B. Subject
C. Market comp
D. Extracted property

B. Subject

A problem with direct cap is:

A. It requires too much data
B. It ignores NOI
C. It ignores long-term lease structures
D. It cannot use comparable sales

C. It ignores long-term lease structures

A comparable with BELOW-market leases may show a:

A. Lower sale price → higher cap rate
B. Higher sale price → lower cap rate
C. Higher sale price → higher cap rate
D. No effect

Lower sale price → higher cap rate.

A comparable with flat, non-escalating rent will likely sell for:

A. Higher price
B. Lower price
C. Same price
D. Highest price in the market

B. Lower price

A lower price on a comparable property suggests a:

A. Lower cap rate
B. Higher cap rate
C. No change
D. Negative cap rate

B. Higher cap rate

Discounted Cash Flow (DCF) analysis calculates:

A. Future NOI only
B. PV of all future cash flows + sale
C. Operating expenses only
D. Only first-year income

B. PV of all future cash flows + sale

DCF differs from direct cap because it:

A. Uses only NOI
B. Uses future yearly cash flows
C. Ignores the terminal value
D. Uses no discount rate

B. Uses future yearly cash flows

Terminal cap rate is used to estimate:

A. The next year’s NOI
B. The reversion (sale price)
C. Market rent
D. Operating expenses

B. The reversion (sale price)

The terminal cap rate is generally:

A. Lower than going-in
B. Always 0%
C. Higher than going-in
D. The same as going-in

C. Higher than going-in

Going-in cap rate refers to:

A. Cap rate at the time of sale
B. Cap rate used ONLY for exit
C. Cap rate used for the first year’s NOI and price
D. Cap rate after year 10

C. Cap rate used for the first year’s NOI and price

sales price- selling expenses

net sale proceeds

. The Income Approach consists of which two methods?

A. Cost approach & sales comparison
B. Direct cap & cost approach
C. DCF & cost
D. Direct capitalization & discounted cash flow (DCF)

D. Direct capitalization & discounted cash flow (DCF)

pgi-vacc + misc=egi - operating expenses- capex= NOI