Basic Appraisal Procedures- Income Approach Exam Questions and Answers Graded A+
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Basic Appraisal Procedures- Income Approach
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Basic Appraisal Procedures- Income Approach
Basic Appraisal Procedures- Income Approach Exam Questions and Answers Graded A+
Income vs Rent - Answers Income is generated from rent but can also be generated from parking spaces, garage spaces, storage spaces, vending machines, etc
Contract Rent - Answers What a tenants are actually paying in...
Basic Appraisal Procedures- Income Approach Exam Questions and Answers Graded A+
Income vs Rent - Answers Income is generated from rent but can also be generated from parking spaces,
garage spaces, storage spaces, vending machines, etc
Contract Rent - Answers What a tenants are actually paying in rent, as stated in the terms of the lease.
Appraisers sometimes need to determine if the rent being generated actually reflects that which would
be typical in the particular marketplace
Market Rent aka economic rent - Answers What the property could rent for in the open market if
currently vacant and available
Could be more or less than the price of the contract rent
Excess Rent - Answers When contract rent exceeds market rent.
Lessor has the advantage, lessee has disadvantage
What are the four different measures of Income and Benefits? - Answers 1. Potential gross income
2. Effective gross income
3. Net operating income
4. Reversionary benefit
Potential Gross Income (PGI) - Answers The income that could be produced by a property in an ideal
situation, with no vacancy or collection losses. Income property could generate. Most commonly
expressed in annual terms.
ex: tenant failed to pay rent and money could not be collected
Effective Gross Income (EGI) - Answers The potential gross income, less vacancy and collection losses.
Income that the property owner did take in. Most commonly expressed in annual terms
Net Operating Income (NOI) - Answers The income after expenses. Different than cash flow. Most
commonly expressed in annual terms
Anticipation as applied to the income approach - Answers Could be the expected income, return on
investment, and growth in property value
, Reversionary Benefit - Answers Typically a sum, often stated in a dollar amount, that a property owner
will receive when, or if, he sells the property at the end of the investment term.
The net proceeds when and if the property is sold
Operating Expenses - Answers Day-to-day costs of running a building, like repairs and maintenance, but
not including debt service or depreciation
Debt service - Answers The amount of funds required to make periodic payments of principal and
interest to the lender
Fixed Expenses - Answers Ongoing expenses that do not vary based on occupancy levels of the property.
Flat fee
ex: real estate taxes and insurance on the property
Variable Expenses - Answers Operating expenses necessary to the property, but dependent on the
property's occupancy level.
ex: maintenance and repairs, management fees, legal and accounting fees charged on a non consistent
basis
Reserves for Replacement - Answers An amount of money set aside for future replacement of major
items. The anticipated costs of replacing these components or items.
ex: roof, heating a/c, carpeting, appliances, etc
Rent and Income Factors - Answers Involves multipliers. The use of rent and income factors as a
technique in the income approach is an income capitalization method
Multiplier - Answers A factor derived from market data and applied to the subject's market rent or
income to produce a value indication in an income approach
Gross Rent Multiplier (GRM) - Answers A factor derived from comparable rental data, which is then used
to develop an opinion of value of the subject property.
GRM is used when the property has income that is derived only from actual rent of the living units.
Most commonly derived on a monthly basis. sometimes called gross monthly rent multiplier (GMRM)
Gross Income Multiplier (GIM) - Answers A factor that takes into account income derived from all
sources of a property.
Most commonly applied as annual income
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