The Income Approach to Value

The Income Approach to Value – Final Exam

As indicated on the summary page of this course, the online course concludes with the online examination that will appear once you complete the necessary information at the "fill in area" below; and that a separate timed proctored examination must be completed in order for the course to be counted toward meeting the advanced certification requirements. Your county training coordinator will advise you of the results of your course examination after he or she receives notification from the Board of Equalization. Request information of your training coordinator concerning scheduling the proctored exam.

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Instructions

Select the answer that most correctly completes the statement or answers the question.

Part I: {True – False questions}
  1. The passage of 1978's Proposition 13 initiative measure, which added Article XIII A to the California Constitution, changed the approaches to value, and it is no longer necessary for the property tax appraiser to understand the income approach.

  2. The Income Approach to Value is the preferred approach for the appraisal of land when reliable sales data for comparable properties are not available.

  3. The Income Approach to Value is the preferred approach for the appraisal of improved real properties and personal properties when reliable sales data are not available and the cost approaches are unreliable.

  4. For ad valorem property tax appraisal purposes, the income approach is based on the price at which fractional interests in the property or comparable properties have recently sold, and the extent to which such prices would have been increased had there been no prior claims on the assets.

  5. The income approach is based on the amount that investors would be willing to pay for the right to receive the income that the property would be expected to yield, with the risks attendant upon its receipt.

Part II: {three (3) answer choices}
  1. The principle of anticipation is…


  2. The following is an example of the principle of anticipation:


  3. We exclude property taxes as an expense when valuing property for ad valorem property tax purposes because…


  4. The three basic assumptions of the income approach to value are:


  5. Three types of allowable expenses may be deducted from Effective Gross Income; they are:


  6. $1,000 deposited in an account that pays 2½ percent annual interest will grow to what amount in one year?


  7. The Future Worth of One [FW1] of indicates the growth, at compound interest, of a single initial deposit of one (1); deposits are made at…


  8. The Future Worth of One factor [FW1] is the reciprocal of the…


  9. The Periodic Repayment factor [PR] is also known as the…


  10. When developing rates and multipliers from recently sold comparable properties, the sales price is compared with the incomes, rents, or productions…


Part III: {four (4) answer choices}
  1. Which of the following statements BEST describes the amount of adjustment an appraiser should make for vacancy allowance in a property?



  2. Which of the following expenses (costs) is NOT considered by an appraiser in estimating the net operating income of a particular property?



  3. When appraising income producing property, the appraiser often needs to estimate the reserves for replacement allowance. When doing so, the appraiser should avoid duplication with certain items that may already have been included in which of the following expense categories?



  4. If the property tax appraiser excludes property taxes as an expense, won't the property be overvalued?



  5. A series of equal periodic payments or receipts is referred to as a(n)



  6. Using the income approach, the appraiser values an income property by computing the…



  7. Incomes streams considered by the appraiser may be…



  8. How can an appraiser develop an OverAll Rate [OAR]?



  9. The difference between an OverAll Rate [OAR] and Yield rate [Y] is the…



  10. The difference between an OverAll Rate [OAR] and cash flow rate [Re] is the…



  11. Which of the following is a correct component of the concept of Highest and Best Use?



  12. Which of the following statements is NOT true.



  13. Which of the following statements is NOT true.



  14. Which of the following are components of the income stream investors anticipate?



  15. Which of the following income streams best represents vacant land?



Part IV: {five (5) answer choices}
  1. A building with an annual Net Income Before deducting for recapture and Taxes [NIBT] of $10,000 is valued at $100,000. What is the estimated value of the building if the capitalization rate is increased by one percentage point.




  2. Which of the following estimates would result in an OverAll Rate of 20 percent?




  3. To estimate effective gross income, which of the following items are required?




  4. A situation in which a property owner must make an outlay of funds to operate a property is referred to as negative…




  5. Two properties have the same Net Operating Income, and both are considered to be very similar in most respects, except that Property "B" is a riskier investment that Property "A" – how should this difference affect an OverAll Rates derived from these two properties?




  6. A stream of scheduled and predictable income or payment amounts is called a(n)…




  7. What is the Gross Income Multiplier derived from a $2½ million sale, where the buyer anticipated an annual gross income of $475,000?




  8. A property recently sold for a cash equivalent sales price of $2 million; the completed sales questionnaire indicated the new owner anticipates an annual gross income of $600,000. Examining comparable properties in the neighborhood, you know the gross income will be closer to $450,000 or $500,000. What is the GIM indicated by the sale?




  9. A new office building, with eight 750 sq. ft. units, recently sold for $750,000. Similar nearby offices, with comparable income potential, are renting for $1,250 per month; recent sales of comparable properties indicate a GIM of 5.5. What is the value of this new building?




  10. An office building recently sold for $10 million; the buyer estimate his before-income-tax cash flow will be $100,000. His monthly mortgage payments are $75,000. What is the OverAll Rate [OAR] derived from this sale?