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Income Approach to Real Estate Valuation Chapter Exam

Exam Instructions:

Choose your answers to the questions and click 'Next' to see the next set of questions. You can skip questions if you would like and come back to them later with the yellow "Go To First Skipped Question" button. When you have completed the practice exam, a green submit button will appear. Click it to see your results. Good luck!

Page 1

Question 1 1. Which of the following is a source of income other than rent?

Question 2 2. Which of the following is an example of a capital expense that should be considered in property valuation?

Question 3 3. Which of the following is TRUE regarding the effects of income and expenses on property valuation?

Question 4 4. Which of the following is TRUE regarding the desired profit that an investor uses to determine the value of a property?

Question 5 5. In determining a property's value and a budget, which expense accounts for the possibility that the property will not have a paying tenant?

Page 2

Question 6 6. What are some sources of revenue for calculating the net operating income?

Question 7 7. Sally is looking to buy a property that costs $115,000, and can rent for $750 a month. She has done some research and has determined the net operating expenses to be $5,000 per year. Her desired cap rate is 7%. What is the appraisal value of this property rounded to the nearest dollar using the income capitalization approach?

Question 8 8. Which of the following expenses are NOT included in calculating net operating income of a rental property?

Question 9 9. A rental property brings in $500 a month in rent, and has annual net operating expenses of $2,500. What is the net operating income (NOI) of this property?

Question 10 10. Bill bought a rental property for $151,000. He only now just found out about the concept of a cap rate. The property has revenue of $18,000 a year and net operating expenses of $4,000 each year. What is the cap rate of this property?

Page 3

Question 11 11. The steps to determine effective gross income of an investment property, include subtracting vacancy and loss collections from potential gross income, and _____

Question 12 12. In performing the mathematical process where future income is converted into present value, estimated operating expenses include:

Question 13 13. _____ is used to evaluate the attractiveness of an investment by using future free cash flow estimates and discounting them, then using a required annual rate in order to estimate present value.

Question 14 14. When using the IRV formula, the 'R' stands for _____

Question 15 15. _____ is an appraisal process that attempts to predict functional and external obsolescence. It is not always easily predicted, due to a number of outside factors.

Page 4

Question 16 16. Bill wants to buy a real estate investment from which he can expect an 8% cap rate. If the net operating income from a certain property is $6500 per year, what is the value to Bill of the home using the direct capitalization method?

Question 17 17. Which of the following is a method in the income approach to property valuation?

Question 18 18. The income approach to property valuation is useful for what kind of buyer?

Question 19 19. What is the best description of the discounted cash flow method?

Question 20 20. What is the gross income multiplier of a house that rents for $1,200 each month and would sell for $150,000?

Page 5

Question 21 21. The basic formula for the income approach is _____

Question 22 22. For which property is the income approach preferred in estimating the market value of a property?

Question 23 23. Market value is _____.

Question 24 24. A fair sale could NOT occur under which of the following circumstances?

Question 25 25. Annual operating expenses include _____.

Income Approach to Real Estate Valuation Chapter Exam Instructions

Choose your answers to the questions and click 'Next' to see the next set of questions. You can skip questions if you would like and come back to them later with the yellow "Go To First Skipped Question" button. When you have completed the practice exam, a green submit button will appear. Click it to see your results. Good luck!

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