Property Maintenance & Operations Flashcards

A property's potential gross income (PGI) is $500,000, vacancy and collection loss is 8%, and operating expenses are $180,000. What is the net operating income (NOI)?

Answer: $280,000

EGI = $500,000 × (1 - 0.08) = $460,000; NOI = $460,000 - $180,000 = $280,000.

Which of the following is the best example of curable physical deterioration in property maintenance?

Answer: Worn exterior paint that can be repainted at a cost less than the value it restores

Curable physical deterioration exists when the cost to cure is less than or equal to the value increase resulting from the repair, as with repainting worn exterior paint.

An energy audit reveals a subject office building uses 35% more electricity per square foot than comparable properties. How should the appraiser treat this finding?

Answer: Reflect the above-market utility costs as higher operating expenses, reducing NOI and value

Above-market utility costs increase operating expenses, directly reducing NOI and the income-approach value indication.

What is the primary distinction between maintenance expenses and capital improvements for appraisal income analysis purposes?

Answer: Maintenance preserves existing value and is expensed; capital improvements extend useful life and are treated as capital expenditures

Maintenance costs preserve current condition and are treated as recurring operating expenses, while capital improvements extend useful life and are analyzed separately as capital expenditures.

An appraiser is reviewing a subject property's operating statements and notices the owner has not included any reserve for replacement. What is the most appropriate action?

Answer: Add a market-derived reserve estimate to the operating expenses before calculating NOI

Appraisers must ensure operating expenses include adequate reserves for replacement; if missing, a market-derived estimate should be added to produce a credible NOI.

How does the Americans with Disabilities Act (ADA) most directly affect property maintenance obligations for commercial property owners?

Answer: It requires removal of accessibility barriers where readily achievable, creating ongoing maintenance and upgrade obligations

The ADA requires existing commercial properties to remove accessibility barriers where readily achievable, creating ongoing compliance obligations that affect maintenance costs and property value.

When analyzing maintenance expense data from the income and expense statements provided by a property owner, an appraiser should:

Answer: Verify expenses against market benchmarks and comparable property data to ensure reasonableness

Appraisers must verify owner-provided expense data against market benchmarks and comparable properties to ensure the figures represent stabilized, market-typical operations.