CGA Income Approach 2

Question 1

A property generates $120,000 in potential gross income and experiences a 5% vacancy and collection loss. What is the effective gross income?

Accepted Answer

$114,000

Answer

EGI = PGI minus vacancy and collection loss: $120,000 × (1 - 0.05) = $114,000.

Question 2

Which expense is typically NOT deducted from effective gross income when calculating net operating income?

Accepted Answer

Mortgage debt service

Answer

Debt service (mortgage payments) is a financing cost, not an operating expense, so it is excluded from the NOI calculation.

Question 3

The Gross Income Multiplier (GIM) technique divides the sale price of a comparable property by which income figure?

Accepted Answer

Potential gross income

Answer

GIM = Sale Price ÷ Potential Gross Income, making PGI the denominator in this simple multiplier approach.

Question 4

An appraiser is valuing an apartment building using the direct capitalization method. The NOI is $80,000 and the cap rate is 8%. What is the indicated value?

Accepted Answer

$1,000,000

Answer

Value = NOI ÷ Cap Rate = $80,000 ÷ 0.08 = $1,000,000.

Question 5

In a discounted cash flow analysis, the terminal value at the end of the holding period is typically estimated using which method?

Accepted Answer

Direct capitalization of the reversion year's NOI

Answer

The reversion (terminal) value is most commonly estimated by capitalizing the projected NOI in the year after the holding period ends.

(CGA) Certified General Appraiser Practice Test

(CGA) Certified General Appraiser Practice Test

CGA Income Approach 2