CGA Income Approach 3

Question 1

A property has contract rent of $1,500/month but market rent is $1,800/month. The difference represents what concept?

Accepted Answer

Bonus value accruing to the lessee

Answer

When contract rent is below market rent, the tenant enjoys a bonus value — the economic benefit of the below-market lease.

Question 2

In yield capitalization, the discount rate applied to future cash flows is best described as which of the following?

Accepted Answer

The investor's required rate of return on equity

Answer

The discount rate in yield capitalization reflects the total return (yield) an equity investor requires given the risk of the investment.

Question 3

Which reserve expense category accounts for the periodic replacement of short-lived building components such as HVAC systems and roofs?

Accepted Answer

Reserves for replacement

Answer

Reserves for replacement (replacement reserves) are annual set-asides to fund eventual replacement of capital items with limited useful lives.

Question 4

The Ellwood mortgage-equity technique is primarily used to derive which analytical tool?

Accepted Answer

An overall capitalization rate that reflects financing assumptions

Answer

The Ellwood technique calculates an overall cap rate by combining mortgage terms, equity yield rate, and expected property value change.

Question 5

An office building has an effective gross income of $500,000 and an operating expense ratio of 40%. What is the net operating income?

Accepted Answer

$300,000

Answer

NOI = EGI × (1 − OER) = $500,000 × 0.60 = $300,000.

(CGA) Certified General Appraiser Practice Test