IACP Market Analysis & Property Valuation 4 — Questions and Answers
Question 1: A property generates $120,000 in potential gross income, has a 5% vacancy rate, and $15,000 in operating expenses. What is the net operating income?
- $105,000
- $99,000 (Correct answer)
- $114,000
- $99,000
Correct answer: $99,000
$120,000 × 0.95 = $114,000 effective gross income minus $15,000 expenses = $99,000 NOI.
Question 2: The market rent for a commercial space is $30/SF/year, but the tenant is paying $25/SF/year under a long-term lease. The $5 difference per SF is the:
- Effective rent
- Leasehold value (Correct answer)
- Excess rent
- Contract rent premium
Correct answer: Leasehold value
The leasehold value represents the benefit to the tenant from paying below-market (contract) rent, equal to the difference between market and contract rent.
Question 3: Which type of market study focuses specifically on the competitive supply, demand, and pricing for a particular land use or property type?
- Feasibility analysis
- Marketability study
- Market analysis (Correct answer)
- Investment analysis
Correct answer: Market analysis
A market analysis examines supply and demand conditions for a specific property type or land use in a defined geographic area.
Question 4: When adjusting comparable sales for conditions of sale, an appraiser discovers a sale was a distressed foreclosure. The adjustment to the comparable would typically be:
- Negative (downward)
- No adjustment needed
- Positive (upward) (Correct answer)
- Indeterminate without more data
Correct answer: Positive (upward)
A distressed foreclosure sale typically transacts below market value, so a positive (upward) adjustment is applied to bring it to arm's-length market value.
Question 5: The reconciliation step in an appraisal requires the appraiser to:
- Average the three approaches to value
- Weight value indicators based on quality and relevance of data (Correct answer)
- Select the highest value indicated
- Use only the income approach for income-producing properties
Correct answer: Weight value indicators based on quality and relevance of data
Reconciliation requires the appraiser to analyze and weight the value indicators from each approach based on the quality, quantity, and relevance of the supporting data.
Question 6: A neighborhood that is 40% developed with single-family homes, experiencing new commercial development at its edges, is most likely in which life cycle stage?
- Growth (Correct answer)
- Stability
- Decline
- Revitalization
Correct answer: Growth
A neighborhood that is still actively developing with increasing land uses is in the growth stage of the neighborhood life cycle.
Question 7: Which factor does NOT affect the selection of an appropriate capitalization rate in direct capitalization?
- Risk associated with the investment
- Expected income growth or decline
- Physical condition of improvements (Correct answer)
- Comparable sales-derived OARs
Correct answer: Physical condition of improvements
The physical condition of improvements affects value through income and expense projections but does not directly determine the capitalization rate selection.
IACP Market Analysis & Property Valuation 4
A property generates $120,000 in potential gross income, has a 5% vacancy rate, and $15,000 in operating expenses.
What is the net operating income?