PSI Real Estate Appraisal 2

Question 1

In the income approach, net operating income (NOI) is calculated as:

Accepted Answer

Effective gross income minus operating expenses (excluding debt service)

Answer

NOI equals effective gross income (potential income adjusted for vacancy/collection loss) minus all operating expenses, but does NOT include mortgage debt service or income taxes.

Question 2

Direct capitalization converts a single year's income into a value estimate by:

Accepted Answer

Dividing NOI by the overall capitalization rate

Answer

In direct capitalization, Value = NOI ÷ Cap Rate; dividing the stabilized annual NOI by the market-derived overall capitalization rate yields the indicated value.

Question 3

The cost approach is generally most reliable when appraising:

Accepted Answer

Properties with little or no depreciation, such as newly constructed buildings

Answer

The cost approach is most reliable for new or nearly new properties where depreciation is minimal and construction costs are well-documented.

Question 4

Reproduction cost in the cost approach refers to:

Accepted Answer

The cost to construct an exact replica of the existing structure using current materials and techniques

Answer

Reproduction cost is the cost to build an exact duplicate of the subject structure using the same or very similar materials and construction methods at current prices.

Question 5

Functional obsolescence in a residential property is best illustrated by:

Accepted Answer

A four-bedroom home with only one bathroom

Answer

Functional obsolescence results from a deficiency or superadequacy in the design or layout of the improvement; a four-bedroom home with one bathroom represents an inadequate feature relative to market expectations.

PSI - Exams Practice Test

PSI - Exams Practice Test

PSI Real Estate Appraisal 2