SAEE Income Approach and Capitalization 2

Question 1

Effective gross income (EGI) is best defined as:

Accepted Answer

Potential gross income minus vacancy and collection loss

Answer

EGI = Potential Gross Income − Vacancy and Collection Loss, representing anticipated actual income from the property.

Question 2

Which technique divides value into land and building components and capitalizes each at a different rate?

Accepted Answer

Land residual technique

Answer

The land residual technique attributes known building value, calculates building income, and capitalizes remaining income attributable to land.

Question 3

A capitalization rate derived from comparable sales is called a(n):

Accepted Answer

Overall rate (OAR)

Answer

The overall capitalization rate (OAR) is extracted from market sales by dividing NOI by sale price of comparable properties.

Question 4

In discounted cash flow analysis, what does the terminal value represent?

Accepted Answer

The projected resale price at the end of the holding period

Answer

The terminal (reversion) value is the anticipated resale proceeds at the end of the investment holding period.

Question 5

The band-of-investment technique derives a cap rate by weighting:

Accepted Answer

Mortgage and equity components by their proportions of total value

Answer

Band-of-investment creates a composite cap rate by weighting the mortgage constant and equity dividend rate by their respective loan-to-value and equity ratios.

SAEE Test Practice Test

SAEE Test Practice Test

SAEE Income Approach and Capitalization 2