Income Approach and Capitalization Flashcards
6 cards from real SAEE practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 6 Income Approach and Capitalization flashcards as text
When an appraiser stabilizes income for the income approach, they are:
Answer: Adjusting income to reflect typical long-term occupancy rather than current conditions
Stabilized income reflects typical market occupancy and rent levels over time, removing temporary anomalies from current leasing status.
Which of the following items is typically classified as a capital expenditure rather than an operating expense?
Answer: Roof replacement
Roof replacement is a capital expenditure that extends the useful life of the improvement and is treated separately from recurring operating expenses.
A reserve for replacement in the income approach accounts for:
Answer: Future replacement of short-lived building components
Reserves for replacement are annual allowances set aside to fund future replacement of short-lived components such as roofs, HVAC, and appliances.
The equity dividend rate (EDR) is the ratio of:
Answer: Before-tax cash flow to equity investment
EDR = Before-Tax Cash Flow ÷ Equity Investment, measuring the annual cash return an equity investor receives on their down payment.
In the income approach, market rent is defined as the:
Answer: Most probable rent a property would command in a competitive open market
Market rent is the most probable rent a property would generate in a competitive, open market under typical conditions and arm's-length transactions.
An overall capitalization rate that is lower than the discount rate implies that the appraiser expects property value to:
Answer: Increase over the holding period
When the cap rate is below the discount rate, the difference is explained by anticipated value appreciation, which compensates the investor for accepting a lower current yield.