SAEE Income Approach and Capitalization 5

Question 1

A retail property has contract rents of $90,000 and market rents of $105,000. The difference between market and contract rent is called:

Accepted Answer

Deficit rent

Answer

When contract rent is below market rent, the tenant benefits from deficit (or below-market) rent, creating leasehold value.

Question 2

In discounted cash flow analysis, the terminal value (reversion) is typically estimated by:

Accepted Answer

Applying a terminal cap rate to the following year's NOI

Answer

The reversion is estimated by capitalizing the NOI in the year after the holding period ends using a terminal (going-out) cap rate.

Question 3

A property's gross rent multiplier (GRM) is 10, and monthly gross rent is $4,500. What is the indicated value?

Accepted Answer

$540,000

Answer

Annual gross rent = $4,500 × 12 = $54,000; Value = $54,000 × 10 = $540,000.

Question 4

Which expense is properly classified as an operating expense when calculating NOI?

Accepted Answer

Capital expenditure reserves (replacement reserves)

Answer

Replacement reserves are an operating expense for appraisal purposes; financing costs and owner taxes are not.

Question 5

A property sells for $750,000 with an NOI of $60,000. If market cap rates subsequently rise to 9%, the same NOI would indicate a value of approximately:

Accepted Answer

$666,667

Answer

Value = $60,000 ÷ 0.09 ≈ $666,667; rising cap rates compress property values.

SAEE Test Practice Test

SAEE Test Practice Test

SAEE Income Approach and Capitalization 5