SOLUTION: FIRE 378 St Cloud State University Appraisal Sample Problems Paper

FIRE 378 – Appraisal Sample Problems
1. Calculate the correct price of the property using the cost approach.
Value of land: $45,000
Assessed value on tax records: $145,000
Cost to rebuild improvements: $115,000
Mortgage: $130,000
Accumulated Depreciation: $10,000
2. Given the simplified table below; what is the adjusted sale price of your subject property?
Element of
Comparison
Transaction Price
Effective Age
($1000 per year)
Living Area
($5 per square foot)
Number of Baths
($2000 per bath)
Subject
Property
10
Comparable
Sale #1
$150,000
15
Comparable
Sale #2
165,000
12
1,200
1,100
1,300
3
1
2
3. A comparable property sold eight months ago for $300,000. Home prices have been
appreciating 6% per year (or .5% per month). The comparable property is 7 years old and the
subject property is 3 year old. Each year depreciates the value of the home by $2,000. If these
are the only differences between the comparable and the subject property what is the adjusted
sale price of this comparable?
4. You find two properties that have sold twice within the last two years. Property A sold 22
months ago for $98,500; it sold last week for $108,000. Property B sold 20 months ago for
$105,000; it sold yesterday for $113,500. Assuming no compounding, what is the average
monthly rate of change in sales price?
FIRE 378 – Appraisal Sample Problems
5. Use the properties below to complete the comp grid
Sales Comparison Approach
Element of
Subject
Comparison
Property
Transaction Price
Market Conditions
Site Size
Effective Age
Living Area
Number of Baths
Garage Spaces
Porch, Patio, Deck
Fireplace
Fenced in backyard
Lawn Sprinkler
Adjusted Sale Price
for Comparables
Subject Property
Value
Comparable
Sale #1
Market Conditions: Appreciation is 4% per year
Site Size: .1 acre $3,000
Age: $400/year
Living Area: $25 psf
Bath $4,000
Garage: 1stall: $4000
Deck: $2,000
Fence: $1,000
Lawn Sprinkler: $1,500
Fireplace: $2,000
Comparable
Sale #2
Comparable
Sale #3
FIRE 378 – Appraisal Sample Problems
Subject
Comparable 1
$184,900
Comparable 2
$179,900
Comparable 3
$187,900
Baths: 3
Lot Acres: 0.2
Garage
Type: Attached
Classification: H
Bedrooms: 3
Age: 16.00
Area: 0007 – S.
St. Cloud
Garage Stalls: 2
Style: Bi-Level
Total SQ Feet: 2,050.00
Deck: Yes
Fenced in Backyard: No
Lawn sprinkler: No
Fireplace: Yes
Sale Date: 4 mo ago
Baths: 2
Lot Acres: 0.2
Garage
Type: Attached
Classification: H
Bedrooms: 3
Age: 10.00
Area: 0007 – S. St.
Cloud
Garage Stalls: 2
Style: Tri-Level
Total SQ Feet: 1700.00
Deck: Yes
Fenced in Backyard: Yes
Lawn sprinkler: Yes
Fireplace: No
Sale Date: 7 mo
Baths: 3
Lot Acres: 0.3
Garage
Type: Attached
Classification: H
Bedrooms: 4
Age: 26.00
Area: 0007 – S.
St. Cloud
Garage Stalls: 2
Style: Bi-Level/Split Foyer
Total SQ Feet: 1902.00
Deck: Yes
Fenced in Backyard: No
Lawn sprinkler: No
Fireplace: No
Sale Date: 3 mo
Baths: 2
Lot Acres: 0.1
Garage
Type: Attached
Classification: H
Bedrooms: 3
Age: 7.00
Area: 0007 – S.
St. Cloud
Garage Stalls: 2
Style: Tri-Level
Total SQ Feet: 1934.00
Deck: Yes
Fenced in Backyard: No
Lawn sprinkler: Yes
Fireplace: Yes
FIRE 378 – Appraisal Sample Problems
1. You plan to buy an apartment building and your cap rate is 5%. The building currently
produces $144,928 in annual income and it is expected to grow 3.5% per year. How
much should you pay for the property?
What happens if the cap rate changes to 8%? Does the value of the property go up or
down?
2. You plan to buy a building that has the following cash flows:
Your required rate of return is 15%. What should you pay for this property?
3. Data for five comparable income properties that sold recently are shown below:
Property NOI
Sale Price Overall Rate
A
$ 57,800 $ 566,600
B
49,200
496,900
C
63,000
630,000
D
56,000
538,500
E
58,500
600,000
What is the indicated overall rate (RO)? (Average Rate)
4. Use the following property data:
Cash flow from operations:
FIRE 378 – Appraisal Sample Problems
Year
1
NOI
$150,000
Debt Service $125,000
2
$150,000
$125,000
3
$150,000
$125,000
4
$150,000
$125,000
5
$150,000
$125,000
Cash Flow at sale:
Sale Price:
Cost of sale:
Mortgage balance:
$2,000,000
$125,000
$1,500,000
a. Assuming the going-in capitalization rate is 8.00 percent, compute a value for the
property using direct capitalization. Hint: V = I/R
b. Assuming the required yield/return on unlevered cash flows is 10 percent, and that
the property will be held by a buyer for five years, compute the value of the property
based on discounting unlevered cash flows. Hint: Unlevered uses NOI and Sale
Proceeds as terminal year value (Sale Price – Cost of Sale)
5. Given the following information, calculate the overall capitalization rate. Sale price:
$950,000, Potential Gross Income: $250,000, Vacancy and Collection Losses: $50,000,
and Operating Expenses: $50,000.
6. Formulate an annual pro forma income statement for a five unit apartment building
based on the following information to calculate the NOI:
Market Rents: $800
Vacancy & Collection Loss: 5%
Expenses (except real estate tax): 30% of EGI
Real Estate Tax: $5,000 (real estate tax is considered operating expense – above
NOI line)
FIRE 378 – Appraisal Sample Problems
7. Given the following owner’s income and expense estimates for an apartment property,
formulate a reconstructed operating statement. The building consists of 10 units that
could rent for $550 per month each.
Owner’s Annual Income Statement
Rental income (last year)
$60,600
Less: Operating & capital expenses
Power
$2,200
Heat
1,700
Janitor
4,600
Water
3,700
Maintenance
4,800
Reserve for capital expenditures
2,800
Management
3,000
Tax depreciation
5,000
Mortgage payments
6,300
Estimating vacancy and collection losses at 5 percent of potential gross income,
reconstruct the operating statement to obtain an estimate of NOI. Assume an above-line
treatment of CAPX. Remember, there may be items in the owner’s statement that should
not be included in the reconstructed operating statement. Using the NOI and a Ro of 11.0
percent, calculate the property’s indicated market value.
6. You have just completed the appraisal of an office building and have concluded that the
market value of the property is $2,500,000. You expect potential gross income (PGI) in the first
year of operations to be $450,000; vacancy and collection losses to be 9 percent of PGI;
operating expenses to be 38 percent of effective gross income (EGI); and capital expenses to be 4
percent of EGI.
A. What is the implied going in cap rate? R=I/V
B. What is the effective gross income multiplier? Sale price/EGI

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