A stabilized operating statement differs from an actual one in that the stabilized version:
Correct Answer
D) Reflects typical operations rather than one year's peculiarities
Why this is correct: A stabilized operating statement reflects the property's typical, normalized income and expenses over time, smoothing out one-time events or anomalies (like a major repair or unusual vacancy). This provides a reliable basis for estimating ongoing net operating income (NOI) for valuation. Why the other choices are wrong: 'Covers a five-year period rather than one year' is not definitive; stabilization is about normalization, not a specific period length. 'Uses the owner's tax return figures exactly' would include non-typical items and owner-specific deductions. 'Excludes all of the fixed expenses entirely from the calculation' is false; fixed expenses like taxes and insurance are included. Exam tip: 'Stabilized' means typical, normalized, and representative of ongoing operations.
Why This Is the Correct Answer
Why this is correct: A stabilized operating statement reflects the property's typical, normalized income and expenses over time, smoothing out one-time events or anomalies (like a major repair or unusual vacancy). This provides a reliable basis for estimating ongoing net operating income (NOI) for valuation. Why the other choices are wrong: 'Covers a five-year period rather than one year' is not definitive; stabilization is about normalization, not a specific period length. 'Uses the owner's tax return figures exactly' would include non-typical items and owner-specific deductions. 'Excludes all of the fixed expenses entirely from the calculation' is false; fixed expenses like taxes and insurance are included. Exam tip: 'Stabilized' means typical, normalized, and representative of ongoing operations.
More income-approach Questions
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The reversion in a discounted cash flow model represents:
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An overall rate extracted from a sale whose NOI excluded reserves, applied to a subject NOI that includes them, will:
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Previous Question
An appraiser develops a 5-year DCF model for an industrial warehouse. The projected NOI is level at $180,000 per year. The reversion is estimated at $2,700,000. The investor’s overall yield rate is 8.0%. What is the indicated value of the property?
Next Question
An appraiser is valuing a retail plaza subject to a 20-year triple net lease with 12 years remaining. The contract rent is $24 per square foot annually, while current market rent for comparable space is $18 per square foot. The leased fee interest is being appraised for estate tax purposes. Which statement is correct regarding the income approach?