Owner-performed maintenance that is not paid for should be treated by:
Correct Answer
C) Including a market cost for the work in the expenses
Why this is correct: Owner-performed maintenance must be included at market cost in expenses to reflect the typical buyer's experience. Excluding it artificially inflates Net Operating Income (NOI) and value. Why the other choices are wrong: "Adding the labor value to the property's capital account" is incorrect; it's an operating expense, not a capital improvement. "Excluding it, since no money changed hands" violates the principle of market-based expenses. "Deducting it from the vacancy allowance" is not appropriate; vacancy and expenses are separate. Exam tip: Always expense owner labor at market rate to maintain NOI consistency.
Why This Is the Correct Answer
Why this is correct: Owner-performed maintenance must be included at market cost in expenses to reflect the typical buyer's experience. Excluding it artificially inflates Net Operating Income (NOI) and value. Why the other choices are wrong: "Adding the labor value to the property's capital account" is incorrect; it's an operating expense, not a capital improvement. "Excluding it, since no money changed hands" violates the principle of market-based expenses. "Deducting it from the vacancy allowance" is not appropriate; vacancy and expenses are separate. Exam tip: Always expense owner labor at market rate to maintain NOI consistency.
More income-approach Questions
In a percentage lease, rent is commonly structured as:
Escalation clauses and expense stops in a lease matter to the income analysis because they:
In a DCF, what is the reversion?
Potential gross income differs from effective gross income in that PGI assumes:
The reversion in a discounted cash flow model represents:
Two identical buildings differ only in risk: one has a single tenant on a short lease, the other five tenants on staggered terms. How do their cap rates compare?
Contract rent on a leased office is $30 per sq ft; market rent is $26. The $4 difference is called:
Building A (new, credit tenant, 20-year lease) and Building B (older, month-to-month tenants) sell the same week. Their cap rates should differ how?
An appraiser is analyzing a 15-unit apartment building. Market research indicates a 6% vacancy rate is typical for similar properties, but this property's historical vacancy has averaged 4%. The subject has experienced a 1% collection loss (uncollectible rents) over the past two years. When estimating effective gross income for the subject, what vacancy and collection loss percentage should the appraiser apply?
An overall rate extracted from a sale whose NOI excluded reserves, applied to a subject NOI that includes them, will:
People Also Study
Valuation Principles & Procedures
25% of exam
Property Description & Analysis
20% of exam
Market Analysis & Highest/Best Use
15% of exam
Appraisal Math & Statistics
15% of exam
USPAP (Ethics & Standards)
15% of exam
Previous Question
A tenant pays $18 per square foot under a lease signed years ago; similar space now commands $24. The $18 figure is the:
Next Question
In developing a market-derived overall capitalization rate via direct capitalization, an appraiser identifies a sale of a comparable apartment property where the seller provided $150,000 in seller financing at 4.5% interest-only for five years, while market conventional financing terms were 6.25% interest-only. The sale price was $2,100,000. To isolate the effect of favorable financing on the indicated cap rate, the appraiser calculates the present value of the financing benefit using a 6.25% discount rate. What is the approximate amount of the financing premium that must be subtracted from the sale price to estimate the cash-equivalent sale price?