Property taxes based on a sale price higher than the current assessment should be:
Correct Answer
B) Projected at the level a new owner would face
Why this is correct: In jurisdictions that reassess on sale, property taxes for a new owner will be based on the sale price. Projecting expenses at the level a new owner would face is necessary for an accurate net operating income (NOI) projection. Why the other choices are wrong: Carrying forward the seller's current amount would understate the expense and overstate NOI. Excluding taxes from the operating statement is incorrect, as they are a real expense. Reducing them to reflect an anticipated appeal is speculative unless the appeal is certain. Exam tip: Model expenses from the buyer's perspective, not the seller's.
Why This Is the Correct Answer
Why this is correct: In jurisdictions that reassess on sale, property taxes for a new owner will be based on the sale price. Projecting expenses at the level a new owner would face is necessary for an accurate net operating income (NOI) projection. Why the other choices are wrong: Carrying forward the seller's current amount would understate the expense and overstate NOI. Excluding taxes from the operating statement is incorrect, as they are a real expense. Reducing them to reflect an anticipated appeal is speculative unless the appeal is certain. Exam tip: Model expenses from the buyer's perspective, not the seller's.
More Income Approach Questions
In a percentage lease, rent is commonly structured as:
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:
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 overall rate extracted from a sale whose NOI excluded reserves, applied to a subject NOI that includes them, will:
Replacement reserves cover which kind of expenditure?
What is the primary distinction, for appraisal purposes, between 'vacancy loss' and 'collection loss'?
An appraiser is analyzing a mixed-use property with retail and office components. The retail segment has a potential gross income of $180,000 with a market vacancy of 8%. The office segment has a potential gross income of $120,000 with a market vacancy of 12%. What is the overall effective gross income for the property?
The mortgage constant represents:
People Also Study
Real Estate Market
13.6% of exam
Property Description
11.8% of exam
Land or Site Valuation
4.5% of exam
Sales Comparison Approach
16.4% of exam
Cost Approach
13.6% of exam