Which expense pattern in an owner's statement most deserves scrutiny?
Correct Answer
A) Expenses noticeably below those of comparable buildings
Why this is correct: Operating expenses significantly below market norms for comparable properties often indicate deferred maintenance, under-reporting, or non-recurring items, which artificially inflate Net Operating Income (NOI) and value. Why the other choices are wrong: 'Insurance premiums rising modestly year over year with the market' is normal inflation. 'A utilities figure that varies with the seasons' is expected. 'Management stated as a percentage of collections' is a common and acceptable method. Exam tip: Always reconcile owner-provided expenses to market-derived expense ratios.
Why This Is the Correct Answer
Why this is correct: Operating expenses significantly below market norms for comparable properties often indicate deferred maintenance, under-reporting, or non-recurring items, which artificially inflate Net Operating Income (NOI) and value. Why the other choices are wrong: 'Insurance premiums rising modestly year over year with the market' is normal inflation. 'A utilities figure that varies with the seasons' is expected. 'Management stated as a percentage of collections' is a common and acceptable method. Exam tip: Always reconcile owner-provided expenses to market-derived expense ratios.
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Replacement reserves cover which kind of expenditure?
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An appraiser is developing a discounted cash flow (DCF) analysis for a commercial property with a 7-year holding period. The projected net operating income (NOI) for Year 7 is $210,000, and the estimated reversion (sale proceeds net of transaction costs) at the end of Year 7 is $3,200,000. Using a discount rate of 9.5%, what is the present value of the Year 7 reversion component alone?