For which type of property is the income approach to value considered MOST appropriate?
Correct Answer
B) A commercial office building leased to multiple tenants
The income approach estimates value by converting a property's anticipated income stream into a present value estimate, making it most applicable to income-producing properties where investors base purchasing decisions on expected returns. A commercial office building with lease income is the paradigmatic use case for this approach.
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- → The appraisal approach that estimates value by comparing a property to similar recently sold properties is the:
- → The period of time a structure continues to earn sufficient income to continue operations is referred to as the structure’s:
- → An appraiser in California is using the cost approach for a property in Sacramento and must account for entrepreneurial profit (also called developer's profit). A local developer confirms that typical profit margins in the Sacramento market are 15-20% of total development costs. How should the appraiser handle entrepreneurial profit?
- → A California buyer's agent is reviewing comparable sales data and notices that the county recorder's office lists different documentary transfer tax amounts for similar properties in the same city. Some properties show both a county and city transfer tax, while others show only the county tax. What does this difference indicate about the sale verification process?
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Previous Question
A 12-unit apartment building in California has the following annual financials: Scheduled Gross Rent $180,000; Other Income $9,000; Vacancy and Collection Loss 5%; Operating Expenses (taxes, insurance, maintenance) $42,000; Management Fee 7% of EGI; Replacement Reserves $6,000. Using a 6.5% cap rate, what is the indicated property value?
Next Question
An appraiser in California is determining operating expenses for a rental property in a Mello-Roos Community Facilities District in Temecula. The property's annual tax bill shows: Base Prop 13 tax $8,500, Mello-Roos special tax $4,200, and a school bond assessment of $600. For the income approach NOI calculation, how should these taxes be handled?