Multiple Choice Quiz 7.1

1) Loss due to collections is: [0409]

A. A deduction from effective gross income

* B. A deduction from potential gross income

C. A variable expense

D. A fixed expense

2) What is the difference between potential gross income and effective gross income? [0415]

* A. Vacancy and collection loss

B. Vacancy loss

C. Operating expenses

D. Collection loss

3) The income loss resulting from unoccupied units is called: [0425]

A. Rental loss

B. Collection loss

* C. Vacancy loss

D. Occupancy loss

4) The loss of income resulting from non-payment of rent or bad checks is called: [0426]

A. Projected loss

B. Potential loss

* C. Collection loss

D. Vacancy loss

5) Which of the following is true? [0433]

* A. Contract rent may be more, less, or identical to market rent

B. Contract rent is the same as market rent

C. Contract rent is generally less than market rent

D. Contract rent is generally more than market rent

6) When reconstructing an operating statement, the first thing considered is: [0434]

A. The effective gross income (EGI)

* B. The potential gross income (PGI)

C. The net operating income (NOI)

D. The net collection income (NCI)

7) What is the purpose of a reconstructed operating statement when using the income approach? [0436]

* A. To develop an estimated projection of expected income and expenses that reflect the earning capacity of the property

B. To develop a true statement of profits since the owner's statement is generally questionable

C. To compare to financial statements in the income approach

D. To study historical trends of income for the subject property

8) The maximum possible income from rental property is called: [0444]

A. Net operating income

* B. Potential gross income

C. Effective gross income

D. Cash flow

9) The amount of rent that space would command in the local market given current supply and demand is: [0445]

A. Projected rent

B. Contract rent

C. Actual rent

* D. Market rent

10) The maximum possible income from property income before any expenses are deducted is: [0446]

A. Before-tax cash flow

B. Effective gross income

* C. Potential gross income

D. Operating income

11) Total income from property before any expenses are deducted is: [0446]

A. Equity income

* B. Gross income

C. Before-tax cash flow

D. Operating income

12) Assuming no miscellaneous income, effective gross income is: [0447]

A. Potential gross income from space that can actually be rented

B. Income actually collected after all operating expenses

* C. Gross potential income less an allowance for vacancy and collection

D. Gross rents collected less an allowance for vacancy and collection

13) Assuming no miscellaneous income, what is the result of subtracting vacancy loss and bad debt allowance from potential gross income? [0449]

A. Cash flow

* B. Effective gross income

C. Taxable income

D. Net operating income

14) The effective gross income is: [0456]

A. Gross potential income less vacancy, collection loss, and operating expenses

* B. Gross potential income less vacancy and collection loss

C. Net operating income less vacancy, collection loss, and operating expenses

D. Net operating income less vacancy and collection loss

15) Generally, vacancy allowance and collection loss is estimated as a percentage of: [0459]

A. Net operating income

* B. Potential gross income

C. Operating expenses

D. Effective gross income

16) Which of the following is not considered when estimating effective gross income? [0460]

A. Vacancy losses

B. Collection losses

* C. Operating expenses

D. Other income

17) How much vacancy allowance should be allowed on a middle to large apartment complex? [0463]

A. 1% of gross income

B. 5% of gross income

* C. The amount will vary with each property

D. Between 5% and 10% of gross income

18) What should be deducted from potential gross income to estimate effective gross income? [0464]

* A. An estimate of vacancy losses

B. An estimate of stabilized operating expenses

C. An estimate of the annual debt service

D. All of the above

19) What are the components of effective gross income: [0475]

A. Potential gross income and operating expenses

B. Gross income and operating expenses

C. Gross income, operating expenses and debt service

* D. Potential gross income and vacancy and collection loss

20) When vacancy and credit loss is subtracted from gross potential income, what is the result? [0477]

A. Cash flow income

* B. Effective gross income

C. Net operating income

D. Taxable income

21) Which is not included as part of the effective gross income? [0478]

* A. Maintenance expense

B. Rent income

C. Collection losses

D. Parking revenue

22) An apartment complex has 20 one bedroom units that rent for $500 each per month and 25 two bedroom units that rent for $800 each per month.  Vacancy loss is estimated at 5% of gross potential income and collection loss is estimated at 3% of gross potential income.  What is the effective gross income per month? [0496]

* A. $27,600

B. $27,645

C. $28,500

D. $30,355

23) A property has an effective gross income of $185,000, a 10% vacancy rate and an effective gross income multiplier of 5.5.  What is the indicated value?  [0502]

A. $ 915,750

B. $1,119,250

C. $ 962,500

* D. $1,017,500

24) The effective gross income multiplier is: [0549]

A. Value multiplied by operating income

B. Value multiplied by effective gross income

C. Value divided by operating income

* D. Value divided by effective gross income

25) When the sales price is divided by the market rent, what is the result? [0550]

A. Net operating income (NOI)

B. Actual rent multiplier (ARM)

C. Operating sales ratio (OSR)

* D. Gross rent multiplier (GRM)

26) The gross rent multiplier would most likely be used when appraising a: [0551]

* A. Triplex

B. Warehouse

C. Apartment building

D. Shopping center

27) When using a gross rent multiplier (GRM), value is estimated by: [0554]

A. Dividing market rent by gross rent multiplier

* B. Multiplying market rent by gross rent multiplier

C. Dividing market rent by net income

D. Multiplying operating expenses by gross rent multiplier

28) The gross rent multiplier (GRM) is calculated by: [0555]

* A. Dividing sales price of the comparable sale by rent

B. Dividing rent of the subject by sales price

C. Dividing sales price of the subject by rent

D. Dividing rent of the comparable sale by sales price

29) The gross rent multiplier is inferior as a value indicator to direct or yield capitalization because: [0556]

A. Depreciation is not considered

* B. Unusual expenses are not considered

C. The land is not considered at its highest and best use

D. Typical expenses are not considered

30) What is GIM? [0557]

A. Graduated income modifier

B. Gross investment multiplier

C. Graduate investment manager

* D. Gross income multiplier

31) Which of the following is used when estimating the value of a building using the effective gross rent multiplier? [0558]

A. Market rent of the subject property

B. Miscellaneous income

C. Vacancy and collection losses

* D. All of the above

32) Which of the following is used when estimating the value of a building using the gross income multiplier? [0558]

* A. Market rent of the subject property

B. Contract rent of the subject property

C. Vacancy and collection losses

D. All of the above

33) An office building recently sold for $2,000,000.  The gross potential income is $400,000, the vacancy factor is 8%, the expenses are 40% of effective gross income.  The annual mortgage payment is $165,000 and equity is $500,000. What is the indicated gross income multiplier?  [0560]

A. 7.5

B. 4

* C. 5

D. 10.12

34) A property that sold for $450,000 had a potential gross income of $90,000 and operating expenses of $45,000.  What is its gross rent multiplier (annual)? [0561]

* A. 5

B. 9

C. 10

D. 2

35) A property produces an annual income of $50,000 when fully leased. Vacancies are currently running at 15%.  The sales price is $240,000. What is the potential gross income multiplier?  [0562]

* A. 4.80

B. 0.21

C. 0.18

D. 5.65

36) An income property sells for $175,000 and has a gross income of $20,000.  What is the gross income multiplier?  [0564]

A. 0.11

B. 0.09

* C. 8.75

D. 11.42

37) If an income property sells for $210,000 and has a gross income of $24,000, what is the gross income multiplier?  [0566]

A. 0.11

B. 0.06

* C. 8.75

D. 10.00

38) The sales price of a property is $40,000 and the gross monthly contract rent is $400.  What is the GMRM (gross monthly rent multiplier)? [0567]

A. 8.33

B. 0.12

* C. 100

D. 0.01

39) Pine Grove Apartments rent for $800 per month. Similar units are renting for $900 per month. The most likely market rent for Pine Grove Apartments is: [0657]

A. $100 per month

B. $800 per month

* C. $900 per month

D. $850 per month

40) The rent a comparable unit would command if offered in a competitive market is referred to as:  [0660]

A. Comparable rent

B. Base rent

C. Contract rent

* D. Market rent

41) What is excess rent? [0666]

* A. The amount of contract rent above market rent

B. The amount of rent paid above the minimum rent

C. The rent received based on a portion of sales

D. The rent received based on an inflation index

42) What is the excess of contract rent over market rent? [0668]

* A. Excess rent

B. Percentage rent

C. Overage rent

D. Surplus rent

43) What term is used to identify the rent that probably would be obtained for a specific property in the current rental market?  [0671]

* A. Market rent

B. Minimum rent

C. Contract rent

D. Long-term rent

44) Which of the following statements is correct in regard to rent?  [0674]

A. Contract rent is typically used to find the fee simple value of a property

B. Contract rent is higher than economic rent

* C. Economic rent is typically used to find the fee simple value of a property

D. Economic rent is equal to contract rent minus market rent

45) Who benefits when market rent exceeds contract rent? [0678]

A. Leased fee estate

B. Landlord

* C. Tenant

D. Lessor

46) An apartment building has 20 units that rent for $500 monthly and 30 units that rent for $750 monthly.  Collection loss is estimated at 3% and vacancy loss is estimated at 7%.  What is the effective gross income (EGI)? [3027]

A. $390,000

* B. $351,000

C. $32,500

D. $29,250

47) An apartment building has 20 units that rent for $500 monthly and 30 units that rent for $750 monthly.  Collection loss is estimated at 3% and vacancy loss is estimated at 7%.  The building recently sold for $3,600,000. What is the potential gross income multiplier (PGIM)? [3028]

A. 10.3

B. 123.6

C. 110.4

* D. 9.2

48) An apartment building has 20 units that rent for $500 monthly and 30 units that rent for $750 monthly.  Collection loss is estimated at 3% and vacancy loss is estimated at 7%.  The potential gross income multiplier for similar buildings is 8. What is the estimated value of the building? [3032]

A. $2,808,000

B. $3,170,000

* C. $3,120,000

D. $2,907,000

49) An apartment that recently sold for $500,000 has potential gross rent of $100,000.  Vacancy and collection losses are expected to be 10% of the gross rent.  What is the potential gross monthly income multiplier? [4006]

* A. 60

B. 5.6

C. 66.7

D. 5

50) The total income anticipated from all operations of the property after vacancy and collection losses is: [9007]

A. Escalator income.

B. Equity income.

C. Potential gross income.

* D. Effective gross income.

51) Last year a 20 unit apartment building had total gross income of $25,575. The one-bedroom apartments rented for $125 per month. The five two-bedroom apartments Rented for $150 per month. What was the scheduled rent and income loss due to vacancy? [9013]

A. $28,200 and $7,692

B. $29,400 and $6,235

* C. $31,500 and $5,925

D. $27,900 and $8,720

52) The difference between the total income attributable to real property at 100% occupancy before operating expenses are deducted and the income generated from all operations of the real property is: [9045]

A. Potential gross income

B. Effective gross income

* C. Vacancy and collection loss

D. Fixed expenses

53) A 100 unit apartment building has a ratio of one bedroom units to two bedroom units of 3:1.  The one bedroom units measure 1,000 square feet. The two bedroom units measure 1,300  Square feet. The rent for all units is $.65 per square foot per month. What is the potential gross income for the building? [9077]

A. $585,000

* B. $838,500

C. $920,200

D. $436,000