CGA Property Maintenance & Operations 3 — Questions and Answers
Question 1: Which of the following best describes a management fee as used in an appraisal income analysis?
- A fixed dollar amount set by the appraiser
- A market-derived percentage of effective gross income reflecting professional property management (Correct answer)
- The actual fee paid by the owner regardless of market norms
- A fee charged only on commercial properties
Correct answer: A market-derived percentage of effective gross income reflecting professional property management
Management fees should reflect market norms—typically a percentage of EGI—regardless of whether the owner self-manages or uses actual costs that differ from market rates.
Question 2: What is the primary purpose of a reserve for replacement account in property operations?
- To fund emergency lawsuits and liability claims
- To accumulate funds for future replacement of short-lived capital items (Correct answer)
- To cover annual insurance premium payments
- To account for seasonal vacancy losses
Correct answer: To accumulate funds for future replacement of short-lived capital items
Reserves for replacement set aside funds annually to cover the eventual replacement of short-lived components such as roofing, appliances, and HVAC systems.
Question 3: A property's actual insurance premium is $12,000/year, but market surveys indicate comparable properties pay $8,500/year. How should the appraiser handle this discrepancy?
- Use the actual $12,000 because it is a verified expense
- Use the market-derived $8,500 as the stabilized expense estimate (Correct answer)
- Average the two figures at $10,250
- Exclude insurance from the expense analysis
Correct answer: Use the market-derived $8,500 as the stabilized expense estimate
Appraisers use market-derived expense figures to reflect what a typical buyer would expect to pay, even if the current owner's costs differ.
Question 4: Which of the following property types would most likely have the HIGHEST maintenance expense ratio relative to effective gross income?
- A new Class A office building with full-service leases
- A 40-year-old garden apartment complex with deferred maintenance (Correct answer)
- A single-tenant NNN retail property
- A newly constructed self-storage facility
Correct answer: A 40-year-old garden apartment complex with deferred maintenance
Older multifamily properties with deferred maintenance typically carry high maintenance expense ratios due to aging systems, required repairs, and intensive tenant turnover costs.
Question 5: The Economic Age-Life method of estimating depreciation is most directly related to property maintenance because:
- It measures loss of value from external economic forces
- It reflects how well a property has been maintained through its effective age relative to total economic life (Correct answer)
- It calculates functional obsolescence from outdated design
- It is based solely on physical measurements of deterioration
Correct answer: It reflects how well a property has been maintained through its effective age relative to total economic life
Effective age—the apparent age based on condition and maintenance—compared to total economic life directly reflects how maintenance quality impacts the depreciation calculation.
Question 6: When performing a site inspection for appraisal purposes, which deferred maintenance condition would be considered MOST critical to identify for value impact?
- Minor landscaping overgrowth
- Foundational cracking suggesting structural instability (Correct answer)
- Faded exterior paint on outbuildings
- Worn carpet in secondary common areas
Correct answer: Foundational cracking suggesting structural instability
Structural deficiencies such as foundational cracking represent major deferred maintenance with significant cost-to-cure and potential safety implications that materially affect value.
Question 7: A property's net operating income (NOI) is $180,000 and its operating expenses are $120,000. What is the effective gross income (EGI)?
- $60,000
- $300,000 (Correct answer)
- $180,000
- $240,000
Correct answer: $300,000
EGI equals NOI plus operating expenses: $180,000 + $120,000 = $300,000.
CGA Property Maintenance & Operations 3
Which of the following best describes a management fee as used in an appraisal income analysis?