Evaluation Details and Structure Flashcards
7 cards from real ASC practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Evaluation Details and Structure flashcards as text
What is the purpose of sensitivity analysis in an ARGUS evaluation?
Answer: To show how changes in key assumptions (e.g., cap rate, rent growth) affect output metrics like value or IRR
Sensitivity analysis measures the impact of varying one or more key assumptions on the evaluation's output, helping analysts understand which inputs most influence value or returns.
In ARGUS, how does a higher general vacancy assumption affect property value?
Answer: Higher vacancy reduces Effective Gross Income, which lowers NOI and therefore reduces the capitalized property value
More vacancy means less collected rent, which reduces EGI and NOI; since value is derived by dividing NOI by the cap rate, lower NOI directly produces a lower estimated value.
Which of the following market inputs is most critical when establishing market leasing assumptions in ARGUS for an office building?
Answer: Current market rent per square foot, typical lease term, and market TI allowances in the submarket
Accurate submarket data on achievable rents, lease terms, and TI levels is essential for market leasing assumptions because these drive the projected economics of any space that re-leases during the holding period.
What does 'absorption' mean in an ARGUS evaluation context?
Answer: The pace at which vacant space becomes occupied under new leases
Absorption models how quickly unleased vacant space is expected to be leased up, which affects when rental income from that space begins to appear in the cash flow model.
If an ARGUS model uses a 5.0% going-in cap rate and Year 1 NOI is $1,000,000, what is the implied property value?
Answer: $20,000,000
Value = NOI ÷ Cap Rate = $1,000,000 ÷ 0.05 = $20,000,000; dividing by a lower cap rate produces a higher value.
In ARGUS, credit loss (also called collection loss) is best described as:
Answer: An allowance for rent that is billed but never collected due to tenant defaults or delinquency
Credit loss is a separate vacancy-like deduction that accounts for tenants who default or fail to pay rent even when technically occupying space, reducing effective income beyond the general vacancy factor.
How does projected market rent growth affect the long-term ARGUS valuation?
Answer: Higher market rent growth increases future NOI as expiring leases renew at higher rates, boosting the terminal value
As leases roll and renew at growing market rents, the NOI in later years and at the time of reversion increases, raising the terminal value and improving overall returns.