Practice Test Geeks(CGA) Certified General Appraiser Practice Test
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Income Approach Flashcards

7 cards from real CGA practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.

Read the first 7 Income Approach flashcards as text

  1. A property has contract rent of $1,500/month but market rent is $1,800/month. The difference represents what concept?

    Answer: Bonus value accruing to the lessee

    When contract rent is below market rent, the tenant enjoys a bonus value — the economic benefit of the below-market lease.

  2. In yield capitalization, the discount rate applied to future cash flows is best described as which of the following?

    Answer: The investor's required rate of return on equity

    The discount rate in yield capitalization reflects the total return (yield) an equity investor requires given the risk of the investment.

  3. Which reserve expense category accounts for the periodic replacement of short-lived building components such as HVAC systems and roofs?

    Answer: Reserves for replacement

    Reserves for replacement (replacement reserves) are annual set-asides to fund eventual replacement of capital items with limited useful lives.

  4. The Ellwood mortgage-equity technique is primarily used to derive which analytical tool?

    Answer: An overall capitalization rate that reflects financing assumptions

    The Ellwood technique calculates an overall cap rate by combining mortgage terms, equity yield rate, and expected property value change.

  5. An office building has an effective gross income of $500,000 and an operating expense ratio of 40%. What is the net operating income?

    Answer: $300,000

    NOI = EGI × (1 − OER) = $500,000 × 0.60 = $300,000.

  6. Which income approach technique is most appropriate when future income streams are expected to be irregular or variable?

    Answer: Discounted cash flow analysis

    DCF analysis explicitly models each period's cash flow and discounts them individually, making it ideal for irregular or changing income patterns.

  7. Under the income approach, 'reconstructed operating statements' are prepared primarily to accomplish what?

    Answer: Normalize income and expenses to reflect market-level, stabilized conditions

    Reconstructed statements convert owner-reported financials to market-based figures by removing non-recurring items and adjusting non-market expenses.