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SAEE Income Approach and Capitalization Flashcards

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

Read the first 7 SAEE Income Approach and Capitalization flashcards as text

  1. A 10-unit apartment building has a monthly rent per unit of $1,200. If the gross rent multiplier extracted from sales is 9.5, what is the indicated value?

    Answer: $1,368,000

    Annual GRI = 10 × $1,200 × 12 = $144,000; Value = $144,000 × 9.5 = $1,368,000.

  2. In a discounted cash flow analysis, the terminal value at the end of the holding period is most commonly estimated by:

    Answer: Applying a terminal cap rate to the year-after-sale NOI

    The reversion is typically estimated by dividing the next year's NOI by a going-out (terminal) capitalization rate.

  3. Which of the following best describes the difference between a going-in cap rate and a going-out cap rate?

    Answer: Going-in applies to existing income; going-out applies to projected income at time of resale

    The going-in cap rate values the property at acquisition while the going-out (terminal) cap rate estimates the resale value at the end of the holding period.

  4. An office building has an effective gross income of $500,000 and an operating expense ratio of 40%. Using direct capitalization at a 6% cap rate, the value is approximately:

    Answer: $5,000,000

    NOI = $500,000 × (1 − 0.40) = $300,000; Value = $300,000 / 0.06 = $5,000,000.

  5. Recapture in the context of income capitalization refers to:

    Answer: The return OF invested capital from a wasting asset

    Recapture (capital recovery) is the return of the depreciating investment in improvements over the economic life of the asset.

  6. In the Ellwood mortgage-equity technique, the overall rate accounts for all of the following EXCEPT:

    Answer: Zoning classification of the property

    The Ellwood formula incorporates financing terms, equity yield, and value change, but zoning is a physical/legal attribute unrelated to the mortgage-equity model.

  7. A market-derived overall capitalization rate is best supported by:

    Answer: Analysis of recent comparable sales with known NOIs

    Market extraction from comparable sales where both sale price and NOI are known provides the most credible market-derived cap rate.