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California Property Valuation and Financial Analysis — Printable Practice Pack

California state portion · the Business and Professions Code, DRE trust-fund rules and California's disclosure regime · 20 questions · Answer key on the last page · agentexamcoach.com

Name: ______________________Date: ______________Score: _____ / 20
  1. 1.A property's expected NOI is $96,000. Market cap rates are 6% for low-risk and 8% for high-risk properties. The subject has a single tenant on a short lease. What value range is most defensible?
    (A)Cannot be estimated without the replacement cost
    (B)Toward $1,200,000 — the higher rate reflects the higher risk of the tenancy
    (C)Toward $1,600,000 — the lower rate reflects the simplicity of one tenant
    (D)Exactly $1,400,000 — the midpoint of the two rates
  2. 2.Why might a licensee's CMA differ from an appraiser's value?
    (A)CMAs are more accurate because agents know the market
    (B)CMAs target a listing price with limited data and no USPAP
    (C)They must be identical by law in every transaction
    (D)Appraisers always arrive at higher values than agents
  3. 3.How much gain may a married couple filing jointly exclude on the sale of a principal residence?
    (A)$500,000
    (B)$125,000
    (C)$250,000
    (D)$1,000,000
  4. 4.Two identical buildings: one leased to a national tenant, one to a start-up. Which has the lower cap rate and why?
    (A)The start-up — its shorter lease means a lower rate
    (B)They carry the same rate because the buildings match
    (C)The national tenant — lower risk, investors accept a lower return
    (D)The start-up — the higher rent potential raises value
  5. 5.A structure cost $500,000 new, has an economic life of 50 years, and is 12 years old. What is the accrued depreciation using the age-life method?
    (A)$100,000
    (B)$144,000
    (C)$60,000
    (D)$120,000
  6. 6.A lot's value is $200,000 and the total property value is $800,000. What is the land-to-value ratio?
    (A)75%
    (B)400%
    (C)25%
    (D)20%
  7. 7.Which approach is most appropriate for valuing a newly built public library with no sales or rental market?
    (A)The income approach
    (B)The sales comparison approach
    (C)The cost approach
    (D)The gross rent multiplier
  8. 8.Which sale would normally be excluded from a set of comparables?
    (A)A sale in the same subdivision
    (B)An arm's length sale last month
    (C)A nearby sale of similar size
    (D)A transfer between family members
  9. 9.Why is external (economic) obsolescence almost always incurable?
    (A)It applies exclusively to owner-occupied homes
    (B)It is created by deferred maintenance choices
    (C)It accrues faster than physical deterioration
    (D)Its cause lies outside the property boundaries
  10. 10.A building's gross income is $240,000 and it sold for $2,040,000. A similar building produces $270,000 gross. Using the GIM, what is its indicated value?
    (A)$2,040,000
    (B)$2,700,000
    (C)$2,295,000
    (D)$2,160,000
  11. 11.Which technique values land by deducting the income attributable to the building first?
    (A)The gross income multiplier method
    (B)The land residual technique
    (C)The building residual technique
    (D)The quantity survey cost method
  12. 12.What does positive leverage require, comparing the overall property yield with the cost of debt?
    (A)The borrowing rate exceeds the property yield
    (B)The loan amortises faster than value grows
    (C)The property's yield exceeds the borrowing rate
    (D)Debt service is larger than gross income
  13. 13.Which best distinguishes market value from price?
    (A)Market value is probable, price is actual
    (B)Price is always higher than market value
    (C)Price is set by the appraiser's opinion
    (D)Market value ignores buyer motivation
  14. 14.Two similar properties sell, one for cash and one with heavily discounted seller financing. What is the concern?
    (A)Financing never affects price
    (B)The financed price may overstate market value
    (C)Both must be excluded
    (D)Cash sales always sell for more
  15. 15.Which technique builds a capitalisation rate from the weighted returns required by the lender and the equity investor?
    (A)The straight-line recapture technique
    (B)The gross rent multiplier technique
    (C)The paired sales extraction technique
    (D)The band of investment technique
  16. 16.A house sold for $720,000; the lot is worth $300,000 and the improvements cost $500,000 new. What depreciation does abstraction indicate?
    (A)$420,000
    (B)$80,000
    (C)$200,000
    (D)$220,000
  17. 17.What does 'stabilised occupancy' mean in income analysis?
    (A)The typical long-run occupancy after lease-up, used for valuation
    (B)The lowest occupancy recorded during the past year
    (C)The occupancy level existing on the date of the sale
    (D)One hundred percent occupancy maintained at all times
  18. 18.What is the formula for the capitalisation rate?
    (A)Debt service ÷ NOI
    (B)Gross income ÷ price
    (C)NOI ÷ value
    (D)Value ÷ NOI
  19. 19.An investor puts $100,000 down on a $500,000 property and the property appreciates 10%. What return does the equity see, ignoring costs?
    (A)Ten percent
    (B)Twenty percent
    (C)Five percent
    (D)Fifty percent
  20. 20.A building has potential gross income of $120,000, runs at 8% vacancy, and earns another $4,000 a year from coin laundry. What is its effective gross income?
    (A)$110,400
    (B)$124,000
    (C)$106,400
    (D)$114,400

Answer key & explanations

  1. 1. B — Higher risk demands a higher cap rate: 96,000 / 0.08 = 1,200,000.
  2. 2. B — A CMA is a marketing tool estimating likely sale price; an appraisal is a formal opinion of value under standards.
  3. 3. A — A qualifying couple may exclude up to $500,000, and a single filer up to $250,000, having owned and occupied two of five years.
  4. 4. C — Cap rates rise with risk; credit tenants lower risk and rate.
  5. 5. D — Annual depreciation is $500,000 divided by 50, or $10,000. Over 12 years that is $120,000.
  6. 6. C — 200,000 ÷ 800,000 = 25%.
  7. 7. C — Special-purpose properties with no comparable sales or income stream are best valued by the cost approach.
  8. 8. D — Comparables must be arm's length. A sale between related parties may not reflect market value.
  9. 9. D — The owner cannot fix what originates off-site — a freeway, oversupply, or neighbourhood decline.
  10. 10. C — GIM = 2,040,000 / 240,000 = 8.5; 270,000 x 8.5 = 2,295,000.
  11. 11. B — The land residual technique assigns the building its required return, then capitalises the income left over into land value.
  12. 12. C — Leverage is positive when borrowed money costs less than the return it earns, amplifying equity yield.
  13. 13. A — Market value is the probable price a willing buyer and seller would agree on under typical conditions. Price is simply what was actually paid.
  14. 14. B — Favourable financing can inflate the nominal price, so an adjustment is needed to reach a cash-equivalent figure.
  15. 15. D — Band of investment weights the mortgage constant and equity dividend requirements by their shares of capital.
  16. 16. B — 720,000 − 300,000 = 420,000 improvement value; 500,000 − 420,000 = 80,000 depreciation.
  17. 17. A — Appraisers value on a stabilised, market-typical occupancy rather than a temporary level.
  18. 18. C — Rate = income ÷ value (IRV).
  19. 19. D — A 10% rise on $500,000 is $50,000 of gain on $100,000 of equity, a 50% return. This is positive leverage.
  20. 20. D — Vacancy of 8% on $120,000 is $9,600, leaving $110,400. Other income of $4,000 is then added, giving effective gross income of $114,400.

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