Florida Real Estate Sales Associate — All Questions

A property's net operating income is $80,000. At a 10% capitalization rate, its indicated value is:

• a.$8,000,000
• b.$88,000
• c.$720,000
• d.$800,000✓

Value equals NOI divided by the cap rate: $80,000 / 0.10 = $800,000. Dividing income by a decimal rate is the core calculation of the income approach.

Potential gross income is $200,000, vacancy is 10%, and operating expenses are $50,000. What is the net operating income?

• a.$180,000
• b.$140,000
• c.$150,000
• d.$130,000✓

First find effective gross income: $200,000 - (10% x $200,000) = $180,000. Then subtract operating expenses: $180,000 - $50,000 = $130,000. NOI does not deduct mortgage payments.

A building generating $90,000 in net operating income is valued at $1,000,000. The capitalization rate is:

• a.0.9%
• b.90%
• c.9%✓
• d.11%

The cap rate equals NOI divided by value: $90,000 / $1,000,000 = 0.09, or 9%. This rate can then be applied to similar properties to estimate their values.

Improvements originally worth $300,000 have lost $30,000 in value. Expressed as a percentage, the depreciation is:

• a.3%
• b.30%
• c.10%✓
• d.13%

Percentage depreciation equals the loss divided by the original value: $30,000 / $300,000 = 0.10, or 10%. The remaining depreciated value of the improvements would be $270,000.

External obsolescence is generally considered:

• a.Incurable, because its cause lies outside the property✓
• b.Always curable through interior renovation
• c.A form of ordinary physical wear and tear
• d.Caused only by an outdated interior floor plan

External (economic) obsolescence results from negative influences outside the property boundaries, such as a nearby nuisance or a declining area. Because the owner cannot control off-site factors, it is usually incurable.

Which of the following is an example of functional obsolescence?

• a.A five-bedroom home with only one bathroom✓
• b.A worn roof that needs full replacement
• c.A new landfill built next to the property
• d.A cracked and settling foundation

Functional obsolescence stems from outdated or poorly designed features within the property, such as too few bathrooms for the number of bedrooms. A worn roof is physical deterioration, and a nearby landfill is external obsolescence.

In the cost approach, depreciation is applied to the:

• a.Land only, since it wears out over time
• b.Both the land and the improvements equally
• c.Outstanding mortgage balance on the loan
• d.Improvements only, not the land✓

Depreciation in the cost approach applies only to the improvements, because land is generally considered not to depreciate. The appraiser estimates improvement cost, subtracts depreciation, and adds land value separately.

A property's assessed value, used for taxation, is:

• a.The same figure as its replacement cost
• b.Always exactly equal to its market value
• c.Set each year by the listing broker
• d.Often different from its market value✓

Assessed value is determined by the taxing authority and, due to exemptions, caps such as Save Our Homes, and timing, often differs from current market value. Market value reflects what a willing buyer and seller would agree on.