Broker Final Exam Review Math Copyright Gold Coast Schools 1
Minimum Annual Production Page 73 A brokerage office had 200 sales last year. After paying sales commissions to the associates, there was $229,000 remaining. The firm s monthly expenses are expected to be $30,000 for the next year, and the broker wants to make $8,000 monthly profit. Assuming no change in the company dollar percentage, how many transactions must the firm have each month to meet the broker s goal? $229,000 200 = $1,145 company $ per transaction $360,000 + 96,000 = $456,000 456,000 1,145 = 398 transactions next year 398 12 = 33 per month 2
Final Reconciliation (Weighted Average) Page 164 The price per square foot for three comparable lots is as follows: Lot 1 @ $18.25; Lot 2 @ $19.00; Lot 3 @ $19.15. Based on an inspection of the properties and considerations such as shape and location, the appraiser decides to use a weighted averaging technique of 30 percent for Lot 1, and 35 percent weight each for lots 2 and 3. What is the average price per square foot? 1) Lot 1 18.25 x 30% = $5.48 2) Lot 2 19.00 x 35% = 6.65 3) Lot 3 19.15 x 35% = 6.70 100% $18.83 3
Successive Sales Analysis Page 175-176 An appraiser is analyzing market conditions and locates a comparable that has sold twice in the last 18 months. The initial sale priced was 205,000 and the resale price (18 months later) was $225,000. Calculate the monthly rate of change. $225,000 205,000 205,000 18 =.00542 or.54% 4
Comparative Market Analysis Page 178 182, 203 Comparable A sold for $176,000. The comparable is a 3-bedroom, 2-bath home. Comp A also has a built-in Jacuzzi and redwood deck with the appraiser estimates to be worth $6,000. However, Comp A is a smaller lot compared with competing properties. The appraiser adjusts & $5,000 for the lot size. The subject property is a 3-bedroom, two-bath home on a typical lot for the neighborhood. What is the adjusted sale price of Comparable A? Remember: CBS/CIA Jacuzzi - 6,000 (comp is better - subtract) Lot - + 5,000 (comp is inferior - add) $176,000-6,000 + 5,000 = $175,000 5
Accrued Depreciation using the Lump Sum Age-Life Method Page 187,188 The appraised value of an18 year old duplex is $205,000. The reproduction cost new of the duplex is $238,000. The effective age of the duplex is 6 years and the appraiser estimates the economic life of the structure to be 60 years. What is the amount of accrued depreciation? Two methods: 1) 6 60 x 238,000 = 23,800 2) 238,000 60 = 3,966.67 x 6 = 23,800 6
Income Property Value Page 191-194 A commercial property has a potential gross income (PGI) of $310,000. Vacancy and collection losses are 5 percent of PGI. Additional operating expenses total $25,000. Mortgage payments total $2,200 per month. Using a capitalization rate of 12 percent, what is an accurate estimate of the property s value? PGI 310,000 - VAC -15,500 EGI 294,500 OE -25,000 NOI 269,500 I $269,500 RV 12% = $2,245,833
Income Property Value Page 191-194 An income-producing property has a projected effective gross income of $115,000. Expenses are estimated at 15 percent of effective gross income. An appraiser has determined that an appropriate capitalization rate is 9 percent. What is the estimated market value of this property? PGI - -VAC - EGI 115,000 -OE -17,250 NOI 97,750 I $97,750 RV 9% = $1,086,111 8
Gross Living Area Page 205 A one-story home has a foundation with dimensions of 40 feet by 55 feet, including a 22 foot by 20 foot garage. What is the gross living area of the property? Living area Garage 40 x 55 = 2,200 sq. ft. 22 x 20 = 440 sq. ft. 2,200 440 = 1,760 sq. ft. living area 9
Cash/Accrual Basis Accounting Page 218 A manufacturing company uses cash basis accounting. The income statement for the previous year shows sales of 635,000 and net operating income of $110,000. Because similar companies report on an accrual basis, a business appraiser then adjusts the statements to the accrual basis for comparison. He has accounts receivable of 80,000 and accounts payable of 53,000. Based on this information, the adjusted statements show sales of (See next slide) 10
Cost/Accrual Accounting (solution) Page 218 Cash basis Accrual basis Sales 635,000 635,000 (minus) +80,000 (Accts rec). Expenses -525,000-525,000-53,000 (Accts pay.) NOI 110,000 137,000 Sales of $715,000, net operating income of $137,000 11
Valuation Methods Page 223 A business sold for 2,100,000 and had sales of $750,000, gross profit of 195,000 and net operating income of $150,000. What was the capitalization rate for this business? I $150,000 RV $2,100,000 = 7.14% 12
Net Listing Page 255 An owner has a commercial property for sale at $467,000. The owner is approached by a broker who wants to list the property for an 8% commission. The owner tells the broker that while he doesn t mind paying other costs of the sale, he wants $467,000 net to him after paying the brokers commission. At what price must the broker sell the property in order to get exactly an eight percent commission? 100% - 8% commission = 92% $467,000 92% = $507,609 13
Private Mortgage Insurance (PMI) Page 287 Private mortgage insurance on a $300,000 mortgage will protect the lender from loss in case of default up to: $300,000 x 25% = $75,000 (typically the mortgage insurance protects the lender to 25 percent of the loan amount) 15
Intangible Tax Page 328 How much is the state intangible tax on a new mortgage of 265,000?.002 x $265,000 = $530.00 16
Interest Deduction Home Equity Loan Page 347 A homeowner bought a home for $185,000 in 2002 financed with a $170,000 mortgage. This year the value of the home is 249,000 and the mortgage balance is 138,000. How much can the homeowner borrow on a home equity loan if the owner wants all the interest to be deductible? $249,000 138,000 = $111,000 Maximum of $100,000 17
Points Page 348 A couple bought a home for $300,000 and financed the purchase with a 70 percent mortgage with interest at 6 percent. The builder paid two points on the loan. If the couple s other deductions were $11,000, what is their maximum deduction for the points? $300,000 x 70% x 2% = $4,200 18
Annual Depreciation (straight line) Page 355 A woman buys an office building on a 30-acre site for $6,400,000. She pays the following costs for the acquisition: appraisal $5,500, survey $8,300, title insurance 18,500. The land represents18% of the total value. A. What is the depreciable basis of her building? B. What is this investor s typical annual depreciation on this building? $6,400,000 5,500 A. $5,274,486 (6,432,300 x 82%) 8,300 B. $135,243.23 18,500 $6,432,300 x 82% 39 = $135,243.23 19
Tax Credit Page 358 A married couple file a joint income tax return and expect their taxable income to be $128,000 this year. Their marginal tax rate is 25%. If they receive a tax credit of 6,000, how much will that save them in federal income taxes? $6,000 20
Percentage Lease Page 378 A boutique rents space in a mall under a percentage lease. The store pays base rent of $4,000 and 7 percent of their monthly sales based on an overage clause. Above what annual sales level would the store have to pay additional rent over the base rent? $4,000 7% = $57,142.86 $57,142.86 x 12 = $685,714.29 21
Net Operating Income Page 385, 386 The purchase price of a 25-unit apartment building is 1,300,000. Rent for each apartment is $850 monthly. Vacancies are estimated to be six percent. The annual operating expenses, including reserves for replacements of $10,200, are $128,000. What is the net operating income? PGI $255,000 (25 x $850 x 12 months) -VAC -15,300 EGI 239,700 -OE -128,000 NOI $111,700 22
Investor Downpayment Page 390 If net operating income is $189,000 and before tax cash flow is $19,700, how much down payment would an investor be willing to make if he/she wants a 14% equity dividend rate? BTCF Rate of Return = Equity $19,700 14% = $140,714.28 23
After Tax Cash Flow (ATCF) Page 354, 391-392 An apartment building had net operating income last year of $98,600. The annual debt service was $75,186. Depreciation was $17,485 and income taxes were $8,235. What was the after-tax cash flow? NOI $98,600 -DS -75,186 BTCF 23,414 -INC TAX -8,235 ATCF $15,179 24