sales post license course chapter -1- review copyright gold coast schools1 broker final exam review...

Sales Post License Course Chapter -1- Review

Copyright Gold Coast Schools 1

BrokerFinal Exam Review

Math


Minimum Annual ProductionMinimum Annual Production

Page 73

A real estate company has 31 sales associates, 5 staff personnel, and 11 personal assistants. When preparing next years budget, the company estimates expenses next year will be $462,000. A $200,000 profit is also forecasted. To accomplish their goal, each sales associates minimum production to the company dollar will be:

$462,000 + $200,000 = 662,000

$662,000 ÷ 31 = $21,354.84

2


Minimum Annual ProductionMinimum Annual Production

Page 73

Broker Michelle projections include office expenses of $180,000 this year. Her office has 2 employees and 9 sales associates. In order for her to break even this year, how much must each sales associate bring in gross receipts?

$180,000 ÷ 9 = $20,000

3


Final Reconciliation (Weighted Average)Final Reconciliation (Weighted Average)

Page 164

Three comparable lots indicate the following values per square foot: Lot 1 @ $18.25; Lot 2 @ $19.00; Lot 3 @ $19.15. Based on an inspection of the topography and location of the properties, the appraiser uses 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

4


Matched Pair AnalysisMatched Pair AnalysisPage 178 – 182

While preparing a CMA, a realtor determined that a subject property was superior to a comparable because the subject had one more bedroom. The comparable had better landscaping than the subject. The estimate for an additional bedroom was $12,000 and the landscaping was valued at $5,000.

What are the adjustments?

Remember: CBS/CIA

Bedroom + 12,000 (subject is better, comp is inferior - add)

Landscaping - 5,000 (comp is better - subtract)

5


Cost-Depreciation Cost-Depreciation

Page 183

A home has 2,500 square feet of living area and 528 square feet of garage. The reproduction cost new is $170 per square foot for living area and $75 per square foot for finished garage area. The site measures 85 feet wide by 150 feet deep and is valued at $5 per square foot. The economic life of the structure is estimated to be 60 years. The house is 15 years old. What is the value of the property using the cost-depreciation approach?

(see next slide)

6


Cost-Depreciation (solution)Cost-Depreciation (solution)Structure

1) 2500 sq ft. x $170 = $425,000

528 sq ft. x $ 75 = 39,600

$464,600 (reproduction cost)

2) 464,600 x 15/60 = $116,150

or 464,600 ÷ 60 x 15 = $116,150 (accrued depreciation)

3) $464,600

-116,150

348,450 (depreciated building value)

4) 85 x 150 = 12,750 square feet

12,750 x $5 = 63,750 (land value)

5) 348,450 (depreciated building value)

+ 63,750 (land)

$412,200 Total Property Value

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Accrued Depreciation using the Lump Sum Age-Life MethodAccrued Depreciation using the Lump Sum Age-Life MethodPage 187,188

The appraised value of an18 year old duplex is $238,000. The effective age is 6 years and the appraiser estimates the economic life 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

8


Gross Income Multiplier (GIM)Gross Income Multiplier (GIM)

Page 189-191

A small commercial property has a net income of $75,600 with an annual gross income of $112,000. The property recently sold for $784,000. What is the gross income multiplier for this property?

Sale Price ÷ gross annual income

784,000 ÷ 112,000 = 7

9


Income Property ValueIncome 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 I ÷ RV

- OE -25,000 $269,500 ÷ 12% =

NOI 269,500 $2,245,833

10


Income Property ValueIncome 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 I ÷ RV

-OE -17,250 97,750 ÷ 9% =

NOI 97,750 $1,086,111

11


Mean, Median, ModeMean, Median, Mode

Page 206

There were seven home sales in a neighborhood with sales prices of $390,000, 315,000, 322,000, 345,000, 360,000, 315,000 and 320,000. What is the median?

$390,000

360,000

345,000

322,000 - Median

320,000

315,000

315,000

12


Valuation MethodsValuation 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 ÷ RV

150,000 ÷ 2,100,000 = 7.14%

13


Comparable Sales ApproachComparable Sales Approach

Page 223

A manufacturing company has sales, of 1,750,000 and net operating income of $205,000. Recent data shows that comparable companies are valued at .85 times their sales and 8 times their net profits. What is the value range for this company?

.85 x 1,750,000 = $1,487,500

8 x 205,000 = 1,640,000

14


Net ListingNet Listing

Page 255

A seller wants to list their property, but tells you they want to receive a net amount of $312,000 from the sale. The seller agrees to pay all closing costs, but wants you to add your 6 percent commission to the new amount. At what price must the broker offer the property to get the owner’s price and exactly the amount of the commission?

Net Price ÷ 100% - commission rate %

$312,000 ÷ (100% - 6%)

312,000 ÷ 94% = $331,914.89

15


Mortgage PriorityMortgage PriorityPage 287

A property was foreclosed and sold at public auction. After the governmental expenses of the sale are paid, there is $278,920 remaining. There is a first mortgage of 220,000, a second mortgage of $76,235 and a third mortgage of $51,235. The borrower also owes 12,000 on their credit card. How much will the third mortgage holder receive?

$278,920

-220,000 1st mortgage

58,920 Amount applied to the 2nd mortgage

3rd mortgage holder and credit card

company receive nothing

16


Loan ConstantLoan Constant

Page 289

Joan is purchasing a $500,000 home with an 80% mortgage. The monthly loan constant from a mortgage payment table at 6 percent for 30 years is .0059955. The monthly payment for principal and interest will be:

500,000 x 80% = 400,000

400,000 x .0059955 = $2,398.20

17


Private Mortgage Insurance (PMI)Private Mortgage Insurance (PMI)

Page 289

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)

18


Intangible TaxIntangible Tax

Page 330

How much is the state intangible tax on a new mortgage of 265,000?

.002 x $265,000 = $530.00

19


Home Equity LoanHome Equity Loan

Page 348/9

Rick owns a home he bought for $162,000 in 2004, financed with a $145,800 mortgage, This year, the value of the home is $220,000, and the mortgage balance is $135,000. How much can he borrow on a home equity loan if he wants all the interest to be deductible?

$220,000 – 135,000 = $85,000

20


Annual Depreciation (straight line)Annual Depreciation (straight line)Page 357

Elizabeth bought an office property last year for $6,400,000. In addition, she paid $11,000 for an appraisal, $1,500 for a survey, $8,300 for title insurance, and $44,800 in documentary stamp taxes and intangible taxes. The land is estimated to be 18 percent of total value. What is the typical annual depreciation on this building?

$6,400,000

11,000

1,500

8,300

44,800

$6,465,600 x 82% ÷ 39 = $135,943.3821


Tax CreditTax Credit

Page 359

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

22


Sale of Investment PropertySale of Investment Property

Page 361

Tom sells property he has owned for seven years for 2,800,000. He has taken depreciation of $51,282 for each of those seven years. What is the amount of tax he will owe because of depreciation recapture?

$51,282 x 7 = $358,974

$358,974 x 25% = $89,743.50

23


Percentage LeasePercentage Lease

Page 380

A retailer in the local mall has entered into 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

24


Index LeaseIndex Lease

Page 381

Jenny signed a lease on office space last year at $35.00 per square foot. The lease requires that the rent increase annually, based on the changes to a published regional price index. Last year the index was 165. This year, the index has increased to 171. Jenny’s rent per square foot this year will increase to:

171 ÷ 165 = 1.036

1.036 x 35.00 = $36.27

or (171÷165 x 35= $36.27)

25


Debt Coverage RatioDebt Coverage Ratio

Page 389

Net operating income is $62,500. Effective gross income is $81,900. If the debt service coverage ratio is 1.20, a lender will make the loan if the annual debt service does not exceed: NOI ÷ Debt Coverage Ratio = Maximum annual debt service

$62,500 ÷ 1.20 = $52,083.33

26


Investor DownpaymentInvestor Downpayment

Page 392

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

27

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