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Sales Post License Course Chapter -1- Review Copyright Gold Coast Schools1 Broker Final Exam Review Math

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Sales Post License Course Chapter -1- Review Minimum 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

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Sales Post License Course Chapter -1- Review Minimum 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

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Sales Post License Course Chapter -1- Review 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 118.25x 30%=$5.48 2)Lot 219.00 x 35%= 6.65 3) Lot 319.15 x 35%= 6.70 100%18.83 4

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Sales Post License Course Chapter -1- Review Matched Pair Analysis Page 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

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Sales Post License Course Chapter -1- Review 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

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Sales Post License Course Chapter -1- Review 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 7

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Sales Post License Course Chapter -1- Review Accrued Depreciation using the Lump Sum Age-Life Method Page 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

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Sales Post License Course Chapter -1- Review 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

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Sales Post License Course Chapter -1- Review 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 propertys value? PGI310,000 - VAC -15,500 EGI294,500I ÷ RV - OE -25,000 $269,500 ÷ 12% = NOI 269,500$2,245,833 10

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Sales Post License Course Chapter -1- Review 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 - EGI115,000I ÷ RV -OE -17,25097,750 ÷ 9% = NOI 97,750 $1,086,111 11

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Sales Post License Course Chapter -1- Review Mean, 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 12

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Sales Post License Course Chapter -1- Review 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 ÷ RV 150,000 ÷ 2,100,000 = 7.14% 13

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Sales Post License Course Chapter -1- Review Comparable 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

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Sales Post License Course Chapter -1- Review Net 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 owners price and exactly the amount of the commission? Net Price ÷ 100% - commission rate % $312,000 ÷ (100% - 6%) 312,000 ÷ 94% = $331,914.89 15

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Sales Post License Course Chapter -1- Review Mortgage Priority Page 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 -220,0001st mortgage 58,920Amount applied to the 2 nd mortgage 3 rd mortgage holder and credit card company receive nothing 16

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Sales Post License Course Chapter -1- Review Loan 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

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Sales Post License Course Chapter -1- Review 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

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Sales Post License Course Chapter -1- Review Intangible Tax Page 330 How much is the state intangible tax on a new mortgage of 265,000?.002 x $265,000 = $530.00 19

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Sales Post License Course Chapter -1- Review Home 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

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Sales Post License Course Chapter -1- Review 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 = $135,943.38 21

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Sales Post License Course Chapter -1- Review Tax 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

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Sales Post License Course Chapter -1- Review Sale 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

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Sales Post License Course Chapter -1- Review Percentage 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

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Sales Post License Course Chapter -1- Review Index 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. Jennys 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

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Sales Post License Course Chapter -1- Review Debt 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

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Sales Post License Course Chapter -1- Review Investor 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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