Problem 1 – Define the following terms (as used by an appraiser):

a. Accrued depreciation
b. Physical deterioration
c. Functional obsolescence
d. External obsolescence

Problem 2 – An investor is considering the purchase of an 11,000 sq. ft. warehouse that is expected (based on comparable properties) to command $8.40 per square foot in annual rents. Two comparable warehouses have recently sold in the market. Comparable 1 measures 12,000 sq. ft. and sold recently for $450,000. Comparable 2 measures 8,600 sq. ft. and sold recently for $322,500. Compute the gross income multiplier that is implied by these transactions and estimate the value of the subject property.

Problem 3 – Suppose the investor in the previous problem is concerned that the subject property may be more expensive to operate than the comparable properties. Analysis of the operating expenses for each of the properties reveals the following NET income estimates:

Subject Property — $52,400
Comparable 1 — $65,600
Comparable 2 — $47,000

Compute the capitalization rate implied by these transactions to estimate the value of the subject property by the net income capitalization technique.

Problem 4 – After you have completed problem 3, indicate what value you will report to the client based on the answers to problems 2 and 3, and why you chose that value..