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General Comprehensive Examination

General Comprehensive Examination

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General Comprehensive Examination

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  1. General Comprehensive Examination Appraisal Institute Associate Guidance Seminar

  2. What is it? • Two day examination that is the near culmination of the process for achieving the MAI designation Appraisal Institute

  3. Why Do We Have It? • Common requirement for most professional designations and licenses • Measure competence as tested previously through required course examinations • Ascertains judgment capacity that has not been tested previously Appraisal Institute

  4. Why Do We Have It? • Measure of one’s ability to perform in complex real world situations • Promotes and maintains the market’s perception of worth for the MAI designation Appraisal Institute

  5. Who Is Eligible? • Active general associate members who have completed all education requirements, standards, and the 4-year college degree requirement Appraisal Institute

  6. History • Until recently was considered essentially the last step in the designation process • May now take the comp prior to completion of the Demonstration Report and Experience Credit • Has evolved through the years • Essay • Multiple Choice • One Module • Multiple Module Appraisal Institute

  7. What is Covered? • Anything in the body of knowledge of the Appraisal Institute is fair game. • All AI courses and seminars • 13th Edition of Appraisal of Real Estate • Recognized principles and procedures • Standards and Ethics (including USPAP) • Dictionary of Real Estate Appraisal • And so on, and so on Appraisal Institute

  8. What to Expect • Administered through testing centers – high level of security • Most of what will appear on the modules has a direct correlation to what is taught in the upper level courses. • Some of the questions will require that you perform at a more advanced level not (necessarily to pass) Appraisal Institute

  9. Current Format • Four Module Examination • Schedule for 2009 Thursday, January 29 – Friday January 30 Wednesday, April 22 – Thursday, April 23 Tuesday, July 28 – Wednesday, July 29 Wednesday, October 28 – Thursday, October 29 Note: Exams may be taken only on the scheduled date at Pearson VUE Professional Testing Centers. Pearson VUE testing center information & locations around the U.S. can be found at http://www.pearsonvue.com/ai/ For more information send email to comp@appraisalinstitute.org Appraisal Institute

  10. Module I • General theory and concepts • First morning (for those taking more than one module that day) or first day (morning or afternoon) for those needing only this module • 100 questions • 3.5 hours available for completion Appraisal Institute

  11. Module I • General concepts • Introduction to value • Principles and definitions • Nature of real estate • Definition of problem data • Knowledge of financing • Statistics • Taxes • USPAP and the Code of Ethics • Market conditions • Reconciliation and conclusions Appraisal Institute

  12. Module II • 50 questions • Second morning for those taking more than one module or second day (morning or afternoon)for those needing only this module • 3.5 hours to complete • General Market Analysis and Highest and Best Use • Advanced Sales Comparison and Cost Approaches Appraisal Institute

  13. Module II • Cost Approach • Concepts of cost approach • Land value • Improvements • Depreciation • Highest and Best Use • Feasibility Appraisal Institute

  14. Module III • 50 questions • First afternoonfor those taking more than one module or first day(morning or afternoon) for those needing only this module • 4.0 hours to complete • Advanced Income Cap • Advanced Applications Appraisal Institute

  15. Module III • Income Capitalization Approach • Concepts of income approach • Income and expenses • Capitalization and discounting • GRM/GIM • Rates • Value of Partial Interest • Physical and legal divisions • Economic and financial divisions Appraisal Institute

  16. Module IV • 50 questions • Second afternoon for those taking more than one module or second day (morning or afternoon) for those needing only this module • 4.0 hours to complete • Advanced Sales Comparison and Cost Approaches Appraisal Institute

  17. Module IV • Sales Comparison Approach • Concepts of sales comparison • Units of comparison • Elements of comparison • Sales Analysis • Cash Equivalence Appraisal Institute

  18. What You Need • A financial calculator (specific HP or TI models) • You are responsible for knowing how to use the calculator • Everything else is provided • You will have an erasable white board in lieu of graph paper and/or scratch paper • You will not be allowed to take any personal items into the testing room Appraisal Institute

  19. How Do I Receive Credit? • All modules are graded separately • Must pass all four modules to receive credit for the requirement • No limit on number of times you can sit • Receive credit for each module passed • Must take all modules for which passing grade has not been achieved Appraisal Institute

  20. What are the Questions Like? • All questions are multiple choice with only one correct answer • Many incorrect answers relate to something done wrong in the problem (distracter) • Questions generally categorized on the basis of: • Hard 0% to 29% score correctly • Difficult 30% to 49% score correctly • Medium 50% to 74% score correctly • Easy 75% or more score correctly Appraisal Institute

  21. How Many of Each? • No hard and fast rules. • Most are Easy and Medium • Only a few are Very Hard Appraisal Institute

  22. Rule of Thumb • Get all the easy ones and a good share of the medium ones • You don’t have to get all the hard and very hard ones to pass. • You will probably get some of them right just by guessing. • The hard questions are for the elite to show their stuff; the very hard for the very elite Appraisal Institute

  23. Possible Basic Cap ExampleWhat is RO? • 10,000 square feet • Market rent - $14 psf net • Market vacancy - 6% of GSI • Recoverable Operating Expenses - $6 psf • Non recoverable expenses - $0.25 psf • Sale price - $1,320,000 Appraisal Institute

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  25. 10,000 square feet Market rent - $14 psf Contract rent - $11 psf Market vacancy - 5% Contract vacancy -1% Recoverable expenses - $6 psf Non recoverable expenses - $0.25 psf Sale price - $1,200,000 RO – 9.5% Possible Advanced Cap ExampleWhat is RLH? Appraisal Institute

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  27. 10,000 square feet Market rent - $14 psf level Contract rent - $11 psf level Market vacancy - 5% Contract vacancy - 1% Recoverable expenses - $6 psf Non recoverable expenses - $0.25 psf Sale price - $1,200,000 RO – 9.5% YO - 12% Assume monthly payments Possible Mod III ExampleMinimum Remaining Lease Term? Appraisal Institute

  28. Minimum Remaining Lease Term Appraisal Institute

  29. Pass Scores and Percentages • Statistical information concerning the comprehensive examination is held in confidence • Many Associates take one or more modules more than once • High initial rate of success with Modules I and II. Mod II generally has a lower initial rate of success than Mod I • Lower initial rate of success with Modules III and IV • Module III traditionally has lowest pass rate, It helps to be current on course work. Appraisal Institute

  30. Where is the Exam Given? • Pearson Vue testing centers (nationwide and Canada, some foreign countries) • Locate a testing center near you by visiting Pearson Vue/AI on the web • Space-available basis only; applying before the Appraisal Institute deadline does NOT guarantee a seat at any specific testing center Appraisal Institute

  31. Keys to Success • Proficiency with course work • Statistical evidence strongly suggests: • associates who do wellon the corresponding course exams have a greater chance of passing. • associates with marginal passing scoreson the corresponding course exam have a poor chance of passing. • Most of you have a feel of how well you did on an exam if your really think about it. Appraisal Institute

  32. Keys to Success • Associate members are provided with an exam critique for Level II curriculum, if they receive a failing grade. • Use this information in preparing for the comprehensive exam. The critique indicates topics where one or more questions were missed and where these topics are covered in the course materials. Appraisal Institute

  33. Keys to Success Chronological proximity of Courses • Statistical evidence strongly suggests that associates who have taken the corresponding courses within the last two years have a better chance of passing • By far the highest level of success is enjoyed by those who have taken the corresponding course within the last twoyears and had a high passing score on the exam Appraisal Institute

  34. Other Noted Advantages • Folks who work in multiple appraiser offices with proficient MAI designated appraisers tend to have less difficulty • Folks who are regularly exposed to more complicated appraisal situations tend to be more successful Appraisal Institute

  35. Observation 1 • Some associates view passage of the Comprehensive Examination as being a right bestowed as a result of taking the courses and passing the exams. It’s not!! • There is no alternative to hard work to prepare for the test. Appraisal Institute

  36. Observation 2 • Many appraisers know how to manipulate prepared financial software but don’t really understand what it all means. They will usually fail (and often complain). • The comprehensive exam requires you to understand the fundamental principles that underlie the correct answer Appraisal Institute

  37. How Should I Prepare? • Be diligent with the course work; don’t fear sitting in the front row; be aware (and not embarrassed) that you may have to take a course more than once • When studying for the comp the best thing you can do is have a firm grasp on the problems in the course manuals; know not just how to get the right answer but what it all means Appraisal Institute

  38. How Should I Prepare? • Examinees who are not subject to the Level II curriculum may order course materials by emailing associate@appraisalinstitute.organd making the request to order. Appraisal Institute

  39. How About When I Take the Exam? • Relax and take your time • Use good test taking skills • Don’t get bogged down on questions you don’t understand; come back to them at the end • Eliminate answers that are most obviously incorrect; improve your chances if you have to guess • Don’t second guess your first instincts • Answer everything Appraisal Institute

  40. Comp Exam Application and Sample questions • You may find the Comp Exam Guidebook, Application, and sample questions on our website at www.appraisalinstitute.org under downloads. Appraisal Institute

  41. Sample question #1 Four years ago, a seller carried back a $100,000 purchase-money mortgage, with 20 years amortization, 8.5%, and monthly payments. The loan cannot be assumed by a subsequent buyer. Currently, mortgages on similar real estate are yielding 12%. The market value of the real estate is $150,000. The current net operating income is $16,500. Appraisal Institute

  42. Sample question #1 • What would happen to the market value of the real estate if the loan could be assumed? • Increase significantly • Decrease significantly • Remain the same • Increase slightly Appraisal Institute

  43. Sample #2 – stem questions The next two questions are based on the following information: A small parcel of speculative land was purchased for $60,000 with $17,000 down and the balance of $43,000 financed at 10% with monthly payments of $300 and a balloon in five years. 1. What will the loan balance be (nearest $100) after five years? 2. If the interest rate is not 10%, causing the loan balance to be $50,000 after five years, and the purchaser is to receive a 15% equity yield, what must the sale price (nearest $100) be in five years? Appraisal Institute

  44. Sample #2 – stem questions • What will the loan balance be (nearest $100) after five years? • $47,300 • $47,500 • $67,400 • $94,000 Keystrokes for HP12C are: f FIN 5 g n 10 g i 43,000 PV 300 CHS PMT FV. Note that the loan should be analyzed on a monthly basis and has a negative amortization. 4th proposed answer results from overlooking CHS, the 3rd from mixing monthly and annual parameters, and the 1st from performing the calculations annually. * Appraisal Institute

  45. Sample #2 – stem questions 2. If the interest rate is not 10%, causing the loan balance to be $50,000 after five years, and the purchaser is to receive a 15% equity yield, what must the sale price (nearest $100) be in five years? 1) $ 58,500 2) $ 59,900 3) $108,500 4) $120,000 FV of $17,000 for 5 years at 15% = $34,193 FV of $3,600/year for 5 years at 15% = 24,273 Mortgage Balance at end of 5 years = 50,000 TOTAL $108,466 The $300/month interest payment becomes a part of the investment in the property. Therefore, it must be included in the calculations. Keystrokes for HP12C are: f FIN 5 n 15 i 17000 chs PV 3600 chs PMT FV 50,000 +. The correct answer to this question does not depend on choosing the correct answer to the previous question. * Appraisal Institute

  46. Sample #3 The subject property is a mountain resort. Incremental value is based on skier visits. Sales in the subject’s region form a consistent curvilinear pattern, as shown below (lower line). The trend for a more desirable region is also shown (higher line). Based on this market information, what type of location adjustment is indicated for sales in the more desirable region? Appraisal Institute

  47. Sample #3 1) Downward dollar adjustment 2) Upward dollar adjustment 3) Downward percent adjustment 4) Upward percent adjustment * Appraisal Institute

  48. Feedback from your examination Module III Income Capitalization Approach August 2005 Comp Exam Critique This critique is to be used as a study guide only, not a tool to calculate your score. Note: The following sessions correspond with the Advanced Income Capitalization course materials. RANGE OF NUMBER OF QUESTIONS MISSED Basic Capitalization Concepts 4 – 7 Projecting Cash Flows 0 – 3 Investment Analysis Concepts 0 – 3 Property Yield Capitalization 2 – 5 Leverage 0 – 3 Stabilizing Income & Equity Yield Capitalization 8 – 11 Risk Analysis 0 – 3 Applications 6 – 9 Supporting the Discount Rate 0 - 3 Appraisal Institute

  49. Questions? Associate & Prospective Member Services Team 312-335-4111 associate@appraisalinstitute.org Appraisal Institute

  50. Appraisal Institute The Appraisal Institute is a global membership association of professional real estate appraisers, with 22,000 members and 92 chapters throughout the world. Organized in 1932, its mission is to support and advance its members as the choice for real estate solutions and uphold professional credentials, standards of professional practice and ethics consistent with the public good. Members of the Appraisal Institute benefit from an array of professional education and advocacy programs, and may hold the prestigious MAI, SRPA and SRA designations. Appraisal Institute