A lease option is a clause that grants an option holder the right, but not the obligation, to
renew the lease, cancel the agreement, relocate within a property, or even expand to
adjacent space. The existence of these options in a leasing agreement:
A. reduces the expected present value of lease cash flows to the owner
B. increases the expected present value of lease cash flows to the owner
C. does not impact the expected present value of lease cash flows to the owner
D. causes the expected present value of lease cash flows to equal zero
The process of converting periodic income into a value estimate is referred to as income
capitalization. Income capitalization models can generally be categorized as either
direct capitalization models or discounted cash flow models. Which of the following
statements best describes the direct capitalization method?
A. Value estimates are based on a multiple of expected first year net operating income.
B. Appraisers must make explicit forecasts of the property's net operating income for
each year of the expected holding period.
C. Appraisers must select the appropriate yield at which to discount future cash flows.
D. The forecast must include the net income produced by a sale of the property at the
end of the expected holding period.