Valuing real property, federal income tax and investment together carry 18% of the exam. This is where the broker exam goes past the salesperson level: business valuation, leverage, debt coverage and the timing rules of a like-kind exchange. On this page, 11 of the 15 questions have numeric answers.
Updated Oct 24, 2026 · Not affiliated with any state commission or test provider.
18%of the exam
15questions on this page
What the areas cover
DBPR outline areas II, VII and VIII, grouped:
Valuation: appraisal vs comparative market analysis vs broker price opinion, the three approaches, USPAP, business valuation.
Investment: investor goals, net operating income, cap rate, gross income multiplier, cash-on-cash return, leverage, debt coverage.
Federal income tax: sale of a principal residence, depreciation of investment property, capital gains, like-kind exchanges.
What is national and what is broker-level
The three approaches to value and the vocabulary of appraisal are national material and are explained on valuation. The broker exam adds the investor’s side of the same numbers.
Income first, then value. Gross income less vacancy is effective income; less operating expenses, net operating income. Debt service is not an operating expense.
Leverage has a sign. Borrowing raises the return on equity only when the property earns more than the loan costs (cap rate above the mortgage constant).
Lenders size loans by coverage. Debt coverage ratio is net operating income divided by annual debt service.
Tax rules come from federal law, not Florida law: a residential rental building is depreciated over 27.5 years and the land not at all (IRS Publication 527); like-kind exchanges are covered on the IRS page on real estate exchanges.
Worked example: value from income
A small retail building has potential gross income of $96,000, a 6% vacancy allowance and $31,000 of operating expenses. Similar buildings sell at an 8% cap rate.
Calculation steps
1Vacancy96,000 × 0.06$5,760
2Effective gross income96,000 − 5,760$90,240
3Net operating income90,240 − 31,000$59,240
=Value: NOI ÷ cap rate (59,240 ÷ 0.08)$740,500
Source: Arithmetic of the income approach; see valuation
15 valuation and investment questions
0 of 15 answered · 0 correct
Question 1 of 15 · Valuation, investment and federal income tax · 18%
An appraiser estimates a building's replacement cost new at $380,000 and its accrued depreciation at $57,000. Comparable lot sales indicate a land value of $95,000. What value does the cost approach indicate?
Answer and explanations
Incorrect: $323,000 is the depreciated building cost before the land value is added.
Incorrect: $532,000 adds the depreciation instead of subtracting it.
Correct: Cost approach: $380,000 − $57,000 depreciation = $323,000, plus $95,000 land = $418,000.
Incorrect: $475,000 adds the land to replacement cost new and forgets to subtract depreciation.
Calculation steps
1Replacement cost new$380,000
2Less accrued depreciation− 57,000$323,000
3Add land value+ 95,000$418,000
Question 2 of 15 · Valuation, investment and federal income tax · 18%
A duplex has gross scheduled rent of $3,200 per month. The owner expects 5% vacancy and $800 per month in operating expenses. Similar duplexes sold at a monthly gross rent multiplier of 140, based on their scheduled rent. What value does the GRM indicate?
Answer and explanations
Incorrect: $425,600 applies the multiplier to rent after vacancy, but the comparables' 140 was taken from scheduled rent.
Incorrect: $336,000 applies the multiplier to rent after expenses ($2,400), which is not how a GRM works.
Correct: A gross rent multiplier works on gross scheduled rent: $3,200 × 140 = $448,000; vacancy and expenses do not enter it.
Incorrect: $5,376,000 multiplies annual rent by a monthly multiplier, mixing the two periods.
Calculation steps
1Gross scheduled monthly rent$3,200
2Monthly GRM of comparables140
3Indicated value3,200 × 140$448,000
Question 3 of 15 · Valuation, investment and federal income tax · 18%
An office building sold for $2,500,000. It produced gross income of $260,000, net operating income of $187,500, and cash flow after debt service of $62,500. What capitalization rate does the sale indicate?
Answer and explanations
Incorrect: 10.4% uses gross income instead of NOI.
Incorrect: 2.5% uses cash flow after debt service, which is an equity return, not a cap rate.
Correct: Cap rate = NOI ÷ price: $187,500 ÷ $2,500,000 = 7.5%.
Incorrect: 13.3% divides the price by NOI and misplaces the result.
Calculation steps
1Net operating income$187,500
2Sale price$2,500,000
3Capitalization rate187,500 ÷ 2,500,0007.5%
Question 4 of 15 · Valuation, investment and federal income tax · 18%
A comparable office building sold for $375,000. Compared with the subject, the comparable has 500 more square feet and one more conference room. The market values each square foot at $50 and a conference room at $20,000. What is the comparable's adjusted sale price?
Answer and explanations
Incorrect: $420,000 adds the adjustments; a comparable that is better than the subject is adjusted down.
Correct: The comparable is superior, so its extras come off: 500 × $50 = $25,000 plus $20,000 = $45,000; $375,000 − $45,000 = $330,000.
Incorrect: $355,000 subtracts only the conference room and ignores the extra 500 square feet.
Incorrect: $350,000 subtracts only the square-footage adjustment and leaves the extra conference room in.
Calculation steps
1Extra area500 × 50$25,000
2Extra conference room$20,000
3Total downward adjustment25,000 + 20,000$45,000
4Adjusted sale price375,000 − 45,000$330,000
Question 5 of 15 · Valuation, investment and federal income tax · 18%
An appraiser is estimating the highest and best use of a vacant lot. Current zoning permits office, apartment, and retail use; a mixed-use project would require a rezoning that is not reasonably probable. Using the estimates below, what is the lot's highest and best use?
Use
Value when completed
Development cost
Office
$5,400,000
$4,900,000
Apartments
$5,000,000
$4,100,000
Retail
$3,100,000
$2,600,000
Mixed-use
$6,000,000
$4,900,000
Answer and explanations
Incorrect: Mixed use leaves the most money on paper, but it needs a rezoning that is not reasonably probable, so it fails the legally permissible test.
Correct: Among the legally permitted uses, apartments leave the most land value: $5,000,000 − $4,100,000 = $900,000, against $500,000 for office or retail.
Incorrect: Office has the second-highest completed value but leaves only $500,000 after cost.
Incorrect: Retail leaves $500,000 of residual land value, less than apartments.
Calculation steps
1Office residual5,400,000 − 4,900,000$500,000
2Apartments residual5,000,000 − 4,100,000$900,000
3Retail residual3,100,000 − 2,600,000$500,000
4Mixed useneeds improbable rezoningexcluded
Question 6 of 15 · Valuation, investment and federal income tax · 18%
Two similar buildings each produce NOI of $200,000. Building A is leased for 10 years to a national tenant with strong credit; Building B is rented month to month to small local tenants. How should their prices compare?
Answer and explanations
Incorrect: This reverses the risk: B's short-term tenancies are the riskier income.
Incorrect: Equal NOI does not mean equal value when one income stream is far more secure.
Correct: Month-to-month tenants make B's income riskier, and investors price risk with a higher cap rate, which means a lower value for the same NOI.
Incorrect: A's long credit lease lowers risk, which lowers its cap rate rather than raising it.
Question 7 of 15 · Valuation, investment and federal income tax · 18%
A commercial lender requires a debt coverage ratio of at least 1.25. The property's net operating income is $150,000 a year. What is the maximum annual debt service the lender will allow?
Answer and explanations
Incorrect: $187,500 multiplies NOI by 1.25, which would give a coverage ratio below 1.
Correct: Maximum debt service = NOI ÷ DCR: $150,000 ÷ 1.25 = $120,000.
Incorrect: Debt service equal to NOI is a ratio of 1.00, below the lender's 1.25 minimum.
Incorrect: $112,500 subtracts 25% of NOI, which gives a ratio of 1.33, not the maximum loan at 1.25.
Question 8 of 15 · Valuation, investment and federal income tax · 18%
A rental property has potential gross income of $120,000 and an 8% vacancy rate. Annual costs are property taxes $9,000, insurance $4,000, maintenance $12,000, management $6,000, mortgage interest $30,000, and depreciation $15,000. What is the net operating income?
Answer and explanations
Incorrect: $34,400 subtracts mortgage interest and depreciation too, which never enter NOI.
Incorrect: $49,400 deducts mortgage interest, a financing cost that sits below NOI.
Question 9 of 15 · Valuation, investment and federal income tax · 18%
A property is priced at a 7% capitalization rate, and the only loan available has an 8.5% mortgage constant. What happens to the investor's cash-on-cash return as more of the price is borrowed?
Answer and explanations
Incorrect: The return cannot stay the same: debt that costs more than the property earns lowers the equity return.
Incorrect: Appreciation is a separate return; the question is about cash flow on cash invested, which more debt lowers here.
Correct: Each borrowed dollar costs 8.5% a year but earns only 7%, so more debt drags the cash-on-cash return down.
Incorrect: Leverage is positive only when the cap rate is above the mortgage constant; here it is below.
Question 10 of 15 · Valuation, investment and federal income tax · 18%
A rental property earns $100,000 in rent. The owner pays $30,000 in operating expenses and $28,000 in mortgage payments, of which $20,000 is interest and $8,000 is principal. Depreciation is $10,000. What is the taxable income from the property?
Answer and explanations
Incorrect: $32,000 deducts the whole $28,000 mortgage payment, including $8,000 of nondeductible principal.
Incorrect: $50,000 leaves out the $10,000 depreciation deduction.
Correct: Taxable income = $100,000 − $30,000 operating expenses − $20,000 interest − $10,000 depreciation = $40,000; principal is not deductible.
Incorrect: $60,000 deducts only the operating expenses and the depreciation and skips the interest.
Calculation steps
1Rent$100,000
2Less operating expenses− 30,000$70,000
3Less mortgage interest− 20,000$50,000
4Less depreciation− 10,000$40,000
Question 11 of 15 · Valuation, investment and federal income tax · 18%
A rental property has potential gross income of $60,000 a year and 5% vacancy. Operating expenses are $24,000 and annual debt service is $21,600. What is the annual before-tax cash flow?
Answer and explanations
Incorrect: $14,400 skips the 5% vacancy loss before subtracting expenses and debt service.
Incorrect: $33,000 is the NOI; before-tax cash flow also takes out the debt service.
Incorrect: $36,000 subtracts the expenses from potential gross income and stops before debt service.
Calculation steps
1Effective gross income60,000 × (1 − 5%)$57,000
2Net operating income57,000 − 24,000$33,000
3Before-tax cash flow33,000 − 21,600$11,400
Question 12 of 15 · Valuation, investment and federal income tax · 18%
An investor buys a rental property for $500,000 with $125,000 down. The property's NOI is $40,000 and annual debt service is $27,500. What is the investor's cash-on-cash return?
Answer and explanations
Incorrect: 32.0% divides NOI by the down payment without subtracting debt service.
Incorrect: 2.5% divides the cash flow by the full $500,000 price instead of the cash invested.
Incorrect: 8.0% is the cap rate, NOI ÷ price, which ignores the financing.
Calculation steps
1NOI$40,000
2Less annual debt service− 27,500$12,500
3Cash-on-cash return12,500 ÷ 125,00010.0%
Question 13 of 15 · Valuation, investment and federal income tax · 18%
An investor bought a retail property for $1,200,000, spent $300,000 on renovations, and sold it for a net profit of $150,000. What is the return on investment?
Answer and explanations
Incorrect: 12.5% leaves the $300,000 of renovations out of the investment.
Correct: ROI = net profit ÷ total investment: $150,000 ÷ ($1,200,000 + $300,000) = 10.0%.
Incorrect: 50.0% compares the profit with the renovation cost alone.
Incorrect: 9.1% divides the profit by investment plus profit, which is not the ROI base.
Calculation steps
1Total investment1,200,000 + 300,000$1,500,000
2Net profit$150,000
3Return on investment150,000 ÷ 1,500,00010.0%
Question 14 of 15 · Valuation, investment and federal income tax · 18%
An investor closes the sale of a relinquished property in a §1031 exchange on March 1. By what date must she identify the replacement property?
Answer and explanations
Incorrect: March 31 is only 30 days after the sale, short of the full 45-day period.
Correct: The replacement property must be identified within 45 days of the March 1 transfer: 30 days in March plus 15 in April.
Incorrect: April 30 is 60 days out, past the 45-day identification deadline.
Incorrect: August 28 is 180 days after the sale, the deadline to close on the replacement, not to identify it.
Question 15 of 15 · Valuation, investment and federal income tax · 18%
An investor buys a house, renovates it, and sells it eight months later at a profit. How is the gain generally taxed?
Answer and explanations
Incorrect: Long-term rates need a holding period of more than one year; eight months is too short.
Incorrect: The exclusion needs 2 years of ownership and use as a main home; this investor met neither.
Correct: Property held one year or less produces short-term gain, taxed at ordinary income rates.
Incorrect: Section 1031 needs a qualifying exchange of investment property; a fix-and-flip sale is neither.
Answer every question to see your score
Cash flow is not net operating income
Net operating income comes before debt service and before income tax. Cash flow comes after debt service. A question that gives you mortgage payments is often testing whether you leave them out of NOI.
Is there a lot of math in this part of the broker exam?
Yes. Many investment items are calculations: NOI, cap rate, cash-on-cash return, debt coverage and depreciation. Bring a calculator you know well; financial models are allowed.
What is a mortgage constant?
Annual debt service divided by the loan amount. If it is higher than the cap rate, borrowing lowers the return on the investor’s cash.
Are federal tax rules tested on the Florida exam?
Yes, as their own area: the sale of a principal residence, depreciation, capital gains and like-kind exchanges.