Employing EMV Analysis for Options

Real Estate Proposal Making Decisions Involving Uncertainty The following questions should be submitted using the Real Estate Division's website www.realestate.ubc.ca. See "How to Submit Multiple Choice Assignments" in the Real Estate Division Student Handbook for more information. Marks: 1 mark per question. Assume your client is planning a new housing project, but faces several uncertain events that may impact the decision, including the City's response to re-zoning, availability of competing properties, market demand, and behaviour of potential competitors.

Considering the four levels of uncertainty defined in the lesson, which decision analysis method should you recommend to your client? (1) Pro-con reasoning (2) Scenario planning (3) Confidence Range Estimates (4) Prospective Hindsight Your boss wants you to provide a pro-con analysis regarding his potential investment in a real estate software analysis package. He feels this tool is necessary for the more sophisticated analysis demanded by clients. However, the package is extremely expensive, especially considering training, and there is one other alternative that could be evaluated.

Given the possible choices for decision analysis, do you agree with applying pro-con analysis here? (1) Yes C. since the range of alternatives and uncertain events is very limited. (2) No C. since a better choice would be scenario planning. (3) Yes C. since pro-con analysis is well-suited for inter-related uncertain events. (4) No C. since there is only one problem to be solved, whether or not to buy the software. 3. You have recently appraised a three storey walk-up rental apartment on Hastings Street in Burnaby.

There are a large number of similar rental apartments nearby and you have considerable experience in this market. Your client wants you to provide a confidence level estimate for the opinion of value in your appraisal report. Should you provide the estimate or not? (1) Yes, since this type of confidence estimate can be forecast with reasonable certainty given the number of properties in the market and your experience. (2) No, since market value estimates should always be stated as a single value.

(3) No, since there is still some uncertainty about when the rental apartment will sell. (4) Both (2) and (3) are correct. ***Assignment 4 continued on next page*** 4. 24 ***Assignment 4 continued on next page*** 4. 31 4. The Executive of a major assessment organization is considering a potential staff shortage for summer field work. At a recent meeting, an Executive member with the longest corporate memory stated.

"I am 90% confident we will need between 60 to 70 temporary staff, based on the traditional assessment workload for the field season, the state of new construction, and typical temp staff productivity." Which decision analysis method did the Executive member use? (1) Scenario Planning (2) Evaluating Pros and Cons (3) Prospective Hindsight (4) Confidence Range Estimate 5. You are looking for real estate opportunities and are considering purchasing a downtown office property and redevelop it into condos.

You have hired a real estate appraiser to value the property in order to establish a negotiating position with the current property owner. The appraiser, as customary, provides a range of value estimates in the appraisal report. The appraiser also includes a statement that to conclude a sale of the property as of the date of appraisal, and under normal market conditions, the property would require exposure to the market for a period of 30 to 60 days.

Considering Russo and Shoemaker's four levels of uncertainty, what type of estimate has the appraiser provided? (1) Level 2 (2) Level 3 (3) Level 1 (4) Level 4 6. David Duchovney, a real estate broker specializing in rural Texas real estate, is mentoring a salesperson from "way out of town." After a few days on the job, the new salesperson begins establishing asking prices for new property listings and seems to be quite accurate. Since the new broker seems to have picked up or "calibrated" local market behaviour very quickly, David is pleasantly surprised.

What method of resolving uncertainty is the new salesperson using? (1) Scenario planning (2) Evaluating pros and cons (3) Prospective hindsight (4) Confidence range estimates 7. Your client owns a manufactured home park in Williams Lake and is facing a myriad of issues: rent controls have eroded profitability; expenses appear to be rising faster every year; and more tenants are beginning to miss rent payments. The client isn't sure whether to hold, invest in upgrading the park and raising rents, or sell.

She has asked for your recommendations on the best way to remove uncertainty from her real estate decision. What technique would you recommend? (1) Scenario planning (2) Evaluating pros and cons (3) Prospective hindsight (4) Both (2) and (3) 8. Your boss and you are having a chat about a real estate decision to purchase either a parking lot or a small motel in Nanaimo. Both of you discuss the reasons why either decision would be profitable, in the event a purchase was concluded.

What type of evaluation technique have you used to highlight uncertainty? (1) Scenario planning (2) Evaluating pros and cons (3) Prospective hindsight (4) None of the above 9. A property manager is considering deferring repairs and maintenance for her firm's 40 unit rental townhouse complex in Grand Prairie. She is planning on scheduling minor maintenance this.