According to the law of agency, real estate brokers are required to observe several
duties as they act as an agent for an individual trying to buy or sell a property. Which of
the following duties refers to a broker’s obligation to be completely open and honest
with the principal?
A. Disclosure
B. Confidentiality
C. Loyalty
D. Obedience
Even after a property goes into foreclosure, it is still possible for the borrower to
reclaim the property as long as they produce the outstanding mortgage balance and all
foreclosure costs incurred to that point. In a state such as Florida, this right may even
extend beyond the date of the foreclosure sale. When this occurs, this right is more
commonly referred to as:
A. Equity of redemption
B. Statutory redemption
C. Strategic default
D. Substantive default
All of the following are responsibilities of the syndicator in the origination phase of a
syndicate’s life EXCEPT:
A. Develop the concept for the syndication
B. Organize the legal entity
C. Acquire or obtain control of the real estate
D. Raise additional investment capital
A significant number of mortgage loans use adjustable interest rates, in which the
interest rate of the loan is tied to an index rate that fluctuates over time. For
income-producing property, the most common index rate is the:
A. one-year U.S. Treasury constant maturity rate
B. prime rate
C. London Interbank Offered Rate (LIBOR)
D. cost-of-funds index
The hybrid ARM attempts to balance the fixed payment desire of a borrower with the
lender’s desire to increase interest rates if market rates rise in the future. In its most
common
form, known as a 2-28, the hybrid ARM will have a fixed-interest rate for:
A. 1 year
B. 2 years
C. 26 years
D. 28 years
The strength of a successful developer lies in his or her ability to select design
professionals and engineers that play vital roles in the project’s plan and completion.
Which of the following individuals would be most concerned, on a general level, with
the design aesthetics, optimal use and preservation of the site, traffic flows, utility
systems and drainage systems?
A. Land planner
B. Landscape architect
C. Mechanical engineer
D. Environmental agent
When calculating the net operating income of a property, it is important to identify any
expenses that will be incurred in attempts to maintain the property. All of the following
would be considered operating expenses EXCEPT:
A. Property taxes
B. Property insurance premiums
C. Mortgage payments
D. Utility expenses
An investor agreed to sell a warehouse 5 years from now to the tenant who currently
rents the space. The tenant will continue to pay $20,000 rent at the end of each year
including year five in which he will purchase the building for an additional $150,000.
Assuming the investor’s required rate of return is 10%, how much is this deal presently
worth to the investor who was willing to sell?
A. $168,953.93
B. $241, 451.07
C. $363,678.50
D. $1,032,475.67
Despite the risks that are inherent in the mortgage lending process, mortgage bankers
have various tools at their disposal to hedge risk exposure. For example, since mortgage
bankers know that only part of the loan commitments that they issue will be taken down
by borrowers, they can purchase the right to sell a certain dollar amount of a certain
loan type in the secondary market through what is commonly referred to as a:
A. Standby forward commitment
B. Mortgage pipeline
C. Conduit
D. Collateral
Since many commercial properties are held by limited liability corporations or limited
partnerships, it is important to understand the tax consequences at the individual
investor level. Individuals face different tax rates depending on the level of their taxable
income. As of 2012, an individual making between $$85,650 and $178,650 would fall
into which of the following tax brackets?
A. 15%
B. 25%
C. 28%
D. 35%
Assume that a veteran decides to purchase a house for $150,000 using a VA loan that
amounts to $44,000. If the buyer were to defaults on the loan, what is the maximum
amount that the VA guarantees the lender?
A. $11,000
B. $22,000
C. $33,000
D. $44,000
Assume you have taken out a balloon mortgage loan for $2,500,000 to finance the
purchase of a commercial property. The loan has a term of 5 years, but amortizes over
25 years. Calculate the balloon payment at maturity (Year 5) if the interest rate on this
loan is 4.5%.
A. $5,637.99
B. $13, 895.82
C. $2,196,447.59
D. $2,495,479.19
Suppose a buyer agrees to purchase a tract of land for $40,000. The buyer is only able
to obtain a mortgage for $32,000. Rather than let the deal fall through, the seller agrees
to accept $4,000 in cash and a note from the buyer for the remaining $4,000. This type
of transaction is commonly referred to as a:
A. conventional loan
B. home equity mortgage
C. purchase money mortgage
D. reverse mortgage
There are a set of restrictive conditions that REITs must satisfy on an ongoing basis in
order to maintain their special tax status. All of the following statements regarding the
main restrictions are true EXCEPT:
A. At least 100 investors must own a REIT’s shares
B. No five investors can own more than 50 percent of a REIT’s shares
C. At least 75 percent of the value of a REIT’s assets must consist of real estate assets
D. A REIT must distribute at least 75% of its taxable income to shareholders in the form
of dividends.
Real estate can be viewed as a bundle of rights. How these bundles of rights are
grouped together determines the type of ownership interest an individual (or group of
individuals) can stake claim to. In an ordinary life estate with remainder interests,
which of the following rights is detached from the traditional bundle of rights that
typically defines a fee simple absolute interest?
A. Possession
B. Use
C. Disposition
D. Enjoyment
There are two major types of REITs: Equity REITs and Mortgage REITs. Each differs
in terms of what they invest in. Which of the following choices best describes the
investment focus of an Equity REIT?
A. Invests a significant percentage of their assets in both properties and mortgages
B. Invests primarily in and operates commercial properties
C. Purchases mortgage obligations
D. Purchases ownership interests in shares of pension funds and life insurance
companies
Sharon purchased a new photocopier for her business. According to her accountant, she
can deduct 1/7th of its original cost each year for the next seven years from her taxable
income. This depreciation method is commonly referred to as:
A. declining balance method
B. straight line method
C. sum of the years’ digits method
D. modified accelerated cost recovery system
Which of the following measures is considered the fundamental determinate of market
value for income-producing properties?
A. Net operating income
B. Potential gross income
C. Operating expenses
D. Capital expenditures
For all but the largest of developers, the marketing and leasing of the project will be
through an external broker. Given their special knowledge of the target market, it would
be most beneficial for the developer to bring the broker into the development process
during which of the following stages?
A. Design
B. Financing
C. Construction
D. Operation
A developer plans to place a subdivision slightly outside the city limits in an area that is
rapidly developing. However, the city claims to have the right to control urban
development even in the proposed area. The right the city is attempting to invoke is
referred to as:
A. extraterritorial jurisdiction.
B. urban service area.
C. comprehensive plan.
D. growth constraint.
The estimated market value of investible commercial real estate in the United States at
the end of 2011 was approximately $6.5 trillion. In terms of market size, which of the
following asset categories is most closely related to commercial real estate?
A. Owner-occupied housing
B. Corporate equities
C. U.S. Treasury securities
D. Municipal securities
Mortgage loans made to borrowers with normal credit quality, but who lack the
necessary documentation of their financial circumstances typically needed to meet
conforming mortgage standards would most likely be considered:
A. subprime loans
B. option ARM loans
C. hybrid ARM loans
D. alt-A loans
A tenant who expects her business to grow may wish to have a clause included in her
lease that grants her the choice to lease adjacent space as soon as it becomes available.
This lease option is more commonly referred to as a:
A. relocation option
B. right of first refusal
C. renewal option
D. consideration
A property owner has set up a contract in which he agrees to sell a warehouse 5 years
from now to the tenant who currently leases the space. The tenant has agreed to
continue to pay $20,000 in rent at the end of each year, including year five, at which
time he will purchase the building for an additional $1,500,000. Assuming the required
rate of return on a similar investment is 10% (annual), how much is this deal presently
worth to the original owner of the property?
A. $1,007,197.20
B. $1,014,779.29
C. $2,281,452.80
D. $2,293,663.00
Christopher has hired a real estate broker to help facilitate the sale of his home.
Realizing that Christopher is most likely going to realize a loss on his investment due to
the recent decline in housing values in his neighborhood, the broker has agreed to
charge Christopher a lower commission rate as long as Christopher enters into an
exclusive right of sale listing contract. If Christopher ends up selling his house for
$364,583 and takes home $350,000 after paying the real estate broker’s commission,
what was the commission rate that the broker ended up charging?
A. 4.0%
B. 4.2%
C. 8.0%
D. 14.6%
Most real estate loans have a definite term to maturity, stated in years. The majority of
home loans will typically have a term to maturity between:
A. 1-5 years
B. 5-7 years
C. 7-15 years
D. 15-30 years
Considered a fundamental pricing metric in commercial real estate markets, the ratio of
a property’s annual net income to its market value is more commonly referred to as a(n):
A. Appreciation rate
B. Capitalization rate
C. Discount rate
D. Internal rate of return
Suppose you have taken out a $125,000 fully-amortizing fixed rate mortgage loan that
has a term of 15 years and an interest rate of 6%. After your first mortgage payment,
how much of the original loan balance is remaining?
A. $1,054.82
B. $120,603.78
C. $124,570.18
D. $124,875.56
Helpful in assessing the risk of lending to investors for particular projects, which of the
following calculations measures the income-producing ability of the property to meet
operating and financial obligations?
A. Profitability ratios
B. Income multipliers
C. Financial risk ratios
D. Income tax multipliers
The cost approach to valuation assumes the market value of a new building is similar to
the cost of constructing it today. Which of the following terms refers to the expenditure
required to construct a building of equal utility using modern construction techniques,
materials, and design that eliminates outdated aspects of the structure?
A. Reproduction cost
B. Replacement cost
C. Fixed cost
D. Variable cost