If a property transaction is scheduled to close on May 14th, calculate the individual tax
responsibility for the buyer if the total tax owed at the end of the year is $5,000. For this
problem, assume that we are dealing with a 365 day calendar year.
A. $0.00
B. $1,821.92
C. $3,178.08
D. $5,000.00
In addition to providing home mortgages, large commercial banks have specialized in
providing short-term funds to mortgage banking companies in order to enable them to
originate mortgage loans and hold the loans until the mortgage banking company can
sell them in the secondary market. This type of financing is commonly referred to as:
A. Mortgage pipeline
B. Loan servicing
C. Warehousing
D. Loan underwriting
For most mortgage loans on commercial real estate, the right of prepayment is
constrained through a prepayment penalty. Which of the following types of prepayment
penalties requires a borrower to provide the lender with some combination of U.S.
Treasury securities that will serve to replace the cash flows of the loan being paid off?
A. Yield-maintenance prepayment penalties
B. Prepayment lockout
C. Defeasance prepayment penalty
D. Curtailment penalty
Mortgage originators can either hold loans in their portfolios or sell them to investors.
When a mortgage originator decides to sell mortgages to another institution, this
transaction occurs in what is commonly referred to as the:
A. primary mortgage market
B. secondary mortgage market
C. over-the-counter market
D. loan origination market
With a site under control, the developer will begin to evaluate the feasibility of the
project. The main tool that a developer will use in determining the financial feasibility
of a project is:
A. Net present value (NPV) analysis
B. Cost approach to valuation
C. Repeat-sales approach
D. Direct capitalization
Equity investors can choose to participate indirectly in real estate markets by
purchasing shares in publicly traded real estate companies. In doing so, investors
benefit from all of the following EXCEPT:
A. Low transaction costs
B. Risk sharing amongst investors
C. Highly segmented markets
D. High information efficiency
Most often used in the description of urban property, which of the following methods of
land description contains information regarding the location of various easements and
may even contain a list of restrictive covenants?
A. metes and bounds
B. subdivision plat lot and block number
C. government rectangular survey
D. tax parcel number
The APR can be a controversial measure of borrowing cost because it tends to:
A. overstate the true borrowing cost by assuming we hold mortgage until maturity
B. understate the true borrowing cost by assuming we hold mortgage until maturity
C. overstate the true borrowing cost by assuming we do not hold mortgage until
maturity
D. understate the true borrowing cost by assuming we do not hold mortgage until
maturity
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.
Given the following information, calculate the loan-to-value ratio of this commercial
loan. Estimated net operating income in the first year: $150,000, Debt service in the
first year: $100,000, Loan amount: $1,000,000, Purchase price: $1,300,000
A. 0.08
B. 0.77
C. 1.30
D. 1.75
Most real estate investment trusts (REITs) are actively managed operating companies
that typically focus their investments either by property type or geographic market.
Which of the following commercial property types represents the largest proportion of
REIT market value?
A. Apartments
B. Office
C. Industrial
D. Retail
Most appraisers would say that report writing is one of the most important functions
that they perform. Assume that an appraiser is putting together a report for a single
family home. Which of the following reporting options would be the most commonly
used in this scenario?
A. Self-contained appraisal report
B. Summary appraisal report
C. Restricted appraisal report
D. Oral appraisal report
Brian just began graduate school at the local university and is looking to rent an
apartment. A family friend has decided to lease him a two bedroom, one bathroom
cottage through an oral agreement with no definite lease period outlined. Which of the
following leasehold estates best describes Brian’s situation?
A. Tenancy for years
B. Tenancy at sufferance
C. Periodic tenancy
D. Tenancy by the entirety
Recently, 15-year mortgages have increased in popularity amongst both borrowers and
lenders. Which of the following groups of borrowers would typically be the least
interested in
a 15-year mortgage?
A. Mature households with minimal financial constraints
B. First-time homebuyers
C. Homeowners who are refinancing to obtain a lower rate than is available on a
comparable 30-year mortgage
D. Homeowners who are interested in selling their property within five years
Amy is trying to decide whether or not it would be beneficial to employ the services of
a real estate broker in order to facilitate the sale of her home. She has estimated that the
marketing costs and opportunity cost associated with time spent dealing with
prospective buyers amounts to $5,000. If Amy were to sell the house on her own for
$200,000, but a broker would have been able to negotiate a higher price of $206,350,
what commission rate should Amy have been willing to accept from a real estate broker
to make her indifferent between selling the house on her own and hiring a real estate
broker?
A. 2.4%
B. 3.1%
C. 5.0%
D. 5.5%
Many investors use mortgage debt to help finance capital investment for
income-producing real estate. In doing so, the owner will receive income as long as the
property produces enough income to cover all operating and capital expenditures, the
mortgage payment, and all state and federal income taxes. Therefore, the owner’s claim
is commonly
referred to as a:
A. primary claim
B. joint claim
C. residual claim
D. superior claim
Real estate markets tend to be highly segmented due to the heterogeneous nature of the
products. Which of the following examples depicts this issue of market segmentation?
A. A couple searching for a single-family detached unit is willing to consider other
residential property types such as an attached townhouse unit or condominium.
B. A couple searching for a single-family detached unit has limited their search to
homes in a single elementary school district
C. A couple searching for a single-family detached unit has set a timeline for their
search of 6 months, at which point they will renew their current apartment lease.
D. A couple searching for a single-family detached unit has limited their search to be in
a specific price range between $350,000 and $400,000.
Recognizing that only recent conveyances alter the status of title, states have
established laws that set limits on how far back a title search must go. These laws are
commonly referred to as:
A. Statute of Frauds
B. recording statutes
C. encroachments
D. marketable title laws
A city’s economic base can be viewed in terms of a multiplier process, in which the
money that is brought in through export activities is then respent within the city. Which
of the following economic activities is the least likely to be considered a high-impact or
high-multiplier economic base activity?
A. Tourism
B. Retirement
C. Computer assembly
D. Specialized medical services
It is possible to have a secured real estate loan without a mortgage through the use of a
contract for deed. In contrast to the standard real estate sale, which of the following
events occurs after the closing when dealing with a contract for deed?
A. Offer
B. Acceptance
C. Possession of the property passes to the buyer
D. Title to the property passes to the buyer
While there is no specific number of comparables that is required for every appraisal
assignment, how many comparable sales are considered adequate as long as the
properties are very similar to the subject property?
A. One
B. Three
C. Five
D. Ten
Given the following information, compute the property tax rate for the community in
percentage terms. Total budget expenditures: $108 million, Total non-property tax
income: $50 million, Total assessed value of all properties: $2 billion, Total exemptions:
$550 million.
A. 2.5%
B. 4.0%
C. 10.0%
D. 12.0%
Which of the following is an example of a negative easement appurtenant?
A. A driveway easement across one parcel to another.
B. Rights-of-way for roads.
C. A common drive easement where owners of adjoining lots must permit each other to
use a driveway lying on their shaped property line.
D. A scenic easement used to restrict construction on adjacent parcels so as to preserve
a valued view.
The second stage of the development process requires an analysis of the project’s
feasibility. The developer will typically begin this stage of the development process
with which of the following types of analysis?
A. Financial feasibility
B. Environmental feasibility
C. Legal feasibility
D. Political feasibility
With compound interest, the investor earns interest on the principal amount invested
plus interest on accumulated interest. Which of the following compounding frequencies
would yield the investor the greatest ending balance assuming all else is equal?
A. Daily
B. Monthly
C. Quarterly
D. Annually
In recent years, home equity loans have become a popular form of second mortgage.
Their popularity has been a result of all of the following EXCEPT:
A. Lower interest rates than other consumer debt
B. Shorter terms than other consumer debt
C. Tax-favored status
D. Aggressive marketing by lenders
The choice of which method to use in constructing the contracted rental rate can be
impacted by the term of the lease. With a shorter lease term, which of the following
methods is most likely to be observed?
A. Flat rent
B. Graduated rent
C. Indexed rent
D. Percentage rent
An investor originally paid $22,000 for a vacant lot 12 years ago. If the investor is able
to sell the lot today for $62,000, what would his annual rate of return be on this
investment (rounded to the nearest percent)?
A. 5%
B. 7%
C. 9%
D. 11%
The refinancing decision is sometimes oversimplified into a few “rules of thumb” that a
borrower uses in order to gauge its potential benefits. Which of the following
methodologies is criticized for its inability to account for a variation in refinancing
benefits due to cost or holding period differences?
A. Payback period approach
B. Net benefit approach
C. Interest rate spread
D. Net present value approach
Although the function of commercial brokerage is the same as that of residential
brokerage, the activities of commercial brokers usually differ considerably from those
of residential brokers due to fundamental differences in these two markets. All of the
following statements regarding commercial brokerage are true EXCEPT:
A. Relative to residential transactions, commercial transactions tend to be larger
B. The parties in commercial mortgage transactions are typically less knowledgeable
than those in residential transactions.
C. An important part of the commercial broker’s service is to provide the prospective
buyer with reports that enable him to complete due diligence for the property
D. Commercial brokers are often required to lower their commission in order to
negotiate compromises between buyers and sellers when they reach an impasse over
price.