While most real property in the United States is privately owned, government
regulations limit private property use and therefore play an important role in the
determination of property value. Proponents of government intervention argue that
regulation is needed to address the unintended and unaccounted for consequences of
one land user upon others, more commonly referred to as:
A. incomplete information
B. locational monopoly
C. externalities
D. urban sprawl
By the third quarter of 2011, U.S. households had accumulated $6.2 trillion in housing
equity, which represents about 11 percent of their net worth. What proportion of U.S.
households own their home?
A. one-third
B. one-half
C. two-thirds
D. three-fourths
All 50 states have licensing laws that regulate persons and companies that engage in the
brokerage business. Interpreting and enforcing state licensing laws falls under the
responsibilities of which of the following parties?
A. Broker
B. Real estate commission
C. National Association of Realtors
D. Salesperson
Accelerated methods of depreciation result in greater depreciation allowances than
straight-line depreciation in the early years of the depreciation schedule. Suppose a
personal property is eligible for a three-year cost recovery period and can be
depreciated using 200 percent declining balance depreciation. Calculate the accelerated
depreciation rate in the first year.
A. 14.28%
B. 28.57%
C. 33.33%
D. 66.66%
In order to better understand a borrower’s probability of default, lenders have a number
of tools at their disposal. The ratio that measures the percentage of the price (or value)
of a property that is encumbered by the first mortgage is referred to as the:
A. debt coverage ratio (DCR)
B. loan-to-value ratio (LTV)
C. break-even ratio (BER)
D. price-earnings ratio (PE)
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
To encourage borrowers to accept adjustable rate mortgages (ARMs) rather than
level-payment mortgages, mortgage originators generally offer an initial short-term
introductory rate that is less than the prevailing market mortgage rate. This rate is
referred to as a(n):
A. margin rate
B. teaser rate
C. index rate
D. discount rate
The $6.5 trillion total market value of commercial real estate can be broken into four
quadrants. Which of the following sectors of the commercial real estate market
currently accounts for the largest proportion of market value?
A. Public equity
B. Privately held equity
C. Publicly traded mortgage debt
D. Privately held mortgage debt
One reason why adjustable-rate mortgages (ARMs) have become popular has to do
with the impact that they have on the interest rate risk that is borne by the parties
involved. If interest rates were to rise on a level-payment mortgage (LPM) the interest
rate risk of the loan would typically be borne by:
A. the borrower only
B. the lender only
C. both the borrower and lender
D. neither the borrower nor the lender
Real estate private equity funds can focus investment on anything from “Class A” real
estate to redevelopment in the urban center. On the risk-return spectrum, which of the
following private equity fund categories tends to have a heavier development
component and
often involves investment in riskier property types and locations?
A. Core
B. Value Added
C. Opportunistic
D. Full platform
Since the seller often has utilized the property for a portion of the year in which the
transaction is being made, certain costs associated with the property will be prorated at
the closing. All of the following items are subject to being prorated EXCEPT:
A. Broker commission
B. Prepaid rent
C. Property tax
D. Mortgage interest
Which of the following measures, equal to the estimated total market value of a REITs
underlying assets, allows investors to compare the value of a publicly traded security to
the value of the properties that it holds in the private market?
A. Net income
B. Net asset value
C. Funds from operations
D. Effective gross income
A deed is a special form of written contract used to convey a permanent interest in real
property. Unlike most contracts, a deed requires:
A. both parties to be legally competent and of legal majority age.
B. only the grantee to be legally competent and of legal majority age.
C. only the grantor to be legally competent and of legal majority age.
D. both parties to make promises to perform.
Suppose a potential home buyer is interested in taking a $500,000 mortgage loan that
has a term of 30 years and a fixed mortgage rate of 5.25%. What is the monthly
mortgage payment that the homeowner would need to make if this loan is fully
amortizing?
A. $552.50
B. $2,761.02
C. $17,820.72
D. $33,458.47
Given the following information, calculate the operating expense ratio for this property.
Potential gross income: $120,000, Vacancy rate: 9%, Net operating income: $57,900,
Operating expenses: $51,300.
A. 34%
B. 43%
C. 47%
D. 53%
Which of the following types of direct co-ownership combines single person ownership
with tenancy in common?
A. Cooperative
B. Tenancy by the entirety
C. Condominium
D. Partnership
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
Helping to constrain entry into real estate related occupations, which of the following
branches of government is directly involved in establishing rules and regulations for the
licensing of professionals in the field of real estate?
A. Local government
B. State government
C. National government
D. Foreign government
Foreclosure is considered the ultimate recourse of the lender because it allows the
lender to bring about sale of the property to recover the outstanding indebtedness. All of
the following statements regarding foreclosure are true EXCEPT:
A. Foreclosure is a costly process for all parties involved.
B. Only those claimants who are properly notified and engaged in the foreclosure suit
can lose their claims to the property.
C. When a lender forecloses on a property, it extinguishes all superior liens, bringing
about a free and clear sale of the property. .
D. The net recovery by a lender from a foreclosed loan seldom exceeds 80 percent of
the outstanding loan balance and commonly is much less than this amount.
In determining the appropriate listing contract to be used, it is important to know
whether a multiple listing service (MLS) will be employed. The MLS only accepts
which of the following types of listing contracts?
A. Open listing
B. FSBO listing
C. Exclusive agency listing
D. Exclusive right of sale listing
Given the following information, calculate the cash down payment required to purchase
the specific property. Purchase Price: $500,000, Loan Amount: 80% of purchase price,
Up-front financing costs: 2.5% of loan amount.
A. $90,000
B. $110,000
C. $136,250
D. $200,000
It would be hard to overstate the importance of the Federal Housing Administration
(FHA) in the history of housing finance. Which of the following instruments created by
the FHA is considered the single most important financial instrument in modern
housing finance?
A. Level-payment, fully amortizing loan
B. Adjustable rate mortgage
C. Partially-amortizing balloon loan
D. Subprime mortgage loan
Gross income multiplier analysis assumes that the subject and comparable properties
are collecting market rents. Therefore, it is frequently argued that an income multiplier
approach to valuation is most appropriate for properties with short-term leases. Which
of the following property types, therefore, would we find it most appealing to use a
gross-income multiplier in our analysis?
A. Apartments
B. Office
C. Industrial
D. Retail
Suppose that a property can generate cash flows of $10,000 per year for eight years and
can sell for $80,000 at the end of the investment period. Assuming a discount rate of
10%, what is the present value of this property (Assume end of period cash flows in
your calculation)?
A. $117,320
B. $160,000
C. $133,349
D. $90,670
With a multitude of players involved in the development process, it is important to
understand where they participate within the various stages of development. Which of
the following individuals is the least likely to be involved in the design stage of
development?
A. General contractor
B. Landscape architect
C. Civil engineer
D. Land planner
Real estate asset managers perform certain functions that would not be expected of
asset managers who deal with stock and bond portfolios. Which of the following
functions would you expect both asset managers in real estate as well as stocks / bonds
to perform?
A. Find specific assets in which the owners/client can invest
B. Monitor asset performance
C. Negotiate the acquisition price of assets
D. Oversee due diligence and closing
With the recent popularity of adjustable-rate mortgages (ARM), lenders have begun to
offer ARMs with different adjustment periods. Which of the following ARM choices
will most likely have the highest initial rate?
A. Three-year-one-year ARM
B. Five-year-one-year ARM
C. Seven-year-one-year ARM
D. Ten-year-one-year ARM
With the arrival of subprime mortgages in recent years, a new kind of “trigger” event
became apparent in leading households to default. Which of the following trigger
events is primarily associated with most defaults that have occurred during the most
recent subprime mortgage crisis?
A. Death in the family
B. Divorce
C. Unemployment
D. Mortgage payment spikes
State and federal control of land uses has increased greatly over the past 40 years due in
part to an increased awareness of environmental hazards. Which of the following
federal environmental control laws was responsible for establishing the “Superfund” to
finance emergency responses and cleanups of abandoned and unregulated waste
dumps?
A. Clean Water Act
B. Resource Conservation and Recovery Act
C. Toxic Substances Control Act
D. Comprehensive Environmental Response Compensation and Liability Act
Suppose an investor is interested in purchasing the following income producing
property at a current market price of $490,000. The prospective buyer has estimated the
expected cash flows over the next four years to be as follows: Year 1 = $48,000, Year 2
= $49,440, Year 3 = $50,923, Year 4 = $52,451. Assuming that the required rate of
return is 14% and the estimated proceeds from selling the property at the end of year
four is $560,000, what is the NPV of the project?
A. -$12,860.53
B. $145,574.52
C. $331,564.96
D. $477,139.47
In the early 1970’s, home mortgage lenders were predominantly depository institutions.
By the end of the decade, the growth of deposits at these institutions became negative
due to the emergence of more attractive investment opportunities such as money market
funds. This change in the distribution chain of funds is more commonly referred to as:
A. Deregulation
B. Disintermediation
C. Warehousing
D. Underwriting
When identifying an easement appurtenant, the parcel of land that benefits from the
right to use the land in question is referred to as the:
A. Dominant parcel
B. Servient parcel
C. Licensed parcel
D. Gross parcel
A city’s potential for growth or its susceptibility to decline is determined by a set of
economic activities that the city provides for the world beyond its boundaries.
Economists refer to this set of activities as a city’s:
A. linkages
B. economic base
C. local economic activities
D. economies of scale
Certain closing costs will be prorated to account for the period of time during which the
seller occupied the house. If a transaction is scheduled to close on May 17, 136 days
into a 365-day year, calculate the amount that the buyer will be credited if the particular
closing cost in question is estimated to be $1000 for the entire year.
A. $182.19
B. $372.60
C. $624.66
D. $1000