FC 66591

Document Type
Test Prep
Book Title
Real Estate Finance & Investments (Real Estate Finance and Investments) 14th Edition
Jeffrey Fisher, William Brueggeman
Operating expenses can be divided into two categories: variable and fixed expenses.
Which of the following best exemplifies a fixed expense?
A. Utilities
B. Property management
C. Local property taxes
D. Trash removal
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
In using transaction data to determine the current value of the subject property, it is
important to recognize that general market conditions may have changed since a
particular transaction occurred. Property A sold 18 months ago for $235,000 and
Property B sold 12 months ago for $215,000. If the two properties are priced today at
$239,500 and $222,300, respectively, what is the average monthly rate of increase that
can be used to adjust comparable prices for changes in market conditions?
A. 0.09%
B. 0.17%
C. 0.19%
D. 0.32%
Suppose you are interested in selling your home and would like to clear a net value of
$300,000. If you have agreed to pay your broker a commission of 5.5% (no matter who
ultimately is responsible for finding the buyer), what price must you sell the home for
in order to meet your net profit (rounded to the nearest dollar)?
A. $282,540
B. $300,000
C. $316,500
D. $317,460
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
D. understate the true borrowing cost by assuming we do not hold mortgage until
In analyzing a borrower's credit worthiness, the lender will typically examine the
borrower's FICO score (a product developed by the Fair Isaac Corporation). High
quality (prime) borrowers are those with a credit score above:
A. 350
B. 620
C. 660
D. 850
A principal definition of real estate is as a bundle of rights associated with the
possession, use, and disposition of property. Each of the following is a fundamental
characteristic of property rights EXCEPT:
A. They are enforceable by the government.
B. They apply only to tangible assets.
C. They are nonrevocable.
D. They are enduring.
When investing in commercial real estate through an intermediary, it is important to
consider whether the fund has a finite or infinite life. By having a finite life, the fund
manager is forced to eventually dispose of the assets and return the investors' capital.
With which of the following fund structures do you expect the issues associated with
finite life to be least prevalent?
A. Closed-end commingled real estate fund
B. Open-end commingled real estate fund
C. Real estate private equity fund
D. Public, non-traded REIT
In efficient financial markets, unregulated competitive bidding should bring about the
most productive use of an asset and the price paid for that asset should reflect fair value
based on its usefulness. In real estate, this is not always the case. For example, there is
no substitute for certain pieces of land which gives the owner a bargaining advantage in
determining the value of the land. This feature of real estate markets is commonly
referred to as:
A. incomplete information
B. locational monopoly
C. positive externality
D. negative externality
Suppose that an appraiser has just completed her analysis using the cost approach to
valuation. She has determined that the market value of the subject property is $400,000.
If the
added value of the site was $80,000 and accrued depreciation amounted to $50,000,
what was the reproduction cost of the building?
A. $270,000
B. $370,000
C. $430,000
D. $530,000
Blockbusting, which involves persuading an individual to sell her home by telling her
that minority groups are moving into the neighborhood, is one form of discrimination in
housing that is prohibited by which of the following acts of Congress?
A. Riegle Community Development and Regulatory Improvement Act
B. Secure and Fair Enforcement for Mortgage Licensing Act
C. Fair Housing Act (Title VIII of the Civil Rights Act)
D. Equal Credit Opportunity Act
Certain mortgage loans contain a due-on-sale clause, which gives the lender the right to
terminate the loan at sale of the property. Which of the following types of loans is the
most likely to contain a due-on-sale clause?
A. Federal Housing Administration (FHA) loan
B. Veterans Affairs (VA) loan
C. Conventional home loan
D. An assumable home loan
The demand for access between land uses is considered the "gravity" that holds a city
together. These relationships between land uses are commonly referred to as:
A. linkages
B. economic bases
C. local economic activities
D. economies of scale
If the mortgage loan is going to be packaged with similar loans and then resold to
investors as part of a commercial mortgage-backed security, the originating lender may
rely more heavily on examining which of the following ratios in order to determine the
maximum amount they are willing to lend to the borrower? (Note: This ratio indicates
the cash-on-cash return the lender would earn on its invested capital if it had to
foreclose on the property immediately after originating the loan)
A. Debt coverage ratio
B. Debt yield ratio
C. Debt service ratio
D. Equity dividend ratio
While college-level courses are not widely available, a number of professional and
trade organizations exist in the field of property management. Which of the following
certifications awarded by the Institute of Real Estate Management is aimed at
individuals who manage larger, residential, office, industrial, or retail properties?
A. Certified Property Manager (CPM)
B. Accredited Resident Manager (ARM)
C. Real Property Administrator (RPA)
D. Member of Appraisal Institute (MAI)
In the Palm Grove Office Complex example, the project was destined to be an ill-fated
venture from its inception for all of the following reasons EXCEPT:
A. The zoning laws of University City ultimately prevented the project's developers
from starting the construction process
B. University City was not well-suited for large office space geared toward firms with
greater than 25 employees
C. Palm Grove Office Complex lacked the visual exposure, convenient access, and
parking that its competitors held significant comparative advantages in.
D. The structures were primarily designed as general-purpose office space, which
excluded potential occupants such as laboratories or medical offices.
After construction has been completed, a developer may decide to seek additional
financing. If current interest rates are relatively high, but the developer expects them to
decline in the near future, the developer would most likely seek financing in the form of
A. subordination agreement
B. miniperm loan
C. take-out commitment loan
D. floor loan
Given the following information, determine the value of having an additional bathroom.
Assume that the comparable properties are similar in all other attributes besides those
listed in the table below.
A. $4,000
B. $6,000
C. $10,000
D. $16,000
Competition for the currently available supply of locations and space coupled with the
existing supply of leasable space, determines:
A. the current level of rental rates for each submarket and property
B. the riskiness of the expected cash flows of an income-producing property
C. the timing of the expected cash flows of an income-producing property
D. the cost of financing the purchase of a property
Assume you have been hired to appraise a local hospital. Your best estimate of the
reproduction (or replacement) cost of the building is $3,700,000. However, upon
evaluating the use of land in the local area, you have deemed the value of the site to be
worth an additional $800,000. If the building has depreciated by $500,000 over its
lifetime and there are no further depreciation losses due to external or functional
obsolescence, what is the indicated value of the hospital using the cost approach?
A. $2,400,000
B. $3,700,000
C. $4,000,000
D. $4,500,000
Negative externalities can diminish a property's value by imposing costs on the
community at large. In order to offset this detrimental impact, economists advocate
"internalizing" these externalities by implementing:
A. performance standards
B. impact fees
C. growth moratoriums
D. planned unit developments
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
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
Real estate professionals have long supported strict standards of ethics and practice.
Followed by all states and federal regulatory agencies, which of the following imposes
ethical obligations and minimum standards that must be followed by all real estate
professionals providing formal estimates of market value?
A. Uniform Standards of Professional Appraisal Practice (USPAP)
B. Multiple Listing Services (MLS)
C. Department of Housing and Urban Development (HUD)
D. Office of Federal Housing Enterprise Oversight (OFHEO)
In some states, mining companies are deemed to own not only the minerals but also the
space the minerals occupied before they were removed, thereby earning the distinction
of ownership states. However, when the owner of an oil or gas well is able to claim all
that is pumped from it, regardless of whether the oil or gas migrated from adjacent
property, this is referred to as a _____________ state.
A. Manner of attachment
B. Law of capture
C. Intention of the parties
D. Relation of the parties
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
From the borrower's perspective, the effective borrowing cost is often viewed as the
implied internal rate of return (IRR), since it takes into consideration costs that the
borrower faces, but which are not passed on as income to the lender. Included in this
calculation are certain closing costs, which may consist of all of the following
A. Title insurance
B. Mortgage insurance
C. Recording fees
D. Earnest money
Given the following information, calculate the equity dividend rate for this investment.
First-year NOI: $18,750, Before-tax cash flow: $11,440, Acquisition price: $520,000,
Equity Investment: 20%.
A. 2.2%
B. 3.6%
C. 11.0%
D. 18.02%
An individual works downtown and pays $600 per month in rent for an apartment
located 10 miles from her office. She has calculated that she spends 30 minutes per day
driving each way to the office and it costs her $4 per day in gas and lost productivity.
Using the framework of the bid-rent model, how much would she be willing to pay for
an apartment downtown, assuming a 20 workday month?
A. $80
B. $440
C. $520
D. $680
When using discounted cash flow analysis for valuation, the appraiser must estimate the
sale price at the end of the expected holding period. This price (assuming selling
expenses have yet to be accounted for) is referred to as the property's:
A. net sale proceeds
B. selling expenses
C. terminal value
D. current market value
Suppose you are interested in taking an FHA mortgage loan for $350,000 in order to
purchase your principal residence. In order to do so, you must pay an additional
up-front mortgage insurance premium (UFMIP) of 1.0% of the mortgage balance. If the
interest rate on the fully-amortizing mortgage loan is 6% and the term is 30 years and
the UFMIP is financed (i.e., it is included in the loan amount), what is the dollar portion
of your monthly mortgage payment that is designated to cover the UFMIP?
A. $20.98
B. $291.67
C. $2,119.41
D. $3,500.00
The difference between judicial foreclosure and power of sale in the treatment of
defaulted mortgages can be significant. All of the following statements regarding power
of sale are true EXCEPT:
A. The power of sale treatment is faster than judicial foreclosure
B. The foreclosed property is typically sold through a public auction administered by
the court.
C. It is less costly for power of sale to be employed than judicial foreclosure.
D. Typically, lenders must give proper legal notice to the borrower, advertise the sale
property, and allow a required passage of time before the sale.
The ability of homeowners to prepay the principal on their outstanding mortgage
balance creates cash flow uncertainty for the lender. As a result, the lender may wish to
prohibit prepayment on a mortgage loan for a specified period of time after its
origination. This is accomplished through which of the following?
A. Defeasance
B. Yield Maintenance Provision
C. Demand Clause
D. Lockout Provision

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