Which of the following types of direct co-ownership is a form of joint tenancy for
husband and wife created by marriage that protects each spouse from liens arising from
either spouse alone?
A. Tenancy in common
B. Tenancy by the entirety
C. Condominium
D. Tenancy at Will
In ascertaining whether a borrower has the ability to pay off his loan over time, a
mortgage bank may rely on calculating a total debt ratio as part of its underwriting
process. Utilizing the following information, calculate the total debt ratio. Monthly
principal and interest on mortgage loan: $635, Monthly Tax and insurance payments
into escrow: $125, Monthly Car lease payment (lease term is 3 years): $350, Gross
monthly income: $2,500
A. 25.4%
B. 30.4%
C. 44.4%
D. 53.2%
Suppose that a property owner plans on spending $15,000 per year over the next 5 years
on maintenance and repairs. However, if she does not spend this amount, she will not be
able to keep rents at market levels, vacancies will increase, and the resale value of the
property in 5 years will be lower. Assume that she would lose about $7,000 a year in net
income and would realize a loss of $85,000 in lower property value at the time of sale if
maintenance is not maintained on the property. Determine the difference between the
present value of the cost of maintaining the property and the loss to the owner if the
property is not maintained assuming
that the owner could earn a 7 percent return on any funds not invested in maintenance
and repairs?
A. The present value of the maintenance costs is $27,802 less than the present value of
the averted loss
B. The present value of the maintenance costs is $27,802 greater than the present value
of the averted loss
C. The present value of the maintenance costs is $32,802 less than the present value of
the averted loss
D. The present value of the maintenance costs is $32,802 greater than the present value
of the averted loss
Development involves a complex organization of many moving parts. Which of the
following choices is often viewed as the single greatest cause of project delays and cost
overruns?
A. Obtaining permits
B. Financing
C. Effective communication between developer, architect, and engineer
D. Selecting the architect
The tax treatment of up-front financing costs calls for these expenses to be amortized
over the life of the loan. However, if the loan is prepaid prior to the term of the loan
(perhaps because the property is sold), the tax treatment of these costs changes. If
up-front financing costs on a 30-year loan total $6,000, and the loan is prepaid in full at
the end of year 5, what isthe maximum amount that the investor can deduct when
calculating taxable income from rental operations in year 5?
A. $5,000
B. $5,200
C. $5,600
D. $6,000
All taxable income from investment property sales must eventually be classified as
either ordinary income, depreciation recapture income, or capital gain income. What is
themaximum tax rate that an investor can be charged on depreciation recapture income?
A. 10%
B. 15%
C. 25%
D. 35%
Even the smallest building project involves a multitude of separate contractors to
complete construction. Therefore, it becomes difficult for the developer to monitor the
construction process. Which of the following individuals serves as the developer’s
liaison and representative on the project site?
A. General contractor
B. Construction manager
C. Land planner
D. Subcontractor
Once a document conveying an interest in real property is placed in the public records it
is binding on the public, whether or not they make an effort to learn of it. Based on the
common law tradition, this policy is known as the:
A. Statute of Frauds
B. doctrine of constructive notice
C. habendum clause
D. actual notice
An important effect of agglomeration economies on real estate is its impact upon
market risk. Based on your understanding of this relation, which of the following
statements is TRUE?
A. Properties located in a city with more advanced development of agglomeration
economies will carry more risk and therefore suffer a larger price decline during an
economic downturn than comparable properties in a city with less agglomeration.
B. Properties located in a city with more advanced development of agglomeration
economies will carry less risk and therefore suffer a larger price decline during an
economic downturn than comparable properties in a city with less agglomeration.
C. Properties located in a city with more advanced development of agglomeration
economies will carry more risk and therefore suffer a smaller price decline during an
economic downturn than comparable properties in a city with less agglomeration.
D. Properties located in a city with more advanced development of agglomeration
economies will carry less risk and therefore suffer a smaller price decline during an
economic downturn.
Cities such as New York are able to host a variety of complex industries because of the
development of specialized resources that support their growth. When specialized
resources emerge in response to demand from multiple industries, this is referred to as:
A. industry economies of scale
B. agglomeration economies
C. locational monopoly
D. economic inefficiencies
While the general concepts of investment value and market value are very similar, there
is an important distinction between the two. All of the following statements regarding
investment value are true EXCEPT:
A. Investment value is based on the expectations of a typical, or average, investor.
B. Investment value is a function of estimated cash flows from annual operations
C. Investment value takes into consideration estimated proceeds from the sale of the
property D. Investment value applies a discount rate to future cash flows.
In addition to numerous congressional acts that focus more on national regulation, laws
have been created that affect the practice of home mortgage lending at a community or
neighborhood level. For example, laws have been enacted to prevent lenders from
avoiding certain neighborhoods without regard to the merits of the individual loan
applications, a practice more commonly referred to as:
A. rescinding
B. redlining
C. assuming
D. holdout
In recent years, mortgage lenders responded to the demand from home buyers who
were unable to put 20 percent down on their purchase and were looking to avoid the
private mortgage insurance (PMI) requirement that would typically accompany such a
loan by developing a second mortgage that is created simultaneously with the first
mortgage in an amount of ten percent of the value of the home. This enabled the
borrower to obtain 90 percent financing while avoiding the additional cost of PMI.
These loans are more commonly referred to as:
A. Reverse mortgages
B. Home equity loans
C. Piggyback mortgage loans
D. Subprime mortgage loans
Given the following information, calculate the debt coverage ratio for this investment.
Potential gross income: $120,000, Vacancy rate: 9%, Net operating income: $57,900,
Operating expenses: $51,300, Acquisition Price: $520,000, Debt service: $40,000.
A. 0.69
B. 1.45
C. 2.73
D. 8.29
The presence of real estate cycles presents a major challenge when forecasting real
estate market parameters. If the market value of a residential developer’s project
exceeds its construction costs, an increase in the supply of units will occur. As the
market becomes oversupplied, we would expect which of the following to occur?
A. an increase in occupancy levels
B. an increase in market values
C. a decrease in real rental rates
D. a decrease in construction costs
The magnitude of an economic base multiplier depends upon the amount of money that
“leaks” out through expenditures outside of the city limits. The economic multiplier
tends to be higher with each of the following EXCEPT:
A. A higher percentage of local household income is respent within the city.
B. The larger the city is.
C. The less isolated the city is from other cities.
D. The more tourism a city brings in.
In determining a property’s before-tax cash flow from operations (BTCF) and net
operating income (NOI), it is important to understand how each accounts for the use of
financial leverage in its calculation. Which of the following statements is true in regards
to how these two measures account for the use of financial leverage?
A. BTCF and NOI are both levered cash flows
B. BTCF is an unlevered cash flow, while NOI is a levered cash flow
C. BTCF is a levered cash flow, while NOI is an unlevered cash flow
D. BTCF and NOI are both unlevered cash flows
Since the architect can be involved in various stages of the development process, there
are a number of methods used to compensate him for his services, each of which may
depend on the particular phase of development. If the architect provides pre-design
services or schematics early in the development process, he will typically be
compensated:
A. on an hourly basis
B. as a percentage of construction expenses
C. by a fixed fee plus expenses
D. only if he stays on the project through completion of the construction phase
The direct ownership of commercial real estate produces cash flows from rental
operations and, perhaps, cash flow from an eventual sale of the property. Since financial
leverage and tax considerations play an important part in determining an investor’s
returns, the measure of investment value most relevant to investors is the present value
of:
A. before-tax cash flows (BTCF)
B. after-tax cash flows (ATCF)
C. net operating income (NOI)
D. net sale proceeds (NSP)
Current tax law allows investors to take tax credits for the cost of renovating or
rehabilitating older or historic structures and for the construction or rehabilitation of
qualified low-income housing. Which of the following statements regarding tax credits
is true?
A. A $1 tax credit reduces the investor’s tax liability by an amount dependent on the
individual’s income tax bracket.
B. A $1 tax credit reduces the investor’s tax liability by $1.
C. A $1 tax credit increases the investor’s taxable income by $1
D. A $1 tax credit has exactly the same impact on an investor’s tax liability as a tax
deduction.
Traditional home mortgage underwriting is said to rest on three elements, the “three
C’s.” The housing expense ratio is one tool that lenders will use to address concerns
associated with which of the “three C’s?”
A. Collateral
B. Creditworthiness
C. Capacity
D. Capability
The lease is a contract between a property owner and tenant that transfers exclusive use
and possession of space to the tenant, but allows the owner to retake possession of the
property at the expiration of the lease. Which type of interest allows the owner to retake
possession at the end of a lease?
A. Remainder interest
B. Reversion interest
C. Spousal interest
D. Co-ownership interest
Given the following information, calculate the effective monthly rent payment. Lease
Term: 10 years, Concession: 1 year free rent to be spread over the term of the lease,
Rental Space: 5000 square feet, Rental Rate: $20 per square foot per year, Landlord’s
discount rate: 10%.
A. $4,676
B. $5,901
C. $7,081
D. $10,122
Given the following information, calculate the effective gross income multiplier. Sale
price: $950,000, Potential Gross Income: $250,000, Vacancy and Collection Losses:
15%, and Miscellaneous Income: $50,000.
A. 0.36
B. 0.30
C. 2.8
D. 3.6
In the Elysian Forest example, the planned unit development was destined to be an
unsuccessful venture from its inception because:
A. There was a comparable project in the community that was successful.
B. The site and location of the project was atypical of the area as there were significant
disadvantages in terms of location and visual appeal.
C. The target market was a nontraditional segment that relied heavily on a small portion
of the local University City population.
D. University City was a big, high density city that could not support such
development.
Real estate brokers operate under the law of agency, which gives a broker the right to
act for a principal in trying to buy or sell a property. In the basic principal-agent
relationship of real estate brokerage, real estate brokers act in the capacity of a:
A. Universal agent
B. General agent
C. Special agent
D. Undercover agent
An early model of land use is the concentric ring model of urban form developed by
E.W. Burgess. Of the following land uses, which would be closest to the downtown area
of the central business district (CBD) according to Burgess’ model?
A. Blue-collar residential land use
B. A zone of transition containing warehousing and other industrial land uses exists
between the downtown area and the residential area.
C. White-collar clerical residential land use
D. Executive residential land use
Although nonrecourse loans dominate the commercial mortgage lending practices of
pension funds, life insurance companies, and commercial mortgage-backed security
(CMBS) originators, banks are likely to require some form of a guarantee by the
organizer/sponsor of the investment opportunity to make the lender whole in the event
the lender suffers a loss on the loan. This protection to the lender is more commonly
referred to as a:
A. Credit enhancement
B. Property externality
C. Joint venture
D. Mezzanine loan
Suppose a bank decides to make a mortgage loan to an individual so that they may
purchase a home. The homeowner will pay the bank $1500 per month in mortgage
payments for the next 30 years. The bank will collect the mortgage payments at the end
of the month. What is this promised stream of cash flows worth to the bank today if
they could reinvest the monthly income at an annualized rate of 5% for the entire
investment horizon?
A. $23,058.68
B. $99,658.27
C. $279,422.43
D. $1,248,387.95
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.
Which of the following terms refers to a written agreement that binds the lender to
make a loan to the borrower provided the borrower satisfies the terms and conditions of
the agreement?
A. Loan application
B. Loan commitment
C. Loan underwriting
D. Loan document
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
Which of the following types of loans is the most common instrument used to finance
the acquisition of existing commercial property?
A. Fixed-rate balloon mortgage loans
B. Floating-rate mortgage loans
C. Mezzanine loans
D. Construction loans
The effective rent calculation is a common measure used to compare the true cost of
one lease to another. While there are a number of limitations to this methodology, the
effective rent calculation captures:
A. interlease risk
B. re-leasing costs
C. the advantages associated with lease flexibility
D. the time value of money
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