After a structure is built, it is impractical for even a building expert to fully assess the
quality of the construction and the safety hazards it may harbor. This is an example of
which of the following problems that plagues private real estate markets?
A. Externalities
B. Incomplete information
C. Locational monopoly
D. Holdout
A conventional mortgage loan is one that is not insured or guaranteed by an agency of
the U.S. government. The lender, however, can still pursue a private mortgage insurance
(PMI) policy to provide a guarantee for the fulfillment of the borrower’s obligations.
Typically PMI is required for all loans that have a loan to value (LTV) ratio greater
than:
A. 20%
B. 40%
C. 60%
D. 80%
Under certain circumstances, investors are permitted to reduce the amount of the
taxable income that they report by an amount that is intended to reflect the wear and
tear of an asset over time. This is commonly referred to as:
A. appreciation
B. depreciation
C. capital gains
D. capital losses
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materials, and design that eliminates outdated aspects of the structure?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
Each property has unique features, whether it is its age, the building design of its
structures, or its location. As such, real estate markets consist of assets that are
considered:
A. homogeneous
B. heterogeneous
C. substitutes
D. complements
The location of competitors within a particular land use area may be influenced by
whether the types of services and products are convenience activities or comparison
activities. Which of the following is an example of a comparison activity?
A. Supermarket
B. Coffee boutique
C. Fast-food restaurant
D. Apparel store
In an indexed lease, rents are dependent on a regularly reported index, most commonly
the consumer price index (CPI). By using the CPI as an index rate, the risk of
unexpected increases in general inflation is shifted to the __________, and therefore a
_________ base rental rate will typically be required.
A. Owner; higher
B. Owner; lower
C. Tenant; higher
D. Tenant; lower
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
While net present value (NPV) and internal rate of return (IRR) analysis both may be
used as investment decision criteria, there are some limitations to the IRR method that
make its use as an investment criterion problematic in certain situations. All of the
following are limitations of the IRR method EXCEPT:
A. IRR calculations assume that cash flows are reinvested at the IRR, rather than at the
actual rate that investors expected to earn on reinvested cash flows.
B. With the IRR decision criterion multiple solutions may exist for investments where
the sign of the cash flows changes more than once over the expected holding period.
C. The IRR methodology cannot be used to make comparisons across different
investment opportunities.
D. The use of IRR as a decision criterion will not necessarily result in wealth
maximization for the investor.
Primarily through land use controls and property tax policy, which of the following
branches of government has the largest influence on real estate values?
A. Local government
B. State government
C. National government
D. Foreign government
The Federal Housing Administration (FHA) insures loans made by private lenders that
meet FHA’s property and credit-risk standards. Which of the following statements
concerning FHA insurance is true?
A. The insurance is paid by the lender and protects the lender against loss due to
borrower default.
B. The insurance is paid by the borrower and protects the lender against loss due to
borrower default.
C. The insurance is paid by the lender and protects the borrower against loss due to
lender default.
D. The insurance is paid by the borrower and protects the borrower against loss due to
lender default.
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
Professor James Graaskamp often asserted that when one buys real estate, what one is
buying is a set of assumptions about the future. Therefore, it is not surprising that the
beginning point of the market research process is to:
A. collect relevant data to examine the market and test initial definitions
B. evaluate the results of market analysis
C. construct a market-defining ‘story”
D. refine market definitions and collect additional data
Suppose that a developer pre-leases space to a financially strong, national tenant such
as Home Depot, without having yet built the structure in which they will be leasing
space. This is more commonly referred to as a:
A. ground lease
B. build-to-suit
C. design-build
D. contract for deed
When fully amortizing loans call for equal periodic payments over the life of the loan
they are known as:
A. level-payment mortgages
B. adjustable-rate mortgages
C. interest-only mortgages
D. early-payment mortgages
Recently, mortgage banking has become the natural method for doing mortgage
lending. Within the mortgage lending process, which of the following roles serves as
the primary revenue source for mortgage banks?
A. Loan commitment
B. Loan funding
C. Loan servicing
D. Loan sales
If a homeowner in mortgage distress owes more than the value of the home, and is
unable make the loan manageable by refinancing or modifying the mortgage, the next
recourse often is a short sale of the property. All of the following statements are true
regarding a short sale EXCEPT:
A. Legal costs should be lower with a short sale than with foreclosure
B. A short sale usually enables a better sale price and a faster sale than foreclosure
C. A short sale is less damaging to the borrower’s credit than a foreclosure, thereby
enabling the borrower to be eligible for another mortgage loan sooner
D. A short sale relieves the seller of any other outstanding obligations on the home,
such as owner association fees or a second mortgage.
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
Leases are considered the engines that drive property values. Therefore, it should not be
surprising that owners of commercial property may seek an independent leasing broker
to focus on finding tenants to lease space. In exchange for their services, leasing
brokers are paid a commission based on what percentage of the face amount of the
lease?
A. 0.5 to 1.5%
B. 3 to 5%
C. 7 to 10%
D. 15 to 20%
Given the following information regarding an income producing property, determine
the after tax net present value (NPV). Expected Holding Period: 5 years; 1st year
Expected BTCF: $30,656; 2nd year Expected BTCF: $33,329; 3rd year Expected BTCF:
$36,082; 4th year Expected BTCF: $38,918; 5th year Expected BTCF: $41,839; 1st year
Expected Tax Liability: $7,645; 2nd year Expected Tax Liability: $8,658; 3rd year
Expected Tax Liability: $9,708; 4th year Expected Tax Liability: $10,798; 5th year
Expected Tax Liability: $6,951; Estimated
Before Tax Equity Reversion at end of year 5: $343,674; Expected Taxes Due on Sale at
end of year 5: $32,032; Required equity investment: $241,163; After Tax Opportunity
Cost: 11.2%
A. -$40,858
B. -$91,785
C. $40,858
D. $91,785
Which of the following tools of public land use control represents the earliest method of
police power to regulate land use? (Hint: Standards for energy efficiency and
sustainability are the most recent trends in the application of this land use control)
A. Subdivision regulation
B. Zoning
C. Building Codes
D. Planned Unit Developments
The going-in capitalization rate can vary significantly by property quality. Which of the
following classes of properties within a particular property type would be expected to
have the highest cap rates?
A. Class A properties
B. Class B properties
C. Class C properties
D. Cap rates would be equal across all classes within the same property type
According to the bid-rent model, which of the following changes in the model’s
underlying assumptions would most likely result in a decrease in rents for properties
closest to the central business district (CBD)?
A. An increase in an individual’s hourly wage
B. An increase in the average traveling speed of the individual’s commute
C. An increase in the number of households attempting to live in the area
D. An increase in the number of days an individual must commute to work
Real estate taxes represent the largest single source of revenue for a large portion of
local governments. Most property taxes are applied in relation to the value of the
property, or in other words, they are:
A. effective tax rates
B. ad valorem taxes
C. tax-exempt
D. regressive
At the end of 2011, commercial banks and other financial institutions collectively
owned $51 billion in commercial real estate equity. The vast majority of these holding
are the result of which of the following types of investment by these institutions?
A. Direct equity investment through private market purchases
B. Indirect investment through real estate securities
C. Commingled real estate funds
D. Real estate obtained as a result of borrower default and foreclosure.
Since investors prefer to have money now rather than later, money received next week,
instead of today, is not worth as much to those receiving it, assuming the magnitude of
the cash flow in each period is the same. Therefore an adjustment to the prospective
cash flows is required. This process is referred to as:
A. compounding
B. discounting
C. amortizing
D. hedging
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
Restrictive covenants impose constraints on the use of the land, yet are limited in terms
of their enforcement. All of the following are true regarding the enforcement of
restrictive covenants EXCEPT:
A. Courts have been reluctant to maintain restrictive covenants for an unreasonably
long time and in some cases states have enacted a time limit on their applicability.
B. Courts may refuse to enforce restrictive covenants due to changing neighborhood
character.
C. Courts may refuse to enforce restrictive covenants due to abandonment of the
property.
D. Restrictive covenants are public in nature and therefore can be enforced by those
who do not hold a legal interest in the property.
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
At the death of a property owner, property will convey either in accordance with a will
or without a will. If a will dictates the distribution of the decedent’s real property, the
property is
said to be:
A. patented
B. devised
C. conveyed by the law of descent
D. dedicated
Jim has hired a real estate broker to help facilitate the sale of his home. If the broker
requires a commission of 6%, how much will Jim clear from the sale (after the
commission has been paid) if he is able to sell his house for $478,723 (Assume that Jim
has already paid off his mortgage)?
A. $424,528
B. $450,000
C. $478,723
D. $507,446