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
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
A significant number of mortgage loans use adjustable interest rates, in which the
interest rate of the loan is tied to an index rate that fluctuates over time. For
income-producing property, the most common index rate is the:
A.one-year U.S. Treasury constant maturity rate
B.prime rate
C.London Interbank Offered Rate (LIBOR)
D.cost-of-funds index
In more complex development projects, a developer may choose to combine the roles of
the architect and general contractor into one in order to mitigate design-cost conflicts
that otherwise must be negotiated when plans are revised. This arrangement is more
commonly referred to as a:
A.build-to-suit
B.subordination agreement
C.design-build
D.fast-track
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.floating rate
B.teaser rate
C.index rate
D.discount rate
The successful conveyance of real estate depends on a well-formed contract for sale
since the contract dictates the rights and type of deed involved, as well as choreographs
the entire transaction. Which of the following features of the contract for sale refers to
the arrangements agreed to by the parties, such as price and date of closing?
A.Contract terms
B.Contract conditions
C.Equitable title
D.Contract with contingencies
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
Adjustments for physical characteristics are intended to capture the dimensions in
which a comparable property differs physically from the subject property. If the only
physical difference between the subject property and the comparable is that the
comparable does not have a fireplace, which of the following adjustments should take
place?
A.The transaction price of the comparable property should be adjusted downward.
B.The transaction price of the comparable property should be adjusted upward.
C.The transaction price of the comparable property should not be adjusted.
D.There is no way to estimate the price of the subject property.
Given the following information, calculate the net operating income assuming
below-line treatment. Property: 4 office units, Contract Rents per unit: $2500 per
month, Vacancy and collection losses: 15%, Operating Expenses: $42,000, Capital
Expenditures: 10%:
A.$48,000
B.$60,000
C.$95,000
D.$102,000
With respect to bearing the risk of future property price fluctuations, which of the
following lending relationships is viewed as the most risky from the borrower’s
perspective?
A.Straight debt
B.Joint venture
C.Land sale-leaseback
D.Complete sale-leaseback
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
Which of the following measures is considered the fundamental determinate of market
value for income-producing properties?
A.Net operating income
B.Potential gross income
C.Operating expenses
D.Capital expenditures
Distinguishing between the four categories of real estate for federal tax purposes can be
misleading at times. Which of the following categories includes properties that are held
primarily for capital appreciation?
A.Personal residence
B.Dealer property
C.Trade or business property
D.Investment property
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
In contrast to conventional home loans, the interest-only balloon loan requires the
borrower to pay off the loan with a “balloon” payment equal to the original balance
after:
A.1-5 years
B.5-7 years
C.7-15 years
D.15-30 years
In retail property types, rents are quoted on the basis of which of the following?
A.Usable area
B.Gross floor area
C.Gross leasable area
D.Rentable area
While predicting real estate cycles is difficult, a key indicator used to evaluate where a
property is within the cycle is:
A.the level of household income
B.the form of land use
C.the size of the property
D.the number of building permits issued
Growth management laws at the state level require local jurisdictions to plan for and
meet certain requirements. One such requirement prohibits local development unless
adequate infrastructure, schools, police/fire protection, and social services have been
put in place first. This requirement is referred to as the:
A.economic and environmental impact requirement
B.concurrency requirement
C.affordable housing requirement
D.extraterritorial jurisdiction requirement
An investor agreed to sell a warehouse 5 years from now to the tenant who currently
rents the space. The tenant will continue to pay $20,000 rent at the beginning of each
year including year five in which he will purchase the building for an additional
$150,000. Assuming the investor’s required rate of return is 10%, how much is this deal
presently worth to the investor who was willing to sell?
A.$168,953.93
B.$241, 451.07
C.$363,678.50
D.$1,032,475.67
Nonposessory interests (i.e. bundles of real property rights that do not include
possession) include all of the following EXCEPT:
A.leasehold interests
B.easements
C.restrictive covenants
D.liens
Congressional legislation has repeatedly altered the period of time over which rental
real estate may be depreciated. Currently, residential income producing property (e.g.
apartments) may be depreciated over no less than:
A.3 years
B.7 years
C.15 years
D.27 years
Development taking place in rural areas well beyond the urban fringe is commonly
referred to as:
A.urban sprawl
B.holdout
C.urban service areas
D.homestead
The internal rate of return (IRR) on a proposed investment is the discount rate that
makes the net present value of the investment:
A.greater than zero
B.equal to zero
C.less than zero
D.greater than the opportunity cost of not investing
Retail establishments are found in a variety of forms, the simplest of which is: (Hint:
fast-food franchise)
A.Freestanding retail outlet
B.Strip center
C.Power center
D.Regional mall
While most property taxes are levied in order to finance services that benefit the
community, special assessments are levied to pay for specific improvements that benefit
a particular group of properties. All of the following characteristics of special
assessments are true EXCEPT:
A.They are considered ad valorem taxes.
B.They are applied as pro rata charges.
C.They are levied directly on the properties benefited.
D.They are commonly used to finance streets, storm water systems, sidewalks, and
other area improvements.
Maintenance and repair of a property is an ongoing process that can be divided into four
principal categories. Which of the following classifications includes ordinary repairs to
a building on a day-to-day basis (e.g. repairing a broken window, fixing a leaking roof)?
A.Custodial maintenance
B.Corrective maintenance
C.Preventive maintenance
D.Deferred maintenance
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
Helpful in assessing the risk of lending to investors for particular projects, which of the
following calculations measures the income-producing ability of the property to meet
operating and financial obligations?
A.Profitability ratios
B.Income multipliers
C.Financial risk ratios
D.Income tax multipliers
When a landowner subdivides land in a way that causes a parcel to be landlocked, it is
possible for property to be voluntarily conveyed without a deed. If the landlocked
parcel has no prior path of access, which of the following types of easements will
automatically be created to make the land useful?
A.Easement by prior use
B.Easement of necessity
C.Easement by estoppel
D.Dedication
Net operating income is similar to which of the following measures of cash flow in
corporate finance?
A.Dividend yield
B.Earnings before deductions for interest, depreciation, income taxes, and amortization
(EBIDTA)
C.Price-earnings ratio
D.Discount rate
Given the following information, compute the taxable value for the particular piece of
property in dollar terms. Market value of property: $500,000, Assessed value of
property: 85 % of the market value of the property, Exemptions: $50,000, Taxes paid:
$8,250.
A.$75,000
B.$375,000
C.$416,750
D.$425,000
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
Mortgage insurance rates vary with the perceived riskiness of the loan. Which of the
following scenarios would result in a higher mortgage insurance premium?
A.Lower loan-to-value ratio
B.Shorter loan term
C.Stronger credit record of the borrower
D.A “cash-out” refinancing loan
Which of the following clauses contained in a deed defines or limits the type of interest
being conveyed?
A.Recital of consideration
B.Words of conveyance
C.Covenant
D.Habendum clause