FE 67060 | Course Paper

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When employing the sales comparison approach, appraisers must consider numerous

adjustments to convert each comparable sale transaction into an approximation of the

subject property. Adjustments are divided into two groups: transactional adjustments

and property adjustments. All of the following are transactional adjustments EXCEPT:

A. Financing terms

B. Market conditions

C. Conditions of Sale

D. Location

A new faculty member at the local university pays $1500 per month to rent an

apartment in the downtown area. She teaches on campus 3 days a week and works from

home the remaining 2 days. On the days in which she must commute, given the heavy

traffic congestion, it takes her 2 hours to commute from downtown to campus.

According to the assumptions of the bid-rent model, what should this professor be

willing to pay in rent per month to live near campus if her hourly wage rate is $25? (In

your calculations, assume there are 4 weeks in a given month)

A. $1200

B. $1500

C. $2100

D. $2700

While a variety of loan terms are available in a lender’s mortgage menu, the most

common loan term on a level-payment mortgage is:

A. 7 years

B. 15 years

C. 30 years

D. 40 years

The development of Fannie Mae and Freddie Mac established the framework for a

liquid secondary market for residential mortgages. In 2010, the share of all residential

mortgage loans owned or securitized by Fannie Mae and Freddie Mac approached

approximately:

A. 5%

B. 16%

C. 44%

D. 76%

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

All of the following statements are true in describing the determination of just

compensation EXCEPT:

A. The value of the property is based on its highest and best use at the time.

B. The value of the property is determined solely by its current use.

C. The value is the amount that restores the property owner to a financial position

equivalent to that existing before the property was taken.

D. The value is the market value of the property if completely taken, or the total value

of all financial loss if partially taken.

Modern real estate brokerage normally relies on a multiple listing service (MLS)

through which brokers have access to each other’s listings. Which of the following

types of agency agreements is established with the use of a MLS?

A. Single agency agreement

B. Subagency agreement

C. Dual agency agreement

D. Designated agent agreement

Given the following information, calculate the debt coverage ratio of this commercial

loan. Estimated net operating income (NOI) in the first year: $150,000, Debt service in

the first year: $100,000, Loan amount: $1,000,000, Purchase price: $1,300,000

A. 0.15

B. 0.67

C. 1.30

D. 1.50

When property managers are looking to secure a mix of tenants for which “the whole is

greater than the sum of its parts,” or in other words a group of tenants that shares

similar characteristics such that the experience of living together is mutually beneficial,

they are seeking what is referred to as:

A. permanence potential

B. synergism

C. rehabilitation

D. adaptive reuse

Suppose an institution has purchased a $250,000 mortgage loan from the loan originator

and wishes to create a mortgage pass-through security. In doing so, this institution will

generate revenue by charging a servicing fee of 35 basis points. If the monthly

mortgage payment on the loan is $1,250, how much income is passed through to the

investor in the mortgage pass through each month (rounded to the nearest dollar)?

A. $73

B. $375

C. $875

D. $1177

Given the following information, calculate the price-FFO multiple for the following

REIT. Funds from Operation: $4,000,000; Stock Price: $40; Shares Outstanding:

1,000,000

A. 0.10

B. 0.25

C. 4.00

D. 10.00

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

Assuming all else the same, the ___________ of an annuity due will be

_____________ that of an ordinary annuity.

A. future value; greater than

B. present value; equal to

C. future value; less than

D. present value; less than

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

Section 1031 of the Internal Revenue Code permits investors to defer some or all of the

taxable gain that would ordinarily be due on the sale of a property if they exchange for

“like-kind” property. In order to avoid income taxes, many investors attempted to make

use of this tax code when disposing of commercial real estate assets. This led to the

reemergence of which of the following forms of ownership in commercial real estate?

A. General Partnership

B. Limited Liability Company

C. Tenancy-in-common

D. Limited Partnership

The rental income generated by a lease can depend significantly on the proportion of

property-level operating expenses paid by the tenant. In which of the following types of

leases is the tenant responsible for all operating expenses?

A. Gross lease

B. Net lease

C. Net-net lease

D. Triple net lease

Unlike other forms of evidence of title, title insurance guards the grantee against certain

risks. However, there are a number of important limits to title insurance. Which of the

following is an example of the limits to title insurance?

A. It does not protect the grantee from the threat of physical damage to the property.

B. It does not protect a grantee against the legal costs of defending the title

C. It does not protect a grantee against loss of the property in case of an unsuccessful

title defense.

D. It does not protect against legal attack on the owner’s title arising from a claim that

diminishes the owner’s rights of use.

At the conclusion of the traditional sales comparison approach to valuation, the

appraiser evaluates and reconciles the final adjusted sale prices into a single value for

the subject property. This single value is commonly referred to as:

A. indicated value

B. investment value

C. transaction value

D. replacement value

Profitability ratios, income multipliers, and financial risk ratios can be used to provide a

quick assessment of a property’s relative value. Which of the following ratios measures

the overall income-producing ability of the property?

A. Capitalization rate

B. Equity dividend rate

C. Debt coverage ratio

D. Operating expense ratio

Despite the magnitude of their real estate holdings, many non-real estate corporations

have historically expended little effort to manage these assets effectively. Recently, the

development of which of the following markets has helped to quell concerns related to

this issue?

A. Commercial mortgage backed securities (CMBS)

B. Sale-leaseback

C. Tenancy-in-common (TIC)

D. Installment sale

Partially amortizing mortgage loans require periodic payments of principal, but are not

paid off completely over the loan’s term to maturity. Instead, the balance of the principal

amount is paid at maturity in what is commonly referred to as a:

A. balloon payment

B. early payment

C. up-front payment

D. payment cap

In discounted cash flow analysis, the industry standard for pro forma cash flow

projections of investment properties is typically:

A. 3 years

B. 5 years

C. 10 years

D. 15 years

In the initial round of market analysis, analysts will attempt to provide key numbers that

characterize the current condition and trend in the market. For rental retail space, the

key market parameters in question would most likely include all of the following

EXCEPT:

A. Projected occupancy growth

B. Projected rental rate growth

C. Current vacancy levels

D. Projected sales rates

In dual agency, conflicts of interest may arise since a single broker has both the listing

contract with the seller and a buyer agency agreement with the purchaser. One way that

states have attempted to deal with this issue is to develop a new type of brokerage

relationship in which the broker assists the buyer and seller, but does not represent

either party. This type of brokerage relationship is commonly referred to as:

A. unintended dual agency

B. universal agency

C. transaction brokerage

D. multiple listing

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

Newer industrial parks have begun to specialize in providing space that can be

configured to suit the diverse needs of various tenants. This type of industrial space is

more commonly referred to as:

A. Warehouse

B. Plant and Factory

C. Flex space

D. Research and Development

For smaller income-producing properties, appraisers may use the ratio of a property’s

selling price to its effective gross income. This is an example of a:

A. Net operating income

B. Going-out cap rate

C. Going-in cap rate

D. Gross income multiplier

Which of these is most likely to be regarded as a capital expenditure rather than an

operating expense?

A. Property taxes

B. Trash removal

C. Insurance payments

D. Roof replacement

To put into perspective the amount of residential mortgage debt outstanding, it is useful

to compare this market to other prominent sources of available debt. Listing the issuer

with the largest amount of debt outstanding first, which of the following choices best

depicts the relative rank ordering amongst the major sources of outstanding debt in the

U.S. as of the end of 2011?

A. Residential mortgage debt, marketable U.S. government bonds, corporate bonds,

consumer debt

B. Marketable U.S. government bonds, residential mortgage debt, corporate bonds,

consumer debt

C. Corporate bonds, marketable U.S. government bonds, residential mortgage debt,

consumer debt

D. Consumer debt, residential mortgage debt, marketable U.S. government bonds,

corporate bonds

The large and generally well-known retailers who draw the majority of customers to a

shopping center are more commonly referred to as:

A. Outlets

B. Anchors

C. Strips

D. Chains

In the modern framework of home mortgage lending, there are four channels by which

first mortgage home loans are created. Within which of the following channels would

you typically find a Wall Street investment bank obtaining loans, pooling loans, and

creating a senior-subordinate security structure?

A. Traditional direct (portfolio) lending

B. FHA/VA loan securitization

C. Conforming conventional loan securitization

D. Nonconforming Conventional loan securitization

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

A primary determinant of the feasibility of new construction is the relationship between

the current level of property prices and the cost of new construction. We would expect

the supply of properties to:

A. increase if current property values are greater than the cost of construction

B. decrease if current property values are greater than the cost of construction

C. increase if current property values equal the cost of construction

D. decrease if current property values equal the cost of construction

Suppose that a landlord is interested in renting out a two-bedroom apartment for $1000

a month for the next year. The landlord requires rent to be paid at the beginning of the

month, at which point he will deposit the rental check into a local savings account. If

the annual interest that the tenant can earn on this account is 5% and interest is

compounded monthly, how much will the tenant have in his savings account at the end

of the year?

A. $12,278.86

B. $12,330.01

C. $13,330.02

D. $15,917.13

The size of a single family residential lot is typically:

A. less than one acre

B. between one and two acres

C. between two and three acres

D. greater than three acres