FIN 25730 | Course Paper

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As with any valid contract, enforceable leases must meet a number of requirements.

One of these requirements is for each party to provide appropriate consideration. In a

lease, which of the following constitutes the landlord’s consideration?

A.Promise to pay rent

B.Passing on legal title to the property

C.Permission to occupy the space or property

D.Commission to the leasing agent

The loan-to-value ratio measures the percentage of the acquisition price (or current

market value) encumbered by debt. To protect their invested capital in the event that

property values do fall, commercial mortgage lenders generally require that the senior

mortgage not exceed approximately what percentage of the acquisition costs?

A.60%

B.70%

C.80%

D.90%

Most appraisers adhere to an “above-line” treatment of capital expenditures. This

implies which of the following?

A.Capital expenditures are subtracted in the calculation of net operating income.

B.Capital expenditures are subtracted from net operating income to obtain a net cash

flow measure.

C.Capital expenditures are added to net operating income.

D.Capital expenditures are excluded from all calculations because they are difficult to

estimate.

The use of financial leverage when investing in real estate is a double-edged sword.

While increased leverage may allow the investor to “purchase” higher expected returns,

the “price” of doing so is an increase in which of the following risks?

A.Liquidity risk

B.Default risk

C.Interest rate risk

D.Pipeline risk

Favorable mortgage financing may have a significant impact on the transaction price of

the particular property. If the comparable property was known to have had favorable

financing terms negotiated into the transaction price, which of the following

adjustments should take place? (Note: Assume that the comparable property cannot be

dropped from the analysis as there are already limited comparable sales transactions)

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.

Concerned with a potential information asymmetry problem, state legislators have been

proactive in passing legislation that protects the rights and interests of tenants within

which of the following property types?

A.Office

B.Retail

C.Industrial

D.Apartment

Mortgage originators can either hold loans in their portfolios or sell them to investors.

When a mortgage originator decides to sell mortgages to an institution, for example,

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

Real estate is property, which can be either a tangible or an intangible asset. Which of

the following would be considered an intangible asset?

A.Land

B.Building

C.Mortgage

D.Motor home

Development of subdivisions, apartments, offices, or other commercial structures can

have a lead time of two years or more. In general, the longer the construction lead time:

A.the lower the construction cost

B.the greater the supply of units

C.the lower the market value

D.the greater the amplitude of real estate cycles

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

When viewed as a tangible asset, real estate can be defined as the land and its

permanent improvements. Improvements on the land include:

A.fences

B.walkways

C.sewer systems

D.streets

In determining the appropriate listing contract to be used, it is important to know

whether a multiple listing service (MLS) will be employed. A MLS only accepts which

of the following types of listing contracts?

A.Open listing

B.Multiple listing

C.Exclusive agency listing

D.Exclusive right of sale listing

In a mortgage agreement, the borrower conveys to the lender a security interest in the

mortgage property. The lender, i.e. the individual who receives the mortgage claim, is

known as the:

A.broker

B.mortgagor

C.agent

D.mortgagee

The syndication agreement generally creates a principal/agent relationship in which the

syndicator (agent) is empowered to act on behalf of the investors (principals). In most

principal/agent relationships, there is the concern that the agent will act in the agent’s

best interest, not in the best interests of the principal. This issue is more commonly

referred to as:

A.adverse selection

B.moral hazard

C.dual agency

D.signaling

While there are several conventional approaches used to estimate the market value of

real estate, which of the following is typically considered the most reliable approach?

A.Income approach

B.Sales comparison approach

C.Cost approach

D.Investment approach

While leasehold interests are considered estates, they differ from freehold estates in all

of the following respects EXCEPT:

A.leasehold estates are limited in time.

B.the right of disposition is diminished with a leasehold estate.

C.leasehold estates are not titled interests.

D.leasehold estates are possessory interests.

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

Given the following information, calculate the overall capitalization rate. Sale price:

$950,000, Potential Gross Income: $250,000, Vacancy and Collection Losses: $50,000,

and Operating Expenses: $50,000.

A.15.8%

B.21.1%

C.26.3%

D.36.8%

In considering a three-year-one-year adjustable-rate mortgage (ARM), the interest rate

will be fixed for how many years?

A.One year

B.Two years

C.Three years

D.Four years

A deed is a special form of written contract used to convey a permanent interest in real

property. Unlike most contracts, a deed requires:

A.both parties to be legally competent and of legal majority age.

B.only the grantee to be legally competent and of legal majority age.

C.only the grantor to be legally competent and of legal majority age.

D.both parties to make promises to perform.

Given the following information, calculate the balloon payment for a partially

amortized mortgage. Loan amount: $84,000, Term to maturity: 7 years, Amortization

Term: 30 years, Interest rate: 4.5%, Monthly Payment: $425.62.

A.$9,458

B.$30,620

C.$73,103

D.$84,000

While fee splitting between cooperating real estate brokers is permitted, RESPA

explicitly prohibits such actions as rebating part of the title insurance premium to the

lender who recommended or required the title insurance. These unearned fees are

commonly referred to as:

A.commissions

B.kickbacks

C.damages

D.specific performance dues

One of the most important requirements of a land description is for it to be

unambiguous. Which of the following methods of property description is the most

unambiguous and is appropriate for use in legal documents?

A.Street Address

B.Tax parcel number

C.Reference to prominent features of the land (e.g. monuments, river banks, roads)

D.Metes and bounds

Ownership forms for pooled equity investment can differ in terms of how the entity’s

cash flows are distributed to its investors. Which of the following ownership structures

requires cash flows to be allocated to each shareholder in proportion to his or her

ownership of the entity, thereby preventing special allocations to multiple classes of

investors?

A.Subchapter S Corporation

B.General Partnership

C.Limited Partnership

D.Limited Liability Company

Real estate asset managers perform certain functions that would not be expected of

asset managers who deal with stock and bond portfolios. Which of the following

functions would you expect both asset managers in real estate as well as stocks / bonds

to perform?

A.Find specific assets in which the owners/client can invest

B.Monitor asset performance

C.Negotiate the acquisition price of assets

D.Oversee due diligence and closing

The lease is a contract between the owner and the tenant that transfers exclusive use and

possession of the space to the tenant in return for rent or other consideration. In this

arrangement, the owner is referred to as the:

A.lessor

B.lessee

C.agent

D.benchmark

While the risks of construction lending may be less in a number of respects than those

associated with land acquisition, banks still require a premium in their lending rate as

compensation for the risks involved. For construction loans, banks typically require a

premium above LIBOR that ranges from:

A.0-50 basis points

B.50-150 basis points

C.150-250 basis points

D.250-350 basis points

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

All 50 states have licensing laws that regulate persons and companies that engage in the

brokerage business. Interpreting and enforcing state licensing laws falls under the

responsibilities of which of the following parties?

A.Broker

B.Real estate commission

C.National Association of Realtors

D.Salesperson

In discounted cash flow (DCF) analysis, the sale price of the property must be estimated

at the end of the expected holding period. The most common method for determining

the terminal value of the property is the:

A.yield capitalization method

B.direct capitalization method

C.repeat-sales approach

D.cost approach

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

The Real Estate Research Corporation (RERC) regularly surveys a sample of

institutional investors and managers in order to gain insight into the required returns

and risk adjustments used by industry professionals when making real estate

acquisitions. Most of the properties that RERC examines are large, relatively new,

located in major metropolitan areas and fully or substantially leased. These

classifications of properties are commonly referred to as:

A.investment grade properties

B.speculative grade properties

C.net-lease properties

D.industrial properties

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

When discussing time-value-of-money it is necessary to understand some key

terminology. Which of the following terms refers to a fixed amount of money paid or

received at the end of every period (i.e. a series of equal lump sums)?

A.Future value

B.Present value

C.Ordinary annuity

D.Annuity due