Given the following information, calculate the depreciation allowance for year 1.
Depreciable Basis: $200,000, Declining Balance Depreciation: 175%, Cost Recovery
Period: 27 years.
A. $3,704
B. $6,481
C. $7,407
D. $12,963
Suppose you plan to put a 20% down payment on a house and obtain a mortgage loan
that is less than the size limit on conforming loans ($417,000) to finance the remainder
of the purchase. Based on your understanding of the loan-to-value ratio, what is the
maximum price that you could pay for a home with these restrictions in mind?
A. $333,600
B. $500,400
C. $521,250
D. $2,085,000
Recording documents in the public records informs anyone who may have a potential
interest in a property of both the owner and lender. In so doing, it provides what is
commonlyreferred to as ____________ of an interest in real property.
A. mutual assent
B. constructive notice
C. consideration
D. simultaneous issue
An owner whose property is in a strong market position, where fewer services can be
offered to tenants for the same dollar of rental income and where the owner will not
lose tenants if the property is undermaintained, is said to participate in a market that
has:
A. a relatively elastic demand for space
B. a relatively inelastic demand for space
C. economies of scale
D. diseconomies of scale
Given the following information, calculate the appropriate going-in cap rate using
general constant-growth formula. Overall market discount rate = 12%, Constant growth
rate projection: 3% per year, Sale price: $1,950,000, Net operating income: $390,000,
Potential gross income: $520,000.
A. 8%
B. 9%
C. 10%
D. 11.5%
Survey research has been applied to real estate markets at many levels. Despite its
frequent application, analysts must be cautious with survey use because:
A. it is difficult to implement
B. interviews and questionnaires are not received well by consumers
C. it cannot be used in a small sample area
D. it can be fraught with abortive errors
Given the following information, calculate the estimated terminal value of the property
at the end of its holding period. Going-out cap rate: 9%, Estimated holding period: 5
years, NOI for year 5: $100,500, NOI for year 6: $102,000.
A. $1,113,333
B. $1,116,667
C. $1,133,333
D. $1,166,667
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%
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
Required by the Truth-in-Lending Act, the annual percentage rate (APR) is reported by
the lender to the borrower on virtually all U.S. home mortgage loans. The APR
accounts for all of the following EXCEPT:
A. All finance charges in connection with the loan, such as discount points, origination
fees, and underwriting fees.
B. All compensation to the originating brokers if one was used by the borrower.
C. Any prepayment of principal to be made on the loan.
D. Premiums for required forms of insurance
Assuming that an investor requires a 10% annual yield over the next 12 years, how
much would she be willing to pay for the right to receive $20,000 at the end of year 12?
A. $6,053.91
B. $6,372.62
C. $62,768.57
D. $136,273.84
Different financing requirements usually are involved in the various phases of a
property’s life. Which of the following types of loans is used to finance improvements
to the land, such as sewers, streets and utilities?
A. Land acquisition loans
B. Land development loans
C. Construction loans
D. Bridge loans
In contrast to maintenance and repair expenditures, which are operating expenses,
theimprovement decision generally involves a capital expenditure meant to increase the
value of the structure. Which of the following classifications of improvements calls for
the restoration of a property to satisfactory condition without changing the floor plan,
form, or style of the structure?
A. Rehabilitation
B. Remodeling
C. Adaptive reuse
D. Conversion
The use of mortgage debt to finance an income property investment has certain tax
consequences. For example, up-front financing costs for investment properties are not
fully deductible in the year in which they are paid. Instead, they must be amortized over
the life of the loan. If up-front financing costs on a 30-year loan total $6,000, what is
the maximum amount per year that the investor can deduct when calculating taxable
income from rental operations? (Assume that there is no prepayment on the loan)
A. $100
B. $200
C. $2,400
D. $6,000
Given the following information, calculate the effective gross income multiplier for the
specific investment. Effective gross income: $49,500, First-year NOI: $18,750,
Acquisition price: $520,000, Equity Investment: 20%.
A. 0.036
B. 0.095
C. 10.5
D. 27.7
The distinction between market rent and contract rent is important due to differences in
lease terms. Office, retail, and industrial tenants most commonly occupy their space
under leases that run:
A. one year or less
B. one to three years
C. three to five years
D. ten years or more
In a fixed-term, level-payment reverse mortgage, sometimes called a reverse annuity
mortgage, or RAM, a lender agrees to pay the homeowner a monthly payment, or
annuity, and expects to be repaid from the homeowner’s equity when he or she sells the
home or obtains other financing to pay off the RAM. Consider a household that owns a
$150,000 home free
and clear of mortgage debt. The RAM lender agrees to a $100,000 RAM for 10 years at
6 percent. Assume payments are made annually, at the beginning of each year to the
homeowner. Calculate the annual payment on the RAM.
A. $7,157.35
B. $7,586.80
C. $12,817.73
D. $13,586.80
Accelerated methods of depreciation result in greater depreciation allowances than
straight-line depreciation in the early years of the depreciation schedule. Suppose a
personal property is eligible for a three-year cost recovery period and can be
depreciated using 200 percent declining balance depreciation. Calculate the accelerated
depreciation rate in the first year.
A. 14.28%
B. 28.57%
C. 33.33%
D. 66.66%
A popular adage in real estate is that property value is all about “location, location,
location.” However, for most property types in nonresidential realms, nonlocational
requirements are equally or even more important. All of the following are examples of
nonlocational factors EXCEPT:
A. Floor plate size
B. Amount of parking
C. Nature of current tenants
D. Proximity to modes of public transportation
The required rate of return that an individual demands on a real estate investment is
determined in the:
A. user market
B. capital market
C. government
D. local market
After construction has been completed, a developer may decide to seek additional
financing. If current interest rates are relatively high, but the developer expects them to
decline in the near future, the developer would most likely seek financing in the form of
a:
A. subordination agreement
B. miniperm loan
C. take-out commitment loan
D. floor loan
Real estate market research is an important process used by analysts to facilitate a better
understanding of a property’s future profit potential. All of the following statements
regarding market research are true EXCEPT:
A. Real estate market research should always be flexible since the research depends
directly on the problem at hand.
B. Market research consists of a series of facts that fails to consider the role of investor
behavior in the decision-making process.
C. Most important data for a given market study often is not publicly available.
D. Market research should focus specifically on market segments for the property
involved, rather than on the aggregate real estate market.
Unlike many publicly traded stock and bond investments, commercial real estate
investments:
A. can be bought and sold in highly liquid markets.
B. yield maximized returns when assets are held for short periods of time.
C. yield returns generated mostly from the asset’s net operating income, rather than
price appreciation.
D. have going-in and going-out transaction costs that are low (as a proportion of asset
value).
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.
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
Given the following information, calculate the operating expense ratio for this property.
Potential gross income: $120,000, Vacancy rate: 9%, Net operating income: $57,900,
Operating expenses: $51,300.
A. 34%
B. 43%
C. 47%
D. 53%
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
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
The sequence of adjustments to the transaction price of a comparable property would
make no difference if all adjustments were dollar adjustments. However, if percentage
adjustments are involved then the sequence does matter. In making adjustments to a
comparable property to arrive at a final adjusted sales price, the proper sequence for the
following adjustments would be:
A. Financing terms, market conditions, location.
B. Location, market conditions, financing terms.
C. Market conditions, location, financing terms.
D. Location, financing terms, market conditions.
Direct investment in private commercial real estate markets is a preferred means of
ownership for the largest institutional market participants. Which of the following types
of institutions rely on stable income from commercial real estate properties to pay out
retirement benefits?
A. Pension funds
B. Life insurance companies
C. Commercial Banks
D. Investment Banks
The expected stream of rental income is capitalized into value by converting expected
future cash flows into present value through a process called:
A. amortization
B. discounting
C. compounding
D. accounting
In efficient financial markets, unregulated competitive bidding should bring about the
most productive use of an asset and the price paid for that asset should reflect fair value
based on its usefulness. In real estate, this is not always the case. For example, there is
no substitute for certain pieces of land which gives the owner a bargaining advantage in
determining the value of the land. This feature of real estate markets is commonly
referred to as:
A. incomplete information
B. locational monopoly
C. positive externality
D. negative externality
In recent years, many U.S. investors have expanded their purchases of real estate into
foreign countries, and many foreign investors have held interests in U.S. real estate.
This is an example of what is commonly referred to as ________________ of real
estate markets.
A. deregulation
B. globalization
C. disintermediation
D. industrialization
An easement is the right to use land for a specific and limited purpose. Which of the
following easements involves a relationship between two parcels of land, is a
permanent feature of both parcels involved, and gives the dominant parcel some
intrusive use of the servient parcel?
A. Affirmative easement appurtenant
B. Negative easement appurtenant
C. Easement in gross
D. License
The covenants in a deed are the most important differences among types of deeds.
Which of the following covenants promises that the grantor truly has good title and the
right to convey it?
A. Covenant of seizin
B. Covenant against encumbrances
C. Covenant of quiet enjoyment
D. Exceptions and reservation clause