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In order for a deed to be a valid conveyance of property, there must be an observable,
verifiable transfer of the deed to the grantee. Typically this is accomplished when the
grantor hands the deed to the grantee at closing. Which of the following basic
requirements of a deed does this represent?
A. Acknowledgment
B. Delivery
C. Words of conveyance
D. Recital of consideration
The cap rate is an important metric that investors use to analyze the state of commercial
real estate markets. When interpreting cap rate movements, an increase in cap rates over
time would indicate that:
A. The discount rate used in TVM (time value of money) calculations has increased
B. The discount rate used in TVM (time value of money) calculations has decreased
C. Property values have increased
D. Property values have decreased
The traditional approach to loan underwriting has virtually been replaced by an
automated underwriting process that involves a statistically derived equation to
determine the level of default risk associated with a loan application. All of the
following statements regarding the automated underwriting process are true EXCEPT:
A. The marginal cost per loan underwritten using the automated process is greater than
the case of traditional underwriting.
B. The time taken to approve a loan using the automated process is considerably shorter
than the case of traditional underwriting
C. The success in identifying risky loans is higher using the automated process than is
the case with traditional underwriting
D. Automated underwriting has made home ownership available to households for
whom it previously was inaccessible.
The rate that is used to discount expected future cash flows can be thought of as the
return the investor is forgoing on an alternative investment of equal risk. In this
framework, the discount rate is being thought of as which of the following?
A. Net present value
B. Opportunity cost
C. Closing cost
D. Future value
An alternative vehicle for financing commercial property involves having the lender
acquire an ownership (equity) interest in the property by supplying a portion of the
required equity capital in addition to providing the permanent debt financing. This type
of financing arrangement is commonly referred to as a(n):
A. installment sale
B. joint venture
C. land sale-leaseback
D. complete sale-leaseback
The use of a mezzanine loan in the purchase of a commercial property has all of the
following impacts on the borrower EXCEPT:
A. Allows the borrower to increase their financial leverage in the purchase of the
property
B. Increases the borrower's expected first year return on equity
C. Mitigates the risk of financing for the borrower
D. Requires the borrower to pledge an equity interest in their company (e.g., LLC) as
collateral for the loan rather than pledging the property.
Given the following information, calculate the price-FFO multiple for the following
REIT. Net income: $1,200,000, Gain/losses from infrequent and unusual events: $0,
Amortization of tenant improvements: $120,000, Amortization of leasing expenses:
$75,000, Depreciation (real property): $2,675,000. Stock Price: $40; Market
Capitalization: $40,000,000
A. 0.10
B. 4.07
C. 9.83
D. 393.12
Of the $3.2 trillion in outstanding mortgage debt in the U.S., approximately 714% is
privately held by institutional and individual investors. Which of the following
institutions is the largest single source of private mortgage funds?
A. Savings institutions
B. Life insurance companies
C. Government Sponsored Enterprises
D. Commercial banks
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
Limited liability companies (LLCs) and limited partnerships are preferred to corporate
ownership structures because these forms of ownership allow investors to obtain limited
liability and avoid the double taxation faced by corporations. This tax benefit can be
extremely important as the maximum capital gain rate for corporations remains at (as of
2012):
A. 15%
B. 25%
C. 35%
D. 45%
The management agreement provides for a management fee that is usually in the range
of 3 to 6% of which of the following measures of property income?
A. Potential gross income
B. Effective gross income
C. Net operating income
D. Income tax liability
The demand for access between land uses is considered the "gravity" that holds a city
together. These relationships between land uses are commonly referred to as:
A. linkages
B. economic bases
C. local economic activities
D. economies of scale
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. margin rate
B. teaser rate
C. index rate
D. discount rate
In certain states, such as the state of Georgia, there is a temporary transfer of title to the
lender at the time the mortgage loan is made. The borrower then would obtain the rights
to the title once the loan has been repaid. These states are referred to as:
A. Title theory states
B. Lien theory states
C. Conforming states
D. Nonconforming states
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.
The national government can have a significant impact on the value of real estate
through:
A. property tax policy
B. income tax policy
C. building Codes
D. real estate licensing requirements
Computer software systems that enable one to manipulate and "map" information with
great flexibility and speed are referred to as:
A. geographical information systems (GIS)
B. psychographics
C. survey research
D. census mapping
Let's assume that you have just taken out a mortgage loan for $200,000 with an
origination fee of 2 points due upfront. The mortgage term is 30 years and the mortgage
rate is fixed at 4%. What is the cost of the origination fee in dollar terms?
A. $400.00
B. $954.83
C. $4000.00
D. $4954.83
In recent years, a number of pooled ownership structures have emerged that have
changed the analysis of ownership form selection for many investors. Which of the
following ownership structures is generally used for small, local investments that are
marketed to accredited, but non-institutional investors?
A. General partnership
B. Limited partnership
C. C corporation
D. Limited liability company
While it is often sufficient to rely on informal methods of estimating the market value
of real estate assets, the complexity and large dollar value of many real estate decisions
dictate that formal estimates based on methodical collection and analysis of relevant
market data should be utilized. The unbiased written estimate of the market value of a
property is
commonly referred to as a(n):
A. arm's length transaction
B. appraisal
C. property adjustment
D. reconciliation
An interest-only balloon mortgage loan is commonly referred to as a(n):
A. Mini-perm loan
B. Mezzanine loan
C. Land acquisition loan
D. Bullet loan
Suppose you have found a tenant who wishes to rent out your vacation home for the
next twelve months. You are charging $800 per month in rent. You will collect the first
rent payment today and then on the 1st of the month each month thereafter. What is the
value of this investment opportunity to you today if you could reinvest your income at
an annual rate of 3% with interest compounded on a monthly basis?
A. $7,963.20
B. $8,202.10
C. $9,445.80
D. $9,469.42
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
While college-level courses are not widely available, a number of professional and
trade organizations exist in the field of property management. Which of the following
certifications awarded by the Institute of Real Estate Management is aimed at
individuals who manage larger, residential, office, industrial, or retail properties?
A. Certified Property Manager (CPM)
B. Accredited Resident Manager (ARM)
C. Real Property Administrator (RPA)
D. Member of Appraisal Institute (MAI)
Given the following information, calculate the equity dividend rate for this investment.
First-year NOI: $18,750, Before-tax cash flow: $11,440, Acquisition price: $520,000,
Equity Investment: 20%.
A. 2.2%
B. 3.6%
C. 11.0%
D. 18.02%
The majority of residential units in the U.S. are contained in multifamily structures, or
apartment buildings that contain five or more housing units. Which of the following
multifamily structures will range in height from four to nine stories and are typically
found in both cities and suburbs?
A. High-rise apartment buildings
B. Midrise apartment buildings
C. Garden apartments
D. Condominiums
FHA mortgage insurance covers any lender loss after conveyance of title of the property
to the U.S. Department of Housing and Urban Development (HUD). FHA mortgage
insurance requires two premiums to be paid: the UFMIP (up-mortgage insurance
premium) and the MIP (monthly insurance premium). Currently, the UFMIP is what
percentage of the loan for normal loans used to purchase a personal residence?
A. 1.0%
B. 1.5%
C. 2.0%
D. 4.0%
Of the following choices, which best describes the operating expenses that you would
expect to be the paid by the tenant in a net lease agreement?
A. No operating expenses
B. Only property taxes
C. Both property taxes and insurance
D. All operating expenses
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
Traditional home mortgage underwriting is said to rest on three elements, the "three
C's." Recent research (e.g., Archer and Smith, 2011) has confirmed that the
underwriting characteristic most strongly associated with default is:
A. Collateral
B. Creditworthiness
C. Capacity
D. Capability
Since most real estate assets are depreciable, using accounting income to measure a
REIT's cash flow may actually understate the funds that are available to distribute to
investors as dividends. Therefore, REITs utilize a measure that adds back depreciation
and amortization expenses, more commonly referred to as:
A. Net income
B. Net asset value
C. Funds from operations
D. Effective gross income
Upon starting his first job after graduation, Jon has completed the necessary paperwork
to set up direct deposit of his paycheck into his savings account. After taxes, medical
benefits, and retirement account contributions have been taken out of John's gross
salary, he is left with a direct deposit of $4000 at the end of each month. If John started
with no other savings in his account, how much will John have in his savings account at
the end of 12 months if he is able to earn an annual interest rate of 3%, with interest
being compounded monthly?
A. $48, 665.53
B. $48,787.19
C. $56,768.12
D. $58,471.16
Both owners and managers must carefully designate their responsibilities in the
management agreement. In a management agreement, all of the following would
typically be responsibilities of the property manager EXCEPT:
A. Maintenance of financial accounts for money collected from tenants
B. Liability
C. General property management
D. Reports on property performance
Operating expenses can be divided into two categories: variable and fixed expenses.
Which of the following best exemplifies a fixed expense?
A. Utilities
B. Property management
C. Local property taxes
D. Trash removal
The value of a property can be thought of as having two components, a land component
and a building component. Since the land component of the original cost basis is not
depreciable, it is important to understand how much of the property's value is typically
attributed to the land for tax purposes. As a general rule, the value of land constitutes
what percentage (expressed as a range) of the total value of a commercial property?
A. 0% to 10%
B. 10% to 30%
C. 30% to 50%
D. 50% to 70%
In contrast to conventional market analysis, the 'story" approach to market research
starts with an analysis of:
A. conditions in global real estate markets
B. conditions in national real estate markets
C. conditions in state real estate markets
D. conditions in the property specific market
While most real property in the United States is privately owned, government
regulations limit private property use and therefore play an important role in the
determination of property value. Proponents of government intervention argue that
regulation is needed to address the unintended and unaccounted for consequences of
one land user upon others, more commonly referred to as:
A. incomplete information
B. locational monopoly
C. externalities
D. urban sprawl
When multiple individuals have use of a property, but their interests are not
simultaneous, this type of co-ownership is referred to as a:
A. Cooperative
B. Tenancy by the entirety
C. Condominium
D. Timeshare
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
The potentially large amount of taxes due on sale of commercial property has caused
investors and policy makers to seek ways to defer taxes on the disposition of a property.
A popular option has become for investors to swap one eligible property for another in
order to avoid or defer capital gains taxes. Which of the following methods for
deferring taxes does this describe?
A. Installment sale
B. Fully-taxable sale
C. Like-kind exchange
D. Sale leaseback
Suppose that you are in the process of deciding whether or not to refinance your fixed
rate mortgage at a lower rate and you are interested in using the payback period rule of
thumb to help you in your decision. Your lender has informed you that the cost of
refinancing would be $4,300. If your original monthly mortgage payment was $1,250
and your new monthly mortgage payment would be $1,150 after refinancing, determine
the payback period.
A. 3 months
B. 4 months
C. 43 months
D. 158 months
With the arrival of subprime mortgages in recent years, a new kind of "trigger" event
became apparent in leading households to default. Which of the following trigger
events is primarily associated with most defaults that have occurred during the most
recent subprime mortgage crisis?
A. Death in the family
B. Divorce
C. Unemployment
D. Mortgage payment spikes
The ability of homeowners to prepay the principal on their outstanding mortgage
balance creates cash flow uncertainty for the lender. As a result, the lender may wish to
prohibit prepayment on a mortgage loan for a specified period of time after its
origination. This is accomplished through which of the following?
A.Defeasance
B. Yield Maintenance Provision
C. Demand Clause
D. Lockout Provision
Suppose an older homeowner lives adjacent to an expanding university that is interested
in acquiring her residence for future university use. To allow the homeowner to
continue to retain all rights of exclusive possession, use, and enjoyment during her
lifetime, yet provide the university with the right of disposition, the university may
want to purchase a(n):
A legal life estate with remainder interest
B. conditional fee absolute with reverter interest
C. ordinary life estate with remainder interest
D. tenancy for years
