Consider the following excerpt from a sample deed: "The Seller covenants with The
Buyer that it has a good right to convey, that the property is free from all encumbrances,
and that it forever warrants to defend all of the property so granted to The Buyer against
every person lawfully claiming the same." Based on your understanding of the relation
between a deed's covenants and the type of deed being conveyed, which type of deed is
being conveyed in the statement above?
A. General warranty deed
B. Special warranty deed
C. Deed of bargain and sale
D. Quitclaim deed
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
Suppose you purchased an income producing property for $95,000 five years ago. In
Year 1, you were able to negotiate a lease that paid $10,000 per year at the end of each
year. If you are able to sell the property at the end of year 5 for $100,000 (after
receiving our final lease payment), what was the internal rate of return (IRR) on this
investment?
A. -18.18%
B. 1.03%
C. 9.57%
D. 11.37%
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
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
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
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
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
In evaluating potential tenants for residential rental properties, a landlord may be
interested in calculating the ratio of prospective rent to income for the applicant. Given
the following information, calculate the rent to income ratio for the applicant.
Applicant's Gross Annual Salary (Income): $45,000; Prospective Monthly Rent:
$1,000; Applicant's Annual Income Tax and Benefit Payments: $7,650.
A. 2.22%
B. 2.68%
C. 26.67%
D. 32.13%
Given the following information, calculate the loan-to-value ratio for this property.
Loan amount: $450,000, Interest rate: 7.5%, Acquisition price: $550,000
A. 0.18
B. 0.82
C. 0.99
D. 1.22
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
A lien is an interest in real property that serves as security for an obligation. Which of
the following is an example of a general lien?
A. Property tax and assessment lien
B. Mortgage lien
C. Lien arising from a court judgment unrelated to ownership of the property
D. Mechanics' lien
When construction costs exceed the amount of the construction loan, a developer may
seek to cover the gap using mezzanine financing. All of the following statements
regarding mezzanine debt are true EXCEPT:
A. Mezzanine debt use is less expensive than normal construction financing
B. Mezzanine debt use avoids dilution of equity returns
C. Mezzanine debt use is less expensive than equity financing
D. Mezzanine debt use avoids the foreclosure process in the case of default
Since mortgages typically have multiple costs associated with them, a borrower may
attempt to reduce these costs into a single measure in order to compare two or more
mortgages. Which of the following measures is a popular tool for comparing the cost of
several mortgages?
A. Upfront fees
B. Contracted interest rate
C. Annual percentage rate
D. Teaser rate
Brian just began graduate school at the local university and is looking to rent an
apartment. A family friend has decided to lease him a two bedroom, one bathroom
cottage through an oral agreement with no definite lease period outlined. Which of the
following leasehold estates best describes Brian's situation?
A. Tenancy for years
B. Tenancy at sufferance
C. Periodic tenancy
D. Tenancy by the entirety
Given the following information on an interest-only mortgage, calculate the monthly
mortgage payment. Loan amount: $56,000, Term: 15 years, Interest Rate: 7.5%.
A. $169.13
B. $350
C. $519.13
D. $4,200
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
commonly
referred to as ____________ of an interest in real property.
A. mutual assent
B. constructive notice
C. consideration
D. simultaneous issue
It was not until the late 1960's that land use controls moved to the forefront of public
interest, as the belief that the environment was an endless and costless resource was
replaced with the notion that the world was a closed system with limited space, air,
water, and other resources. Environmentalists coined which of the following terms to
refer to this new point of
view?
A. Smart growth
B. The Silent Spring
C. Spaceship earth
D. Urban sprawl
As part of the data analysis step in the appraisal process, it is necessary to consider the
highest and best use of the property in question. In regards to determining highest and
best use, all of the following statements are true EXCEPT:
A. The proposed property use must be legally permissible
B. It must be physically possible for the property to be used in the manner specified.
C. No financial limits are considered when determining the property's best use.
D. The property use must provide the greatest benefit to the owner.
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%
When a borrower decides to stop making payments on an existing mortgage loan
despite having the ability to make payments (typically when the home has lost value),
this is more commonly referred to as a(n):
A. Equity redemption
B. Statutory redemption
C. Strategic default
D. Reverse mortgage
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
When a zoning ordinance is revised, some existing land uses then fall outside the new
zoning classification. These land uses are referred to as:
A. special uses
B. nonconforming uses
C. conforming uses
D. exclusionary uses
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
Suppose that a property owner plans on spending $15,000 per year over the next 5 years
on maintenance and repairs. However, if she does not spend this amount, she will not be
able to keep rents at market levels, vacancies will increase, and the resale value of the
property in 5 years will be lower. Assume that she would lose about $7,000 a year in net
income and would realize a loss of $85,000 in lower property value at the time of sale if
maintenance is not maintained on the property. Determine the difference between the
present value of the cost of maintaining the property and the loss to the owner if the
property is not maintained assuming
that the owner could earn a 7 percent return on any funds not invested in maintenance
and repairs?
A. The present value of the maintenance costs is $27,802 less than the present value of
the averted loss
B. The present value of the maintenance costs is $27,802 greater than the present value
of the averted loss
C. The present value of the maintenance costs is $32,802 less than the present value of
the averted loss
D. The present value of the maintenance costs is $32,802 greater than the present value
of the averted loss
Which of the following covenants in a deed promises that the property will not be
claimed by someone with a better claim to title?
A. Covenant of seizin
B. Covenant against encumbrances
C. Covenant of quiet enjoyment
D. Exceptions and reservation clause
Created by Congress to promote an active secondary market for home mortgages,
Fannie Mae and Freddie Mac purchase loans that meet specific underwriting standards
such as loan size, documentation, and payment to income ratio. The loans that Fannie
Mae and Freddie Mac are eligible to purchase are commonly referred to as:
A. government sponsored loans
B. conforming conventional loans
C. nonconforming conventional loans
D. FHA loans
Johnson Builders is in the new residential construction business. They built a house that
sat empty for 6 months after its completion. This type of property would be categorized
as a:
A. personal residence
B. dealer property
C. trade or business property
D. investment property
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 the supply of space exceeds the demand, it is common for owners to provide the
tenant with a period of free or perhaps reduced rent. This is commonly referred to as
a(n):
A. tenant improvement allowance
B. concession
C. sublease
D. expense stop
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 key to meaningful valuations in real estate is to use defensible cash flow estimates.
All of the following statements are true in regards to generating accurate cash flow
estimates EXCEPT:
A. Investors should include only those sources of income and expenses that relate
directly to the income producing ability of the property.
B. Investors should only consider recent events, rather than long-term trends when
evaluating revenue and expense items.
C. Investors should obtain information about comparable properties whenever possible.
D. Investors should take into consideration local zoning, land use, and environmental
controls that may impact the future flow of funds.
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
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
