FIN 54334

Type

Quiz

Book Title

Real Estate Finance & Investments (Real Estate Finance and Investments) 14th Edition

ISBN 13

978-0073377339

March 13, 2017

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