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

Fin 60822

March 13, 2017
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%
Consider the following excerpt from a sample deed: "The Seller, for itself and its heirs,
hereby covenants with the Buyer, its heirs and assigns forever, that the Seller is lawfully
seized in fee simple of the above described property." The underlined portion of the
preceding statement represents which of the following basic requirements of a deed?
A. Habendum clause
B. Recital of consideration
C. Words of conveyance
D. Exceptions and reservations clause
The laws of some states require that real estate brokers provide buyers and sellers with
a list of estimated closing costs before signing a contract for sale. At the closing, it is
typically which of the following party's responsibilities to pay the full premium for an
owner's title insurance policy?
A. Buyer
B. Seller
C. Lender
D. Broker
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
Despite the magnitude of their real estate holdings, many non-real estate corporations
have historically expended little effort to manage these assets effectively. Recently, the
development of which of the following markets has helped to quell concerns related to
this issue?
A. Commercial mortgage backed securities (CMBS)
B. Sale-leaseback
C. Tenancy-in-common (TIC)
D. Installment sale
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
Newer industrial parks have begun to specialize in providing space that can be
configured to suit the diverse needs of various tenants. This type of industrial space is
more commonly referred to as:
A. Warehouse
B. Plant and Factory
C. Flex space
D. Research and Development
Several techniques can be used to obtain an indication of land value. The cost approach
to valuation would most likely be used for which of the following properties?
A. One-family residential property
B. Retail office space
C. Education facility
D. High-rise apartments
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. Fence
Modern real estate brokerage normally relies on a multiple listing service (MLS)
through which brokers have access to each other's listings. Which of the following
types of agency agreements is established with the use of a MLS?
A. Single agency agreement
B. Subagency agreement
C. Dual agency agreement
D. Designated agent agreement
Assuming all else the same, the ___________ of an annuity due will be
_____________ that of an ordinary annuity.
A. future value; greater than
B. present value; equal to
C. future value; less than
D. present value; less than
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%
Since conforming loans can be much more readily bought and sold in the secondary
mortgage market, they carry a(n) _______ interest rate than comparable nonconforming
A. higher
B. equal
C. lower
D. more volatile
The expected costs to make replacements, alterations, or improvements to a building
that materially prolong its life and increase its value is referred to as:
A. operating expenses
B. capital expenditures
C. vacancy losses
D. collection losses
In most pooled ownership forms a single partner is empowered to act on behalf of the
investors in terms of making property investment decisions. Based on your
understanding of the different types of pooled ownership which of the following
structures would we expect this issue to be the least prevalent?
A. General partnership
B. Limited partnership
C. C corporation
D. Subchapter S corporation
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
When an investment appreciates in value during the investment holding period, the
appreciation is generally taxed at which of the following rates?
A. Ordinary tax rates
B. Capital gain tax rates
C. Portfolio income tax rates
D. Active income tax rates
You have taken out a $300,000, 5/1 ARM. The initial rate of 5.4% (annual) is locked in
for 5 years. Calculate the payment after recasting the loan (i.e., after the reset) assuming
the interest rate after the initial lock period is 8.0%. (Note: the term on this 5/1 ARM is
30 years)
A. $1,684.59
B. $1,784.79
C. $1,887.75
D. $2,138.02
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
An important distinction both practically and conceptually is the difference between an
easement and a license. All of the following characteristics pertain to a license
A. A license is revocable by the grantor.
B. A license can be granted orally.
C. A license is enduring.
D. A license grants permission to use another's land for a specific and limited purpose.
Suppose a bank decides to make a mortgage loan to an individual so that they may
purchase a home. The homeowner will pay the bank $1500 per month in mortgage
payments for the next 30 years. The bank will collect the mortgage payments at the end
of the month. What is this promised stream of cash flows worth to the bank today if
they could reinvest the monthly income at an annualized rate of 5% for the entire
investment horizon?
A. $23,058.68
B. $99,658.27
C. $279,422.43
D. $1,248,387.95
The demand for real estate derives from the need that market participants (e.g., owner
occupants, tenants, renters) have for shelter and convenient access to other locations.
This competition for physical location and space occurs in the:
A. User Market
B. Capital Market
C. Government Sector
D. Property Market
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
Assume that an individual puts $10,000 into a savings account that pays 3% interest,
with interest being compounded monthly. The individual plans to withdraw the balance
in 5 years to buy a car. If he does not make any further deposits over this period, how
much will the individual be able to put towards his purchase?
A. $10,125.63
B. $11,592.74
C. $11,616.17
D. $58,916.03
There are a number of different types of listing contracts that can be used when
marketing a property. Which of the following types of listings requires the broker to be
paid a commission if anyone, other than the owner, sells the property during the
contract period?
A. Open listing
B. FSBO listing
C. Exclusive agency listing
D. Exclusive right of sale listing
Real estate brokers operate under the law of agency, which gives a broker the right to
act for a principal in trying to buy or sell a property. In the basic principal-agent
relationship of real estate brokerage, real estate brokers act in the capacity of a:
A. Universal agent
B. General agent
C. Special agent
D. Undercover agent
Though difficult to accurately measure, the market value of U.S. real estate held by
non-real estate corporations is estimated to exceed $10 trillion. All of the following are
examples of noninvestible commercial real estate EXCEPT:
A. Medical office buildings owned by the hospital
B. Branch offices owned by the bank
C. Plant and equipment owned by steel corporations
D. Assembly plant building owned by a group of investors as part of an LLC
Commercial real estate returns are determined in no small part by how well the ongoing
management function is performed. Management decisions can be classified into two
categories: property management and asset management. Which of the following
functions would be considered a primary responsibility of an asset manager?
A. Property acquisitions and dispositions
B. Marketing a property to prospective tenants
C. Maintaining the condition of the property
D. Signing leases
In determining a property's before-tax cash flow from operations (BTCF) and net
operating income (NOI), it is important to understand how each accounts for the use of
financial leverage in its calculation. Which of the following statements is true in regards
to how these two measures account for the use of financial leverage?
A. BTCF and NOI are both levered cash flows
B. BTCF is an unlevered cash flow, while NOI is a levered cash flow
C. BTCF is a levered cash flow, while NOI is an unlevered cash flow
D. BTCF and NOI are both unlevered cash flows
Jeff owns 150 acres between a highway and a public beach. The state would like to
build a road directly from the highway to the beach across a number of beach front
properties including Jeff's. The space for this road would be considered a(n):
A. implied easement
B. easement in gross.
C. negative easement appurtenant.
D. positive easement appurtenant.
The direct ownership of commercial real estate produces cash flows from rental
operations and, perhaps, cash flow from an eventual sale of the property. Since financial
leverage and tax considerations play an important part in determining an investor's
returns, the measure of investment value most relevant to investors is the present value
A. before-tax cash flows (BTCF)
B. after-tax cash flows (ATCF)
C. net operating income (NOI)
D. net sale proceeds (NSP)
Providers of convenience activities find it profit-maximizing to disperse over the region
of potential customers to the point where each establishment is equidistant from another
and is separated by the minimum distance that allows sufficient customers to support
each establishment. The resulting pattern of establishment locations is referred to as:
A. central place pattern
B. clustering
C. concentric circle
D. multi-nuclei
Given the following information on a 30-year fixed-payment fully-amortizing loan,
determine the remaining balance that the borrower has at the end of seven years.
Interest Rate: 7%, Monthly Payment: $1,200.
A. $17,143
B. $79,509
C. $164,402
D. $180,369
It is possible to have a secured real estate loan without a mortgage through the use of a
contract for deed. In contrast to the standard real estate sale, which of the following
events occurs after the closing when dealing with a contract for deed?
A. Offer
B. Acceptance
C. Possession of the property passes to the buyer
D. Title to the property passes to the buyer
Both parties to a valid and enforceable contract must provide consideration. In a
contract for the sale and purchase of real estate, which of the following depicts the
A. A meeting of the minds with the buyer.
B. The option to present a counteroffer.
C. The property to be given up.
D. The money or goods that constitute the purchase price.