Fin 75725 | Course Paper

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Especially in terms of retail properties, which of the following attributes is considered

the most likely to result in drastic value differences between otherwise similar

properties?

A. Structural attributes

B. Financing attributes

C. Location attributes

D. Land attributes

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 Jeff’s property. The space for

this road would be considered a(n):

A. easement appurtenant.

B. easement in gross.

C. negative easement appurtenant.

D. positive easement appurtenant.

An individual works downtown and pays $600 per month in rent for an apartment

located 10 miles from her office. She has calculated that she spends 30 minutes per day

driving each way to the office and it costs her $4 per day in gas and lost productivity.

Using the framework of the bid-rent model, how much would she be willing to pay for

an apartment downtown, assuming a 20 workday month?

A. $80

B. $440

C. $520

D. $680

A comparable property sold 15 months ago for $105,000. If the appropriate adjustment

for market conditions is 0.25% per month (without compounding), what would be the

adjusted price of the comparable property?

A. $105,262.50

B. $105,393.80

C. $108,937.50

D. $144,375

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%

An investor just purchased an office building for $100,000. He knows for certain that he

can sell the building for $110,000 in 5 years. Approximately how much does he need to

charge in annual rent in order to achieve a 15% annual return on the deal?

A. $2,500

B. $8,000

C. $13,500

D. $20,500

Given the following information, calculate the effective borrowing cost (EBC). Loan

amount: $166,950, Term: 30 years, Interest rate: 8 %, Payment: $1,225.00, Discount

points: 2, Other Closing Expenses: $3,611.

A. 7.7%

B. 8.2%

C. 8.5%

D. 9.1%

Given the following information, calculate the NPV for this property. Initial cash

outflow: $200,000, Discount rate: 15%, CF for year 1: $25,876, CF for year 2: $23,998,

CF for year 3: $23,013, CF for year 4: $22,105, CF for year 5: $144,670.

A. -$51,875

B. -$59,657

C. $140,343

D. $295,951

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%

Because a city’s output capacities change slowly over time, it is important to understand

the supply side (long-run) factors affecting urban growth. Which of the following would

NOT be considered a supply-side factor that impacts a city’s economic growth?

A.Nature of the available labor force

B.Quality of life within a community

C.Cooperation of local leadership and government

D.City’s economic base

The estimated market value of investible commercial real estate in the United States at

the end of 2008 was approximately $6 trillion. In terms of market size, which of the

following asset categories is most closely related to commercial real estate?

A.Owner-occupied housing

B.Corporate equities

C.U.S. Treasury securities

D.Municipal securities

The most flexible method of land description, capable of describing even the most

irregular of parcels, can be described as a very precise, compass-directed walk around

the boundary of a parcel. This method is commonly referred to as:

A.metes and bounds

B.subdivision plat lot and block number

C.government rectangular survey

D.tax parcel number

Since most data for a given market study is not readily available, analysts must be

creative in their use of data that they are able to obtain. The primary source for detailed

household demographic information is:

A.the U.S. Bureau of the Census

B.the Federal Reserve

C.the local tax collector’s office

D.not available publicly

Given the following information, calculate the straight-line depreciation rate for the

first year using the midmonth convention. Cost recovery period: 27 years, Date of

purchase: April 10th.

A.2.6%

B.3.63%

C.19.5%

D.70.8%

A contract for sale of real estate usually calls for the seller to provide evidence of title

as a requisite to completing the sale. Today, the predominant medium through which a

seller meets this requirement is by providing:

A.only a title abstract.

B.only an attorney’s opinion of title.

C.only a title insurance commitment.

D.only a Torrens certificate.

Changes in the discount rate used to complete net present value analysis can have a

significant impact on the estimated value of the investment and therefore affect the

overall investment decision. As the required internal rate of return (IRR) increases, the

net present value will:

A.decline

B.increase

C.remain the same

D.become zero

One complication that appraisers may face is the variety of lease types that may be

available for a particular property type. Which of the following statements best

describes a “graduated” or step-up lease?

A.The monthly rent remains fixed over the entire lease term.

B.The lease establishes schedule of rental rate increases over the term of the lease.

C.Rental rate increases are indexed to the general rate of inflation.

D.Rental rates are a function of the sales of the tenant’s business.

In the early 1970’s, home mortgage lenders were predominantly depository institutions.

By the end of the decade, the growth of deposits at these institutions became negative

due to the emergence of more attractive investment opportunities such as money market

funds. This change in the distribution chain of funds is more commonly referred to as:

A.Deregulation

B.Disintermediation

C.Warehousing

D.Underwriting

When cash flows are classified as passive activity income, investors are subject to

passive activity loss restrictions. These restrictions imply that passive income losses:

A.can be used to offset positive taxable income from other passive activities.

B.can be used to offset positive taxable income from other passive and active activities.

C.can be used to offset positive taxable income from other passive and portfolio

activities.

D.cannot be used to offset positive taxable income from any type of activity.

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

The purchase price of a piece of property is $70,000. After analysis of the cash flows,

expected sales price, and expected yield, the investor decides the deal has a present

value (PV) of $80,000. What is the net present value (NPV), and should the investor

take the deal?

A.$10,000; Yes

B.$10,000; No

C.-$10,000; Yes

D.-$10,000; No

The cost approach to valuation assumes the market value of a new building is similar to

the cost of constructing it today. Which of the following terms refers to the expenditure

required to construct a building of equal utility using modern construction techniques,

materials, and design that eliminates outdated aspects of the structure?

A.Reproduction cost

B.Replacement cost

C.Fixed cost

D.Variable cost

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

In dual agency, conflicts of interest may arise since a single broker has both the listing

contract with the seller and a buyer agency agreement with the purchaser. One way that

states have attempted to deal with this issue is to develop a new type of brokerage

relationship in which the broker assists the buyer and seller, but does not represent

either party. This type of brokerage relationship is commonly referred to as:

A.unintended dual agency

B.universal agency

C.transaction brokerage

D.multiple listing

A fixture is an object that formerly was personal property but has become real property.

Of the following four rules for determining whether an object has become a fixture,

which is the most dominant (i.e. if there is a conflict, which rule prevails)?

A.Manner of the attachment

B.Character of the article and manner of adaptation

C.Intention of the parties

D.Relation of the parties

The measure of cash flow most relevant to investors in income-producing real estate is

the after-tax cash flow (ATCF) from property operations. Therefore, it is important to

know that the maximum federal income tax rate on individuals is currently:

A.25%

B.30%

C.33%

D.35%

In using transaction data to determine the current value of the subject property, it is

important to recognize that general market conditions may have changed since a

particular transaction occurred. Property A sold 18 months ago for $235,000 and

Property B sold 12 months ago for $215,000. If the two properties are priced today at

$239,500 and $222,300, respectively, what is the average monthly rate of increase that

can be used to adjust comparable prices for changes in market conditions?

A.0.09%

B.0.17%

C.0.19%

D.0.32%

The Real Estate Settlement Procedures Act (RESPA) is a federal law that requires

federally chartered or insured lenders to provide buyers and sellers with information on

all settlement costs. According to RESPA, loan closing information must be prepared on

a special form know as the:

A.Uniform Settlement Statement or HUD-1 form

B.Good-faith estimate

C.Settlement Costs and You booklet

D.Certificate of occupancy

When a party in a contract fails to perform (e.g. breach of contract, nonperformance, or

default) the other party has a variety of remedies. All of the following are remedies that

an aggrieved seller may pursue EXCEPT:

A.Sue for damages.

B.Retain the earnest money deposit as liquidated damages.

C.Agree to rescission of the contract.

D.Sue for specific performance.

At the end of 2008, commercial banks and other financial institutions collectively

owned $20 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.

Although deeds can only deliver what a grantor actually owns, they can still vary in

“quality.” Which of the following types of deeds is considered to be the “highest

quality” because it contains the full set of legal promises the grantor can make?

A.General warranty deed

B.Special warranty deed

C.Deed of bargain and sale

D.Quitclaim deed

With the recent popularity of adjustable-rate mortgages (ARM), lenders have begun to

offer ARMs with different adjustment periods. Which of the following ARM choices

will most likely have the highest initial rate?

A.Three-year-one-year ARM

B.Five-year-one-year ARM

C.Seven-year-one-year ARM

D.Ten-year-one-year ARM

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 some states, mining companies are deemed to own not only the minerals but also the

space the minerals occupied before they were removed, thereby earning the distinction

of ownership states. However, when the owner of an oil or gas well is able to claim all

that is pumped from it, regardless of whether the oil or gas migrated from adjacent

property, this is referred to as a _____________ state.

A.Manner of attachment

B.Law of capture

C.Intention of the parties

D.Relation of the parties

When the value of land is considered, it is important to distinguish between land and

raw land. Raw land refers to a(n):

A.building site

B.structure on the land

C.property’s infrastructure

D.area that does not include any improvements

With a site under control, the developer will begin to evaluate the feasibility of the

project. The main tool that a developer will use in determining the financial feasibility

of a project is:

A.Net present value (NPV) analysis

B.Cost approach to valuation

C.Repeat-sales approach

D.Direct capitalization

The use of financial leverage by real estate investors can be a double-edged sword. All

of the following statements regarding the use of financial leverage by real estate

investors are true EXCEPT:

A.The use of financial leverage by real estate investors mitigates the impact that limited

financial resources would otherwise have on their pursuit of investment opportunities.

B.The use of financial leverage by real estate investors will increase the internal rate of

return (IRR) on equity as long as the cost of borrowing is less than the unlevered IRR.

C.The use of financial leverage reduces the real estate investor’s exposure to default

risk.

D.The use of financial leverage by real estate investors makes the realized return on

equity more sensitive to changes in rental rates and resale values.

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

State licensing laws prescribe behavioral requirements with which licensees must

comply to keep their licenses. Licensing laws generally seek to prevent brokers from

partaking in all of the following activities EXCEPT:

A.Handling money in trust for clients

B.Taking kickbacks without the employer’s knowledge

C.Offering the property at terms other than those specified by clients

D.Failure to submit all offers to the client

A common criticism of the annual percentage rate (APR) is that it usually understates

the true cost of borrowing. The APR may understate the cost of borrowing because it

assumes:

A.interest rates will always rise

B.the loan always goes to maturity

C.the actual life of the loan is shorter than maturity

D.upfront fees should be ignored