Most research oriented universities have many different colleges, each with separate
administrations, students, curricula, and facilities. However, the university continues to
exist as a total unit because of:
A. industry economies of scale
B. locational monopoly
C. economic inefficiencies
D. negative externalities
Given the following information, calculate the total annual tax liability of the
homeowner. Market value of property: $350,000, Assessed value of property: 40 % of
the market value, Exemptions: $2,000, State Millage Rate: 0.25 mills, County Millage
Rate: 13.70 mills.
A. $34.50
B. $1,890.60
C. $1,925.10
D. $4,685.10
While a variety of loan terms are available in a lender's mortgage menu, the most
common loan term on a level-payment mortgage is:
A. 7 years
B. 15 years
C. 30 years
D. 40 years
Section 1031 of the Internal Revenue Code permits investors to defer some or all of the
taxable gain that would ordinarily be due on the sale of a property if they exchange for
"like-kind" property. In order to avoid income taxes, many investors attempted to make
use of this tax code when disposing of commercial real estate assets. This led to the
reemergence of which of the following forms of ownership in commercial real estate?
A. General Partnership
B. Limited Liability Company
C. Tenancy-in-common
D. Limited Partnership
In general, most contracts " including a real estate contract " can be assigned. All of the
following statements regarding assignment are true EXCEPT:
A. Any type of personal performance contracted by one party cannot be assigned
without that party's permission.
B. Land contracts are not assignable without the owner's permission
C. If buyers of real estate assign the contract, the new buyers may pay the agreed upon
price and obtain title to the property.
D. When buyers assign their rights to someone else, they escape liability under the
original contract.
The tax treatment of real estate holdings that are classified as trade or business property
and are held for more than one year is more commonly referred to as which of the
following sections of the tax code?
A. Section 1231
B. Section 1031
C. Section 856
D. Section 851
Real estate brokers serve as intermediaries by bringing buyers and sellers together in
the real estate market. For this service, brokers are paid what is commonly referred to as
a:
A. commission
B. licensing fee
C. recovery fee
D. listing fee
Assume that an industrial building can be purchased for $1,500,000 today, is expected
to yield cash flows of $80,000 for each of the next five years (with the cash flows
occurring at the end of each year), and can be sold at the end of the fifth year for
$1,625,000. Calculate the internal rate of return (IRR) for this transaction.
A. 3.14%
B. 6.78%
C. 9.20%
D. 10.37%
There are a number of ways that a developer can finance the establishment of site
control, each with its own advantages and disadvantages. Which of the following
methodologies calls for only the initial land rent to be paid out before development
actually gets under way?
A. Joint venture
B. Option
C. Contract for deed
D. Ground lease
Suppose an owner is trying to decide whether or not to make improvements to her
property. Given the following information, what would be the value added or potential
loss if the improvements are undertaken? Current rent per square foot: $8.75,
Anticipated rent per square foot: $14.50, Cost of improvements: $250,000, Square feet:
34,000.
A. Gain of $54,500
B. Loss of $54,500
C. Gain of $195,500
D. Loss of $195,500
Given the following information, calculate the effective borrowing cost (rounded to the
nearest tenth of a percent). Loan amount: $166,950, Term: 30 years, Interest rate: 8 %,
Monthly Payment: $1,225.00, Discount points: 2, Other Closing Expenses: $3,611.
A. 7.7%
B. 8.2%
C. 8.5%
D. 9.1%
Once a specific use has been chosen for a site, the first stage in the development
process, often considered the "entry ticket to development," is:
A. establishing site control
B. feasibility analysis
C. financing
D. construction
Given the following information, calculate the total annual tax liability of the
homeowner. Market value of property: $350,000, Assessed value of property: 40 % of
the market value, Exemptions: $2,000, Millage Rate: 33.95 mills.
A. $4,685.10
B. $4,753.00
C. $11, 882.50
D. $46,851.00
Initially used to survey the Old Northwest Territory (Ohio, Indiana, Illinois, and
Michigan) in 1789, which of the following methods of land description relies on
townships and section numbers as essential units of identification?
A. metes and bounds
B. subdivision plat lot and block number
C. government rectangular survey
D. tax parcel number
When using discounted cash flow analysis for valuation, an appraiser will prepare a
cash flow forecast, often referred to as a:
A. restricted appraisal report
B. net operating income statement
C. direct market extraction
D. pro forma
As of 2011, the single largest asset category in the net worth portfolios of households is:
A. government and corporate bonds
B. stocks and mutual fund shares
C. consumer durable goods
D. housing
Considering the following information, what is the NPV if the borrower refinances the
loan? Expected holding period: 3 years, Current loan balance: $100,000; Current loan
interest: 7%; Current loan mortgage payment: $898.33; Remaining term on current
mortgage: 15 years; New loan interest: 5.5%; New loan mortgage payment: $817.08;
New loan term: 15 years; Cost of refinancing: $5,000. Assume that the opportunity cost
is the interest rate on the new loan (5.5%).
A. -$5,000.00
B. -$1,155.27
C. $3,844.73
D. $8,844.73
In commercial leases, rents do not necessarily have to be kept constant over the life of
the lease term. One option is for there to be pre-specified increases in the contract rental
rate over time, sometimes referred to as 'step-ups" or "escalations." This type of rent
treatment is commonly referred to as:
A. flat rent
B. graduated rent
C. indexed rent
D. percentage rent
An important piece of criteria for investors to consider when deciding between real
estate investment opportunities and investing in stocks or bonds is the effect of income
taxes on their return. For most investors, the effective tax rate on commercial real estate
is:
A. greater than the effective tax rate on a stock or bond investment
B. equal to the effective tax rate on a stock or bond investment
C. less than the effective tax rate on a stock or bond investment
D. cannot be compared across asset classes.
The real estate industry applies which of the following labels to individuals who are
responsible for the decisions that affect the physical, financial, or ownership structure of
the property.
A. Asset manager
B. Property manager
C. Leasing manager
D. Regional manager
If mortgage rates decline significantly, borrowers may decide to prepay the principal on
their loan even if they face prepayment penalties. One way that lenders protect
themselves from prepayments in such circumstances is by requiring the borrower who
prepays to purchase for the lender a set of U.S. Treasury securities whose coupon
payments replicate the cash flows the lender will lose as a result of the early retirement
of the mortgage. This process is referred to as:
A. Lockout
B. Yield-maintenance
C. Defeasance
D. Curtailment
A lease option is a clause that grants an option holder the right, but not the obligation, to
renew the lease, cancel the agreement, relocate within a property, or even expand to
adjacent space. The existence of these options in a leasing agreement:
A. reduces the expected present value of lease cash flows to the owner
B. increases the expected present value of lease cash flows to the owner
C. does not impact the expected present value of lease cash flows to the owner
D. causes the expected present value of lease cash flows to equal zero
The process of converting periodic income into a value estimate is referred to as income
capitalization. Income capitalization models can generally be categorized as either
direct capitalization models or discounted cash flow models. Which of the following
statements best describes the direct capitalization method?
A. Value estimates are based on a multiple of expected first year net operating income.
B. Appraisers must make explicit forecasts of the property's net operating income for
each year of the expected holding period.
C. Appraisers must select the appropriate yield at which to discount future cash flows.
D. The forecast must include the net income produced by a sale of the property at the
end of the expected holding period.
While the risks of construction lending may be less in a number of respects than those
associated with land acquisition, banks still require a premium in their lending rate as
compensation for the risks involved. For construction loans, banks typically require a
premium above LIBOR that ranges from:
A. 0-50 basis points
B. 50-150 basis points
C. 150-250 basis points
D. 250-350 basis points
Given the following information, compute the property tax rate for the community in
percentage terms. Total budget expenditures: $108 million, Total non-property tax
income: $50 million, Total assessed value of all properties: $2 billion, Total exemptions:
$550 million.
A. 2.5%
B. 4.0%
C. 10.0%
D. 12.0%
While floating rate mortgage loans may offer lower interest rates to borrowers than
comparable fixed-payment mortgages, floating-rate loans may increase a lender's
exposure to which of the following risks since borrowers may not be able to continue to
service the debt if payments on the loan increase significantly?
A. Default risk
B. Interest rate risk
C. Liquidity risk
D. Pipeline risk
Net present value (NPV) is interpreted using the following decision rule: The investor
will purchase the property as long as the NPV is:
A. greater than zero
B. equal to zero
C. less than zero
D. equal to the opportunity cost of investment
Nearly half of states in the U.S. use the sale of tax lien certificates to manage defaulted
property taxes. The certificates are auctioned to the public at:
A. the face value of the property taxes due
B. the assessed value of the home
C. a discount from the face value of the property taxes due
D. a premium of the assessed value of the home
While the general concepts of investment value and market value are very similar, there
is an important distinction between the two. All of the following statements regarding
investment value are true EXCEPT:
A. Investment value is based on the expectations of a typical, or average, investor.
B. Investment value is a function of estimated cash flows from annual operations
C. Investment value takes into consideration estimated proceeds from the sale of the
property D. Investment value applies a discount rate to future cash flows.
In the history of eminent domain, the Kelo v. New London, Connecticut decision of the
U.S. Supreme Court in 2005 affirmed the possibility of a community being:
A. Prohibited from using eminent domain.
B. Restricted to use of eminent domain only for actual government (public) land uses.
C. Able to use eminent domain to acquire property for private development if it serves
public purpose and the current land use is blighted.
D. Able to use eminent domain to acquire property for private development if is serves
public purpose even if the current land use is not blighted.
The distinction between legal title and equitable title is an important concept in the
contract for sale of real estate. When the buyer obtains equitable title, the seller can no
longer sell the property to someone else, even though the legal title has not officially
passed on. In the contract for sale process, the creation of equitable title occurs when:
A. The contract for sale is written.
B. The contract for sale is signed.
C. The contract terms are orally agreed upon.
D. Each party is deemed legally competent.
