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
Which of the following terms refers to the present value of the right to receive a lump
sum payment of $1 at the end of a particular year, given a specified discount rate?
A.Net present value
B.Present value factor
C.Future value
D.Net operating income
Given the following information, calculate the before-tax equity reversion (BTER).
NOI: $89,100, Annual Debt Service: $58,444, Net Sale Proceeds: $974,700, Remaining
Mortgage Balance: $631,026.
A.$30,656
B.$343,674
C.$572,582
D.$885,600
In contrast to rent for residential units, rent for U.S. commercial properties is typically
quoted as:
A.a dollar amount per month
B.a dollar amount per year
C.a monthly cost per square foot
D.an annual cost per square foot
The growth of the motion picture industry in Los Angeles, the petrochemical industry in
Houston, the software industry in “Silicon Valley,” are all examples of how the growth
of an industry within a city can create cost advantages for future growth. Economists
refer to this phenomenon as:
A.industry economies of scale
B.agglomeration economies
C.location quotient
D.linkages
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
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
Despite the risks that are inherent in the mortgage lending process, mortgage bankers
have various tools at their disposal to hedge risk exposure. For example, since mortgage
bankers know that only part of the loan commitments that they issue will be taken down
by borrowers, they can purchase the right to sell a certain dollar amount of a certain
loan type in the secondary market through what is commonly referred to as a:
A.Standby forward commitment
B.Mortgage pipeline
C.Conduit
D.Collateral
Up until the market for these instruments collapsed in 2008, which of the following was
the fastest-growing source of long-term commercial mortgage funds from 2002-2007?
A.Real estate investment trusts (REITs)
B.Commercial mortgage backed securities (CMBS)
C.Construction loans
D.Residential mortgage backed securities (MBS)
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
seller’s consideration?
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.
The national government can have a significant impact on the value of real estate
through:
A.property tax policy
B.income tax policy
C.building codes
D.real estate licensing requirements
The right to pay unpaid taxes, plus interest and penalties, before public sale and to
reclaim full title of the property is referred to as:
A.inverse condemnation
B.foreclosure
C.equity right of redemption
D.regulatory taking
Suppose an investor is interested in purchasing the following income producing
property at a current market price of $450,000. The prospective buyer has estimated the
expected cash flows over the next four years to be as follows: Year 1 = $40,000, Year 2
= $45,000, Year 3 = $50,000, Year 4 = $55,000. Assuming that the required rate of
return is 12% and the estimated proceeds from selling the property at the end of year
four is $500,000, what is the NPV of the project?
A.$8,829.96
B.$9,889.56
C.$428,113.65
D.$459,889.56
Assume that an individual puts $10,000 into a savings account that pays 3% interest
compounded monthly with the intent 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
The majority of residential units in the U.S. are contained in multifamily structures, or
apartment buildings that contain five or more housing units. Which of the following
multifamily structures will range in height from four to nine stories and are typically
found in both cities and suburbs?
A.High-rise apartment buildings
B.Midrise apartment buildings
C.Garden apartments
D.Condominiums
Given the following information, calculate the effective gross income. Property: 4
office units, Contract rents per unit: $2500 per month, Vacancy and collection losses:
15%, Operating Expenses: $42,000, Capital Expenditures: 10%
A.$100,000
B.$102,000
C.$120,000
D.$135,000
The effective rent calculation is a common measure used to compare the true cost of
one lease to another. While there are a number of limitations to this methodology, the
effective rent calculation captures:
A.interlease risk
B.re-leasing costs
C.the advantages associated with lease flexibility
D.the time value of money
The pooling of equity capital by investors to purchase real estate in the private market is
referred to as syndication. With pooled ownership structures, investors expect to receive
all of the following benefits EXCEPT:
A.Diversification.
B.Economies of scale in the acquisition and disposition of properties.
C.The ability to obtain debt financing at the portfolio level.
D.Management control of each of the properties in the syndicate’s portfolio.
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
Although the function of commercial brokerage is the same as that of residential
brokerage, the activities of commercial brokers usually differ considerably from those
of residential brokers due to fundamental differences in these two markets. All of the
following statements regarding commercial brokerage are true EXCEPT:
A.Relative to residential transactions, commercial transactions tend to be larger.
B.The parties in commercial mortgage transactions are typically less knowledgeable
than those in residential transactions.
C.An important part of the commercial broker’s service is to provide the prospective
buyer with reports that enable him to complete due diligence for the property.
D.Commercial brokers are often required to lower their commission in order to
negotiate compromises between buyers and sellers when they reach an impasse over
price.
The lease is a contract between a property owner and tenant that transfers exclusive use
and possession of space to the tenant, but allows the owner to retake possession of the
property at the expiration of the lease. Which type of interest allows the owner to retake
possession at the end of a lease?
A.Remainder interest
B.Reversion interest
C.Spousal interest
D.Co-ownership interest
The expected stream of rental income is capitalized into value by converting expected
future cash flows into present value through a process called:
A.amortization
B.discounting
C.compounding
D.accounting
A principal definition of real estate is as a bundle of rights associated with the
possession, use, and disposition of property. Each of the following is a fundamental
characteristic of property rights EXCEPT:
A.they are enforceable by the government.
B.they apply only to tangible assets.
C.they are nonrevocable.
D.they are enduring.
At the death of a property owner, property will convey either in accordance with a will
or without a will. If a will dictates the distribution of the decedent’s real property, the
property is said to be conveyed by:
A.patent
B.devise
C.the law of descent
D.dedication
There are a set of restrictive conditions that REITs must satisfy on an ongoing basis in
order to maintain their special tax status. All of the following statements regarding the
main restrictions are true EXCEPT:
A.At least 100 investors must own a REIT’s shares.
B.No five investors can own more than 50 percent of a REIT’s shares.
C.At least 75 percent of the value of a REIT’s assets must consist of real estate assets.
D.A REIT must distribute at least 75% of its taxable income to shareholders in the form
of dividends.
Sharon purchased a new photocopier for her business. According to her accountant, she
can deduct 1/7th of its original cost each year for the next seven years from her taxable
income. This depreciation method is commonly referred to as:
A.declining balance method
B.straight line method
C.sum of the years’ digits method
D.modified accelerated cost recovery system
Added to the index of the adjustable rate is a margin, which is the lender’s “markup.”
For standard Adjustable Rate Mortgage (ARM) loans, the average industry margin has
been stable at approximately:
A.75 basis points
B.175 basis points
C.275 basis points
D.375 basis points
Unlike many publicly traded stock and bond investments, commercial real estate
investments:
A.can be bought and sold in highly liquid markets.
B.yield maximized returns when assets are held for short periods of time.
C.yield returns generated mostly from the asset’s net operating income, rather than price
appreciation.
D.have going-in and going-out transaction costs that are low (as a proportion of asset
value).
In constructing a market-defining ‘story,” it is helpful to answer a series of fundamental
questions around which analysis can be built. Which of the following questions is
designed to identify the target market?
A.What is the real estate product under consideration?
B.Who are the customers?
C.What aspects of the product do the customers care about?
D.Who are the competitors?
While the principal parties to a transaction must be legally competent for a contract to
be valid, it is possible for a party acting on behalf of a principal to obtain this legal
right. In order for personal representatives and trustees to be authorized to act on behalf
of a principal, a legal instrument commonly referred to as ____________ must be in
place.
A.assignment
B.power of attorney
C.mutual assent
D.consideration
The right of government to acquire private property, without the owner’s consent, for
public use in exchange for just compensation is referred to as:
A.inverse condemnation
B.regulatory taking
C.eminent domain
D.dedication