Competition for the currently available supply of locations and space coupled with the
existing supply of leasable space, determines:
A. the current level of rental rates for each submarket and property
B. the riskiness of the expected cash flows of an income-producing property
C. the timing of the expected cash flows of an income-producing property
D. the cost of financing the purchase of a property
When a buyer acquires a property having an existing mortgage loan, a decision must be
made as to whether or not the subsequent owner of the property can preserve the loan.
If the buyer does not add his or her signature to the note, the buyer does not take on any
personal liability. In this case, the buyer is said to:
A. assume the old loan
B. purchase the property subject to the existing loan
C. obtain the property through the use of a contract for deed.
D. foreclose on the property
Which of the following types of direct co-ownership combines single person ownership
with tenancy in common?
A. Cooperative
B. Tenancy by the entirety
C. Condominium
D. Partnership
You have taken out a $350,000, 3/1 ARM. The initial rate of 6.0% (annual) is locked in
for 3 years. Calculate the outstanding balance on the loan after 3 years. The interest rate
after the initial lock period is 6.5%. (Note: the term on this 3/1 ARM is 30 years)
A. $2,098.43
B. $2,183.95
C. $336,294.25
D. $347,901.57
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
Violations of the requirements of a note that do not disrupt the payments on the loan
tend to be viewed as “technical” defaults. In practice, how many days must a payment
be overdue in order for lenders to treat a default as serious (i.e., a substantive default)?
A. One day
B. 30 days
C. 60 days
D. 90 days
To the extent the tenant is permitted to alter the leased premises, the lease should clearly
state when this may be done, and under what circumstances. The lease must also be
clear about the ownership of such improvements once completed. Which of the
following terms refers to items of personal property that are attached to the real
property, are paid for and installed by the tenant, and may be removed by the tenant at
the termination of the lease?
A. Trade fixtures
B. Anchors
C. Concessions
D. Expense stop
The developer will face a variety of costs throughout the project’s life. Which of the
following would be classified as a soft cost?
A. Legal fees of the permitting process
B. Costs of materials
C. Labor cost of subcontractors for construction
D. Cost of land
Considered the most common type of home loan, which of the following refers to any
standard home loan that is not insured or guaranteed by an agency of the U.S.
government?
A. Conventional home loan
B. Federal Housing Administration loan
C. Veterans Affairs loan
D. Section 203 loan
In recent years, lenders have been unwilling to relieve borrowers from personal liability
in the event of fraud, environmental problems, or unpaid property tax obligations.
Therefore, some lenders include a clause that pierces the single-purpose borrowing
entity to hold the actual borrower liable in such instances. This clause is commonly
referred to as a:
A. habendum clause
B. lockout provision
C. defeasance
D. “bad boy carve-out” clause
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.
Given the following information, compute the taxable value for the particular piece of
property in dollar terms. Market value of property: $500,000, Assessed value of
property: 85 % of the market value of the property, Exemptions: $50,000, Taxes paid:
$8,250.
A. $75,000
B. $375,000
C. $416,750
D. $425,000
Given the following information, determine the value of having an additional bedroom.
Assume that the comparable properties are similar in all other attributes besides those
listed in the table below.
A. $5,000
B. $15,000
C. $20,000
D. $25,000
Any contract, whether it is for the sale of real estate or some other entity, must contain
five basic elements. However, any contract for the sale of real estate must adhere to two
additional requirements. Which of the following contract elements is an additional
requirement that must be satisfied in a contract for sale of real estate that isn”t
necessarily a part of other contracts?
A. No defects to mutual assent
B. Consideration
C. Offer and acceptance
D. Written form
When the seller in a contract for sale fails to perform (e.g. breach of contract,
nonperformance, or default), the buyer has a variety of remedies. One such remedy is to
appeal to the court to force the defaulting seller to carry out the contract. This remedy is
most commonly referred to as suing for:
A. Damages.
B. Earnest.
C. Recission.
D. Specific performance.
The type of deed offered by the grantor is communicated through a phrase such as
“does herby grant, bargain, sell and convey unto . . .” This clause is referred to as the:
A. recital of consideration
B. words of conveyance
C. covenant
D. habendum clause
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)
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
In contrast to base activities, local economic activities (or secondary activities) serve
the local business and households that are recirculating the income derived through the
city’s economic base. In other words, we can distinguish local economic activities from
export activities by thinking about whether or not the activity brings money into the city
from outside sources. Which of the following activities is NOT an example of land use
for local economic activity?
A. Retail centers
B. Restaurants
C. Automotive services
D. Manufacturing Center
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.
Tax rates are usually stated in mills. Assuming the tax rate in percentage terms is 6.5%,
convert this rate to mills.
A. 0.065 mills
B. 6.5 mills
C. 65 mills
D. 650 mills
Negative externalities can diminish a property’s value by imposing costs on the
community at large. In order to offset this detrimental impact, economists advocate
“internalizing” these externalities by implementing:
A. performance standards
B. impact fees
C. growth moratoriums
D. planned unit developments
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
loans.
A. higher
B. equal
C. lower
D. more volatile
The Real Estate Research Corporation (RERC) regularly surveys a sample of
institutional investors and managers in order to gain insight into the required returns
and risk adjustments used by industry professionals when making real estate
acquisitions. Most of the properties that RERC examines are large, relatively new,
located in major metropolitan areas and fully or substantially leased. These
classifications of properties are commonly referred to as:
A. investment grade properties
B. speculative grade properties
C. net-lease properties
D. industrial properties
Suppose that an appraiser has come to the following conclusions in evaluating the
subject property. Due to the dramatic shift in the perceived safety of the neighborhood,
values of any residential properties in the area of the subject property have fallen by
$10,000, on average. Due to the subject property’s age, physical deterioration to the
building accounts for an estimate of $50,000 in lost value. An evaluation of the floor
plan reveals that it is quite obsolete relative to current homebuyer preferences. This has
a detrimental effect on the value of the property that is estimated to be approximately
$15,000. Based on your understanding of adjustments related to accrued depreciation,
which of the following pertains to the adjustment for external obsolescence?
A. $10,000
B. $15,000
C. $50,000
D. $75,000
There are a number of alternatives when it comes to the capital structure for
acquisitions of commercial real estate. Through which of the following lending
relationships does the lender have the right to foreclose on the equity of the borrower’s
company in the case of default?
A. Second mortgage loan
B. Mezzanine loan
C. Mini-perm loan
D. Construction loan
Given the following information regarding an income producing property, determine
the unlevered internal rate of return (IRR). Expected Holding Period: 5 years; 1st year
ExpectedNOI: $89,100; 2nd year Expected NOI: $91,773; 3rd year Expected NOI:
$94,526; 4th year Expected NOI: $97,362; 5th year Expected NOI: $100,283; Debt
Service in each of the next five years: $58,444; Current Market Value: $885,000;
Required equity investment: $221,250; Net Sale Proceeds of Property at end of year 5:
$974,700; Remaining Mortgage Balance at end of year 5: $631,026.
A. 10.6%
B. 12.2%
C. 22.9%
D. 33.4%
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
Prior to determining the treatment of capital expenditures in the calculation of NOI, it is
important to distinguish these costs from operating expenses. In contrast to operating
expenses, capital expenditures:
A. add to the market value of the property
B. are deductible for tax purposes in the year in which they are paid.
C. are necessary to keep the property operating and competitive in its local market.
D. may include minor repairs that do not add to the property’s useful life.
Suppose the operating agreement of an LLC insists that all investors receive their pro
rata share of all cash flows when a property is liquidated from the portfolio. If all 15
investors contributed an equal amount of equity in establishing the LLC, each investor
should receive how much from the liquidation of a property valued at $3,500,000.
A. $233,333
B. $350,000
C. $3,500,000
D. $52,500,000
Suppose an investor is interested in purchasing the following income producing
property at a current market price of $490,000. The prospective buyer has estimated the
expected cash flows over the next four years to be as follows: Year 1 = $48,000, Year 2
= $49,440, Year 3 = $50,923, Year 4 = $52,451. Assuming that the required rate of
return is 14% and the estimated proceeds from selling the property at the end of year
four is $560,000, what is the NPV of the project?
A. -$12,860.53
B. $145,574.52
C. $331,564.96
D. $477,139.47
Suppose you have obtained a 6%, 30 year fully-amortizing FHA mortgage loan of
$152,625 to finance the purchase of your primary residence. In so doing, you must pay
an additional mortgage insurance premium (MIP) of 1.10%. If the first-year average
loan balance is $151,775.25, determine the first-year monthly insurance premium
payment.
A. $139.13
B. $1,025.69
C. $1,669.53
D. $1,678.88
In calculating the net operating income (NOI) of a property, the “above-line” treatment
of capital expenditures implies:
A. capital expenditures are excluded from the calculation of NOI.
B. capital expenditures are included in the calculation of NOI.
C. capital expenditures are set equal to NOI.
D. capital expenditures are divided by NOI.
A deed is a special form of written contract used to convey a permanent interest in real
property. Unlike most contracts, a deed requires:
A. both parties to be legally competent and of legal majority age.
B. only the grantee to be legally competent and of legal majority age.
C. only the grantor to be legally competent and of legal majority age.
D. both parties to make promises to perform.
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