Since investors prefer to have money now rather than later, money received next week,
instead of today, is not worth as much to those receiving it, assuming the magnitude of
the cash flow in each period is the same. Therefore an adjustment to the prospective
cash flows is required. This process is referred to as:
A. compounding
B. discounting
C. amortizing
D. hedging
It may be appropriate for a real estate professional to utilize different approaches for
estimating the market value of a property depending upon the particular property type
and use. Which of the following approaches would be most applicable when
considering the valuation of retail office space (i.e., which approach would receive the
most weight in the valuation process)?
A. Income approach
B. Sales comparison approach
C. Cost approach
D. Investment approach
Homeowners receive preferential tax treatment under current federal income tax laws.
The benefits that homeowners receive from this treatment include all of the following
EXCEPT:
A. Appreciation in the value of the home that has occurred since the time of purchase is
excluded from federal taxable income
B. Homeowners can deduct their mortgage interest expenses on both first (primary) and
second homes from federal taxable income
C. Homeowners can deduct local property taxes from federal taxable income
D. Losses on the sale of a personal residence can be deducted from federal taxable
income
In contrast to public markets, private markets are characterized by individually
negotiated transactions that take place without the aid of a centralized market.
Therefore, private markets will generally have:
A. High transaction costs and high liquidity
B. High transaction costs and low liquidity
C. Low transaction costs and high liquidity
D. Low transaction costs and low liquidity
The property manager works under a management agreement between the property
owner and the property management firm. As compensation for his duties, the property
manager will negotiate a management fee. Given the following information, calculate
the dollar compensation to the property manager in year 1. Potential Gross Income of
the property: $250,000; Vacancy and Collection Losses: 15%; Miscellaneous Income:
$50,000; Management Fee: 3%.
A. $4,875
B. $6,375
C. $7,500
D. $7,875
Suppose you are interested in selling your home and would like to clear a net value of
$300,000. If you have agreed to pay your broker a commission of 5.5% (no matter who
ultimately is responsible for finding the buyer), what price must you sell the home for
in order to meet your net profit (rounded to the nearest dollar)?
A. $282,540
B. $300,000
C. $316,500
D. $317,460
Lenders may request that property owners of rental properties include a clause in their
lease agreement that gives the lender the right to terminate the lease and evict the
tenant, even if the tenant has fulfilled all of its responsibilities under the lease, in the
case that the owner of the property defaults on her mortgage. This part of the lease
agreement is more commonly referred to as a:
A. Subordination clause
B. Non-disturbance agreement
C. Relocation option
D. Expansion option
In addition to the UFMIP (up-front mortgage insurance premium), the owner-occupant
borrower who decides to use an FHA mortgage loan will normally pay an additional
annual mortgage insurance premium (MIP) that depends on the loan-to-value ratio and
the term of the loan. For loans with maturity longer than 15 years and a loan to value
ratio that is greater than 95 percent, the MIP will be what percentage of the average
annual loan balance?
A. 0.25%
B. 0.50%
C. 1.10%
D. 1.15%
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 securing a new tenant for a commercial rental property, the owner of the property
might incur an additional expense that amounts to the cost of refurbishing the rental
space to meet the needs of the tenant’s business. The allocation of money for this added
expense is more commonly referred to as a(n):
A. tenant improvement allowance
B. concession
C. sublease
D. expense stop
Congressional legislation has repeatedly altered the period of time over which rental
real estate may be depreciated. Currently, residential income producing property (e.g.
apartments) may be depreciated over no less than:
A. 3 years
B. 7 years
C. 15 years
D. 27 years
When construction costs exceed the amount of the construction loan, a developer may
seek to cover the gap using mezzanine financing. All of the following statements
regarding mezzanine debt are true EXCEPT:
A. Mezzanine debt use is less expensive than normal construction financing
B. Mezzanine debt use avoids dilution of equity returns
C. Mezzanine debt use is less expensive than equity financing
D. Mezzanine debt use avoids the foreclosure process in the case of default
Given the following information, calculate the appropriate going-in cap rate using
mortgage-equity rate analysis. Mortgage financing = 75%, Typical debt financing cap
rate: 10%, Sale price: $1,950,000, Before Tax Cash Flow (BTCF): $390,000.
A. 9.6%
B. 10%
C. 12.5%
D. 13.6%
Which of the following types of institutions has historically been the largest purchaser
of residential mortgages?
A. Commercial banks
B. Savings and Loans
C. Government sponsored enterprises
D. Mortgage banking companies
Given the following information regarding an income producing property, determine
the internal rate of return (IRR) using levered cash flows. Expected Holding Period: 5
years; 1st year Expected NOI: $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%
Assume that an individual has just lost his job and has been consistently late paying his
bills. The bank recognizes deterioration in the individual’s credit score and has notified
him that he must pay his home equity line of credit in full. The mortgage clause that
makes this possible is known as the:
A. demand clause
B. insurance clause
C. escrow clause
D. exculpatory clause
It is common for investors in real estate to use mortgage debt to help finance capital
investment. The use of debt can have a profound impact on the expected cash flows for
a
particular property. Which of the following terms refers to cash flows that represent the
property’s income after subtracting any payments due to the lender?
A. Levered cash flows
B. Unlevered cash flows
C. Discounted cash flows
D. Compounded cash flows
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
Given the following information, calculate the funds from operation (FFO). 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.
A. $195,000
B. $1,395,000
C. $2,870,000
D. $4,070,000
Many older, retired households are considered “house poor.” Which of the following
forms of loans has been designed to help mitigate this problem by offering additional
monthly income to these homeowners in exchange for a portion of their housing equity?
A. Purchase-money mortgage (PMM)
B. Piggyback Mortgage
C. Home equity loan
D. Reverse mortgage
A contemporary planning movement that explicitly advocates a traditional grid pattern
of development designed to give pedestrian life priority over motor vehicles (e.g.,
including narrowed streets with houses close to the street and garage access through
side alleys) is commonly referred to as:
A. urban sprawl
B. urban service area
C. traditional residential planning
D. new urbanism
In an attempt to regulate home mortgage lending after the mortgage crisis of 2007,
which of the following acts created an independent oversight agency tasked with the
responsibility of overseeing and enforcing Federal consumer financial protection laws,
enforcing anti-discrimination laws in consumer finance, restricting unfair, deceptive or
abusive acts or practices, receiving consumer complaints, promoting financial
education, and watching for emerging financial risks for consumers?
A. Equal Credit Opportunity Act (ECOA)
B. Truth-in-Lending Act (TILA)
C. Real Estate Settlement Procedures Act (RESPA)
D. Dodd-Frank Wall Street Reform and Consumer Protection Act
In certain circumstances, mutual assent between the contracting parties may be broken,
thus invalidating the contract. Which of the following defects to mutual assent involves
compelling a person to act by the use of force?
A. One of the parties is under duress.
B. One of the parties is under undue influence.
C. One of the parties is under menace.
D. One of the parties is committing fraud.
In the late 1960’s, Congress created a number of agencies designed to address a
struggling secondary market for residential mortgages. Which of the following
organizations was developed primarily to guarantee mortgage-backed securities based
on pools of FHA, VA and Rural Housing Service loans, rather than issue, buy or sell
mortgages?
A. Federal National Mortgage Association (Fannie Mae)
B. Government National Mortgage Association (Ginnie Mae)
C. Federal Home Loan Mortgage Corporation (Freddie Mac)
D. Federal Agricultural Mortgage Corporation (Farmer Mac)
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
When a borrower decides to stop making payments on an existing mortgage loan
despite having the ability to make payments (typically when the home has lost value),
this is more commonly referred to as a(n):
A. Equity redemption
B. Statutory redemption
C. Strategic default
D. Reverse mortgage
Just as it is important for an investor to consider the impact of financial leverage on her
return, it is also necessary to account for the effect of income taxes. How would the
presence of income taxes impact the levered going-in IRR?
A. Income taxes increase the levered going-in-IRR
B. Income taxes reduce the levered going-in-IRR
C. Income taxes do not affect the going-in-IRR
D. Income taxes cause the levered going-in-IRR to become invalid as a measure of
return.
Capital markets can be divided into two broad categories: equity interests and debt
interests. Equity investors in real estate expect to earn a return on their investment
through:
A. The collection of rent and price appreciation
B. The collection of interest on the borrowed funds used to purchase the property
C. The receipt of property taxes
D. The case of a borrower default on required mortgage payments
The difference between judicial foreclosure and power of sale in the treatment of
defaulted mortgages can be significant. All of the following statements regarding power
of sale are true EXCEPT:
A. The power of sale treatment is faster than judicial foreclosure
B. The foreclosed property is typically sold through a public auction administered by
the court.
C. It is less costly for power of sale to be employed than judicial foreclosure.
D. Typically, lenders must give proper legal notice to the borrower, advertise the sale
property, and allow a required passage of time before the sale.
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
Which of the following models of urban form is characterized by radial corridors or
wedges representing the pattern of residential land use in relation to the location of the
central business district (CBD)?
A. Bid-rent model
B. Concentric circle model
C. Sector model
D. Multi-nuclei model
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%
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
When a buyer signs an offer to purchase a property, the broker receives a monetary
amount from the purchaser of 5 or 10 percent of the purchase price. This deposit is
commonly referred to as the:
A. commission
B. earnest money
C. closing cost
D. title insurance premium