Finance 18855 | Course Paper

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Uncertainty of cash flows can vary significantly across property types. Which of the

following property types is often considered to have the most uncertain expected cash

flows?

A.Multifamily

B.Industrial

C.Office

D.Hospitality

While there is no specific number of comparables that is right for every appraisal

assignment, how many comparable sales are considered adequate as long as the

properties are very similar to the subject property?

A.One

B.Three

C.Five

D.Ten

The benefit of being classified as a capital gain is that the income is subject to a tax rate

that maxes out at 15%, which may be well below the tax rates associated with

depreciation recapture income and ordinary income for a particular investor. In order to

qualify for the lower capital gain tax rate, the property being sold must be held for more

than:

A.1 month

B.3 months

C.6 months

D.12 months

If the per share stock price of a REIT is greater than its per share net asset value (NAV),

the REIT is said to be selling at:

A.par value

B.a discount

C.a premium

D.an auction

If property owners fail to pay their taxes in a timely fashion, this can create a first lien

on the mortgaged property. In order to protect against this, lenders often require that

borrowers add what fraction of their estimated tax bill to their required monthly

mortgage payments?

A.1/12

B.1/6

C.1/4

D.1/2

Most real estate loans have a definite term to maturity, stated in years. The majority of

home loans will typically have a term to maturity between:

A.1-5 years

B.5-7 years

C.7-15 years

D.15-30 years

When property managers are looking to secure a mix of tenants for which “the whole is

greater than the sum of its parts,” or in other words a group of tenants that shares

similar characteristics such that the experience of living together is mutually beneficial,

they are seeking what is referred to as:

A.permanence potential

B.synergism

C.rehabilitation

D.adaptive reuse

As of December 2008, the market value of outstanding real estate mortgage debt was:

A.greater than the market value of corporate equities

B.less than the market value of U.S. Treasury securities

C.less than the market value of corporate and foreign bonds

D.greater than the market value of corporate, foreign, and U.S. Treasury debt securities

combined

A lien is an interest in real property that serves as security for an obligation. Which of

the following is an example of a general lien?

A.Property tax and assessment lien

B.Mortgage lien

C.Lien arising from a court judgment unrelated to ownership of the property

D.Mechanics’ lien

Capital markets can be divided into four main categories: private equity, public equity,

private debt, and public debt. An example of a real estate asset that trades in the private

equity market is:

A.real property

B.home mortgages

C.equity REITs

D.mortgage backed securities

Despite the magnitude of their real estate holdings, many non-real estate corporations

have historically expended little effort to manage these assets effectively. Recently, the

development of which of the following markets has helped to quell concerns related to

this issue?

A.Commercial mortgage backed securities (CMBS)

B.Sale-leaseback

C.Tenancy-in-common (TIC)

D.Installment sale

Mortgage loans made to borrowers with normal credit quality, but who lack the

necessary documentation needed to meet conforming mortgage standards would most

likely be considered:

A.subprime loans

B.option ARM loans

C.hybrid ARM loans

D.alt-A loans

Congress has enacted a number of regulations that have established criteria for

evaluating home loan applicants and mandating disclosures in the origination of home

loans. Which of the following congressional acts requires important disclosures

concerning the cost of consumer credit, including the computation of the annual

percentage rate (APR)?

A.Equal Credit Opportunity Act (ECOA)

B.Truth-in-Lending Act (TILA)

C.Real Estate Settlement Procedures Act (RESPA)

D.Home Ownership and Equity Protection Act (HOEPA)

The choice of ownership form for pooled equity investments can also depend on the

desire to avoid personal liability. Which of the following ownership structures suffers

from the major disadvantage of unlimited liability for all investors?

A.C Corporation

B.Subchapter S Corporation

C.General Partnership

D.Limited Partnership

When using discounted cash flow analysis for valuation, the appraiser must estimate the

sale price at the end of the expected holding period. This price is referred to as the

property’s:

A.net sale proceeds

B.selling expenses

C.terminal value

D.current market value

The importance of brokers in the real estate market is often overlooked. In the absence

of a real estate broker, one would expect all of the following to be true EXCEPT:

A.Real estate values would be higher.

B.A seller would most likely rely on a “thinner” market (i.e. the seller has access to

fewer prospective buyers).

C.It would be more difficult and costly for an individual to buy or sell a property.

D.Buyers would be more inclined to negotiate prices downward by at least the value of

a typical commission.

Lenders generally require private mortgage insurance (PMI) for conventional loans

over 80 percent of the value of the security property. PMI protects a lender against

which of the following?

A.Losses due to default on the loan

B.Legal threat to the lender’s mortgage claim

C.Physical hazards

D.Changes in the index rate associated with an adjustable rate mortgage

The required rate of return that an individual demands on a real estate investment is

determined in the:

A.user market

B.capital market

C.government

D.local market

When leasing nonresidential properties, owners would prefer to rent exclusively to high

quality tenants. Such owners will tend to seek out companies whose general debt

obligations are rated “investment grade” by one of more of the U.S. rating agencies.

These potential tenants are more commonly referred to as:

A.tenant reps

B.credit tenants

C.tenant mix

D.in-house leasing agents

In ascertaining whether a borrower has the ability to pay off his loan over time, a

mortgage bank may rely on calculating a total debt ratio as part of its underwriting

process. Utilizing the following information, calculate the total debt ratio. Principle and

interest: $635, Tax and insurance: $125, Car lease: $350, Gross monthly income:

$2,500

A.25.4%

B.30.4%

C.44.4%

D.53.2%

While some property owners choose to perform both the property and asset manager

functions themselves, many commercial property owners choose to employ

professional property managers instead. The property manager works under a

management contract in which the manager is empowered to serve as the owner’s

fiduciary. This type of relationship is more commonly referred to as a(n):

A.agency relationship

B.open listing relationship

C.joint-venture

D.correspondent relationship

Suppose a buyer agrees to purchase a tract of land for $40,000. The buyer is only able

to obtain a mortgage for $32,000. Rather than let the deal fall through, the seller agrees

to accept $4,000 in cash and a note from the buyer for the remaining $4,000. This type

of transaction is commonly referred to as a:

A.conventional loan

B.home equity mortgage

C.purchase money mortgage

D.reverse mortgage

Given the following information on a 30-year fixed-payment loan, determine the

remaining balance that the borrower has at the end of seven years. Interest Rate: 7%,

Monthly Payment: $1,200.

A.$17,143

B.$79,509

C.$164,402

D.$180,369

Which of the following types of liens is automatically superior to any other lien?

A.Property tax and assessment lien

B.Mortgage lien

C.Lien arising from a court judgment unrelated to ownership of the property

D.Mechanics’ lien

An easement is the right to use land for a specific and limited purpose. Which of the

following easements involves a relationship between two parcels of land, is a

permanent feature of both parcels involved, and gives the dominant parcel some

intrusive use of the servient parcel?

A.Affirmative easement appurtenant

B.Negative easement appurtenant

C.Easement in gross

D.License

One of the traditional requirements for individuals who wish to obtain a brokerage

license has been to demonstrate financial capacity to cover damage judgments brought

against them by clients. In order to address this concern, some states have required

licensees to first obtain:

A.Private mortgage insurance (PMI)

B.Errors and omission insurance

C.Deposit insurance

D.Hazard insurance

Given the following information, calculate the break-even ratio on the following

commercial property. Operating expenses: $650,000, Capital expenditures: $105,000,

Potential gross income: $2,500,000, Debt service in the first year: $960,000, Loan

amount: $20,000,000, Purchase price: $27,300,000

A.43.7 %

B.55.8 %

C.68.6 %

D.75.2 %

In a mortgage loan, the borrower always creates two documents: a note and a mortgage.

Which of the following pieces of information is provided in the mortgage?

A.How the interest rate is to be computed.

B.Whether the borrower has the right to prepay the principal during the term of the

loan, and any prepayment penalties that would be incurred as a result.

C.Whether the borrower is released from liability for fulfillment of the contract.

D.Whether the lender has the right to accelerate the loan, requiring the borrower to pay

it off, in the case that the property is sold prior to the term of the loan.

If all appraisal methods are appropriate for use in valuing a particular property, there is

a clear order of preference that real estate professionals adhere to. Which of the

following depicts the preferred order, with the most preferable approach being listed

first and the least preferable listed last?

A.Sales comparison approach, cost approach, income approach

B.Income approach, Sales comparison approach, cost approach

C.Cost approach, income approach, sales comparison approach

D.Sales comparison approach, income approach, cost approach

An owner of land may involuntarily and unknowingly give up the rights to land. When

a fee simple interest is conveyed to a new owner without a deed and without the

consent or knowledge of the original owner, this is said to be conveyed by:

A.Prescription

B.Adverse possession

C.Accretion

D.Reliction

An investor originally paid $22,000 for a vacant lot 12 years ago. If the investor is able

to sell the lot today for $62,000, what would his annual rate of return be on this

investment?

A.5%

B.7%

C.9%

D.11%

Contracts for sale may contain sections that cause implementation of the contract to

depend on the successful completion of some prior action such as the buyer’s ability to

obtain financing on specified terms. This type of contract is commonly referred to as

a(n):

A.assignment

B.equitable title

C.contract with contingencies

D.uniform settlement statement