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When discussing time-value-of-money it is necessary to understand some key
terminology. Which of the following terms refers to a fixed amount of money paid or
received at the end of every period (i.e. a series of equal lump sums)?
A. Future value
B. Present value
C. Ordinary annuity
D. Annuity due
According to the law of agency, real estate brokers are required to observe several
duties as they act as an agent for an individual trying to buy or sell a property. Which of
the following duties refers to a broker's obligation to be completely open and honest
with the principal?
A. Disclosure
B. Confidentiality
C. Loyalty
D. Obedience
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
Given the following information, calculate the taxes due on sale for the following fully
taxable sale. Net Sale Proceeds: $1,500,000, Adjustable Basis: $830,000, Depreciation
Recapture: $150,000, Capital Gain Tax: 15%, Depreciation Recapture tax: 25%.
A. $37,500
B. $78,000
C. $100,500
D. $115,500
Direct investment in private commercial real estate markets is a preferred means of
ownership for the largest institutional market participants. Which of the following types
of institutions rely on stable income from commercial real estate properties to pay out
retirement benefits?
A. Pension funds
B. Life insurance companies
C. Commercial Banks
D. Investment Banks
A city's economic base can be viewed in terms of a multiplier process, in which the
money that is brought in through export activities is then respent within the city. Which
of the following economic activities is the least likely to be considered a high-impact or
high-multiplier economic base activity?
A. Tourism
B. Retirement
C. Computer assembly
D. Specialized medical services
Development involves a complex organization of many moving parts. Which of the
following choices is often viewed as the single greatest cause of project delays and cost
overruns?
A. Obtaining permits
B. Financing
C. Effective communication between developer, architect, and engineer
D. Selecting the architect
With a performance-based management contract, an asset manager's fees are tied
directly to the rate of return earned by investors on the portfolio of managed properties
relative to a benchmark. In private commercial real estate, the choice of benchmarks for
performance is limited in large part to return indices provided by which of the following
organizations?
A. Standard and Poor's
B. National Association of Real Estate Investment Trusts
C. National Council of Real Estate Investment Fiduciaries
D. Wilshire Associates
The purchase price of an income producing property today is $570,000. After analysis
of the expected future cash flows, expected sales price, and expected yield, the investor
determines that the future cash flows have a present value (PV) of $580,000. Taking
into consideration the price of the property today, what is the net present value (NPV)
of this investment opportunity, and should the investor take the deal?
A. $10,000; Yes
B. $10,000; No
C. -$10,000; Yes
D. -$10,000; No
While a sublease and an assignment are two distinct choices for a tenant who wishes to
transfer his rights during the term of a lease, both agreements:
A. transfer all of a tenant's rights to another party
B. transfer only a subset of rights to another party
C. grant another party the right to cancel the original lease before expiration
D. maintain that the original tenant be held liable for fulfilling the original lease unless
otherwise specified
The magnitude of an economic base multiplier depends upon the amount of money that
"leaks" out through expenditures outside of the city limits. The economic multiplier
tends to be higher with each of the following EXCEPT:
A. A higher percentage of local household income is respent within the city.
B. The larger the city is.
C. The less isolated the city is from other cities.
D. The more tourism a city brings in.
Most real estate investment trusts (REITs) are actively managed operating companies
that typically focus their investments either by property type or geographic market.
Which of the following commercial property types represents the largest proportion of
REIT market value?
A. Apartments
B. Office
C. Industrial
D. Retail
A fixture is an object that formerly was personal property but has become real property.
Of the following four rules for determining whether an object has become a fixture,
which is the most dominant (i.e. if there is a conflict, which rule prevails)?
A. Manner of the attachment
B. Character of the article and manner of adaptation
C. Intention of the parties
D. Relation of the parties
Suppose an institution has purchased a $250,000 mortgage loan from the loan originator
and wishes to create a mortgage pass-through security. In doing so, this institution will
generate revenue by charging a servicing fee of 35 basis points. If the monthly
mortgage payment on the loan is $1,250, how much income is passed through to the
investor in the mortgage pass through each month (rounded to the nearest dollar)?
A. $73
B. $375
C. $875
D. $1177
Considering the following information, what is the NPV if the borrower refinances the
loan? Expected holding period: 15 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: $$5000. Assume that the opportunity cost
is the interest rate on the new loan (5.5%).
A. -$5,000.00
B. -$56.52
C. $4,943.48
D. $9,943.48
A special contract in which the borrower pledges the mortgaged property as security to
the lender is commonly referred to as the:
A. Mortgage (Deed of Trust)
B. Listing Contract
C. Note
D. Assignment of Mortgage
Traditional home mortgage underwriting is said to rest on three elements, the "three
C's." Recent research (e.g., Archer and Smith, 2011) has confirmed that the
underwriting characteristic most strongly associated with default is:
A. Collateral
B. Creditworthiness
C. Capacity
D. Capability
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
The Federal National Mortgage Association (Fannie Mae) was originally established to
provide a secondary market for FHA-insured and VA-guaranteed loans. All of the
following statements regarding Fannie Mae are true EXCEPT:
A. Fannie Mae lends money directly to homebuyers
B. Fannie Mae was once a private, self-supporting company with publicly traded stock
that has now been placed into conservatorship by the United States government
following the mortgage crisis of 2007-2008.
C. Fannie Mae fully guarantees timely payment of interest and principal to investors.
D. Fannie Mae is authorized to buy both conventional home loans and
government-sponsored residential mortgages.
When fund managers collect contributions from multiple sources and "commingle"
them to purchase properties, this is referred to as the use of commingled real estate
funds. Which of the following institutional investors utilize commingled real estate
funds for approximately one-half of their investments in real estate?
A. Investment banks
B. Life insurance companies
C. Real estate advisory firms
D. Pension funds
Mortgage banks typically will attempt to sell loans as quickly as possible after they are
originated by either issuing mortgage securities or selling the loan to an intermediary
that will subsequently sell the loan in the secondary market. The period between loan
commitment and
loan sale is referred to as the:
A. mortgage pipeline
B. mortgage note
C. mortgage fallout
D. mortgage term
In discounted cash flow (DCF) analysis, the sale price of the property must be estimated
at the end of the expected holding period. The most common method for determining
the terminal value of the property is the:
A. yield capitalization method
B. direct capitalization method
C. repeat-sales approach
D. cost approach
When lenders charge discount points (prepaid interest) on a loan, what impact does this
have on the loan's yield?
A. The yield on the loan will increase.
B. The yield on the loan will decrease.
C. The yield on the loan will be unaffected.
D. The yield on the loan automatically becomes zero.
Considered a fundamental pricing metric in commercial real estate markets, the ratio of
a property's annual net income to its market value is more commonly referred to as a(n):
A. Appreciation rate
B. Capitalization rate
C. Discount rate
D. Internal rate of return
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 you plan to put a 20% down payment on a house and obtain a mortgage loan
that is less than the size limit on conforming loans ($417,000) to finance the remainder
of the purchase. Based on your understanding of the loan-to-value ratio, what is the
maximum price that you could pay for a home with these restrictions in mind?
A. $333,600
B. $500,400
C. $521,250
D. $2,085,000
Suppose that examination of a pro forma reveals that the fifth year net operating income
(NOI) for an income producing property that you are analyzing is $138,446 (you can
assume that this cash flow occurs at the end of the year). If you estimate the projected
rental growth rate for the property to be 5% per year, determine the projected sale price
of the property at the end of year five if the going-out capitalization rate is 9%.
A. $988,900.00
B. $1,465,037.00
C. $1,538,289.00
D. $1,615,203.00
Recognizing that only recent conveyances alter the status of title, states have
established laws that set limits on how far back a title search must go. These laws are
commonly referred to as:
A. Statute of Frauds
B. recording statutes
C. encroachments
D. marketable title laws
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 property owner has set up a contract in which he agrees to sell a warehouse 5 years
from now to the tenant who currently leases the space. The tenant has agreed to
continue to pay $20,000 in rent at the end of each year, including year five, at which
time he will purchase the building for an additional $1,500,000. Assuming the required
rate of return on a similar investment is 10% (annual), how much is this deal presently
worth to the original owner of the property?
A. $1,007,197.20
B. $1,014,779.29
C. $2,281,452.80
D. $2,293,663.00
The measure of cash flow most relevant to investors in income-producing real estate is
the after-tax cash flow (ATCF) from property operations. Therefore, it is important to
know that the maximum federal income tax rate on individuals as of 2012 is:
A. 25%
B. 30%
C. 33%
D. 35%
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 an agent for the buyer or seller, a broker has 6 basic fiduciary responsibilities.
Which of the following definitions best describes the responsibility of "Obedience"?
A. Broker must follow the instructions of the principal to the limits of what is legal and
ethical
B. Broker must keep principal informed of all changes in the financials of the
negotiation
C. Broker must not convey information about principal's financial status or motivations
D. Broker must never subordinate the best interest of the principal to the interests of
others, including himself/herself
In a fixed-term, level-payment reverse mortgage, sometimes called a reverse annuity
mortgage, or RAM, a lender agrees to pay the homeowner a monthly payment, or
annuity, and expects to be repaid from the homeowner's equity when he or she sells the
home or obtains other financing to pay off the RAM. Consider a household that owns a
$150,000 home free
and clear of mortgage debt. The RAM lender agrees to a $100,000 RAM for 10 years at
6 percent. Assume payments are made annually, at the beginning of each year to the
homeowner. Calculate the annual payment on the RAM.
A. $7,157.35
B. $7,586.80
C. $12,817.73
D. $13,586.80
