Finance 33537 | Course Paper

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Adjustments for physical characteristics are intended to capture the dimensions in

which a comparable property differs physically from the subject property. If the only

physical difference between the subject property and the comparable is that the

comparable does not have a fireplace, which of the following adjustments should take

place?

A. The transaction price of the comparable property should be adjusted downward.

B. The transaction price of the comparable property should be adjusted upward.

C. The transaction price of the subject property should be adjusted downward.

D. The transaction price of the subject property should be adjusted upward.

Co-ownership can occur in a variety of ways, with significant variation in how the

bundle of rights is jointly held. All of the following entities are forms of direct

co-ownership

EXCEPT:

A. Tenancy in common

B. Tenancy by the entirety

C. Condominium

D. Partnership

The choice of ownership form for pooled equity investments depends heavily on federal

tax considerations. Which of the following ownership structures suffers from the major

disadvantage of double taxation?

A. C Corporation

B. Subchapter S Corporation

C. General Partnership

D. Limited Liability Company

Which of the following types of ownership estates is the most complete bundle of

rights, and therefore carries the greatest value?

A. Fee simple absolute

B. Fee simple conditional

C. Ordinary life estate

D. Legal life estate

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

Net operating income is similar to which of the following measures of cash flow in

corporate finance?

A. Dividend yield

B. Earnings before deductions for interest, depreciation, income taxes, and amortization

(EBIDTA)

C. Price-earnings ratio

D. Discount rate

It is common for real estate firms to identify submarkets, such as property types or

particular sections of a city, in which they can specialize and concentrate their

transaction activity. This practice is referred to as:

A. internet marketing

B. open listing

C. discount brokerage

D. market segmentation

Relative to residential loans, the underwriting process for commercial loans is more

complicated. The commercial loan underwriting process focuses first on which of the

following?

A. Individual borrower’s credit quality

B. Income producing potential of the collateral property

C. Individual borrower’s wages

D. Individual borrower’s personal assets

In addition to numerous congressional acts that focus more on national regulation, laws

have been created that affect the practice of home mortgage lending at a community or

neighborhood level. For example, laws have been enacted to prevent lenders from

avoiding certain neighborhoods without regard to the merits of the individual loan

applications, a practice more commonly referred to as:

A. rescinding

B. redlining

C. assuming

D. holdout

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

The most common definition of a city used for government data collection and

reporting, identified as a single labor market area centered around a city with a

population of at least 50,000 people, is referred to as a:

A. township

B. central business district

C. metropolitan statistical area

D. county

Loan servicing includes a number of responsibilities such as collecting monthly

mortgage payments from the borrower, remitting principal and interest payments to

investors, ensuring sufficient escrow payments are being made by the borrower, and

managing default if it should arise. In exchange for these services, mortgage bankers

receive a fee. If the outstanding loan balance is $250,000 and the annual servicing fee is

0.35%, what is the monthly fee for servicing the loan?

A. $72.92

B. $729.17

C. $875.00

D. $8,750.00

Mortgage originators often offer many types and forms of available residential loans as

part of their mortgage menu. However, the predominant form of prime conventional

mortgage remains the:

A. (fixed-rate) level payment mortgage (LPM)

B. adjustable rate mortgage (ARM)

C. subprime mortgage

D. alt-A mortgage

The strength of a successful developer lies in his or her ability to select design

professionals and engineers that play vital roles in the project’s plan and completion.

Which of the following individuals would be most concerned, on a general level, with

the design aesthetics, optimal use and preservation of the site, traffic flows, utility

systems and drainage systems?

A. Land planner

B. Landscape architect

C. Mechanical engineer

D. Environmental agent

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

Federal Housing Administration (FHA) loans differ from conventional loans in a

number of ways. All of the following statements regarding FHA loans are true

EXCEPT:

A. FHA loans are targeted toward first-time homebuyers who are in slightly weaker

financial circumstances than the typical prime conventional borrower.

B. FHA loans are more tolerant in terms of qualifying debt-to-income ratios

C. FHA loans require higher credit scores than are needed for prime conventional loans.

D. FHA loans contain lower limits on their maximum size than are available through

conforming conventional loans.

In collecting data for nonresidential property analysis, it is helpful to understand the

business community that currently exists in the specific area in question. A preliminary

approach for ascertaining the number of firms by size, industry, and location is to obtain

data from:

A. the Bureau of Labor Statistics

B. the National Transportation Service

C. the U.S. Bureau of the Census: County Business Patterns

D. the Federal Reserve

Profitability ratios, income multipliers, and financial risk ratios can be used to provide a

quick assessment of a property’s relative value. Which of the following ratios measures

the overall income-producing ability of the property?

A. Capitalization rate

B. Equity dividend rate

C. Debt coverage ratio

D. Operating expense ratio

Suppose your personal financial goal is to retire with a million dollars in your savings

account. How much must you deposit monthly in an account paying 5% a year (with

interest being compounded monthly and your deposits occurring at the end of the

month), to accumulate $1,000,000 by your 65th birthday if you begin your deposits on

your 22nd birthday? (Note: Assume that you started with no savings in the account

prior to your first deposit at age 22 and you do not make a deposit on your

65thbirthday)

A. $552.13

B. $701.90

C. $21,282.95

D. $186,354.63

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.

Real estate markets tend to be highly segmented due to the heterogeneous nature of the

products. Which of the following examples depicts this issue of market segmentation?

A. A couple searching for a single-family detached unit is willing to consider other

residential property types such as an attached townhouse unit or condominium.

B. A couple searching for a single-family detached unit has limited their search to

homes in a single elementary school district

C. A couple searching for a single-family detached unit has set a timeline for their

search of 6 months, at which point they will renew their current apartment lease.

D. A couple searching for a single-family detached unit has limited their search to be in

a specific price range between $350,000 and $400,000.

Let’s assume that we are about to appraise a house using the cost approach. The home

was originally constructed in the early 1900s and is one of the last of its kind in this

area. The cost of constructing an exact replica of this residence is estimated to be

$350,000. On our trip to the actual property, we notice that this is the only residential

unit located on this particular road. Based on the current usage of adjacent real estate,

we estimate that the property would be worth an additional $25,000 in its highest and

best use. However, due to the dramatic shift in the perceived safety of the

neighborhood, values of any remaining residential properties in the area have fallen by

$20,000. Due to the home’s age, we also notice that there has been a significant amount

of physical deterioration to the building, amounting to an estimate of

$50,000 in lost value. Since the home was built over 100 years ago, the floor plan is

quite obsolete relative to current preferences. This has a detrimental effect on the value

of the property that is estimated to be approximately $15,000. Given this information,

determine the appraised value of the home using the cost approach.

A. $265,000

B. $290,000

C. $350,000

D. $460,000

Development taking place in rural areas well beyond the urban fringe is commonly

referred to as:

A. urban sprawl

B. holdout

C. urban service areas

D. homestead

State licensing laws prescribe behavioral requirements with which licensees must

comply to keep their licenses. Licensing laws generally seek to prevent brokers from

partaking in all of the following activities EXCEPT:

A. Handling money in trust for clients

B. Taking kickbacks without the employer’s knowledge

C. Offering the property at terms other than those specified by clients

D. Failure to submit all offers to the client

Eminent domain is the right of government to acquire private land, without the owner’s

consent, for public use, with due process and just compensation. The legal procedure

for exercising the right of eminent domain is referred to as:

A. Growth restriction

B. Urban sprawl

C. Blighted development

D. Condemnation

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

When multiple individuals have use of a property, but their interests are not

simultaneous, this type of co-ownership is referred to as a:

A. Cooperative

B. Tenancy by the entirety

C. Condominium

D. Timeshare

The starting point in calculating net operating income is the total annual income the

property would produce assuming 100 percent occupancy and no collection losses. This

is commonly referred to as:

A. effective Gross Income

B. potential Gross Income

C. operating expenses

D. capital expenditures

When a landowner subdivides land in a way that causes a parcel to be landlocked, it is

possible for property to be voluntarily conveyed without a deed. If the landlocked

parcel has no prior path of access, which of the following types of easements will

automatically be created to make the land useful?

A. Easement by prior use

B. Easement of necessity

C. Easement by estoppel

D. Dedication

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

Suppose you have taken out a $200,000 fully-amortizing fixed rate mortgage loan that

has a term of 15 years and an interest rate of 4.25%. In month 2 of the mortgage, how

much of the monthly mortgage payment does the principal repayment portion consist

of?

A. $705.51

B. $708.33

C. $796.22

D. $799.04

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. Monthly

principal and interest on mortgage loan: $635, Monthly Tax and insurance payments

into escrow: $125, Monthly Car lease payment (lease term is 3 years): $350, Gross

monthly income: $2,500

A. 25.4%

B. 30.4%

C. 44.4%

D. 53.2%