The successful conveyance of real estate depends on a well-formed contract for sale
since the contract dictates the rights and type of deed involved, as well as choreographs
the entire transaction. Which of the following features of the contract for sale refers to
the arrangements agreed to by the parties, such as price and date of closing?
A. Contract terms
B. Contract conditions
C. Equitable title
D. Contingency clause
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.
Given the following information on an interest-only mortgage, calculate the monthly
mortgage payment. Loan amount: $56,000, Term: 15 years, Interest Rate: 7.5%.
A. $169.13
B. $350
C. $519.13
D. $4,200
Real estate appraisers generally distinguish among the concepts of market value,
investment value, and transaction value. Which of the following statements best
describes the concept of market value?
A. It is an estimate of the most probable selling price of a property in a competitive
market.
B. It is the value a particular investor places on a property.
C. It is the price we observe when a property is sold.
D. It is the maximum amount that a seller would be willing to accept.
The internal rate of return (IRR) on a proposed investment is the discount rate that
makes the net present value of the investment:
A. greater than zero
B. equal to zero
C. less than zero
D. greater than the opportunity cost of not investing
One complication that appraisers may face is the variety of lease types that may be
available for a particular property type. Which of the following statements best
describes a “graduated” or step-up lease?
A. The monthly rent remains fixed over the entire lease term.
B. The lease establishes schedule of rental rate increases over the term of the lease.
C. Rental rate increases are indexed to the general rate of inflation.
D. Rental rates are a function of the sales of the tenant’s business.
Suppose that an industrial building can be purchased today for $2,500,000. If it is
expected to produce cash flows of $180,000 for each of the next five years (assume CFs
are received at the end of each year) and can be sold at the end of the fifth year for
$2,800,000, what is the internal rate of return (IRR) on this investment?
A. 0.09%
B. 4.57%
C. 9.20%
D. 10.37%
Because the mortgage conveys a complex claim for a long period of time, clauses are
included in anticipation of possible future complications. Which of the following
clauses requires a borrower to make monthly deposits into an account in order to pay
obligations such as property taxes, community association fees, or causality insurance
premiums?
A. Demand clause
B. Insurance clause
C. Escrow clause
D. Exculpatory clause
As with any valid contract, enforceable leases must meet a number of requirements.
One of these requirements is for each party to provide appropriate consideration. In a
lease, which of the following constitutes the landlord’s consideration?
A. Promise to pay rent
B. Passing on legal title to the property
C. Permission to occupy the space or property
D. Commission to the leasing agent
Certain closing costs will be prorated to account for the period of time during which the
seller occupied the house. If a transaction is scheduled to close on May 17, 136 days
into a 365-day year, calculate the amount that the buyer will be credited if the particular
closing cost in question is estimated to be $1000 for the entire year.
A. $182.19
B. $372.60
C. $624.66
D. $1000
In general, most contracts ” including a real estate contract ” can be assigned. All of the
following statements regarding assignment are true EXCEPT:
A. Any type of personal performance contracted by one party cannot be assigned
without that party’s permission.
B. Land contracts are not assignable without the owner’s permission
C. If buyers of real estate assign the contract, the new buyers may pay the agreed upon
price and obtain title to the property.
D. When buyers assign their rights to someone else, they escape liability under the
original contract.
Helping to constrain entry into real estate related occupations, which of the following
branches of government is directly involved in establishing rules and regulations for the
licensing of professionals in the field of real estate?
A. Local government
B. State government
C. National government
D. Foreign government
If we desire to classify land by its use, land that does not include any improvements to
the land would be categorized as:
A. “Raw” land
B. Building site
C. Developed land
D. Property infrastructure
Standard mortgage loans require monthly payments typically composed of two
components: interest and principal repayments. When scheduled mortgage payments
are insufficient to pay all of the accumulating interest, causing some interest to be
added to the outstanding balance after each payment shortfall, the loan is said to be:
A. fully amortizing
B. partially amortizing
C. nonamortizing
D. negatively amortizing
Assume you have taken out a partially amortizing loan for $325,000 that has a term of 7
years, but amortizes over 30 years. Calculate the balloon payment at maturity (Year 7)
if the interest rate on this loan is 4.5%.
A. $1,646.73
B. $118,468.21
C. $282,835.42
D. $324,572.02
The choice of which method to use in constructing the contracted rental rate can also be
impacted by the type of property being leased. With which of the following property
types would one most expect to see a percentage rent method used?
A. Apartment
B. Office
C. Industrial
D. Retail
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
The location of competitors within a particular land use area may be influenced by
whether the types of services and products are convenience activities or comparison
activities. Which of the following is an example of a comparison activity?
A. Supermarket
B. Coffee boutique
C. Fast-food restaurant
D. Apparel store
Given the following information, calculate the after tax-cash flow for this property.
Debt Service: $45,000; First-year NOI: $91,750; Tax liability: 25% of Before Tax Cash
Flow.
A. $23,812.50
B. $35,062.50
C. $68,812.50
D. $80,500.00
In a mortgage agreement, the borrower conveys to the lender a security interest in the
mortgage property. The lender, i.e. the individual who receives the mortgage claim, is
known as the:
A. broker
B. mortgagor
C. agent
D. mortgagee
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
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
While net present value (NPV) and internal rate of return (IRR) analysis both may be
used as investment decision criteria, there are some limitations to the IRR method that
make its use as an investment criterion problematic in certain situations. All of the
following are limitations of the IRR method EXCEPT:
A. IRR calculations assume that cash flows are reinvested at the IRR, rather than at the
actual rate that investors expected to earn on reinvested cash flows.
B. With the IRR decision criterion multiple solutions may exist for investments where
the sign of the cash flows changes more than once over the expected holding period.
C. The IRR methodology cannot be used to make comparisons across different
investment opportunities.
D. The use of IRR as a decision criterion will not necessarily result in wealth
maximization for the investor.
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
Consistently the investment target of pension funds, publicly traded real estate
companies, and real estate funds, large commercial properties valued well over $10
million are often referred to as:
A. segmented property
B. investment-grade property
C. speculative-grade property
D. immobile property
The laws of some states require that real estate brokers provide buyers and sellers with
a list of estimated closing costs before signing a contract for sale. At the closing, it is
typically which of the following party’s responsibilities to pay the full premium for an
owner’s title insurance policy?
A. Buyer
B. Seller
C. Lender
D. Broker
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
Understanding the revenue generating ability of the core export activities of a local area
has important implications on the market value of real estate. When the income that
these activities generate is re-spent within the community on other local goods and
services, the community is benefiting through a:
A. dividend process
B. multiplier process
C. forced saving process
D. diversification process
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. The asking price would most likely be higher, on average, than in the case where a
broker was involved because the seller is in total control of the sale
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 for an individual to buy a property
D. Buyers would be more inclined to negotiate prices downward by at least the value of
a typical commission.
Given the following information, calculate the net income multiplier for this property.
First-year NOI: $18,750, Acquisition price: $150,000, Equity Investment: 20%.
A. 0.1
B. 1.6
C. 8.0
D. 12.5
Despite many innovations in the lending process that made mortgage loans more
accessible and affordable to the general public, many potential borrowers faced
considerable barriers in qualifying for a loan and making a down payment. Which of
the following types of loans was designed for a borrower with weak credit, those who
seek 100 percent financing, or who cannot document their income?
A. Conventional prime home loan
B. Affordable housing loan
C. Subprime mortgage loan
D. Bridge loan
Prospective borrowers often submit loan requests directly to lenders. However,
commercial loan requests can also be submitted through another channel in which a
permanent lender agrees to purchase loans or consider loan requests from a mortgage
banker or broker. This type of business relationship is more commonly referred to as
a(n):
A. installment sale
B. joint venture
C. correspondent relationship
D. sale-leaseback