Real estate brokers operate under the law of agency, which gives a broker the right to
act for a principal in trying to buy or sell a property. Which of the following types of
agents is authorized by the principal to act primarily within the confines of a business or
employment relationship?
A.Universal agent
B.General agent
C.Special agent
D.Listing agent
Accrued depreciation is the difference between the current market value of a building
and the total cost to reproduce it new. One reason for this difference is related to
changes in tastes, preferences, technical innovations, or market standards. This is
commonly referred to as:
A.physical deterioration
B.functional obsolescence
C.external obsolescence
D.tax depreciation
Assume that a veteran decides to purchase a house for $150,000 using a VA loan. If the
buyer defaults on the loan, what is the maximum amount that the VA guarantees the
lender?
A.$15,000
B.$60,000
C.$75,000
D.$150,000
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.Package mortgage
C.Home equity loan
D.Reverse mortgage
Suppose an older homeowner lives adjacent to an expanding university that is interested
in acquiring her residence for future university use. To allow the homeowner to
continue to retain all rights of exclusive possession, use, and enjoyment during her
lifetime, yet provide the university with the right of disposition, the university may
want to purchase a:
A.life estate
B.reverter interest
C.remainder estate
D.tenancy for years
Preferences of households can vary with time, prosperity, and context. The nuances in
the preferences or needs of market subgroups are commonly referred to as:
A.market segmentation
B.market parameters
C.market projection
D.market cycles
Section 1031 of the Internal Revenue Code permits investors to defer some or all of the
taxable gain that would ordinarily be due on the sale of a property if they exchange for
“like-kind” property. In order to avoid income taxes, many investors attempted to make
use of this tax code when disposing of commercial real estate assets. This led to the
reemergence of which of the following forms of ownership in commercial real estate?
A.General Partnership
B.Limited Liability Company
C.Tenancy-in-common
D.Limited Partnership
Assuming that an investor requires a 10% annual yield over the next 12 years, how
much would she be willing to pay for the right to receive $20,000 at the end of year 12?
A.$6,053.91
B.$6,372.62
C.$62,768.57
D.$136,273.84
As of 2008, the single largest asset category in the net worth portfolios of households is:
A.government and corporate bonds
B.stocks and mutual fund shares
C.consumer durable goods
D.housing
According to the bid-rent model, which of the following individuals would be the one
most likely to live closest to the central business district (CBD)? (Hint: Assume that
work locations are located adjacent to each other at the center of the CBD)
A.A barista at the local coffee shop who uses a car to commute.
B.A doctor at the city hospital who uses a car to commute.
C.A barista at the local coffee shop who must walk to work.
D.A doctor at the city hospital who must walk to work.
In order to better understand a borrower’s probability of default, lenders have a number
of tools at their disposal. The ratio that measures the percentage of the price (or value)
of a property that is encumbered by the first mortgage is referred to as the:
A.debt coverage ratio (DCR)
B.loan-to-value ratio (LTV)
C.break-even ratio (BER)
D.price-earnings ratio (PE)
A lease option is a clause that grants an option holder the right, but not the obligation, to
renew the lease, cancel the agreement, relocate within a property, or even expand to
adjacent space. The existence of these options in a leasing agreement:
A.reduces the expected present value of lease cash flows to the owner
B.increases the expected present value of lease cash flows to the owner
C.does not impact the expected present value of lease cash flows to the owner
D.causes the expected present value of lease cash flows to equal zero
Throughout the process of originating and selling mortgages, mortgage companies face
a number of risks. Therefore, it is important for a lending institution to evaluate the
risks of mortgage loan default through a process commonly referred to as:
A.mortgage fallout
B.loan servicing
C.warehousing
D.loan underwriting
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
The sequence of adjustments to the transaction price of a comparable property would
make no difference if all adjustments were either dollar adjustments or percentage
adjustments, but with mixed adjustments the sequence matters. In making adjustments
to a comparable property to arrive at a final adjusted sales price, the proper sequence
for the following adjustments would be:
A.Financing terms, market conditions, location.
B.Location, market conditions, financing terms.
C.Market conditions, location, financing terms.
D.Location, financing terms, market conditions.
An important distinction both practically and conceptually is the difference between an
easement and a license. In contrast to an easement, a license:
A.is revocable by the grantor.
B.can be granted orally.
C.is enduring.
D.grants permission to use another’s land for a specific and limited purpose.
Given the following information, calculate the effective gross income multiplier for the
specific investment. Effective gross income: $49,500, First-year NOI: $18,750,
Acquisition price: $520,000, Equity Investment: 20%.
A.0.036
B.0.095
C.10.5
D.27.7
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 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.
Given the following information, calculate the loan-to-value ratio of this commercial
loan. Estimated net operating income in the first year: $150,000, Debt service in the
first year: $100,000, Loan amount: $1,000,000, Purchase price: $1,300,000
A.0.08
B.0.77
C.1.30
D.1.75
Given the following information, calculate the operating expense ratio for this property.
Potential gross income: $120,000, Vacancy rate: 9%, Net operating income: $57,900,
Operating expenses: $51,300.
A.34%
B.43%
C.47%
D.53%
Each property has unique features, whether it is its age, the building design of its
structures, or its location. As such, real estate markets, in contrast to other goods, are
considered:
A.homogeneous
B.heterogeneous
C.substitutes
D.complements
From the borrower’s perspective, the effective borrowing cost is often viewed as the
implied internal rate of return (IRR), since it takes into consideration costs that the
borrower faces, but which are not passed on as income to the lender. Included in this
calculation are closing costs, which may consist of all of the following EXCEPT:
A.Title insurance
B.Mortgage insurance
C.Recording fees
D.Earnest money
Given the following information, calculate the going-out cap rate. Estimated holding
period: 5 years, NOI for year 1: $120,000, NOI for year 5: $150,000, NOI for year 6:
$155,250, Expected sale price: $1,350,000.
A.8.9%
B.11.1%
C.11.5%
D.11.9%
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
There are a number of ways that a developer can finance the establishment of site
control, each with its own advantages and disadvantages. Which of the following
methodologies calls for only the initial land rent to be paid out before development
actually gets under way?
A.Joint venture
B.Option
C.Contract for deed
D.Ground lease
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 or who was
unable to document his income?
A.Conventional prime home loan
B.Affordable housing loan
C.Subprime mortgage loan
D.Bridge loan
The final step in a real estate transaction is the closing. In most closings, which party is
responsible for seeing that the closing is completed successfully?
A.Escrow agent
B.Lender
C.Selling Broker
D.Listing broker
At the conclusion of the traditional sales comparison approach to valuation, the
appraiser evaluates and reconciles the final adjusted sale prices into a single value for
the subject property. This single value is commonly referred to as:
A.indicated value
B.investment value
C.transaction value
D.replacement value
An owner whose property is in a strong market position, where fewer services can be
offered to tenants for the same dollar of rental income and where the owner will not
lose tenants if the property is undermaintained, is said to participate in a market that has
a relatively:
A.elastic demand for space
B.inelastic demand for space
C.competitive demand for space
D.liquid demand for space
When a buyer acquires a property having an existing mortgage loan, a decision must be
made as to whether or not the subsequent owner of the property can preserve the loan.
If the buyer does not add his or her signature to the note, the buyer does not take on any
personal liability. In this case, the buyer is said to:
A.assume the old loan.
B.purchase the property subject to the existing loan.
C.obtain the property through the use of a contract for deed.
D.foreclose on the property.
Of the following lending relationships, which gives the borrower the most senior claim
to the cash flows associated with a property?
A.Straight debt
B.Joint venture
C.Land sale-leaseback
D.Complete sale-leaseback
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
Foreclosure is considered the ultimate recourse of the lender because it allows the
lender to bring about sale of the property to recover the outstanding indebtedness. All of
the following statements regarding foreclosure are true EXCEPT:
A.Foreclosure is a costly process for all parties involved.
B.Only those claimants who are properly notified and engaged in the foreclosure suit
can lose their claims to the property.
C.When a lender forecloses on a property, it extinguishes all superior liens, bringing
about a free and clear sale of the property.
D.The net recovery by a lender from a foreclosed loan seldom exceeds 80 percent of the
outstanding loan balance.
While uncertainties involving the multitude of players and stages in the development
process provide a great deal of risk, market cycles tend to compound these risks. Out of
the four phases of a market cycle, which would be the most desirable point for a
developer to enter the market?
A.Trough
B.Expansion
C.Peak
D.Decline
Current tax law allows investors to take tax credits for the cost of renovating or
rehabilitating older or historic structures and for the construction or rehabilitation of
qualified low-income housing. Which of the following statements regarding tax credits
is true?
A.A $1 tax credit reduces the investor’s tax liability by an amount dependent on the
individual’s income tax bracket.
B.A $1 tax credit reduces the investor’s tax liability by $1.
C.A $1 tax credit increases the investor’s taxable income by $1.
D.A $1 tax credit has exactly the same impact on an investor’s tax liability as a tax
deduction.