For most commercial property types, lease lengths can vary considerably. Therefore,
both parties must tradeoff between the advantages and disadvantages associated with
particular leasing terms. Owners may prefer longer leases for all of the following
reasons EXCEPT:
A. Delay of re-leasing costs
B. Reduction of risk associated with declining interest rates
C. Gain flexibility
D. Stability of future cash flows
Given the following information, calculate the balloon payment for a partially
amortized mortgage. Loan amount: $84,000, Term to maturity: 7 years, Amortization
Term: 30 years, Interest rate: 4.5%, Monthly Payment: $425.62.
A. $9,458
B. $30,620
C. $73,102
D. $84,000
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
Given the following information, calculate the leasing agent’s commission in dollar
terms. Lease Term: 10 years, Monthly Rent: $5,000, Commission: 3%.
A. $150
A. $1,500
C. $1,800
D. $18,000
In contrast to residential mortgage loans, most fixed-rate commercial mortgages do not
allow borrowers to freely prepay the principal on their loan. Which of the following
prepayment penalties ties the penalty that borrowers pay to how far interest rates have
declined since origination?
A. Lockout provisions
B. Yield-maintenance agreements
C. Defeasance
D. Curtailment
To overcome the potential shortcomings of single-year decision making metrics, many
investors in real estate also perform multiyear discounted cash flow (DCF) valuation.
DCF valuation differs from the single-year ratio analysis in all of the following ways
EXCEPT:
A. Only with DCF must the investor estimate an appropriate investment horizon
accounting for how long she will hold the property.
B. Only with DCF must the investor select the appropriate yield at which to discount all
expected future cash flows.
C. Only with DCF must the investor make explicit forecasts of the property’s net
operating income for each year in the expected holding period.
D. Only with DCF must the investor use a defensible cash flow estimates that
incorporates appropriate measures of income and expenses.
The most flexible method of land description, capable of describing even the most
irregular of parcels, can be described as a very precise, compass-directed walk around
the boundary of a parcel. This method is commonly referred to as:
A. metes and bounds
B. subdivision plat lot and block number
C. government rectangular survey
D. tax parcel number
The use of financial leverage in purchasing an income-producing property can affect the
amount of cash required at acquisition, the net cash flows from rental operations, the
net cash flows from the eventual sale of the property, and the ultimate return on
invested equity. Assuming the going-in IRR is greater than the effective borrowing cost,
if an investor increases his leverage rate, say from 75% to 80%, we would expect which
of the following to occur?
A. Both NPV and going-in IRR increase
B. NPV decreases, while going-in IRR increases
C. NPV increases, while going-in IRR decreases
D. Both NPV and going-in IRR decrease
Given the following information, calculate the effective monthly rent payment. Lease
Term: 10 years, Concession: 1 year free rent to be spread over the term of the lease,
Rental Space: 5000 square feet, Rental Rate: $20 per square foot per year, Landlord’s
discount rate: 10%.
A. $4,676
B. $5,901
C. $7,081
D. $10,122
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.
Which of the following would be categorized as a cause of external obsolescence?
A. Lack of adequate insulation
B. Deterioration of indoor carpets
C. Increased traffic flow due to more intensive use in the local area
D. Outdated fixtures
The choice of which method to use in constructing the contracted rental rate can be
impacted by the term of the lease. With a shorter lease term, which of the following
methods is most likely to be observed?
A. Flat rent
B. Graduated rent
C. Indexed rent
D. Percentage rent
When a party in a contract fails to perform (e.g. breach of contract, nonperformance, or
default) the other party has a variety of remedies. All of the following are remedies that
an aggrieved seller may pursue EXCEPT:
A. Sue for damages.
B. Retain the earnest money deposit as liquidated damages.
C. Agree to rescission of the contract.
D. Sue for specific performance.
Given the following information, compute the effective tax rate for the particular piece
of property in percentage terms. Market value of property: $325,000, Assessed value of
property: $250,000, Exemptions: $50,000, Taxes paid: $5,363.
A. 1.50%
B. 2.35%
C. 1.65%
D. 2.68%
Given the following information regarding an income producing property, determine
the internal rate of return (IRR) using levered cash flows. Expected Holding Period: 5
years; 1st year Expected NOI: $89,100; 2nd year Expected NOI: $91,773; 3rd year
Expected NOI: $94,526; 4th year Expected NOI: $97,362; 5th year Expected NOI:
$100,283; Debt Service in each of the next five years: $58,444; Current Market Value:
$885,000; Required equity investment: $221,250; Net Sale Proceeds of Property at end
of year 5: $974,700; Remaining Mortgage Balance at end of year 5: $631,026.
A. 10.6%
B. 12.2%
C. 22.9%
D. 33.4%
Suppose you own a house that you are renting out to a group of college students for the
10 month academic year. You are charging $1000 per month in rent. You will collect the
first rent payment today and then on the 1st of the month each month thereafter. What is
the value of this investment opportunity to you today if you could reinvest your income
at a rate of 6%?
A. $9,677.77
B. $9,730.41
C. $9,779.06
D. $11,677.03
It is common for investors in real estate to use mortgage debt to help finance capital
investment. The use of debt can have a profound impact on the expected cash flows for
a
particular property. Which of the following terms refers to cash flows that represent the
property’s income after subtracting any payments due to the lender?
A. Levered cash flows
B. Unlevered cash flows
C. Discounted cash flows
D. Compounded cash flows
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
Most appraisers would say that report writing is one of the most important functions
that they perform. Assume that an appraiser is putting together a report for a single
family home. Which of the following reporting options would be the most commonly
used in this scenario?
A. Self-contained appraisal report
B. Summary appraisal report
C. Restricted appraisal report
D. Oral appraisal report
In more complex development projects, a developer may choose to combine the roles of
the architect and general contractor into one in order to mitigate design-cost conflicts
that otherwise must be negotiated when plans are revised. This arrangement is more
commonly referred to as a:
A. build-to-suit
B. subordination agreement
C. design-build
D. fast-track
In recent years, many U.S. investors have expanded their purchases of real estate into
foreign countries, and many foreign investors have held interests in U.S. real estate.
This is an example of what is commonly referred to as ________________ of real
estate markets.
A. deregulation
B. globalization
C. disintermediation
D. industrialization
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
In recent years, which of the following pooled ownership structures are used by private
funds that are trying to attract capital from very high net worth and institutional
investors?
A. General partnership
B. Limited partnership
C. C corporation
D. Limited liability company
A popular adage in real estate is that property value is all about “location, location,
location.” However, for most property types in nonresidential realms, nonlocational
requirements are equally or even more important. All of the following are examples of
nonlocational factors EXCEPT:
A. Floor plate size
B. Amount of parking
C. Nature of current tenants
D. Proximity to modes of public transportation
Since banks seldom loan 100 percent of construction costs, developers often turn to
mezzanine financing to obtain necessary funds. With mezzanine debt, which of the
following entities is typically pledged as collateral to the lender?
A. Land
B. Ownership shares in the development entity
C. Personal assets of the developer
D. Construction materials
In contrast to conventional market analysis, the ‘story” approach to market research
starts with an analysis of:
A. conditions in global real estate markets
B. conditions in national real estate markets
C. conditions in state real estate markets
D. conditions in the property specific market
In calculating net operating income, vacancy losses must be subtracted from the gross
income collected. The normal range for vacancy and collection losses for apartment,
office, and retail properties is:
A. between zero and one percent
B. between one and five percent
C. between five and fifteen percent
D. between fifteen and twenty percent
Real estate appraisal is often considered “more art than science,” since identifying truly
comparable properties is a subjective process. Therefore, it is essential that a
comparable property transaction at least meets the requirement that it was fairly
negotiated under typical market conditions. Which of the following types of
transactions would be most appropriate for use in the sales comparison approach to
valuation?
A. Commingled business transactions
B. Low-interest financing programs
C. Real estate auctions
D. Arm’s-length transactions
Suppose that you were interested in building a luxury apartment complex in your
hometown. In your analysis of local demographics, you discover that the target market
makes up only 5% (core market share) of the households that currently rent (or would
be interested in renting) in this town. If market experts believe that a total of 5,000
apartment units will be rented in your entire hometown within the next year, what is the
projected number of units the developer could expect to lease in year 1 if he is able to
capture 20% of the market potential?
A. 1000 units
B. 500 units
C. 250 units
D. 50 units
A common criticism of the annual percentage rate (APR) is that it usually understates
the true cost of borrowing. The APR may understate the cost of borrowing because it
assumes:
A. interest rates will always rise
B. the loan always goes to maturity
C. the actual life of the loan is shorter than maturity
D. upfront fees should be ignored