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Capital markets can be divided into two broad categories: equity interests and debt
interests. Equity investors in real estate expect to earn a return on their investment
through:
A. The collection of rent and price appreciation
B. The collection of interest on the borrowed funds used to purchase the property
C. The receipt of property taxes
D. The case of a borrower default on required mortgage payments
Zoning ordinances that tend to exclude lower income groups by large lot size, or that do
not adequately provide low- and moderate-income housing are referred to as:
A. special uses
B. nonconforming uses
C. conforming uses
D. exclusionary uses
An important effect of agglomeration economies on real estate is its impact upon
market risk. Based on your understanding of this relation, which of the following
statements is TRUE?
A. Properties located in a city with more advanced development of agglomeration
economies will carry more risk and therefore suffer a larger price decline during an
economic downturn than comparable properties in a city with less agglomeration.
B. Properties located in a city with more advanced development of agglomeration
economies will carry less risk and therefore suffer a larger price decline during an
economic downturn than comparable properties in a city with less agglomeration.
C. Properties located in a city with more advanced development of agglomeration
economies will carry more risk and therefore suffer a smaller price decline during an
economic downturn than comparable properties in a city with less agglomeration.
D. Properties located in a city with more advanced development of agglomeration
economies will carry less risk and therefore suffer a smaller price decline during an
economic downturn.
Christopher has hired a real estate broker to help facilitate the sale of his home.
Realizing that Christopher is most likely going to realize a loss on his investment due to
the recent decline in housing values in his neighborhood, the broker has agreed to
charge Christopher a lower commission rate as long as Christopher enters into an
exclusive right of sale listing contract. If Christopher ends up selling his house for
$364,583 and takes home $350,000 after paying the real estate broker's commission,
what was the commission rate that the broker ended up charging?
A. 4.0%
B. 4.2%
C. 8.0%
D. 14.6%
Many states have enacted laws that determine the flow of ownership rights of real
property in the case of the owner's death. For example, in the state of Florida if a family
residence is declared a homestead and the owner of the property passes away, the
surviving spouse and children will have automatic interests in the property. This type of
estate is more commonly referred to as:
A. Legal life estate with remainder interest
B. Ordinary life estate with remainder interest
C. Fee simple conditional interest
D. Periodic tenancy
The Real Estate Settlement Procedures Act (RESPA) is a federal law that requires
federally chartered or insured lenders to provide buyers and sellers with information on
all settlement costs. According to RESPA, loan closing information must be prepared on
a special form known as the:
A. Uniform Settlement Statement or HUD-1 form
B. Good-faith estimate of settlement costs
C. Settlement Costs and You booklet
D. Certificate of occupancy
Utilizing the following information, calculate the housing expense ratio. Monthly
Principal and interest on mortgage loan: $635; Monthly Tax and insurance payments
into escrow: $125; Gross monthly income: $2,500
A. 25.4%
B. 30.4%
C. 44.4%
D. 53.2%
Distinguishing between the four categories of real estate for federal tax purposes can be
misleading at times. Which of the following categories includes properties that are held
primarily for capital appreciation?
A. Personal residence
B. Dealer property
C. Trade or business property
D. Investment property
Nonposessory interests (i.e. bundles of real property rights that do not include
possession) include all of the following EXCEPT:
A. leasehold interests
B. easements
C. restrictive covenants
D. liens
Which of the following measures is considered the fundamental determinate of market
value for income-producing properties?
A. Net operating income
B. Potential gross income
C. Operating expenses
D. Capital expenditures
All of the following statements are true in describing the determination of just
compensation EXCEPT:
A. The value of the property is based on its highest and best use at the time.
B. The value of the property is determined solely by its current use.
C. The value is the amount that restores the property owner to a financial position
equivalent to that existing before the property was taken.
D. The value is the market value of the property if completely taken, or the total value
of all financial loss if partially taken.
Given the following information, calculate the debt coverage ratio of this commercial
loan. Estimated net operating income (NOI) 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. 0.15
B. 0.67
C. 1.30
D. 1.50
Given the following information, calculate the effective gross income multiplier. Sale
price: $2,500,000; Effective Gross Income: $340,000; Operating Expenses: $100,000;
Capital Expenditures: $36,000.
A. 0.136
B. 7.35
C. 10.42
D. 12.25
In the securitization process, mortgages are pooled together and cash flows are
packaged into securities to be sold in the secondary market. Agencies and private
companies that pool mortgages and sell mortgage-backed securities (MBS) are often
referred to as:
A. thrifts
B. credit unions
C. conduits
D. automated underwriters
All of the following are responsibilities of the syndicator in the origination phase of a
syndicate's life EXCEPT:
A. Develop the concept for the syndication
B. Organize the legal entity
C. Acquire or obtain control of the real estate
D. Raise additional investment capital
Amy is trying to decide whether or not it would be beneficial to employ the services of
a real estate broker in order to facilitate the sale of her home. She has estimated that the
marketing costs and opportunity cost associated with time spent dealing with
prospective buyers amounts to $5,000. If Amy were to sell the house on her own for
$200,000, but a broker would have been able to negotiate a higher price of $206,350,
what commission rate should Amy have been willing to accept from a real estate broker
to make her indifferent between selling the house on her own and hiring a real estate
broker?
A. 2.4%
B. 3.1%
C. 5.0%
D. 5.5%
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
Given the following information, calculate the load factor for this office property. Total
usable area: 20,000 sq. ft., Tenant's prorated share of common area: 5,000 sq. ft.
A. 0.25
B. 0.80
C. 1.25
D. 4.00
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
There are a number of different types of listing contracts that can be used when
marketing a property. Which of the following types of listings requires the broker to be
paid a commission if any other broker, or even the owner, sells the property during the
contract period?
A. Open listing
B. Single listing
C. Exclusive agency listing
D. Exclusive right of sale listing
Recently, 15-year mortgages have increased in popularity amongst both borrowers and
lenders. Which of the following groups of borrowers would typically be the least
interested in
a 15-year mortgage?
A. Mature households with minimal financial constraints
B. First-time homebuyers
C. Homeowners who are refinancing to obtain a lower rate than is available on a
comparable 30-year mortgage
D. Homeowners who are interested in selling their property within five years
The use of financial leverage by real estate investors can be a double-edged sword. All
of the following statements regarding the use of financial leverage by real estate
investors are true EXCEPT:
A. The use of financial leverage by real estate investors mitigates the impact that
limited financial resources would otherwise have on their pursuit of investment
opportunities.
B. The use of financial leverage by real estate investors will increase the internal rate of
return (IRR) on equity as long as the cost of borrowing is less than the unlevered IRR.
C. The use of financial leverage reduces the real estate investor's exposure to default
risk.
D. The use of financial leverage by real estate investors makes the realized return on
equity more sensitive to changes in rental rates and resale values.
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.
Which of the following types of loans is the most common instrument used to finance
the acquisition of existing commercial property?
A. Fixed-rate balloon mortgage loans
B. Floating-rate mortgage loans
C. Mezzanine loans
D. Construction loans
Which of the following is an example of a negative easement appurtenant?
A. A driveway easement across one parcel to another.
B. Rights-of-way for roads.
C. A common drive easement where owners of adjoining lots must permit each other to
use a driveway lying on their shaped property line.
D. A scenic easement used to restrict construction on adjacent parcels so as to preserve
a valued view.
Which of the following forms of co-ownership, historically used for apartment
buildings, is not considered a form of true direct co-ownership, but rather qualifies as a
proprietary corporation?
A. Cooperative
B. Tenancy by the entirety
C. Condominium
D. Partnership
While there are several conventional approaches used to estimate the market value of
real estate, which of the following is typically considered the most reliable approach?
A. Income approach
B. Sales comparison approach
C. Cost approach
D. Investment approach
Considered a "questionable conveyance of title" by most courts, which of the following
types of deeds is worded to imply no claim of title, but rather only convey what interest
the grantor actually has? (Hint: This type of deed may be used by a developer to convey
certain lands of a subdivision to the local government through dedication.)
A. General warranty deed
B. Special warranty deed
C. Deed of bargain and sale
D. Quitclaim deed
In acting as an agent for another person, the broker carries several special
responsibilities, which by law must be adhered here to throughout the transaction
process. These responsibilities constitute what is commonly referred to as a:
A. Subagency relationship
B. Dual agency relationship
C. Fiduciary relationship
D. Open listing relationship
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.
All taxable income from investment property sales must eventually be classified as
either ordinary income, depreciation recapture income, or capital gain income. What is
the
maximum tax rate that an investor can be charged on depreciation recapture income?
A. 10%
B. 15%
C. 25%
D. 35%
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
