Introduction to Real Estate Final Test
Solutions
Course Introduction
This course provides a comprehensive introduction to the principles and practices of real estate. Students will explore the fundamentals of real estate markets, property types, and the roles of various professionals in the field. Topics include property ownership, legal frameworks, valuation methods, financing options, investment analysis, and real estate development. The course also covers current trends and challenges in the real estate industry, equipping students with a solid foundation for further study or a career in real estate.
Recommended Textbook
Real Estate Principles A Value Approach 4th Edition by Wayne Archer
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23 Chapters
660 Verified Questions
660 Flashcards
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Chapter 1: The Nature of Real Estate and Real Estate
Markets
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25 Verified Questions
25 Flashcards
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Sample Questions
Q1) Investors in real estate can choose to hold properties directly in the private market or indirectly through publicly traded real estate securities.The market for buying selling,and leasing real estate can be characterized by all of the following EXCEPT:
A)localized markets
B)highly segmented markets
C)privately negotiated contracts
D)low transaction costs
Answer: D
Q2) Competition for the currently available supply of locations and space coupled with the existing supply of leasable space,determines:
A)the current level of rental rates for each submarket and property
B)the riskiness of the expected cash flows of an income-producing property
C)the timing of the expected cash flows of an income-producing property
D)the cost of financing the purchase of a property
Answer: A
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Chapter 2: Legal Foundations to Value
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31 Verified Questions
31 Flashcards
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Sample Questions
Q1) Which of the following types of liens is automatically superior to any other lien?
A)Property tax and assessment lien
B)Mortgage lien
C)Lien arising from a court judgment unrelated to ownership of the property
D)Mechanics' lien
Answer: A
Q2) 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
Answer: A
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4
Chapter 3: Conveying Real Property Interests
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Sample Questions
Q1) Recognizing that only recent conveyances alter the status of title,states have established laws that set limits on how far back a title search must go.These laws are commonly referred to as:
A)Statute of Frauds
B)recording statutes
C)encroachments
D)marketable title laws
Answer: D
Q2) A contract for sale of real estate usually calls for the seller to provide evidence of title as a requisite to completing the sale.Today,the predominant medium through which a seller meets this requirement is by providing:
A)only a title abstract.
B)only an attorney's opinion of title.
C)only a title insurance commitment.
D)only a seller's disclosure
Answer: C
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Chapter 4: Government Controls and Real Estate Markets
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36 Verified Questions
36 Flashcards
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Sample Questions
Q1) Which of the following tools of public land use control represents the earliest method of police power to regulate land use? (Hint: Standards for energy efficiency and sustainability are the most recent trends in the application of this land use control)
A)Subdivision regulation
B)Zoning
C)Building Codes
D)Planned Unit Developments
Q2) The right of government to acquire private property,without the owner's consent,for public use in exchange for just compensation is referred to as:
A)inverse condemnation
B)regulatory taking
C)eminent domain
D)dedication
Q3) A traditional zoning ordinance includes all of the following EXCEPT:
A)Minimum setback requirements
B)Minimum lot dimensions
C)Provisions for special use districts
D)Performance standards
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6
Chapter 5: Market Determinants of Value
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26 Verified Questions
26 Flashcards
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Sample Questions
Q1) Based on your understanding of the effect of agglomeration economies in real estate,you would expect institutional investors to most favor real estate investments in which of the following areas?
A)small urban markets
B)large urban markets
C)small rural markets
D)large rural markets
Q2) An individual works downtown and pays $600 per month in rent for an apartment located 10 miles from her office.She has calculated that she spends 30 minutes per day driving each way to the office and it costs her $4 per day in gas and lost productivity.Using the framework of the bid-rent model,how much would she be willing to pay for an apartment downtown,assuming a 20 workday month?
A)$80
B)$440
C)$520
D)$680
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Chapter 6: Forecasting Value: Market Research
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28 Verified Questions
28 Flashcards
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Sample Questions
Q1) In the Elysian Forest example,the planned unit development was destined to be an unsuccessful venture from its inception because:
A)There was a comparable project in the community that was successful.
B)The site and location of the project was atypical of the area as there were significant disadvantages in terms of location and visual appeal.
C)The target market was a nontraditional segment that relied heavily on a small portion of the local University City population.
D)University City was a big,high density city that could not support such development.
Q2) Since most data for a given market study is not readily available,analysts must be creative
In their use of data that they are able to obtain.The primary source for detailed household demographic information is:
A)the U.S.Bureau of the Census
B)the Federal Reserve
C)the local tax collector's office
D)Not available publicly
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Chapter 7: Valuation Using the Sales Comparison and Cost Approaches
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30 Verified Questions
30 Flashcards
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Sample Questions
Q1) When employing the sales comparison approach,appraisers must consider numerous adjustments to convert each comparable sale transaction into an approximation of the subject property.Adjustments are divided into two groups: transactional adjustments and property adjustments.All of the following are transactional adjustments EXCEPT:
A)Financing terms
B)Market conditions
C)Conditions of Sale
D)Location
Q2) In real estate markets,a transaction occurs only when the investment value of the buyer exceeds the investment value of the seller.The buyer's investment value is the ________ that he or she would be willing to pay for a particular property,while the seller's investment value is the _______ that he or she would be willing to accept.
A)minimum;minimum
B)minimum;maximum
C)maximum;minimum
D)maximum;maximum
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9
Chapter 8: Valuation Using the Income Approach
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30 Verified Questions
30 Flashcards
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Sample Questions
Q1) Operating expenses can be divided into two categories: variable and fixed expenses.Which of the following best exemplifies a fixed expense?
A)Utilities
B)Property management
C)Local property taxes
D)Trash removal
Q2) For smaller income-producing properties,appraisers may use the ratio of a property's selling price to its effective gross income.This is an example of a:
A)Net operating income
B)Going-out cap rate
C)Going-in cap rate
D)Gross income multiplier
Q3) Which of these is most likely to be regarded as a capital expenditure rather than an operating expense?
A)Property taxes
B)Trash removal
C)Insurance payments
D)Roof replacement
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10
Chapter 9: Real Estate Finance: The Laws and Contracts
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27 Verified Questions
27 Flashcards
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Sample Questions
Q1) 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 and commonly is much less than this amount.
Q2) A significant number of mortgage loans use adjustable interest rates,in which the interest rate of the loan is tied to an index rate that fluctuates over time.For income-producing property,the most common index rate is the:
A)one-year U.S.Treasury constant maturity rate
B)prime rate
C)London Interbank Offered Rate (LIBOR)
D)cost-of-funds index
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Chapter 10: Residential Mortgage Types and Borrower
Decisions
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37 Verified Questions
37 Flashcards
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Sample Questions
Q1) In addition to the UFMIP (up-front mortgage insurance premium),the owner-occupant borrower who decides to use an FHA mortgage loan will normally pay an additional annual mortgage insurance premium (MIP)that depends on the loan-to-value ratio and the term of the loan.For loans with maturity longer than 15 years and a loan to value ratio that is greater than 95 percent,the MIP will be what percentage of the average annual loan balance?
A)0.25%
B)0.50%
C)1.10%
D)1.15%
Q2) In contrast to conventional home loans,the interest-only balloon loan requires the borrower to pay off the loan with a "balloon" payment equal to the original balance after:
A)1-5 years
B)5-7 years
C)7-15 years
D)15-30 years
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12
Chapter 11: Sources of Funds for Home Mortgages
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26 Verified Questions
26 Flashcards
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Sample Questions
Q1) Suppose that a mortgage bank "locked in" an interest rate for a prospective borrower at 8.5%.However,prior to the loan closing,the market mortgage rate falls to 7.5 %.In this scenario,the mortgage banker would be most concerned with which of the following risks?
A)Interest rate risk.
B)Pipeline fallout risk.
C)Default risk.
D)Liquidity risk.
Q2) Traditional home mortgage underwriting is said to rest on three elements,the "three C's." The housing expense ratio is one tool that lenders will use to address concerns associated with which of the "three C's?"
A)Collateral
B)Creditworthiness
C)Capacity
D)Capability
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13
Chapter 12: Brokerage and Listing Contracts
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27 Verified Questions
27 Flashcards
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Sample Questions
Q1) Jonathan recently sold his home and was able to take home $423,000 after paying the real estate broker's commission of 6%.If the buyer was ultimately found through a buyer broker,the dollar commission will need to be split between the listing broker and buyer broker.If the buyer broker is entitled to 40% of the commission,what is her share of the commission rounded to the nearest dollar?
A)$10,800
B)$13,500
C)$16,200
D)$27,000
Q2) The recent emergence of discount brokerage services has had a modest effect on the price of brokerage services.The average commission that a broker could expect to receive today would most likely range between:
A)1-2%
B)3-4%
C)5-6%
D)7-10%
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14
Chapter 13: Contracts for Sale and Closing
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26 Verified Questions
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Sample Questions
Q1) The distinction between legal title and equitable title is an important concept in the contract for sale of real estate.When the buyer obtains equitable title,the seller can no longer sell the property to someone else,even though the legal title has not officially passed on.In the contract for sale process,the creation of equitable title occurs when:
A)The contract for sale is written.
B)The contract for sale is signed.
C)The contract terms are orally agreed upon.
D)Each party is deemed legally competent.
Q2) Since the issues in many transactions are similar,brokers often use standard preprinted contract forms.Generally,the best standard form contracts are those prepared and approved by which of the following parties?
A)Office supply firm
B)Seller
C)Local Board of Realtors
D)Web source of generic legal forms
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15
Chapter 14: The Effects of Time and Risk on Value
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31 Verified Questions
31 Flashcards
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Sample Questions
Q1) Suppose that a landlord is interested in renting out a two-bedroom apartment for $1000 a month for the next year.The landlord requires rent to be paid at the beginning of the month,at which point he will deposit the rental check into a local savings account.If the annual interest that the tenant can earn on this account is 5% and interest is compounded monthly,how much will the tenant have in his savings account at the end of the year?
A)$12,278.86
B)$12,330.01
C)$13,330.02
D)$15,917.13
Q2) Suppose you have found a tenant who wishes to rent out your vacation home for the next twelve months.You are charging $800 per month in rent.You will collect the first rent payment today and then on the 1<sup>st</sup> of the month each month thereafter.What is the value of this investment opportunity to you today if you could reinvest your income at an annual rate of 3% with interest compounded on a monthly basis?
A)$7,963.20
B)$8,202.10
C)$9,445.80
D)$9,469.42
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Page 16
Chapter 15: Mortgage Calculations and Decisions
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30 Verified Questions
30 Flashcards
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Sample Questions
Q1) Required by the Truth-in-Lending Act,the annual percentage rate (APR)is reported by the lender to the borrower on virtually all U.S.home mortgage loans.The APR accounts for all of the following EXCEPT:
A)All finance charges in connection with the loan,such as discount points,origination fees,and underwriting fees.
B)All compensation to the originating brokers if one was used by the borrower.
C)Any prepayment of principal to be made on the loan.
D)Premiums for required forms of insurance
Q2) Given the following information on a fixed-rate fully amortizing loan,determine the maximum amount that the lender will be willing to provide to the borrower.Loan Term: 30 years,Monthly Payment: $800,Interest Rate: 6%.
A)$6,707
B)$9,295.15
C)$13,333
D)$133,433
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Chapter 16: Commercial Mortgage Types and Decisions
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28 Verified Questions
28 Flashcards
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Sample Questions
Q1) 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)
Q2) A commercial real estate loan may take 90 days from the signing of the purchase and sale contract until loan closing.Therefore,there is the possibility for interest rates to fluctuate during this period.In some cases,the lender may offer the borrower the opportunity to "lock in" the interest rate on the loan.To protect against exposure to rate increases during this period,the borrower is often willing to pay a nonrefundable fee as part of what is more commonly known as a:
A)Lockout provision
B)Rate lock agreement
C)Floating rate agreement
D)Yield maintenance provision
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Chapter 17: Sources of Commercial Debt and Equity Capital
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33 Verified Questions
33 Flashcards
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Sample Questions
Q1) 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
Q2) Given the following information,calculate the funds from operation (FFO).Net income: $1,200,000,Gain/losses from infrequent and unusual events: $0,Amortization of tenant improvements: $120,000,Amortization of leasing expenses: $75,000,Depreciation (real property): $2,675,000.
A)$195,000
B)$1,395,000
C)$2,870,000
D)$4,070,000
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Page 19
Chapter 18: Investment Decisions: Ratios
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Sample Questions
Q1) Given the following information,calculate the debt coverage ratio for this investment.Potential gross income: $120,000,Vacancy rate: 9%,Net operating income: $57,900,Operating expenses: $51,300,Acquisition Price: $520,000,Debt service: $40,000.
A)0.69
Q2) 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
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Chapter 19: Investment Decisions: NPV and IRR
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27 Verified Questions
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Sample Questions
Q1) Suppose you purchased an income producing property for $95,000 five years ago.In Year 1,you were able to negotiate a lease that paid $10,000 per year at the end of each year.If you are able to sell the property at the end of year 5 for $100,000 (after receiving our final lease payment),what was the internal rate of return (IRR)on this investment?
A)-18.18%
B)1.03%
C)9.57%
D)11.37%
Q2) An important piece of criteria for investors to consider when deciding between real estate investment opportunities and investing in stocks or bonds is the effect of income taxes on their return.For most investors,the effective tax rate on commercial real estate is:
A)greater than the effective tax rate on a stock or bond investment
B)equal to the effective tax rate on a stock or bond investment
C)less than the effective tax rate on a stock or bond investment
D)cannot be compared across asset classes.
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21
Chapter 20: Income Taxation and Value
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Sample Questions
Q1) U.S.tax law is designed to raise revenues for the operations of the federal government and to promote certain socially desirable real estate-related activities.Tax legislation is combined into a single section of the federal statutory law commonly referred to as:
A)Section 1231
B)Section 1031
C)the Internal Revenue Code
D)Tax Reform Act
Q2) Accelerated methods of depreciation result in greater depreciation allowances than straight-line depreciation in the early years of the depreciation schedule.Suppose a personal property is eligible for a three-year cost recovery period and can be depreciated using 200 percent declining balance depreciation.Calculate the accelerated depreciation rate in the first year.
A)14.28%
B)28.57%
C)33.33%
D)66.66%
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22
Chapter 21: Managing Residential Rental Property
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Sample Questions
Q1) With a performance-based management contract,an asset manager's fees are tied directly to the rate of return earned by investors on the portfolio of managed properties relative to a benchmark.In private commercial real estate,the choice of benchmarks for performance is limited in large part to return indices provided by which of the following organizations?
A)Standard and Poor's
B)National Association of Real Estate Investment Trusts
C)National Council of Real Estate Investment Fiduciaries
D)Wilshire Associates
Q2) The real estate industry applies which of the following labels to individuals who are responsible for the decisions that affect the physical,financial,or ownership structure of the property.
A)Asset manager
B)Property manager
C)Leasing manager
D)Regional manager
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Chapter 22: Managing Non-Residential Rental Property
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Sample Questions
Q1) When securing a new tenant for a commercial rental property,the owner of the property might incur an additional expense that amounts to the cost of refurbishing the rental space to meet the needs of the tenant's business.The allocation of money for this added expense is more commonly referred to as a(n):
A)tenant improvement allowance
B)concession
C)sublease
D)expense stop
Q2) In commercial leases,rents do not necessarily have to be kept constant over the life of the lease term.One option is for there to be pre-specified increases in the contract rental rate over time,sometimes referred to as "step-ups" or "escalations." This type of rent treatment is commonly referred to as:
A)flat rent
B)graduated rent
C)indexed rent
D)percentage rent
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Chapter 23: Development: The Dynamics of Creating Value
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Sample Questions
Q1) Development involves a complex organization of many moving parts.Which of the following choices is often viewed as the single greatest cause of project delays and cost overruns?
A)Obtaining permits
B)Financing
C)Effective communication between developer,architect,and engineer
D)Selecting the architect
Q2) With a site under control,the developer will begin to evaluate the feasibility of the project.The main tool that a developer will use in determining the financial feasibility of a project is:
A)Net present value (NPV)analysis
B)Cost approach to valuation
C)Repeat-sales approach
D)Direct capitalization
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