Real Estate Fundamentals Exam Practice Tests
Course Introduction
Real Estate Fundamentals introduces students to the essential concepts and principles that underpin the real estate industry. The course covers property ownership rights, land use regulations, and the legal and financial aspects of real estate transactions. Students will explore topics such as property valuation, the functions of real estate markets, and the roles of various professionals within the industry. Emphasis is placed on understanding the processes involved in buying, selling, leasing, and managing real estate, as well as gaining familiarity with fundamental terminology and practices necessary for more advanced 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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Page 2
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) A primary determinant of the feasibility of new construction is the relationship between the current level of property prices and the cost of new construction.We would expect the supply of properties to:
A)increase if current property values are greater than the cost of construction
B)decrease if current property values are greater than the cost of construction
C)increase if current property values equal the cost of construction
D)decrease if current property values equal the cost of construction
Answer: A
Q2) 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
Answer: B
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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) Property rights created from marriage have a clear implication for real estate transactions.Which of the following marital property rights gives a spouse a one-half claim on all property acquired "from the fruits of the marriage?"
A)Dower
B)Curtesy
C)Elective share
D)Community property
Answer: D
Q2) Which of the following types of direct co-ownership is a form of joint tenancy for husband and wife created by marriage that protects each spouse from liens arising from either spouse alone?
A)Tenancy in common
B)Tenancy by the entirety
C)Condominium
D)Tenancy at Will
Answer: B
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Chapter 3: Conveying Real Property Interests
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25 Verified Questions
25 Flashcards
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Sample Questions
Q1) Initially used to survey the Old Northwest Territory (Ohio,Indiana,Illinois,and Michigan)in 1789,which of the following methods of land description relies on townships and section numbers as essential units of identification?
A)metes and bounds
B)subdivision plat lot and block number
C)government rectangular survey
D)tax parcel number
Answer: C
Q2) At the death of a property owner,property will convey either in accordance with a will or without a will.If a will dictates the distribution of the decedent's real property,the property is
Said to be:
A)patented
B)devised
C)conveyed by the law of descent
D)dedicated
Answer: B
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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) Given the following information,compute the taxable value for the particular piece of property in dollar terms.Market value of property: $500,000,Assessed value of property: 85 % of the market value of the property,Exemptions: $50,000,Taxes paid: $8,250.
A)$75,000
B)$375,000
C)$416,750
D)$425,000
Q2) Eminent domain is the right of government to acquire private land,without the owner's consent,for public use,with due process and just compensation.The legal procedure for exercising the right of eminent domain is referred to as:
A)Growth restriction
B)Urban sprawl
C)Blighted development
D)Condemnation
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Chapter 5: Market Determinants of Value
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26 Verified Questions
26 Flashcards
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Sample Questions
Q1) The growth of the motion picture industry in Los Angeles,the petrochemical industry in Houston,the software industry in "Silicon Valley," are all examples of how the growth of an industry within a city can create cost advantages for future growth.Economists refer to this phenomenon as:
A)industry economies of scale
B)agglomeration economies
C)locational monopoly
D)economic inefficiencies
Q2) Within the framework of the bid-rent model,as rents increase with proximity to the central business district (CBD),the tendency is for development to:
A)spread to the outskirts of the city
B)build upward on lots within the CBD to allow multiple tenants
C)cease completely
D)focus on low-income housing projects.
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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) 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
Q2) A planned unit development (PUD)is a residential development that differs from traditional residential subdivisions in all of the following ways EXCEPT:
A)It encompasses a blend of detached single family,attached single family,townhouses and apartments.
B)It typically has larger individual lots with extensive side-yards on the property.
C)It typically includes a variety of common areas
D)It typically includes a variety of recreational facilities.
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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) Adjustments for physical characteristics are intended to capture the dimensions in which a comparable property differs physically from the subject property.If the only physical difference between the subject property and the comparable is that the comparable does not have a fireplace,which of the following adjustments should take place?
A)The transaction price of the comparable property should be adjusted downward.
B)The transaction price of the comparable property should be adjusted upward.
C)The transaction price of the subject property should be adjusted downward.
D)The transaction price of the subject property should be adjusted upwarD.
Q2) 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
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Chapter 8: Valuation Using the Income Approach
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30 Verified Questions
30 Flashcards
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Sample Questions
Q1) When calculating the net operating income of a property,it is important to identify any expenses that will be incurred in attempts to maintain the property.All of the following would be considered operating expenses EXCEPT:
A)Property taxes
B)Property insurance premiums
C)Mortgage payments
D)Utility expenses
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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Page 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) Violations of the requirements of a note that do not disrupt the payments on the loan tend to be viewed as "technical" defaults.In practice,how many days must a payment be overdue in order for lenders to treat a default as serious (i.e. ,a substantive default)?
A)One day
B)30 days
C)60 days
D)90 days
Q2) Added to the index of the adjustable rate is a margin,which is the lender's "markup." For standard Adjustable Rate Mortgage (ARM)loans,the average industry margin has been stable at approximately:
A)75 basis points
B)175 basis points
C)275 basis points
D)375 basis points
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11
Chapter 10: Residential Mortgage Types and Borrower
Decisions
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37 Verified Questions
37 Flashcards
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Sample Questions
Q1) Suppose that you are in the process of deciding whether or not to refinance your fixed rate mortgage at a lower rate and you are interested in using the payback period rule of thumb to help you in your decision.Your lender has informed you that the cost of refinancing would be $4,300.If your original monthly mortgage payment was $1,250 and your new monthly mortgage payment would be $1,150 after refinancing,determine the payback period.
A)3 months
B)4 months
C)43 months
D)158 months
Q2) Mortgage originators often offer many types and forms of available residential loans as part of their mortgage menu.However,the predominant form of prime conventional mortgage remains the:
A)(fixed-rate)level payment mortgage (LPM)
B)adjustable rate mortgage (ARM)
C)subprime mortgage
D)alt-A mortgage
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Chapter 11: Sources of Funds for Home Mortgages
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26 Verified Questions
26 Flashcards
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Sample Questions
Q1) Mortgage banks typically will attempt to sell loans as quickly as possible after they are originated by either issuing mortgage securities or selling the loan to an intermediary that will subsequently sell the loan in the secondary market.The period between loan commitment and Loan sale is referred to as the:
A)mortgage pipeline
B)mortgage note
C)mortgage fallout
D)mortgage term
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) State licensing laws generally prescribe two levels of real estate brokerage licensing: the broker license and the salesperson license.Which of the following responsibilities is an individual with a salesperson license permitted to do?
A)Own and operate a real estate brokerage business
B)Handle money in trust for clients
C)Negotiate listing contracts or contracts for sale
D)Complete legal documents used in sales and leases in their own name
Q2) In determining the appropriate listing contract to be used,it is important to know whether a multiple listing service (MLS)will be employed.The MLS only accepts which of the following types of listing contracts?
A)Open listing
B)FSBO listing
C)Exclusive agency listing
D)Exclusive right of sale listing
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14
Chapter 13: Contracts for Sale and Closing
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26 Verified Questions
26 Flashcards
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Sample Questions
Q1) 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
Q2) At the closing,the buyer will be credited for a number of costs that have been paid up-front (or will be paid after closing)as well as a number of prorated expenses that account for the period of time during which the seller occupied the house.All of the following items detailed in the closing costs involve credits that are commonly passed on to the buyer EXCEPT:
A)Earnest money
B)Hazard insurance premiums
C)Property taxes
D)Mortgage interest
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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) Upon starting his first job after graduation,Jon has completed the necessary paperwork to set up direct deposit of his paycheck into his savings account.After taxes,medical benefits,and retirement account contributions have been taken out of John's gross salary,he is left with a direct deposit of $4000 at the end of each month.If John started with no other savings in his account,how much will John have in his savings account at the end of 12 months if he is able to earn an annual interest rate of 3%,with interest being compounded monthly?
A)$48,665.53
B)$48,787.19
C)$56,768.12
D)$58,471.16
Q2) Assume that an industrial building can be purchased for $1,500,000 today,is expected to yield cash flows of $80,000 for each of the next five years (with the cash flows occurring at the end of each year),and can be sold at the end of the fifth year for $1,625,000.Calculate the internal rate of return (IRR)for this transaction.
A)3.14%
B)6.78%
C)9.20%
D)10.37%
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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) 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
Q2) 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
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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) 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
Q2) Given the following information,calculate the debt yield ratio on the following commercial property.Estimated Net Operating Income in the first year: $2,500,000,Debt service in the first year: $960,000,Loan amount: $20,000,000,Purchase price: $27,300,000
A)4.8%
B)12.5%
C)68.6 %
D)75.2 %
Q3) An interest-only balloon mortgage loan is commonly referred to as a(n):
A)Mini-perm loan
B)Mezzanine loan
C)Land acquisition loan
D)Bullet loan
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18
Chapter 17: Sources of Commercial Debt and Equity Capital
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33 Verified Questions
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Sample Questions
Q1) 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
Q2) At the end of 2011,commercial banks and other financial institutions collectively owned $51 billion in commercial real estate equity.The vast majority of these holding are the result of which of the following types of investment by these institutions?
A)Direct equity investment through private market purchases
B)Indirect investment through real estate securities
C)Commingled real estate funds
D)Real estate obtained as a result of borrower default and foreclosure.
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19
Chapter 18: Investment Decisions: Ratios
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Sample Questions
Q1) Given the following information,calculate the going-in capitalization rate for the specific property.First-year NOI: $18,750,Acquisition price: $150,000,Equity Investment: 20%.
A)2.5%
B)12.5%
C)15.6%
D)62.5%
Q2) Unlike the debt coverage ratio,the debt yield ratio (DYR)is not affected by the interest rate or amortization period of the loan;the DYR is simply a measure of how large the NOI is relative to the loan amount.Lenders who rely on this ratio are typically willing to accept a minimum DYR of
A)10%
B)20%
C)60%
D)80%
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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) In discounted cash flow (DCF)analysis,the sale price of the property must be estimated at the end of the expected holding period.The most common method for determining the terminal value of the property is the:
A)yield capitalization method
B)direct capitalization method
C)repeat-sales approach
D)cost approach
Q2) Given the following information,calculate the before-tax equity reversion (BTER).NOI:
$89,100,Annual Debt Service: $58,444,Net Sale Proceeds: $974,700,Remaining Mortgage Balance: $631,026.
A)$30,656
B)$343,674
C)$572,582
D)$885,600
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Chapter 20: Income Taxation and Value
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29 Verified Questions
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Sample Questions
Q1) Given the following information,calculate the depreciation allowance for year 1.Depreciable Basis: $200,000,Declining Balance Depreciation: 175%,Cost Recovery Period: 27 years.
A)$3,704
B)$6,481
C)$7,407
D)$12,963
Q2) Johnson Builders is in the new residential construction business.They built a house that sat empty for 6 months after its completion.This type of property would be categorized as a:
A)personal residence
B)dealer property
C)trade or business property
D)investment property
Q3) Suppose a taxpayer owns an apartment complex.Under U.S.tax law,in what category would this property be classified?
A)Personal residence
B)Dealer property
C)Trade or business property
D)Investment property
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Chapter 21: Managing Residential Rental Property
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25 Verified Questions
25 Flashcards
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Sample Questions
Q1) A property management contract establishes an agency relationship between the manager and the owner.Considering that the management fee is often calculated as a percentage of gross income,this would seem to create an agency problem in that the agreement does not give managers the incentives to control operating expenses while they attempt to increase rental income.Though seldom the case,basing the property management fee on which of the following measures would,in theory,better align the interests of the owner and manager?
A)Effective gross income
B)Net operating income
C)Miscellaneous income
D)Capital expenditures
Q2) Despite the magnitude of their real estate holdings,many non-real estate corporations have historically expended little effort to manage these assets effectively.Recently,the development of which of the following markets has helped to quell concerns related to this issue?
A)Commercial mortgage backed securities (CMBS)
B)Sale-leaseback
C)Tenancy-in-common (TIC)
D)Installment sale
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Page 23
Chapter 22: Managing Non-Residential Rental Property
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Sample Questions
Q1) 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
Q2) 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
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Chapter 23: Development: The Dynamics of Creating Value
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Sample Questions
Q1) With a multitude of players involved in the development process,it is important to understand where they participate within the various stages of development.Which of the following individuals is the least likely to be involved in the design stage of development?
A)General contractor
B)Landscape architect
C)Civil engineer
D)Land planner
Q2) 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
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