Real Estate Fundamentals
Midterm Exam
Course Introduction
Real Estate Fundamentals provides an introduction to the principles, concepts, and practices essential to the real estate industry. The course covers topics such as property rights, real estate law, land use controls, property valuation, financing methods, and the roles of various professionals in real estate transactions. Students will gain a foundational understanding of real estate markets, ethical considerations, and the economic factors influencing property ownership and investment. By completing this course, learners are prepared to understand the fundamental aspects of real estate necessary for further study or entry-level professional involvement in the field.
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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Q1) The required rate of return that an individual demands on a real estate investment is determined in the:
A)user market
B)capital market
C)government
D)local market
Answer: B
Q2) Each property has unique features,whether it is its age,the building design of its structures,or its location.As such,real estate markets consist of assets that are considered:
A)homogeneous
B)heterogeneous
C)substitutes
D)complements
Answer: B
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Page 3
Chapter 2: Legal Foundations to Value
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Sample Questions
Q1) When multiple individuals have use of a property,but their interests are not simultaneous,this type of co-ownership is referred to as a:
A)Cooperative
B)Tenancy by the entirety
C)Condominium
D)Timeshare
Answer: D
Q2) 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(n):
A) legal life estate with remainder interest
B)conditional fee absolute with reverter interest
C)ordinary life estate with remainder interest
D)tenancy for years
Answer: C
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Chapter 3: Conveying Real Property Interests
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Sample Questions
Q1) 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
Q2) The type of deed offered by the grantor is communicated through a phrase such as "does herby grant,bargain,sell and convey unto ..." This clause is referred to as the:
A)recital of consideration
B)words of conveyance
C)covenant
D)habendum clause
Answer: B
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Chapter 4: Government Controls and Real Estate Markets
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Sample Questions
Q1) 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
Q2) Traditional zoning regulations are criticized for often being too rigid in forcing uniform types of development.One proposed solution to this issue allows traditional zoning requirements to vary in exchange for an enhancement to the community,such as the construction of a park.This is more commonly referred to as a:
A)Planned unit development
B)Performance standard
C)Impact fee
D)Growth restriction
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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Page 6
Chapter 5: Market Determinants of Value
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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) The magnitude of an economic base multiplier depends upon the amount of money that "leaks" out through expenditures outside of the city limits.The economic multiplier tends to be higher with each of the following EXCEPT:
A)A higher percentage of local household income is respent within the city.
B)The larger the city is.
C)The less isolated the city is from other cities.
D)The more tourism a city brings in.
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Chapter 6: Forecasting Value: Market Research
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Sample Questions
Q1) 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
Q2) A tool used by real estate analysts to relate a consumer's activities,interests,opinions,and values to a consumer's demographics is referred to as:
A)geographical information systems (GIS)
B)psychographics
C)survey research
D)census mapping
Q3) The most common definition of a city used for government data collection and reporting,identified as a single labor market area centered around a city with a population of at least 50,000 people,is referred to as a:
A)township
B)central business district
C)metropolitan statistical area
D)county
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Chapter 7: Valuation Using the Sales Comparison and Cost Approaches
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Sample Questions
Q1) Real estate professionals have long supported strict standards of ethics and practice.Followed by all states and federal regulatory agencies,which of the following imposes ethical obligations and minimum standards that must be followed by all real estate professionals providing formal estimates of market value?
A)Uniform Standards of Professional Appraisal Practice (USPAP)
B)Multiple Listing Services (MLS)
C)Department of Housing and Urban Development (HUD)
D)Office of Federal Housing Enterprise Oversight (OFHEO)
Q2) 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.
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Page 9
Chapter 8: Valuation Using the Income Approach
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Sample Questions
Q1) Suppose that you are attempting to value an income producing property using the direct capitalization approach.Using data from comparable properties,you have determined the overall capitalization rate to be 11.44%.If the projected first year net operating income (NOI)for the subject property is $44,500,what is the indicated value of the subject using direct capitalization?
A)$49,590.80
B)$50,225.73
C)$388,986.00
D)$509,080.00
Q2) The expected costs to make replacements,alterations,or improvements to a building that materially prolong its life and increase its value is referred to as:
A)operating expenses
B)capital expenditures
C)vacancy losses
D)collection losses
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Chapter 9: Real Estate Finance: The Laws and Contracts
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Sample Questions
Q1) Certain mortgage loans contain a due-on-sale clause,which gives the lender the right to terminate the loan at sale of the property.Which of the following types of loans is the most likely to contain a due-on-sale clause?
A)Federal Housing Administration (FHA)loan
B)Veterans Affairs (VA)loan
C)Conventional home loan
D)An assumable home loan
Q2) In addition to numerous congressional acts that focus more on national regulation,laws have been created that affect the practice of home mortgage lending at a community or neighborhood level.For example,laws have been enacted to prevent lenders from avoiding certain neighborhoods without regard to the merits of the individual loan applications,a practice more commonly referred to as:
A)rescinding
B)redlining
C)assuming
D)holdout
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Chapter 10: Residential Mortgage Types and Borrower
Decisions
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Sample Questions
Q1) Suppose you are interested in taking an FHA mortgage loan for $350,000 in order to purchase your principal residence.In order to do so,you must pay an additional up-front mortgage insurance premium (UFMIP)of 1.0% of the mortgage balance.If the interest rate on the fully-amortizing mortgage loan is 6% and the term is 30 years and the UFMIP is financed (i.e. ,it is included in the loan amount),what is the dollar portion of your monthly mortgage payment that is designated to cover the UFMIP?
A)$20.98
B)$291.67
C)$2,119.41
D)$3,500.00
Q2) Mortgage originators can either hold loans in their portfolios or sell them to investors.When a mortgage originator decides to sell mortgages to another institution,this transaction occurs in what is commonly referred to as the:
A)primary mortgage market
B)secondary mortgage market
C)over-the-counter market
D)loan origination market
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Page 12
Chapter 11: Sources of Funds for Home Mortgages
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Q1) In addition to providing home mortgages,large commercial banks have specialized in providing short-term funds to mortgage banking companies in order to enable them to originate mortgage loans and hold the loans until the mortgage banking company can sell them in the secondary market.This type of financing is commonly referred to as:
A)Mortgage pipeline
B)Loan servicing
C)Warehousing
D)Loan underwriting
Q2) The emergence of mortgage securities propelled the development of mortgage companies,an entity significantly different from the thrifts and banks that previously dominated the mortgage landscape.Which of the following parties is responsible for providing mortgage origination services and initial funding within this new framework?
A)Mortgage banker
B)Mortgage broker
C)Portfolio lender
D)Security analyst
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Chapter 12: Brokerage and Listing Contracts
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Sample Questions
Q1) Federal and state laws prohibit discrimination in housing.However,exemptions do exist depending on the particular type of property that is being considered.All of the following activities could be considered exempt in specific scenarios EXCEPT:
A)Refusing to sell or rent to a person because of race.
B)Refusing to sell or rent based on familial status (i.e.having children).
C)Refusing to sell or rent to persons based on age.
D)Refusing to sell or rent a single-family home based on religion provided the owners do not employ the services of a broker or agent.
Q2) 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 anyone,other than the owner,sells the property during the contract period?
A)Open listing
B)FSBO listing
C)Exclusive agency listing
D)Exclusive right of sale listing
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Chapter 13: Contracts for Sale and Closing
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Sample Questions
Q1) In certain circumstances,mutual assent between the contracting parties may be broken,thus invalidating the contract.Which of the following defects to mutual assent involves compelling a person to act by the use of force?
A)One of the parties is under duress.
B)One of the parties is under undue influence.
C)One of the parties is under menace.
D)One of the parties is committing frauD.
Q2) 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.
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15
Chapter 14: The Effects of Time and Risk on Value
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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) Assuming all else the same,the ___________ of an annuity due will be _____________ that of an ordinary annuity. A)future value;greater than B)present value;equal to C)future value;less than D)present value;less than
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Page 16
Chapter 15: Mortgage Calculations and Decisions
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Sample Questions
Q1) Given the following information,calculate the effective borrowing cost (rounded to the nearest tenth of a percent).Loan amount: $166,950,Term: 30 years,Interest rate: 8
%,Monthly Payment: $1,225.00,Discount points: 2,Other Closing Expenses: $3,611.
A)7.7%
B)8.2%
C)8.5%
D)9.1%
Q2) In considering a 3/1 adjustable-rate mortgage (ARM),the interest rate will be fixed for how many years?
A)One year
B)Two years
C)Three years
D)Four years
Q3) When lenders charge discount points (prepaid interest)on a loan,what impact does this have on the loan's yield?
A)The yield on the loan will increase.
B)The yield on the loan will decrease.
C)The yield on the loan will be unaffected.
D)The yield on the loan automatically becomes zero.
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Page 17
Chapter 16: Commercial Mortgage Types and Decisions
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Sample Questions
Q1) An alternative vehicle for financing commercial property involves having the lender acquire an ownership (equity)interest in the property by supplying a portion of the required equity capital in addition to providing the permanent debt financing.This type of financing arrangement is commonly referred to as a(n):
A)installment sale
B)joint venture
C)land sale-leaseback
D)complete sale-leaseback
Q2) Relative to residential loans,the underwriting process for commercial loans is more complicated.The commercial loan underwriting process focuses first on which of the following?
A)Individual borrower's credit quality
B)Income producing potential of the collateral property
C)Individual borrower's wages
D)Individual borrower's personal assets
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18
Chapter 17: Sources of Commercial Debt and Equity Capital
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Sample Questions
Q1) The estimated market value of investible commercial real estate in the United States at the end of 2011 was approximately $6.5 trillion.In terms of market size,which of the following asset categories is most closely related to commercial real estate?
A)Owner-occupied housing
B)Corporate equities
C)U.S.Treasury securities
D)Municipal securities
Q2) In recent years,a number of pooled ownership structures have emerged that have changed the analysis of ownership form selection for many investors.Which of the following ownership structures is generally used for small,local investments that are marketed to accredited,but non-institutional investors?
A)General partnership
B)Limited partnership
C)C corporation
D)Limited liability company
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19
Chapter 18: Investment Decisions: Ratios
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Sample Questions
Q1) 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
Q2) The going-in capitalization rate can vary significantly by property quality.Which of the following classes of properties within a particular property type would be expected to have the highest cap rates?
A)Class A properties
B)Class B properties
C)Class C properties
D)Cap rates would be equal across all classes within the same property type
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20
Chapter 19: Investment Decisions: NPV and IRR
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Sample Questions
Q1) The use of financial leverage when investing in real estate is a double-edged sword.While increased leverage may allow the investor to "purchase" higher expected returns,the "price" of doing so is an increase in which of the following risks?
A)Liquidity risk
B)Default risk
C)Interest rate risk
D)Pipeline risk
Q2) Changes in the discount rate used to complete net present value analysis can have a significant impact on the estimated value of the investment and therefore affect the overall investment decision.As the required internal rate of return (IRR)increases,the net present value will:
A)decline
B)increase
C)remain the same
D)become zero
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21
Chapter 20: Income Taxation and Value
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Sample Questions
Q1) 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%
Q2) When cash flows are classified as passive activity income,investors are subject to passive
Activity loss restrictions.These restrictions imply that passive income losses:
A)can be used to offset positive taxable income from other passive activities.
B)can be used to offset positive taxable income from other passive and active activities. C)can be used to offset positive taxable income from other passive and portfolio activities.
D)cannot be used to offset positive taxable income from any type of activity.
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Chapter 21: Managing Residential Rental Property
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Q1) While college-level courses are not widely available,a number of professional and trade organizations exist in the field of property management.Which of the following certifications awarded by the Institute of Real Estate Management is aimed at individuals who manage larger,residential,office,industrial,or retail properties?
A)Certified Property Manager (CPM)
B)Accredited Resident Manager (ARM)
C)Real Property Administrator (RPA)
D)Member of Appraisal Institute (MAI)
Q2) 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
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Chapter 22: Managing Non-Residential Rental Property
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Q1) In retail property types,rents are quoted on the basis of which of the following?
A)Usable area
B)Gross floor area
C)Gross leasable area
D)Rentable area
Q2) 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
Q3) Retail establishments are found in a variety of forms,the simplest of which is: (Hint: fast-food franchise)
A)Freestanding retail outlet
B)Strip center
C)Power center
D)Regional mall
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Chapter 23: Development: The Dynamics of Creating Value
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Q1) 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
Q2) For all but the largest of developers,the marketing and leasing of the project will be through an external broker.Given their special knowledge of the target market,it would be most beneficial for the developer to bring the broker into the development process during which of the following stages?
A)Design
B)Financing
C)Construction
D)Operation
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