Real Estate Markets
Midterm Exam
Course Introduction
This course provides an in-depth exploration of real estate markets, examining the economic, financial, and institutional forces that shape the development, valuation, and operation of residential and commercial real estate. Students will analyze market dynamics, such as supply and demand drivers, cycles, and price determinants, with attention given to both local and global trends. The course also introduces methods for evaluating investment opportunities, the impact of regulatory frameworks, and the role of various stakeholders, including developers, investors, and policy makers. Case studies and practical applications underscore the complexities of real estate markets in contemporary economies.
Recommended Textbook
Real Estate Principles A Value Approach 3rd Edition by David Ling
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Chapter 1: The Nature of Real Estate and Real Estate Markets
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Q1) When the value of land is considered,it is important to distinguish between land and raw land.Raw land refers to a(n):
A)building site
B)structure on the land
C)property's infrastructure
D)area that does not include any improvements
Answer: D
Q2) 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
Q3) The size of a single family residential lot is typically:
A)less than one acre
B)between one and two acres
C)between two and three acres
D)greater than three acres
Answer: A
Page 3
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Chapter 2: Legal Foundations to Value
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Q1) Co-ownership can occur in a variety of ways,with significant variation in how the bundle of rights is jointly held.All of the following entities are forms of direct co-ownership EXCEPT:
A)Tenancy in common
B)Tenancy by the entirety
C)Condominium
D)Partnership
Answer: D
Q2) Property rights can be divided into two classes,real and personal.Which of the following is an example of real property?
A)Vehicles
B)Stocks and bonds
C)Patents
D)Commercial building
Answer: D
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4
Chapter 3: Conveying Real Property Interests
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Q1) The covenants in a deed are the most important differences among types of deeds.Which of the following covenants promises that the grantor truly has good title and the right to convey it?
A)Covenant of seizin
B)Covenant against encumbrances
C)Covenant of quiet enjoyment
D)Exceptions and reservation clause
Answer: A
Q2) 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
Answer: D
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5
Chapter 4: Government Controls and Real Estate Markets
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Sample Questions
Q1) A developer plans to place a subdivision slightly outside the city limits in an area that is rapidly developing.However,the city claims to have the right to control urban development even in the proposed area.The right the city is attempting to invoke is referred to as:
A)extraterritorial jurisdiction.
B)urban service area.
C)comprehensive plan.
D)growth constraint.
Q2) In the state of Florida,for example,homeowners may qualify for a tax exemption in which up to $50,000 will be deducted from the assessed value of the property before taxes are calculated as long as the property owner occupies a home as the family's principal residence and has claimed residency within the state.This exemption is better known as the:
A)ad valorem exemption
B)affordable housing exemption
C)growth moratorium
D)homestead exemption
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6
Chapter 5: Market Determinants of Value
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Q1) The demand for access between land uses is considered the "gravity" that holds a city together.These relationships between land uses are commonly referred to as:
A)linkages
B)economic bases
C)local economic activities
D)economies of scale
Q2) According to the bid-rent model,which of the following changes in the model's underlying assumptions would most likely result in a decrease in rents for properties closest to the central business district (CBD)?
A)An increase in an individual's hourly wage
B)An increase in the average traveling speed of the individual's commute
C)An increase in the number of households attempting to live in the area
D)An increase in the number of days an individual must commute to work
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Chapter 6: Forecasting Ownership Benefits and Value:
Market Research
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Q1) Computer software systems that enable one to manipulate and "map" information with great flexibility and speed are referred to as:
A)geographical information systems (GIS)
B)psychographics
C)survey research
D)census mapping
Q2) The presence of real estate cycles presents a major challenge when forecasting real estate market parameters.If the market value of a residential developer's project exceeds its construction costs,an increase in the supply of units will occur,which will most likely be followed by:
A)an increase in occupancy levels
B)an increase in market values
C)a decrease in real rental rates
D)a decrease in construction costs
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8
Chapter 7: Valuation Using the Sales Comparison and Cost Approaches
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Q1) The sequence of adjustments to the transaction price of a comparable property would make no difference if all adjustments were either dollar adjustments or percentage adjustments,but with mixed adjustments the sequence matters.In making adjustments to a comparable property to arrive at a final adjusted sales price,the proper sequence for the following adjustments would be:
A)Financing terms,market conditions,location.
B)Location,market conditions,financing terms.
C)Market conditions,location,financing terms.
D)Location,financing terms,market conditions.
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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Chapter 8: Valuation Using the Income Approach
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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)Property taxes
D)Trash removal
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
Q3) When using discounted cash flow analysis for valuation,the appraiser must estimate the sale price at the end of the expected holding period.This price is referred to as the property's:
A)net sale proceeds
B)selling expenses
C)terminal value
D)current market value
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Page 10
Chapter 9: Real Estate Finance: The Laws and Contracts
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Q1) It is possible to have a secured real estate loan without a mortgage through the use of a contract for deed.In contrast to the standard real estate sale,which of the following events occurs after the closing when dealing with a contract for deed?
A)Offer
B)Acceptance
C)Possession of the property passes to the buyer
D)Title to the property passes to the buyer
Q2) In a mortgage loan,the borrower always creates two documents: a note and a mortgage.Which of the following pieces of information is provided in the mortgage?
A)How the interest rate is to be computed.
B)Whether the borrower has the right to prepay the principal during the term of the loan,and any prepayment penalties that would be incurred as a result.
C)Whether the borrower is released from liability for fulfillment of the contract.
D)Whether the lender has the right to accelerate the loan,requiring the borrower to pay it off,in the case that the property is sold prior to the term of the loan.
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11
Chapter 10: Residential Mortgage Types and Borrower
Decisions
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Q1) Considered the most common type of home loan,which of the following refers to any standard home loan that is not insured or guaranteed by an agency of the U.S.government?
A)Conventional home loan
B)Federal Housing Administration loan
C)Veterans Affairs loan
D)Section 203 loan
Q2) The hybrid ARM attempts to balance the fixed payment desire of a borrower with the lender's desire to increase interest rates if market rates rise in the future.In its most common form,known as a 2-28,the hybrid ARM will have a fixed-interest rate for:
A)1 year
B)2 years
C)26 years
D)28 years
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Chapter 11: Sources of Funds for Residential Mortgages
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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) In 1989,Congress took major steps to establish depository institution accountability by requiring these institutions to hold more capital as they take on riskier assets.Which of the following Congressional acts imposed these capital standards on depository institutions?
A)Depository Institutions Deregulation and Monetary Control Act
B)Financial Institutions Reform,Recovery,and Enforcement Act
C)Secure and Fair Enforcement for Mortgage Licensing Act
D)Riegle Community Development and Regulatory Improvement Act
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Chapter 12: Real Estate Brokerage and Listing Contracts
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Q1) 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)Multiple listing
C)Exclusive agency listing
D)Exclusive right of sale listing
Q2) 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.
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Chapter 13: Contracts for Sale and Closing
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Q1) While the principal parties to a transaction must be legally competent for a contract to be valid,it is possible for a party acting on behalf of a principal to obtain this legal right.In order for personal representatives and trustees to be authorized to act on behalf of a principal,a legal instrument commonly referred to as ____________ must be in place.
A)assignment
B)power of attorney
C)mutual assent
D)consideration
Q2) The laws of some states require that real estate brokers provide buyers and sellers with a list of estimated closing costs before signing a contract for sale.At the closing,it is typically which of the following party's responsibilities to pay the full premium for an owner's title insurance policy?
A)Buyer
B)Seller
C)Lender
D)Broker
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Chapter 14: The Effects of Time and Risk on Value
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Q1) With compound interest,the investor earns interest on the principal amount invested plus interest on accumulated interest.Which of the following compounding frequencies would yield the investor the greatest ending balance assuming all else is equal?
A)Daily
B)Monthly
C)Quarterly
D)Annually
Q2) Assume that an individual puts $10,000 into a savings account that pays 3% interest compounded monthly with the intent to withdraw the balance in 5 years to buy a car.If he does not make any further deposits over this period,how much will the individual be able to put towards his purchase?
A)$10,125.63
B)$11,592.74
C)$11,616.17
D)$58,916.03
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Chapter 15: Mortgage Calculations and Decisions
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Q1) For the purposes of estimating the effective borrowing cost (EBC),only those up-front expenses associated with obtaining the mortgage should be included.With this in mind,which of the following costs should not be included in one's calculation of EBC?
A)Discount points
B)Loan origination fees
C)Appraisal fee
D)Buyer's title insurance
Q2) One reason why adjustable-rate mortgages (ARMs)have become popular has to do with the impact that they have on the interest rate risk that is borne by the parties involved.If interest rates were to rise on a level-payment mortgage (LPM)the interest rate risk of the loan would typically be borne by:
A)the borrower only
B)the lender only
C)both the borrower and lender
D)neither the borrower nor the lender
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17
Chapter 16: Commercial Mortgage Types and Decisions
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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) If mortgage rates decline significantly,borrowers may decide to prepay the principal on their loan even if they face prepayment penalties.One way that lenders protect themselves from prepayments in such circumstances is by requiring the borrower who prepays to purchase for the lender a set of U.S.Treasury securities whose coupon payments replicate the cash flows the lender will lose as a result of the early retirement of the mortgage.This process is referred to as:
A)Lockout
B)Yield-maintenance
C)Defeasance
D)Curtailment
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Chapter 17: Sources of Commercial Debt and Equity Capital
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Q1) Which of the following measures,equal to the estimated total market value of a REITs underlying assets,allows investors to compare the value of a publicly traded security to the value of the properties that it holds in the private market?
A)Net income
B)Net asset value
C)Funds from operations
D)Effective gross income
Q2) The choice of ownership form for pooled equity investments depends heavily on federal tax considerations.Which of the following ownership structures suffers from the major disadvantage of double taxation?
A)C Corporation
B)Subchapter S Corporation
C)General Partnership
D)Limited Liability Company
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Chapter 18: Investment Decisions: Ratios
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Q1) Given the following information,calculate the loan-to-value ratio for this property.Loan amount: $450,000,Interest rate: 7.5%,Acquisition price: $550,000
A)0.18
B)0.82
C)0.99
D)1.22
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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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) In discounted cash flow analysis,the industry standard for pro forma cash flow projections of investment properties is typically:
A)3 years
B)5 years
C)10 years
D)15 years
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21
Chapter 20: Income Taxation and Value
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Q1) The potentially large amount of taxes due on sale of commercial property has caused investors and policy makers to seek ways to defer taxes on the disposition of a property.A popular option has become for investors to swap one eligible property for another in order to avoid or defer capital gains taxes.Which of the following methods for deferring taxes does this describe?
A)Installment sale
B)Fully-taxable sale
C)Like-kind exchange
D)Sale leaseback
Q2) Congressional legislation has repeatedly altered the period of time over which rental real estate may be depreciated.Currently,residential income producing property (e.g.apartments)may be depreciated over no less than:
A)3 years
B)7 years
C)15 years
D)27 ½ years
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Chapter 21: Enhancing Value Through Ongoing Management
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Q1) When property managers are looking to secure a mix of tenants for which "the whole is greater than the sum of its parts," or in other words a group of tenants that shares similar characteristics such that the experience of living together is mutually beneficial,they are seeking what is referred to as:
A)permanence potential
B)synergism
C)rehabilitation
D)adaptive reuse
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: Leases and Property Types
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Q1) Which of the following property subtypes is often considered the least vulnerable to functional obsolescence because of its relatively simple structure and long economic life?
A)Industrial warehouse
B)Hotel
C)Retail strip centers
D)Suburban office
Q2) In contrast to rent for residential units,rent for U.S.commercial properties is typically quoted as:
A)a dollar amount per month
B)a dollar amount per year
C)a monthly cost per square foot
D)an annual cost per square foot
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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Page 24
Chapter 23: Development: The Dynamics of Creating Value
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Q1) Even the smallest building project involves a multitude of separate contractors to complete construction.Therefore,it becomes difficult for the developer to monitor the construction process.Which of the following individuals serves as the developer's liaison and representative on the project site?
A)General contractor
B)Construction manager
C)Land planner
D)Subcontractor
Q2) 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
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