Real Estate Valuation
Practice Questions
Course Introduction
Real Estate Valuation introduces students to the principles and practices involved in determining the value of real property. The course covers fundamental concepts such as market value, investment value, and insurable value, as well as the primary valuation methods including the sales comparison approach, cost approach, and income capitalization approach. Students will learn to analyze market data, evaluate economic and legal factors, conduct property inspections, and prepare professional appraisal reports. Emphasis is placed on ethical standards, regulatory requirements, and the application of quantitative and qualitative analysis to real-world valuation scenarios, preparing students for roles in real estate, banking, or property management.
Recommended Textbook
Real Estate Finance Investments 16th Edition by William B Brueggeman
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23 Chapters
827 Verified Questions
827 Flashcards
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Chapter 1: Real Estate Investment: Basic Legal Concepts
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Sample Questions
Q1) A(n)________ estate represents the most complete form of ownership of real estate; the owner is free to divide it up into lesser estates and sell,lease,or borrow against them as he or she wishes.
A)Fee simple
B)Freehold
C)Leasehold
D)Life
Answer: A
Q2) Mr.Smith has allowed Mrs.Jones to run a sewer line through Mr.Smith's backyard so that Mrs.Jones has access to the city sewer system.This is an example of a(n):
A)Easement
B)Encumbrance
C)Estate for years
D)Title assurance
Answer: A
Q3) A lessee is a person who holds the title to a piece of property.
A)True
B)False
Answer: False
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Page 3
Chapter 2: Real Estate Financing: Notes and Mortgages
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45 Verified Questions
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Sample Questions
Q1) A property is encumbered as follows: First mortgage,A: $250,000
Second mortgage,B: $40,000
Third mortgage,C: $10,000
How much can mortgagee B pay for the property at a foreclosure sale without having to raise additional funds?
A)$290,000
B)$40,000
C)$300,000
D)$50,000
Answer: A
Q2) When a deed is given in lieu of foreclosure of the mortgage,the mortgagor no longer has an obligation to pay the mortgage note.
A)True
B)False
Answer: True
Q3) A technical default can result from failure to keep the property in repair.
A)True
B)False
Answer: True
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Page 4
Chapter 3: Mortgage Loan Foundations: The Time Value of Money
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30 Verified Questions
30 Flashcards
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Sample Questions
Q1) Assuming an interest rate of 6%,the present value of $1 that will be received a year from now is $0.75.
Answer: $0.94
Q2) At the end of 8 years,your friend wants to have $50,000 saved for a down payment on a house.He expects to earn 8%-compounded monthly-on his investments over the next 8 years.How much would your friend have to put in his investment account each month to reach his goal?
A)$188
B)$374
C)$392
D)$521
Answer: B
Q3) Ten years ago,you put $150,000 into an interest-earning account.Today it is worth $275,000.What is the effective annual interest earned on the account?
A)47.99%
B)6.00%
C)6.25%
D)8.33%
Answer: C
Page 5
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Chapter 4: Fixed Interest Rate Mortgage Loans
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38 Verified Questions
38 Flashcards
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Sample Questions
Q1) With a negative amortizing loan,the borrower will end up with a loan balance at the end of the loan that is greater than the original loan balance.
A)True
B)False
Q2) A borrower takes out a 30-year mortgage loan for $250,000 with an interest rate of 5% and monthly payments.What portion of the first month's payment would be applied to interest?
A)$694
B)$1,042
C)$1,342
D)$1,355
Q3) A borrower has a 30-year mortgage loan for $200,000 with an interest rate of 6% and monthly payments.If she wants to pay off the loan after 8 years,what would be the outstanding balance on the loan?
A)$84,886
B)$91,246
C)$146,667
D)$175,545
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6
Chapter 5: Adjustable and Floating Rate Mortgage Loans
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Sample Questions
Q1) A borrower takes a 30-year,fully amortizing,5/1 ARM for $225,000 with an initial interest rate of 4.375%.Assuming the index on which the loan rate is based rises by 1% in the fourth year of the loan and remains at that level,what will the payment be in the sixth year of loan?
A)$1,123.39
B)$1,241.89
C)$1,259.94
D)$1,403.71
Q2) A borrower takes out a 30-year adjustable rate mortgage loan for $200,000 with monthly payments.The first two years of the loan have a "teaser" rate of 4%,after that,the rate can reset with a 5% annual payment cap.On the reset date,the composite rate is 6%.What would the Year 3 monthly payment be?
A)$955
B)$1,067
C)$1,003
D)$1,186
Q3) The default risk of a FRM is higher than the default risk of an ARM.
A)True
B)False
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Page 7
Chapter 6: Mortgages: Additional Concepts, analysis, and Applications
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35 Verified Questions
35 Flashcards
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Sample Questions
Q1) When calculating the cash equivalent value of an assumable loan,you find the present value of the payments using the:
A)Contract interest rate
B)Incremental borrowing cost
C)Market interest rate
D)Discount rate
Q2) The primary benefit of choosing biweekly mortgage payments versus monthly payments is the savings from lowering the average amount paid each month.
A)True
B)False
Q3) Which of the following is an important aspect of the loan refinance decision process?
A)Terms associated with the existing loan
B)Terms of the new loan
C)Fees associated with paying off the old loan and/or acquiring the new loan
D)All of the above
Q4) Home equity loans do not require a mortgage lien on the property.
A)True
B)False
8
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Chapter 7: Single-Family Housing: Pricing, investment, and Tax Considerations
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36 Verified Questions
36 Flashcards
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Sample Questions
Q1) Assume that houses in an area appreciate at the rate of 4 percent a year.A borrower expects to have a loan-to-value ratio of 90 percent.What is the approximate expected appreciation rate on home equity (EAHE)?
A)4.0%
B)10%
C)20%
D)40%
Q2) The influence on property values brought about by a net benefit related to the value of public goods less their cost is referred to as:
A)A capital gain
B)A capital loss
C)The capitalization effect
D)The depreciation effect
Q3) Mortgage interest and property taxes are deductible for federal income tax purposes for homeowners.
A)True
B)False
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Page 9
Chapter 8: Underwriting and Financing Residential Properties
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38 Verified Questions
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Sample Questions
Q1) The uniform settlement statement displays settlement summaries for which of the following parties to the closing?
A)Borrower and seller
B)Borrower and broker
C)Borrower,seller,and broker
D)Borrower,seller,and lender
Q2) Which of the following is typically NOT one of the settlement costs that are escrowed over the life of the loan?
A)Property taxes
B)Mortgage insurance
C)Selling commissions
D)Hazard insurance
Q3) In order to avoid the requirement to purchase private mortgage insurance when the loan-to-value is greater than 80%,a buyer may be able to take out a first mortgage for 80% or less and couple it with a second mortgage to account for the remainder of the necessary funds.
A)True
B)False
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41 Verified Questions
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Sample Questions
Q1) The term "percentage rent" refers to rent paid as a percent of space leased.
A)True
B)False
Q2) A 1,000 square foot office space is leased at $15.00 per square foot during the first year with $2.00 step-up provisions each of the following years.The lease is gross with an expense stop set at $6.65 per square foot,and yearly expenses per square foot are as follows: $6.00,$6.65,and $7.05.The lease provides for two months of free rent at the end of the lease term.If the lease term is three years and the discount rate is 10%,what is the effective rent per square foot?
A)$9.38
B)$9.50
C)$10.22
D)$10.46
Q3) Which of the following leads to rent premiums?
A)Apartments on the periphery of a site; higher floors with no elevators
B)Second or third levels in multi-level malls
C)Middle floors in an office building
D)Apartments on higher floors with elevators
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Chapter 10: Valuation of Income Properties: Appraisal and the Market for Capital
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47 Verified Questions
47 Flashcards
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Sample Questions
Q1) The rationale for using the cost approach to appraisal is that any informed buyer would not pay more for a property than what it would cost to buy the land and build the structure.
A)True
B)False
Q2) A building has 12 foot ceilings that cause the electric bill to be $1,200 higher per year than a conventional ceiling height.Depreciation caused by the ceilings can be estimated by calculating the present value of the $1,200 per year over the remaining economic life of building.
A)True
B)False
Q3) In the income approach to valuation,replacement cost is reduced by costs such as those that are associated with curing deterioration of the property and the economic loss of value from incurable factors due to change in design or layout efficiency.
A)True
B)False
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12
Chapter 11: Investment Analysis and Taxation of Income Properties
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40 Verified Questions
40 Flashcards
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Sample Questions
Q1) If an individual actively participates in the management of a rental property,he may deduct the full amount of the passive activity losses from active income,regardless of his adjusted gross income.
A)True
B)False
Q2) Expense stops protect the lessee from unexpected changes in market rents.
A)True
B)False
Q3) The deductibility of depreciation in calculating taxable income will usually cause the effective tax rate to be lower than the actual tax rate.
A)True
B)False
Q4) The real estate industry:
A)Is highly competitive
B)Is a relatively small market
C)Is relatively concentrated,with a few owners controlling most of the market in most areas
D)All of the above
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Chapter 12: Financial Leverage and Financing Alternatives
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Sample Questions
Q1) A property is financed with a 75% loan at 11.5% over 25 years.The property produces an ATIRR on total investment of 7.34% based on a tax rate of 31%.What can be said about the leverage associated with the property?
A)Negative leverage exists
B)Positive leverage exits
C)No leverage exists
D)Can't tell without knowing the ATIRR on equity
Q2) When constructing a convertible mortgage,the lender will require a contract interest rate equal to or greater than the market rate on a similar mortgage without a conversion option.
A)True
B)False
Q3) An interest-only loan will provide a higher debt coverage ratio than an amortizing loan with the same interest rate.
A)True
B)False
Q4) If a property has positive leverage,the owner should borrow as much as possible.
A)True
B)False
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Chapter 13: Risk Analysis
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31 Verified Questions
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Sample Questions
Q1) Consider an investment in which a developer plans to begin construction,of a building that will cost $1,000,000,in one year if,at that point,rent levels make construction feasible.There is a 50 percent chance that NOI will be $160,000 and a 50 percent chance that NOI will be $80,000.Using the traditional approach,which is similar to the "highest and best use" approach,what will the land value of the property be at the completion of the construction,assuming a cap rate of 10 percent (12 percent discount rate and an NOI growth rate of 2 percent)?
A)$120,000
B)$200,000
C)$300,000
D)$833,333
Q2) When an investor performs an investigation while considering acquisition of a property,this is referred to as:
A)Investigation
B)Risk analysis
C)Due diligence
D)Acquisition analysis
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15
Chapter 14: Disposition and Renovation of Income Properties
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Sample Questions
Q1) The investment foundation of a real estate investment is another name for the initial investment.
A)True
B)False
Q2) A property should be sold when the marginal rate of return falls below the rate at which funds can be reinvested.
A)True
B)False
Q3) The marginal rate of return can be defined as the:
A)Return that results from holding the property for one additional year
B)IRR the year the internal rate of return starts to decrease from holding the property
C)Incremental return over a holding period resulting from renovating a property
D)Rate of return at which the net present value equals zero
Q4) The marginal rate of return for a property is:
A)The APR on an incremental amount of borrowing
B)The expected holding period return earned when the investor purchases the property
C)The return earned on subprime property relative to prime property
D)The return gained by holding the property for one additional year
Page 16
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Chapter 15: Financing Corporate Real Estate
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Sample Questions
Q1) If a company decides to lease a piece of real estate it will typically arrange for off-balance-sheet financing for the payments since they will be tracked on the income statement and not on the balance sheet.
A)True
B)False
Q2) When doing a sale versus lease analysis,how should the residual value of the property be estimated?
A)Assume it is worthless
B)Set it equal to the book value of the property
C)Assume it is equal to the original purchase price
D)Assume it is equal to the market value of the real estate
Q3) A company estimates that the incremental cost of owning a parcel of real estate vs.leasing will be 10%.The company expects a 12% rate of return on investments.Therefore real estate should be owned and not leased.
A)True
B)False
Q4) An operating lease does not affect a corporate balance sheet.
A)True
B)False
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Chapter 16: Financing Project Development
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Sample Questions
Q1) Besides an estimate of costs,a construction loan submission package includes many other components.Which of the following is NOT one of those components?
A)Two years of prior tax returns
B)Current financial statements
C)Pro Forma Operating Statements
D)Ratio and Sensitivity Analysis
Q2) Interest on a construction loan is usually paid:
A)Up front at the beginning of the loan
B)Periodically over the life of the loan
C)In quarterly installments over the life of the loan
D)At the end of the loan
Q3) Commitments for construction financing are usually contingent on commitments for permanent financing.
A)True
B)False
Q4) The demand for retail space should be examined in terms of the characteristics of the tenant's demand in a given market.
A)True
B)False
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Chapter 17: Financing Land Development Projects
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Sample Questions
Q1) Generally,which of the following is FALSE regarding an option contract?
A)An option contract allows the developer to perform a preliminary market study and feasibility analysis
B)If the developer decides to purchase a property,the price of an option is applied towards the price of the property
C)If the developer decides not to purchase the property,the landowner will refund any money paid for the option
D)An option contract provides the developer with the assurance that a property will not be sold over the course of the option period
Q2) Since land development projects sometimes run behind schedule due to development problems or slow sales of parcels,lenders generally require which of the following in the initial contract?
A)Subcontractor holdbacks
B)Title extension
C)Extension agreement
D)Release from liability
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Chapter 18: Structuring Real Estate Investments:
Organizational Forms and Joint Ventures
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Sample Questions
Q1) When a syndication is offered as a "blind pool" offering,the properties to be purchased are not identified before funds are raised.
A)True
B)False
Q2) An arrangement in which a develop/operator may receive a substantial incentive after initial distributions have been made is referred to as a:
A)Bonus
B)Promote
C)Cumulative distribution
D)Consideration
Q3) In a syndication,when cash is distributed from an investor's partnership basis how is the new basis calculated?
A)The cash distribution is added to the investor's capital gain
B)The cash distribution is subtracted from the investor's capital gain
C)The cash distribution is added to the investor's partnership basis
D)The cash distribution is subtracted from the investor's partnership basis
Q4) Tax losses cannot be allocated to partners in a syndication.
A)True
B)False
20
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Chapter 19: The Secondary Mortgage Market: Pass-Through Securities
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Sample Questions
Q1) Marking the mortgage to market is the process of accumulating mortgage pools and marketing them to individual investors as mortgage-backed bonds.
A)True
B)False
Q2) A rising rate of market interest would have which of the following impacts on a mortgage pass-through security?
A)Increase the market value of the MPT
B)Decrease the market value of the MPT
C)Increase or decrease,depending on whether the MPT was issued at a premium or a discount
D)The market rate of interest has no impact on the market value of a MPT
Q3) The process that a trustee would use in assessing whether the value of a mortgage pool is within the required overcollateralization levels is referred to as:
A)Overcollateralization process
B)Marking to market
C)MBB appraisal
D)Market value assessment
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Page 21
Chapter 20: The Secondary Mortgage Market: Cmos and
Derivative Securities
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Sample Questions
Q1) The credit rating of an MPTB depends largely on the:
A)Amount of overcollateralization
B)Degree to which government-related securities constitute the excess collateral
C)Riskiness of the mortgage in the underlying pools
D)All of the above
Q2) In comparison to other mortgage-backed securities,the unique characteristic of CMOs is that:
A)CMO issuers do not retain ownership of the underlying mortgage pool
B)CMOs are issued in multiple security classes
C)The CMO mortgage pool is not overcollateralized
D)CMOs are a pay-through in which all amortization and prepayments flow through to investors
Q3) Subprime mortgage-backed securities generally include FHA-insured or VA-guaranteed mortgages,along with conventional mortgages.
A)True
B)False
Q4) Cash flows remaining after all CMO tranches have been paid off are referred to as REMICs.
A)True
B)False
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Chapter 21: Real Estate Investment Trusts Reits
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Sample Questions
Q1) Which of the following is likely to occur upon the sale of a REIT-owned property?
A)If a capital gain is realized,the REIT can retain the gain for future investment and be taxed at the appropriate corporate capital gains tax rate
B)If a capital gain is realized,the REIT can retain the gain for future investment and be taxed at the shareholder's capital gains tax rate
C)If a capital gain is realized,the REIT can distribute the gain as a dividend to shareholders who will realize it as dividend income for individual tax reporting purposes
D)If a capital loss is realized,the loss can be passed through to individual investors
Q2) Mortgage REITs use debt financing to increase their capital bases.
A)True B)False
Q3) Usually ground leases are for relatively short periods of time.
A)True
B)False
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23
Chapter 22: Real Estate Investment Performance and Portfolio Considerations
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Sample Questions
Q1) The holding period return and geometric mean return calculations will yield the same result for holding periods longer than two years.
A)True
B)False
Q2) In comparison to investment portfolios comprised entirely of corporate stocks and bonds,portfolios which include some form of real estate investment tend to offer higher returns for each level of risk.
A)True
B)False
Q3) The NCREIF Property Index includes property value increases or decreases only when properties are sold since the sale price is the only true measure of market value.
A)True
B)False
Q4) When used to evaluate the performance of an investment,the geometric mean is considered to be superior to the arithmetic mean.
A)True
B)False
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Chapter 23: Real Estate Investment Funds: Structure,
performance, benchmarking, and Attribution Analysis
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Sample Questions
Q1) For real estate investment funds in which the manager has little control over the flow of cash into and out of the fund,the preferred performance measure is ________.
A)NPV
B)IRR
C)TVM
D)TWR
Q2) The investment strategy of a fund may exclude certain markets,submarkets,and/or property categories from the fund manager's investment options.
A)True
B)False
Q3) A new real estate investment fund might feature a "lock-up period" that would prohibit investors from exiting the fund during the fund's first year or two in operation.
A)True
B)False
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