REAE 3325.001 Chapter 1 Quiz & Chapter 7& 8 review

If we desire to classify land by its use, land that does not include any improvements to the land would be categorized as:

"Raw" Land

Real estate markets tend to highly segmented due to the heterogeneous nature of the products. Which of the following examples depicts this issue of market segmentation?

A couple searching for a single-family detached unit has limited their search to be in a specific price range between $350,000 and $4000,000.

Estimated Capital expenditures:

Are subtracted from NOI in an above-line treatment

Which of the following statements regarding capitalization rates on commercial real estate investments is the most correct?

Cap rates vary inversely with the perceived risk of the investment.

Real estate values derive from the interaction of three different sectors in the economy. Which of the following sectors serves to allocate financial resources among households and firms requiring funds?

Capital Market

The required rate of return that an individual demands on a real estate investment is determined in the:

Capital Market

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:

Capital expenditures

Considered a fundamental pricing metric in commercial real estate markets, the ratio of a property's annual net income to its market value is more commonly referred to as a(n):

Capitalization rate

The expected stream of rental income is capitalized into value by converting expected future cash flows into present value through a process called:

Discounting

When viewed as a tangible asset, real estate can be defined as the land and its permanent improvements. Improvements on the land include:

Fences

The final price for each comparable property reached after all adjustments have been made is termed the :

Final adjusted sale price

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:

Heterogeneous

Equity investors can choose to participate indirectly in real estate markets by purchasing shares in publicly traded real estate companies. In doing so, investors benefit from all of the following EXCEPT:

Highly segmented markets

As of 2011, the single largest asset category I the net worth portfolios of households is:

Housing

Steps in Sales Comparison Approach

I. Identify elements of comparison & value adjustment, II. Select Comparable Sales, III. Adjust comparable sale prices to approximate subject, IV. Reconcile adjusted sale prices; obtain indicated value of subject

Transaction adjustments:

I. Property rights, II. Financing terms, III. Conditions of sale, IV. Expenditures immediately after purchase, V. Market Conditions

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:

Increase if current property values are greater than the cost of construction

A new house in good condition that has a poor floor plan would suffer from which type of accrued depreciation?

Incurable functional obsolescence

Consistently the investment target of pension funds, publicly traded real estate companies, and real estate funds, large commercial properties valued well over $10M are often referred to as:

Investment-grade Property

Replacement cost:

Is the expenditure needed to construct a building of equal utility to the existing building.

The size of a single family residential lot is typically:

Less than 1 acre

Primarily through land use controls and property tax policy, which of the following branches of government has the largest influence on real estate values?

Local government

Operating expenses can be divided into two categories: variable and fixed expenses. Which of the following best exemplifies a fixed expense?

Local property taxes

Especially in terms of retail properties, which of the following attributes is considered the most likely to result in drastic value differences between otherwise similar properties?

Location Attributes

In the sales comparison approach, the value obtained after reconciliation of the final adjusted sale prices from the comparable sales is termed the:

Market Value

To reflect a change in market conditions between the date on which a comparable property sold and the date of appraisal of a subject property, and adjustment must be made for which of the following?

Market conditions

Real Estate is property, which can be either a tangible or an intangible asset. Which of the following would be considered an intangible asset?

Mortgage

Which of the following expenses is not an operating expense?

Mortgage payment

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:

Mortgage payments

The fundamental determinate of market value for income-producing properties:

Net Operating Income

An overall capitalization rate (Ro) is divided into which type of income or cash flow to obtain an indicated market value?

Net operating income (NOI)

Reproduction cost:

Of an existing building is the expenditure required to construct the building today, replicating it in exact details.

The starting point in calculating net operating income is the total annual income the property would produce assuming 100% occupancy and no collection losses. this is commonly referred to as:

PGI (Potential Gross Income)

The methodology of appraisal differs from that of investment analysis primarily regarding:

Point of View

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:

Privately negotiate contracts

When using discounted cash flow analysis for valuation, an appraiser will prepare a cash flow forecast, often referred to as a:

Pro Forma

The national government can have a significant impact on the value of real estate through:

Property tax Policy

The cap rate is an important metric that investors use to analyze the state of commercial real estate markets. When interpreting cap rate movements, an increase in cap rate over time would indicate that:

Property vales have decreased

Which of the following types of properties probably would not be appropriate for income capitalization?

Public School

Capital markets can be divided into four main categories: private equity, public equity, private debt, and public debt. An example of a real estate asset that trades in the private equity market is:

Real Property

Under the cost approach to appraisal, the expenditure required to construct a building with equal utility as the one being appraised is termed the:

Replacement cost

3 Approaches to valuation:

Sales Comparison, Cost Approach and Income Approach

Real estate is defined as land and its permanent improvements. Which of the following is an example of an improvement to the land?

Sewer system

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?

State Government

Which of the following is not included in accrued depreciation when applying the cost approach to valuation?

Tax depreciation

When using discounted cash flow analysis for valuation, the appraiser must estimate the sale price at the end of the expected holing period. This price (assuming selling expenses have yet to be accounted for) is referred to as the property's:

Terminal value

Capital markets can be divided into two broad categories: equity interests and debt interests. Equity investors in real estate expect to earn a return on their investment through:

The collection of rent and price appreciation

Competition for the currently available supply of locations and space coupled with the existing supply of leasable space, determines:

The current level of rental rates for each submarket and property.

By the third quarter of 2011, U.S. households had accumulated $6.2 trillion in housing equity, which represents about 11% of their net worth. What proportion of U.S. households own their home?

Two-thirds

USPAP

Uniform Standard of Professional Appraisal Practice

The demand for real estate derives from the need that market participants (e.g., owner occupants, tenants, renters) have for shelter and convenient access to other locations. This competition for physical location and space occurs in the:

User Market

The process of converting periodic income into a value estimate is referred to as income capitalization. Income capitalization models can generally be categorized as either direct capitalization models or discounted cash flow models. Which of the following statements best describes the direct capitalization method?

Value estimates are based on a multiple of expected first year net operating income.