Real Estate Investments

Which of the following is least likely to increase the efficiency of real estate markets? a) More stringent education and training requirements for licensing as a real estate broker b) More readily available (and less expensive) computers and computer programs c) More standardization of transaction procedures and documentation d) More readily available public information on transaction prices and terms

a) More stringent education and training requirements for licensing as a real estate broker

Which of the following aspects of research process is least affected by the nature of available data? a) The definition of the research problem b) The nature of the research design c) The design of the data collection program d) Data analysis and interpretation

a) The definition of the research problem

State-of-the-art real estate investment analysis treats real estate as: a) a capital asset desired for the stream of benefits it creates. b) a probabilistic time value of realty problem. c) a case of modern working capital management. d) appropriate only for a short range of investment goals.

a) a capital asset desired for the stream of benefits it creates.

Rational real estate investment decisions require: a) a coupling of estimated costs and benefits with a forecast of the timing of disbursements and receipts. b) choosing between uncertain costs and certain present benefits. c) a methodology for ranking attainable combinations by their variety. d) computer expertise.

a) a coupling of estimated costs and benefits with a forecast of the timing of disbursements and receipts.

Demand for real estate as a factor in the production of a final product is a) a derived demand. b) in perpetual equilibrium. c) an intermediate demand. d) consumed for its own sake.

a) a derived demand.

A geographical market area within which change has a direct and immediate effect on all properties is a) a neighborhood. b) a region. c) a monopoly. d) a monopsony.

a) a neighborhood.

Capitalization rates: a) are a measure of the relationship between a property's market value and net operating income. b) are used primarily as an income forecasting tool. c) are a measure of the relationship between a property's market value and gross rental income. d) none of the above are true.

a) are a measure of the relationship between a property's market value and net operating income.

Neighborhood influences: a) are environmental factors that influence site value. b) affect the degree of functional efficiency. c) are influenced by the degree of functional obsolescence. d) are more commonly referred to as restrictive covenants.

a) are environmental factors that influence site value.

Revenue forecasting is: a) essentially a marketing forecasting problem. b) irrelevant to the real estate investment decision. c) an example of why Geographic Information Systems are no longer useful. d) too costly to be pursued.

a) essentially a marketing forecasting problem.

The appropriateness of a facility's design or engineering for its intended use is a measure of its: a) functional efficiency. b) functional obsolescence. c) utility. d) productivity.

a) functional efficiency.

The decline in a building's competitive position due to defective or dated design is called: a) functional obsolescence. b) functional disutility. c) physical obsolescence. d) physical disutility.

a) functional obsolescence.

The revenue a property is expected to generate after adjusting for operating expenses but before providing for debt service or income tax consequences is: a) net operating income. b) effective gross income. c) normalized gross income. d) before-tax cash flow.

a) net operating income.

In an unregulated market system the uses to which land is most likely to be put are those that a) result in the greatest rent-paying capacity. b) result in the lowest land density. c) result in the greatest concentration of people and rentable space. d) are most socially desirable.

a) result in the greatest rent-paying capacity.

Geographic Information Systems are particularly well-suited for displaying a) spatially related data. b) time-series data. c) financial data. d) all the above.

a) spatially related data.

A property's market area is: a) the geographic area from which tenants will be drawn. b) a precisely definable area in terms of boundaries. c) determined by subdivision controls and zoning regulations. d) the area within which functional obsolescence is operative.

a) the geographic area from which tenants will be drawn.

The term market value, as generally employed by appraisers, means: a) the most probable price a property will bring in a competitive and open market under all conditions requisite to a fair sale. b) the most probable price that will result from arm's-length bargaining between an equally informed buyer and seller. c) the highest price in terms of money that a property will bring if exposed to the market for a reasonable length of time. d) the price a prudent buyer would pay if fully informed of all relevant facts regarding the property.

a) the most probable price a property will bring in a competitive and open market under all conditions requisite to a fair sale.

Activity at one location generates movement of people and things, the expense of which is called: a) transfer costs. b) hard costs. c) linkages. d) soft costs.

a) transfer costs.

Which one of the following is not considered an operating expense? a) Property management fees b) Depreciation c) Janitorial wages d) Insurance premiums

b) Depreciation

All of the following are locational characteristics except: a) neighborhood influences. b) functional obsolescence. c) externalities. d) subdivision controls.

b) functional obsolescence.

Real estate a) is a homogeneous product. b) is a heterogeneous product. c) is primarily a product of modern technology. d) does not exist in communistic societies.

b) is a heterogeneous product.

Longitudinal studies a) involve one-time sampling from a population of research interest. b) measure changes over time. c) are the most frequent type of data-collection assignment. d) provide a single snapshot of the variables under observation.

b) measure changes over time.

Foreign investors: a) own more than 20 percent of U.S. real estate, but their holdings are widely disbursed across the United States. b) own a small portion (less than 10 percent) of U.S. real estate. c) have only recently (within the last decade) become interested in U.S. real estate. d) are not permitted to own U.S. real estate.

b) own a small portion (less than 10 percent) of U.S. real estate.

The amount of revenue a property would generate if fully occupied at market rents, and with no uncollectible rent, is its: a) effective gross income. b) potential gross income. c) net operating income. d) before‑tax cash flow.

b) potential gross income.

Over the short run, the supply of rentable space is a) price sensitive. b) price inelastic. c) price elastic. d) none of the above.

b) price inelastic.

In a highly efficient market with homogeneous products a) price searching behavior pays high dividends. b) price searching behavior is futile. c) cost control is less important than volume generation. d) product differentiation is common.

b) price searching behavior is futile.

Which of the following is not an example of operating expenses? a) Property taxes b) Maintenance fees c) Income taxes d) All of the above are examples of operating expenses

c) Income taxes

Which of the following is not a reason why market pricing is a valuable economic mechanism? a) It rations scarce products and services. b) It provides valuable information to producers and consumers. c) It assures an equitable distribution of scarce resources. d) It provides incentives to shift consumption away from scarce resources and toward those that are more plentiful.

c) It assures an equitable distribution of scarce resources.

Which of the following is descriptive of data gathering by communication? a) It is more time‑consuming than data gathering by observation. b) It is more objective than data gathering by observation. c) It is a more versatile means of data gathering. d) All of the above.

c) It is a more versatile means of data gathering.

Which of the following is an example of primary data? a) Information taken from the Census of Population b) Data bought from university research studies c) Telephone interviews d) None of the above

c) Telephone interviews

A market in which every buyer can purchase as much as is desired, and every seller can sell all they wish, is called a) an oligopolistic market. b) a monopolistic market. c) an atomistic market. d) a monarchistic market.

c) an atomistic market.

Businesses which locate along major arterial streets create a) multiple nuclei. b) concentric circles. c) axial development. d) none of the above.

c) axial development.

A property's income-generating potential depends on: a) the interaction of supply and demand in its market area. b) its desirability relative to competing properties in the market area. c) both (a) and (b). d) none of the above are true.

c) both (a) and (b).

Land utilization is ultimately determined by a) consensus opinion. b) court decisions. c) competitive users. d) act of war.

c) competitive users.

Real estate is an appropriate investment vehicle: a) for individuals, but not for institutions such as pension funds and life insurance companies. b) for institutions such as pension funds and life insurance companies, but not for individuals. c) for individuals and institutions, depending upon their time horizons and investment goals. d) for investors in debt instruments but not for investors in equity instruments.

c) for individuals and institutions, depending upon their time horizons and investment goals

Loss of functional efficiency due to defective or dated design is called: a) physical deterioration. b) economic obsolescence. c) functional obsolescence. d) functional deterioration.

c) functional obsolescence.

In traditional city patterns the highest land use density is found a) in office parks. b) in shopping centers. c) in the central business district. d) in the industrial district.

c) in the central business district.

Inferential statistics a) involve measuring characteristics that are important to a problem and bringing them together in summary form. b) are useful primarily because they permit the reduction of large masses of data to essentials. c) involve drawing conclusions from evidence contained in the data. d) employ quantitative expressions to describe characteristics of a sample of an underlying population.

c) involve drawing conclusions from evidence contained in the data.

For a particular investment property, investment value: a) is determined by the selling price agreed upon by the buyer and seller. b) is the value placed on the property by a qualified appraiser. c) is the highest price a prospective buyer is justified in paying for the property. d) (a) and(c) above.

c) is the highest price a prospective buyer is justified in paying for the property.

The amount of profit which is sufficient to induce landlords to operate in the rental market is a part of a) economic profit. b) pure profit. c) marginal cost. d) marginal revenue.

c) marginal cost.

The most probable price which a property will bring in a competitive and open market under all conditions requisite to a fair sale is: a) transaction price. b) most probable selling price. c) market value. d) investment value.

c) market value.

The probabilistic estimate of the price at which a property will be sold is its: a) investment value. b) transaction price. c) most probable selling price. d) market value.

c) most probable selling price.

Research and data collection for investment decision making reaches its maximum level of cost effectiveness a) when the incremental value of data collected substantially exceeds the cost of collection. b) when the incremental value of data collected is substantially less than the cost of collection. c) when the incremental value of data collected exactly equals the cost of collection. d) when no more data can be collected.

c) when the incremental value of data collected exactly equals the cost of collection.

A rational risk taker: a) specifies investment objectives carefully. b) makes investment decisions based on "tips". c) eliminates as much risk as possible. d) (a) and(c) above.

d) (a) and(c) above.

Market information can help serve which of the following functions? a) Assist in developing reasonable cash flow projections b) Aid in purchase, divestiture, and refinancing decisions c) Facilitate operating decisions d) All of the above

d) All of the above

To forecast future benefits from a proposed venture, which of the following should be considered? a) The property's immediate past operating history b) Anticipated changes in the social and political environment c) The likely change in a property's market value over the holding period d) All of the above

d) All of the above

Which of the following is a step of the research process? a) Define the problem. b) Design the research strategy. c) Data interpretation d) All of the above

d) All of the above

When considering a real estate investment opportunity, which of the following issues need to be addressed? a) Estimates of total costs and benefits b) The style of the architecture of the building c) The timing of disbursements and receipts d) Estimates of total costs and benefits and the timing of disbursements and receipts

d) Estimates of total costs and benefits and the timing of disbursements and receipts

Operating management uses research data for planning, problem solving and control purposes. Which one of the following is most likely to be used for control purposes? a) Data on basic trends in the economic environment b) Data on standard amenity packages included in competitive buildings c) Data on typical tenant mix in competitive commercial rental projects d) Tracking operating expense ratios for buildings in one's portfolio

d) Tracking operating expense ratios for buildings in one's portfolio

In a market economy, a product's price a) is affected by supply, but not by demand. b) is affected by demand, but not by supply. c) is in constant equilibrium. d) acts as a rationing mechanism.

d) acts as a rationing mechanism.

Cash flows for real estate investments may come from: a) rental. b) refinancing. c)tax savings. d) all of the above.

d) all of the above

Which of the following is a real estate investment decision? a) Purchase of a $50,000 interest in a partnership which develops office buildings b) Purchase of a six‑flat apartment building c) A new reservoir built by the U.S. Government d) All of the above

d) all of the above

The investment decision process: a) is fundamentally the same for real estate investment analysis as for other investment areas. b) requires the investor to adjust expected cash flows for timing differences and risk. c) recognizes that investment assets are desired only for the benefits of ownership they bestow. d) all of the above are true.

d) all of the above are true.

A contributing factor to the inefficiency of real estate markets is a) information is costly and difficult to obtain. b) transaction costs are high. c) the product is differentiated. d) all of the above.

d) all of the above.

Transfer costs a) may be either implicit or explicit. b) are the cost of moving people or things between linked sites. c) are a strong influence on the location of industry. d) all the above are true.

d) all the above are true.

A market may be defined in terms of a) an institutional arrangement or mechanism whereby buyers and sellers are brought together. b) a geographic area which attracts buyers and sellers. c) commonalty of product. d) all the above.

d) all the above.

When searching for properties to use as a sample of comparables, factors which tend to limit the universe include: a) amenities offered by competing properties. b) the functional efficiency of other properties. c) the location of the properties. d) all the above.

d) all the above.

The need for real estate market research exists because a) real estate markets are relatively efficient. b) all relevant information are quickly reflected in market prices. c) firms view their marginal revenue curves as horizontal. d) data for rational decision making are often not readily available.

d) data for rational decision making are often not readily available.

Real estate investors: a) may be active or passive investors, depending upon whether they take an equity or a debt position. b) always depend upon income tax benefits to make the investment successful. c) are required to exercise stand-by loan commitments. d) either directly or indirectly, purchase rights to a stream of future cash flows.

d) either directly or indirectly, purchase rights to a stream of future cash flows.

The price at which there will be sufficient quantity of a good or service to satisfy the desires of consumers, but with no surplus remaining, is a) market price. b) real price. c) transaction price. d) equilibrium price.

d) equilibrium price.

The measure of how well a property is designed to do the job it is intended to perform is called: a) physical durability. b) economic efficiency. c) fabrication quality. d) functional efficiency.

d) functional efficiency.

Bid-rent curves a) determine the most appropriate land use for any given area. b) determine the most profitable land use on a region-by-region basis. c) illustrate the constant tension between externalities and economies of scale. d) illustrate how low-density land uses gravitate the periphery of heavily populated areas.

d) illustrate how low-density land uses gravitate the periphery of heavily populated areas.

The relationship between investment value and most probable selling price is: a) investment value will always exceed most probable selling price, at least by the amount of the transaction costs. b) most probable selling price will always exceed investment value, at least by the amount of transaction costs. c) investment value may be greater or less than most probable selling price, and the difference will approximate transaction costs. d) investment value need not be closely related to most probable selling price.

d) investment value need not be closely related to most probable selling price.

The point of maximum net benefit derived from market research: a) is easily calculated by charting costs on the x‑axis and benefit on the y ‑axis. b) is easily calculated by charting benefits on the x‑axis and costs on the y‑axis. c) is objectively measured. d) is not objectively measurable.

d) is not objectively measurable.

Investment value: a) is an objective estimate of a property's worth as an investment. b) is the value of the property as an investment, and therefore is also the most probable selling price. c) from the present owner's perspective sets the upper end of the range of possible transaction prices. d) is unique to the individual investor and need not be closely related to market value or most probable selling price.

d) is unique to the individual investors and need not be closely related to market value or most probable selling price.

Active investors (as opposed to passive investors): a) invest primarily in debt instruments. b) invest primarily in equities. c) are more interested in primary than secondary markets. d) make decisions that affect the profitability of the property's operations.

d) make decisions that affect the profitability of the property's operations.

Equity investors: a) are always active in the sense that they make decisions which affect the profitability of the property's operations. b) are always passive in the sense that they make no decisions which affect the profitability of the property's operations. c) always take an ownership interest in debt instruments. d) may be either active or passive investors.

d) may be either active or passive investors.

Linkages are a) relationships between businesses that require them to be in close proximity. b) the transport modes that enable people and things to travel between discrete sites. c) relationships between people that make them want to be in close proximity. d) relationships that require movement of people or things between sites.

d) relationships that require movement of people or things between sites.

A shopping center's trade area is: a) the area within which travel time to the center does not exceed approximately fifteen minutes. b) determined by physical barriers to the flow of customer traffic. c) the approximate geographical area from within which tenants will be drawn. d) the geographic area from within which the major portion of patronage is drawn.

d) the geographic area from within which the major portion of patronage is drawn.

A property's desirability relative to competing properties is influenced by all of the following except: a) neighborhood economic and social conditions. b) relative physical durability. c) relative functional efficiency. d) the owner's income tax bracket.

d) the owner's income tax bracket.

Demand is a) a function of quantity supplied. b) the same thing as quantity demanded. c) the relationship between quantity supplied and quantity demanded, over the entire range of possible prices. d) the relationship between price and quantity demanded, over the entire range of possible prices.

d) the relationship between price and quantity demanded, over the entire range of possible prices.