Chapter 1

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

"raw" or undeveloped land.

If a property's expected annual net income is $89,100 and its current market value is $1,060,000, the property's capitalization rate is

8.4%.

Real estate markets tend to be 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 $400,000.

Real estate consists of the physical structures and infrastructure that accompany the land. All of the following are examples of an improvement to the land except

building

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.

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.

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.

An example of a real estate asset that trades in the public debt market is

commercial mortgage backed securities (CMBS).

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.

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.

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 2015, the single largest asset category in the net worth portfolios of households is

housing

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

income tax policy.

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.

The investment-grade property market is typically targeted by all of the following groups of investors except

individual investors.

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

investment-grade property.

Which of the following would be considered a tangible asset?

land

The size of a single-family residential lot is typically

less than one 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

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

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

low transaction costs.

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

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.

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

All of the following are examples of an improvement on the land except

streets

By the fourth quarter of 2015, U.S. households had accumulated $12.5 trillion in housing equity, which represents about 14 percent of their net worth. What proportion of U.S. households own their home?

two-thirds

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.