REAL FINAL EXAM
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
Suppose that you are considering the purchase of an apartment building for $2 million. A bank is willing to loan you 70% of the purchase price with a 25 year loan with monthly payments and monthly compounding. If the bank charges you an annual interest rate of 8%, what will be your monthly payment for this loan?
$10,805
Suppose that you pay $20,000 per acre for a tract of land. You plan on holding the land for 15 years and that the annual property taxes on the land will be $750 per acre. How much will you need to sell the land for (per acre) at the end of 15 years in order to achieve a 12% rate of return>
$137,431
You have discovered that you can purchase a tract of land for $500,000. Your plan is to build houses on the lot and sell them. You expect to spend $400,000 in year 1 building the houses and then to sell the houses and then to sell the houses in years 2 and 3 with revenues of $800,000 in each year. What will the NPV of this investment be if your required rate of return is 20%?
$185,185
Suppose that a regular annuity has a future value of $20,000 using a periodic discount rate of 2%. If the annuity is converted to an annuity due the future value will be:
$20,400
Suppose that you are considering the purchase of a house for $200,000. A bank is willing to loan you 75% of the purchase price with a 20-year loan with an annual interest rate of 15%. What will your annual payments be for this loan?
$23,964
You pay $10,000 per acre for a tract of land, and your opportunity cost (rate) is 7 percent. You hold the land 8 years and pay $1,000 in taxes each year. What price per acre must you sell the land for to break even with your opportunity cost (rate)?
$27,441.66 per acre
Suppose that you are considering a real estate investment. You only want to make the investment if it can provide you with an 18% annual rate of return. The property projected cash flows are: Year 1: $25,000 Year 2: $40,000 Year 3: $15,000 Year 4: $60,000 Year 5: $700,000 What is the most that you can pay for this property today and still receive your required rate of return?
$395,967
Suppose that 7 years ago you purchased 85 acres of land for $2,500 pre acre. Your goal was to make a 13% annual rate of return on your investment in the land. How much would you need to sell it for today (per acre) in order to consider your investment to be a good one?
$5,882
Your home was recently assessed at $225,000 and your local government charges 27.5 mills in property taxes. Given you are eligible for a $3000 homestead exemption, what are your annual property taxes?
$6,105
Suppose that you borrow $500,000 in the form of a 30-year loan with an annual interest rate of 6%. How many principal with you pay in the 2nd year of the loan?
$6,519
If you purchase a piece of land today for $25,000, and you expect it to appreciate at 10% per year in value, how much will your land be worth in 10 years from now?
$64,843.56
If you deposit $10 at the end of each month into a bank account that pays 0.3% interest compounded monthly, how much will you have in the account after 48 months if you opened the account (at t=0) with an original $150 deposit?
$688.65
Suppose that you are borrowing $250,000 in the form of a 10-year loan with an annual interest rate of 4% with monthly payments and monthly compounding. What will the balance be on this loan at the end of the 7th year?
$85,731
Suppose that you borrow $100,000 in the form of a 5-year loan with an annual interest rate of 10% with monthly payments and monthly compounding. How much interest will you pay in the first year of the loan?
$9,269
Suppose that 10 years ago you purchased a house for $150,000. For the first 7 years that you owned the house, prices decreased by an average of 8% per year. Since then they have risen by an average of 5% per year. How much is your house worth today?
$96,867
Suppose that you are considering a real estate investment that will provide you with the following cash flows: Year 1: $15,000 Year 2: $18,000 Year 3: $200,000 If the asking price for the property is $190,000 and your required rate of return is 10%, what will be the net present value of this investment?
($11,225)
Suppose that a certain local economy has total employment of 100,000 and 15,000 of these jobs are in the retail industry. For the nation as a whole, total employment is 50 million and 10 million of these jobs are in the retail industry. What is the location quotient for the retail industry in this local economy?
0.75
Suppose that you are considering a real estate investment that will provide you with the following cash flows: Year 1: $60,000 Year 2: $120,000 Year 3: $240,000 Year 4: $5 Million If the asking price for the property is $3 million, what will the internal rate of return (IRR) be for this investment?
16.56%
Suppose that a certain investment has a net present value of $20,000 using a discount rate of 15%. The internal rate of return for this investment could be: a. 12% b. 15% c. 18% d. Not enough info
18%
Suppose that average rents in Athens have risen by a total of 85 percent over the past 25 years. What is the average annual rate of change for rents in Athens?
2.49%
You are thinking about letting a friend borrow $13,000 today given that she will repay you $20,000 in 15 years. What is your internal rate of return (ie, solve for i) of the potential investment?
2.91%
Borrowers are typically considered to be in substantive default on a loan when they fall __________ payments behind. a. 3 b. 6 c. 9 d. 12
3
Private mortgage insurance is typically required for a loan if the loan-to-value ratio is greater than: a. 50 percent b. 80 percent c. 90 percent d. 100 percent
80 percent
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. A couple searching for a single-family detached unit is willing to consider other residential property types such as an attached townhouse unit or condominium. b. A couple searching for a single-family detached unit has limited their search to homes in a single elementary school district c. A couple searching for a single-family detached unit has set a timeline for their search of 6 months, at which point they will renew their current apartment lease. d. 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
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.
Which ONE of the following properties would be most likely to have to rely on the cost approach for an estimate of its market value? a. An apartment building b. factory c. A single-family home d. A shopping center
A factory
Which ONE of the following provides the best definition of a conforming mortgage? a. A loan that is part of a government-sponsored mortgage program b. A loan that is NOT part of a government-sponsored mortgage program c. A loan that has terms that are typical of what is being offered in the market at a particular time d. A loan that meets the standards for purchased by Fannie Mae and Freddie Mac
A loan that meets the standards for purchase by Fannie Mae and Freddie Mac.
Which ONE of the following provides the best explanation of the key difference between activities that are in a local economy's economic base and those that are not? a. Activities in the economic base are primarily those that are goods-producing b. Activities in the economic base serve a market area that extends beyond the local economy c. Activities in the economic base simply recirculate the income that is earned within the local economy d. Activities that are in the economic base tend to be bigger than those that are not
Activities in the economic base serve a market area that extends beyond the local economy.
The key difference between an easement appurtenant and an easement in gross is: a. An easement appurtenant has a dominant estate while the easement in gross doesn't b. An easement appurtenant has a servient estate while the easement in gross does not c. An easement in gross has a dominant estate while the easement appurtenant does not d. An easement in gross has a servient estate while the easement appurtenant does not e. There is no difference. Both types of easements have both a dominant estate and a servient estate
An easement appurtenant has a dominant estate while the easement in gross doesn't.
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 Markets
Which ONE of the following types of loans typically has a prepayment penalty? a. Commercial mortgages b. Conforming mortgages c. Conventional mortgages d. Prime mortgages
Commercial Mortgages
A loan that does not come with government-sponsored mortgage insurance is known as a: a. Conforming mortgage b. Conventional mortgage c. Jumbo mortgage d. Prime mortgage
Conventional Mortgage
The restrictive covenants that govern many residential subdivisions are examples of: a. Commercial easements b. Deed restrictions c. Liens d. Negative easements
Deed restrictions
Which ONE of the following is a true statement regarding deeds? a. Deeds usually require the signature of both the grantee and grantor b. Deeds usually require the signature of the grantee but not the grantor c. Deeds usually require the signature of the grantor but not the grantee d. Deeds usually do not require any signatures
Deeds usually require the signature of the grantor but not the grantee
The mortgage clause that allows a lender to demand immediate repayment of all of a loan's outstanding principal even if the borrower hasn't defaulted is known as the: a. acceleration clause b. demand clause c. escrow clause d. recourse clause
Demand Clause
When identifying an easement appurtenant, the parcel of land that benefits from the right to use the land in question is referred to as the:
Dominant Parcel
According to the episode of "This American Life: The Giant Pool of Money" that I had assigned for you to listen to, between 2000 and 2006 the global supply of money: a. was cut in half b. doubled c. tripled d. quadrupled
Doubled
Suppose that Kirk and Phil are next-door neighbors. Kirk has an easement that allows him to park his van on a portion of Phil's property. This is an example of an ______________ in which Phil possesses the _______________ easement. a. Easement Appurtenant, Dominant b. Easement Appurtenant, Servient c. Easement in Gross, Dominant d. Easement in Gross, Servient
Easement Appurtenant, Servient
Suppose that you own a ten-acre parcel of land and decide to subdivide it into two five-acre parcels. Your plan is to sell one of the new parcels to someone and keep the other for yourself. The person to whom you sell the parcel to will also receive the right to use a portion of the parcel that you are keeping for yourself to use as a driveway to access their parcel. This is an example of an easement that has been created by: a. Express grant b. Express reservation c. Implication d. Prescription
Express Grant
Which ONE of the following is NOT an accurate statement regarding the FHA mortgage insurance program? a. FHA mortgage insurance payouts are limited to 20 percent of the original loan amount b. The FHA morgage insurance program was created as a result of what happened during the Great Depression c. The FHA mortgage insurance program was created as a way to encourage lenders to make 30-year fixed-rate mortgage loans d. The funds for loan made under FHA programs come from private lenders
FHA mortgage insurance payouts are limited to 20 percent of the original loan amount.
Doctor Bob purchased 100 acres of land 10 years ago for $10,000 per acre. If he could have alternately invested the money at 8 percent per year, what price per acre must he receive today to break even with his opportunity (required) rate?
FV = $21,589.25 per acre
During the time between making a loan commitment and closing the loan, the mortgage banker is exposed to: a. collateral risk b. fallout risk c. pricing risk d. warehousing risk
Fallout risk
Which ONE of the following in an accurate statement regarding the differences between Fannie Mae and Freddie Mac? a. Fannie mae is allowed to purchase FHA loans while Freddie Mac is not b. Fannie Mae securitizes all of the loans that they purchase while Freddie Mac maintains a loan portfolio c. Freddie Mac is much larger than Fannie Mae d. Freddie Mac provides mortgage insurance at a much smaller cost than Fannie Mae
Fannie Mae is allowed to purchase FHA loans while Freddie Mac is not.
Suppose that you are using the cost approach to value an office building. You discover that the building has a floorplan that is out of line with what office tenants are demanding in today's market. This means that the building is suffering from ____________ depreciation a. External b. Functional c. Incurable d. Physical
Functional
Consider the following excerpt from a sample deed: "The Seller, for itself and its heirs, hereby covenants with the buyer, its heirs and assigns forever, that the Seller is lawfully seized in fee simple of the above described property." This statement represents which of the following basic requirements of a deed? a. Habendum Clause b. Recital of Consideration c. Words of Conveyance d. Exceptions and reservations clause
Habendum Clause
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
The earlier the cash flows the ___________ their value. The more risky the cash flows the ___________ their value. a. lower, higher b. lower, lower c. higher, lower d. higher, higher
Higher, Lower
Which ONE of the following best describes the process by which, according to the sales comparison approach to valuation, the selling prices of comparable properties are adjusted in order to provide an indication of the market value of the subject property? a. If the comparable is better than the subject property, the selling price of the comparable has to be adjusted downwards b. If the comparable is better than the subject property, the selling price of the comparable has to be adjusted upwards c. The adjustments are always downwards d. The adjustments are always upward
If the comparable is better than the subject property, the selling price of the comparable has to be adjusted downwards.
Which of real estate's characteristics is most responsible for location quality being such an important attribute for a property? a. Durability b. Immobility c. Imperfect Information d. Lumpiness
Immobility
After a structure is built, it is impractical for even a building expert to fully assess the quality of the construction and the safety hazards it may harbor. This is an example of which of the following problems that plagues private real estate markets? a. Externalities b. Incomplete information c. Locational monopoly d. Holdout
Incomplete information
An ownership estate which can be passed on to others via a will is referred to as being: a. Alienable b. Descendible c. Inheritable d. Revocable
Inheritable
Which ONE of the following provides the best description of the difference between market value and investment value? a. Investment value is factual while market value is conceptual b. Investment value is tailored to a particular individual while market value is based on the typical market participant c. Market value is factual while investment value is conceptual d. Market value is tailored to a particular individual while investment value is based on the typical market participant
Investment value is tailored to a particular individual while market value is based on the typical market participant.
Which ONE of the following describes the way that title to a property transfers if the transfer is due to a government agency using its powers of eminent domain? a. Involuntary transfer with a deed b. Involuntary transfer without a deed c. Voluntary transfer with a deed d. Voluntary transfer without a deed
Involuntary transfer with a deed.
When it comes to interpreting the location quotient the primary question that the analyst needs to ask is: a. How does the local economy's location quotient compare to that of the U.S as a whole? b. Is the location quotient greater than or less than 1? c. Is the location quotient greater than or less than 100? d. Is the location quotient positive or negative
Is the location quotient greater than or less than 1?
Suppose that a certain investment has a net present value of $1. Based on the net present value (NPV) decision rule you should: a. be indifferent b. make the investment c. not make the investment
Make the investment
Which of these liens has the 2nd highest priority? a. First Mortgage Lien for $243,200 filed in 2002 b. Mechanics's Lien for $17,000 filed in 2000 c. Property Tax Lien for $15,000 filed in 2005 d. Second Mortgage Lien for $80,000 filed in 2005 e. General Lien filed for $250,000 in 2001
Mechanic's Lien for $17,000 filed in 2000
When determining lien priority there are two types of liens that are equal in status and are settled chronologically. These two types of liens are: a. Mechanics and mortgage liens b. Mechanics and property tax liens c. Mortgage and judgement liens d. mortgage and property tax liens e. Property tax and judgement liens
Mechanics and mortgage liens
Which ONE of the forms of property descriptions is the "default" method that can always be used if the other methods do not work? a. Government rectangular survey system b. Metes and Bound c. Street Address d. Subdivision plat book and lot number method
Metes and bound
From an economic perspective, the power of eminent domain is given to governments in order to offset which type of market failure? a. Externalities b. Imperfect Information c. Monopoly d. Nonconforming Uses
Monopoly
Interest-only loans are considered to be _____________-amortizing loans. a. fully b. negatively c. non d. partially
Non
A loan product that gives borrowers the choice between a fully-amortizing loan payments, an interest-only loan payment, and a minimum monthly payment is known as a(n): a. adjustable-rate mortgage b. alt-A loan c. option ARM d. subprime loan
Option ARM
The portion of the U.S. mortgage market where lenders and borrowers meet to create new mortgages is known as the ______________ mortgage market. a. portfolio b. primary c. secondary d. subprime
Primary
According to the episode of "Safe as Houses" The Ascent of Money 2008 that we saw in class: the practice of giving whole neighborhoods a negative credit rating came to be known as ___________. The result was that when people from round there needed mortgages, they had to pay significantly higher interest rates: a. Discrimination b. Red-Lining c. Birwood-Griggs d. Sub-Prime Mortgages
Red-Lining
Suppose that Adrian sells a piece of property to Bruce. In the deed that transfers ownership to Bruce it states that if Bruce ever lands an airplane on the property then Adrian will once again become the owner of the property. After the transfer of ownership to Bruce, Adrian's interest in the property is known as a: a. Fee simple absolute estate b. Fee simple conditional estate c. life estate d. remainder e. reverter
Reverter
During the 1950's, 1960's, and 1970's residential mortgage lending in the United States was dominated by: a. Commercial banks b. Government lenders c. Mortgage banks d. Savings associations
Savings Associations
Suppose that you are considering three loans. The first loan is a 30-year fixed rate mortgage. The second loan is an adjustable-rate mortgage in which the interest rate will change at the end of every year The third loan is an adjustable-rate mortgage in which the initial interest rate is fixed for 5 years and, thereafter, the rate will change at the end of every year. Based on the information provided, we would expect the ____________ mortgage to have the lowest initial rate and the _________________ mortgage to have the highest initial rate. a. first, second b. first, third c. second, first d. third, first e. third, second
Second, First
One of the primary implications of real estate's durability is that real estate _____________ is very __________________. a. demand, elastic b. demand, inelastic c. supply, elastic d. supply, inelastic
Supply, inelastic
The standard apartment lease which specifies a starting date and an ending date for the lease is formally known as a: a. Periodic Tenancy b. Tenancy at Sufferance c. Tenancy at will d. Tenancy for years
Tenancy for years
The most common and least restrictive form of real estate co-ownership is known as a: a. Condominium b. Cooperative c. Joint Tenancy d. Real estate investment trust e. Tenancy in Common
Tenancy in common
The federal agency that was created in 1934 in order to restore confidence in the mortgage market and today acts primarily as a mortgage insurance company for private lenders is: A. Fannie Mae B. The Federal Housing Administration c. Freddie Mac d. Ginnie Mae
The Federal Housing Administration
Which ONE of the following best describes the route that the U.S. government has taken in reforming Fannie Mae and Freddie Mac in order to avoid a repeat of the recent bailout? a. The government has not yet decided how they are going to be reformed b. They have been abolished c. They have been privatized d. They will act as insurers for private lenders
The government has not yet decided how they are going to be reformed
Which ONE of the following best represents a situation where the property owner would possibly be able to successfully sue for compensation for the impact of local land-use regulations on their property's value? a. The land is not zoned for the use that maximizes its value b. The owner is left without the ability to generate a return from the property c. The property is currently being used in a commercial use and is rezoned for only residential uses d. All of the above represent cases where the owner would be able to successfully sue for compensation
The owner is left without the ability to generate a return from the property
If a property owner has the right to decide who can and cannot use their property then we say that they possess: a. The right of disposition b. The right of exclusive possession c. The right of further assurances d. The right of use and enjoyment
The right of exclusive possession
Which ONE of the following is NOT one of the requirements for a use to be a site's highest and best use? a. The use must be financially feasible b. The use must be legally permissible c. The use must be physically possible d. The use must be socially optimal
The use must be socially optimal
Which ONE of the following provides the best description of what is promised by the grantor if they include the covenant of seizin in a deed? a. The grantor is the sole party with any interest in the property b. There are no encumbrances other than those that have been noted in the deed c. There is one with a better claim to title than the grantee d. They have good title and the right to convey it to the grantee
They have good title and the right to convey it to the grantee
Which ONE of the following best describes the role that Fannie Mae and Freddie Mac play in the U.S. residential mortgage markets? a. They assess the amount of mortgage risk in the U.S economy and take steps to reduce it if it gets too high. b. They make loans to borrowers with low and moderate incomes c. They provide mortgage insurance to private lenders d. They purchase loans from private lenders in order to issue mortgage-backed securities
They purchase loans from private lenders in order to issue mortgage-backed securities.
According to the episode of "This American Life" that we listened to, the sudden closure of Silver State Mortgage was referred to as the ____________ Massacre. a. Christmas Day b. Easter c. Halloween d. Valentine's Day
Valentine's Day
The value of a house is estimated to be $80,000 today. If it has increased in value by 7 percent per year for the last 10 years, what was the value 10 years ago? If the house had increased in value by 48 percent over the total 10-year period, what was the annual percentage increase?
Value 10 years ago: $40,667.97 Percentage increase: 4%
You can purchase a tract of land for $75,000 that you believe you can develop and sell as a residential development. Your development costs are $50,000 to be incurred immediately. You expect to sell all the lots in years 3-5 at a net income of $60,000, $85,000, and $58,000 respectively. Your required rate of return is 12 percent. Do you purchase the tract of land?
Yes, you purchase the tract of land. the IRR is 13.04 and the NPV is also positive at $4,636
Based on your understanding of the rules for determining when an object becomes a fixture, which of the following items would most likely be considered a fixture at the time of sale? a. Custom (built-in) bookshelves b. Refrigerator in a single-family residence being sold c. Fence installed by the tenant of a rental property d. Curtains
a. Custom (built-in) bookshelves
Primarily through land use controls and property tax policy, which of the following branches of government has the largest influence on real estate values? a. Local Government b. State Government c. National Government d. Foreign Government
a. Local Government
Which of the following types of liens is automatically superior to any other lien? a. Property tax and assessment lien b. Mortgage lien c. Lien arising from a court judgment unrelated to property ownership d. Mechanics' lien
a. Property tax and assessment lien
Real estate is property, which can be either tangible or an intangible asset. Which of the following would be considered an intangible asset? a. Land b. Building c. Mortgage d. Fence
c. Mortgage
Real estate is defined as land and its permanent improvements. Which of the following is an example of an improvement to the land? a. fence b. building c. sewer system d. personal property
c. Sewer System
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
d. Commercial building
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 and selling, and leasing real estate can be characterized by all of the following EXCEPT: a. localized markets b. highly segmented markets c. privately negotiated contracts d. low transaction costs
d. low transaction costs
Which ONE of the following options accurately describes what is required for a government to legitimately use its powers of eminent domain to acquire a piece of land? i. The land is required for a public use. ii. The owner of the land has been justly compensated for all of the property that the government has taken possession of. iii. The owner of the land has been justly compensated for all of the costs associated with the government acquisition of their land.
i and ii
