RE 416

A building owner charges net rent of $20 in the first year, $21 in the second year, and $22 in the third year. Using a 10 percent discount rate, what is the effective rent over the three years?

$20.94

Consider the table. Assume that the subject property has effective gross income of $53,000 and a NOI of $27,500. What value would a GIM approach yield (rounded to the nearest $100)?

$328,600

A property produces a first-year net operating income of $24,000. Because of the long economic life of the building, the income is considered as a perpetuity that will grow by 2.5% per year. Using a discount rate of 9.5%, the property value is estimated at:

$342,857

Consider the table. Assume that the subject property has effective gross income of $53,000 and a NOI of $27,500. What value would a cap rate approach yield (rounded to the nearest $100)?

$362,402

Expenses for a 1,000 square foot office space are $6.00 per square foot. The lease specifies an expense stop of $5.40. What is the total expense paid by the landlord?

$5,400

A 1,500 square foot office space is leased at $12.00 square foot. The space is vacant one month out of the year. Office expenses are $6.50 per square foot and an expense stop is set at $6.00 per square foot. What is the annual net operating income?

$7,500

Consider a building with a very long economic life. Assume at the end of year 6, NOI will be $80,000 and is expected to grow at a rate of 2 percent per year. Your company's required rate of return is 12 percent. As part of your analysis, you must calculate the reversion value (REV) at the end of year 5, which would be:

$800,000

In which phase of the real estate market cycle would you expect to see property under valued and a large supply of homes on the market?

*

How does the FHA control the use of 203(k) money loaned for repairs to a home?

A cost estimate must be provided prior to loan approval, and repairs are approved by an FHA inspector when completed.

A "short sale" of real estate is:

A sale in which the proceeds from the sale are less than the balance owed on the loan secured by the property sold

Fannie Mae's multi-state note includes a due-on-sale clause, also known as a(n) ______ clause.

Alienation

Which of the following is TRUE for a net lease?

All expenses are paid by the tenant

Which of these is a reason that the deed of trust is the standard security instrument used in California real estate transactions?

Because California foreclosure laws allow a statutory right of redemption of up to one year with a judicial foreclosure.

The principle that an informed purchaser would not spend more for a piece of real estate than the cost to purchase the land and the cost to construct a structure, provides the rationale for which of these valuation methods?

Cost approach

Which of the following income capitalization techniques is based on the principle that buyers will not pay more for a property than the present value (PV) of all future Net Operating Incomes (NOI)?

Discounted cash flow method

Income after deducting loss of rents due to vacancy and nonpayment of rents, as well as any concessions, is referred to as:

Effective gross income

Total possible income less any vacancy is ___.

Effective gross income

Consider the figure above. Point D represents:

Equilibrium occupancy

Which of the following is a true statement about FHA financing?

FHA loans are available to all borrowers, regardless of credit history. *

A gross income multiplier can be calculated by dividing the gross income by the sales price.

False

One advantage of the gross income multiplier technique is that it is most suitable for properties in which operating expenses vary widely across the properties being surveyed.

False

The sales comparison approach to appraisal is preferred because it is the only objective appraisal approach.

False

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.

Fee simple

A seller buydown can ______.

Help a borrower meet lender qualification standards *

Which of the following best describes the state of the market during the recovery phase of the real estate cycle?

High but stabilized unemployment and a high number of foreclosures

What's the purpose of a typical subordination agreement?

It allows a junior mortgage to move into first lien position

Financing for a real estate transaction can use a note with a _________ or a note with a deed of trust.

Mortgage

A mortgage is BEST defined as a legal document that:

Names real estate as the security or collateral for the repayment of a loan

The construction of which item has the largest influence on the country's economy?

New homes

The Federal Housing Administration's loan program ______.

Provides homeowner insurance to low-income homebuyers *

Violet purchased a house from Nick and assumed the existing loan. Nick wants to make sure he isn't liable if Violet ever defaults. What can he do to remove his name from the loan agreement?

Request a novation

The difference between the total property value (accounting for rents and cash flows) and the cost of constructing an improvement on a given site is:

Residual land value

Which of the following factors is NOT part of the definition of market value?

The property has been on the open market for less than a year

Historically, what do property values tend to do over long periods of time?

They increase only.

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.

True

Analysis of effective rents tends to be superior to analysis of total rents over the life of a lease

True

Expense stops protect the lessee from unexpected changes in market rents

True

Free rent is a concession that a building owner may offer.

True

The assumption that a knowledgeable buyer would not pay more for property than what other buyers have recently paid for comparable properties, provides the rationale for the sales comparison approach.

True

The discount rate establishes the minimum return that an investor is willing to accept when evaluating the potential purchase of an income-producing property.

True

The use of a CPI index in a lease contract shifts risk to the tenant.

True

A comparable property has a feature that is superior to the subject property. What adjustment would be made in the sales comparison approach to value?

Value of the feature would be subtracted from the sales price of the comparable property

Rich wants to add a room to his house, so he takes out a home equity loan. This creates a/an __________ lien.

Voluntary and specific

What is the impact to lenders when mortgage packages are sold?

What is the impact to lenders when mortgage packages are sold?

What legal document conveys title from one person to another?

deed

Return on investment and change in net operating income are essential factors for cost analysis.

false

When using the gross income multiplier technique in conjunction with the income approach to valuation, potential gross income is preferred to effective gross income

false

A quitclaim deed says that the grantor "quits" whatever claim he has in the property in favor of the grantee.

true