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1. With regard to double taxation, distributions, andthe treatment of the losses, general partnershipsare most like
a. S corporations.
b. C corporations.
c. Limited partnerships.
d. Real estate investment trusts.
2. Which statement is false concerning the limited partnership form of ownership?
a. The general partner has nearly complete controland is liable for debts and actions of thepartnership.
b. The limited partners have no managementcontrol and are not liable except to the amount of their investment.
c. The limited partners cannot enjoy tax deductionbenefits but the general partners can.
d. The partnership is not a taxable entity.
e. None of the above.
3. Which is not a function of real estate markets?
a. To allocate existing space.
b. To expand or contract space to meet changing conditions.
c. To determine land uses.
d. To delineate market boundaries.
e. All of the above.
4. What are the consequences of the fixed location of real estate?
a. The property cannot be moved to takeadvantage of better market opportunities elsewhere.
b. The property cannot be moved to avoid anegative influence on value from usage ofadjacent property.
c. Market participants must invest more in informationabout the asset because of all thefactors that can affect values at a location.
d. Answers a, b, and c are all correct.
e. None of the above.
5. How much would you pay for the right to receivenothing a year for the next 10 years and$300 a year for the following 10 years if youcan earn 15 percent interest?
a. $372.17.
b. $427.99.
c. $546.25.
d. $600.88.
e. $1,505.63.
6. If an income-producing property is priced at $5,000 and has the following income stream
Year After-Tax Cash Flow
1 $1,000
2 -2,000
3 3,000
4 3,000
Would an investor with a required rate of returnof 15 percent be wise to invest at the currentprice?
a. No, because the project has a net presentvalue of _$1,139.15.
b. No, because the project has a net presentvalue of _$1,954.91.
c. Yes, because the project has a net presentvalue of $1,069.66.
d. Yes, because the project has a net presentvalue of $1,954.91.
e. An investor would be indifferent betweenpurchasing and not purchasing the aboveproperty at the stated price.
7. Zoning is an exercise of which type of generallimitation on property rights?
a. Eminent domain.
b. Taxation.
c. Police power.
d. Escheat.
e. All of the above.
8. Ronald Frump, a local real estate tycoon, hasasked you to analyze one of his properties. Itconsists of a one-acre site and a 25-year-oldwarehouse. Specifically, he wants to knowwhether the existing building should be torndown and a new one constructed, and if so, whattype and size of building should be constructed.You consider the zoning and other constraints tothe type of property that could be created and decidethe following three alternatives are the mostlikely buildings for the site:
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100,000
sq. ft.
Warehouse
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2
150.000
sq. ft.
Warehouse
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3
100.000
sq. ft.
Light
Manufacturing
Building
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Cost to
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|
|
|
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construct
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51000.000
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53.000.000
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52,500.000
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Effective gross income
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500.000
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600.000
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500.000
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Operating expenses
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200.000
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200.000
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150.000
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NO1
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300,000
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400,000
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350,000
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Return to building (12.5%)
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250,000
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375,000
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312,500
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Return to site
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If the site were vacant (or is made vacant), whichbuilding should be constructed, and what wouldbe the value of the site, using a capitalization rateof 11 percent?
a. No. 3, light mfg building, $340,909.
b. No. 1, warehouse, $359,779.
c. No. 1, warehouse, $ 454,545.
d. No. 2, warehouses, $376,225..
e. None of the above.
9. All of the following are members of the developmentteam except
a. Lawyers.
b. Engineers.
c. Zoning board.
d. General contractor.
e. Construction manager.
10. For a development project to be feasible
a. The market value of the project must exceedthe construction loan amount.
b. The construction loan amount must exceedthe cost of development.
c. The cost of development must exceed themarket value of the project.
d. A feasibility study must say so.
e. None of the above answers are correct.
11. You have appraised a single-family residenceusing all three approaches to value. The indicatedvalues are, respectively, sales comparisonapproach, $89,800; cost approach, $92,400;and gross rent multiplier analysis, $87,500. Youdecide the sales comparison approach is mostreliable and should be weighted 50 percent.The cost approach is next in reliability, and itshould be weighted 40 percent. GRM analysisshould be weighted 10 percent. What is your finalestimate of value (rounded to the nearest$100)?
a. $91,000.
b. $89,900.
c. $90,200.
d. $90,600.
e. $90,900.
12. To reflect a change in market conditions betweenthe date on which a comparable propertysold and the date of appraisal of a subject property,which type of adjustment is made?
a. Conditions of sale.
b. Market conditions.
c. Location.
d. Financing terms.
e. Unit.
13. A comparable property sold six months ago for$150,000. The adjustments for the various elementsof comparison have been calculated asfollows:
Location: 5 percent
Market conditions: 8 percent
Physical characteristics: $12,500
Financing terms: $2,600
Conditions of sale: -0-
Legal characteristics: -0-
Use: -0-
Nonrealty items: $3,000
What is the comparable property's final adjustedsale price?
a. $160,732.
b. $164,400.
c. $169,600.
d. $162,500.
e. $163,232.
14. An appraiser estimates that a property will produceNOI of $25,000, the yo is 11 percent, andthe growth rate is 2.0 percent. What is the totalproperty value (unrounded)?
a. $277,778.
b. $227,273.
c. $323,762.
d. $243,762.
e. $231,580.
15. Which of the following types of propertiesprobably would not be appropriate for incomecapitalization?
a. Apartment building.
b. Shopping center.
c. Farm.
d. Warehouse.
e. Public school.
16. The operating expense ratio
a. Highlights the relationship between net operatingincome and operating expenses.
b. Shows the percentage of potential gross incomeconsumed by operating expenses.
c. Expresses operating expenses as a percent ofeffective gross income.
d. Is the reciprocal of the break-even ratio.
17. The internal rate of return equation incorporates
a. Future cash outflows and inflows, but not initialcash flows.
b. Future cash outflows and inflows, and initialcash outflow, but not initial cash inflow.
c. Initial cash outflow and inflow, and futurecash inflows, but not future cash outflows.
d. Initial cash outflow and inflow, and futurecash outflow and inflow.
18. A sandwich leasehold is
a. A lease on a small restaurant.
b. The assignment of a lessee's rights to a newlessee.
c. The interest of a lessee who sublets part ofthe lessee's rights to a sublessee.
d. A lease by an owner to two or more parties.
e. A reverse lease from the lessee back to theowner.
19. Current NOI for a 10-year-old retail centerequals $50,000. After a $300,000 renovation,NOI should climb to $75,000. If the marketcapitalization rate equals 12 percent, what isthe value of the center after renovation?
a. $625,000.
b. $500,000.
c. $350,000.
d. $600,000.
e. None of the above.
20. When lenders sell mortgages to third parties
a. They must have the permission of theborrower.
b. Borrowers frequently don't know the mortgagehas been sold.
c. The mortgage must be a first mortgage.
d. The mortgage must be in foreclosure.
e. They are breaking the law.
21. Due-on-sale clauses
a. Are found in most conventional residentialmortgages.
b. Are not found in FHA and VA mortgages.
c. Are fully enforceable by lenders.
d. Apply when the property is sold but notwhen a default occurs.
e. All of the above.
22. The dominant loan type originated by most financialinstitutions is the
a. Fixed-payment, fully amortized mortgage.
b. Adjustable rate mortgage.
c. Purchase money mortgage.
d. FHA-insured mortgage.
23. Which of the following statements is true about15-year and 30-year fixed payment mortgages?
a. 30-year mortgages are more popular than15-year mortgages among home ownerswho are refinancing.
b. Borrowers pay more total interest over thelife of a 15-year mortgage than on a 30-yearloan.
c. The remaining balance on a 30-year loan declinesmore quickly than an otherwise comparable15-year mortgage.
d. Assuming they can afford the payments onboth mortgages, borrowers should chose a30-year mortgage over an otherwise identical15-year loan if their risk-adjusted opportunitycost of equity exceeds the mortgagerate.
24. Consider a $75,000 mortgage loan with an annual interest rate of eight percent. The loan term is seven years, but monthly payments will be based on a 30-year amortization schedule. What is the monthly payment? What will be the balloon payment at the end of the loan term?
a. $550.32; $69,358.
b. $468.78; $75,000
c. $550.32; $71,236
d. $468.78; $73,177
e. None of the above
25. Which of these is a valid motivation for a participationloan?
a. It lowers the borrower's required debtservice.
b. It gives the lender protection against unexpectedinflation.
c. It provides a mechanism to control the distributionof business risk between lender andborrower.
d. a and b, but not c.
e. All three, a, b and c.
26. Which of these financial firms is most likely toinvest in a large, long-term mortgage loan on ashopping center?
a. Credit union.
b. Commercial bank.
c. Savings and loan association.
d. Life insurance company.
e. Mortgage banker.
27. How are commission rates charged by real estatebrokers determined?
a. By agreement among local Realtors.
b. By rule of the local Board of Realtors.
c. By state real estate commissions.
d. By agreement between broker and principal.
e. By state law.
28. According to most listing contracts, a brokerhas earned a commission when
a. A contract for sale is signed by the buyer.
b. The transaction closes.
c. The broker finds a buyer who is ready, willing,and able to buy on the terms specified inthe listing contract.
d. The seller signs a listing contract.
e. The broker sends a bill for services renderedto the principal (usually the seller).
29. Which of the following conditions would be adefect to mutual assent in a contract for the saleof real property?
a. One party attempts to perpetrate fraud on theother.
b. The contract is in written form.
c. The contract contains an inadequate descriptionof the property.
d. One of the parties is legally incompetent.
e. The contract does not specify a time forclosing.
30. Oral evidence in contract disputes is prohibitedby
a. A parol contract.
b. An executory contract.
c. An inferred contract.
d. An unspecified contract.
e. The parol evidence rule.