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Broker Class


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An industrial firm that anticipates a move into a new area requires precise data concerning the economic base of the community and its demography.
A "buyers' market" indicates all of the following except
HIGH DEMAND. A sellers' market indicates high demand.
Which one of the following statements is true regarding the characteristics of real estate?
ITS MARKET CONDITION IS SELDOM IN BALANCE WITH SUPPLY AND DEMAND. Real estate investments are usually in one cycle or another.
Of the following approaches to value, which one reflects the actual price that a knowledgeable buyer will pay?
MARKET VALUE. Market value is the price a knowledgeable buyer will pay for a property.
From a rational point of view, an investor in real estate must consider all of the following analysis aspects except
PRIDE. Yield, risk and value are important attributes to consider when investing in real estate. Pride is not as important.
Real estate investments have all of the following advantages except high
LIQUIDITY. Lack of liquidity is a disadvantage of real estate investments.
To increase the use of leverage when buying a real estate investment is to
INCREASE IN RISK. Increased leverage raises the potential risk.
Supply and demand theory indicates that if both supply and demand increase at the same rate, prices will
REMAIN CONSTANT. When the supply and demand for real estate go up or down at the same rate then the market is in equilibrium.
When slum properties start attracting investors, they are entering a period of
INTEGRATION. When slum properties reach a point of increasing value for renovation they are in a period of integration.
Because of the fractured quality of the market, a real estate investment is frequently considered highly
ILLIQUID. Without a uniform market real estate is often hard to sell.
Real estate investments should be considered first and foremost from the viewpoint of the
ECONOMIC SOUNDNESS OF THE PROJECT. This is the most important consideration for a real estate investment.
Corporations are formed to own real estate for all of the following reasons except
TO AVOID DOUBLE TAX ON PROFITS. Regular corporations cannot avoid a tax on profits at the corporation level and again at the stockholders' level on dividends.
A father, mother, and daughter own a property in joint tenancy. The daughter sells her interest to a friend for cash. How is the ownership changed?
ALL THREE PARTIES NOW OWN AS TENANTS IN COMMON. When a joint tenant sells his or her interest the new entity chages to tenants in common.
Which of the following is not an attribute of a limited partnership?
EACH PARTNER TAKES AN ACTIVE ROLE IN MANAGEMENT. In a limited partnership the investors do not have a role in management.
Tenancy in common includes which of the following?
UNDIVIDED OWNERSHIP. Tenants in common include undivided ownership.
A living trust usually evolves into a/an
TESTAMENTARY TRUST. A living trust usually reverts to a testamentary trust upon the death of the grantor.
An S corporation
LIMITS THE PERSONAL LIABILITY OF ITS SHAREHOLDERS. An S corporation is designed to protect its shareholders from any personal liability.
Participants in a general partnership usually take title as which of the following?
TENANTS IN COMMON. Partners usually take title to a property as tenants in common.
How many units can be built on an apartment site 220 feet wide by 385 feet deep, where the zoning requires a total side-yard setback of 20 feet, a front yard of 25 feet, a rear yard of 10 feet, a height limit of two floors and
20 UNITS. The number of units allowed by the zoning code for this particular lot is 20 units.
In a market analysis, the occupancy rates for a particular type of property should be compared to the
COMMUNITY'S OCCUPANCY FACTOR FOR THAT TYPE OF PROPERTY. Investigate the entire community to determine an occupancy rate for a specific type of property.
All of the following statements about residential subdivision restrictions are true except they
ARE ENFORCEABLE ONLY AGAINST THE ORIGINAL HOME OWNER. Subdivision restrictions are enforceable against all the subdivision owners.
A mixed-use subdivision describes which of the following?
DIFFERENT BUT COMPATIBLE DEVELOPMENTS IN ONE DESIGNATED AREA. Mixed-use developments integrate many land uses in one subdivision.
When analyzing the site for a new commercial investment project, all of the following factors must be considered except the site's
FERTILITY. The feasibility of a commercial lot site does not require that it be fertile land.
A feasibility analysis is primarily designed to provide an investor with information appropriate to
MAKING AN ECONOMICALLY RATIONAL INVESTMENT DECISION. A feasibility analysis is designed to help an investor make a rational decision.
When examining the building included in a proposed commercial investment, all of the following factors must be considered except the property's
SQUARE FOOTAGE. Square footage is considered in the financial analysis not in the physical analysis.
The Environmental Protection Agency (EPA) establishes guidelines for the prevention of all of the following except
PROPERTY ACCESSIBILITY. The EPA does not regulate access to property.
Fundamentally, a planned unit development (PUD) is designed to
ELIMINATE SIDE YARDS FOR MORE EFFICIENT LAND USE. A PUD eliminates side yard set-back requirements.
At a 12 percent yield requirement, what is the present value of an annual income stream to be received at the rate of $5,000 at the end of each year for five years, $10,000 for the next five years, and $15,000 for the final five years, plus a net cash rev
$71,874.75. The present value of a property generating $5,000 net income for five years, $10,000 for five years and $15,000 for five years plus the net sale of the property at the end of the fifteenth year for $150,00, at a 12 percent discount, equals $71
An investor in the 28 percent bracket purchases a residential income property for $350,000 with a $100,000 cash down payment. The loan for $250,000 is payable at 10 percent interest-only for ten years. The property generates $50,000 annual gross income. I
THIS IS A NEGATIVE CASH FLOW PROPERTY. This investment does not generate a negative cash flow.
At a 12 percent yield requirement, what is the present value of a $10,000 net annual income stream to be received at the end of each year for 15 years plus the cash value reversion from the sale of the property at the end of the 15th year for $150,000?
$95,514. The present value of a property generating $10,000 annual net income at the end of each year for 15 years, plus the net sale price of the property for $150,000 at the end of the 15 years, discounted at 12 percent, equals $95,514.
Most financial analyses of investment property profit potentials are based on
EDUCATED GUESSES. Most financial analyses are based on a number of educated guesses.
To be eligible for a VA loan guaranty, the borrower would have to be a qualified veteran or recruit, or a spouse of a veteran who is missing in action or who died of a service-connected injury or illness while in the service. T or F
When property is pledged as collateral for a loan, three basic forms are utilized to establish the desired lender-borrower relationship, depending on the area of the country: the note and mortgage, deed of trust, and contract for deed. T or F
A default occurs when there is a breach of one or more of the conditions or terms of a loan agreement.
Mortgage brokers differ from mortgage bankers in that they bring together borrower and lender, confirm the loan arrangement, charge the borrower a placement fee for their services, and move on to the next transaction.
In the absence of a due-on-sale clause, existing financing is assumable by the sellers.
FALSE. The opposite holds true. In the absence of a due-on-sale clause, existing financing is assumable by the buyers. A buyer who assumes an existing mortgage agrees to sign the note and accept responsibility for repayment of the balance of the loan.
Real estate finance includes the pledge of real property as collateral to back up a borrower’s promise to repay a loan.
The nation’s life insurance companies invest approximately one-tenth of their assets in long-term mortgage loans.
FALSE. The nation’s life insurance companies invest approximately one-third of their assets in long-term mortgage loans and participate predominantly in the financing of large commercial real estate developments.
Private real estate loan companies usually charge lower interest rates than other lenders.
FALSE. Private real estate loan companies usually charge higher interest rates than other lenders in an attempt to offset the risks inherent in their junior lien positions.
Interim loans are designed to finance real estate developments during the planning stage.
FALSE. Interim loans, also known as construction loans, are designed to finance real estate developments during their construction stage.
Leveraging pairs high returns with high risks.
FALSE. Because large mortgages require large payments, rental cash flows need to be carefully maintained at levels adequate to meet these obligations. Any slight rental decrease could adversely affect a highly leveraged investor’s safety position.
All of the following refer to a real estate financing transaction except
AGGLOMERATION. The accumulation of smaller land parcels into one large parcel is called agglomeration which is not a financing transaction.
A seller under a sale-leaseback arrangement benefits from all of the following except
RELEASE OF LIABILITY UNDER THE EXISTING ASSUMED MORTGAGE. An original borrower cannot escape liability of his or her assumed loan until it is paid in full.
With a $60,000 wrap loan payable at 10 percent interest-only around an existing $50,000 loan balance at 8 percent, the wrap holder's annual yield is
20 PERCENT. The 2 percent override plus the 8 percent on the carry back results in a 20 percent yield to the wrap holder.
A wraparound financial encumbrance implies all of the following except
A PRIORITY LIEN POSITION. A wraparound loan implies an existing loan which is in first position.
Which of the following statements about mortgage insurance is correct?
The real estate loan form under which the lender maintains legal ownership is a
CONTRACT FOR DEED. The property's legal fee remains in the name of the lender under a contract of deed form of finance.
When an institutional lender makes an 8 percent real estate loan while it is paying an average of 5 percent to its depositors, the lender is actually earning which of the following returns on its investment?
INFINITE. Lenders earn profits on their depositors' money which results in their earning infinite returns
The losses sustained when selling an investment property must first be deducted from any capital gains made in the year, with any excess losses
ALLOCATED TO SHELTER ACTIVE INCOME AT THE RATE OF $3,000 PER YEAR . Excess capital gains losses can be carried forward to shelter ordinary income until used up.
Under the current tax law, capital gains are
TAXED AT 15 PERCENT IF THE PROPERTY HAD BEEN HELD FOR MORE THAN 12 MONTHS AT TIME OF SALE. The current tax law reduced the tax on capital gains to 15 percent.
Ordinary income consists of earnings from all of the following except
CAPITAL GAINS. Ordinary income does not include capital gains.
By definition, portfolio income includes all of the following except
INVESTMENT SALES PROFITS. Portfolio income does not include income from investment sales profits.
A commercial property was purchased for $100,000 with 20 percent allocated to the land. At a straight-line depreciation rate of 2.564 percent per year, what is the adjusted book basis of this property at the end of the tenth year?
$79,490. The adjusted book basis is $79,490.
Which of the following is the installment factor for a property sold for $100,000 net subject to a loan balance of exactly $40,000 with an adjusted basis of $60,000?
66 2/3 PERCENT. The installment factor is 66 2/3 percent.
On improved income property, all of the following are allowable expense deductions except
PRINCIPAL PAYMENTS. The principal paid on the debt payments is not a deductible expense.
When investment property is sold for less than its remaining book value, its depreciation was
UNDERESTIMATED. If an investment property is sold for less than its adjusted book value then the depreciation was underestimated.
Passive income is derived from which of the following?
INCOME FROM RENTALS. Rental income is defined as passive.
When an investment property purchased for $150,000 is refinanced with a new loan for $175,000, the $25,000 is
NOT TAXED UNTIL THE PROPERTY IS SOLD. Profits from refinancing are not taxed until the property is sold.
The existence of an underlying encumbrance poses a serious threat to the purchaser of an individual lot if the promoter does not make payments as required.
The location of land determines its potential future growth in value
Because the economic position of a building owner is more vulnerable than a vacant lot owner, the landowner who solicits a tenant on a build-to-suit basis will negotiate rather firmly for a lease that will completely satisfy investment requirements over t
The IRS requires that several criteria be met for a farm or ranch to be considered for-profit, one of which is that the activity must be the owner's or operator's main source of income.
The value of land is based entirely on its productive capacity.
FALSE. The value of land is not based merely on its productive capacity. Depending on intended use, location can become the key factor in determining value. Land speculators are not as concerned with soil fertility as they are with locational advantages t
Opportunity costs for the equity invested in land are obvious and only rarely overlooked.
FALSE. Opportunity costs for the equity invested in the land are all too often ignored. While the interest paid on a debt can be easily identified as a cost for maintaining the investment, the interest not earned on the cash invested in the property must
Rezoning land to a more intensive use rarely raises the value of the property, sometimes dramatically.
FALSE. To the contrary, rezoning land to a more intensive use usually raises the value of the property, sometimes dramatically. Successful rezoning requests are based largely on the subject property being located in an area of use compatible with that bei
Anyone dealing with foreign investors must report cash payments of $10,000 or more to the IRS.
A parcel of land’s physical features may be economically advantageous to one owner and disadvantageous to another.
The evaluation of raw land depends largely on its present use.
What is the value of acreage producing 6,000 bushels of grain per year worth $10 per bushel, with a cost factor of 50 percent and a market capitalization rate of 10 percent?
$300,000. The value of this property using the income approach is $300,000.
Vacant lots are purchased by investors for all of the following reasons except to
SHELTER INCOME TAXES WITH DEPRECIATION ALLOWANCES. Land is not eligible for depreciation allowances.
Of the following, the property that will generally develop the highest rental rate is
A NEW STORE BUILDING CONSTRUCTED TO SUIT A SPECIFIC TENANT' S NEEDS. The highest rents are paid for properties built to suit.
From a locational point of view, a growth in value over time would most likely occur in land
NEAR AN INTERSTATE HIGHWAY. Land located near an interstate highway will most likely increase in value over time.
Agglomeration, or plottage, is based on the principle
THAT THE WHOLE IS MORE VALUABLE THAN THE SUM OF ITS PARTS. The value of a parcel of land put together from smaller parcels is worth more than the sum of the value of the individual parcels.
When discussing the quality of land, all of the following are included except
THE TERMS AND CONDITIONS OF ITS PURCHASE AND SALE. The terms of sale are not a quality of land.
Of the factors affecting a parcel of land's future growth in value, the one that is generally considered most important is
LOCATION. The most important attribute of land value is its location.
Single-family house rentals typically generate only enough funds to cover the mortgage payments and minimum maintenance costs.
Owner-occupied homes meet the full criteria for a real estate investment.
Condominiums and duplexes compose the greatest number of individual investments in the real estate inventory.
The FHA and VA reject condominiums for their insurance and guarantee programs.
The provisions of the Civil Rights Act (Title VIII—Fair Housing) do not apply to single-family homes sold without the services of a real estate broker, single-family homes rented by an owner who does not own more than three such houses at the same t
The Fair Housing Act is a federal law, and as such it is implemented at the federal level.
Under the provisions of Section 216 of the IRS Code, a cooperative shareholder may deduct from taxable income the monies paid for proportionate shares of the property taxes and interest paid on the corporation’s indebtedness.
The most profitable detached-house investments are usually those located on potentially rezonable lots.
A cooperative is a union of members formed for the achievement of a mutually satisfactory goal.
Even when a tenant neglects or refuses to pay rent when due, or when a tenant violates any provision of the lease, the landlord is legally forbidden from reentering and taking possession or commencing an action for recovery of the leased premises.
The formation of a condominium requires the filing of a declaration of intentions including provisions for all of the following except
CREATION OF SINGLE MASTER MORTGAGE. Condominiums each have their own mortgage.
All of the following are exempt from the provisions of the Fair Housing Act except
private owners of four or more houses.
The Fair Housing Act extends its coverage to include all of the following except
ELDERLY PERSONS OVER 62 YEARS OF AGE. Fair housing laws do not protect the elderly.
An apartment tenant with a lease that stipulates "The rent shall be $500 per month for one year starting March 1" moves out on June 15 during the term of the lease. The landlord is entitled to recover which of the following amounts?
$0. The language of this lease is not legally enforceable. It is fundamental to the establishment of a viable lease agreement that the rent to be paid be stipulated as the total amount for the entire lease period. If the lease stipulated that "The re
All of the following single-family housing units are considered true real estate investments, except the house bought for
OCCUPANCY. Houses purchased to be lived in are not investments in the true sense of the word.
The conversion of a rental apartment project to a condominium includes all of the following procedures except
EVICTING ALL THE PRESENT TENANTS. When converting an apartment project to individual condominiums, the investor would not evict the present tenants.
A taxpayer in the 28 percent bracket is entitled to a $1,000 tax credit. If the tax obligation is $7,800 before the credit, how much will it be afterward?
$6,800. A taxpayer obligated to pay $7,899 income tax will only pay $6,800 after applying a $1,000 tax credit.
Office rent schedules are generally established on a base rate plus extra charges for special services.
A highly efficient building should generate a commensurately high gross annual rent, but this is not always the case.
A tax clause stipulates that the tenant will be protected from having to pay increased taxes over the base year.
The special requirements involved in clinic construction, including ceiling-to-floor partitions, greatly exceed the costs of other forms of office construction.
When trying to attract new tenants, simply decreasing the rent for the office space is always the most effective rental concession.
Most office leases assign utility costs to the property owner.
One of the disadvantages of condominium office ownership, in addition to controlled occupancy costs, is the possibility of equity growth through mortgage principal pay down plus increasing value.
In the development of many new commercial real estate projects, including high-rise office buildings and office parks, the financing pattern requires that the investment’s break-even point be met by advance lease commitments from creditable tenants.
The areas utilized for an entry lobby, hallways, stairwells, elevator shafts, bathrooms, storage bins, and the like are considered productive in terms of generating cash flows.
Small offices tend to be difficult to rent on long-term leases.
Which of the following definitions is correct?
Our nation's trend toward service-oriented business activities is
INCREASING AND REQUIRING MORE OFFICE SPACE. Our burgeoning service industries require more office space.
For most small, lowrise office-building investments,
MAJOR ARTERIAL LOCATIONS ARE NOT OF PRIME IMPORTANCE. Small office buildings can be located everywhere.
In terms of requirements for a company's headquarters location, which of the following received top priority in a survey run by BOMA?
LARGE FUNCTIONAL SPACE. Most large companies deciding on a location for their headquarters will require a building offering large functional space.
Small, lowrise office developments are generally designed
TO SERVE THE NEEDS OF THE NEIGHBORHOOD. Small office buildings are designed to serve neighborhood needs.
The establishment of a rental schedule for an office building depends least on which of the following?
THE OWNER'S DESIRED RETURN ON THE INVESTMENT. Potential tenants will pay market rents, not necessarily what the landlord requests.
Rental concessions usually include all of the following except
LOWERING THE RENT. Rental concessions do not include lowering rent, which would disturb the financing arrangements on the project.
To pay for the costs of maintaining the parking area and joint walkways, community shopping center tenants are usually charged a common-area fee in addition to their rent.
A neighborhood shopping center is usually situated on a four-acre to ten-acre site and normally serves a trade-area population of 5,000 to 40,000 persons within a six-minute driving distance.
Regional shopping centers generally range in scope from 300,000 to 1,000,000 square feet of gross leasable area on at least 30 acres of ground and serve a trade area of 150,000 to 400,000 or more people.
The owner of strip store buildings usually finds that the success of the investment is very much a function of the success of the tenants as entrepreneurs.
Community shopping centers grant tenants the same exclusivity for their lines as do neighborhood centers.
Most strip store leases are designed to run six months to one year with options to renew included to protect the tenant.
Lease terms for major tenants usually range from 15 to 20 years, whereas local tenants’ leases may range from only 5 to 10 years.
Regional shopping centers typically are anchored by a food market.
Only the largest regional shopping centers require a full-time manager.
A community shopping center typically devotes approximately 10 percent of its space to a supermarket, 5 percent to a major general merchandise tenant, 50 percent to other clothing and shoe retailers, and the balance to other kinds of merchandisers and ser
The small investor is attracted to strip store buildings for all of the following reasons except
OFF-STREET PARKING CONVENIENCES. Strip store parking is usually on the street.
All of the following statements are correct except
COMMUNITY SHOPPING CENTERS SERVICE A TRADE-AREA POPULATION OF MORE THAN 400,000 PERSONS. A community shopping center serves an area of from 40,000 to 150,000 persons.
When a commercial tenant has the right to extend the lease at a price and terms established at the time of the lease inception, the lease provides for
AN OPTION TO RENEW. An option to renew a lease allows a tenant to extend the lease on agreed terms.
Most strip store leases are drawn for
THREE TO FIVE YEARS. Strip stores attract tenants for relatively short time periods of from three to five years.
Shopping center common-area fees are utilized to pay all of the following costs except
COMMON-AREA PROPERTY TAXES. Common area fees in a shopping center usually pay for promotional advertising, parking area maintenance and common area utilities, but not common-area property taxes.
The type of shopping center that includes office towers and apartment buildings in its design is a
SUPER-REGIONAL CENTER. A shopping center that includes apartment and office buildings in addition to an enclosed mall area is called a super-regional shopping center.
With an industrial park development, it is not necessary to provide much flexibility in the layout plan.
Industrial real estate is usually owned by the manufacturer who occupies and uses the space.
A concern for the health of citizens has led community regulatory agencies to require that industrial activities that create noise, smoke and waste be isolated in designated areas, preferably as far away from homes as possible.
Most municipalities have passed laws forbidding the waiver of property taxes, even when the waiver would serve as an incentive for a company to invest in the community.
Generally speaking, two types of persons require self-storage: persons living in homes without basements and persons moving into or out of spaces who need temporary storage.
There is only one type of industrial lease: the net lease.
More so than in any other form of real estate investment, an industrial tenant’s installation of heavy equipment and machinery will ensure the longevity of the tenancy.
Special-purpose buildings have certain physical characteristics that limit the scope of their use.
It is not necessary to include utility costs in the feasibility analysis of a major project.
Industrial park restrictive covenants would usually include all of the following except
SPECIFIED LOT SIZES. An industrial park's restrictive covenants would not limit the users' lot sizes.
An incubator industry is one that
IS JUST BEGINNING TO BE SUCCESSFUL. A new manufacturing company getting started in a community is known as an incubator industry.
The growing popularity of industrial parks depends to a large extent on all of the following except
THE ECONOMIC DIFFICULTIES OF THE NATION' S RAILROADS. The popularity of industrial park developments does not depend on the economic conditions of this nation's railroad industry.
From an industry's point of view, the benefits of locating in an industrial park include all of the following except
UNRESTRICTED SITE USES. Industrial park restrictions do not allow unrestricted site uses.
The demand for industrial space depends to a large degree on all of the following except
THE NUMBER OF NEW HOUSING STARTS. The demand for industrial space is not linked to new housing starts.
Revenue bonds issued to develop industrial properties are repaid from
RENTS CHARGED NEW INDUSTRIAL TENANTS. Industrial revenue bonds are repaid from the tenants' rents.
A "beggar-thy-neighbor" policy would be exemplified by
A COMMUNITY ENGAGING IN AN ACTIVE CAMPAIGN TO ENTICE MANUFACTURERS FROM OTHER COMMUNITIES TO MOVE INTO ITS AREA. To try and get manufacturing companies to move to your city by offering incentives is called "beggar thy neighbor".
From a community's point of view, the benefits of encouraging the development of an industrial park would include all of the following except
LIMITING URBAN SPRAWL. The development of an industrial park may actually aggravate urban sprawl, not limit it.
Functional obsolescence is most clearly defined as the
OBSOLETE DESIGN OF A BUILDING. A poorly designed building loses value because of functional obsolescence.
Property tax liens are auctioned to investors who buy them for the interest they earn.
In the United States, an owner of real property is legally entitled to control the minerals, natural gas, oil, and/or water that lie below the surface of the land.
The cost of housing in a mobile-home park is frequently 5 percent to 10 percent less than the cost of conventional housing elsewhere in a community.
Mobile home parks tend to be located in isolated areas of a community rather than more congested areas.
Junior finance is a relatively low-risk investment.
When the baby boomers reach senior status in 2020, the 65 and older group will number 54 million people, 16 percent of the population.
A manufactured home rental park is considered a business venture more than a real estate investment.
Extended-stay hotels tend to experience dramatic declines in occupancy during weekends.
Commercial hotels are designed to meet the needs of families first, with businesses travelers existing as a secondary concern.
The construction of a golf course is a relatively simple, straightforward process.
Investors in property tax liens mainly earn profits from the
INTEREST CHARGED ON THE LIENS. Delinquent tax liens are purchased by investors for the amount of interest they develop.
The retention of mineral rights in a parcel of land is known as
A RESERVATION. A property owner controls the mineral rights in the land under a reservation.
Depreciation deductions in a mobile-home park that leases vacant spaces can be taken on all of the following except
TENANTS' MOBILE HOMES. The owner of a rental mobile home park cannot deduct depreciation on the tenants' properties.
Strips and tranches are part of which of the following alternatives to real estate investment?
REMICs. Real estate mortgage conduits are often divided into strips and tranches.
Which of the following relationships is not correct?
COMMERCIAL HOTELS-STRONG WEEKEND DEMAND. Commercial hotels cater to business executives who do not travel much on weekends.
When you own your own space in a mobile-home park, you are in a
CONDOMINIUM. A condominium form of ownership allows you to own your own space in a mobile home park.

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