Real Estate Principles A Value Approach 5th Edition by David C Ling Test Bank

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Real Estate Principles A Value Approach 5th Edition by David C Ling Test Bank

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Real Estate Principles A Value Approach 5th Edition by David C Ling Test Bank

Real Estate Principles: A Value Approach, 5e (Ling)

Chapter 6   Forecasting Ownership Benefits and Value: Market Research

 

1) Real estate market research is an important process used by analysts to facilitate a better understanding of a propertys future profit potential. All of the following statements regarding market research are true except

  1. A) real estate market research should always be flexible since the research depends directly on the problem at hand.
  2. B) market research consists of a series of facts that fails to consider the role of investor behavior in the decision-making process.
  3. C) most important data for a given market study often is not publicly available.
  4. D) market research should focus specifically on market segments for the property involved, rather than on the aggregate real estate market.

 

2) A popular adage in real estate is that property value is all about location, location, location. However, for most property types in nonresidential realms, nonlocational requirements are equally or even more important. All of the following are examples of nonlocational factors except

  1. A) floor plate size.
  2. B) amount of parking.
  3. C) nature of current tenants.
  4. D) proximity to modes of public transportation.

 

3) Preferences of households can vary with time, prosperity, and context. The nuances in the preferences or needs of market subgroups are commonly referred to as

  1. A) market segmentation.
  2. B) market parameters.
  3. C) market projection.
  4. D) market cycles.

 

4) Professor James Graaskamp often asserted that when one buys real estate, what one is buying is a set of assumptions about the future. Therefore, it is not surprising that the beginning point of the market research process is to

  1. A) collect relevant data to examine the market and test initial definitions.
  2. B) evaluate the results of market analysis.
  3. C) construct a market-defining story.
  4. D) refine market definitions and collect additional data.

 

5) In constructing a market-defining story, it is helpful to answer a series of fundamental questions around which analysis can be built. Which of the following questions is designed to identify the target market?

  1. A) What is the real estate product under consideration?
  2. B) Who are the customers?
  3. C) What aspects of the product do the customers care about?
  4. D) Who are the competitors?

 

 

6) In the initial round of market analysis, analysts will attempt to provide key numbers that characterize the current condition and trend in the market. For rental retail space, the key market parameters in question would most likely include all of the following except

  1. A) projected occupancy growth.
  2. B) projected rental rate growth.
  3. C) current vacancy levels.
  4. D) projected sales rates.

 

7) In contrast to conventional market analysis, the story approach to market research starts with an analysis of

  1. A) conditions in global real estate markets.
  2. B) conditions in national real estate markets.
  3. C) conditions in state real estate markets.
  4. D) conditions in the property-specific market.

 

8) A planned unit development (PUD) is a residential development that differs from traditional residential subdivisions in all of the following ways except it

  1. A) encompasses a blend of detached single family, attached single family, townhouses, and apartments.
  2. B) typically has larger individual lots with extensive side-yards on the property.
  3. C) typically includes a variety of common areas.
  4. D) typically includes a variety of recreational facilities.

 

9) In the Elysian Forest example, the planned unit development was destined to be an unsuccessful venture from its inception because

  1. A) there was a comparable project in the community that was successful.
  2. B) the site and location of the project was atypical of the area as there were significant disadvantages in terms of location and visual appeal.
  3. C) the target market was a nontraditional segment that relied heavily on a small portion of the local University City population.
  4. D) University City was a big, high-density city that could not support such development.

 

10) In the Palm Grove Office Complex example, the project was destined to be an ill-fated venture from its inception for all of the following reasons except

  1. A) the zoning laws of University City ultimately prevented the projects developers from starting the construction process.
  2. B) University City was not well suited for large office space geared toward firms with greater than 25 employees.
  3. C) Palm Grove Office Complex lacked the visual exposure, convenient access, and parking that its competitors held significant comparative advantages in.
  4. D) the structures were primarily designed as general-purpose office space, which excluded potential occupants such as laboratories or medical offices.

 

 

11) Since most data for a given market study is not readily available, analysts must be creative in their use of data that they are able to obtain. The primary source for detailed household demographic information is

  1. A) the U.S. Bureau of the Census.
  2. B) the Federal Reserve.
  3. C) the local tax collectors office.
  4. D) not available publicly.

 

12) In collecting data for nonresidential property analysis, it is helpful to understand the business community that currently exists in the specific area in question. A preliminary approach for ascertaining the number of firms by size, industry, and location is to obtain data from the

  1. A) Bureau of Labor Statistics.
  2. B) National Transportation Service.
  3. C) U.S. Bureau of the Census: County Business Patterns.
  4. D) Federal Reserve.

 

13) A new residential development will face competition from other new developments, other builders, and sales of existing homes. To determine if demand in that market segment will be sufficient to justify proceeding with the project, a developer would be most interested in estimating a

  1. A) capture rate.
  2. B) capitalization rate.
  3. C) risk-free rate.

D)risk premium.

 

14) The most common definition of a city used for government data collection and reporting, identified as a single labor market area centered around a city with a population of at least 50,000 people, is referred to as a

  1. A) township.
  2. B) central business district.
  3. C) metropolitan statistical area.
  4. D) county.

 

15) The presence of real estate cycles presents a major challenge when forecasting real estate market parameters. If the market value of a residential developers project exceeds its construction costs, an increase in the supply of units will occur. As the market becomes oversupplied, we would expect which of the following to occur?

  1. A) an increase in occupancy levels
  2. B) an increase in market values
  3. C) a decrease in real rental rates
  4. D) a decrease in construction costs

16) Development of subdivisions, apartments, offices, or other commercial structures can have a lead time of two years or more. In general, the longer the construction lead time

  1. A) the lower the construction cost.
  2. B) the greater the supply of units.
  3. C) the lower the market value.
  4. D) the greater the amplitude of real estate cycles.

 

17) Computer software systems that enable one to manipulate and map information with great flexibility and speed are referred to as

  1. A) geographical information systems (GIS).
  2. B) psychographics.
  3. C) survey research.
  4. D) census mapping.

 

18) A tool used by real estate analysts to relate a consumers activities, interests, opinions, and values to a consumers demographics is referred to as

  1. A) geographical information systems (GIS).
  2. B) psychographics.
  3. C) survey research.
  4. D) census mapping.

 

19) Survey research has been applied to real estate markets at many levels. Despite its frequent application, analysts must be cautious with survey use because

  1. A) it is difficult to implement.
  2. B) interviews and questionnaires are not received well by consumers.
  3. C) it cannot be used in a small sample area.
  4. D) it can be fraught with abortive errors.

 

20) While predicting real estate cycles is difficult, a key indicator used to evaluate where a property is within the cycle is the

  1. A) level of household income.
  2. B) form of land use.
  3. C) size of the property.
  4. D) number of building permits issued.

 

21) Since most data that we would like to conduct a thorough market analysis is unavailable, a researcher will find it useful to find a data series that will closely represent the variable of interest. We typically refer to this type of variable as

  1. A) relevant.
  2. B) a proxy.
  3. C) a correlation.
  4. D) a cluster.

22) When you are evaluating the prospects for a project that is new in your setting and therefore has no actual relevant market performance data, it is most helpful to use which of the following techniques as the basis for your analysis?

  1. A) analogy
  2. B) fabrication
  3. C) cooperation
  4. D) recommendation

 

 

 

23) Suppose that you were interested in building a luxury apartment complex in your hometown. In your analysis of local demographics, you discover that the target market makes up only 5% (core market share) of the households that currently rent (or would be interested in renting) in this town. If market experts believe that a total of 5,000 apartment units will be rented in your entire hometown within the next year, what is the projected number of units the developer could expect to lease in year 1 if he is able to capture 20% of the market potential?

  1. A) 1,000 units
  2. B) 500 units
  3. C) 250 units
  4. D) 50 units

 

24) Suppose a developer is interested in building a new townhome community. Through his market research, the developer has determined that the target market makes up 10% (core market share) of the households that currently reside in the metropolitan area. If an analysis of data from the MLS indicates that there should be approximately 500 residential sales in this area over the next year, what is the projected number of units the developer could expect to sell in year 1 if he is able to capture 50% of the market potential?

  1. A) 500 units
  2. B) 250 units
  3. C) 50 units
  4. D) 25 units

 

25) Suppose a developer is interested in building a new residential subdivision. Through his market research, the developer has determined that the target market segment potential in year 1 consists of 160 households. If the developer projects that he will be able to sell 24 homes in the first year, what is his assumed capture rate?

  1. A) 6.67%
  2. B) 15%
  3. C) 24%
  4. D) 85%

26) Suppose a developer is interested in building a new apartment community. Through her market research, the developer has determined that the target market segment potential in year 1 consists of 100 households. The developer believes that the target market segment potential will grow by 5% annually over the next five years. If the developer projects a capture rate of 25% for each of the next five years, how many units does she plan on selling by the end of year 5?

  1. A) 25 units
  2. B) 125 units
  3. C) 138 units
  4. D) 175 units

 

 

 

27) Suppose that you have begun to gather some demographic data in order to project the potential sales of a new development project. The developer hopes to be able to target the following household types who fall in the upper 10% of income brackets: empty nesters, single parents, and unrelated individuals. Utilizing the following population information, determine the core market share that the development project wants to target with this project: total owner occupant households: 48,000; traditional families in the upper 10% of income brackets: 25,000; empty nesters in the upper 10% of income brackets: 5,000; single parents in the upper 10% of income brackets: 10,000; unrelated individuals in the upper 10% of income brackets: 8,000.

  1. A) 4.17%
  2. B) 47.92%
  3. C) 52.08%
  4. D) 92.00%

 

28) A developer of a new planned unit development (PUD) has estimated that there will be 1,500 home (all types) sales in University City over the next year. If an analysis of demographic information has revealed that the core market share for the PUD project within the community is 14.0%, what is the total market segment potential for this project?

  1. A) 42 units
  2. B) 105 units
  3. C) 210 units
  4. D) 1,290 units

29) A developer of a new townhome community estimates that there will be 1,200 home (all types) sales in University City over the next year. An analysis of demographic information has revealed that the core market share for the townhome project within the community is 10%. Assuming a capture rate of 20%, what is the developers first-year projection of townhome sales in the new community?

  1. A) 24 units
  2. B) 120 units
  3. C) 240 units
  4. D) 600 units

 

30) Suppose a developer is interested in building a new apartment community. Through her market research, the developer has determined that the target market segment potential in year 1 consists of 100 households. The developer believes that the target market segment potential will grow by 5% annually over the next five years. If the developer projects a capture rate of 25% for each of the next five years but is only to sell 26 apartment units in each of the next five years, in which year will her actual sales first fail to meet her projected sales numbers?

  1. A) year 2
  2. B) year 3
  3. C) year 4
  4. D) year 5

 

 

 

31) Suppose that you were interested in building a new townhome community on the east side of University City that will be marketed exclusively to senior citizens above the age of 62. In your analysis of local demographics, you discover that the target market makes up only 10% (core market share) of the households that currently live in this city. If market experts believe that a total of 500 townhome (or similar condominium) units will be purchased in all of University City within the next year, what is the projected number of units the developer could expect to sell in year 1 if he is able to capture 40% of the market potential?

  1. A) 500 units
  2. B) 50 units
  3. C) 20 units
  4. D) 10 units

 

32) Suppose a developer is interested in building a new subdivision of single-family homes. Through her market research, the developer has determined that the target market segment potential in year 1 consists of 176 households. If the developer projects that she will be able to sell 44 homes in the first year, what is her assumed capture rate?

  1. A) 15%
  2. B) 25%
  3. C) 44%
  4. D) 75%

33) Suppose that you have begun to gather some demographic data in order to project the potential sales of a new development project. The developer hopes to be able to target the following household types who fall in the age 55 and up housing market: seniors employed part time; seniors retired / not in assisted living. Utilizing the following population information, determine the core market share that the development project is targeting with this project: total senior households: 25,000; seniors employed full time: 8,000; seniors employed part time: 2,500; seniors retired / not in assisted living: 12,000; seniors retired / in assisted living: 2,500.

  1. A) 58.0%
  2. B) 80.0%
  3. C) 90.0%
  4. D) 100.0%

 

Real Estate Principles: A Value Approach, 5e (Ling)

Chapter 7   Valuation Using the Sales Comparison and Cost Approaches

 

1) Estimating the market value of real estate is complicated by the unique characteristics of real estate markets. In contrast to stock markets, real estate markets are characterized by all of the following except

  1. A) no two assets are considered perfect substitutes for one another.
  2. B) market prices are revealed almost instantaneously to prospective buyers.
  3. C) transactions occur infrequently.
  4. D) the physical location of the asset being sold plays an important role in the pricing process.

 

2) Real estate appraisers generally distinguish among the concepts of market value, investment value, and transaction value. Which of the following statements best describes the concept of market value?

  1. A) It is an estimate of the most probable selling price of a property in a competitive market.
  2. B) It is the value a particular investor places on a property.
  3. C) It is the price we observe when a property is sold.
  4. D) It is the maximum amount that a seller would be willing to accept.

 

3) In real estate markets, a transaction occurs only when the investment value of the buyer exceeds the investment value of the seller. The buyers investment value is the ________ that he or she would be willing to pay for a particular property, while the sellers investment value is the ________ that he or she would be willing to accept.

  1. A) minimum; minimum
  2. B) minimum; maximum
  3. C) maximum; minimum
  4. D) maximum; maximum

 

4) While it is often sufficient to rely on informal methods of estimating the market value of real estate assets, the complexity and large dollar value of many real estate decisions dictate that formal estimates based on methodical collection and analysis of relevant market data should be utilized. The unbiased written estimate of the market value of a property is commonly referred to as a(n)

  1. A) arms-length transaction.
  2. B) appraisal.
  3. C) property adjustment.
  4. D) reconciliation.

5) Real estate professionals have long supported strict standards of ethics and practice. Followed by all states and federal regulatory agencies, which of the following imposes ethical obligations and minimum standards that must be followed by all real estate professionals providing formal estimates of market value?

  1. A) Uniform Standards of Professional Appraisal Practice (USPAP)
  2. B) Multiple Listing Services (MLS)
  3. C) Department of Housing and Urban Development (HUD)
  4. D) Office of Federal Housing Enterprise Oversight (OFHEO)

 

6) As part of the data analysis step in the appraisal process, it is necessary to consider the highest and best use of the property in question. In regards to determining highest and best use, all of the following statements are true except

  1. A) the proposed property use must be legally permissible.
  2. B) it must be physically possible for the property to be used in the manner specified.
  3. C) no financial limits are considered when determining the propertys best use.
  4. D) the property use must provide the greatest benefit to the owner.

 

7) While there are several conventional approaches used to estimate the market value of real estate, which of the following is typically considered the most reliable approach?

  1. A) income approach
  2. B) sales comparison approach
  3. C) cost approach
  4. D) investment approach

 

8) It may be appropriate for a real estate professional to use different approaches for estimating the market value of a property depending upon the particular property type and use. Which of the following approaches would be most applicable when considering the valuation of retail office space (i.e., which approach would receive the most weight in the valuation process)?

  1. A) income approach
  2. B) sales comparison approach
  3. C) cost approach
  4. D) investment approach

 

9) If all appraisal methods are appropriate for use in valuing a particular property, there is a clear order of preference that real estate professionals adhere to. Which of the following depicts the preferred order, with the most preferable approach being listed first and the least preferable listed last?

  1. A) sales comparison approach, cost approach, income approach
  2. B) income approach, sales comparison approach, cost approach
  3. C) cost approach, income approach, sales comparison approach
  4. D) sales comparison approach, income approach, cost approach

10) Several techniques can be used to obtain an indication of land value. The cost approach to valuation would most likely be used for which of the following properties?

  1. A) one-family residential property
  2. B) retail office space
  3. C) education facility
  4. D) high-rise apartments

 

11) Most appraisers would say that report writing is one of the most important functions that they perform. Assume that an appraiser is putting together a report for a single-family home. Which of the following reporting options would be the most commonly used in this scenario?

  1. A) self-contained appraisal report
  2. B) summary appraisal report
  3. C) restricted appraisal report
  4. D) oral appraisal report

 

12) Real estate appraisal is often considered more art than science, since identifying truly comparable properties is a subjective process. Therefore, it is essential that a comparable property transaction at least meets the requirement that it was fairly negotiated under typical market conditions. Which of the following types of transactions would be most appropriate for use in the sales comparison approach to valuation?

  1. A) commingled business transactions
  2. B) low-interest financing programs
  3. C) real estate auctions
  4. D) arms-length transactions

 

13) While there is no specific number of comparables that is required for every appraisal assignment, how many comparable sales are considered adequate as long as the properties are very similar to the subject property?

  1. A) one
  2. B) three
  3. C) five
  4. D) ten

 

14) When employing the sales comparison approach, appraisers must consider numerous adjustments to convert each comparable sale transaction into an approximation of the subject property. Adjustments are divided into two groups: transactional adjustments and property adjustments. All of the following are transactional adjustments except

  1. A) financing terms.
  2. B) market conditions.
  3. C) conditions of sale.
  4. D) location.

15) Favorable mortgage financing may have a significant impact on the transaction price of the particular property. If the comparable property was known to have had favorable financing terms negotiated into the transaction price, which of the following adjustments should take place? (Note: Assume that the comparable property cannot be dropped from the analysis as there are already limited comparable sales transactions.)

  1. A) The transaction price of the comparable property should be adjusted downward.
  2. B) The transaction price of the comparable property should be adjusted upward.
  3. C) The transaction price of the subject property should be adjusted downward.
  4. D) The transaction price of the subject property should be adjusted upward.

 

16) Adjustments for physical characteristics are intended to capture the dimensions in which a comparable property differs physically from the subject property. If the only physical difference between the subject property and the comparable is that the comparable does not have a fireplace, which of the following adjustments should take place?

  1. A) The transaction price of the comparable property should be adjusted downward.
  2. B) The transaction price of the comparable property should be adjusted upward.
  3. C) The transaction price of the subject property should be adjusted downward.
  4. D) The transaction price of the subject property should be adjusted upward.

 

17) The sequence of adjustments to the transaction price of a comparable property would make no difference if all adjustments were dollar adjustments. However, if percentage adjustments are involved then the sequence does matter. In making adjustments to a comparable property to arrive at a final adjusted sales price, the proper sequence for the following adjustments would be

  1. A) financing terms, market conditions, location.
  2. B) location, market conditions, financing terms.
  3. C) market conditions, location, financing terms.
  4. D) location, financing terms, market conditions.

 

18) The cost approach to valuation assumes the market value of a new building is similar to the cost of constructing it today. Which of the following terms refers to the expenditure required to construct a building of equal utility using modern construction techniques, materials, and design that eliminates outdated aspects of the structure?

  1. A) reproduction cost
  2. B) replacement cost
  3. C) fixed cost
  4. D) variable cost

19) Accrued depreciation is the difference between the current market value of a building and the total cost to reproduce it new. One reason for this difference is related to changes in tastes, preferences, technical innovations, or market standards. This is commonly referred to as

  1. A) physical deterioration.
  2. B) functional obsolescence.
  3. C) external obsolescence.
  4. D) tax depreciation.

 

20) Which of the following would be categorized as a cause of external obsolescence?

  1. A) lack of adequate insulation
  2. B) deterioration of indoor carpets
  3. C) increased traffic flow due to more intensive use in the local area
  4. D) outdated fixtures

 

21) At the conclusion of the traditional sales comparison approach to valuation, the appraiser evaluates and reconciles the final adjusted sale prices into a single value for the subject property. This single value is commonly referred to as

  1. A) indicated value.
  2. B) investment value.
  3. C) transaction value.
  4. D) replacement value.

 

 

22) In using transaction data to determine the current value of the subject property, it is important to recognize that general market conditions may have changed since a particular transaction occurred. Property A sold 18 months ago for $235,000 and Property B sold 12 months ago for $215,000. If the two properties are priced today at $239,500 and $222,300, respectively, what is the average monthly rate of increase that can be used to adjust comparable prices for changes in market conditions?

  1. A) 0.09%
  2. B) 0.17%
  3. C) 0.19%
  4. D) 0.32%

 

23) A comparable property sold 15 months ago for $105,000. If the appropriate adjustment for market conditions is 0.25% per month (without compounding), what would be the adjusted price of the comparable property?

  1. A) $105,262.50
  2. B) $105,393.80
  3. C) $108,937.50
  4. D) $144,375

24) Given the following information, determine the value of having an additional bathroom. Assume that the comparable properties are similar in all other attributes besides those listed in the table below.

 

  Comparable 1 Comparable 2 Comparable 3 Comparable 4
Time sold Today 1 year ago Today Today
Bathrooms 1 1 2 2
Size 3500 sq. ft 3000 sq. ft. 3500 sq. ft 3000 sq. ft.
Sale price $150,000 140,000 $160,000 $156,000

 

  1. A) $4,000
  2. B) $6,000
  3. C) $10,000
  4. D) $16,000

 

 

25) Given the following information, determine the value of having an additional bedroom. Assume that the comparable properties are similar in all other attributes besides those listed in the table below.

 

  Comparable 1 Comparable 2 Comparable 3 Comparable 4
Time sold Today 1 year ago Today Today
Bathrooms 2 2 2 3
Size 4 5 5 5
Sale price $250,000 $265,000 $275,000 $270,000

 

  1. A) $5,000
  2. B) $15,000
  3. C) $20,000
  4. D) $25,000

 

26) Suppose that we observe two comparable properties that have each sold twice within the past two years. Property A sold 24 months ago for $350,000 and Property B sold 18 months ago for $325,000. If the two properties were sold today at $375,000 and $340,000, respectively, estimate the change in market conditions (percentage change in price) per month, assuming we equally weight the two properties in our analysis.

  1. A) 0.19%
  2. B) 0.24%
  3. C) 0.28%
  4. D) 0.33%

27) Suppose that an appraiser has just completed her analysis using the cost approach to valuation. She has determined that the market value of the subject property is $400,000. If the added value of the site was $80,000 and accrued depreciation amounted to $50,000, what was the reproduction cost of the building?

  1. A) $270,000
  2. B) $370,000
  3. C) $430,000
  4. D) $530,000

 

28) Assume you have been hired to appraise a local hospital. Your best estimate of the reproduction (or replacement) cost of the building is $3,700,000. However, upon evaluating the use of land in the local area, you have deemed the value of the site to be worth an additional $800,000. If the building has depreciated by $500,000 over its lifetime and there are no further depreciation losses due to external or functional obsolescence, what is the indicated value of the hospital using the cost approach?

  1. A) $2,400,000
  2. B) $3,700,000
  3. C) $4,000,000
  4. D) $4,500,000

 

 

29) Lets assume that we are about to appraise a house using the cost approach. The home was originally constructed in the early 1900s and is one of the last of its kind in this area. The cost of constructing an exact replica of this residence is estimated to be $350,000. On our trip to the actual property, we notice that this is the only residential unit located on this particular road. Based on the current usage of adjacent real estate, we estimate that the property would be worth an additional $25,000 in its highest and best use. However, due to the dramatic shift in the perceived safety of the neighborhood, values of any remaining residential properties in the area have fallen by $20,000. Due to the homes age, we also notice that there has been a significant amount of physical deterioration to the building, amounting to an estimate of $50,000 in lost value. Since the home was built over 100 years ago, the floor plan is quite obsolete relative to current preferences. This has a detrimental effect on the value of the property that is estimated to be approximately $15,000. Given this information, determine the appraised value of the home using the cost approach.

  1. A) $265,000
  2. B) $290,000
  3. C) $350,000
  4. D) $460,000

30) Suppose that an appraiser has come to the following conclusions in evaluating the subject property. Due to the dramatic shift in the perceived safety of the neighborhood, values of any residential properties in the area of the subject property have fallen by $10,000, on average. Due to the subject propertys age, physical deterioration to the building accounts for an estimate of $50,000 in lost value. An evaluation of the floor plan reveals that it is quite obsolete relative to current homebuyer preferences. This has a detrimental effect on the value of the property that is estimated to be approximately $15,000. Based on your understanding of adjustments related to accrued depreciation, which of the following pertains to the adjustment for external obsolescence?

  1. A) $10,000
  2. B) $15,000
  3. C) $50,000
  4. D) $75,000

 

31) A comparable property sold four months ago for $287,000. If the appropriate adjustment for market conditions is -0.50% per month (without compounding), what would be the adjusted price of the comparable property assuming all else is the same between the two properties?

  1. A) $269,780.00
  2. B) $281,260.00
  3. C) $285,565.00
  4. D) $292,740.00

 

 

32) Given the following information, determine the value of having an additional 500 square feet of living space. Assume that the comparable properties are similar in all other attributes besides those listed in the table below.

 

  Comparable 1 Comparable 2 Comparable 3 Comparable 4
Time sold Today 1 year ago Today Today
Bathrooms 1 1 2 2
Size 3500 sq. ft 3000 sq. ft. 3500 sq. ft 3000 sq. ft.
Sale price $150,000 140,000 $160,000 $156,000

 

  1. A) $4,000
  2. B) $6,000
  3. C) $10,000
  4. D) $16,000

33) Given the following information, determine the value of having an additional bedroom. Assume that the comparable properties are similar in all other attributes besides those listed in the table below.

 

  Comparable 1 Comparable 2 Comparable 3 Comparable 4
Time sold Today 1 year ago Today Today
Bathrooms 2 2 2 2
Size 3 3 4 3
Sale price $375,000 $365,000 $380,000 $367,500

 

  1. A) $2,500
  2. B) $5,000
  3. C) $7,500
  4. D) $10,000

 

34) Suppose that we observe two comparable properties that have each sold twice within the past four years. Property A sold 24 months ago for $500,000 and Property B sold 48 months ago for $575,000. If the two properties were sold today at $425,000 and $465,000, respectively, estimate the change in market conditions (percentage change in price) per month, assuming we equally weight the two properties in our analysis.

  1. A) -0.56%
  2. B) -0.51%
  3. C) 0.61%
  4. D) 0.68%

 

 

35) Suppose that an appraiser has just completed her analysis using the cost approach to valuation. She has determined that the reproduction cost of the subject property is $370,000. If the added value of the site was $80,000 and accrued depreciation amounted to $50,000, what was the estimated value of the building using the cost approach?

  1. A) $320,000
  2. B) $370,000
  3. C) $400,000
  4. D) $500,000

36) Given the following information, what adjustment would need to be made to account for the lot size difference between the subject property and comparable property?

 

  Adjustments
Market conditions -0.50% (per month)
Lot size $25,000 (per acre)
Effective age (years) $1,000 (per year)
Living area (sq. ft) $45.00 (per sq. ft.)
Bath $1,250 (per bath)
Bedrooms $3,000 (per bedroom)

 

  Subject Property Comparable Property
Time sold Today 4 months ago
Lot size (acres) 0.83 0.80
Effective age (years) 8 7
Living area (sq. ft) 2,197 2.383
Bath 3.5 3.5
Bedrooms 4 4
Sale price $287,000

 

  1. A) The price of the subject property must be adjusted upward by $750.
  2. B) The price of the subject property must be adjusted downward by $750.
  3. C) The price of the comparable property must be adjusted upward by $750.
  4. D) The price of the comparable property must be adjusted downward by $750.

 

37) Given the following information, what adjustment would need to be made to account for the living area difference between the subject property and comparable property?

 

  Adjustments
Market conditions -0.50% (per month)
Lot size $25,000 (per acre)
Effective age (years) $1,000 (per year)
Living area (sq. ft) $45.00 (per sq. ft.)
Bath $1,250 (per bath)
Bedrooms $3,000 (per bedroom)

 

  Subject Property Comparable Property
Time sold Today 4 months ago
Lot size (acres) 0.83 0.80
Effective age (years) 8 7
Living area (sq. ft) 2,197 2.383
Bath 3.5 3.5
Bedrooms 4 4
Sale price $287,000

 

  1. A) The price of the subject property must be adjusted upward by $8,370.
  2. B) The price of the subject property must be adjusted downward by $8,370.
  3. C) The price of the comparable property must be adjusted upward by $8,370.
  4. D) The price of the comparable property must be adjusted downward by $8,370.

 

38) Given the following information, determine the final appraisal value of the subject property.

 

  Adjustments
Market conditions -0.50% (per month)
Lot size $25,000 (per acre)
Effective age (years) $1,000 (per year)
Living area (sq. ft) $45.00 (per sq. ft.)
Bath $1,250 (per bath)
Bedrooms $3,000 (per bedroom)

 

  Subject Property Comparable Property
Time sold Today 4 months ago
Lot size (acres) 0.83 0.80
Effective age (years) 8 7
Living area (sq. ft) 2,197 2.383
Bath 3.5 3.5
Bedrooms 4 4
Sale price $287,000

 

  1. A) $271,140
  2. B) $272,640
  3. C) $284,120
  4. D) $289,380

 

Real Estate Principles: A Value Approach, 5e (Ling)

Chapter 15   Mortgage Calculations and Decisions

 

1) The monthly mortgage payment divided by the loan amount is commonly referred to as the

  1. A) loan balance.
  2. B) effective borrowing cost.
  3. C) lenders yield.
  4. D) monthly loan constant.

 

2) From the borrowers perspective, the effective borrowing cost is often viewed as the implied internal rate of return (IRR), since it takes into consideration costs that the borrower faces, but which are not passed on as income to the lender. Included in this calculation are certain closing costs, which may consist of all of the following except

  1. A) title insurance.
  2. B) mortgage insurance.
  3. C) recording fees.
  4. D) earnest money.

 

3) Required by the Truth-in-Lending Act, the annual percentage rate (APR) is reported by the lender to the borrower on virtually all U.S. home mortgage loans. The APR accounts for all of the following except

  1. A) all finance charges in connection with the loan, such as discount points, origination fees, and underwriting fees.
  2. B) all compensation to the originating brokers if one was used by the borrower.
  3. C) any prepayment of principal to be made on the loan.
  4. D) premiums for required forms of insurance.

 

4) When lenders charge discount points (prepaid interest) on a loan, what impact does this have on the loans yield?

  1. A) The yield on the loan will increase.
  2. B) The yield on the loan will decrease.
  3. C) The yield on the loan will be unaffected.
  4. D) The yield on the loan automatically becomes zero.

 

5) For the purposes of estimating the effective borrowing cost (EBC), only those up-front expenses associated with obtaining the mortgage should be included, not the settlement costs associated with obtaining ownership of the property. With this in mind, which of the following costs should not be included in ones calculation of EBC?

  1. A) discount points
  2. B) loan origination fees
  3. C) appraisal fee
  4. D) buyers title insurance

 

 

6) When fully amortizing loans call for equal periodic payments over the life of the loan they are known as

  1. A) level-payment mortgages.
  2. B) adjustable-rate mortgages.
  3. C) interest-only mortgages.
  4. D) early-payment mortgages.

 

7) While a variety of loan terms are available in a lenders mortgage menu, the most common loan term on a level-payment mortgage is

  1. A) 7 years.
  2. B) 15 years.
  3. C) 30 years.
  4. D) 40 years.

 

8) Recently, 15-year mortgages have increased in popularity among both borrowers and lenders. Which of the following groups of borrowers would typically be the least interested in a 15-year mortgage?

  1. A) mature households with minimal financial constraints
  2. B) first-time homebuyers
  3. C) homeowners who are refinancing to obtain a lower rate than is available on a comparable 30-year mortgage
  4. D) homeowners who are interested in selling their property within 5 years

 

9) Assume that a borrower has a choice between two comparable fixed-rate mortgage loans with the same interest rate, but different mortgage terms, one being a 30-year mortgage and the other a 15-year mortgage. Under financially unconstrained circumstances, which of the following statements best describes the borrowers preference?

  1. A) The borrower would prefer the 30-year mortgage.
  2. B) The borrower would prefer the 15-year mortgage.
  3. C) The borrower would be indifferent between the two mortgages.
  4. D) The borrower is unable to compare mortgage loans of two different maturities.

 

10) Partially amortizing mortgage loans require periodic payments of principal but are not paid off completely over the loans term to maturity. Instead, the balance of the principal amount is paid at maturity in what is commonly referred to as a

  1. A) balloon payment.
  2. B) early payment.
  3. C) up-front payment.
  4. D) payment cap.

11) With the recent popularity of adjustable rate mortgages (ARM), lenders have begun to offer ARMs with different adjustment periods. Which of the following ARM choices will most likely have the highest initial rate?

  1. A) three-yearone-year ARM
  2. B) five-yearone-year ARM
  3. C) seven-yearone-year ARM
  4. D) ten-yearone-year ARM

 

12) In considering a 3/1 adjustable rate mortgage (ARM), the interest rate will be fixed for how many years?

  1. A) one year
  2. B) two years
  3. C) three years
  4. D) four years

 

13) One reason why adjustable rate mortgages (ARMs) have become popular has to do with the impact that they have on the interest rate risk that is borne by the parties involved. If interest rates were to rise on a level-payment mortgage (LPM), the interest rate risk of the loan would typically be borne by

  1. A) the borrower only.
  2. B) the lender only.
  3. C) both the borrower and lender.
  4. D) neither the borrower nor the lender.

 

14) To encourage borrowers to accept adjustable rate mortgages (ARMs) rather than level-payment mortgages, mortgage originators generally offer an initial short-term introductory rate that is less than the prevailing market mortgage rate. This rate is referred to as a(n)

  1. A) margin rate.
  2. B) teaser rate.
  3. C) index rate.
  4. D) discount rate.

 

15) The APR can be a controversial measure of borrowing cost because it tends to

  1. A) overstate the true borrowing cost by assuming we hold the mortgage until maturity.
  2. B) understate the true borrowing cost by assuming we hold the mortgage until maturity.
  3. C) overstate the true borrowing cost by assuming we do not hold the mortgage until maturity.
  4. D) understate the true borrowing cost by assuming we do not hold the mortgage until maturity.

16) Given the following information on a fixed-rate fully amortizing loan, determine the maximum amount that the lender will be willing to provide to the borrower: loan term: 30 years; monthly payment: $800; interest rate: 6%.

  1. A) $6,707
  2. B) $9,295.15
  3. C) $13,333
  4. D) $133,433

 

17) Given the following information on a 30-year fixed-payment fully amortizing loan, determine the remaining balance that the borrower has at the end of seven years: interest rate: 7%; monthly payment: $1,200.

  1. A) $17,143
  2. B) $79,509
  3. C) $164,402
  4. D) $180,369

 

 

 

18) Given the following information on an interest-only mortgage, calculate the monthly mortgage payment: loan amount: $56,000; term: 15 years; interest rate: 7.5%.

  1. A) $169.13
  2. B) $350
  3. C) $519.13
  4. D) $4,200

 

19) Given the following information, calculate the balloon payment for a partially amortized mortgage: loan amount: $84,000; term to maturity: 7 years; amortization term: 30 years; interest rate: 4.5%; monthly payment: $425.62.

  1. A) $9,458
  2. B) $30,620
  3. C) $73,102
  4. D) $84,000

 

20) Given the following information about a fully amortizing loan, calculate the lenders yield (rounded to the nearest tenth of a percent): loan amount: $166,950; term: 30 years; interest rate: 8%; monthly payment: $1,225.00; discount points: 2.

  1. A) 7.7%
  2. B) 8.0%
  3. C) 8.2%
  4. D) 10.0%

21) Given the following information, calculate the effective borrowing cost (rounded to the nearest tenth of a percent): loan amount: $166,950; term: 30 years, interest rate: 8%; monthly payment: $1,225.00; discount points: 2; other closing expenses: $3,611.

  1. A) 7.7%
  2. B) 8.2%
  3. C) 8.5%
  4. D) 9.1%

 

22) Suppose a potential home buyer is interested in taking a $500,000 mortgage loan that has a term of 30 years and a fixed mortgage rate of 5.25%. What is the monthly mortgage payment that the homeowner would need to make if this loan is fully amortizing?

  1. A) $552.50
  2. B) $2,761.02
  3. C) $17,820.72
  4. D) $33,458.47

 

23) You have taken out a $350,000, 3/1 ARM. The initial rate of 6.0% (annual) is locked in for three years. Calculate the outstanding balance on the loan after three years. The interest rate after the initial lock period is 6.5%. (Note: the term on this 3/1 ARM is 30 years.)

  1. A) $2,098.43
  2. B) $2,183.95
  3. C) $336,294.25
  4. D) $347,901.57

 

 

 

24) You have taken out a $300,000, 5/1 ARM. The initial rate of 5.4% (annual) is locked in for five years. Calculate the payment after recasting the loan (i.e., after the reset) assuming the interest rate after the initial lock period is 8.0%. (Note: the term on this 5/1 ARM is 30 years.)

  1. A) $1,684.59
  2. B) $1,784.79
  3. C) $1,887.75
  4. D) $2,138.02

 

25) You have taken out a $225,000, 3/1 ARM. The initial rate of 5.8% (annual) is locked in for three years and is expected to increase to 6.5% at the end of the lock period. Calculate the initial payment on the loan. (Note: the term on this 3/1 ARM is 30 years.)

  1. A) $1,320.19
  2. B) $1,422.15
  3. C) $1,874.45
  4. D) $1959.99

26) Given the following information, calculate the effective borrowing cost (EBC): loan amount: $175,000; term: 30 years; interest rate: 7%; payment: $1,164.28; discount points: 1 point; origination fee: $3,250. Assume the loan is held until the end of year 10.

  1. A) 0.6%
  2. B) 3.8%
  3. C) 7.0%
  4. D) 7.4%

 

27) Suppose you have taken out a $200,000 fully amortizing fixed-rate mortgage loan that has a term of 15 years and an interest rate of 4.25%. In month 2 of the mortgage, how much of the monthly mortgage payment does the principal repayment portion consist of?

  1. A) $705.51
  2. B) $708.33
  3. C) $796.22
  4. D) $799.04

 

28) Suppose you have taken out a $125,000 fully amortizing fixed rate mortgage loan that has a term of 15 years and an interest rate of 6%. After your first mortgage payment, how much of the original loan balance is remaining?

  1. A) $1,054.82
  2. B) $120,603.78
  3. C) $124,570.18
  4. D) $124,875.56

 

29) Assume you have taken out a partially amortizing loan for $325,000 that has a term of 7 years but amortizes over 30 years. Calculate the balloon payment at maturity (year 7) if the interest rate on this loan is 4.5%.

  1. A) $1,646.73
  2. B) $118,468.21
  3. C) $282,835.42
  4. D) $324,572.02

 

30) Lets assume that you have just taken out a mortgage loan for $200,000 with an origination fee of 2 points due up-front. The mortgage term is 30 years and the mortgage rate is fixed at 4%. What is the cost of the origination fee in dollar terms?

  1. A) $400.00
  2. B) $954.83
  3. C) $4000.00
  4. D) $4954.83

31) You have taken out a $350,000, 3/1 ARM. The initial rate of 6.0% (annual) is locked in for three years. Determine the owners equity in the property after three years if the market value of the property at the end of year 3 is $400,000. The interest rate after the initial lock period is 6.5%. (Note: The term on this 3/1 ARM is 30 years.)

  1. A) $13,705.75
  2. B) $50,000.00
  3. C) $63,705.75
  4. D) $336,294.25

 

32) Given the following information on a 30-year fixed-payment fully amortizing loan, determine the owners equity in the property after seven years if the market value of the property is $240,000 at the end of year 7: rate: 7%; monthly payment: $1,200.

  1. A) $15,967.33
  2. B) $59,630.92
  3. C) $75,598.25
  4. D) $164,401.75

 

33) You have taken out a $100,000, one-year ARM. The teaser rate in the first year is 4.5% (annual). The index interest rate after the first year is 3.25% and the margin is 2.75%. (Note: The term on this ARM is 30 years.) There is also a periodic (annual) rate cap of 1.00%. Given this information, determine the monthly mortgage payment you would be scheduled to make in month 1 of the mortgage loans term.

  1. A) $321.64
  2. B) $506.69
  3. C) $567.79
  4. D) $599.55

 

34) You have taken out a $100,000, one-year ARM. The teaser rate in the first year is 4.5% (annual). The index interest rate after the first year is 3.25% and the margin is 2.75%. (Note: The term on this ARM is 30 years). There is also a periodic (annual) rate cap of 1.00%. Given this information, determine the monthly mortgage payment you would be scheduled to make in month 13 of the mortgage loans term.

  1. A) $321.64
  2. B) $506.69
  3. C) $566.26
  4. D) $597.21

 

 

35) You have taken out a $300,000, one-year ARM. The teaser rate in the first year is 5.5% (annual). The index interest rate after the first year is 4.00% and the margin is 2.25%. (Note: The term on this ARM is 30 years.) There is also a periodic (annual) rate cap of 1.00%. Given this information, determine the monthly mortgage payment you would be scheduled to make in month 13 of the mortgage loans term.

  1. A) $980.08
  2. B) $1,703.37
  3. C) $1,843.88
  4. D) $1,891.81

 

36) Suppose you have taken out a $400,000 fully amortizing fixed-rate mortgage loan that has a term of 15 years and an interest rate of 3.75%. In month 1 of the mortgage, how much of the monthly mortgage payment does the interest portion consist of?

  1. A) $9.09
  2. B) $1,250.00
  3. C) $1658.89
  4. D) $2,908.89

 

37) Assume you have taken out a partially amortizing loan for $1,000,000 that has a term of seven years but amortizes over 20 years. Calculate the balloon payment if the interest rate on this loan is 9%.

  1. A) $8,997
  2. B) $559,199
  3. C) $825,679
  4. D) $936,405

 

38) Suppose you have taken out a $325,000 fully amortizing fixed rate mortgage loan that has a term of 30 years and an interest rate of 5.5%. In month 10 of the mortgage, how much of the monthly mortgage payment does the interest portion consist of?

  1. A) $370.68
  2. B) $1,474.64
  3. C) $1,489.58
  4. D) $1,845.31

 

Real Estate Principles: A Value Approach, 5e (Ling)

Chapter 23   Development: The Dynamics of Creating Value

 

1) Once a specific use has been chosen for a site, the first stage in the development process, often considered the entry ticket to development, is

  1. A) establishing site control.
  2. B) feasibility analysis.
  3. C) financing.
  4. D) construction.

 

2) There are a number of ways that a developer can finance the establishment of site control, each with its own advantages and disadvantages. Which of the following methodologies calls for only the initial land rent to be paid out before development actually gets under way?

  1. A) joint venture
  2. B) option
  3. C) contract for deed
  4. D) ground lease

 

3) Since the architect can be involved in various stages of the development process, there are a number of methods used to compensate him for his services, each of which may depend on the particular phase of development. If the architect provides predesign services or schematics early in the development process, he will typically be compensated

  1. A) on an hourly basis.
  2. B) as a percentage of construction expenses.
  3. C) by a fixed fee plus expenses.

D)only if he stays on the project through completion of the construction phase.

 

4) A developers selection of an architect is a vital step in the development process as the architect fulfills a number of important roles throughout the life of the project. As compensation for contributions in the design phase, the architect is often given a percentage of the construction cost. For moderately complex designs, the average compensation will be

  1. A) 1% to 2%.
  2. B) 3% to 7%.
  3. C) 7% to 10%.
  4. D) greater than 10%.

5) The strength of a successful developer lies in his or her ability to select design professionals and engineers that play vital roles in the projects plan and completion. Which of the following individuals would be most concerned, on a general level, with the design aesthetics, optimal use and preservation of the site, traffic flows, utility systems and drainage systems?

  1. A) land planner
  2. B) landscape architect
  3. C) mechanical engineer
  4. D) environmental agent

 

 

 

6) The expertise of several types of engineers must be coordinated by the architect in bringing together the final structure design. Which of the following types of engineers is responsible for specifications to achieve safety and stability for a structures foundation?

  1. A) soils engineer
  2. B) structural engineer
  3. C) mechanical engineer
  4. D) civil engineer

 

7) Development involves a complex organization of many moving parts. Which of the following choices is often viewed as the single greatest cause of project delays and cost overruns?

  1. A) obtaining permits
  2. B) financing
  3. C) effective communication between developer, architect, and engineer
  4. D) selecting the architect

 

8) The majority of financing for the acquisition of land for development is most likely to come from which of the following parties?

  1. A) developer
  2. B) banks
  3. C) pooled equity of a limited liability corporation (LLC)
  4. D) insurance companies

 

9) The developer will face a variety of costs throughout the projects life. Which of the following would be classified as a soft cost?

  1. A) legal fees of the permitting process
  2. B) costs of materials
  3. C) labor cost of subcontractors for construction
  4. D) cost of land

10) In each stage of the development process, the developer faces risks that can have a profound impact on the success of the particular project. Which of the following risks is of primary concern after the construction phase has been completed?

  1. A) environmental risk
  2. B) title risk
  3. C) market risk
  4. D) permitting risk

 

11) Since banks seldom loan 100 percent of construction costs, developers often turn to mezzanine financing to obtain necessary funds. With mezzanine debt, which of the following entities is typically pledged as collateral to the lender?

  1. A) land
  2. B) ownership shares in the development entity
  3. C) personal assets of the developer
  4. D) construction materials

 

 

 

12) When construction costs exceed the amount of the construction loan, a developer may seek to cover the gap using mezzanine financing. All of the fol

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