fina420-midterm-practice-mcq

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lOMoARcPSD|10972438 Downloaded by Aghiad Maatouk (aghiad.a.maatouk@gmail.com) 7. If we desire to classify land by its use, land that does not include any improvements to the land would be categorized as: A. "Raw" land B. Building site C. Developed land D. Property infrastructure 8. The size of a single family residential lot is typically: A. less than one acre B. between one and two acres C. between two and three acres D. greater than three acres 9. As of 2015, the single largest asset category in the net worth portfolios of households is: A. government and corporate bonds B. stocks and mutual fund shares C. consumer durable goods D. housing 10. Real estate values derive from the interaction of three different sectors in the economy. Which of the following sectors serves to allocate financial resources among households and firms requiring funds? A. User market B. Capital market C. Government D. Property market 11. The demand for real estate derives from the need that market participants (e.g., owner occupants, tenants, renters) have for shelter and convenient access to other locations. This competition for physical location and space occurs in the: A. User Market B. Capital Market C. Government Sector D. Property Market 12. The expected stream of rental income is capitalized into value by converting expected future cash flows into present value through a process called: A. amortization B. discounting C. compounding D. accounting

lOMoARcPSD|10972438 Downloaded by Aghiad Maatouk (aghiad.a.maatouk@gmail.com) 13. Capital markets can be divided into four main categories: private equity, public equity, private debt, and public debt. An example of a real estate asset that trades in the private equity market is: A. real property B. home mortgages C. equity REITs D. mortgage backed securities 14. An example of a real estate asset that trades in the public debt market is: A. real property B. real estate operating companies C. equity REITs D. commercial mortgage backed securities (CMBS) 15. Primarily through land use controls and property tax policy, which of the following branches of government has the largest influence on real estate values? A. Local government B. State government C. National government D. Foreign government 16. Competition for the currently available supply of locations and space coupled with the existing supply of leasable space, determines: A. the current level of rental rates for each submarket and property B. the riskiness of the expected cash flows of an income-producing property C. the timing of the expected cash flows of an income-producing property D. the cost of financing the purchase of a property 17. Each property has unique features, whether it is its age, the building design of its structures, or its location. As such, real estate markets consist of assets that are considered: A. homogeneous B. heterogeneous C. substitutes D. complements 18. Consistently the investment target of pension funds, publicly traded real estate companies, and real estate funds, large commercial properties valued well over $10 million are often referred to as: A. segmented property B. investment-grade property C. speculative-grade property D. immobile property

lOMoARcPSD|10972438 Downloaded by Aghiad Maatouk (aghiad.a.maatouk@gmail.com) 25. Capital markets can be divided into two broad categories: equity interests and debt interests. Equity investors in real estate expect to earn a return on their investment through: A. The collection of rent and price appreciation B. The collection of interest on the borrowed funds used to purchase the property C. The receipt of property taxes D. The case of a borrower default on required mortgage payments 26. Considered a fundamental pricing metric in commercial real estate markets, the ratio of a property's annual net income to its market value is more commonly referred to as a(n): A. Appreciation rate B. Capitalization rate C. Discount rate D. Internal rate of return 27. Helping to constrain entry into real estate related occupations, which of the following branches of government is directly involved in establishing rules and regulations for the licensing of professionals in the field of real estate? A. Local government B. State government C. National government D. Foreign government 28. A primary determinant of the feasibility of new construction is the relationship between the current level of property prices and the cost of new construction. We would expect the supply of properties to: A. increase if current property values are greater than the cost of construction B. decrease if current property values are greater than the cost of construction C. increase if current property values equal the cost of construction D. decrease if current property values equal the cost of construction 29. Equity investors can choose to participate indirectly in real estate markets by purchasing shares in publicly traded real estate companies. In doing so, investors benefit from all of the following EXCEPT: A. Low transaction costs B. Risk sharing amongst investors C. Highly segmented markets D. High information efficiency

lOMoARcPSD|10972438 Downloaded by Aghiad Maatouk (aghiad.a.maatouk@gmail.com) 30. Real estate markets tend to be highly segmented due to the heterogeneous nature of the products. Which of the following examples depicts this issue of market segmentation? A. A couple searching for a single-family detached unit is willing to consider other residential property types such as an attached townhouse unit or condominium. B. A couple searching for a single-family detached unit has limited their search to homes in a single elementary school district C. A couple searching for a single-family detached unit has set a timeline for their search of 6 months, at which point they will renew their current apartment lease. D. A couple searching for a single-family detached unit has limited their search to be in a specific price range between $350,000 and $400,000. 31. If a property's expected annual net income is $89,100 and its current market value is $1,060,000, the property's capitalization rate is: A. 4.2% B. 8.4% C. 11.9% D. 33.6%

lOMoARcPSD|10972438 Downloaded by Aghiad Maatouk (aghiad.a.maatouk@gmail.com) 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? A) Uniform Standards of Professional Appraisal Practice (USPAP) B) Multiple Listing Services (MLS) C) Department of Housing and Urban Development (HUD) 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 A) the proposed property use must be legally permissible. B) it must be physically possible for the property to be used in the manner specified. C) no financial limits are considered when determining the propertys best use. 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? A) income approach B) sales comparison approach C) cost approach 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)? A) income approach B) sales comparison approach C) cost approach 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? A) sales comparison approach, cost approach, income approach B) income approach, sales comparison approach, cost approach C) cost approach, income approach, sales comparison approach D) sales comparison approach, income approach, cost approach

lOMoARcPSD|10972438 Downloaded by Aghiad Maatouk (aghiad.a.maatouk@gmail.com) 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? A) one-family residential property B) retail office space C) education facility 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? A) self-contained appraisal report B) summary appraisal report C) restricted appraisal report 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? A) commingled business transactions B) low-interest financing programs C) real estate auctions 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? A) one B) three C) five 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 A) financing terms. B) market conditions. C) conditions of sale. D) location.

lOMoARcPSD|10972438 Downloaded by Aghiad Maatouk (aghiad.a.maatouk@gmail.com) 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 A) physical deterioration. B) functional obsolescence. C) external obsolescence. D) tax depreciation. 20) Which of the following would be categorized as a cause of external obsolescence? A) lack of adequate insulation B) deterioration of indoor carpets C) increased traffic flow due to more intensive use in the local area 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 A) indicated value. B) investment value. C) transaction value. 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? A) 0.09% B) 0.17% C) 0.19% 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? A) $105,262.50 B) $105,393.80 C) $108,937.50 D) $144,375

lOMoARcPSD|10972438 Downloaded by Aghiad Maatouk (aghiad.a.maatouk@gmail.com) 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 A) $4,000 B) $6,000 C) $10,000 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 A) $5,000 B) $15,000 C) $20,000 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. A) 0.19% B) 0.24% C) 0.28% D) 0.33%

lOMoARcPSD|10972438 Downloaded by Aghiad Maatouk (aghiad.a.maatouk@gmail.com) 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? A) $10,000 B) $15,000 C) $50,000 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? A) $269,780.00 B) $281,260.00 C) $285,565.00 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 A) $4,000 B) $6,000 C) $10,000 D) $16,000

lOMoARcPSD|10972438 Downloaded by Aghiad Maatouk (aghiad.a.maatouk@gmail.com) 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 A) $2,500 B) $5,000 C) $7,500 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. A) -0.56% B) -0.51% C) 0.61% 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? A) $320,000 B) $370,000 C) $400,000 D) $500,000

lOMoARcPSD|10972438 Downloaded by Aghiad Maatouk (aghiad.a.maatouk@gmail.com) 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) Time sold Subject Property Today Comparable Property 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 A) The price of the subject property must be adjusted upward by $8,370. B) The price of the subject property must be adjusted downward by $8,370. C) The price of the comparable property must be adjusted upward by $8,370. 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)

lOMoARcPSD|10972438 Downloaded by Aghiad Maatouk (aghiad.a.maatouk@gmail.com) 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) Time sold Subject Property Today Comparable Property 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 A) $271,140 B) $272,640 C) $284,120 D) $289,380