Chapter 1



Chapter 1

1. The most probable price which a property will bring in a competitive and open market under all conditions requisite to a fair sale is:

a. transaction price.

b. most probable selling price.

c. market value.

d. investment value.

2. Investment value:

a. is an objective estimate of a property’s worth as an investment.

b. is the value of the property as an investment, and therefore is also the most probable selling price.

c. from the present owner’s perspective sets the upper end of the range of possible transaction prices.

d. is unique to the individual investor and need not be closely related to market value or most probable selling price.

3. The term market value, as generally employed by appraisers, means:

a. the most probable price a property will bring in a competitive and open market under all conditions requisite to a fair sale.

b. the most probable price that will result from arm’s-length bargaining between an equally informed buyer and seller.

c. the highest price in terms of money that a property will bring if exposed to the market for a reasonable length of time.

d. the price a prudent buyer would pay if fully informed of all relevant facts regarding the property.

4. The relationship between investment value and most probable selling price is:

a. investment value will always exceed most probable selling price, at least by the amount of the transaction costs.

b. most probable selling price will always exceed investment value, at least by the amount of transaction costs.

c. investment value may be greater or less than most probable selling price, and the difference will approximate transaction costs.

d. investment value need not be closely related to most probable selling price.

5. Which of the following is a real estate investment decision?

a. Purchase of a $50,000 interest in a partnership which develops office buildings

b. Purchase of a six-flat apartment building

c. A new reservoir built by the U.S. Government

d. All of the above

6. When considering a real estate investment opportunity, which of the following issues need to be addressed?

a. Estimates of total costs and benefits

b. The style of the architecture of the building

c. The timing of disbursements and receipts

d. (a) and (c) above

7. Cash flows for real estate investments may come from:

a. rental.

b. refinancing.

c. tax savings.

d. all of the above.

8. Rational real estate investment decisions require:

a. a coupling of estimated costs and benefits with a forecast of the timing of disbursements and receipts.

b. choosing between uncertain costs and certain present benefits.

c. a methodology for ranking attainable combinations by their variety.

d. computer expertise.

9. Active investors (as opposed to passive investors):

a. invest primarily in debt instruments.

b. invest primarily in equities.

c. are more interested in primary than secondary markets.

d. make decisions that affect the profitability of the property’s operations.

10. Equity investors:

a. are always active in the sense that they make decisions which affect the profitability of the property’s operations.

b. are always passive in the sense that they make no decisions which affect the profitability of the property’s operations.

c. always take an ownership interest in debt instruments.

d. may be either active or passive investors.

11. State-of-the-art real estate investment analysis treats real estate as:

a. a capital asset desired for the stream of benefits it creates.

b. a probabilistic time value of realty problem.

c. a case of modern working capital management.

d. appropriate only for a short range of investment goals.

12. Real estate investors:

a. may be active or passive investors, depending upon whether they take an equity or a debt position.

b. always depend upon income tax benefits to make the investment successful.

c. are required to exercise stand-by loan commitments.

d. either directly or indirectly, purchase rights to a stream of future cash flows.

13. Real estate is an appropriate investment vehicle:

a. for individuals, but not for institutions such as pension funds and life insurance companies.

b. for institutions such as pension funds and life insurance companies, but not for individuals.

c. for individuals and institutions, depending upon their time horizons and investment goals.

d. for investors in debt instruments but not for investors in equity instruments.

14. Foreign investors:

a. own more than 20 percent of U.S. real estate, but their holdings are widely disbursed across the United States.

b. own a small portion (less than 5 percent) of U.S. real estate.

c. have only recently (within the last decade) become interested in U.S. real estate.

d. are not permitted to own U.S. real estate.

15. The investment decision process:

a. is fundamentally the same for real estate investment analysis as for other investment areas.

b. requires the investor to adjust expected cash flows for timing differences and risk.

c. recognizes that investment assets are desired only for the benefits of ownership they bestow.

d. all of the above are true.

16. The probabilistic estimate of the price at which a property will be sold is its:

a. investment value.

b. transaction price.

c. most probable selling price.

d. market value.

17. For a particular investment property, investment value:

a. is determined by the selling price agreed upon by the buyer and seller.

b. is the value placed on the property by a qualified appraiser.

c. is the highest price a prospective buyer is justified in paying for the property.

d. (a) and(c) above.

18. A rational risk taker:

a. specifies investment objectives carefully.

b. makes investment decisions based on "tips".

c. eliminates as much risk as possible.

d. (a) and(c) above.

Chapter 4

1. Which of the following is descriptive of data gathering by communication?

a. It is more time-consuming than data gathering by observation.

b. It is more objective than data gathering by observation.

c. It is a more versatile means of data gathering.

d. All of the above.

2. Market information can help serve which of the following functions?

a. Assist in developing reasonable cash flow projections

b. Aid in purchase, divestiture, and refinancing decisions

c. Facilitate operating decisions

d. All of the above

3. The point of maximum net benefit derived from market research:

a. is easily calculated by charting costs on the x-axis and benefit on the y -axis.

b. is easily calculated by charting benefits on the x-axis and costs on the y-axis.

c. is objectively measured.

d. is not objectively measurable.

4. Which of the following is a step of the research process?

a. Define the problem.

b. Design the research strategy.

c. Data interpretation

d. All of the above

5. Which of the following is an example of primary data?

a. Information taken from the Census of Population

b. Data bought from university research studies

c. Telephone interviews

d. None of the above

6. Operating management uses research data for planning, problem solving and control purposes. Which one of the following is most likely to be used for control purposes?

a. Data on basic trends in the economic environment

b. Data on standard amenity packages included in competitive buildings

c. Data on typical tenant mix in competitive commercial rental projects

d. Tracking operating expense ratios for buildings in one’s portfolio

7. Which of the following aspects of research process is least affected by the nature of available data?

a. The definition of the research problem

b. The nature of the research design

c. The design of the data collection program

d. Data analysis and interpretation

8. Longitudinal studies:

a. involve one-time sampling from a population of research interest.

b. measure changes over time.

c. are the most frequent type of data-collection assignment.

d. provide a single snapshot of the variables under observation.

9. Inferential statistics:

a. involve measuring characteristics that are important to a problem and bringing them together in summary form.

b. are useful primarily because they permit the reduction of large masses of data to essentials.

c. involve drawing conclusions from evidence contained in the data.

d. employ quantitative expressions to describe characteristics of a sample of an underlying population.

10. The need for real estate market research exists because:

a. real estate markets are relatively efficient.

b. all relevant information are quickly reflected in market prices.

c. firms view their marginal revenue curves as horizontal.

d. data for rational decision making are often not readily available.

11. Research and data collection for investment decision making reaches its maximum level of cost effectiveness:

a. when the incremental value of data collected substantially exceeds the cost of collection.

b. when the incremental value of data collected is substantially less than the cost of collection.

c. when the incremental value of data collected exactly equals the cost of collection.

d. when no more data can be collected.

12. Geographic Information Systems are particularly well-suited for displaying:

a. spatially related data.

b. time-series data.

c. financial data.

d. all the above.

Chapter 5

1. Which of the following is not an example of operating expenses?

a. Property taxes

b. Maintenance fees

c. Income taxes

d. All of the above are examples of operating expenses

2. A property has a potential gross rent of $1,500,000; operating expenses of $765,750; a vacancy allowance of $45,000, and other income of $9,000. What is its effective gross income?

a. $1,455,000

b. $1,464,000

c. $698,250

d. None of the above

3. To forecast future benefits from a proposed venture, which of the following should be considered?

a. The property’s immediate past operating history

b. Anticipated changes in the social and political environment

c. The likely change in a property’s market value over the holding period

d. All of the above

4. The amount of revenue a property would generate if fully occupied at market rents, and with no uncollectible rent, is its:

a. effective gross income.

b. potential gross income.

c. net operating income.

d. before-tax cash flow.

5. When searching for properties to use as a sample of comparables, factors which tend to limit the universe include:

a. amenities offered by competing properties.

b. the functional efficiency of other properties.

c. the location of the properties.

d. all the above.

6. Activity at one location generates movement of people and things, the expense of which is called:

a. transfer costs.

b. hard costs.

c. linkages.

d. soft costs.

7. Loss of functional efficiency due to defective or dated design is called:

a. physical deterioration.

b. economic obsolescence.

c. functional obsolescence.

d. functional deterioration.

8. The measure of how well a property is designed to do the job it is intended to perform is called:

a. physical durability.

b. economic efficiency.

c. fabrication quality.

d. functional efficiency.

9. Which one of the following is not considered an operating expense?

a. Property management fees

b. Depreciation

c. Janitorial wages

d. Insurance premiums

10. The revenue a property is expected to generate after adjusting for operating expenses but before providing for debt service or income tax consequences is:

a. net operating income.

b. effective gross income.

c. normalized gross income.

d. before-tax cash flow.

11. A property’s market area is:

a. the geographic area from which tenants will be drawn.

b. a precisely definable area in terms of boundaries.

c. determined by subdivision controls and zoning regulations.

d. the area within which functional obsolescence is operative.

12. A shopping center’s trade area is:

a. the area within which travel time to the center does not exceed approximately fifteen minutes.

b. determined by physical barriers to the flow of customer traffic.

c. the approximate geographical area from within which tenants will be drawn.

d. the geographic area from within which the major portion of patronage is drawn.

Chapter 6

1. A property’s income-generating potential depends on:

a. the interaction of supply and demand in its market area.

b. its desirability relative to competing properties in the market area.

c. both (a) and (b).

d. none of the above are true.

2. The appropriateness of a facility’s design or engineering for its intended use is a measure of its:

a. functional efficiency.

b. functional obsolescence.

c. utility.

d. productivity.

3. The decline in a building’s competitive position due to defective or dated design is called:

a. functional obsolescence.

b. functional disutility.

c. physical obsolescence.

d. physical disutility.

4. A property’s desirability relative to competing properties is influenced by all of the following except:

a. neighborhood economic and social conditions.

b. relative physical durability.

c. relative functional efficiency.

d. the owner’s income tax bracket.

5. All of the following are locational characteristics except:

a. neighborhood influences.

b. functional obsolescence.

c. externalities.

d. subdivision controls.

6. Capitalization rates:

a. are a measure of the relationship between a property’s market value and net operating income.

b. are used primarily as an income forecasting tool.

c. are a measure of the relationship between a property’s market value and gross rental income.

d. none of the above are true.

7. Revenue forecasting is:

a. essentially a marketing forecasting problem.

b. irrelevant to the real estate investment decision.

c. an example of why Geographic Information Systems are no longer useful.

d. too costly to be pursued.

8. Neighborhood influences:

a. are environmental factors that influence site value.

b. affect the degree of functional efficiency.

c. are influenced by the degree of functional obsolescence.

d. are more commonly referred to as restrictive covenants.

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