Property Management
Study Guide Questions
Course Introduction
Property Management is a comprehensive course that explores the principles, practices, and legal frameworks involved in managing residential, commercial, and industrial real estate properties. Students will learn about tenant relations, lease negotiations, maintenance and repair management, budgeting, financial reporting, and risk management. The course also covers ethical considerations, property marketing strategies, and current trends in technology and sustainability within the property management industry, equipping students with the skills necessary to efficiently oversee and enhance the value of real estate assets.
Recommended Textbook
Real Estate Principles A Value Approach 3rd Edition by David Ling
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Page 2
Chapter 1: The Nature of Real Estate and Real Estate Markets
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Sample Questions
Q1) 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
Answer: B
Q2) The market for buying,selling,and leasing real estate can be characterized by all of the following EXCEPT:
A)localized markets
B)highly segmented markets
C)privately negotiated contracts
D)low transaction costs
Answer: D
Q3) What proportion of U.S.households own their home?
A)One-third
B)One-half
C)Two-thirds
D)Three-fourths
Answer: C
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Chapter 2: Legal Foundations to Value
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Q1) Which of the following types of direct co-ownership combines single person ownership with tenancy in common?
A)Cooperative
B)Tenancy by the entirety
C)Condominium
D)Partnership
Answer: C
Q2) Which of the following is an example of a negative easement appurtenant?
A)A driveway easement across one parcel to another.
B)Rights-of-way for roads.
C)A common drive easement where owners of adjoining lots must permit each other to use a driveway lying on their shaped property line.
D)A scenic easement used to restrict construction on adjacent parcels so as to preserve a valued view.
Answer: D
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Chapter 3: Conveying Real Property Interests
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Sample Questions
Q1) Initially used to survey the Old Northwest Territory (Ohio,Indiana,Illinois,and Michigan)in 1789,which of the following methods of land description relies on townships and section numbers as essential units of identification?
A)metes and bounds
B)subdivision plat lot and block number
C)government rectangular survey
D)tax parcel number
Answer: C
Q2) While the vast majority of conveyances of real property are private grants through a deed,there are multiple ways in which voluntary conveyance can occur without a deed.Which of the following types of easements can occur if a landowner gives an adjacent landowner permission to depend on her land? (E.g.A landowner may give a neighbor permission to rely on sewer access or drainage across his or her land. )
A)Easement by prior use
B)Easement of necessity
C)Easement by estoppel
D)Dedication
Answer: C
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Chapter 4: Government Controls and Real Estate Markets
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Sample Questions
Q1) In the state of Florida,for example,homeowners may qualify for a tax exemption in which up to $50,000 will be deducted from the assessed value of the property before taxes are calculated as long as the property owner occupies a home as the family's principal residence and has claimed residency within the state.This exemption is better known as the:
A)ad valorem exemption
B)affordable housing exemption
C)growth moratorium
D)homestead exemption
Q2) Given the following information,compute the taxable value for the particular piece of property in dollar terms.Market value of property: $500,000,Assessed value of property: 85 % of the market value of the property,Exemptions: $50,000,Taxes paid: $8,250.
A)$75,000
B)$375,000
C)$416,750
D)$425,000
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Chapter 5: Market Determinants of Value
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Sample Questions
Q1) A fishing company was formed in Juneau,Alaska.Over the next decade,a canning plant,a processing plant,and a boat repair facility also opened in Juneau.This is an example of
A)industry economies of scale
B)agglomeration economies
C)location quotient
D)linkages
Q2) Using the following information,determine the location quotient for this industry.Percentage of employment in financial services industry within the local community: 15%,Percentage of employment in financial services industry for the entire U.S.: 4.4%.
A)0.3
B)3.4
C)10.6 D)19.4
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Chapter 6: Forecasting Ownership Benefits and Value:
Market Research
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Q1) 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:
A)Projected occupancy growth
B)Projected rental rate growth
C)Currency occupancy levels
D)Projected sales rates
Q2) Real estate market research is an important process used by analysts to facilitate a better understanding of a property's future profit potential.All of the following statements regarding market research are true EXCEPT:
A)Real estate market research should always be flexible since the research depends directly on the problem at hand.
B)Most data about general real estate is relevant to a given market study.
C)Most important data for a given market study often is not publicly available.
D)Market research should focus specifically on market segments for the property involved,rather than on the aggregate real estate market.
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Chapter 7: Valuation Using the Sales Comparison and Cost Approaches
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Q1) 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)Arm's-length transactions
Q2) 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
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Chapter 8: Valuation Using the Income Approach
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Sample Questions
Q1) Given the following information,calculate the appropriate going-in cap rate using mortgage-equity rate analysis.Mortgage financing = 75%,Typical debt financing cap rate: 10%,Sale price: $1,950,000,Net operating income: $390,000.
A)9.6%
B)10%
C)12.5%
D)13.6%
Q2) Which of the following measures is considered the fundamental determinate of market value for income-producing properties?
A)Net operating income
B)Potential gross income
C)Operating expenses
D)Capital expenditures
Q3) When using discounted cash flow analysis for valuation,an appraiser will prepare a cash flow forecast,often referred to as a:
A)restricted appraisal report
B)net operating income statement
C)direct market extraction
D)pro forma
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Page 10
Chapter 9: Real Estate Finance: The Laws and Contracts
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Sample Questions
Q1) One of the main distinctions between commercial mortgage loans and residential mortgage loans lies in the personal liability of the borrower.With residential loans,the lender can hold the borrower personally liable in the event of a default.Such loans are commonly referred to as:
A)recourse loans
B)nonrecourse loans
C)conforming loans
D)nonconforming loans
Q2) When a buyer acquires a property having an existing mortgage loan,a decision must be made as to whether or not the subsequent owner of the property can preserve the loan.If the buyer does not add his or her signature to the note,the buyer does not take on any personal liability.In this case,the buyer is said to:
A)assume the old loan.
B)purchase the property subject to the existing loan.
C)obtain the property through the use of a contract for deed.
D)foreclose on the property.
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Chapter 10: Residential Mortgage Types and Borrower
Decisions
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Q1) Mortgage originators can either hold loans in their portfolios or sell them to investors.When a mortgage originator decides to sell mortgages to an institution,for example,this transaction occurs in what is commonly referred to as the:
A)primary mortgage market
B)secondary mortgage market
C)over-the-counter market
D)loan origination market
Q2) A common criticism of the annual percentage rate (APR)is that it usually understates the true cost of borrowing.The APR may understate the cost of borrowing because it assumes:
A)interest rates will always rise
B)the loan always goes to maturity
C)the actual life of the loan is shorter than maturity
D)upfront fees should be ignored
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Chapter 11: Sources of Funds for Residential Mortgages
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Q1) Recently,mortgage banking has become the natural method for doing mortgage lending.Within the mortgage lending process,which of the following roles serves as the primary revenue source for mortgage banks?
A)Loan commitment
B)Loan funding
C)Loan servicing
D)Loan sales
Q2) In the late 1960's,Congress created a number of agencies designed to address a struggling secondary market for residential mortgages.Which of the following organizations was developed primarily to guarantee mortgage-backed securities based on pools of FHA,VA and Rural Housing Service loans,rather than issue,buy or sell mortgages?
A)Federal National Mortgage Association (Fannie Mae)
B)Government National Mortgage Association (Ginnie Mae)
C)Federal Home Loan Mortgage Corporation (Freddie Mac)
D)Federal Agricultural Mortgage Corporation (Farmer Mac)
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13
Chapter 12: Real Estate Brokerage and Listing Contracts
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Q1) Blockbusting,which involves persuading an individual to sell her home by telling her that minority groups are moving into the neighborhood,is one form of discrimination in housing that is prohibited by which of the following acts of Congress?
A)Riegle Community Development and Regulatory Improvement Act
B)Secure and Fair Enforcement for Mortgage Licensing Act
C)Fair Housing Act (Title VIII of the Civil Rights Act)
D)Equal Credit Opportunity Act
Q2) There are a number of different types of listing contracts that can be used when marketing a property.Which of the following types of listings requires the broker to be paid a commission if any other broker,or even the owner,sells the property during the contract period?
A)Open listing
B)Multiple listing
C)Exclusive agency listing
D)Exclusive right of sale listing
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Chapter 13: Contracts for Sale and Closing
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Q1) If property owners fail to pay their taxes in a timely fashion,this can create a first lien on the mortgaged property.In order to protect against this,lenders often require that borrowers add what fraction of their estimated tax bill to their required monthly mortgage payments?
A)1/12
B)1/6
C)1/4
D)1/2
Q2) Since the seller often has utilized the property for a portion of the year in which the transaction is being made,certain costs associated with the property will be prorated at the closing.All of the following items are subject to being prorated EXCEPT:
A)Broker commission
B)Prepaid rent
C)Property tax
D)Mortgage interest
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15
Chapter 14: The Effects of Time and Risk on Value
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Sample Questions
Q1) The internal rate of return (IRR)and the net present value (NPV)are tools that are widely used in real estate investment and finance decision making.An investor would most likely pursue an investment if which of the following circumstances was true?
A)The going-in IRR exceeds the investor's required rate of return.
B)The going-in IRR is less than the investor's required rate of return.
C)The NPV is negative.
D)The NPV is equal to zero.
Q2) Since investors prefer to have money now rather than later,money received next week,instead of today,is not worth as much to those receiving it.Therefore an adjustment to the prospective cash flows is required.This process is referred to as:
A)compounding
B)discounting
C)amortizing
D)hedging
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16
Chapter 15: Mortgage Calculations and Decisions
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Q1) When lenders charge discount points (prepaid interest)on a loan,what impact does this have on the loan's yield?
A)The yield on the loan will increase.
B)The yield on the loan will decrease.
C)The yield on the loan will be unaffected.
D)The yield on the loan automatically becomes zero.
Q2) 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%.
A)$169.13
B)$350
C)$519.13
D)$4,200
Q3) While a variety of loan terms are available in a lender's mortgage menu,the most common loan term on a level-payment mortgage is:
A)7 years
B)15 years
C)30 years
D)40 years
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Chapter 16: Commercial Mortgage Types and Decisions
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Q1) Given the following information,calculate the debt coverage ratio of this commercial loan.Estimated net operating income (NOI)in the first year: $150,000,Debt service in the first year: $100,000,Loan amount: $1,000,000,Purchase price: $1,300,000
A)0.15
B)0.67
C)1.30
D)1.50
Q2) An interest-only balloon mortgage loan is commonly referred to as a(n):
A)Mini-perm loan
B)Mezzanine loan
C)Land acquisition loan
D)Bullet loan
Q3) Relative to residential loans,the underwriting process for commercial loans is more complicated.The commercial loan underwriting process focuses first on which of the following?
A)Individual borrower's credit quality
B)Income producing potential of the collateral property
C)Individual borrower's wages
D)Individual borrower's personal assets
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Page 18
Chapter 17: Sources of Commercial Debt and Equity Capital
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Q1) The $6 trillion total market value of commercial real estate can be broken into four quadrants.Which of the following sectors of the commercial real estate market accounts for the largest proportion of market value?
A)Public equity
B)Privately held equity
C)Publicly traded mortgage debt
D)Privately held mortgage debt
Q2) Given the following information,calculate the funds from operation (FFO).Net income: $1,200,000,Gain/losses from infrequent and unusual events: $0,Amortization of tenant improvements: $120,000,Amortization of leasing expenses: $75,000,Depreciation (real property): $2,675,000.
A)$195,000
B)$1,395,000
C)$2,870,000
D)$4,070,000
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19
Chapter 18: Investment Decisions: Ratios
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Q1) Profitability ratios,income multipliers,and financial risk ratios can be used to provide a quick assessment of a property's relative value.Which of the following ratios measures the overall income-producing ability of the property?
A)Capitalization rate
B)Equity dividend rate
C)Debt coverage ratio
D)Operating expense ratio
Q2) Helpful in assessing the risk of lending to investors for particular projects,which of the following calculations measures the income-producing ability of the property to meet operating and financial obligations?
A)Profitability ratios
B)Income multipliers
C)Financial risk ratios
D)Income tax multipliers
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Chapter 19: Investment Decisions: NPV and IRR
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Q1) In discounted cash flow analysis,the industry standard for pro forma cash flow projections of investment properties is typically:
A)3 years
B)5 years
C)10 years
D)15 years
Q2) The internal rate of return (IRR)on a proposed investment is the discount rate that makes the net present value of the investment:
A)greater than zero
B)equal to zero
C)less than zero
D)greater than the opportunity cost of not investing
Q3) In discounted cash flow (DCF)analysis,the sale price of the property must be estimated at the end of the expected holding period.The most common method for determining the terminal value of the property is the:
A)yield capitalization method
B)direct capitalization method
C)repeat-sales approach
D)cost approach
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Chapter 20: Income Taxation and Value
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Q1) In a like-kind exchange,property owners must meet a number of conditions in order to be eligible to take advantage of this tax deferment.One criterion is for the exchange to be between "like-kind" properties.Which of the following exchanges represents an example of an eligible "like-kind" exchange?
A)An apartment property for a mortgage on an apartment property.
B)A retail property in the U.S.for a retail property in China.
C)An office property for shares in an office REIT.
D)A retail property for an office property,both within the U.S.
Q2) Since many commercial properties are held by limited liability corporations or limited partnerships,it is important to understand the tax consequences at the individual investor level.Individuals face different tax rates depending on the level of their taxable income.As of 2009,an individual making between $82,250 and $171,550 would fall into which of the following tax brackets?
A)15%
B)25%
C)28%
D)35%
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Page 22
Chapter 21: Enhancing Value Through Ongoing Management
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Q1) An owner whose property is in a strong market position,where fewer services can be offered to tenants for the same dollar of rental income and where the owner will not lose tenants if the property is undermaintained,is said to participate in a market that has a relatively:
A)elastic demand for space
B)inelastic demand for space
C)competitive demand for space
D)liquid demand for space
Q2) While some property owners choose to perform both the property and asset manager functions themselves,many commercial property owners choose to employ professional property managers instead.The property manager works under a management contract in which the manager is empowered to serve as the owner's fiduciary.This type of relationship is more commonly referred to as a(n):
A)agency relationship
B)open listing relationship
C)joint-venture
D)correspondent relationship
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Chapter 22: Leases and Property Types
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Q1) Retail establishments are found in a variety of forms,the simplest of which is: (Hint: fast-food franchise)
A)Freestanding retail outlet
B)Strip center
C)Power center
D)Regional mall
Q2) The two most important determinants of the classification of an office property are age and obsolescence.Which of the following classes includes office buildings that are older and reasonably maintained,but are below current standards for one or more reasons?
A)Class A office
B)Class B office
C)Class C office
D)Investment grade property
Q3) In contrast to rent for residential units,rent for U.S.commercial properties is typically quoted as:
A)a dollar amount per month
B)a dollar amount per year
C)a monthly cost per square foot
D)an annual cost per square foot
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Chapter 23: Development: The Dynamics of Creating Value
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Q1) 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?
A)Obtaining permits
B)Financing
C)Effective communication between developer,architect,and engineer
D)Selecting the architect
Q2) A developer's 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:
A)1 to 2%
B)3 to 7%
C)7 to 10%
D)greater than 10%
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