Real Estate Development
Final Test Solutions
Course Introduction
Real Estate Development examines the principles, processes, and financial mechanisms involved in transforming ideas and land into viable property assets. The course covers the entire development cycle, including site acquisition, market analysis, project design, securing entitlements, obtaining project financing, construction management, marketing, leasing, and property disposition. Students explore the roles of various stakeholders such as developers, investors, public agencies, and community members. Emphasis is also placed on sustainability, urban planning, risk management, and legal considerations within real estate projects, preparing students for careers in development, investment, and related fields.
Recommended Textbook
Real Estate Finance Theory and Practice 6th Edition by Terrence M. Clauretie
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22 Chapters
473 Verified Questions
473 Flashcards
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Chapter 1: Finance and Real Estate
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Sample Questions
Q1) Money markets:
A) deal strictly in cash or checks
B) deal in short-term (matures in one year or less)securities
C) deal in short-term (matures in eighteen months or less)securities
D) help corporations finance their assets with long-term bonds
Answer: B
Q2) Capital markets:
A) deal in long-term securities
B) deal in short-term Treasury bills and long-term Treasury bonds to finance their deficits
C) rarely are involved in real estate transactions
D) consider mortgages only for short-term,interim financing
Answer: A
Q3) The following are insured by the FDIC:
A) commercial banks
B) savings and loan associations
C) insurance companies
D) credit unions
E) a and b
Answer: E
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Chapter 2: Money Credit and the Determination of Interest
Rates
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20 Verified Questions
20 Flashcards
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Sample Questions
Q1) The following security is generally considered to have no default risk:
A) EBM corporation
B) Orange County,California
C) U.S. Treasury securities
D) State of New York general revenue bonds
Answer: C
Q2) Liquidity,income,and price-anticipation effects:
A) are related to the money supply increase
B) are related to the interest rate increase
C) are related to the bond market increases
D) operate autonomously in the market and are not related to each other
Answer: A
Q3) The line of causation: of money> inflation> interest rate mechanism is:
A) money,economy,inflation,inflationary expectation,credit markets,interest rates
B) interest rate,credit markets,inflationary expectations,inflation,economy,money
C) inflationary expectations,inflation,economy,interest rate
D) credit market,inflationary expectations,interest rate
Answer: A
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Chapter 3: Finance Theory and Real Estate
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24 Flashcards
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Sample Questions
Q1) Agency costs include:
A) agent costs,bonding costs,and monitoring costs
B) monitoring costs,bonding costs,and structuring costs
C) bonding costs,structuring costs,and agent costs
D) monitoring costs,agent costs,and structuring costs
Answer: B
Q2) Cash flows associated with servicing rights:
A) have little risk since the servicing fees are related to all payments
B) are not affected by market rates
C) have value and can be sold
D) are composed of the fees less the discount rate
Answer: C
Q3) Weak-form market efficiency exists:
A) when the price of the asset reflects past price behavior and public information
B) when the current price reflects all information including inside information
C) when the price of the asset completely reflects its historical price behavior
D) when the price of an asset is completely speculative (no information available)
Answer: C
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5
Chapter 4: The Early History of Residential Finance and
Creation of the Fixed Rate Mortgage
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31 Verified Questions
31 Flashcards
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Sample Questions
Q1) While reviewing the documents on your new mortgage you discover that the APR is greater than the contract interest rate even though you paid no discount points.How can this happen?
A) the lender made a mistake,the rates should be equal
B) the market rate increased just before the loan was signed and the lender adjusted for that
C) you paid financing fees other than discount points
D) the contract rate does not account for monthly compounding E) the lender made a mistake,the contract rate is always greater than the APR
Q2) The Truth-in-Lending law:
A) requires the lender disclose the APR on a mortgage loan
B) requires the lender disclose the total finance charges on a mortgage loan
C) provides for penalties for failure to accurately disclose the APR
D) all of the above
Q3) Your monthly payment on a $125,000 fixed-rate mortgage at 8% for 30 years is:
A) $917.21
B) $925.28
C) $4611.04
D) $1,000
E) cannot be determined
Page 6
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Chapter 5: Modern Residential Finance
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4 Verified Questions
4 Flashcards
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Sample Questions
Q1) Assumable loans and carry backs:
A) have totally replaced FHA and VA financing
B) are examples of what is termed creative financing
C) are short-term loans with balloon payments
D) are two forms of FHA financing
Q2) Negative amortization refers to the fact that:
A) the balance of a loan grows larger rather than smaller
B) the amount of interest on a loan becomes larger rather than smaller
C) the reduction in the value of a property falls below the loan amount
D) none of the above
Q3) A maturity mismatch occurs when:
A) over one half of all mortgage debt is held by depository institutions
B) mortgage loan interest rates are high
C) a financial institution has originated more conventional loans than government insured loans
D) there is a large difference in the maturity of a financial institutions assets and liabilities
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Chapter 6: Alternative Mortgage Instruments
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Sample Questions
Q1) An ARM with 2/6 interest rate caps and a 2.50 margin has a contract rate of 5% for the first year.At the end of year one index value is 4.00%.The contract rate for year two is:
A) 4%
B) 6%
C) 6.50%
D) 7%
E) cannot be determined
Q2) Suppose you have a 30-year ARM with a balance at the EOY2 of $139,632 and a monthly payment for year 3 of $1239.88.If the margin is 2.50,what is the value of the index to produce this payment?
A) 10.00%
B) 7.50%
C) 12.50%
D) 7.64%
E) cannot be determined
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Chapter 7: Financing and Property Values
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3 Verified Questions
3 Flashcards
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Sample Questions
Q1) The term "cash equivalent" value refers to:
A) the value of a residential property while it is listed
B) the amount of discount points charged by a lender
C) the value of a property if sold for all cash
D) the cash equivalency of the mortgage on a property
Q2) The term "carryback financing" refers to:
A) a motivated seller who takes back a note at a low rate in order to sell the property
B) a situation where the lender takes the property back after a default on the loan
C) an assumable loan in which a lender waives the discount points in order to complete the loan transaction
D) an assumable FHA loan
Q3) Mortgage Revenue Bonds,a class of bonds called municipals,are issued by state and local governments and:
A) allow the government to purchase property for government use
B) provide an interest rate at a higher rate than corporate bonds
C) provide interest that is free of federal taxation
D) provide interest that is free from capital gains taxation
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9
Chapter 8: Federal Housing Policies: Part 1
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19 Verified Questions
19 Flashcards
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Sample Questions
Q1) The rate charged on a Home Equity Loan is almost always:
A) tied to the APR of the mortgage on the property being used as collateral
B) the same as that of other loans based on collateral other than a residence
C) tied in to some money market index,such as short term Treasury yields D) based on the amount of equity the borrower has accrued
Q2) Mortgage insurance is designed to:
A) provide for continued payment of the loan installments to the lender in case the borrower becomes temporarily unable to do so
B) protect the borrower in case the lender or seller has provided inaccurate or fraudulent claims that contributed to the borrower's agreement to purchase the property
C) protect the lender from the dual events that the borrower defaults and the value of the residence is less than the loan balance at the time of default
D) protect the lender if,for any reason,the borrower defaults
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Chapter 9: Federal Housing Policies: Part 2
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12 Verified Questions
12 Flashcards
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Sample Questions
Q1) One method of defining or identifying discriminating lending behavior is that discrimination is said to exist if a lender fails to adhere to a set of guidelines governing the do's and don'ts of a lending procedure.This is known as the:
A) effects method
B) intent method
C) practices method
D) screening method
Q2) The term "redlining" refers to a practice of:
A) lenders setting higher income standards for minority group members.In other Words,setting a "red line" of income level which a minority must meet B) automatically denying loans to minority group members
C) drawing a red line around an area on a map defining which areas are predominantly minority occupied
D) drawing a red line around an area on a map defining neighborhoods within which a lender would not make mortgage loans
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Chapter 10: The Secondary Mortgage Market
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40 Flashcards
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Sample Questions
Q1) With the secondary mortgage market,the number of assets and liabilities are:
A) limited
B) unlimited
C) transferred
D) not related
Q2) 10-35.The agriculturally related system that merged into 37 farm credit banks was:
A) Federal Land Banks and Federal Intermediate Credit Banks
B) Federal Land Banks and Banks for Cooperatives
C) Federal Intermediate Credit Banks and Banks for Cooperatives
D) none of the above
Q3) 10-32.A secondary mortgage market transaction that occurs when a lender sells mortgages to an agency which,in turn issues an NMS back to the lender is called:
A) a swap
B) a repurchase agreement
C) mark-to-market
D) none of the above
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Chapter 11: Valuation of Mortgage Securities
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25 Flashcards
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Sample Questions
Q1) A graph of the PSA model for the prepayment rate on a pool of mortgages will produce a spike in the _________ year of cash flows:
A) second
B) third
C) fourth d fifth
E sixth
Q2) 11-24.Payments of principal from a pool of mortgages in excess of scheduled amortization is referred to as:
A) prepayment
B) yield-to-maturity payments
C) valuation
D) negative duration
Q3) 11-13.The duration of passthroughs can be measured by:
A) calculating the amount of future cash flows
B) calculating the timing of future cash flows
C) both a and b
D) they are impossible to calculate because of uncertain prepayments
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Chapter 12: Controlling Default Risk Through Borrower
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Sample Questions
Q1) 12-14.Borrower qualifications are mostly the concern of the:
A) lender
B) mortgage insurer
C) borrower
D) both a and b
Q2) 12-32.Any failure on the part of the borrower to meet the terms of a promissory note is defined as a:
A) deficiency
B) default
C) deferment
D) deformation
Q3) 12-24.The following influence a homeowner with negative equity to prefer to make the monthly payments:
A) fear of bad credit rating
B) sense of personal value
C) sense of obligation
D) all of the above
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Chapter 13: Loan Origination, Processing, and Closing
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43 Flashcards
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Sample Questions
Q1) Flood insurance is required for properties located in:
A) zone A
B) zone B
C) zone C
D) zone D
Q2) 13-25.A review appraiser considers several important elements of the appraisal including:
A) the physical characteristics of the subject property
B) the neighborhood of the property
C) present and alternative land uses
D) all of the above
E) none of the above
Q3) 13-21.The following is required in conjunction with a property appraisal for FHA/VA financing:
A) a loan application
B) a deed
C) a master certificate of reasonable value
D) mortgage banker
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Chapter
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7 Flashcards
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Sample Questions
Q1) An equitable right of redemption:
A) is allowed after foreclosure
B) allows a delinquent mortgagor to prevent foreclosure by paying delinquent interest and other costs
C) is the same as a statutory right of redemption
D) none of the above
Q2) A deficiency judgment is:
A) a judgment that allows the mortgagor to redeem the property prior to foreclosure
B) a judgment against the borrower for the difference between the amount owed to a lender and the value of the property sold at a foreclosure sale
C) a judgment that allows the mortgage insurer to pursue the lender for losses in a foreclosure
D) none of the above
Q3) Title insurance:
A) insures against losses on a property due to natural disasters
B) insures against losses due government restrictions on the use of the property
C) insures against losses due to changes in interest rates
D) none of the above
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Chapter 15: Value, Leverage, and Capital Structure
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Sample Questions
Q1) The use of debit in income-producing real estate can alter the value of:
A) amount risk of the cash flow to bankers
B) amount of cash flows to equity investors
C) risk of cash flows to equity investors
D) b and c
E) a and b
Q2) Investors purchase multiple properties to:
A) diversify a portfolio
B) maximize investment return
C) minimize risk
D) a and b
E) all of the above
Q3) Financial leverage is:
A) the left side of the balance sheet
B) the use of debt to finance real estate
C) the use of equity to finance real estate
D) a and b
E) b and c
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17
Chapter 16: Federal Taxation and Real Estate Finance
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17 Verified Questions
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Sample Questions
Q1) For a real estate partnership investment the "at-risk" amount is:
A) the investor's cash contribution
B) tax basis of any property contributed
C) non-recourse debt borrowed from the partnership
D) a plus b plus c
E) a plus b
Q2) The Tax Act of 1993 raised the marginal tax rates on ordinary income to:
A) 28%
B) 39.6%
C) 51.8%
D) 42.5%
Q3) Income from a limited partnership is classified as:
A) active
B) passive
C) portfolio
D) deferred
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Chapter 17: Sources of Funds for Commercial Real Estate
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Sample Questions
Q1) Thrifts specialize in:
A) residential loans
B) multi-family properties
C) commercial properties
D) none of the above
Q2) The primary institutional investors in equity real estate are:
A) pension funds
B) federal credit agencies
C) unions
D) none of the above
Q3) Insurance companies invest primarily in:
A) CMOs
B) commercial mortgages
C) residential mortgages
D) none of the above
Q4) The largest supplier of commercial real estate debt is:
A) state and local retirement funds
B) commercial banks
C) thrifts
D) pension funds
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Chapter 18: Acquisition, Development, and Construction Financing
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Sample Questions
Q1) When a construction loan is made and the seller's note has been subordinated:
A) the construction lender will have a junior position in the case of default
B) the seller will have a junior position in the case of default
C) the construction lender will have a senior position in the case of default
D) both b and c
Q2) 18-24.The purpose of an option is:
A) to exercise a lease on the property
B) to be able to purchase the land at a future time
C) to secure land without securing immediate financing
D) both b and c
Q3) 18-23.From the lender's perspective,the major risk involves:
A) delays in construction
B) interest rate changes
C) permanent construction
D) failure of the value of the collateral to increase in proportion to the expenditures
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Chapter 19: Permanent Financing of Commercial Real
Estate Properties
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Sample Questions
Q1) 19-19.Multi-site securitization refers to:
A) one facility is sold to a tenant
B) a pool of facilities net leased to a tenant
C) a pool of facilities net sold to a tenant
D) the facilities sold to an entity within the organization
Q2) An equity participating loan is when:
A) the lender has a claim to a portion of the income if it exceeds a residual amount
B) the lender shares in the income or cash flows from the property
C) a tradeoff between the owner/borrower and the lender occurs
D) all of the above
Q3) Between residential and commercial loans the following is NOT true:
A) long-term commercial loans involve a more intricate underwriting process
B) residential loans have prepayment penalties,commercial loans do not
C) a clause in a residential loan allows the lender to step in and collect lease payments directly from the tenants in the event the borrower defaults on the loan
D) b and c
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Chapter 20: Ownership Structures for Financing and Holding Real Estate
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36 Flashcards
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Sample Questions
Q1) The following is NOT a factor that determines the best form of ownership for real estate:
A) use of debt financing
B) passive loss limitations
C) desire to retain earnings
D) future inflation expectations
Q2) 20-10.The best form of ownership for large-scale real estate investments is:
A) publicly traded partnership
B) REITs
C) C-corporation
D) a and b
Q3) 20-27.A characteristic of the C-corporation ownership of real estate is:
A) double taxation
B) access to large equity markets
C) limited liability
D) all of the above
E) none of the above
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Page 22
Chapter 21: Real Estate in a Portfolio Context
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Sample Questions
Q1) 21-12.The superior returns of real estate outlined by Ibbotson and Siegel was due to:
A) arbitrage pricing model
B) capital asset pricing model
C) restricted portfolio
D) new equilibrium theory
Q2) A statistical measure of risk is termed:
A) correlation coefficient
B) probability
C) variance d none of the above
Q3) 21-17.The New Equilibrium Theory suggests that:
A) all assets in a portfolio have equal returns when diversified
B) the excess returns on real estate are a reward for the unique risk characteristics of real estate
C) the low returns on real estate are due to their inflation hedge characteristics
D) none of the above
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23
Chapter 22: Liability, Agency Problems, Fraud, and Ethics in Real Estate Finance
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Sample Questions
Q1) The fiduciary relationship which results from the manifestation of consent by one person to another such that the other shall act on behalf and subject to his control,and consent by the other so to act,is referred to as:
A) statute of frauds
B) agency
C) lender control
D) parole evidence rule
Q2) The law excludes from the category of an owner or operator "a person,who,without participating in the management of a vessel or facility,holds an indicia of ownership primarily to protect his security interest in the vessel or facility." This is termed:
A) secured-lender exemption
B) strict liability
C) potentially responsible parties
D) joint and several liability
Q3) Making of a promise with no intention of fulfilling it is referred to as:
A) nondisclosure fraud
B) promissory fraud
C) tort
D) fiduciary
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