Real Estate Fundamentals
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Course Introduction
Real Estate Fundamentals introduces the foundational concepts and principles underlying the real estate industry. The course covers key topics such as property ownership, land use controls, real estate law, contracts, agency relationships, financing options, and the valuation of real property. Students will develop an understanding of how the real estate market functions, gain practical knowledge of terminology and processes, and learn about the roles of various professionals in the field. This course serves as a stepping stone for more advanced study and provides a solid base for those interested in pursuing a career in real estate or related industries.
Recommended Textbook
Real Estate Principles A Value Approach 3rd Edition by David Ling
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Chapter 1: The Nature of Real Estate and Real Estate Markets
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Q1) What proportion of U.S.households own their home?
A)One-third
B)One-half
C)Two-thirds
D)Three-fourths
Answer: C
Q2) As of December 2008,the market value of outstanding real estate mortgage debt was:
A)greater than the market value of corporate equities
B)less than the market value of U.S.Treasury securities
C)less than the market value of corporate and foreign bonds
D)greater than the market value of corporate,foreign,and U.S.Treasury debt securities combined
Answer: D
Q3) 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
Answer: A
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Chapter 2: Legal Foundations to Value
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Q1) Bill and Mike go in together to purchase 342 acres of land to use for hunting and family vacations.Ten years later,Bill dies and Bill's wife wants to sell his half of the land.Mike informs her that,unfortunately,she has no claim to the land and that upon Bill's death,his ownership interest transferred to Mike.What type of co-ownership did Bill and Mike have?
A)Tenancy by the entireties
B)Tenancy in common
C)Joint tenancy
D)Condominium
Answer: C
Q2) Jeff owns 150 acres between a highway and a public beach.The state would like to build a road directly from the highway to the beach across Jeff's property.The space for this road would be considered a(n):
A)easement appurtenant.
B)easement in gross.
C)negative easement appurtenant.
D)positive easement appurtenant.
Answer: B
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Chapter 3: Conveying Real Property Interests
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Q1) A contract for sale of real estate usually calls for the seller to provide evidence of title as a requisite to completing the sale.Today,the predominant medium through which a seller meets this requirement is by providing:
A)only a title abstract.
B)only an attorney's opinion of title.
C)only a title insurance commitment.
D)only a Torrens certificate.
Answer: C
Q2) A deed is a special form of written contract used to convey a permanent interest in real property.Unlike most contracts,a deed requires:
A)both parties to be legally competent and of legal majority age.
B)only the grantee to be legally competent and of legal majority age.
C)only the grantor to be legally competent and of legal majority age.
D)both parties to make promises to perform.
Answer: C
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Chapter 4: Government Controls and Real Estate Markets
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Sample Questions
Q1) The right to pay unpaid taxes,plus interest and penalties,before public sale and to reclaim full title of the property is referred to as:
A)inverse condemnation
B)foreclosure
C)equity right of redemption
D)regulatory taking
Q2) After a structure is built,it is impractical for even a building expert to fully assess the quality of the construction and the safety hazards it may harbor.This is an example of which of the following problems that plagues private real estate markets?
A)Externalities
B)Incomplete information
C)Locational monopoly
D)Holdout
Q3) A traditional zoning ordinance includes all of the following EXCEPT:
A)Minimum setback requirements
B)Minimum lot dimensions
C)Provisions for special use districts
D)Performance standards
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Chapter 5: Market Determinants of Value
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Q1) Six suburban office buildings have been constructed along six consecutive blocks in Roseland,New Jersey.This is an example of:
A)central place pattern
B)clustering
C)concentric circle
D)multi-nuclei
Q2) A city's potential for growth or its susceptibility to decline is determined by a set of economic activities that the city provides for the world beyond its boundaries.Economists refer to this set of activities as a city's:
A)linkages
B)economic base
C)local economic activities
D)economies of scale
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Chapter 6: Forecasting Ownership Benefits and Value:
Market Research
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Q1) A tool used by real estate analysts to relate a consumer's activities,interests,opinions,and values to a consumer's demographics is referred to as:
A)geographical information systems (GIS)
B)psychographics
C)survey research
D)census mapping
Q2) 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:
A)the Bureau of Labor Statistics
B)the National Transportation Service
C)the U.S.Bureau of the Census: County Business Patterns
D)the Federal Reserve
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Chapter 7: Valuation Using the Sales Comparison and Cost Approaches
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Q1) While there is no specific number of comparables that is right 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
Q2) 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?
A)It is an estimate of the most probable selling price of a property in a competitive market.
B)It is the value a particular investor places on a property.
C)It is the price we observe when a property is sold.
D)It is the maximum amount that a seller would be willing to accept.
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Chapter 8: Valuation Using the Income Approach
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Q1) Which of these is most likely to be regarded as a capital expenditure rather than an operating expense?
A)Replacement of broken windows.
B)Landscape expense.
C)Pressure washing of walls.
D)Upgrade of insulation.
Q2) Most appraisers adhere to an "above-line" treatment of capital expenditures.This implies which of the following?
A)Capital expenditures are subtracted in the calculation of net operating income.
B)Capital expenditures are subtracted from net operating income to obtain a net cash flow measure.
C)Capital expenditures are added to net operating income.
D)Capital expenditures are excluded from all calculations because they are difficult to estimate.
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Chapter 9: Real Estate Finance: The Laws and Contracts
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Q1) 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.
Q2) The risk of bankruptcy tends to travel with the risk of foreclosure since both can result from financial distress.Known popularly by its section in the Federal Bankruptcy Code,which of the following types of bankruptcy is a court-supervised workout for a troubled business?
A)Chapter 1 bankruptcy
B)Chapter 7 bankruptcy
C)Chapter 11 bankruptcy
D)Chapter 13 bankruptcy
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Chapter 10: Residential Mortgage Types and Borrower
Decisions
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Q1) In contrast to conventional home loans,the interest-only balloon loan requires the borrower to pay off the loan with a "balloon" payment equal to the original balance after:
A)1-5 years
B)5-7 years
C)7-15 years
D)15-30 years
Q2) The Federal Housing Administration (FHA)insures loans made by private lenders that meet FHA's property and credit-risk standards.Which of the following statements concerning FHA insurance is true?
A)The insurance is paid by the lender and protects the lender against loss due to borrower default.
B)The insurance is paid by the borrower and protects the lender against loss due to borrower default.
C)The insurance is paid by the lender and protects the borrower against loss due to lender default.
D)The insurance is paid by the borrower and protects the borrower against loss due to lender default.
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Chapter 11: Sources of Funds for Residential Mortgages
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Q1) In 1989,Congress took major steps to establish depository institution accountability by requiring these institutions to hold more capital as they take on riskier assets.Which of the following Congressional acts imposed these capital standards on depository institutions?
A)Depository Institutions Deregulation and Monetary Control Act
B)Financial Institutions Reform,Recovery,and Enforcement Act
C)Secure and Fair Enforcement for Mortgage Licensing Act
D)Riegle Community Development and Regulatory Improvement Act
Q2) Loan servicing includes a number of responsibilities such as collecting monthly mortgage payments from the borrower,remitting principal and interest payments to investors,ensuring sufficient escrow payments are being made by the borrower,and managing default if it should arise.In exchange for these services,mortgage bankers receive a fee.If the outstanding loan balance is $250,000 and the annual servicing fee is 0.35%,what is the monthly fee for servicing the loan?
A)$7.29
B)$72.92
C)$729.16
D)$7291.67
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Chapter 12: Real Estate Brokerage and Listing Contracts
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Q1) The importance of brokers in the real estate market is often overlooked.In the absence of a real estate broker,one would expect all of the following to be true EXCEPT:
A)Real estate values would be higher.
B)A seller would most likely rely on a "thinner" market (i.e.the seller has access to fewer prospective buyers).
C)It would be more difficult and costly for an individual to buy or sell a property.
D)Buyers would be more inclined to negotiate prices downward by at least the value of a typical commission.
Q2) Modern real estate brokerage normally relies on a multiple listing service (MLS)through which brokers have access to each other's listings.Which of the following types of agency agreements is established with the use of a MLS?
A)Single agency agreement
B)Subagency agreement
C)Dual agency agreement
D)Designated agent agreement
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Chapter 13: Contracts for Sale and Closing
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Q1) Certain closing costs will be prorated to account for the period of time during which the seller occupied the house.If a transaction is scheduled to close on May 17,136 days into a 365-day year,calculate the amount that the buyer will be credited if the particular closing cost in question is estimated to be $1000 for the entire year.
A)$182.19
B)$372.60
C)$624.66
D)$1000
Q2) The Real Estate Settlement Procedures Act (RESPA)is a federal law that requires federally chartered or insured lenders to provide buyers and sellers with information on all settlement costs.According to RESPA,loan closing information must be prepared on a special form know as the:
A)Uniform Settlement Statement or HUD-1 form
B)Good-faith estimate
C)Settlement Costs and You booklet
D)Certificate of occupancy
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Chapter 14: The Effects of Time and Risk on Value
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Q1) Assuming all else the same,the future value of an annuity due will be _____________ that of an ordinary annuity.
A)Greater than B)Equal to C)Less than D)Incomparable to
Q2) The purchase price of a piece of property is $70,000.After analysis of the cash flows,expected sales price,and expected yield,the investor decides the deal has a present value (PV)of $80,000.What is the net present value (NPV),and should the investor take the deal?
A)$10,000;Yes
B)$10,000;No
C)-$10,000;Yes
D)-$10,000;No
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Chapter 15: Mortgage Calculations and Decisions
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Q1) 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:
A)the borrower only
B)the lender only
C)both the borrower and lender
D)neither the borrower nor the lender
Q2) Given the following information,calculate the effective borrowing cost (EBC).Loan amount: $166,950,Term: 30 years,Interest rate: 8 %,Payment: $1,225.00,Discount points: 2,Other Closing Expenses: $3,611.
A)7.7%
B)8.2%
C)8.5%
D)9.1%
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Chapter 16: Commercial Mortgage Types and Decisions
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Q1) There are a number of alternatives when it comes to the capital structure for acquisitions of commercial real estate.Through which of the following lending relationships does the lender have the right to foreclose on the equity of the borrower's company in the case of default?
A)Second mortgage loan
B)Mezzanine loan
C)Mini-perm loan
D)Construction loan
Q2) With respect to bearing the risk of future property price fluctuations,which of the following lending relationships is viewed as the most risky from the borrower's perspective?
A)Straight debt
B)Joint venture
C)Land sale-leaseback
D)Complete sale-leaseback
Q3) 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
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Chapter 17: Sources of Commercial Debt and Equity Capital
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Q1) The pooling of equity capital by investors to purchase real estate in the private market is referred to as syndication.With pooled ownership structures,investors expect to receive all of the following benefits EXCEPT:
A)Diversification.
B)Economies of scale in the acquisition and disposition of properties.
C)The ability to obtain debt financing at the portfolio level.
D)Management control of each of the properties in the syndicate's portfolio.
Q2) Which of the following measures,equal to the estimated total market value of a REITs underlying assets,allows investors to compare the value of a publicly traded security to the value of the properties that it holds in the private market?
A)Net income
B)Net asset value
C)Funds from operations
D)Effective gross income
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Chapter 18: Investment Decisions: Ratios
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Q1) Given the following information,calculate the equity dividend rate for this investment.First-year NOI: $18,750,Before-tax cash flow: $11,440,Acquisition price: $520,000,Equity Investment: 20%.
A)2.2%
Q2) In calculating the net operating income (NOI)of a property,the "above-line" treatment of capital expenditures implies:
A)capital expenditures are excluded from the calculation of NOI.
B)capital expenditures are included in the calculation of NOI.
C)capital expenditures are set equal to NOI.
D)capital expenditures are divided by NOI.
Q3) Given the following information,calculate the net income multiplier for this property.First-year NOI: $18,750,Acquisition price: $150,000,Equity Investment: 20%.
A)0.1
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Chapter 19: Investment Decisions: NPV and IRR
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Q1) Many investors use mortgage debt to help finance capital investment for income-producing real estate.In doing so,the owner will receive income as long as the property produces enough income to cover all operating and capital expenditures,the mortgage payment,and all state and federal income taxes.Therefore,the owner's claim is commonly referred to as a:
A)primary claim
B)joint claim
C)residual claim
D)superior claim
Q2) Which of the following terms refers to the present value of the right to receive a lump sum payment of $1 at the end of a particular year,given a specified discount rate?
A)Net present value
B)Present value factor
C)Future value
D)Net operating income
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Chapter 20: Income Taxation and Value
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Q1) Certain costs associated with a property's upkeep as well as the manner in which it was financed can be depreciated and therefore have a beneficial impact on the tax paid by the investor in a particular year.Which of the following cash outflows is deductible for income tax purposes in the year in which they are made?
A)Operating expenses
B)Capital expenditures
C)Up-front financing costs
D)Repayment of principal
Q2) Distinguishing between the four categories of real estate for federal tax purposes can be misleading at times.Which of the following categories includes properties that are held primarily for capital appreciation?
A)Personal residence
B)Dealer property
C)Trade or business property
D)Investment property
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Chapter 21: Enhancing Value Through Ongoing Management
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Q1) In contrast to maintenance and repair expenditures,which are operating expenses,the improvement decision generally involves a capital expenditure meant to increase the value of the structure.Which of the following classifications of improvements calls for the restoration of a property to satisfactory condition without changing the floor plan,form,or style of the structure?
A)Rehabilitation
B)Remodeling
C)Adaptive reuse
D)Conversion
Q2) For residential properties,the ratio of prospective rent to gross monthly income is a valuable screening tool in judging a potential tenant's ability to fulfill rent obligations.Generally,this ratio should not exceed:
A)10%
B)20%
C)30%
D)40%
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Chapter 22: Leases and Property Types
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Q1) The choice of which method to use in constructing the contracted rental rate can be impacted by the term of the lease.With a shorter lease term,which of the following methods is most likely to be observed?
A)Flat rent
B)Graduated rent
C)Indexed rent
D)Percentage rent
Q2) Given the following information,calculate the load factor for this office property.Total usable area: 20,000 sq ft,Tenant's prorated share of common area: 5,000 sq ft.
A)0.25
B)0.80
C)1.25
D)4.00
Q3) 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
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Chapter 23: Development: The Dynamics of Creating Value
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Q1) 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 structure's foundation?
A)Soils engineer
B)Structural engineer
C)Mechanical engineer
D)Civil engineer
Q2) With a site under control,the developer will begin to evaluate the feasibility of the project.The main tool that a developer will use in determining the financial feasibility of a project is:
A)Net present value (NPV)analysis
B)Cost approach to valuation
C)Repeat-sales approach
D)Direct capitalization
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