Real Estate Market Analysis Exam Preparation
Guide
Course Introduction
Real Estate Market Analysis explores the methods and tools used to evaluate real estate markets at local, regional, and national levels. The course examines factors influencing supply and demand, such as economic trends, demographic shifts, zoning regulations, and property types. Students learn how to collect and interpret data, assess market cycles, identify investment opportunities, and forecast market conditions. Emphasis is placed on comparative market analysis, feasibility studies, and the use of geographic information systems (GIS) and other analytical software. By the end of the course, students gain the skills necessary to make informed decisions regarding real estate investments, development, and valuation.
Recommended Textbook
Real Estate Finance Investments 16th Edition by William B Brueggeman
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23 Chapters
827 Verified Questions
827 Flashcards
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Chapter 1: Real Estate Investment: Basic Legal Concepts
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26 Verified Questions
26 Flashcards
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Sample Questions
Q1) The grantee typically conveys title to the grantor by means of a deed.
A)True
B)False
Answer: False
Q2) A term used to link an individual or entity who owns property to the property itself is:
A)Easement
B)Title
C)Deed
D)Lease
Answer: B
Q3) It is illegal to give a quitclaim deed if the grantor has no claim in the property.
A)True
B)False
Answer: False
Q4) A fee simple estate is a type of freehold estate.
A)True
B)False
Answer: True
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Page 3
Chapter 2: Real Estate Financing: Notes and Mortgages
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45 Verified Questions
45 Flashcards
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Sample Questions
Q1) A second mortgage is a junior lien mortgage that is sometimes used to bridge the gap between the price of a property and the sum of the first mortgage and down payment.
A)True
B)False
Answer: True
Q2) What term BEST describes the borrower who is personally liable for a debt obligation related to the purchase of a home?
A)Mortgagor
B)Grantor
C)Mortgagee
D)Grantee
Answer: A
Q3) A mortgage is the same thing as a note.
A)True
B)False
Answer: False
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Chapter 3: Mortgage Loan Foundations: The Time Value of Money
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30 Verified Questions
30 Flashcards
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Sample Questions
Q1) Your friend has a trust fund that will pay him $100,000 at the end of 10 years.Your friend,however,wants his money today.He promises to sign his trust fund over to you if you give him some money today.You require a 20% interest rate on money you lend to friends.How much would you be willing to lend under these terms?
A)$16,151
B)$50,000
C)$80,000
D)$0-it would be impossible to earn 20% interest on the loan.
Answer: A
Q2) At the end of 8 years,your friend wants to have $50,000 saved for a down payment on a house.He expects to earn 8%-compounded monthly-on his investments over the next 8 years.How much would your friend have to put in his investment account each month to reach his goal?
A)$188
B)$374
C)$392
D)$521
Answer: B
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Chapter 4: Fixed Interest Rate Mortgage Loans
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Sample Questions
Q1) The effective interest rate on a mortgage will always be higher than the stated rate of the loan.
A)True B)False
Q2) Borrowers with fixed rate mortgages generally benefit if actual inflation is higher than expected inflation.
A)True B)False
Q3) Determining a loan balance on a CPM is a simple present value of an annuity problem.
A)True
B)False
Q4) Inflation makes very little difference to lenders of and investors needing money. A)True B)False
Q5) Prepayment penalties increase the lender's mortgage yield and discount points decrease it.
A)True B)False
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Chapter 5: Adjustable and Floating Rate Mortgage Loans
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Sample Questions
Q1) A borrower with an interest-only loan may end up owing more at the end of the loan than the original loan amount.
A)True
B)False
Q2) A major benefit of a PLAM is the mortgage payment increases closely follows borrower salary increases.
A)True
B)False
Q3) ARMs eliminate all the lender's interest rate risk.
A)True
B)False
Q4) The expected cost of borrowing depends on which of the following provisions?
A)The frequency of payment adjustments
B)The inclusions of caps and floors on the interest rate,payment or loan balances
C)The spread over the index chosen for a given ARM
D)All of the above
Q5) The default risk of a FRM is higher than the default risk of an ARM.
A)True
B)False
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Chapter 6: Mortgages: Additional Concepts, analysis, and Applications
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35 Flashcards
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Sample Questions
Q1) When purchasing a $210,000 house,a borrower is comparing two loan alternatives.The first loan is a 90% loan at 10.5% for 25 years.The second loan is an 85% loan for 9.75% over 15 years.Both have monthly payments and the property is expected to be held over the life of the loan.What is the incremental cost of borrowing the extra money?
A)20.25%
B)16.17%
C)11.36%
D)12.42%
Q2) A loan was made 10 years ago for $140,000 at 10.5% for a 30 year term.Rates are currently 9.25%.What is the market value of the loan?
A)$128,271
B)$147,600
C)$139,828
D)$151,395
Q3) The primary benefit of choosing biweekly mortgage payments versus monthly payments is the savings from lowering the average amount paid each month.
A)True
B)False
Page 8
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Chapter 7: Single-Family Housing: Pricing, investment, and Tax Considerations
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36 Verified Questions
36 Flashcards
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Sample Questions
Q1) When a homeowner improves some aspect of his property far in excess of comparable properties in the neighborhood,he is said to have:
A)Under-improved the property
B)Over-improved the property
C)Reached the point of increasing returns
D)Exceeded the breakeven point
Q2) Estimating the land value for an improved property cannot be accomplished using the sales comparison method of valuation.
A)True
B)False
Q3) A property is purchased for $200,000 with an 80 percent LTV.After five years,the owner's equity is $80,000.What would be the approximate annual expected appreciation rate on home equity (annual EAHE)?
A)13.9%
B)14.9%
C)20.0%
D)80.0%
E)100%
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Chapter 8: Underwriting and Financing Residential Properties
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38 Verified Questions
38 Flashcards
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Sample Questions
Q1) The APR for an adjustable rate mortgage loan is an accurate measure of the actual cost of funds to the borrower.
A)True
B)False
Q2) An escrow account:
A)Ensures that a default insurance policy does not lapse if a borrower is in danger of default
B)Ensures that sufficient funds are collected to make annual hazard insurance and property tax payments
C)Is a non-interest-bearing account into which a borrower prepays certain fees and taxes
D)All of the above
Q3) Determining the APR for federal truth-in-lending purposes is more complicated for an adjustable rate mortgage loan than it is for a fixed rate mortgage loan.
A)True
B)False
Q4) Proration involves a professional who rates the quality of the property.
A)True
B)False
10
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Chapter
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41 Verified Questions
41 Flashcards
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Sample Questions
Q1) For which of the following reasons would a business prefer to own space rather than lease it?
A)The business demands specialized or unique facilities
B)Owning allows the business to develop skills in operating,maintaining,and repairing real estate and the associated facilities
C)Owning reduces operating flexibility
D)The capital commitments with owning are lower than the capital commitments associated with leasing
Q2) Income after deducting loss of rents due to vacancy and nonpayment of rents,as well as any concessions,is referred to as:
A)Potential gross income
B)Effective gross income
C)Net operating income
D)Before-tax cash flow
Q3) Free rent is a concession that a building owner may offer.
A)True
B)False
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Page 11
Chapter 10: Valuation of Income Properties: Appraisal and the Market for Capital
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47 Flashcards
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Sample Questions
Q1) Which of the following choices represents the main categories of depreciation?
A)Physical,external,functional
B)Physical,economic,locational
C)External,structural,financial
D)Economic,physical,external
Q2) Consider a building with a very long economic life.Assume at the end of year 6,NOI will be $80,000 and is expected to grow at a rate of 2 percent per year.Your company's required rate of return is 12 percent.As part of your analysis,you must calculate the reversion value (REV)at the end of year 5,which would be:
A)$571,429
B)$666,667
C)$800,000
D)$4,000,000
Q3) Which of the following steps normally would be used in the cost approach to value?
A)Estimate net operating income of the property
B)Multiply accrued depreciation by the assessed cost
C)Add actual construction costs to the land value
D)Subtract accrued depreciation from the replacement cost
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Chapter 11: Investment Analysis and Taxation of Income Properties
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40 Verified Questions
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Sample Questions
Q1) A property that produces a first year NOI of $80,000 is purchased for $750,000.The NOI is expected to increase by 15% in the sixth year when some of the leases turnover.The resale price in year 10 is expected to be $830,000.What is the net present value of the property based on the 10-year holding period and a discount rate of 9.5%?
A)$87,433
B)$87,221
C)$95,294
D)$116,490
Q2) CPI adjustments shift the risk of unexpected inflation to the lessor.
A)True
B)False
Q3) The debt coverage ratio is used by lenders to indicate the riskiness of a loan.
A)True
B)False
Q4) When calculating IRR,the projected cash flows are discounted such that they will equal the initial investment amount.
A)True
B)False
Page 13
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Chapter 12: Financial Leverage and Financing Alternatives
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37 Flashcards
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Sample Questions
Q1) Which of the following typically would NOT be used as a basis for a participation loan?
A)Increase in value over the holding period
B)NOI in excess of a base amount
C)Cash Flow after regular debt service
D)Potential gross income
Q2) A property is financed with an 85% loan-to-value ratio at 10% interest over 25 years.What would the BTIRR<sub>E</sub> on equity be estimated at,given that the BTIRR<sub>p</sub> is 10.75%?
A)10.1%
B)10.4%
C)15.0%
D)13.2%
Q3) A decrease in financial leverage would be expected to magnify the risk and the potential return of an income-producing property.
A)True
B)False
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Chapter 13: Risk Analysis
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31 Verified Questions
31 Flashcards
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Sample
Questions
Q1) Consider two investments: Investment 1 has a 50% chance of producing a return of zero and a 50% chance of producing a return of 40%
Investment 2 has a 50% chance of producing a return of 10% and a 50% chance of producing a return of 30%
Which of the following statements regarding the investments is TRUE?
A)Investment 1 is riskier than Investment 2
B)Investment 2 is riskier than Investment 1
C)Investment 1 and Investment 2 have the same amount of risk
D)Investment 1 is a better investment because it has the potential to produce the highest returns
Q2) The range of returns (highest to lowest)is the most common risk measure.
A)True
B)False
Q3) Which of the following is NOT a component of lease rollover risk?
A)Commissions paid to a leasing agent to find a new tenant
B)Costs of tenant improvements demanded by new tenants
C)Liquidity risk
D)Reduced revenues from vacancy until a new tenant is found
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Page 15
Chapter 14: Disposition and Renovation of Income Properties
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38 Flashcards
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Sample Questions
Q1) The marginal rate of return for a property is:
A)The APR on an incremental amount of borrowing
B)The expected holding period return earned when the investor purchases the property
C)The return earned on subprime property relative to prime property
D)The return gained by holding the property for one additional year
Q2) If an investor is deciding whether to sell a property,his equity buildup in the existing property should be considered as an opportunity cost.
A)True
B)False
Q3) Given the same expectations for future rents and expenses,a new buyer may earn a different after-tax return than the current owner of the same property.
A)True
B)False
Q4) Disposition when dealing with real estate means which of the following?
A)The way a property fits in with its surroundings
B)Refinancing the property
C)Improving property value
D)Sale of the property
16
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Chapter 15: Financing Corporate Real Estate
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Sample Questions
Q1) Because real estate is shown on the corporation's books at its historical cost less book depreciation,the value of corporate real estate is often considered "hidden" from shareholders.
A)True
B)False
Q2) Which of the following conditions will NOT cause a lease to be categorized as a capital lease?
A)It extends for at least 90 percent of the asset's life
B)It transfers ownership to the lessee at the end of the lease term
C)It seems likely that ownership will be transferred to the lessee at the end of the lease term because of a "bargain purchase" option
D)The present value of the contractual lease payments equals or exceeds 90 percent of the fair market value of the asset at the time the lease is signed
Q3) Non-recourse debt,such as a mortgage on a specific property,typically has a lower rate than the unsecured debt of companies with high credit ratings.
A)True
B)False
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Chapter 16: Financing Project Development
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Sample Questions
Q1) Permanent loans generally provide the money to pay off the construction loan in segments,as the work progresses.
A)True
B)False
Q2) Developers usually hold back about ________ percent of each progress payment.
A)1
B)10
C)25
D)75
Q3) Mini-perm loans usually refer to financing:
A)At local coffers
B)For the lease-up period
C)For construction and all subsequent periods
D)For construction,lease-up,and one or two subsequent years
Q4) Permanent financing commitments usually allow the lender to approve major leases.
A)True
B)False
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Page 18
Chapter 17: Financing Land Development Projects
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Sample Questions
Q1) Which of the following does NOT contribute to the complication of estimating the amount of interest carry?
A)The loan is taken down in draws and interest is calculated only as funds are drawn down
B)Revenue from each type of site varies
C)The rate of repayment of a loan depends on when the parcels are actually sold
D)Development loan interest rates are usually fixed while market rates fluctuate
Q2) Lenders typically insist on a loan repayment rate that is equal to the rate for which parcels are expected to sell.
A)True
B)False
Q3) It is proper to include an estimate for developer profit as a cost of development when projecting net cash flows and evaluating whether a required rate of return will be met.
A)True
B)False
Q4) It is illegal for the lender to hold back funds from the developer.
A)True
B)False
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Chapter 18: Structuring Real Estate Investments:
Organizational Forms and Joint
Ventures
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Sample Questions
Q1) Tom invested $20,000 in a limited partnership.His share of liabilities from mortgage debt was initially $45,000.The property suffered a loss in income during the first year,of which Tom's share was $5,000.However,in years two through four income allocated from the account equaled a total of $9,000 ($3,000 per year).The allocated reduction in debt at the end of year 4 from amortization of the loan is equal to $1,100.What is Tom's basis in the partnership interest at the end of year 4?
A)$67,900
B) $9,900
C)$77,900
D)$70,100
Q2) A syndicate that raises capital before identifying any or all of the properties it will eventually own is known as a(n):
A)Safe harbor
B)Accredited investor
C)Caveat
D)Blind pool
Q3) Tax losses cannot be allocated to partners in a syndication.
A)True
B)False
Page 20
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Chapter 19: The Secondary Mortgage Market: Pass-Through Securities
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Sample Questions
Q1) The practice that is implemented with MBBs to compensate for the likelihood that some borrowers will default or make delayed payments on mortgage loans that make up the pool is:
A)Default compensation
B)Tardy payment compensation
C)Prompt payment actions
D)Overcollateralization
Q2) The investment rating for mortgage-backed bonds depends on each of the following EXCEPT:
A)Appraised value and DCR
B)Interest rates in mortgage pool
C)Extent of over collateralization
D)Initial price paid for the security
Q3) When evaluating an investment in a mortgage pass-through security,which of the following is NOT one of the characteristics of the underlying mortgage pool that should be considered?
A)The amount of overcollateralization of the mortgage pool
B)The geographic distribution of the mortgages
C)The amount of seasoned mortgages included in the pool
D)All of the above should be considered.
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Chapter 20: The Secondary Mortgage Market: Cmos and
Derivative Securities
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Sample Questions
Q1) The credit rating of an MPTB depends largely on the:
A)Amount of overcollateralization
B)Degree to which government-related securities constitute the excess collateral
C)Riskiness of the mortgage in the underlying pools
D)All of the above
Q2) In comparison to other mortgage-backed securities,the unique characteristic of CMOs is that:
A)CMO issuers do not retain ownership of the underlying mortgage pool
B)CMOs are issued in multiple security classes
C)The CMO mortgage pool is not overcollateralized
D)CMOs are a pay-through in which all amortization and prepayments flow through to investors
Q3) Convexity is a gauge for which of the following?
A)Profitability
B)Return
C)Sensitivity
D)Duration
Q4) Investors retain prepayment risk on MBBs,but issuers incur this risk with MPTBs.
A)True
B)False
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Chapter 21: Real Estate Investment Trusts Reits
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Sample Questions
Q1) The funds from operations (FFO)for a REIT is roughly equal to:
A)NOI less interest deductions
B)Earnings before tax plus noncash expenses
C)NOI plus interest deductions
D)Earnings per share plus capital gains
Q2) The difference between EPS (earnings per share)and FFO (funds from operations)is the interest deduction.
A)True
B)False
Q3) An arrangement in which a REIT collects a stream of rents from a building owner,then makes a lower,and sometimes fixed,payment to the landowner:
A)Fixed investment
B)REIT spreading
C)Spread investing
D)Renewal option
Q4) Real estate assets,cash,and government securities must represent at least 75% of REIT assets.
A)True
B)False
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Chapter 22: Real Estate Investment Performance and Portfolio Considerations
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Sample Questions
Q1) Why does including REITs in a portfolio containing S&P 500 securities produce diversification benefits?
A)Real estate investment returns are highly correlated with returns for stocks
B)Real estate investment returns are not highly correlated with returns for stocks
C)Real estate investment returns are not subject to federal income taxes
D)Real estate investment returns do not change much from year to year
Q2) The optimal combination of securities that provides the greatest amount of return for each level of risk is known as:
A)The expected frontier
B)The economic frontier
C)The efficient frontier
D)None of the above
Q3) If two securities have the same positive mean returns and they are perfectly,negatively correlated,an investor in such securities will earn a positive return with zero risk.
A)True
B)False
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Page 24
Chapter 23: Real Estate Investment Funds: Structure,
performance, benchmarking, and Attribution Analysis
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Sample Questions
Q1) When comparing investment returns at the fund level against those at the property level,the difference between them is referred to as ________.
A)fund drag
B)performance lag
C)leverage drag
D)administrative drag
Q2) Investors may use attribution analysis to examine why the performance of an actively managed real estate investment fund has exceeded its benchmark return.
A)True
B)False
Q3) Investors may be concerned if a fund manager deviates from the stated investment strategy by purchasing properties that do not fall within the parameters of the stated objectives of the firm.This practice is referred to as:
A)Overage
B)Plan deviation
C)Style drift
D)Eccentricity
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Page 25