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Question
When a buyer signs an offer to purchase a property, the broker receives a monetary amount from the purchaser of 5 or 10 percent of the purchase price. This deposit is commonly referred to as the:A. commission
B. earnest money
C. closing cost
D. title insurance premium
Answer
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Related questions
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Chapter 9 " Real Estate Finance: The Laws and Contracts
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Chapter 4 " Government Controls and Real Estate Markets
Q:
Chapter 13 " Contracts for Sale and Closing
Q:
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
Q:
In considering the main components of a construction budget, which costs would be expected to constitute the largest portion of a development project's expense?
A. Land costs
B. Hard construction costs
C. Soft construction costs
D. Marketing costs
Q:
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
Q:
While the risks of construction lending may be less in a number of respects than those associated with land acquisition, banks still require a premium in their lending rate as compensation for the risks involved. For construction loans, banks typically require a premium above LIBOR that ranges from:
A. 0-50 basis points
B. 50-150 basis points
C. 150-250 basis points
D. 250-350 basis points
Q:
Assume a retail tenant is paying a base rent of $120,000 per year (or $10,000 per month). In addition, the tenant must pay 7 percent of gross store sales in excess of $143,000 per month as percentage rent. If the store produces $170,000 in gross sales in a month, what is the total rent due for the month?A. $10,000B. $10,158C. $11,890D. $21,900
Q:
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
Q:
Lenders may request that property owners of rental properties include a clause in their lease agreement that gives the lender the right to terminate the lease and evict the tenant, even if the tenant has fulfilled all of its responsibilities under the lease, in the case that the owner of the property defaults on her mortgage. This part of the lease agreement is more commonly referred to as a:
A. Subordination clause
B. Non-disturbance agreement
C. Relocation option
D. Expansion option
Q:
The majority of residential units in the U.S. are contained in multifamily structures, or apartment buildings that contain five or more housing units. Which of the following multifamily structures will range in height from four to nine stories and are typically found in both cities and suburbs?
A. High-rise apartment buildings
B. Midrise apartment buildings
C. Garden apartments
D. Condominiums
Q:
While a sublease and an assignment are two distinct choices for a tenant who wishes to transfer his rights during the term of a lease, both agreements:
A. transfer all of a tenant's rights to another party
B. transfer only a subset of rights to another party
C. grant another party the right to cancel the original lease before expiration
D. maintain that the original tenant be held liable for fulfilling the original lease unless otherwise specified
Q:
When the supply of space exceeds the demand, it is common for owners to provide the tenant with a period of free or perhaps reduced rent. This is commonly referred to as a(n):
A. tenant improvement allowance
B. concession
C. sublease
D. expense stop
Q:
A property management contract establishes an agency relationship between the manager and the owner. Considering that the management fee is often calculated as a percentage of gross income, this would seem to create an agency problem in that the agreement does not give managers the incentives to control operating expenses while they attempt to increase rental income. Though seldom the case, basing the property management fee on which of the following measures would, in theory, better align the interests of the owner and manager?A. Effective gross incomeB. Net operating incomeC. Miscellaneous incomeD. Capital expenditures
Q:
Both owners and managers must carefully designate their responsibilities in the management agreement. In a management agreement, all of the following would typically be responsibilities of the property manager EXCEPT:
A. Maintenance of financial accounts for money collected from tenants
B. Liability
C. General property management
D. Reports on property performance
Q:
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
Q:
When leasing nonresidential properties, owners would prefer to rent exclusively to high quality tenants. Such owners will tend to seek out companies whose general debt obligations are rated "investment grade" by one of more of the U.S. rating agencies. These potential tenants are more commonly referred to as:
A. tenant reps
B. credit tenants
C. tenant mix
D. in-house leasing agents
Q:
The benefit of being classified as a capital gain is that the income is subject to a tax rate that maxes out at 15%, which may be well below the tax rates associated with depreciation recapture income and ordinary income for a particular investor. In order to qualify for the lower capital gain tax rate, the property being sold must be held for more than:
A. 1 month
B. 3 months
C. 6 months
D. 12 months
Q:
Suppose a taxpayer owns an apartment complex. Under U.S. tax law, in what category would this property be classified?
A. Personal residence
B. Dealer property
C. Trade or business property
D. Investment property
Q:
Under certain circumstances, investors are permitted to reduce the amount of the taxable income that they report by an amount that is intended to reflect the wear and tear of an asset over time. This is commonly referred to as:
A. appreciation
B. depreciation
C. capital gains
D. capital losses
Q:
U.S. tax law is designed to raise revenues for the operations of the federal government and to promote certain socially desirable real estate-related activities. Tax legislation is combined into a single section of the federal statutory law commonly referred to as:
A. Section 1231
B. Section 1031
C. the Internal Revenue Code
D. Tax Reform Act
Q:
The use of financial leverage in purchasing an income-producing property can affect the amount of cash required at acquisition, the net cash flows from rental operations, the net cash flows from the eventual sale of the property, and the ultimate return on invested equity. Assuming the going-in IRR is greater than the effective borrowing cost, if an investor increases his leverage rate, say from 75% to 80%, we would expect which of the following to occur?
A. Both NPV and going-in IRR increase
B. NPV decreases, while going-in IRR increases
C. NPV increases, while going-in IRR decreases
D. Both NPV and going-in IRR decrease
Q:
Given the following information, calculate the debt coverage ratio for this investment. Potential gross income: $120,000, Vacancy rate: 9%, Net operating income: $57,900, Operating expenses: $51,300, Acquisition Price: $520,000, Debt service: $40,000.A. 0.69B. 1.45C. 2.73D. 8.29
Q:
The loan-to-value ratio measures the percentage of the acquisition price (or current market value) encumbered by debt. To protect their invested capital in the event that property values do fall, commercial mortgage lenders generally require that the senior mortgage not exceed approximately what percentage of the acquisition costs?A. 60%B. 70%C. 80%D. 90%
Q:
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.
Q:
It would be hard to overstate the importance of the Federal Housing Administration (FHA) in the history of housing finance. Which of the following instruments created by the FHA is considered the single most important financial instrument in modern housing finance?
A. Level-payment, fully amortizing loan
B. Adjustable rate mortgage
C. Partially-amortizing balloon loan
D. Subprime mortgage loan
Q:
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.
Q:
Mortgage insurance rates vary with the perceived riskiness of the loan. Which of the following scenarios would result in a higher mortgage insurance premium?
A. Lower loan-to-value ratio
B. Shorter loan term
C. Stronger credit record of the borrower
D. A "cash-out" refinancing loan
Q:
Considered the most common type of home loan, which of the following refers to any standard home loan that is not insured or guaranteed by an agency of the U.S. government?
A. Conventional home loan
B. Federal Housing Administration loan
C. Veterans Affairs loan
D. Section 203 loan
Q:
Foreclosure is considered the ultimate recourse of the lender because it allows the lender to bring about sale of the property to recover the outstanding indebtedness. All of the following statements regarding foreclosure are true EXCEPT:
A. Foreclosure is a costly process for all parties involved.
B. Only those claimants who are properly notified and engaged in the foreclosure suit can lose their claims to the property.
C. When a lender forecloses on a property, it extinguishes all superior liens, bringing about a free and clear sale of the property. .
D. The net recovery by a lender from a foreclosed loan seldom exceeds 80 percent of the outstanding loan balance and commonly is much less than this amount.