6.

When considering a real estate investment

Chapter 1 opportunity, which of the following issues need to be
addressed?
1. The most probable price which a property will bring in
a competitive and open market under all conditions a. Estimates of total costs and benefits
requisite to a fair sale is: b. The style of the architecture of the building
c. The timing of disbursements and receipts
a. transaction price. d. (a) and (c) above
b. most probable selling price.
c. market value. 7. Cash flows for real estate investments may come
d. investment value. from:
2. Investment value: a. rental.
b. refinancing.
a. is an objective estimate of a property’s worth as c. tax savings.
an investment. d. all of the above.
b. is the value of the property as an investment,
and therefore is also the most probable selling 8. Rational real estate investment decisions require:
price.
a. a coupling of estimated costs and benefits with a
c. from the present owner’s perspective sets the
forecast of the timing of disbursements and
upper end of the range of possible transaction
receipts.
prices.
b. choosing between uncertain costs and certain
d. is unique to the individual investor and need not
present benefits.
be closely related to market value or most
c. a methodology for ranking attainable
probable selling price.
combinations by their variety.
3. The term market value, as generally employed by d. computer expertise.
appraisers, means:
9. Active investors (as opposed to passive investors):
a. the most probable price a property will bring in a
a. invest primarily in debt instruments.
competitive and open market under all
b. invest primarily in equities.
conditions requisite to a fair sale.
c. are more interested in primary than secondary
b. the most probable price that will result from
markets.
arm’s-length bargaining between an equally
d. make decisions that affect the profitability of the
informed buyer and seller.
property’s operations.
c. the highest price in terms of money that a
property will bring if exposed to the market for a 10. Equity investors:
reasonable length of time.
a. are always active in the sense that they make
d. the price a prudent buyer would pay if fully
decisions which affect the profitability of the
informed of all relevant facts regarding the
property’s operations.
property.
b. are always passive in the sense that they make
4. The relationship between investment value and most no decisions which affect the profitability of the
probable selling price is: property’s operations.
c. always take an ownership interest in debt
a. investment value will always exceed most
instruments.
probable selling price, at least by the amount of
d. may be either active or passive investors.
the transaction costs.
b. most probable selling price will always exceed 11. State-of-the-art real estate investment analysis treats
investment value, at least by the amount of real estate as:
transaction costs.
a. a capital asset desired for the stream of benefits
c. investment value may be greater or less than
it creates.
most probable selling price, and the difference
b. a probabilistic time value of realty problem.
will approximate transaction costs.
c. a case of modern working capital management.
d. investment value need not be closely related to
d. appropriate only for a short range of investment
most probable selling price.
goals.
5. Which of the following is a real estate investment
decision?
a. Purchase of a $50,000 interest in a partnership
which develops office buildings
b. Purchase of a six-flat apartment building
c. A new reservoir built by the U.S. Government
d. All of the above
12. Real estate investors: 18. A rational risk taker:
a. may be active or passive investors, depending a. specifies investment objectives carefully.
upon whether they take an equity or a debt b. makes investment decisions based on "tips".
position. c. eliminates as much risk as possible.
b. always depend upon income tax benefits to d. (a) and(c) above.
make the investment successful.
c. are required to exercise stand-by loan Chapter 4
commitments.
1. Which of the following is descriptive of data gathering
d. either directly or indirectly, purchase rights to a
by communication?
stream of future cash flows.
a. It is more time-consuming than data gathering
13. Real estate is an appropriate investment vehicle:
by observation.
a. for individuals, but not for institutions such as b. It is more objective than data gathering by
pension funds and life insurance companies. observation.
b. for institutions such as pension funds and life c. It is a more versatile means of data gathering.
insurance companies, but not for individuals. d. All of the above.
c. for individuals and institutions, depending upon
2. Market information can help serve which of the
their time horizons and investment goals.
following functions?
d. for investors in debt instruments but not for
investors in equity instruments. a. Assist in developing reasonable cash flow
projections
14. Foreign investors:
b. Aid in purchase, divestiture, and refinancing
a. own more than 20 percent of U.S. real estate, decisions
but their holdings are widely disbursed across c. Facilitate operating decisions
the United States. d. All of the above
b. own a small portion (less than 5 percent) of U.S.
3. The point of maximum net benefit derived from market
real estate.
research:
c. have only recently (within the last decade)
become interested in U.S. real estate. a. is easily calculated by charting costs on the x-
d. are not permitted to own U.S. real estate. axis and benefit on the y -axis.
b. is easily calculated by charting benefits on the x-
15. The investment decision process:
axis and costs on the y-axis.
a. is fundamentally the same for real estate c. is objectively measured.
investment analysis as for other investment d. is not objectively measurable.
areas.
4. Which of the following is a step of the research
b. requires the investor to adjust expected cash
process?
flows for timing differences and risk.
c. recognizes that investment assets are desired a. Define the problem.
only for the benefits of ownership they bestow. b. Design the research strategy.
d. all of the above are true. c. Data interpretation
d. All of the above
16. The probabilistic estimate of the price at which a
property will be sold is its: 5. Which of the following is an example of primary data?
a. investment value. a. Information taken from the Census of Population
b. transaction price. b. Data bought from university research studies
c. most probable selling price. c. Telephone interviews
d. market value. d. None of the above
17. For a particular investment property, investment 6. Operating management uses research data for
value: planning, problem solving and control purposes. Which
one of the following is most likely to be used for control
a. is determined by the selling price agreed upon
purposes?
by the buyer and seller.
b. is the value placed on the property by a qualified a. Data on basic trends in the economic
appraiser. environment
c. is the highest price a prospective buyer is b. Data on standard amenity packages included in
justified in paying for the property. competitive buildings
d. (a) and(c) above. c. Data on typical tenant mix in competitive
commercial rental projects
d. Tracking operating expense ratios for buildings
in one’s portfolio
7. Which of the following aspects of research process is
least affected by the nature of available data? Chapter 5
a. The definition of the research problem 1. Which of the following is not an example of operating
b. The nature of the research design expenses?
c. The design of the data collection program
a. Property taxes
d. Data analysis and interpretation
b. Maintenance fees
8. Longitudinal studies: c. Income taxes
d. All of the above are examples of operating
a. involve one-time sampling from a population of
expenses
research interest.
b. measure changes over time. 2. A property has a potential gross rent of $1,500,000;
c. are the most frequent type of data-collection operating expenses of $765,750; a vacancy allowance of
assignment. $45,000, and other income of $9,000. What is its
d. provide a single snapshot of the variables under effective gross income?
observation.
a. $1,455,000
9. Inferential statistics: b. $1,464,000
c. $698,250
a. involve measuring characteristics that are
d. None of the above
important to a problem and bringing them
together in summary form. 3. To forecast future benefits from a proposed venture,
b. are useful primarily because they permit the which of the following should be considered?
reduction of large masses of data to essentials.
a. The property’s immediate past operating history
c. involve drawing conclusions from evidence
b. Anticipated changes in the social and political
contained in the data.
environment
d. employ quantitative expressions to describe
c. The likely change in a property’s market value
characteristics of a sample of an underlying
over the holding period
population.
d. All of the above
10. The need for real estate market research exists
4. The amount of revenue a property would generate if
because:
fully occupied at market rents, and with no uncollectible
a. real estate markets are relatively efficient. rent, is its:
b. all relevant information are quickly reflected in
a. effective gross income.
market prices.
b. potential gross income.
c. firms view their marginal revenue curves as
c. net operating income.
horizontal.
d. before-tax cash flow.
d. data for rational decision making are often not
readily available. 5. When searching for properties to use as a sample of
comparables, factors which tend to limit the universe
11. Research and data collection for investment decision
include:
making reaches its maximum level of cost effectiveness:
a. amenities offered by competing properties.
a. when the incremental value of data collected
b. the functional efficiency of other properties.
substantially exceeds the cost of collection.
c. the location of the properties.
b. when the incremental value of data collected is
d. all the above.
substantially less than the cost of collection.
c. when the incremental value of data collected 6. Activity at one location generates movement of people
exactly equals the cost of collection. and things, the expense of which is called:
d. when no more data can be collected.
a. transfer costs.
12. Geographic Information Systems are particularly b. hard costs.
well-suited for displaying: c. linkages.
d. soft costs.
a. spatially related data.
b. time-series data. 7. Loss of functional efficiency due to defective or dated
c. financial data. design is called:
d. all the above.
a. physical deterioration.
b. economic obsolescence.
c. functional obsolescence.
d. functional deterioration.
8. The measure of how well a property is designed to do 3. The decline in a building’s competitive position due to
the job it is intended to perform is called: defective or dated design is called:
a. physical durability. a. functional obsolescence.
b. economic efficiency. b. functional disutility.
c. fabrication quality. c. physical obsolescence.
d. functional efficiency. d. physical disutility.
9. Which one of the following is not considered an 4. A property’s desirability relative to competing
operating expense? properties is influenced by all of the following except:
a. Property management fees a. neighborhood economic and social conditions.
b. Depreciation b. relative physical durability.
c. Janitorial wages c. relative functional efficiency.
d. Insurance premiums d. the owner’s income tax bracket.
10. The revenue a property is expected to generate after 5. All of the following are locational characteristics
adjusting for operating expenses but before providing for except:
debt service or income tax consequences is:
a. neighborhood influences.
a. net operating income. b. functional obsolescence.
b. effective gross income. c. externalities.
c. normalized gross income. d. subdivision controls.
d. before-tax cash flow.
6. Capitalization rates:
11. A property’s market area is:
a. are a measure of the relationship between a
a. the geographic area from which tenants will be property’s market value and net operating
drawn. income.
b. a precisely definable area in terms of b. are used primarily as an income forecasting tool.
boundaries. c. are a measure of the relationship between a
c. determined by subdivision controls and zoning property’s market value and gross rental
regulations. income.
d. the area within which functional obsolescence is d. none of the above are true.
operative.
7. Revenue forecasting is:
12. A shopping center’s trade area is:
a. essentially a marketing forecasting problem.
a. the area within which travel time to the center b. irrelevant to the real estate investment decision.
does not exceed approximately fifteen minutes. c. an example of why Geographic Information
b. determined by physical barriers to the flow of Systems are no longer useful.
customer traffic. d. too costly to be pursued.
c. the approximate geographical area from within
8. Neighborhood influences:
which tenants will be drawn.
d. the geographic area from within which the major a. are environmental factors that influence site
portion of patronage is drawn. value.
b. affect the degree of functional efficiency.
Chapter 6 c. are influenced by the degree of functional
obsolescence.
1. A property’s income-generating potential depends on:
d. are more commonly referred to as restrictive
a. the interaction of supply and demand in its covenants.
market area.
b. its desirability relative to competing properties in
the market area.
c. both (a) and (b).
d. none of the above are true.
2. The appropriateness of a facility’s design or
engineering for its intended use is a measure of its:
a. functional efficiency.
b. functional obsolescence.
c. utility.
d. productivity.