Real Estate Principles: A Value Approach 5th Edition Test Bank

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Real Estate Principles: A Value Approach, 5e(Ling)Chapter 1The Nature of Real Estate and Real Estate Markets1) When viewed as a tangible asset, real estate can be defined as the land and its permanentimprovements. Improvementsonthe land includeA) fences.B) walkways.C) sewer systems.D) streets.Answer:ADifficulty: 1 EasyLearning Objective:01-01 Provide three alternative definitions for the term real estate.Accessibility:Keyboard Navigation2) All of the following are examples of an improvementonthe landexceptA) fences.B) building.C) walls.D) streets.Answer:DDifficulty: 2 MediumLearning Objective:01-01 Provide three alternative definitions for the term real estate.Accessibility:Keyboard Navigation3) Real estate is defined as land and its permanent improvements. Which of the following is anexample of an improvementtothe land?A) fenceB) buildingC) sewer systemD) personal propertyAnswer:CDifficulty: 2 MediumLearning Objective:01-01 Provide three alternative definitions for the term real estate.Accessibility:Keyboard Navigation

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4) Real estate consists of the physical structures and infrastructure that accompany the land. All ofthe following are examples of an improvementtothe landexceptA) walkways.B) building.C) sewer system.D) streets.Answer:BDifficulty: 2 MediumLearning Objective:01-01 Provide three alternative definitions for the term real estate.Accessibility:Keyboard Navigation5) Real estate is property, which can be either a tangible or an intangible asset. Which of thefollowing would beconsidered an intangible asset?A) landB) buildingC) mortgageD) fenceAnswer:CDifficulty: 1 EasyLearning Objective:01-01 Provide three alternative definitions for the term real estate.Accessibility:Keyboard Navigation6) Which of the following would be considered a tangible asset?A) landB) lease agreementC) mortgageD) listed REITAnswer:ADifficulty: 1 EasyLearning Objective:01-01 Provide three alternative definitions for the term real estate.Accessibility:Keyboard Navigation7) If we desire to classify land by its use, land that does not include any improvementstothe landwould be categorized asA) "raw" or undeveloped land.B) building site.C) developed land.D) property infrastructure.Answer:ADifficulty: 1 EasyLearning Objective:01-02 Discuss the distribution of U.S. land among the various uses to whichit is put (e.g. developed land, federal land, forest land).Accessibility:Keyboard Navigation8) The size of a single-family residential lot is typically

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A) less than one acre.B) between one and two acres.C) between two and three acres.D) greater than three acres.Answer:ADifficulty: 2 MediumLearning Objective:01-02 Discuss the distribution of U.S. land among the various uses to whichit is put (e.g. developed land, federal land, forest land).Accessibility:Keyboard Navigation9) As of 2015, the single largest asset category in the net worth portfolios of households isA) government and corporate bonds.B) stocks and mutual fund shares.C) consumer durable goods.D) housing.Answer:DDifficulty: 2 MediumLearning Objective:01-04 Describe the role real estate plays in the portfolios of U.S. households.Accessibility:Keyboard Navigation10) Real estate values derive from the interaction of three different sectors in the economy. Whichof the following sectors serves to allocate financial resources among households and firmsrequiring funds?A) user marketB) capital marketC) governmentD) property marketAnswer:BDifficulty: 2 MediumLearning Objective:01-03 Discuss the value and importance of U.S. real estate compared withthe values of other asset classes such as stocks and bonds.Accessibility:Keyboard Navigation

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11) The demand for real estate derives from the need that market participants (e.g., owneroccupants, tenants, renters) have for shelter and convenient access to other locations. Thiscompetition for physical location and space occurs in theA) user market.B) capital market.C) government sector.D) property market.Answer:ADifficulty: 2 MediumLearning Objective:01-03 Discuss the value and importance of U.S. real estate compared withthe values of other asset classes such as stocks and bonds.Accessibility:Keyboard Navigation12) The expected stream ofrental income is capitalized into value by converting expected futurecash flows into present value through a process calledA) amortization.B) discounting.C) compounding.D) accounting.Answer:BDifficulty: 1 EasyLearning Objective:01-03 Discuss the value and importance of U.S. real estate compared withthe values of other asset classes such as stocks and bonds.Accessibility:Keyboard Navigation13) Capital markets can be divided into four main categories: private equity, public equity,privatedebt, and public debt. An example of a real estate asset that trades in the private equity market isA) real property.B) home mortgages.C) equity REITs.D) mortgage backed securities.Answer:ADifficulty: 2 MediumLearning Objective:01-03 Discuss the value and importance of U.S. real estate compared withthe values of other asset classes such as stocks and bonds.Accessibility:Keyboard Navigation

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14) An example of a real estate asset that trades in the public debt market isA)real property.B) real estate operating companies.C) equity REITs.D) commercial mortgage backed securities (CMBS).Answer:DDifficulty: 2 MediumLearning Objective:01-03 Discuss the value and importance of U.S. real estate compared withthe values of other asset classes such as stocks and bonds.Accessibility:Keyboard Navigation15) Primarily through land use controls and property tax policy, which of the following branchesof government has the largest influence on real estate values?A) local governmentB) state governmentC) national governmentD) foreign governmentAnswer:ADifficulty: 2 MediumLearning Objective:01-03 Discuss the value and importance of U.S. real estate compared withthe values of other asset classes such as stocks and bonds.Accessibility:Keyboard Navigation16) Competition for the currently available supply of locations and space, coupled with theexisting supply of leasable space, determines theA) current level of rental rates for each submarket and property.B) riskiness of the expected cash flows of an income-producing property.C) timing of the expected cash flows of an income-producing property.D) cost of financing the purchase of a property.Answer:ADifficulty: 2 MediumLearning Objective:01-03 Discuss thevalue and importance of U.S. real estate compared withthe values of other asset classes such as stocks and bonds.Accessibility:Keyboard Navigation

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17) Each property has unique features, whether it is its age, the building design of its structures, orits location. As such, real estate markets consist of assets that are consideredA) homogeneous.B) heterogeneous.C) substitutes.D) complements.Answer:BDifficulty: 1 EasyLearning Objective:01-05 Discuss the primary ways that real estate markets are different fromthe markets for assets that trade in well-developed public markets.Accessibility:Keyboard Navigation18) Consistently the investment target of pension funds, publicly traded real estate companies, andreal estate funds, large commercial properties valued well over $10 million are often referred to asA) segmented property.B) investment-grade property.C) speculative-grade property.D) immobile property.Answer:BDifficulty: 1 EasyLearning Objective:01-05 Discuss theprimary ways that real estate markets are different fromthe markets for assets that trade in well-developed public markets.Accessibility:Keyboard Navigation19) The investment-grade property market is typically targeted by all of the following groups ofinvestorsexceptA) pension funds.B) individual investors.C) listed equity REITs.D) real estate private equity funds.Answer:BDifficulty: 1 EasyLearning Objective:01-05 Discuss the primary ways that real estate markets are different fromthe markets for assets that trade in well-developed public markets.Accessibility:Keyboard Navigation

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20) The national government can have a significant impact on the value of real estate throughA) property tax policy.B) income tax policy.C)building codes.D) real estate licensing requirements.Answer:BDifficulty: 2 MediumLearning Objective:01-03 Discuss the value and importance of U.S. real estate compared withthe values of other asset classes such as stocks and bonds.Accessibility:Keyboard Navigation21) By the fourth quarter of 2015, U.S. households had accumulated $12.5 trillion in housingequity, which represents about 14 percent of their net worth. What proportion of U.S. householdsown their home?A) one-thirdB) one-halfC) two-thirdsD) three-fourthsAnswer:CDifficulty: 2 MediumLearning Objective:01-04 Describe the role real estate plays in the portfolios of U.S. households.Accessibility:Keyboard Navigation22) The required rate of return that an individual demands on a real estate investment is determinedin theA) user market.B) capital market.C) government.D) local market.Answer:BDifficulty: 2 MediumLearning Objective:01-03 Discuss the value and importance of U.S. real estate compared withthe values of other asset classes such as stocks and bonds.Accessibility:Keyboard Navigation

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23) Investors in real estate can choose to hold properties directly in the private market or indirectlythrough publicly traded real estate securities. The market for buying, selling, and leasing real estatecan be characterized by all of the followingexceptA) localized markets.B) highly segmented markets.C) privately negotiated contracts.D) low transaction costs.Answer:DDifficulty: 2 MediumLearning Objective:01-05 Discuss the primary ways that real estate markets are different fromthe markets for assets that trade in well-developed public markets.Accessibility:Keyboard Navigation24) Especially in terms of retail properties, which of the following attributes is considered the mostlikely to result in drastic value differences between otherwise similar properties?A) structural attributesB) financing attributesC) location attributesD) land attributesAnswer:CDifficulty: 2 MediumLearning Objective:01-05 Discuss the primary ways that real estate markets are different fromthe markets for assets that trade in well-developed public markets.Accessibility:Keyboard Navigation25) Capital markets can be divided into two broad categories: equity interests and debt interests.Equity investors in real estate expect to earn a return on their investment through theA) collection of rent and price appreciation.B) collection of interest on the borrowed funds used to purchase the property.C) receipt of property taxes.D) case of a borrower default on required mortgage payments.Answer:ADifficulty: 2 MediumLearning Objective:01-03 Discuss the value and importance of U.S. real estate compared withthe values of other asset classes such as stocks and bonds.Accessibility:Keyboard Navigation

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26) Considered a fundamental pricing metric in commercial real estate markets, the ratio of aproperty's annual net income to its market value is more commonlyreferred to as a(n)A) appreciation rate.B) capitalization rate.C) discount rate.D) internal rate of return.Answer:BDifficulty: 1 EasyLearning Objective:01-03 Discuss the value and importance of U.S. real estate compared withthe values of other asset classes such as stocks and bonds.Accessibility:Keyboard Navigation27) Helping to constrain entry into real estate–related occupations, which of the followingbranches of government is directly involved in establishing rules and regulations for the licensingof professionals in the field of real estate?A) local governmentB) state governmentC) national governmentD) foreign governmentAnswer:BDifficulty: 1 EasyLearning Objective:01-03 Discuss the value and importance of U.S. real estate compared withthe values of other asset classes such as stocks and bonds.Accessibility:Keyboard Navigation28) A primary determinant of the feasibility of new construction is the relationship between thecurrent level of property prices and the cost of new construction. We would expect the supply ofproperties toA) increase if current property values are greater than the cost of construction.B) decrease if current property values are greater than the cost of construction.C) increase if current property values equal the cost of construction.D) decrease if current property values equal the cost of construction.Answer:ADifficulty: 2 MediumLearning Objective:01-02 Discuss the distribution of U.S. land among the various uses to whichit is put(e.g. developed land, federal land, forest land).Accessibility:Keyboard Navigation

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29) Equity investors can choose to participate indirectly in real estate markets by purchasingshares in publicly traded real estate companies. In doing so, investors benefit from all of thefollowingexceptA) low transaction costs.B) risk sharing among investors.C) highly segmented markets.D) high information efficiency.Answer:CDifficulty: 2 MediumLearning Objective:01-05 Discuss the primary ways that real estate markets are different fromthe markets for assets that trade in well-developed public markets.Accessibility:Keyboard Navigation30) Real estate markets tend to be highly segmented due to the heterogeneous nature of theproducts. Which of the following examples depicts this issue of market segmentation?A) A couple searching for a single-family detached unit is willing to consider other residentialproperty types such as an attached townhouse unit or condominium.B) A couple searching for a single-family detached unit has limited their search to homes in asingle elementary school district.C) A couple searching for a single-family detached unit has set a timeline for their search of sixmonths, at which point they will renew their current apartment lease.D) A couple searching for a single-family detached unit has limited their search to be in a specificprice range between $350,000 and $400,000.Answer:DDifficulty: 2 MediumLearning Objective:01-05 Discuss the primary ways that real estate markets are different fromthe markets for assets that trade in well-developed public markets.Accessibility:Keyboard Navigation31) If a property's expected annual net income is $89,100 and its current market value is$1,060,000, the property's capitalization rate isA) 4.2%.B) 8.4%.C) 11.9%.D) 33.6%.Answer:BDifficulty: 1 EasyLearning Objective:01-03 Discuss the value and importance of U.S. real estate compared withthe values of other asset classes such as stocks and bonds.Accessibility:Keyboard Navigation

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Real Estate Principles: A Value Approach, 5e(Ling)Chapter 1The Nature of Real Estate and Real Estate Markets1) When viewed as a tangible asset, real estate can be defined as the land and its permanentimprovements. Improvementsonthe land includeA) fences.B) walkways.C) sewer systems.D) streets.2) All of the following are examples of an improvementonthe landexceptA) fences.B) building.C) walls.D) streets.3) Real estate is defined as land and its permanent improvements. Which of the following is anexample of an improvementtothe land?A) fenceB) buildingC) sewer systemD) personalproperty4) Real estate consists of the physical structures and infrastructure that accompany the land. All ofthe following are examples of an improvementtothe landexceptA) walkways.B) building.C) sewer system.D) streets.5) Real estate is property, which can be either a tangible or an intangible asset. Which of thefollowing would be considered an intangible asset?A) landB) buildingC) mortgageD) fence6) Which of the following would be considered a tangible asset?A) landB) leaseagreementC) mortgageD) listed REIT

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7) If we desire to classify land by its use, land that does not include any improvementstothe landwould be categorized asA) "raw" or undeveloped land.B) building site.C) developed land.D) property infrastructure.8) The size of a single-family residential lot is typicallyA) less than one acre.B) between one and two acres.C) between two and three acres.D) greater than three acres.9) As of 2015, the single largest asset category in the net worthportfolios of households isA) government and corporate bonds.B) stocks and mutual fund shares.C) consumer durable goods.D) housing.10) Real estate values derive from the interaction of three different sectors in the economy. Whichof the following sectors serves to allocate financial resources among households and firmsrequiring funds?A) user marketB) capital marketC) governmentD) property market11) The demand for real estate derives from the need that market participants (e.g., owneroccupants, tenants, renters) have for shelter and convenient access to other locations. Thiscompetition for physical location and space occurs in theA) user market.B)capital market.C) government sector.D) property market.12) The expected stream of rental income is capitalized into value by converting expected futurecash flows into present value through a process calledA) amortization.B) discounting.C) compounding.D) accounting.

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13) Capital markets can be divided into four main categories:private equity, public equity, privatedebt, and public debt. An example of a real estate asset that trades in the private equity market isA) real property.B) home mortgages.C) equity REITs.D) mortgage backed securities.14) An example of a real estate asset that trades in the public debt market isA) real property.B) real estate operating companies.C) equity REITs.D) commercial mortgage backed securities (CMBS).15) Primarily through land use controls and property tax policy, which of thefollowing branchesof government has the largest influence on real estate values?A) local governmentB) state governmentC) national governmentD) foreign government16) Competition for the currently available supply of locations and space, coupled with theexisting supply of leasable space, determines theA) current level of rental rates for each submarket and property.B) riskiness of the expected cash flows of an income-producing property.C) timing of the expected cash flows of an income-producing property.D) cost of financing the purchase of a property.17) Each property has unique features, whether it is its age, the building design of its structures, orits location. As such, real estate markets consist of assets that are consideredA) homogeneous.B) heterogeneous.C) substitutes.D) complements.18) Consistently the investment target of pension funds, publicly traded real estate companies, andreal estate funds, large commercial properties valued well over $10 million are often referred to asA) segmented property.B) investment-grade property.C) speculative-grade property.D) immobile property.19) The investment-grade property market is typically targeted by all of the following groups ofinvestorsexceptA) pension funds.B) individual investors.C) listed equity REITs.D) real estate private equity funds.20) The national government can have a significant impact on the value of real estate through

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A) property tax policy.B) income tax policy.C) building codes.D) real estate licensing requirements.21) By the fourth quarter of 2015, U.S. households had accumulated $12.5 trillion in housingequity, which represents about 14 percent of their net worth. What proportion of U.S. householdsown their home?A) one-thirdB) one-halfC) two-thirdsD) three-fourths22) The required rate of return that an individual demands on a real estate investment is determinedin theA) user market.B) capital market.C) government.D) local market.23) Investors in real estate can choose to hold properties directly in the private market or indirectlythrough publicly traded real estate securities. The market for buying, selling, and leasing real estatecan be characterized by all of the followingexceptA) localized markets.B) highly segmented markets.C) privately negotiated contracts.D) low transaction costs.24) Especially in terms of retail properties, which of the following attributes is considered the mostlikely to result in drasticvalue differences between otherwise similar properties?A) structural attributesB) financing attributesC) location attributesD) land attributes25) Capital markets can be divided into two broad categories: equity interests and debt interests.Equity investors in real estate expect to earn a return on their investment through theA) collection of rent and price appreciation.B) collection of interest on the borrowed funds used to purchase the property.C) receipt of property taxes.D) case of a borrower default on required mortgage payments.

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26) Considered a fundamental pricing metric in commercial real estate markets, the ratio of aproperty's annual net income to its market value is more commonly referred to as a(n)A) appreciation rate.B) capitalization rate.C) discount rate.D) internal rate of return.27) Helping to constrain entry into real estate–related occupations, which of the followingbranches of government is directly involved in establishing rules and regulations for the licensingof professionals in the field of real estate?A) local governmentB) state governmentC) national governmentD) foreign government28) A primary determinant of the feasibility of new construction is the relationship between thecurrent level of propertyprices and the cost of new construction. We would expect the supply ofproperties toA) increase if current property values are greater than the cost of construction.B) decrease if current property values are greater than the cost of construction.C) increase if current property values equal the cost of construction.D) decrease if current property values equal the cost of construction.29) Equity investors can choose to participate indirectly in real estate markets by purchasingshares in publicly traded real estate companies. In doing so, investors benefit from all of thefollowingexceptA) low transaction costs.B) risk sharing among investors.C) highly segmented markets.D) high information efficiency.30) Real estate markets tend to be highly segmented due to the heterogeneous nature of theproducts. Which of the following examples depicts this issue of market segmentation?A) A couple searching for a single-family detached unit is willing to consider other residentialproperty types such as an attached townhouse unit or condominium.B) A couple searching for a single-family detached unit has limited their search to homes in asingle elementary school district.C) A couple searching for a single-family detached unit has set a timeline for their search of sixmonths, at which point they will renew their current apartment lease.D) A couple searching for a single-family detached unit has limited their search to be in a specificprice range between $350,000 and $400,000.

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