Test Bank For Real Estate Principles: A Value Approach, 4th Edition

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Chapter 1-The Nature of Real Estateand Real Estate Markets1-1Multiple Choice Questions[QUESTION]1.When viewed as a tangible asset, real estate can be defined astheland and its permanentimprovements. Improvementsonthe land include:A. fencesB. walkwaysC. sewer systemsD.streetsAns: ADifficulty:BasicLearning Objective: 1[QUESTION]2.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.FenceAns: CDifficulty:BasicLearning Objective: 1[QUESTION]3. If we desire to classify land by its use, land that does not include any improvementstotheland would be categorized as:A. “Raw” landB.Building siteC. Developed landD.Property infrastructureAns: ADifficulty: BasicLearning Objective: 2[QUESTION]4.The size of a single family residential lot is typically:A. less than one acreB. between one and two acresC. between two and three acresD. greater than three acresAns: ADifficulty:Intermediate

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Chapter 1-The Nature of Real Estateand Real Estate Markets1-2Learning Objective: 2[QUESTION]5. As of2011, the single largest asset category in the net worth portfolios of households is:A. government and corporate bondsB. stocks and mutual fund sharesC. consumer durable goodsD. housingAns: DDifficulty:IntermediateLearning Objective: 4[QUESTION]6. Real estate values derive from the interaction of three different sectors in the economy.Which of the following sectors serves to allocate financial resources among households andfirms requiring funds?A.User marketB.Capital marketC.GovernmentD.PropertymarketAns: BDifficulty:IntermediateLearning Objective: 3[QUESTION]7. The demand for real estate derives from the need thatmarketparticipants(e.g., owneroccupants, tenants, renters)have for shelter and convenient access to other locations.Thiscompetition for physical location and space occurs in the:A.User MarketB.Capital MarketC.Government SectorD.Property MarketAns:ADifficulty:IntermediateLearning Objective: 3[QUESTION]8. The expected stream of rental income is capitalized into value by converting expectedfuture cash flows into present value through a process called:A. amortizationB. discountingC. compoundingD. accountingAns: B

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Chapter 1-The Nature of Real Estateand Real Estate Markets1-3Difficulty: BasicLearning Objective: 3[QUESTION]9. Capital markets can be divided into four main categories: private equity, public equity,private debt, and public debt. An example of a real estate asset that trades in the private equitymarket is:A. real propertyB. home mortgagesC. equity REITsD. mortgage backed securitiesAns: ADifficulty:IntermediateLearning Objective: 3[QUESTION]10. Primarily through land use controls andproperty tax policy, which of the followingbranches of government has the largest influence on real estate values?A.Local governmentB.State governmentC.National governmentD.Foreign governmentAns: ADifficulty:IntermediateLearning Objective: 3[QUESTION]11. Competitionfor the currently available supply of locations and space coupled with theexisting supply of leasable space,determines:A.the current level of rental ratesfor each submarket and propertyB.the riskiness of the expected cash flows of an income-producing propertyC.the timing of the expected cash flows of an income-producing propertyD.the cost of financing the purchase of a propertyAns: ADifficulty:IntermediateLearning Objective: 3[QUESTION]12. Each property has unique features, whether it is its age, the building design of itsstructures, or its location.As such, real estate marketsconsist of assets thatare considered:A. homogeneousB. heterogeneousC. substitutesD. complements

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Chapter 1-The Nature of Real Estateand Real Estate Markets1-4Ans: BDifficulty:BasicLearning Objective: 5[QUESTION]13.Consistently the investment target of pension funds, publicly traded real estate companies,and real estate funds, largecommercial properties valued well over $10million areoftenreferred to as:A. segmented propertyB. investment-grade propertyC. speculative-grade propertyD. immobile propertyAns: BDifficulty: BasicLearning Objective: 5[QUESTION]14.By the third quarter of 2011, U.S. households had accumulated $6.2 trillion in housingequity, which represents about 11 percent of their net worth. What proportion of U.S.householdsown their home?A.one-thirdB.one-halfC.two-thirdsD.three-fourthsAns: CDifficulty:IntermediateLearning Objective 4[QUESTION]15. The national government can have a significant impact on the value of real estate through:A. property tax policyB. income tax policyC.building CodesD. real estate licensing requirementsAns: BDifficulty:IntermediateLearning Objective:3[QUESTION]16. The required rate of return that an individual demands on a real estate investment isdetermined in the:A. user marketB. capital marketC. government

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Chapter 1-The Nature of Real Estateand Real Estate Markets1-5D. local marketAns: BDifficulty:IntermediateLearning Objective: 3[QUESTION]17.Investors in real estate can choose to hold properties directly in the private market orindirectly through publicly traded real estate securities.The market for buying selling, andleasing real estate can be characterized by all of the following EXCEPT:A. localized marketsB. highly segmented marketsC. privately negotiated contractsD. low transaction costsAns: DDifficulty:IntermediateLearning Objective: 5[QUESTION]18.Especiallyin terms ofretail properties, which of the following attributes is considered themost likely to result in drastic value differences betweenotherwise similar properties?A.Structural attributesB.Financing attributesC.Location attributesD.Land attributesAns: CDifficulty:IntermediateLearning Objective:5[QUESTION]19.Capital markets can be divided into two broad categories: equity interests and debtinterests. Equity investors in real estate expect to earn a return on their investment through:A. The collection of rent and price appreciationB. The collection of interest on the borrowed funds used to purchase the propertyC. The receipt of property taxesD. The case of a borrower default on required mortgage paymentsAns: ADifficulty: IntermediateLearning Objective:3[QUESTION]20. 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 rateB. Capitalization rate

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Chapter 1-The Nature of Real Estateand Real Estate Markets1-6C. Discount rateD. Internal rate of returnAns: BDifficulty: BasicLearning Objective:3[QUESTION]21.Helpingto constrain entry into real estate related occupations, which of the followingbranches of government is directly involved in establishing rules and regulations for thelicensing of professionals in the field of real estate?A. Local governmentB. State governmentC. National governmentD. Foreign governmentAns: BDifficulty: BasicLearning Objective:3[QUESTION]22.A primary determinant of the feasibility of new construction is the relationship betweenthe current level of property prices and the cost of new construction. We would expect thesupply of properties to:A. increase if current property values are greater than the cost of constructionB. decrease if current property values are greater than the cost of constructionC. increase if current property values equal the cost of constructionD. decrease if current property values equal the cost of constructionAns: ADifficulty: IntermediateLearning Objective 2[QUESTION]23. Real estate is defined as land and its permanent improvements. Which of the following isan example of an improvementtothe land?A. FenceB. BuildingC. Sewer systemD. Personal propertyAns: CDifficulty: IntermediateLearning Objective:1[QUESTION]24. Equity investors can choose to participate indirectly in real estate markets by purchasingshares in publicly traded real estate companies. In doing so, investors benefit fromall of the

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Chapter 1-The Nature of Real Estateand Real Estate Markets1-7following EXCEPT:A.Low transaction costsB. Risk sharing amongst investorsC. Highly segmented marketsD.High information efficiencyAns: CDifficulty: IntermediateLearning Objective: 5[QUESTION]25. 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 districtC. A couple searching for a single-family detached unit has set a timeline for their search of 6months, 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 aspecific price range between $350,000 and $400,000.Ans: DDifficulty: IntermediateLearning Objective: 5

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Chapter 2–Legal Foundations to Value2-1Multiple Choice Questions[QUESTION]1.A principal definition of real estate is as a bundle of rights associated with the possession,use, and disposition of property. Each of the following is a fundamental characteristic ofproperty rights EXCEPT:A. They are enforceable by the government.B. They apply only to tangible assets.C. They are nonrevocable.D. They are enduring.Ans: BDifficulty:BasicLearning Objective: 1[QUESTION]2. Property rights can be divided into two classes, real and personal. Which of the following isan example of real property?A. VehiclesB. Stocks and bondsC. PatentsD. Commercial buildingAns: DDifficulty:BasicLearning Objective: 1[QUESTION]3.A fixture is an object that formerly was personal property but has become real property. Ofthe following four rules for determining whether an object has become a fixture, which is themost dominant (i.e. if there is a conflict, which rule prevails)?A. Manner of the attachmentB. Character of the article and manner of adaptationC. Intention of the partiesD. Relation of the partiesAns: CDifficulty:IntermediateLearning Objective: 1[QUESTION]4.Based on your understanding of the rules for determining when an object becomes afixture, which of the following items would most likely be considered a fixture at the time ofsale?A. Custom(built-in)bookshelvesB. Refrigerator in a single-family residence being soldC. Fence installed by the tenant of a rental property

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Chapter 2–Legal FoundationstoValue2-2D.CurtainsAns: ADifficulty:IntermediateLearning Objective: 1[QUESTION]5.Property rights can be dismantled into lesser bundles, referred to as interests, which canthen be held by different individuals. Interests in real property that include possessions arereferred to as:A. fixturesB. townshipsC. licensesD. estatesAns: DDifficulty:BasicLearning Objective: 2[QUESTION]6. Which of the following types of ownership estates is the most complete bundle of rights,and therefore carries the greatest value?A. Fee simple absoluteB. Fee simple conditionalC. Ordinary life estateD. Legal life estateAns: ADifficulty:IntermediateLearning Objective: 2[QUESTION]7. Suppose an older homeowner lives adjacent to an expanding university that is interested inacquiring her residence for future university use. To allow the homeowner to continue toretain all rights of exclusive possession, use, and enjoyment during her lifetime,yet providethe university with the right of disposition,the university may want to purchase a(n):Alegal life estate with remainder interestB.conditional fee absolute with reverter interestC.ordinary life estate with remainder interestD. tenancy for yearsAns: CDifficulty:AdvancedLearning Objective: 2

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Chapter 2–Legal Foundations to Value2-3[QUESTION]8.While leasehold interests are considered estates, they differ from freehold estates in all ofthe following respects EXCEPT:A. Leasehold estates are limited in time.B. The right of disposition is diminished with a leasehold estate.C. Leasehold estates are not titled interests.D. Leasehold estates are possessory interestsAns: DDifficulty:IntermediateLearning Objective: 2[QUESTION]9.Nonposessory interests (i.e. bundles of real property rights that do notincludepossession)includeall of the followingEXCEPT:A. leasehold interestsB. easementsC. restrictive covenantsD. liensAns: ADifficulty:IntermediateLearning Objective: 3[QUESTION]10.An easement is the right to use land for a specific and limited purpose.Which of thefollowing easements involves a relationship between two parcels of land,is a permanentfeature of both parcels involved, and gives the dominant parcel some intrusive use of theservient parcel?A.Affirmative easement appurtenantB. Negative easementappurtenantC. Easement in grossD. LicenseAns: ADifficulty:BasicLearning Objective: 3[QUESTION]11.Which of the following is an example of a negative easement appurtenant?A. A driveway easement across one parcel to another.B. Rights-of-way for roads.C. A common drive easement where owners of adjoining lots must permit each other to use adriveway lying on their shaped property line.

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Chapter 2–Legal FoundationstoValue2-4D. A scenic easement used to restrict construction on adjacent parcels so as to preserve avalued view.Ans: DDifficulty:IntermediateLearning Objective: 3[QUESTION]12.An important distinction both practically and conceptually is the difference between aneasement and a license.All of the following characteristics pertain toa licenseEXCEPT:A.A licenseis revocable by the grantor.B.A licensecan be granted orally.C.A licenseis enduring.D.A licensegrantspermissionto use another’s land for a specific and limited purpose.Ans: CDifficulty:BasicLearning Objective: 3[QUESTION]13.A lien is an interest in real property that serves as security for an obligation. Which of thefollowing is an example of a general lien?A. Property tax and assessment lienB. Mortgage lienC. Lien arising from a court judgmentunrelated to ownership of the propertyD. Mechanics’ lienAns: CDifficulty:IntermediateLearning Objective: 5[QUESTION]14. Which of the following types of liens is automatically superior to any other lien?A. Property tax and assessment lienB. Mortgage lienC. Lien arising from a court judgment unrelated to ownership of the propertyD. Mechanics’ lienAns: ADifficulty:IntermediateLearning Objective: 5[QUESTION]15. Co-ownership can occur in a variety of ways, with significant variation in how the bundleof rights is jointly held. All of the following entities are forms of direct co-ownership

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Chapter 2–Legal Foundations to Value2-5EXCEPT:A. Tenancy in commonB.Tenancy by the entiretyC. CondominiumD. PartnershipAns:DDifficulty:BasicLearning Objective: 6[QUESTION]16. Direct co-ownership implies that each co-owner holds a titled interest in the property, butwithout exclusive possession with respect to the other co-owners. Which of the followingtypes of direct co-ownership is considered the closest to the fee simple absolute estate?A. Tenancy in commonB.Tenancy by the entiretyC. CondominiumD.Tenancy at WillAns:ADifficulty:IntermediateLearning Objective: 6[QUESTION]17.Which of the following types of direct co-ownership is a form of joint tenancy forhusband and wifecreated by marriage that protects each spouse from liens arising from eitherspouse alone?A. Tenancy in commonB. Tenancy by the entiretyC. CondominiumD.Tenancy at WillAns: BDifficulty:BasicLearning Objective: 6[QUESTION]18. Which of the following types of direct co-ownership combines single person ownershipwith tenancy in common?A. CooperativeB. Tenancy by the entiretyC. CondominiumD. PartnershipAns: CDifficulty:BasicLearning Objective: 6

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Chapter 2–Legal FoundationstoValue2-6[QUESTION]19.Which of the following forms of co-ownership, historically used for apartment buildings,is not considered a form of true direct co-ownership, but rather qualifies as a proprietarycorporation?A. CooperativeB. Tenancy by the entiretyC. CondominiumD. PartnershipAns: ADifficulty:BasicLearning Objective: 6[QUESTION]20.Property rights created from marriage have a clear implication for real estate transactions.Which of the following marital property rights gives a spouse a one-half claim on all propertyacquired “from the fruits of the marriage?”A. DowerB. CurtesyC. Elective shareD. Community propertyAns: DDifficulty:BasicLearning Objective: 7[QUESTION]21. Restrictive covenants imposeconstraintson the use of the land, yet are limited in terms oftheir enforcement. All of the following are true regarding the enforcement of restrictivecovenants EXCEPT:A. Courts have been reluctant to maintain restrictive covenants for an unreasonably long timeand in some cases states haveenacted a time limit on their applicability.B. Courts may refuse to enforce restrictive covenants due to changing neighborhoodcharacter.C. Courts may refuse to enforce restrictive covenants due to abandonment of the property.D. Restrictive covenantsare public in nature and thereforecan be enforced by those who donot hold a legal interest in the property.Ans: DDifficulty:AdvancedLearning Objective: 4[QUESTION]22.When multiple individuals have use of a property, but their interests are not simultaneous,this type of co-ownership is referred to asa:

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Chapter 2–Legal Foundations to Value2-7A. CooperativeB. Tenancy by the entiretyC. CondominiumD. TimeshareAns: DDifficulty:BasicLearning Objective: 8[QUESTION]23. In some states, mining companies are deemed to own not only the minerals but also thespace the minerals occupied before they were removed,thereby earning the distinction ofownership states. However, when theownerof an oil or gas well is able to claim all that ispumped from it, regardless of whether the oil or gas migrated from adjacent property, this isreferred to as a _____________ state.A. Manner of attachmentB. Law of captureC. Intention of the partiesD. Relation of the partiesAns: BDifficulty:AdvancedLearning Objective: 1[QUESTION]24.Bill and Mike go in together to purchase 342 acres of land touse for hunting and familyvacations.Tenyears later, Bill dies and Bill's wifewantsto sell his half of the land. Mikeinforms her that,unfortunately,she has no claimtothe land and thatupon Bill’s death, hisownership interest transferred to Mike.What type of co-ownershipdid Bill and Mike have?A. Tenancy by the entiretiesB. Tenancy in commonC. Joint tenancyD. CondominiumAns: CDifficulty:AdvancedLearning Objective: 6[QUESTION]25. The City of Grand Rapids installed a new water main on Oak Street. The city then decidedto charge the property owners along Oak Street a proportional cost of the new water main. If aproperty owner refuses to pay their proportional share of the cost, the city may filea(n):A.property tax lien.B.assessment lien.C.general lien.D.mechanics' lien.

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Chapter 2–Legal FoundationstoValue2-8Ans: BDifficulty:AdvancedLearning Objective: 5[QUESTION]26.Jeff owns 150 acres between a highway and apublicbeach. The state would like to build aroad directly from the highway to the beachacrossa number of beach front propertiesincludingJeff’s. The space for this road would be considereda(n):A.implied easementB.easement in gross.C.negative easement appurtenant.D.positive easement appurtenant.Ans: BDifficulty:AdvancedLearning Objective: 3[QUESTION]27.Brian just began graduate school at the local university and is looking to rent anapartment. A family friend has decided to lease him a two bedroom, one bathroom cottagethrough an oral agreement with no definite lease period outlined. Which of the followingleasehold estates best describes Brian’s situation?A. Tenancy for yearsB. Tenancy at sufferanceC. Periodic tenancyD. Tenancy by the entiretyAns: CDifficulty: AdvancedLearning Objective: 6[QUESTION]28. Tom recently purchased a home in a residential subdivision. While mowing his lawnandplanting new shrubsfor the first timesince moving in, Tom’s neighbor came outside toinform him that he was violating one of the subdivision’s rules which required the use of aspecific professional lawn service for all property landscaping needs. Assuming thisrequirement can be enforced by the subdivision authority, this would be an example of a(n):A. easementB. restrictive covenantC. lienD. estateAns: BDifficulty: AdvancedLearning Objective: 4

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