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

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    Chapter 1 - The Nature of Real Estate and Real Estate Markets 1 - 1 Multiple Choice Questions [QUESTION] 1. When viewed as a tangible asset, real estate can be defined as the land and its permanent improvements. Improvements on the land include: A. f ences B. w alkways C. s ewer systems D. s treets Ans: A Difficulty: Basic Learning Objective: 1 [QUESTION] 2. Rea l estate is property, which can be either a tangible or an intangible asset. Which of the following would be considered an intangible asset? A. Land B. Building C. Mortgage D. Fence Ans: C Difficulty: Basic Learning Objective: 1 [QUESTION] 3 . If we desire to classify land by its use, land that does not include any improvements to the land would be categorized as: A. “Raw” land B. Building site C. Developed land D. Property infrastructure Ans: A Difficulty: Basic Learning Objective: 2 [QUESTION] 4 . The size of a single family residential lot is typically: A. l ess than one acre B. b etween one and two acres C. b etween two and three acres D. g reater than three acres Ans: A Difficulty: Intermediate

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    Chapter 1 - The Nature of Real Estate and Real Estate Markets 1 - 2 Learning Objective: 2 [QUESTION] 5. As of 2011 , the single largest asset category in the net worth portfolios of households is: A. g overnment and corporate bonds B. s tocks and mutual fund shares C. c onsumer durable goods D. h ousing Ans: D Difficulty: Intermediate Learning 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 and firms requiring funds? A. User market B. Capital market C. Government D. Property market Ans: B Difficulty: Intermediate Learning Objective: 3 [QUESTION] 7 . The demand for real estate derives from the need that market participants (e.g., owner occupants, tenants, renters ) have for shelter and convenient access to other locations. This competition for physical location and space occurs in the: A. User Market B. Capital Market C. Government Sector D. Property Market Ans: A Difficulty: Intermediate Learning Objective: 3 [QUESTION] 8. The expected stream of rental income is capitalized into value by converting expected future cash flows into present value through a process called: A. amortization B. discounting C. compounding D. accounting Ans: B

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    Chapter 1 - The Nature of Real Estate and Real Estate Markets 1 - 3 Difficulty: Basic Learning 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 equity market is: A. r eal property B. h ome mortgages C. e quity REITs D. m ortgage backed securities Ans: A Difficulty: Intermediate Learning Objective: 3 [QUESTION] 10 . Primarily through land use controls and property tax policy, which of the following branches of government has the largest influence on real estate values? A. Local government B. State government C. National government D. Foreign government Ans: A Difficulty: Intermediate Learning Objective: 3 [QUESTION] 11 . Competition for the currently available supply of locations and space coupled with the existing supply of leasable space, determines : A. the current level of rental rates for each submarket and property B. the riskiness of the expected cash flows of an income - producing property C. the timing of the expected cash flows of an income - producing property D. the cost of financing the purchase of a property Ans: A Difficulty: Intermediate Learning Objective: 3 [QUESTION] 12 . Each property has unique features, whether it is its age, the building design of its structures, or its location. As such, real estate markets consist of assets that are considered: A. h omogeneous B. h eterogeneous C. substitutes D. complements

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    Chapter 1 - The Nature of Real Estate and Real Estate Markets 1 - 4 Ans: B Difficulty: Basic Learning Objective: 5 [QUESTION] 13. Consistently the investment target of pension funds , publicly traded real estate companies, and real estate funds, large commercial properties valued well over $10 million are often referred to as: A. segmented property B. investment - grade property C. speculative - grade property D. immobile property Ans: B Difficulty: Basic Learning Objective: 5 [QUESTION] 1 4 . By the third quarter of 2011, U.S. households had accumulated $6.2 trillion in housing equity, which represents about 11 percent of their net worth. W hat proportion of U.S. households own their home? A. one - third B. one - half C. two - thirds D. three - fourths Ans: C Difficulty: Intermediate Learning Objective 4 [QUESTION] 15 . The national go vernment can have a significant impact on the value of real estate through: A. p roperty tax policy B. i ncome tax policy C. b uilding Codes D. r eal estate licensing requirements Ans: B Difficulty: Intermediate Learning Objective : 3 [QUESTION] 16 . The required rate of return that an individual demands on a real estate investment is determined in the: A. u ser market B. c apital market C. g overnment

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    Chapter 1 - The Nature of Real Estate and Real Estate Markets 1 - 5 D. l ocal market Ans: B Difficulty: Intermediate Learning Objective: 3 [QUESTION] 17 . Investors in real estate can choose to hold properties directly in the private market or indirectly through publicly traded real estate securities. The market for buying selling, and leasing real estate can be characterized by all of the following EXCEPT : A. l ocalized markets B. h ighly segmented markets C. p rivately negotiated contracts D. l ow transaction c osts Ans: D Difficulty: Intermediate Learning Objective: 5 [QUESTION] 18 . Especially in terms of retail properties, which of the following attributes is considered the most likely to result in drastic value differences between otherwise similar properties ? A. Structural attributes B. Financing attributes C. Location attributes D. Land attributes Ans: C Difficulty: Intermediate Learning Objective : 5 [QUESTION] 19 . 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: A. The collection of rent and price appreciation B. The collection of interest on the borrowed funds used to purchase the property C. The receipt of property taxes D. The case of a borrower default on required mortgage payments Ans: A Difficulty: Intermediate Learning Objective : 3 [QUESTION] 20 . Considered a fundamental pricing metric in commercial real estate markets, the ratio of a property’s annual net income to its market value is more commonly referred to as a(n): A. Appreciation rate B. Capitalization rate

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    Chapter 1 - The Nature of Real Estate and Real Estate Markets 1 - 6 C. Discount rate D. Internal rate of return Ans: B Difficulty: Basic Learning Objective : 3 [QUESTION] 21 . Helping to c onstrain entry into real estate related occupations, which of the following branches of government is directly involved in establishing rules and regulations for the licensing of professionals in the field of real estate? A. Local government B. State government C. National government D. Foreign government Ans: B Difficulty: Basic Learning Objective : 3 [QUESTION] 22 . A primary determinant o f the feasibility of new construction is the relationship between the current level of property prices and the cost of new construction. We would expect the supply of properties to: A. 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 Ans: A Difficulty: Intermediate Learning Objective 2 [QUESTION] 23 . Real estate is defined as land and its permanent improvements. Which of the following is an example of an improvement to the land? A. Fence B. Building C. Sewer system D. Personal property Ans: C Difficulty: Intermediate Learning Objective : 1 [QUESTION] 24 . Equity investors can choose to participate indirectly in real estate markets by purchasing shares in publicly traded real estate companies. In doing so, investors benefit from all of the

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    Chapter 1 - The Nature of Real Estate and Real Estate Markets 1 - 7 following EXCEPT : A. Low transaction costs B. Risk sharing amongst investors C. Highly segmented markets D. High information efficiency Ans: C Difficulty: Intermediate Learning Objective: 5 [QUESTION] 25 . Real estate markets tend to be highly segmented due to the heterogeneous nature of the products. 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 residential property 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 a single elementary school district C. A couple searching for a single - family detached unit has set a timeline for their search of 6 months, 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 specific price range between $350,000 and $400,000. Ans: D Difficulty: Intermediate Learning Objective: 5

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    Chapter 2 – Legal Foundations to Value 2 - 1 Multiple Choice Questions [QUESTION] 1. A principal def inition 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 of property 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: B Difficulty: Basic Learning Objective: 1 [QUESTION] 2. Property rights can be divided into two classes, real and personal. Which of the following is an example of real property? A. Vehicles B. Stocks and bonds C. Patents D. Commercial building Ans: D Difficulty: Basic Learning Objective: 1 [QUESTION] 3. A fixture is an object that formerly was personal property but has become real property. Of the following four rules for determining whether an object has become a fixture, which is the most dominant (i.e. if there is a conflict, which rule prevails)? A. Manner of the attachment B. Character of the article and manner of adaptation C. Intention of the parties D. Relation of the parties Ans: C Difficulty: Intermediate Learning Objective: 1 [QUESTION] 4. Based on your understanding of the rules for determining when an object becomes a fixture, which of the following items would most likely be considered a fixture at the time of sale? A. Custom (built - in) bookshelves B. Refrigerator in a single - family residence being sold C. Fence installed by the tenant of a rental property

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    Chapter 2 – Legal Foundations to Value 2 - 2 D. Curtains Ans: A Difficulty: Intermediate Learning Objective: 1 [QUESTION] 5. Property rights can be dismantled into lesser bundles, referred to as interests, which can then be held by different individuals. Interests in real property that include possessions are referred to as: A. fixtures B. townships C. licenses D. estates Ans: D Difficulty: Basic Learning 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 absolute B. Fee simple conditional C. Ordinary life estate D. Legal life estate Ans: A Difficulty: Intermediate Learning Objective: 2 [QUESTION] 7. Suppose an older homeowner lives adjacent to an expanding university that is interested in acquiring her residence for future university use. To allow the homeowner to continue to retain all rights of exclusive possession, use, and enjoyment during her lifetime, yet provide the university with the right of disposition, the university may want to purchase a (n) : A legal life estate with remainder interest B. conditional fee absolute with reverter interest C. ordinary life estate with remainder interest D. tenancy for years Ans: C Difficulty: Advanced Learning Objective: 2

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    Chapter 2 – Legal Foundations to Value 2 - 3 [QUESTION] 8. While leasehold interests are considered estates, they differ from freehold estates in all of the 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 interests Ans: D Difficulty: Intermediate Learning Objective: 2 [QUESTION] 9. Nonposessory interests (i.e. bundles of real property rights that do not include possession) include all of the following EXCEPT: A. leasehold interests B. easements C. restrictive covenants D. liens Ans: A Difficulty: Intermediate Learning Objective: 3 [QUESTION] 10. An easement is the right to use land for a specific and limited purpose. Which of the following easements involves a relations hip between two parcels of land, is a permanent feature of both parcels involved , and gives the dominant parcel some intrusive use of the servient parcel ? A. Affirmative e asement appurtenant B. Negative easement appurtenant C. Easement in gross D. License Ans: A Difficulty: Basic Learning 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 a driveway lying on their shaped property line.

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    Chapter 2 – Legal Foundations to Value 2 - 4 D. A scenic easement used to restrict construction on adjacent parcels so as to preserve a valued view. Ans: D Difficulty: Intermediate Learning Objective: 3 [QUESTION] 12. An important distinction both practically and conceptually is the difference between an easement and a license. All of the following characteristics pertain to a license EXCEPT : A. A license is revocable by the grantor. B. A license can be granted orally. C. A license is enduring. D. A license grants permission to use another’s land for a specific and limited purpose. Ans: C Difficulty: Basic Learning Objective: 3 [QUESTION] 13. A lien is an interest in real property that serves as security for an obligation. Which of the following is an example of a general lien? A. Property tax and assessment lien B. Mortgage lien C. Lien arising from a court judgment unrelated to ownership of the property D. Mechanics’ lien Ans: C Difficulty: Intermediate Learning Objective: 5 [QUESTION] 14. Which of the following types of liens is automatically superior to any other lien? A. Property tax and assessment lien B. Mortgage lien C. Lien arising from a court judgment unrelated to ownership of the property D. Mechanics’ lien Ans: A Difficulty: Intermediate Learning Objective: 5 [QUESTION] 15. Co - ownership can occur in a variety of ways, with significant variation in how the bundle of rights is jointly held. All of the following entities are forms of direct co - ownership

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    Chapter 2 – Legal Foundations to Value 2 - 5 EXCEPT: A. Tenancy in common B. Tenancy by the entirety C. Condominium D. Partnership Ans: D Difficulty: Basic Learning Objective: 6 [QUESTION] 16. Direct co - ownership implies that each co - owner holds a titled interest in the property, but without exclusive possession with respect to the other co - owners. Which of the following types of direct co - ownership is considered the closest to the fee simple absolute estate? A. Tenancy in common B. Tenancy by the entirety C. Condominium D. Tenancy at Will Ans: A Difficulty: Intermediate Learning Objective: 6 [QUESTION] 17. Which of the following types of direct co - ownership is a form of joint tenancy for husband and wife created by marriage that protects each spouse from liens arising from either spouse alone ? A. Tenancy in common B. Tenancy by the entirety C. Condominium D. Tenancy at Will Ans: B Difficulty: Basic Learning Objective: 6 [QUESTION] 18. Which of the following types of direct co - ownership combines single person ownership with tenancy in common? A. Cooperative B. Tenancy by the entirety C. Condominium D. Partnership Ans: C Difficulty: Basic Learning Objective: 6

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    Chapter 2 – Legal Foundations to Value 2 - 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 proprietary corporation? A. Cooperative B. Tenancy by the entirety C. Condominium D. Partnership Ans: A Difficulty: Basic Learning 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 property acquired “from the fruits of the marriage?” A. Dower B. Curtesy C. Elective share D. Community property Ans: D Difficulty: Basic Learning Objective: 7 [QUESTION] 21. Restrictive covenants impose constraints on the use of the land, yet are limited in terms of their enforceme nt. All of the following are true regarding the enforcement of restrictive covenants EXCEPT: A. Courts have been reluctant to maintain restrictive covenants for an unreasonably long time and in some cases states have enacted a time limit on their applicability. B. Courts may refuse to enforce restrictive covenants due to changing neighborhood character. C. Courts may refuse to enforce restrictive covenants due to abandonment of the property. D. Restrictive covenants are public in nature and therefore can be enforced by those who do not hold a legal interest in the property. Ans: D Difficulty: Advanced Learning 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 as a :

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    Chapter 2 – Legal Foundations to Value 2 - 7 A. Cooperative B. Tenancy by the entirety C. Condominium D. Timeshare Ans: D Difficulty: Basic Learning Objective: 8 [QUESTION] 23. In some states, mining companies are deemed to own not only the minerals but also the space the minerals occupied before they were removed, thereby earning the distinction of ownership states. However, w hen the owner of an oil or gas well is able to claim all that is pumped from it, regardless of whether the oil or gas migrated from adjacent property, this is referred to as a _____________ state. A. Manner of attachment B. Law of capture C. Intention of the parties D. Relation of the parties Ans: B Difficulty: Advanced Learning Objective: 1 [QUESTION] 24. Bill and Mike go in together to purchase 342 acres of land to use for hunting and family vacations. Ten years later, Bill dies and Bill's wife wants to sell his half of the land. Mike informs her that , unfortunately , she has no claim to the land and that upon Bill’s death, his ownership interest transferred to Mike . What type of co - ownership did Bill and Mike have ? A. T enancy by the entireties B. T enancy in common C. J oint tenancy D. C ondominium Ans: C Difficulty: Advanced Learning Objective: 6 [QUESTION] 25. The City of Grand Rapids installed a new water main on Oak Street. The city then decided to charge the property owners along Oak Street a proportional cost of the new water main. If a property owner refuses to pay their proportional share of the cost, the city may file a(n): A. property tax lien. B. assessment lien. C. general lien. D. mechanics' lien.

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    Chapter 2 – Legal Foundations to Value 2 - 8 Ans: B Difficulty: Advanced Learning Objective: 5 [QUESTION] 26. Jeff owns 150 acres between a highway and a public beach. The state would like to build a road directly from the highway to the beach across a number of beach front properties including Jeff’s . The space for this road would be considered a(n): A. implied easement B. easement in gross . C. negative easement appurtenant . D. positive easement appurtenant . Ans: B Difficulty: Advanced Learning Objective: 3 [QUESTION] 27. Brian just began graduate school at the local university and is looking to rent an apartment. A family friend has decided to lease him a two bedroom, one bathroom cottage through an oral agreement with no definite lease period outlined. Which of the following leasehold estates best describes Brian’s situation? A. Tenancy for years B. Tenancy at sufferance C. Periodic tenancy D. Tenancy by the entirety Ans: C Difficulty: Advanced Learning Objective: 6 [QUESTION] 28. Tom recently purchased a home in a residential subdivision. While mowing his lawn and planting new shrubs for the first time since moving in , Tom’s neighbor came outside to inform him that he was violating one of the subdivision’s rules which required the use of a specific professional lawn service for all property landscaping needs. Assuming this requirement can be enforced by the subdivision authority, this would be an example of a(n): A. easement B. restrictive covenant C. lien D. estate Ans: B Difficulty: Advanced Learning Objective: 4

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