Real Estate Exam 2

Real estate market research is an important process used by analysts to facilitate a better
understanding of a property’s future profit potential. All of the following statements
regarding market research are true EXCEPT:

Market research consists of a series of facts that fail to consider the role of investor behavior in the decision-making process.

There are several key factors that can impact the value of an urban property. Community
characteristics such as household income level and makeup are an example of which of the following value-determining factors?

nonlocational

Preferences of households can vary with time, prosperity, and context. The nuances in the preferences or needs of market subgroups are commonly referred to as:

market segmentation.

Key numbers that characterize the current condition and trends in a specific real estate
market are more commonly referred to as market:

parameters

In constructing a market-defining “story,” it is helpful to answer a series of fundamental questions around which analysis can be built. Which of the following questions is designed to identify the target market?

Who are the customers?

Since most data for a given market study is not readily available, analysts must be creative in their use of data that they are able to obtain. The primary source for detailed household demographic information is:

the U.S. Bureau of the Census

A new residential development will face competition from other new developments, other builders, and sales of existing homes. To determine if demand in that market segment will be sufficient to justify proceeding with the project, a developer would be most interested in estimating a:

capture rate 

The amplitude of real estate cycles can vary significantly across property types. In considering cycles in vacancy rates, which of the following property types historically exhibits the least volatility in its cycle (i.e., the lowest amplitude of peaks and troughs throughout the cycle)?

apartment 

The presence of real estate cycles presents a major challenge when forecasting real estate
market parameters. If the market value of a residential developer’s project exceeds its
construction costs, an increase in the supply of units will occur. As the market becomes
oversupplied, we would expect which of the following to occur?

A decrease in real rental rates

Development of subdivisions, apartments, offices, or other commercial structures can have a lead time of two years or more. In general, the longer the construction lead time

The greater the amplitude of real estate cycles

Computer software systems that enable one to manipulate and “map” information with great flexibility and speed are referred to as:

geographical information systems (GIS)

While predicting real estate cycles is difficult, a key indicator used to evaluate where a property is within the cycle is:

The number of building permits issued

Suppose a developer is interested in building a new subdivision of single-family homes.
Through market research, the developer has determined that the target market segment
potential in year 1 consists of 176 households. If the developer projects to be able to sell 44
homes in the first year, what is the assumed capture rate?

25%

Mortgage originators can either hold loans in their portfolios or sell them to investors. When
a mortgage originator decides to sell mortgages to another institution, this transaction occurs in what is commonly referred to as the:

Secondary mortgage market

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?

Conventional home loan

Mortgage loans that fail one or more of the underwriting standards established by
government sponsored enterprises are more commonly referred to as:

Nonconforming loans

Mortgage loans that meet all general underwriting standards established by government sponsored enterprises except for the dollar size limit are more commonly referred to as:

Jumbo loans

Private mortgage insurance (PMI) protects a lender against which of the following?

losses due to default on the loan

Many older, retired households are considered “house poor.” Which of the following forms of loans has been designed to help mitigate this problem by offering additional monthly income to these homeowners in exchange for a portion of their housing equity?

Reverse mortgage

A true interest-only mortgage loan requires the borrower to make a single principal payment at the end of the loan’s term that is equal to the original mortgage balance. This single payment is more commonly referred to as a(n):

balloon payment

With the arrival of subprime mortgages in recent years, a new kind of “trigger” event became apparent in leading households to default. Which of the following trigger events is primarily associated with most defaults that have occurred during the most recent subprime mortgage crisis?

mortgage payment spikes

Suppose a homeowner is reluctant to refinance until he is reasonably sure that interest rates are not going to fall appreciably from where they currently are. In this case, the homeowner appears to be concerned about which of the following costs associated with refinancing?

Closing or refinancing cost

When the amount owed on a mortgage loan exceeds the current value of the property, the
mortgage is said to be:

underwater.

The Department of Veteran Affairs (VA) will guarantee loans to eligible veterans up to
_________ percent of a property’s value. For this, the VA charges a funding fee that is a
percentage of the loan, with the percentage of the fee based on the down payment and the
service classification of the veteran.

25%

Suppose that you are in the process of deciding whether or not to refinance your fixed rate mortgage at a lower rate and you are interested in using the payback period rule of thumb to help you in your decision. Your lender has informed you that the cost of refinancing would be $4,300. If your original monthly mortgage payment were $1,250 and your new monthly mortgage payment would be $1,150 after refinancing, determine the payback period.

43 months

Suppose you have obtained a 6%, 30 year fully amortizing FHA mortgage loan of $152,625 to finance the purchase of your primary residence. In so doing, you must pay an additional mortgage insurance premium (MIP) of 1.10%. If the first-year average loan balance is $151,775.25, determine the first-year monthly insurance premium payment.

$139.13

Real estate brokers serve as intermediaries by bringing buyers and sellers together in the real estate market. For this service, brokers are paid what is commonly referred to as a:

Commission

The importance of brokers in the real estate market is often overlooked. In the absence of a real estate broker, one would expect all of the following to be true EXCEPT:

The asking price would most likely be higher, on average, than in the case where a broker was involved because the seller is in total control of the sale.

The individual or entity that grants authority to the broker to act on their behalf is more commonly referred to as the:

Principal

Under the _________ a real estate broker is given the right to act on behalf of another

individual or entity who is trying to buy or sell a property.

Law of agency

In the basic principal-agent relationship of real estate brokerage, real estate brokers act in the capacity of a:

Special agent

In acting as an agent for another person, the broker carries several special responsibilities, which by law must be adhered to throughout the transaction process. These responsibilities constitute what is commonly referred to as a:

fiduciary relationship.

In a “traditional brokerage” relationship, the relation between the selling broker and the buyer is typically classified as which of the following (Hint: In this relationship, the buyer is simply a customer of the seller-broker firm rather than a client):

arm’s length” relationship

One solution for addressing conflicts of interest that arise from dual agency scenarios is for a broker to appoint a separate salesperson to represent each client. The appointed agent is considered a:

Designated agent

In dual agency, conflicts of interest may arise since a single broker has both the listing
contract with the seller and a buyer agency agreement with the purchaser. One way that states have attempted to deal with this issue is to develop a new type of brokerage relationship in which the broker assists the buyer and seller, but does not represent either party. This type of brokerage relationship is commonly referred to as:

Transaction brokerage

One of the traditional requirements for individuals who wish to obtain a brokerage license has been to demonstrate financial capacity to cover damage judgments brought against them by clients. In order to address this concern, some states have required licensees to first obtain:

Errors and omission insurance

State licensing laws prescribe behavioral requirements with which licensees must comply to keep their licenses. Licensing laws generally seek to prevent brokers from partaking in all of the following activities EXCEPT:

Handling money in trust for clients

Although the function of commercial brokerage is the same as that of residential brokerage, the activities of commercial brokers usually differ considerably from those of residential brokers due to fundamental differences in these two markets. All of the following statement regarding commercial brokerage are true EXCEPT:

The parties in commercial mortgage transactions are typically less knowledgeable than those in residential transactions.

Critical to any listing contract is the question of when the broker becomes entitled to a commission. Traditionally, the broker is still entitled to a commission in all of the following scenarios EXCEPT:

If a contract is contingent upon the buyer obtaining financing and the buyer is unable to do so.

There are a number of different types of listing contracts that can be used when marketing a
property. Which of the following types of listings requires the broker to be paid a
commission if any other broker, or even the owner, sells the property during the contract
period?

Exclusive right of sale listing

The recent emergence of discount brokerage services has had a modest effect on the price of brokerage services. The average commission that a broker could expect to receive today
would most likely range between:

5-6%

There are a number of different types of listing contracts that can be used when marketing a property. Which of the following types of listings allows property owners to list the property with more than one broker?

open listing

Which of the following duties refers to a broker’s obligation to never subordinate the best interest of their principal to the interests of others?

loyalty

Which of the following duties refers to a broker’s obligation to keep the principal informed about financial aspects of their assignment?

Accounting

There are three basic types of sale/leasing listing contracts. These include all of the following EXCEPT:

Multiple listing

In an open-listing contract, an individual broker is entitled to a commission if:

She procures the buyer of the property.