Real Estate Valuation, Financing, and Market Analysis: Comprehensive Guide

Which approach involves projecting future expected cash flows for property valuation?

Income approach

What type of property would the cost approach to valuation most likely be used for?

Education facility

What is a characteristic that distinguishes real estate markets from stock markets?

Market prices are revealed almost instantaneously to prospective buyers.

How should the transaction price of a comparable property be adjusted if it had favorable financing terms?

The transaction price should be adjusted downward.

If a comparable property does not have a fireplace, how should its transaction price be adjusted?

The transaction price should be adjusted upward.

What refers to the loss in market value due to deterioration of the subject property's neighborhood?

External obsolescence

What best describes the concept of market value?

It is an estimate of the most probable selling price of a property in a competitive market.

Which approach estimates the dollar value associated with replacing a property new?

Cost approach

What is the proper sequence for making adjustments to a comparable property?

Financing terms, market conditions, location.

What type of transactions is most appropriate for the sales comparison approach to valuation?

Arm's-length transactions

What rate should be used to determine the present value of forecasted cash flows in DCF methodology?

Required internal rate of return

What is the fundamental element needed to determine market value for an income-producing property?

Net operating income

What is the expected relationship between the going-in cap rate and the going-out cap rate?

The going-in cap rate will be lower than the going-out cap rate.

What does an increase in cap rates over time indicate?

Property values have decreased.

What are the ordinary expenditures owners expect to incur to keep a property competitive called?

Operating expenses

What is the method of estimating a cap rate from comparable properties called?

Direct market extraction

For which property type is a gross-income multiplier most appealing to use?

Apartments

What are the expected costs to make improvements that prolong a building's life called?

Capital expenditures

What does a 'below-line' treatment of capital expenditures imply?

Capital expenditures are subtracted from net operating income.

What is the ratio of a property's selling price to its effective gross income called?

Gross income multiplier

Why is foreclosure considered the ultimate recourse of the lender?

It allows the lender to sell the property to recover outstanding indebtedness.

What is the role of the mortgagee?

The lender who receives the mortgage claim.

How long does a default remain on a borrower's credit record?

7 years.

What is the market determined interest rate in an adjustable rate mortgage called?

Index rate.

What clause allows a lender to require full payment of a loan if the borrower defaults?

Demand clause.

What are states called where there is a temporary transfer of title to the lender at the time of the mortgage loan?

Title theory states.

What two components typically make up standard mortgage loan payments?

Interest and principal repayments.

What does it mean if a loan is negatively amortizing?

Scheduled payments are insufficient to cover accumulating interest.

What is the temporarily reduced interest rate in adjustable rate mortgages called?

Teaser rate.

What are prepayment restrictions on first mortgage home loans?

Prepayment restrictions are prohibited in most cases.

What clause gives the lender the right to accelerate the loan if a property is sold?

Due-on-sale clause.

What is the market called where borrowers and lenders come together for property financing?

Primary mortgage market.

What feature must a loan have to be considered a qualified mortgage?

It must meet designated underwriting requirements.

What is the market called where mortgage originators sell mortgages to other institutions?

Secondary mortgage market.

What are mortgage loans that meet all underwriting standards except for the dollar size limit called?

Jumbo loans.

What is the predominant form of prime conventional mortgage?

Fixed rate level payment mortgage (LPM).

What type of loans do Fannie Mae and Freddie Mac purchase?

Conforming conventional loans.

What are loans that fail to meet underwriting standards called?

Nonconforming loans.

How do conforming loans compare to nonconforming loans in terms of interest rates?

They carry a lower interest rate.

Why is the annual percentage rate (APR) often criticized?

It usually understates the true cost of borrowing.

What does refinancing refer to in mortgage terms?

Replacing an old mortgage loan with a new one.

What is the single value determined at the end of the sales comparison approach called?

Indicated value.

What is accrued depreciation?

The difference between current market value and total cost to reproduce a building new.

What is the term for the value an investor places on a property?

Investment value.

What imposes ethical obligations and standards for real estate professionals?

Uniform Standards of Professional Appraisal Practice (USPAP).

What is the process of weighing the reliability of value indicators called?

Reconciliation.

How many comparable sales are considered adequate for an appraisal assignment?

Three

What is the proportion of potential gross income not collected in the rental market called?

Natural vacancy rate

What is the process of converting periodic income into a value estimate called?

Income capitalization

What best describes the direct capitalization method?

Value estimates are based on a multiple of the expected first year net operating income.

What is used to estimate the terminal value of a property in direct capitalization?

Going-out cap rate

What is the rental income a property would command if all space were leased at current rates called?

Market rent

What exemplifies a fixed expense in operating expenses?

State and local property taxes

Which type of bankruptcy is a court-supervised workout for a troubled business?

Chapter 11 bankruptcy

Which type of bankruptcy is a court-supervised workout for a troubled household?

Chapter 13 bankruptcy

What clause enables a lender to declare the entire loan balance due upon default?

Acceleration clause

What allows for a secured real estate loan without a mortgage?

Contract for deed

What is the right to reclaim a property after foreclosure called?

Equity of redemption

After how many days of overdue payment do lenders treat a default as serious?

90 days

What type of loans allows a buyer to preserve an existing loan by signing the note?

Assumable loans

What type of bankruptcy involves liquidating a debtor's assets?

Chapter 7 bankruptcy

Which act prohibits discrimination in lending practices?

Equal Credit Opportunity Act (ECOA)

What are loans created simultaneously with a first mortgage to avoid PMI called?

Piggyback mortgage loans

What are second mortgage loans that borrow against home equity called?

Home equity loan

Which refinancing methodology is criticized for not accounting for cost variations?

Interest rate spread

Who pays for FHA insurance that protects lenders against borrower default?

The borrower

What scenario would result in a higher mortgage insurance premium?

Higher loan-to-value ratio

What type of loan helps older households by offering additional monthly income?

Reverse mortgage

What is it called when a borrower stops making payments despite being able to?

Strategic default

What is a transaction where a buyer pays part cash and part note for a property called?

Purchase money mortgage