Chapters 15, 16, and 18

Chapter 9 and 14

King Abdullah Financial District

Exam 1

Multiple choice questions – 2 points each x 40 = 80 points possible

1. What is real estate?

A. land and buildings

B. a bundle of rights

C. an industry

D. all of the above

2. What is an example of intangible property?

A. automobile

B. lease agreement

C. land

D. iPhone case

3. Can the cost of something be different than the value?

A. yes

B. no

4. Is real property tangible or intangible?

A. tangible

B. intangible

C. both

D. neither

5. What three markets interact in real estate?

A. users, capital, property

B. land, labor, capital

C. capital, financial, money

D. debt, equity, capital

6. If a property income is 100,000 and the capitalization rate is 8 percent, what is the value indication?

A. 80,000

B. 800,000

C. 1,250,000

D. 250,000

7. If a property value is 700,000 and the capitalization rate is 9 percent, what is the income?

A. 63,000

B. 7,777,777

C. 77,000

D. 6,300,000

8. What is the strongest possessory interest estate?

A. leased fee

B. fee simple

C. leasehold

D. tenancy at sufferance

9.  What is a life estate?

A. ownership until the death of someone

B. a leasehold right

C. tenancy at sufferance

D. all of the above

10. Do leaseholds have titles to property?

A. yes

B. no

11. What type of deed is most preferred?

A. quitclaim deed

B. sheriff’s deed

C. warranty deed

D. seller deed

12. An easement is a ________________

A. non-possessory right in real estate.

B. debt

C. loan

D. tenancy at sufferance

13. What right is most preferred?

A. easement

B. license

C. servient

D. appurtenant

14. Can you sell property and retain some of the rights?

A. yes

B. no

15. Do real estate contracts require consideration?

A. yes

B. no

16. What are three powers that government exercises over real estate?

A. habeas corpus, regulation, taxation

B. taxation, taking, regulation

C. taking, taxation, easement

D. regulation, taxation, habeas corpus

17. What is an externality?

A. costs or benefits on a third party

B. leasehold interest
C. condemnation

D. inversion

18. When the Saudi government needs land to build a road, do they have to pay the owner?

A. yes

B. no

19. If the Saudi employment in the finance sector is 10 percent and the Riyadh local quotient is 2.7, what is the local employment rate in that sector?

A. 27%

B. 270%

C. 3.7%

D. 12.7%

20. ________________ stores cluster and ____________ stores disperse

A. comparison, convenience

B. magnet, big box

C. retail, wholesale

D. convenience, comparison

21. What two perspectives are considered under the Highest and Best Use Analysis?

A. as vacant and as improved

B. technically feasible, financially feasible

C. cost approach and DCF

D. retrospective, prospective

22. Can you have more than one highest and best use?

A. yes

B. no

23. What are three type of depreciation considered under the cost approach?

A. cost, sales, income

B. equity, debt, market

C. short-lived, long-lived, non-reproducing

D. physical, functional, external

24. A building is 20 years old and has an economic life is 30 years. The cost new is 5000 per square meter. What is the effective rate?

A. 3,333

B. 6,500

C. 1,667

D. 6,667

25. Calculate the value of the subject property under the cost approach:

Land value: 2,000,000

Building size: 1,000 square meters

Building cost new: 5,000 SAR per square meter.

Estimated economic life: 40 years

Building age: 10 years

A. 5,750,000

B. 7,000,000

C. 3,250,000

D. 6,666,666

26. If a property is superior to the subject, what kind of adjustment do you make to the sale price?

A. positive

B. negative

27. What do you call a situation where you have a tenant but they don’t pay rent?

A. vacancy loss

B. equity loss

C. expense loss

D. credit loss

28. If you manage your own building, should you charge a management fee in your income statement?

A. yes

B. no

29. What does the reciprocal of the capitalization rate tell you?

A. the years to recover the purchase price

B. the price to earnings ratio

C. the reversion rate

D. the yield rate

30. If a comparable property sold at an 8 percent capitalization rate, and it is superior to the subject property, what capitalization rate should you use?

A. greater than 8 percent

B. less than 8 percent

C. 8 percent

D. between 7 and 9 percent

31. If a property sold last year for 100,000 and then resold last week for 125,000, how much should I adjust for changes in market conditions?

A. +2 percent per month

B. -2 percent per month

C. +5 percent per month

D. no adjustment necessary

32. A comparable property sold for 4000 per square meter. It is considered 5 percent better in terms of location and 15 percent inferior in terms of age and condition. What is the indicated rate per square meter for the subject property?

A. 3,200

B. 3,600

C. 4,400

D. 4,800

33.  A comparable property sold for 5000 per square meter. It is considered 10 percent inferior in terms of location and 20 percent inferior in terms of age and condition. What is the indicated rate per square meter for the subject property?

A. 5,500

B. 4,500

C. 7,500

D. 3,500

This question was dropped. The correct indication was 6,500. If you calculated the correct score and noted the calculation you were given 2 bonus points.

34. What expenses do owners typically not include in their income statements?

A. credit and vacancy loss

B. depreciation and interest

C. management and reserves for replacements

D. reversion and reconstructed

35. If the market capitalization rate is 8 percent, and the subject property is generating 100,000 in net operating income, and the comparables are inferior to the subject property, what would the value indication be?

A. 1,250,000

B. more than 1,250,000

C. less than 1,250,000

D. not enough information

36. If the average capitalization rate is 7 percent, but one sale is judged to be most comparable and is generating a 9 percent rate, what rate should you use?

A. 7 percent

B. 9 percent

C. between 7 and 9 percent

D. 8 percent

37. Can a building be new and still suffer from depreciation?

A. yes

B. no

38. Can land have a negative value?

A. yes

B. no

39. What is generally the most appropriate appraisal approach for single family residential properties?

A. cost

B. sales

C. income

D. discounted cash flow

40. Can you value a property if there are no comparable sales and no income?

A. yes

B. no

Short Answer – 5 points each x 2 questions = 10 points possible

1.            Sale        Rate

1             12%

2             10%                                       

                3             9%

If you consider sale 3 to be the most comparable, and give it 70 percent of the weight, what would be the indicated rate?

12% x 15% = 1.8%

10% x 15% = 1.5%

9%   x 70% = 6.3%

= 9.6%

2. What are the four considerations in highest and best use?

Physically Possible

Legally Permissible

Financially Feasible

Maximally Productive

 

Analysis Question – 10 points

Consider the following comparable sales data. What is your estimate of a value for the subject property and explain why.

Will discuss in class