RAA Real Estate Market 3 — Questions and Answers
Question 1: The concept of 'linkage' in real estate refers to:
- The legal chain of title
- The time-distance relationship between a property and supporting land uses (Correct answer)
- Connecting comparable sales in an adjustment grid
- The bond between buyer and seller in a transaction
Correct answer: The time-distance relationship between a property and supporting land uses
Linkage describes the time-distance relationship between a property and the uses it depends on, such as employment centers or shopping.
Question 2: A real estate market cycle typically includes which four phases IN ORDER?
- Peak, Expansion, Trough, Recovery
- Expansion, Peak, Contraction, Trough (Correct answer)
- Recovery, Trough, Expansion, Peak
- Contraction, Trough, Recovery, Peak
Correct answer: Expansion, Peak, Contraction, Trough
The standard real estate cycle progresses through Expansion (rising demand), Peak (highest activity), Contraction (declining activity), and Trough (lowest point).
Question 3: Supply in the real estate market is considered INELASTIC primarily because:
- Builders can quickly respond to demand changes
- Real property is immobile and production takes time (Correct answer)
- Government regulations have no effect on supply
- Land is always abundantly available
Correct answer: Real property is immobile and production takes time
Real estate supply is inelastic because construction takes considerable time and property is fixed in location, preventing rapid supply response to demand changes.
Question 4: Which economic base analysis concept states that local employment is divided into basic (export) and non-basic (service) sectors?
- Input-output theory
- Bid-rent theory
- Economic base theory (Correct answer)
- Central place theory
Correct answer: Economic base theory
Economic base theory divides local employment into basic industries that export goods/services and non-basic industries that serve the local population.
Question 5: An appraiser notes that a neighborhood has a high rate of homeownership and well-maintained properties. These are indicators of:
- Functional obsolescence
- A transitional neighborhood in decline
- Neighborhood stability (Correct answer)
- An overbuilt market
Correct answer: Neighborhood stability
High homeownership rates and well-maintained properties indicate owner pride and investment, which are signs of neighborhood stability.
Question 6: The multiplier effect in economic base analysis predicts that for every new basic sector job added:
- One non-basic job is eliminated
- Multiple non-basic (service) jobs are created (Correct answer)
- Population decreases proportionally
- Housing demand remains unchanged
Correct answer: Multiple non-basic (service) jobs are created
Each basic sector job that brings outside income creates additional non-basic service jobs to support the increased local spending.
Question 7: Which market condition would MOST likely lead to an increase in foreclosure activity?
- Declining interest rates
- Rising employment levels
- Negative equity positions combined with high unemployment (Correct answer)
- Increasing home equity values
Correct answer: Negative equity positions combined with high unemployment
Foreclosures increase when homeowners owe more than the property is worth (negative equity) and cannot make payments due to unemployment.
RAA Real Estate Market 3
The concept of 'linkage' in real estate refers to: