REA Due Diligence & Risk Assessment 1

Question 1

What is the primary purpose of a Phase I Environmental Site Assessment in real estate due diligence?

Accepted Answer

To identify potential environmental contamination on a property

Answer

A Phase I ESA identifies recognized environmental conditions (RECs) that suggest potential contamination without invasive testing.

Question 2

Which document provides a buyer with the legal description, easements, and encumbrances on a property?

Accepted Answer

Title commitment

Answer

A title commitment discloses all liens, easements, covenants, and encumbrances affecting the property's title.

Question 3

During due diligence, a real estate analyst discovers that a tenant's lease contains a co-tenancy clause. What risk does this present?

Accepted Answer

Anchor tenant departure may allow other tenants to reduce rent or terminate leases

Answer

A co-tenancy clause allows tenants to reduce rent or exit their lease if a key anchor tenant leaves, threatening income stability.

Question 4

What does a 'estoppel certificate' confirm during due diligence?

Accepted Answer

A tenant's acknowledgment of lease terms, rent paid, and any landlord defaults

Answer

An estoppel certificate is a signed tenant statement confirming current lease terms, rent amounts, and absence of landlord defaults.

Question 5

Which risk is most directly assessed through a Property Condition Assessment (PCA)?

Accepted Answer

Deferred maintenance and capital expenditure needs

Answer

A PCA identifies physical deficiencies, deferred maintenance, and projects capital expenditure requirements over a forecast period.

(REA) Real Estate Analyst Certification Practice Test