REA Market Research & Analysis 3 — Questions and Answers
Question 1: The 'highest and best use' analysis in real estate requires that the use be:
- The use currently in place on the property
- The most profitable use regardless of legal constraints
- Approved by local zoning only
- Legally permissible, physically possible, financially feasible, and maximally productive (Correct answer)
Correct answer: Legally permissible, physically possible, financially feasible, and maximally productive
Highest and best use must satisfy all four criteria: legally permissible, physically possible, financially feasible, and maximally productive.
Question 2: A real estate analyst using a hedonic pricing model is attempting to:
- Isolate the value contribution of individual property attributes (Correct answer)
- Forecast future rent growth using GDP
- Calculate a cap rate from recent sales
- Measure a property's energy efficiency score
Correct answer: Isolate the value contribution of individual property attributes
Hedonic pricing models statistically isolate how individual property characteristics (size, location, amenities) each contribute to overall market value.
Question 3: When conducting a competitive supply analysis for a proposed multifamily development, which projects should be included in the competitive set?
- Only projects currently under construction within 1 mile
- All residential properties within the metro area regardless of type
- Only stabilized projects that have been operating for 3+ years
- Existing and pipeline projects with similar unit mix, quality, and target renter profile in the submarket (Correct answer)
Correct answer: Existing and pipeline projects with similar unit mix, quality, and target renter profile in the submarket
The competitive set must reflect projects that would directly compete for the same tenants based on product type, quality, and location.
Question 4: In real estate market analysis, 'shadow demand' refers to:
- Demand generated by property shadow from adjacent buildings
- Demand from investors rather than owner-occupants
- Latent housing need from households that are doubling up or living in substandard conditions (Correct answer)
- Unrecorded off-market transactions
Correct answer: Latent housing need from households that are doubling up or living in substandard conditions
Shadow demand represents suppressed or latent housing demand from households not currently forming independently due to economic or housing supply constraints.
Question 5: Which indicator is the LEADING indicator of future residential construction activity?
- Housing completions
- Building permits issued (Correct answer)
- Mortgage delinquency rates
- Existing home sales volume
Correct answer: Building permits issued
Building permits represent authorized future construction and are classified as a leading economic indicator of housing supply activity.
Question 6: A market analyst observes that office rents in a submarket are rising despite high vacancy. The most likely explanation is:
- High vacancy always leads to rent growth
- Landlords are colluding to set above-market rents
- The data sources are contradictory and unreliable
- The vacant space is functionally obsolete and not competitive with new Class A supply being leased (Correct answer)
Correct answer: The vacant space is functionally obsolete and not competitive with new Class A supply being leased
When older, obsolete space skews vacancy upward while modern Class A space leases quickly, rents can rise even as aggregate vacancy remains elevated.
Question 7: In a retail market study, 'sales per square foot' is used primarily to:
- Determine parking ratios required by zoning
- Calculate property tax assessments
- Measure retail tenant productivity and benchmark performance against industry standards (Correct answer)
- Estimate HVAC load requirements
Correct answer: Measure retail tenant productivity and benchmark performance against industry standards
Sales per square foot benchmarks how efficiently a retail tenant generates revenue relative to its occupied space, indicating store viability.
REA Market Research & Analysis 3
The 'highest and best use' analysis in real estate requires that the use be: