Multiple Choice Questions Flashcards

Which of the following factors should be considered the least when evaluating a location for commercial use?

Answer: Amenities

When evaluating a location for commercial use, factors like zoning regulations, convenience to shipping and labor, and the community's purchasing power are critical for business success and operational efficiency. While amenities (such as parks or scenic views) might be important for residential properties, they are generally considered the least significant factor for commercial properties, whose value is primarily driven by economic utility and access to markets and resources.

The adage, "The value of the best property in a neighborhood will be adversely influenced by the existence of relatively poor property," refers to the notion of:

Answer: Regression

The principle of regression states that the value of a superior property will be negatively affected by the presence of lesser-quality properties in its vicinity. Conversely, the principle of progression suggests that the value of a lesser property will be enhanced by the presence of superior properties. This concept highlights how surrounding properties influence the market value of an individual property.

You and the owner have agreed to lease a store facility for ten years at a total rental cost of $12,000.00 payable at the rate of $100.00 per month. An advance payment of $200 must be made, which covers the first and last months' rent. It would not be acceptable to include a condition addressing which of the following in the terms of this lease, given the duration agreed upon?

Answer: Escalation clause, tied to the cost of living index

An escalation clause, tied to the cost of living index, would allow the rent to increase over the lease term. However, the question explicitly states a 'total rental cost of $12,000.00 payable at the rate of $100.00 per month' for a ten-year lease. This fixed total and monthly rate means that an escalation clause, which would alter these agreed-upon figures, would contradict the fundamental financial terms already established in the lease agreement.

A real estate professional would be aware of the following associations between the names "Inwood and Hoskold":

Answer: Estimating values

Inwood and Hoskold are names associated with specific tables and methods used in real estate appraisal, particularly for valuing income-producing properties or leasehold interests. These tables provide factors for calculating present value, future value, and amortization, which are essential tools for appraisers in estimating property values based on anticipated income streams.

Which of the following is an occupant of land?

Answer: All of the above

This question uses 'occupant of land' in a non-standard way, referring to appurtenances or rights that are legally part of or associated with the land. Stock in a mutual water company (if it provides water to the land), anything legally acquired for use on the land (fixtures), and a right-of-way easement over adjoining land are all examples of rights or items that can 'run with the land' or be considered part of the property's value and utility, benefiting the owner or occupant.

A man left a 2⁄3 and 1⁄3 interest in his estate, with the right of survivorship, to his favorite nephew William and his wife Helen. William and Helen would hold the following titles:

Answer: Tenants in Common

Joint tenancy requires the 'four unities,' one of which is the unity of interest, meaning all joint tenants must hold equal, undivided interests in the property. Since William and Helen are left with unequal shares (2/3 and 1/3), they cannot hold title as joint tenants. Therefore, despite the mention of a 'right of survivorship,' the unequal interests dictate that they would hold the property as tenants in common, which allows for varying ownership percentages.

The following are defined as "the relationship between a thing desired and a possible purchaser":

Answer: Value

This phrase describes the fundamental concept of 'value' in an economic and real estate context. Value is not merely about cost or utility in isolation, but rather the perceived worth of a good or service in relation to its desirability and the willingness of a potential buyer to exchange something of worth for it. It represents the intersection of supply, demand, and purchasing power in the market.

The interest held by the sublessor in real property when subleased is frequently referred to as:

Answer: A sandwich lease

When a tenant (the sublessor) subleases their leased property to another party (the sublessee), the original tenant retains a leasehold interest in the property. This intermediate leasehold interest, positioned between the original landlord's lease and the sublessee's lease, is commonly referred to as a 'sandwich lease.' The sublessor is both a tenant to the original landlord and a landlord to the sublessee.

Which of the following amounts has been invested by a person who earns $225 per month from a money market savings account that yields 7 1⁄2% annually?

Answer: $36,000

To determine the amount invested, first calculate the total annual earnings by multiplying the monthly earnings ($225) by 12 months, which equals $2,700. Then, divide the annual earnings by the annual yield rate (7.5% or 0.075). This calculation ($2,700 / 0.075) reveals that the person has invested $36,000.

When performing these calculations, an appraiser utilizing the cost technique may utilize the unit cost per square foot or cost per cubic foot. Considering unit costs:

Answer: A small house would cost more than a large house

When using the cost approach in appraisal, the unit cost per square foot (or cubic foot) typically decreases as the size of the building increases. This is due to economies of scale; fixed costs like permits, foundation, and utility connections are spread over a larger area in a bigger house, making the per-unit cost lower. Conversely, a smaller house will have these fixed costs distributed over fewer square feet, resulting in a higher unit cost.