NAME: _______________________________
BSAD 295: Real Estate Finance
Midterm Exam
I. Multiple Choices (40%)
(
a) 1. You are asked to appraise a vacant parcel of land. Your analysis shows that if apartments
were constructed, the portion of the NOI attributable to the land would be $30,000 per year. If
offices were constructed, the portion attributable to land would be $25,000, and the portion
contributed by a small neighborhood shopping center would be $27,500. All of these uses
would be legal. If the appropriate cap rate for the land is 10.5%, what is the value of the site?
a. $285,714
b. $238,095
c. $261,904
d. $250,000
e. none of the above
(
b) 2. You are estimating the value of a small office building. Suppose the estimated NOI for the
first year of operations is $100,000. If you expect that NOI will remain constant at $100,000
over the next 50 years and that the office building will have no value at the end of 50 years,
what is the present value of the building assuming a 12.2% discount rate?
a. $819,672
b. $817,078
c. $5,000,000
d. None of the above
e. Not enough information to arrive at the answer
(
a.
b.
c.
d.
e.
(
d) 3. Which of the following is NOT a form of property right?
Lien
Easement
Leasehold
License
Mineral rights
a)
a.
b.
c.
d.
e.
(
a.
b.
c.
d.
e.
4. Of these real estate investments, the riskiest is
Raw land
A single-family residence
A hotel
An apartment
an office building
b) 5. Rent (the rental rate) is determined by the supply and demand in
the capital market
the space market
the stock market
the commodity market
the money market
(
c) 6. Mr. Jones just bought an office building in Manhattan. The going-in cap rate was 3%. Mr.
Jones’ expected return was 8%. Which of the following is true?
a. That was a good deal for Mr. Jones.
b. That was a bad deal for Mr. Jones.
c. Mr. Jones expected property appreciation.
d. Mr. Jones did not expect property appreciation because he is a long-term investor.
e. None of the above.
(
a)
a.
b.
c.
d.
e.
(
b) 8. When the mayor of Collegeville emphasizes the quality of life in that city, the mayor tries to
address the growth of the city
a. from the demand side
b. from the supply side
c. in an effective way
d. in a timely manner
e. none of the above
(
d)
a.
b.
c.
d.
e.
(
d) 10. When one use the sales comparison approach to appraise a house, which of the following
adjustments is often particularly difficult to implement?
a. Size adjustment
b. Market condition adjustment
c. Location adjustment
d. Financial terms adjustment
e. Non-realty items adjustment
7. The real estate value to a typical investor is called:
Appraisal value
Investment value
Fundamental value
Intrinsic value
None of the above
9. Which of the following seems to be an ideal location for a regional shopping center?
a clustering location
an expensive location
an inexpensive location
a central place location
a rural location
II. Essays/Calculations (60%)
1. Given the following owner’s income and expense estimates for an apartment property, formulate a
reconstructed operating statement. The building consists of 10 units that could rent for $550 per month
each.
Owner’s Income Statement
Rental income (last year)
$60,600
Less: Expenses
Power
$2,200
Heat
1,700
Janitor
4,600
Water
3,700
Maintenance
4,800
Reserves
2,800
Management
3,000
Depreciation
5,000
Mortgage payments
6,300 34,100
Net income
$26,500
Estimating vacancy and collection losses at 5 percent of potential gross income, reconstruct the operating
statement to obtain an estimate of NOI. Remember, there may be items in the owner’s statement that
should not be included in the reconstructed operating statement. Using the NOI and a Ro of 11.0 percent,
calculate the property’s indicated market value.
2. A property tax owner who owes 8 mills in school taxes, 10 mills in city taxes, and 5 mills in county
taxes and who qualifies for a $25,000 homestead exemption would owe how much tax on a property
assessed at $80,000?
3. Explain how title insurance works. What risks does it cover? Who pays? What common exceptions
does it make?
4. Real estate assets and markets are unique when compared to other assets or markets. Discuss the
primary ways that real estate markets are different from the markets for other asset that trade in welldeveloped public markets.
5. Defining the following terms: (a) estates, (b) bid-rent curve, (c) fee simple, (d) location quotient.
6. Please discuss the USPAP appraisal process (6 steps).