Fundamentals of Real Estate TEST 1

1. A market where tenants negotiate rent and other terms with property owners or their managers is referred to as a

user market

2. The market in which required rates of return on available investment opportunities are determined is referred to as the:

capital market

3. The actions of local, state, and federal governments affect real estate values

all the above

4. Approximately what portion of U.S. households own their own home?

Approximately two-thirds

5. Of the following asset categories, which class has the greatest aggregate market value?

nongovernment real estate

6. Storm water drainage systems are best described as:

improvements to the land

7. What is the single largest asset category, in terms of value, in the portfolio of the typical U.S. household?


8. Real estate markets differ from other asset classes by having all of the following characteristics except:

homogeneous product

9. Which of the following is not important to the location of commercial properties?

access to schools

Which of the following attributes of a home are the most difficult to observe and value?

location attributes

1. The term real estate can be used in three fundamental ways. List these three alternative uses or definitions.

Real estate is most commonly defined as land and any improvements made to or on the land, including fixed structures and infrastructure components. The term is also used to describe the "bundle of rights" associated with the ownership and use of the physi

2. The U.S. represents about 6 percent of the earth's land service, or approximately 2.3 billion acres. Who actually owns this land? What is the distribution of this land among the various uses (e.g., developed land, federal, land, forest land).

Developed land, consisting of residential, industrial, commercial, and institutional land, represents approximately 6 percent of the total land in the U.S. Federal lands and water areas occupy about 23 percent of the land; crop land and CRP land represent

3. Describe the value of U.S. real estate by comparing it to the values of other asset classes (e.g., stocks, bonds).

As of September 2005, real estate (including owner-occupied housing, but excluding real estate held by non-real estate corporations) was the single largest asset class in the U.S., valued at approximately $23.4 trillion. Publicly traded corporate equities

4. How much of the wealth of a typical U.S. household is tied up in real estate? How does this compare to the role that assets and investments play in the portfolios of U.S. households?

Real estate is the single largest asset in the typical U.S. household's portfolio, representing approximately 30 percent of household wealth in September of 2005. In comparison, the total value of corporate stocks and mutual fund shares represents 16 perc

5. 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 well-developed public markets.

Real estate is unlike other asset classes because it is heterogeneous and immobile. Real estate assets have unique and distinctive characteristics, such as age, building design, and location. Real estate is also immobile; therefore, location is an importa

6. Explain the role of government in real estate at the federal, state, and local level. Which has the most significant impact on real estate markets?

Local government has the most influence on real estate markets. It affects the supply and cost of real estate through zoning and land use regulations, fees on new land development, and restrictive building codes. It also affects rental rates through the a

7. Identify and describe the interaction of the three economic sectors that affect real estate value.

The three economic sectors that influence real estate value are user markets, capital markets, and government. In real estate user markets, households and firms compete for physical location and space. This competition determines who will obtain the use o

8. Real estate construction is a volatile process determined by the interaction of the user and capital markets. What signals do real estate producers use to manage this process? What other factors affect the volatility of real estate production?

When real estate market prices exceed the cost of production, this signals producers to build, or add additional supply. As the supply of real estate increases, rental rates decline in the user market, which lowers property values and signals the real est

1. Which of the following is not a form of property right?


2. Which of these easements is most likely to be an easement in gross?

power line easement

3. Rules used by courts to determine whether something is a fixture include all except:

law of capture

which of the following is a titled estate

all the above

5. Which of these forms of co-ownership could best be described as "normal ownership," except that multiple owners share identically in one bundle of rights?

community property

which of these liens has the highest priority

property tax lien

1. Explain how rights differ from power or force, and from permission.

Rights have three characteristics. First, rights are claims or demands that our government is obligated to enforce. Second, rights are nonrevocable and cannot be canceled, ignored, or otherwise lessened by other private citizens. Third, rights are endurin

2. A developer of a subdivision wants to preserve the open space and natural habitat that runs along the back portion of a series of large lots in the proposed subdivision. He is debating whether to use restrictive covenants to accomplish this or to creat

A developer may choose to use restrictive covenants to limit the use of the land for environmental purposes, while maintaining the quality, stability, and value of the surrounding lots. Restrictive covenants are strictly private because only parties of in

3. Why are restrictive covenants a good idea for a subdivision? Can they have any detrimental effects on the subdivision or its residents? For example are there any listed in the chapter that might have questionable effects on value of a residence?

Restrictive covenants are used most often in subdivision developments to ensure the quality, stability, and value of the lots. However, they can sometimes have detrimental effects on the subdivision. For example, adding a free standing garage or a chain l

4. The traditional common law concept of landlord-tenant relationship was that the landlord's obligation was simply to stay off the property and the tenant's obligation was to pay the rent. Explain why this is an obsolete arrangement for apartment residen

Historically, the common law application of a landlord-tenant relationship centered on agrarian relationships formed in pre-industrial England. Modern society views residential tenancy as the provision of services. It can be difficult or impossible for on

5. A friend has an elderly mother who lives in a house adjacent to her church. The church is growing, and would welcome the opportunity to obtain her house for its use. She would like to support the needs of her church, but she does not want to move and f

One possible option is to unbundle the fee simple absolute into an ordinary life estate and remainder estate. The church can purchase a remainder estate while the owner retains a life estate. The owner thereby receives either additional income or, if the

6. A friend has owned and operated a small recreational vehicle camp on a lake in Daytona Beach, Florida. It is close to the ocean and close to the Daytona Speedway, home of the Daytona 500 and a host of other prominent races. The occupants are very loyal

Maintaining ownership of the small recreational vehicle camp provides the owner continued control of the property, but she also retains responsibility for property management and expenses associated with running the camp. Converting the space to condomini

7. In the United States, the bundle of rights called real property seems to have gotten smaller in recent decades. Explain what has caused this. Why is it good? Why is it bad?

The bundle of rights has gotten smaller in recent decades because of the government's increased use of its police power. The government has the duty to protect the health, safety, and welfare of the American people. Additionally, after the 1970's, the con

1. Which of these is not a requirement of a valid deed?

competent grantee

2. The interest being conveyed by a deed is specified in the:

habendum clause

3. The "highest quality" form of deed is the:

general warrantee deed

4. A deed used mainly to clear up possible "clouds" or encumbrances to title (conflicting interests) is the:

quitclam deed

5. If a landowner sells the front part of a parcel of land, retaining the back portion as a "land-locked" parcel, and if there is an existing informal path across the front parcel to the back one, the seller is likely to retain the path as a (an):

Implied easement by prior use.

6. If a neighboring land owner drives across a person's land openly and consistently for a number of years the neighbor may acquire an easement by:


7. If documents conveying interests in real property are properly recorded in the public records, then they are binding or enforceable on all persons, regardless of whether those persons are aware of the documents, by the:

Doctrine of constructive notice.

8. Which of these is a widely used form of "evidence of title

Title insurance commitment.

9. The most common form of legal description for urban residential property is the:

Plat lot and block number.

10. Factors that make it uniquely difficult to establish clear title in real estate as compared to most personal property items include:

Length of the ownership history in real estate.

1. Explain how title insurance works. What risks does it cover? Who pays, and when? What common exceptions does it make?

Title insurance protects an owner (or lender) from legal challenges or complications with title. Title insurance protects a grantee (or mortgagee) against the legal costs of defending title, and against loss of the property in case of an unsuccessful defe

2. If a grantee obtains title insurance, what value, if any, is there in the covenant of seizen in a warranty deed?

If a grantee has title insurance, the covenant of seizing remains an indication that the grantor really believes that they hold good title. The title insurer can still bring action against the grantor of a false title, even though the grantee has been ind

3. The use of Torrens certificates, never large in the U.S., has diminished in recent years. Explain how marketable title laws, recently adopted in many states, might have made Torrens certificates less interesting and useful.

The idea of a Torrens certificate was to eliminate the need for a search of historical public records to affirm chain of title. Marketable title laws may have accomplished this objective in that they usually establish a "root" transaction that generally i

4. Name at least six adverse (conflicting) claims to property or other title defects, that will not be evident from a search of property records but which might be detected by inspection of the property and its occupants.

Six adverse or conflicting claims to property that will not appear in a search of records include these: (1) claim to adverse possession, (2) easement by prescription, (3) easement of necessity, (4) easement by estoppel, (5) leasehold claim, and (6) easem

5. Why might it be advisable to require a survey in purchasing a 20-year-old home in an urban subdivision?

A survey can be useful, even in a fairly recent subdivision, to affirm that fences are not encroaching, or that an addition to a structure does not violate a setback. In addition, it is generally good for a purchaser to know the boundaries of the acquired

6. Describe the shaded property by government rectangular survey.

The East one-half of the SW one-fourth of the NW one fourth, plus the south one half of the NW one-fourth of the NW one fourth of section 14, Tier 11S and Range 21E

7. Some real estate industry persons have suggested that it is good to require a title Insurance commitment as evidence of title for rural property, but that it satisfactory to use the less costly abstract and attorney's opinion as evidence of title for a

A platted urban subdivision effectively has a relatively short history in which title could become "clouded." The creation of the subdivision, by implication, represents a point in time where there was very little question about the status of title. Thus,

1. Zoning is an exercise of which type of general limitation on property rights?

Police power.

2. A comprehensive plan usually deals with which of the following elements?

all the above

3. Property taxes are a main source of revenue for:

Both local governments and school districts.

4. The authority for approving site plans for large projects ultimately rests with the:

The elected governing commission or council.

5. The most accurate conclusion about the regessivity of the property tax is that it is:

Regressive, but when benefits are considered, the net result is not regressive

6. Traditional land use controls (pre-1970) include:

. All three: a, b, and c.

7. Radon gas is:

A naturally occurring result of geologic activity.

8. "New urbanism" is a term used to describe:

The theory that residential and commercial uses should be integrated, streets and
parking should discourage through traffic, and neighborhoods should be pedestrian oriented..

9. Elements of traditional zoning include all except:

performance standards

10. Externalities in land use include all except:

Inability to judge the quality of a structure, once built.

1. Assume that you own a small apartment building close to a major commercial street and a service station. You learn that there has been a major leak of underground storage tanks from the service station, and the gasoline has spread onto and below the su

Most importantly, as the owner, you might be responsible for the cleanup on the property despite not causing the contamination. Second, the potential resale value is reduced because the site is contaminated. Further, the site may be tarnished in the futur

2. A local businessman has applied for a permit to construct a bar that will feature "adult dancing" in a commercially zoned area across the street from your residential subdivision. As an owner of a $250,000 house within the subdivision, would you favor

Constructing an adult establishment near a residential area creates a negative externality to the surrounding neighborhood. The development will adversely affect home values in the residential subdivision. Opponents to the approval of the permit should ar

3. A medium-size city has proposed to build a "greenway" along a creek that flows through the center of the city. The city wants to clear a strip about 50 feet wide and construct a paved path for bicycles and foot traffic (walkers and joggers). Proponents

Positive aspects of the greenway include economic growth of an area and a recreational facility for the community. Negative aspects include increased pollution, noise, traffic and possibly crime. In addition, it is unclear what would happen to property va

4. The main argument traditionally advanced in favor of zoning is that it protects property values. Do you believe this contention? If so, how does zoning protect property values? If you do not believe the contention, why not?

Zoning protects property values by ensuring that an undesirable land use will not exist in a residential or other non-compatible area. Zoning is intended to add predictability and stability to the land uses in an area. However, if a zoning plan conflicts

5. Do you believe that the owners of properties contaminated by events that occur on another property (gasoline leakage or spills, for example) should be responsible for cleaning up their properties? Why or why not? If not, who should pay for the cleanup?

Although the law currently states that a property owner is responsible for any hazardous material on the site, there are many reasons for arguing that the contaminator should be responsible for the cleanup. Under the current law, innocent parties are hurt

6. The property tax has been criticized as an unfair base for financing public schools. Areas that have high property values are able to pay for better schools than areas having lower property values. Thus, there is an inequality of education opportunitie

Utilizing property tax revenue to finance public schooling may create an inequality of education opportunities, assuming that the difference in tax revenue between wealthy and lower-income communities is not offset by other sources of revenue. This issue

7. 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?

Assessed Value $80,000
Less: Homestead Exemption ($25,000)
Taxable Value $55,000
Less: Taxing Authority Levies Millage Rate Taxes Levied
School district 8.00 $440
City 10.0 $550
County 5.00 $275
Total 23.0 $1,265

1. The "gravity" that draws economic activity into clusters is:

Demand for access or proximity.

2. Spatial or distance relationships that are important to a land use are called its:


4. The economic base multiplier of a city tends to be greater if the city is:


5. The best example of a base economic activity would be a:

Regional sales office.

6. Important supply factors affecting a city's growth or growth potential include all except the:

a. Unemployment rate.

7. Which of these are true about agglomeration economies?

All of the above.

8. Which of these influences will decrease the level of a bid-rent curve at the center of the city?

Faster travel time.

9. In a system of bid-rent curves, assuming that households are identical except for the feature noted, which of these prospective bidders will bid successfully for the sites nearest to the CBD?

Households with the greatest number of commuting workers.

10. A large university is an example of what kind of economic phenomenon?

Industry economies of scale.