Mock Exam / MLD Compilation

SET 2 REA MOCK EXAM

1. In economics, the four factors of production are

(A) land, labor, capital, and improvements
(B) land, labor, capital and entrepreneurship
(C) land, labor, capital and money
(D) land, improvements, labor and materials
(E) land, labor, site, and improvements

2. The law of supply and demand is

(A) a basic economic principle
(B) legislated by Congress
(C) seldom used in the appraisal process
(D) not a applicable in the short term
(E) all of the above

3. Which of the is NOT an agent of production?

(A) land (D) capital
(B) transportation (E) entrepreneurship
(C) labor

4. Political forces affecting value may include

(A) life-styles and living standards
(B) topography
(C) athletic levels and recreation facilities
(D) government spending and taxation policy
(E) primary registration and turnout

5. What are the two categories of tangible property?

(A) real property and personal property
(B) intangible property and real property
(C) real estate and intangible property
(D) legal and illegal investments
(E) open and shut transactions

6. Zoning is an exercise of the

(A) equity courts
(B) police powers
(C) Environmental Protection Agency
(D) Right of condemnation
(E) Right of escheat

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7. Which of the following types of property is subject to ad valorem taxation?

(A) property owned by a religious organization and used for a religious purpose
(B) new industrial plants that state and local governments have induced, with tax
exemption as an incentive, to locate within their jurisdictions
(C) commercial buildings leased in part by nonprofit foundations
(D) state colleges and universities
(E) a state capitol

8. A person owning less than the entire bundle of rights has

(A) escheat (D) personal property
(B) a fee simple title (E) a fee tail
(C) a partial interest

9. A metes and bounds description begins and ends with the

(A) street and house number (D) grid coordinates
(B) block number (E) iron pin
(C) point of beginning

10. A (n) ____ identifies a property in such a way that it CANNOT be confused with any
other property.
(A) coded map book (D) full city survey
(B) legal description (E) engineering report
(C) narrative appraisal

11. All of the following statements are true EXCEPT

(A) real property is a type of service
(B) value is dependent on market conditions
(C) a good or service has no value in exchange unless it possesses certain economic
and legal characteristics
(D) the price representing value is usually quoted in terms of money
(E) real estate may be sold for all cash or financing arranged

12. All of the following will affect the market value of a property EXCEPT
(A) political factors
(B) legal use restriction
(C) acquisition cost to present owner
(D) economic factors
(E) social concerns

13. Market value is ____ the same as selling price.

(A) always (D) usually
(B) never (E) none of the above
(C) sometimes

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14. Price is
(A) market value (D) a historical fact
(B) most probable sales price (E) all of the above
(C) investment value

15. Functional utility depends on

(A) zoning
(B) wear and tear on the structure
(C) tastes and standards
(D) age of the equipment
(E) insurance requirements

16. Value in use is

(A) subjective
(B) objective
(C) readily measurable
(D) a market phenomenon
(E) synonymous with market price

17. The value added to total property value by a particular component is an example of
the principle of
(A) substitution (D) contribution
(B) anticipation (E) conformity
(C) change

18. The concept that the value of a particular components is measure by the amount
that its absence would detract from the value of the whole is
(A) opportunity cost (D) contribution
(B) substitution (E) conformity
(C) competition

19. The market loss cause by depreciation in an older structure may be offset by all of
the following EXCEPT
(A) architectural interest
(B) historical registration
(C) strong demand relative to supply
(D) strong supply relative to demand
(E) renovation of the structure

20. Studying appraisal helps a person

(A) to improve value estimation skills
(B) to pass the real estate broker’s license examination
(C) to understand other real estate courses
(D) to communicate with appraisers
(E) all of the above

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21. A dramatic change in short-term demand for real estate in the local market is likely
to immediately precipitate
(A) construction (D) activity
(B) price changes (E) no change in supply
(C) conversions

22. The area and community analysis section of an appraisal report

(A) should “sell” the community
(B) should describe the community objectively
(C) is a study by the estate’s industrial development commission
(D) considers the negative aspects only
(E) considers the positive aspects only

23. In analyzing the economic environment and market area, it is best to

(A) start at the general level and work down to the specific
(B) start at the specific and work up to the general level
(C) limit the analysis to the national level
(D) generally consider traffic flow

24. Which of the following reports is usually NOT prepared by a real estate appraiser?
(A) marketability study
(B) economic study
(C) feasibility study
(D) transportation network study
(E) valuation study

25. An appraisal of a specific-purpose for insurance purpose would depend most

heavily on
(A) book value (D) highest and best use
(B) cost estimate (E) specialty value
(C) land value

26. The first step in the appraisal process is to

(A) define the problem to be solved
(B) gather relevant data
(C) analyze the data
(D) inspect the property
(E) set the fee to be charged

27. An appraisal is
(A) an estimate of net realizable value
(B) always concerned with the market value
(C) an appraiser’s opinion of market value
(D) a precise statement of value
(E) a broker’s comparative sales analysis with further detail

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28. The “as of” date in an appraisal report is

(A) the date to which the value applies
(B) immaterial to the value estimate
(C) the date on which the report is delivered
(D) the date on which the property will be conveyed
(E) the anticipated closing date

29. Sales data descriptions of an appraisal report contain

(A) details about each comparable sale
(B) an analysis of the date, using the value approaches
(C) the investigation of market forces
(D) analysis of the street each comparable property is on
(E) zoning details

30. All of the following are ways to delineate a neighborhood EXCEPT

(A) natural barriers (D) streets
(B) utility service (E) income characteristics
(C) political boundaries

31. All of the following are sources of comparable sales EXCEPT

(A) public records (D) mortgage services
(B) brokers (E) appraisers
(C) buyers and sellers

32. Which of the following criteria most completely define “highest and best use”?
(A) legally authorized, politically viable, and socially acceptable
(B) physically possible, comparable to other uses in the neighborhood, and legally
authorized
(C) physically possible, legally permissible, financially feasible, and generating a
higher present land value than any other use
(D) comparable to other uses in the neighborhood, physically possible, and generating a
higher present land value than any other use
(E) the tallest and most beautiful structure that can be placed on land

33. The three basic approaches used to estimate value are

(A) use, exclusion, and disposition
(B) cost, sales comparison, and use
(C) cost, sales comparison, and market data
(D) cost, sales comparison, and production
(E) cost, sales comparison, and income capitalization

34. Units of comparison are used in

(A) only the sales comparison approach
(B) only the cost approach
(C) only the income capitalization approach
(D) A, B and C

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(E) the appraisal of special-purpose properties only

35. Final value estimates should be rounded to reflect the

(A) absence of good data
(B) property’s location
(C) fact that a selling price will probably be a round number
(D) lack of precision associated with an opinion
(E) high value of real estate

36. When reconciling the adjusted sales prices of comparables, the greatest emphasis
should be given to
(A) the average
(B) the median
(C) the mode
(D) the mean of A, B, and C
(E) none of the above

37. Which of the following forms of appraisal report is NOT recommended?

(A) completely filled-in institutional form
(B) telephone conversation
(C) letter report
(D) long narrative report
(E) demonstration

38. Which of the following approaches would probably be given the most weight in
appraising a large office building?
(A) reproduction cost (D) income capitalization
(B) subdivision development (E) market absorption
(C) replacement cost

39. The form in which a formal appraisal is presented is called

(A) a presentation of value (D) a value certification
(B) an appraisal log (E) a narrative
(C) an appraisal report

40. The form of an appraisal report

(A) has no influence on the appraisal process
(B) is the same, regardless of the problem
(C) is set by the amount of the fee
(D) is determined by the appraiser
(E) determines the appraisal framework

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41. The effective age and the useful life of a building represent judgments made by the
(A) appraiser (D) buyer
(B) property owner (E) insurer
(C) tax assessor

42. The period over which existing improvements are expected to continue to contribute
to property value is their
(A) effective age (D) period of diminishing returns
(B) remaining economic life (E) chronological age
(C) remaining physical life

43. For a building, effective age is best defined as

(A) the average age of the roof
(B) the actual age divided by the age-life
(C) the age of other property in equivalent condition and utility the chronological
age of the building
(D) the chronological age of the building
(E) the period over which the building may be effectively used

44. The utility of real estate is its

(A) attractiveness to the trained observer
(B) longevity
(C) capacity to satisfy human needs and desires
(D) effective demand
(E) remaining economic life

45. In appraising a residence, adjustments are NOT made to the comparable property
for
(A) age (D) terms of sale
(B) lot value (E) size
(C) assessed valuation

46. When a site has improvements on it, the highest and best use
(A) is not definable
(B) is its existing use
(C) is its potential use
(D) depends on whether or not the existing use is changeable
(E) may be different from its existing use

47. To be considered as a comparable, a property

(A) a must have been sold within the past 5 years
(B) must be competitive with the subject
(C) must have been sold by an open-market transaction
(D) must be a similar color
(E) both B and C

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48. The direct sales comparison approach is better than the income or cost approach
because
(A) fewer comparable properties are require, so it is easier to outline the results to
clients
(B) there are fewer mathematical calculations, so there is less chance of mathematical
errors
(C) the market for real estate is slow to change
(D) it is always easier to obtain data for the direct sales comparison approach
(E) none of the above true

49. The appraisal of an established 20-year old motel on a road with numerous
competitive motels would most likely be based on the
(A) square foot are of improvements
(B) number of units
(C) reproduction cost
(D) gross rent multiplier
(E) occupancy rate

50. In applying gross rent multiplier analysis to the subject property, the appraiser would
use the
(A) market rental
(B) actual rent being paid
(C) rent currently asked by the owner
(D) rent offered by a potential tenant

(E) rent listed in advertising the property

Factor Subject Comparable Comparable Comparable
1 2 3
Price 1,500 90,000 88,500 87,000
Living area Good 1,600 1,450 1,400
(sq.ft.) Once-car Fair Excellent Good
Condition Now Two-car One-car Two-car
Garage Last year Last year This year
Time of sale

Other Adjustments: Each square foot of livable area is judged to be worth 30; condition
grades are fair, good, and excellent , with each difference in condition grade worth 5%;
a two-care garage is judged to be worth 1,500 more than a one-car garage.

51. What is the size adjustment for Comparable 1?

(A) +1,500 (D) +3,000
(B) - 1,500 (E) - 3,000
(C) 0

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52. What is the size adjustment for Comparable 2?

(A) +1,500 (D) + 3,000
(B) - 1,500 (E) - 3,000
(C) 0

53. What is the condition adjustment for Comparable 1?

(A) 0 (D) +9,000
(B) +4,500 (E) -9,000
(C) - 4,500

54. What is the condition adjustment for Comparable 2?

(A) 0 (D) +P8,850
(B) +P4,425 (E) - 8,850
(C) - 4,425

55. What is the garage adjustment for Comparable 2?

(A) 0 (D) +P3,000
(B) - 1,500 (E) - 3,000
(C) - 1,500

56. What is the garage adjustment for Comparable 3?

(A) 0 (D) + 3,000
(B) +1,500 (E) -3,000
(C) - 1,500

57. In estimating the market value of a comparable sale, an appraiser must consider all
of the following EXCEPT
(A) whether the transaction was made in cash, terms equivalent to cash, or other
precisely revealed terms
(B) whether the property had reasonable exposure in a competitive market
(C) whether a fair sale was transacted, with neither the seller nor the buyer acting under
duress
(D) whether the replacement cost of the property corresponds to its market value
(E) whether the seller was related to the buyer

58. The terms financing, whether good or bad,

(A) have no effect on the market price
(B) have no effect on the market value
(C) have no effect on affordability
(D) depend on fiscal and monetary policy
(E) should be ignored when adjusting comparables

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59. Adjustments to the property rights conveyed, financing, conditions of sale, date of
sale, and location are often made to the ____ of the comparable property.
(A) unit price
(B) actual sales price
(C) price per square foot
(D) gross income multiplier
(E) cash equivalent value

60. Cumulative percentage adjustments may be used

(A) when the characteristics are interdependent
(B) when the characteristics are independent
(C) when dollar figures are available
(D) when unimproved properties are being appraised
(E) under no circumstances

61. The best unit of comparison for vacant land is

(A) the square foot
(B) the total lot
(C) a combination of square foot and front foot units
(D) the linear foot
(E) the unit considered important by the market

62. You are asked to appraise a vacant building lot. The neighborhood is about 75%
built-up. Most lots in the area are from 55 ft. to 85 ft. to 65 ft. wide; the lot under
appraisal is 60 ft. Comparable sales indicate that lots are selling at 120 to 150 per front
foot. What is a good estimate of the price range for this lot?
(A) 9,000-11,000
(B) 7,200-9,000
(C) 5,400-6,750
(D) 6,600-7,600
(E) 6,600-11,250

63. In appraising a residential property by the cost appraiser considers the

(A) sales prices of comparable properties
(B) deprecation of the land
(C) depreciation of improvements
(D) potential for new competition
(E) potential misuse of this approach

64. In the cost approach, ____ is deducted after estimating the cost to reproduce an
existing structure.
(A) land cost (D) cash equivalence
(B) cost to maturity (E) legal factors
(C) depreciation

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65. Economic obsolescence does NOT result from

(A) and outdate kitchen
(B) construction of a freeway near the property
(C) the presence of an earthquake fault nearby
(D) building restrictions in the community
(E) factors external to the subject property itself

66. Reproduction or replacement cost includes all of the following EXCEPT

(A) an outdated kitchen
(B) construction of a freeway near the property
(C) the presence of an earthquake fault nearby
(D) building restrictions in the community
(E) factors external to the subject property itself

67. Reproduction or replacement cost includes all of the following EXCEPT

(A) direct or hard costs
(B) indirect or soft costs
(C) entrepreneurial profit
(D) fixed and variable expenses of operations
(E) elevator shafts

68. In analyzing obsolescence , the test of curability of a component in a building is

whether the cost to cure is no greater than the
(A) expected increase in value
(B) reproduction cost new
(C) replacement cost
(D) installation cost
(E) economic life of the new component

69. Which of the following is NOT a type of depreciation?

(A) entrepreneurial loss (D) functional obsolescence
(B) external obsolescence (E) economic obsolescence
(C) physical deterioration

70. Estimation of occurred depreciation and obsolescence does NOT involve

(A) physical deterioration (D) functional obsolescence
(B) economic obsolescence (E) wear and tear
(C) financial structure

71. In appraisal, accrued depreciation is really an estimate of

(A) physical deterioration (D) capital recovery
(B) diminished utility (E) sinking fund factor
(C) book depreciation

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72. The cost approach NOT useful for

(A) checking value approaches
(B) appraising institutional or special-use properties
(C) estimating the value of new property
(D) appraising older homes in an active market
(E) insurance appraisals

An appraiser noted the following about a rental home:

needs exterior paint 750 cost to cure
needs new water heater 250 cost to cure
has one bath in market for two 4,000 capitalized rent loss
has poor floor pan 2,500 capitalized rent loss
is located next to a convenience store 1,200 capitalized rent loss

73. How much is curable physical deterioration?

(A) 250 (D) 2,500
(B) 750 (E) none of the above
(C) 4,000

74. How much is functional obsolescence?

(A) 250 (D) 2,500
(B) 750 (E)4,000
(C) 1,200

75. How much is environmental obsolescence?

(A) 250 (D) 2,500
(B) 750 (E)4,000
(C) 1,200

76. An appraisal of a freestanding store and the land it occupies is an unbiased

estimate of the value of an interest in
(A) personal property
(B) mortgages
(C) real estate
(D) personal property and land
(E) real estate plus business value

77. The term vertical interest does NOT refer to rights to

(A) subsurface mineral extraction
(B) the construction and railroad tunnels
(C) the use and regulation of air space
(D) subdivision and development
(E) the construction of buildings over railroad yards

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78. Inflation tends to increase the value of

(A) fixed-income securities (D) tangible long-lived investments
(B) mortgages (E) debts
(C) deeds in lieu of foreclosure

79. With an amortized mortgage loan,

(A) interest only is paid until maturity
(B) some principal is repaid with each payment
(C) the entire principal is repaid before maturity
(D) equal amounts of principal are repaid each period
(E) there is a balloon payment at maturity

80. When each alternative use requires the same capital investment, the use that
maximizes the investment’s ____ on a long-term basis is highest and best use.
(A) diversified portfolio (D) potential gross income
(B) operating expenses (E) occupancy rate
(C) net operating income

81. Land purchased for 50,000 cash appreciates at the rate of 15% compounded
annually. About how much is the land worth after 5 years? Disregard taxes, insurance,
and selling expenses.
(A) 100,000 (D) 37,500
(B) 87,500 (E) 7,500
(C) 57,500

82. A land speculator expects that a certain 100-acre tract can be sold to a subdivider 4
years from now for 10,000 per acre. If holding and selling costs are disregarded, what
cash price today (rounded to the nearest 1,000) would allow the speculator to realize a
15% compounded annual rate of return on the entire tract?
(A) 572,000 (D) 6,000
(B) 5,000 (E) none of the above
(C) 600,000

83. Gross income multipliers are generally considered part of

(A) the cost approach
(B) the direct sales comparison approach
(C) the income capitalization approach
(D) the insurance approach
(E) none of the above

84. Use of a gross rent multiplier is valid when the subject and comparable properties
have similar
(A) potential gross incomes (D) operating expense ratios
(B) effective gross incomes (E) cash flows

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(C) net operating incomes

85. Time-distance relationship between a site and all relevant origins and destinations
are called
(A) access roads (D) linkages
(B) transit facilities (E) synergies
(C) ingress and egress

86. The land on which a 10-year-old house is located is valued at P28,000, and the
reproduction cost of the dwelling is P92,000. Straight-line depreciation is 2% per year,
applied to the building only. If there is no other obsolescence, what is the indicated
value of the property?
(A) P96,000 (D) P117,700
(B) P101,600 (E) P120,000
(C) P117,000

87.

88. Effective gross income is income after an allowance for

(A) depreciation (D) both A and B
(B) operating expenses (E) none of the above
(C) cash expenditures

89. In discounted cash flow analysis, the reversion to be received at the end of the
holding period is
(A) a separate cash flow
(B) an annuity in arrears
(C) an ordinary annuity
(D) a percentage of annual income
(E) an amount to be capitalized in perpetuity

90. To earn 12% annual cash return on a cash investment, what should you pay for a
property that earns 4,000 per month and has operating expenses of 1,250 per month?
(A) 150,000 (D) 333,333
(B) 275,000 (E) 400,000
(C) 229,166

91. In selecting an overall capitalization rate for an income-producing property, the

appraiser will consider all of the following EXCEPT
(A) return on invested capital
(B) risk factors
(C) return of invested capital
(D) the interest rate on the existing loan, which was arranged last year
(E) the interest rate prevailing in the market

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A 200-unit apartment complex includes 80 one-bedroom units that rent for 475 and 120
two-bedroom units that rent for 575 monthly. The vacancy rate is 5%; miscellaneous
income is 5,000 annually. Operating expenses amount to 400,000. The mortgage loan
requires annual payments of 630,000.

92. Potential gross income is

(A) 1,289,000 (D)107,000
(B) 1,284,000 (E) none of the above
(C) 112,000

93. Effective gross income is

(A) 1,224,800 (D) P107,000
(B) 1,220,000 (E) none of the above
(C) 824,800

94. Net operating income is

(A) 1,224,800 (D) 424,800
(B) 1,220,000 (E) none of the above
(C) 824,800

95. Before-tax cash flow is

(A) 1,030,000 (D) 194,800
(B) 824,800 (E) none of the above
(C) 424,800

96. To obtain the present value of a series of incomes, a (n) ____ rate is applied.
(A) discount (D) equity capitalization
(B) income (E) stated
(C) overall capitalization

97. A fast-food chain could buy the building and land necessary for a new outlet for
200,000. Instead, an investor bought the property for this amount and lease it for 2,000
per month over a 20-year term. Rent is payable at the end of each month. What yield to
maturity is implied by the lease, assuming that, at the end of 20 years, the property is
still worth about P200,000?
(A) 8% (D) 14%
(B) 10% (E) 15%
(C) 12%

98. When market rent is less than contract rent, the difference is known as
(A) overage rent (D) gross rent
(B) excess rent (E) slippage rent
(C) percentage rent

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99. If a particular buyer requires as recapture of the building portion of the purchase
price in 25 years, what is the indicated recapture rate for the building, assuming
straight-line recapture?
(A) 0.25% (D) 20%
(B) 2% (E) 25%
(C) 4%

100. In a high-rise, 100-unit apartment building there is a basement laundry area that
brings in 100 monthly from the concessionaire. The laundry income is
(A) included, as miscellaneous income, in potential gross income
(B) included, as other income, in effective gross income
(C) deducted from effective gross income
(D) added to before-tax cash flow
(E) distributed to the maintenance workers

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