Test Bank for Real Estate
Principles: A Value Approach,
7th Edition
Real estate - ANSWERSThe land and its permanent improvements.
Tangible asset - ANSWERSReal estate viewed as the land and its improvements.
Bundle of rights - ANSWERSThe rights associated with ownership and use of the site and
improvements.
Improvement on the land - ANSWERSExamples include fences, buildings, walls, and streets.
Intangible asset - ANSWERSAn asset that is not a physical object, such as a mortgage.
Tangible asset example - ANSWERSLand, building, or fence.
Raw land - ANSWERSLand that does not include any improvements.
Urban land - ANSWERSLand that consists of residential, industrial, commercial, and institutional
uses.
Land use percentage - ANSWERSAccording to the Department of Agriculture, urban land constitutes
the lowest percentage of land use in the United States.
User market - ANSWERSThe market where demand for real estate derives from the need for shelter
and access to locations.
Capital market - ANSWERSThe sector that allocates financial resources among households and firms
requiring funds.
,Supply and demand dynamics - ANSWERSAn increase in demand for leasable space would increase
equilibrium rental rates and property value.
Discounted cash flow analysis - ANSWERSThe process of converting expected future cash flows into
present value.
Private equity market - ANSWERSAn example of a market where real property trades.
Public debt market - ANSWERSAn example of a market where commercial mortgage-backed
securities (CMBS) trade.
Public equity market - ANSWERSAn example of a market where equity REITs trade.
Private debt market - ANSWERSAn example of a market where mortgage REITs trade.
Local government influence - ANSWERSHas the largest influence on real estate values through land
use controls and property tax policy.
Current rental rates - ANSWERSDetermined by competition for available locations and the existing
supply of leasable space.
Heterogeneous assets - ANSWERSReal estate markets consist of assets that are unique in features
such as age, design, occupancy, or location.
Investment grade property market - ANSWERSTypically targeted by pension funds, individual
investors, and listed equity REITs.
Listed equity REITs - ANSWERSA type of real estate investment trust that is publicly traded on stock
exchanges.
National government impact on real estate - ANSWERSThe national government can significantly
impact the value of real estate through property tax policy, income tax policy, building codes, and
real estate licensing requirements.
, Required rate of return - ANSWERSThe required rate of return that an individual or company expects
from a real estate investment is determined in the user market and the capital market for both debt
and equity.
Real estate market characteristics - ANSWERSThe market for buying, selling, and leasing real estate
can be characterized by localized markets, highly segmented markets, privately negotiated
contracts, and low transaction costs.
Value differences in retail properties - ANSWERSIn terms of retail properties, location attributes are
considered the most likely to result in drastic value differences between otherwise similar
properties.
Equity investors' return - ANSWERSEquity investors in real estate expect to earn a return on their
investment through the collection of rent and selling or refinancing the asset.
Capitalization rate - ANSWERSThe ratio of a property's annual net operating income to its market
value is referred to as the capitalization rate.
Government involvement in real estate licensing - ANSWERSLocal and state governments are
directly involved in establishing rules and regulations for the licensing of professionals in the field of
real estate.
Feasibility of new construction - ANSWERSA primary determinant of the feasibility of new
construction is the relationship between the current level of market value and the cost of new
construction.
Highly segmented markets - ANSWERSProperties can be grouped based on classifications such as
property type, location, investor type, or price.
Immobile markets - ANSWERSProperties are difficult to physically move from one location to the
next.
Implied capitalization rate - ANSWERSUsing the I/RV formula, if a property's expected annual net
operating income is $89,100 and its current market value is $1,060,000, the property's implied
capitalization rate is 8.4%.
Principles: A Value Approach,
7th Edition
Real estate - ANSWERSThe land and its permanent improvements.
Tangible asset - ANSWERSReal estate viewed as the land and its improvements.
Bundle of rights - ANSWERSThe rights associated with ownership and use of the site and
improvements.
Improvement on the land - ANSWERSExamples include fences, buildings, walls, and streets.
Intangible asset - ANSWERSAn asset that is not a physical object, such as a mortgage.
Tangible asset example - ANSWERSLand, building, or fence.
Raw land - ANSWERSLand that does not include any improvements.
Urban land - ANSWERSLand that consists of residential, industrial, commercial, and institutional
uses.
Land use percentage - ANSWERSAccording to the Department of Agriculture, urban land constitutes
the lowest percentage of land use in the United States.
User market - ANSWERSThe market where demand for real estate derives from the need for shelter
and access to locations.
Capital market - ANSWERSThe sector that allocates financial resources among households and firms
requiring funds.
,Supply and demand dynamics - ANSWERSAn increase in demand for leasable space would increase
equilibrium rental rates and property value.
Discounted cash flow analysis - ANSWERSThe process of converting expected future cash flows into
present value.
Private equity market - ANSWERSAn example of a market where real property trades.
Public debt market - ANSWERSAn example of a market where commercial mortgage-backed
securities (CMBS) trade.
Public equity market - ANSWERSAn example of a market where equity REITs trade.
Private debt market - ANSWERSAn example of a market where mortgage REITs trade.
Local government influence - ANSWERSHas the largest influence on real estate values through land
use controls and property tax policy.
Current rental rates - ANSWERSDetermined by competition for available locations and the existing
supply of leasable space.
Heterogeneous assets - ANSWERSReal estate markets consist of assets that are unique in features
such as age, design, occupancy, or location.
Investment grade property market - ANSWERSTypically targeted by pension funds, individual
investors, and listed equity REITs.
Listed equity REITs - ANSWERSA type of real estate investment trust that is publicly traded on stock
exchanges.
National government impact on real estate - ANSWERSThe national government can significantly
impact the value of real estate through property tax policy, income tax policy, building codes, and
real estate licensing requirements.
, Required rate of return - ANSWERSThe required rate of return that an individual or company expects
from a real estate investment is determined in the user market and the capital market for both debt
and equity.
Real estate market characteristics - ANSWERSThe market for buying, selling, and leasing real estate
can be characterized by localized markets, highly segmented markets, privately negotiated
contracts, and low transaction costs.
Value differences in retail properties - ANSWERSIn terms of retail properties, location attributes are
considered the most likely to result in drastic value differences between otherwise similar
properties.
Equity investors' return - ANSWERSEquity investors in real estate expect to earn a return on their
investment through the collection of rent and selling or refinancing the asset.
Capitalization rate - ANSWERSThe ratio of a property's annual net operating income to its market
value is referred to as the capitalization rate.
Government involvement in real estate licensing - ANSWERSLocal and state governments are
directly involved in establishing rules and regulations for the licensing of professionals in the field of
real estate.
Feasibility of new construction - ANSWERSA primary determinant of the feasibility of new
construction is the relationship between the current level of market value and the cost of new
construction.
Highly segmented markets - ANSWERSProperties can be grouped based on classifications such as
property type, location, investor type, or price.
Immobile markets - ANSWERSProperties are difficult to physically move from one location to the
next.
Implied capitalization rate - ANSWERSUsing the I/RV formula, if a property's expected annual net
operating income is $89,100 and its current market value is $1,060,000, the property's implied
capitalization rate is 8.4%.
