REAL ESTATE FINANCE MIDTERM (CH. 1 -7 UPDATED
ACTUAL QUESTIONS AND CORRECT ANSWERS
Question:
What aids the flow of money for new real estate loans?
Answer:
Low interest rates. Depository institutions "creating" money through credit.
Question:
Definition of property:
Answer:
Anything that can be controlled and owned
Question:
System of private property
Answer:
Private property is a legal designation for the ownership of property by nongovernmental legal entities.
Distinguishable from the public property (owned by state), and from a collective or co-op)
Question:
Test of a fixture
Answer:
■ Method or manner of annexation (how it's attached)
■ Adaptability or nature of use (specially built items or installed for permanent use). Ex: built in stereo,
wall to wall carpet
■ Relationship between the parties (in court: buyer>seller, tenant>landlord, lender>borrower)
■ Intention of the parties (most important) (Ex: metal mailbox with previous owners name on it vs a
regular mail box)
■ Agreement between parties
Question:
Freehold Estate
Answer:
1. Outright ownership of the property and land on which it stands. 2. a right to land that is characterized by
immobility, indeterminate duration 3.an estate in fee simple absolute (the best title one can own)
Question:
• Economic Characteristic of Real Estate
Answer:
■ There is relative scarcity of land in the world. People migrate to urban densely populated areas for jobs
and cultural fit resulting in increased demands on the relatively fixed land supplies in these area which then
results in people bidding against each other for the limited supply.
■ The fixity of improvements. Long life span when coupled with scarcity underwrites lenders' abilities to
make loans.
■ Land has a locational characteristic that affects its value as compared to similar parcels in the same area.
, Question:
Locational Characteristics:
Answer:
Land has a locational characteristic that affects its value as compared to similar parcels in the same area.
Question:
Creation of real estate value:
Answer:
High yield possibilities, leveraging opportunities, tax flexibilities, and the retention of high degree of
personal control over the capital invested
Question:
Limits of the bundle of rights:
Answer:
taxation, eminent domain, police power and escheat (gov't encumbrances), deeds, easements, rights of way
Question:
real estate cycles:
Answer:
Recovery, expansion, hyper supply, recession
Question:
characteristics of supply and demand:
Answer:
■ business conditions that produce earnings needed to create an effective demand trigger the market's
activity. With increased demand for a limited product comes increased prices. This then causes more
building to the point of surplus supply, causing a price decrease. As soon as demand exceeds the supply,
the cycle repeats itself.
■ Money supply - tight money(high interest rates) develop when the fed (and it's large budget
commitments) and the private industry (and it's need for capital) drain available funds. This causes high
interest rate levels which then depresses the housing market. In other words, when there is more demand
for money than can satisfied at present interest rates, the price of money increases.
Question:
tax reform act of 1986:
Answer:
Where congress imposed dramatic restrictions on the use of excess losses from real estate investments to
shelter other income
Question:
secondary loan market
Answer:
Where mortgages originated at the primary market and then were sold to second owners
Question:
Secondary market agencies:
ACTUAL QUESTIONS AND CORRECT ANSWERS
Question:
What aids the flow of money for new real estate loans?
Answer:
Low interest rates. Depository institutions "creating" money through credit.
Question:
Definition of property:
Answer:
Anything that can be controlled and owned
Question:
System of private property
Answer:
Private property is a legal designation for the ownership of property by nongovernmental legal entities.
Distinguishable from the public property (owned by state), and from a collective or co-op)
Question:
Test of a fixture
Answer:
■ Method or manner of annexation (how it's attached)
■ Adaptability or nature of use (specially built items or installed for permanent use). Ex: built in stereo,
wall to wall carpet
■ Relationship between the parties (in court: buyer>seller, tenant>landlord, lender>borrower)
■ Intention of the parties (most important) (Ex: metal mailbox with previous owners name on it vs a
regular mail box)
■ Agreement between parties
Question:
Freehold Estate
Answer:
1. Outright ownership of the property and land on which it stands. 2. a right to land that is characterized by
immobility, indeterminate duration 3.an estate in fee simple absolute (the best title one can own)
Question:
• Economic Characteristic of Real Estate
Answer:
■ There is relative scarcity of land in the world. People migrate to urban densely populated areas for jobs
and cultural fit resulting in increased demands on the relatively fixed land supplies in these area which then
results in people bidding against each other for the limited supply.
■ The fixity of improvements. Long life span when coupled with scarcity underwrites lenders' abilities to
make loans.
■ Land has a locational characteristic that affects its value as compared to similar parcels in the same area.
, Question:
Locational Characteristics:
Answer:
Land has a locational characteristic that affects its value as compared to similar parcels in the same area.
Question:
Creation of real estate value:
Answer:
High yield possibilities, leveraging opportunities, tax flexibilities, and the retention of high degree of
personal control over the capital invested
Question:
Limits of the bundle of rights:
Answer:
taxation, eminent domain, police power and escheat (gov't encumbrances), deeds, easements, rights of way
Question:
real estate cycles:
Answer:
Recovery, expansion, hyper supply, recession
Question:
characteristics of supply and demand:
Answer:
■ business conditions that produce earnings needed to create an effective demand trigger the market's
activity. With increased demand for a limited product comes increased prices. This then causes more
building to the point of surplus supply, causing a price decrease. As soon as demand exceeds the supply,
the cycle repeats itself.
■ Money supply - tight money(high interest rates) develop when the fed (and it's large budget
commitments) and the private industry (and it's need for capital) drain available funds. This causes high
interest rate levels which then depresses the housing market. In other words, when there is more demand
for money than can satisfied at present interest rates, the price of money increases.
Question:
tax reform act of 1986:
Answer:
Where congress imposed dramatic restrictions on the use of excess losses from real estate investments to
shelter other income
Question:
secondary loan market
Answer:
Where mortgages originated at the primary market and then were sold to second owners
Question:
Secondary market agencies:
