Ch 12 Quizzes

Question 1

A property manager’s compensation may take the form of a flat fee, a _______________ on new rentals, or a combination of those.

Answer 1

Commission

Question 2

The increase in the value of property due to outside factors is its _______________.

Answer 2

Appreciation

Question 3

The use of borrowed funds to invest in real estate or other assets is called _______________

Answer 3

Leverage

Question 4

The _______________ on an investment might be in the form of interest, dividends, or appreciation.

Answer 4

Return

Question 5

The _______________ for an income-producing property is the difference between the income it produces and the expenses associated with operating the property.

Answer 5

Cash flow

Question 6

The difference between a property’s fair market value and the liens against it is known as _______________.

Answer 6

Equity

Question 7

The management _______________ establishes the authority of the property manager and creates an agency relationship between the manager and the property owner.

Answer 7

Agreement

Question 8

The relationship between a property manager and a property owner is a _______________ relationship.

Answer 8

Fiduciary

Question 9

T/F: As occupancy rates rise, space becomes scarcer and more costly.

Answer 9

True

When occupancy rates rise, space becomes scarce and a manager is likely to raise rents or reduce services, or both.

Question 10

If the average family in the area consists of two parents and two children, a property manager would probably be able to charge a higher price per square foot for three-bedroom units than for four-bedroom units.

Answer 10

True

In the area described, the demand for three-bedroom units would be higher than the demand for four-bedroom units, so the square foot price of the three-bedroom units would be higher.

Question 11

T/F: When a property manager compares the managed property to comparable properties in the neighborhood to determine what advantages and disadvantages the managed property has, she is conducting a regional analysis.

Answer 11

False

She is conducting a market analysis. A regional analysis includes information about the city or metropolitan area in which the property is located, including data on trends in occupancy rates, market rental rates, labor force, and family size and lifestyle.

Question 12

T/F: In setting the rental rate for a particular unit, the manager adjusts the market rental rate for the average comparable unit either up or down to reflect differences between the comparable unit and the unit being managed.

Answer 12

True

A property manager uses the market rents of comparable units to set the rental rate of the units she is managing. This way, she can set the highest rent that can be charged while still maintaining a desirable occupancy rate.

Question 13

T/F: Insurance premiums, property taxes, and employee salaries are all examples of fixed expenses.

Answer 13

True

Expenses that don’t fluctuate depending on occupancy rates (such as insurance and taxes) are known as fixed expenses.

Question 14

When conducting a neighborhood analysis, the property manager must be able to define the neighborhood by physical boundaries, such as a body of water or a main thoroughfare.

Answer 14

False

Some neighborhoods are identifiable because the surrounding properties are similar in value, age, condition, architectural style, or other characteristics.

Question 15

T/F: The management plan sets forth the strategies the property manager will use to achieve the owner’s goals.

Answer 15

True

Initially, the management proposal elaborates on the strategies the property manager will use; once the owner has approved of the proposal, it takes effect as the management plan.

Question 16

T/F: Property managers tend to think in terms of number of responses from prospective tenants for each advertising dollar spent.

Answer 16

True

For example, if $600 in advertising results in 15 responses from prospective tenants, the cost per response is $40, a figure that should be in line with the budget.

Question 17

T/F: A property manager should consistently use the same marketing techniques, regardless of what type of property is being managed.

Answer 17

False

The manager should decide what marketing approach to use based on the nature of the property. Some properties require more advertising than others.

Question 18

T/F: A tenant may use the property for any legal purpose unless specific limitations are stated in the lease.

Answer 18

True
If the manager wants to limit the tenant’s use of the property, the lease should contain a specific provision to that effect. For example, a shopping center lease would usually restrict the tenant to the specified type of business (to ensure a balanced mix of businesses).

Question 19

T/F: A property manager would usually prefer to find a new tenant rather than renew an existing tenant’s lease, because he can charge the new tenant a higher rent.

Answer 19

False

Unless the tenant has been troublesome, making an existing tenant happy is generally easier and less expensive. The lease renewal would not necessarily be on terms identical to the original lease, so the parties could negotiate a different rent.

Question 20

T/F: t lhe legal eviction process is called an unlawful detainer action.

Answer 20

True

If a tenant causes problems, the property manager must be prepared to take legal action (an unlawful detainer) to evict the tenant. Using other means to evict a tenant could make the property manager liable to the tenant for damages.

Question 21

T/F: The property manager should always report to the owner on a monthly basis.

Answer 21

False

The frequency and type of reports depend on how involved the owner wants to be in the management of the property. While the manager usually prepares a monthly statement of operations, the owner may want to have reports more or less often.

Question 22

T/F: Preventive maintenance includes all repairs to keep structures, fixtures, utilities, and amenities in proper working order or condition when something has gone wrong.

Answer 22

False
Repairs are corrective maintenance. Preventive maintenance preserves the physical condition of the property improvements, which also reduces corrective maintenance costs.