Course 9 Practice Test

Question 1

Who is responsible for ordering the third party appraisal?

Mortgage banker
Borrower
Lender
HUD

Answer 1

Lender

Question 2

The estimation of remaining economic life requires an estimate of which factors?

Chronological age and useful life
Chronological age and economic life
Effective age and economic life
Effective age and useful life

Answer 2

Effective age and economic life

Question 3

Which of the following statements is true?

The highest and best use of an existing property may be its existing use, or it may be different depending on the specific issues.

The highest and best use of an existing property is always its existing use as improved.

The physical characteristics of a site never affect the development potential and the highest and best use of the site.

All possible uses that are expected to produce a positive return are never regarded as financially feasible, eliminating those allowed uses which are not at least marginally profitable

Answer 3

The highest and best use of an existing property may be its existing use, or it may be different depending on the specific issues.

Question 4

What is the best way to treat excess land from a HUD underwriting perspective?

Include the excess land with the collateral
Exclude the excess land from the collateral
Value the excess land separately from the collateral
Sell the excess land before closing

Answer 4

Exclude the excess land from the collateral

Question 5

The basic principle to the sales compariosn approach is?

Anticipation
Relevance
Materiality
Substitution

Answer 5

Substitution

Question 6

Which of the following is not a direct cost in the cost approach?

Material cost of construction
Labor costs of construction
Profit of construction
Financing costs of construction

Answer 6

Financing costs of construction

Question 7

The property you are underwriting was recently completed, has high end finishes with many amenities, and is considered at the top of the market. While reviewing the third party appraisal, you notice that the appraiser has selected the only available comps in the market. The comps are more than 5 years old and lacking the high end finsihes and amenities found at the subject. In what direction will the appraiser make adjustments?

Adjustments for inferior properties are made upward

Adjustments for inferior properties are made downward

Adjustments may be upward or downward depending on differences between the properties

No adjustments need to be made, the comps would not be used because they are too inferior

Answer 7

Adjustments for inferior properties are made upward

Question 8

Which of the following is not a permitted HUD ground rent payment?

Fixed percentages of EGI or net cash flow

Fixed flat payment until at least 10 years longer than mortgage term

Schedule fixed lump sum increases

Simple up front payment

Answer 8

Schedule fixed lump sum increases

Question 9

The overall capitalization rate is defined as:

The cash on cash rate

The relationship between the first year NOI and property value

The discount rate

The terminal cap rate used for the reversion calculation

Answer 9

The relationship between the first year NOI and property value

Question 10

If a tax abatement runs for at least the term of the loan and the amount is fixed, which of the following is an acceptable underwriting method?

Underwrite to the actual amount of taxes paid

Use the full amount of taxes paid, not reflective of abatement

*Amortize the abatement over the term of the loan

Divide the abatement over the first 5 years of the loan

Answer 10

Underwrite to the actual amount of taxes paid