Brainscape's Knowledge GenomeTM


Top Flashcards (Certified)
All Flashcards

FIN 350 > Quiz 2 > Flashcards

Quiz 2 Flashcards

1
Q

What is market segmentation in real estate?

A

Dividing a market into subgroups based on characteristics like income

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

What are three examples of real estate market segmentation?

A
  1. Residential (single-family vs. condos)
  2. Commercial (office vs. retail)
  3. Industrial (warehouses vs. manufacturing)
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

Why is market research important in real estate?

A

It helps identify demand

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

What are the five questions of a market-defining story?

A
  1. What is the real estate product?
  2. Who are the customers?
  3. Where are the customers?
  4. What do the customers care about
  5. Who are the competitors?
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

What are three tools used in real estate market research?

A
  1. Geographic Information Systems (GIS)
  2. Psychographics
  3. Survey research
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

What is market value in real estate?

A

The most probable selling price of a property under normal conditions.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

What is investment value in real estate?

A

The value of a property to a specific investor based on individual goals and return expectations.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

What are the three types of adjustments in the sales comparison approach?

A
  1. Property differences
  2. Time differences
  3. Location differences
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

What are three main methods of real estate valuation?

A
  1. Sales Comparison Approach
  2. Cost Approach
  3. Income Approach
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

What is the sales comparison approach?

A

A valuation method that compares a property to similar properties that have recently sold.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

What is the cost approach?

A

A valuation method based on the cost to rebuild the property minus depreciation.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

Name the three types of accrued depreciation in the cost approach.

A
  1. Physical deterioration
  2. Functional obsolescence
  3. External obsolescence
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

What is the income approach to valuation?

A

A method that determines value based on a property’s income-generating potential. Commonly used for commercial properties.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

What is Net Operating Income (NOI)

A

The income generated by a property after deducting operating expenses, but before deducting taxes and financing costs (mortgage payments)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

What is the formula for the capitalization rate (cap rate)?

A

Cap Rate = NOI / Property Value.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

What is the difference between direct capitalization and discounted cash flow (DCF)?

A

Direct capitalization values a property based on a single year’s NOI

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

What are two contracts in a mortgage loan?

A

The note (financial terms) and the mortgage (pledges property as security).

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

What is an acceleration clause in a mortgage?

A

A clause that allows the lender to demand full repayment if the borrower defaults.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

What is a due-on-sale clause?

A

A clause that requires full repayment of the mortgage if the property is sold.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

What are two types of foreclosure?

A

Judicial foreclosure (court-supervised) and power-of-sale foreclosure (handled by the lender).

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

What are four alternatives to foreclosure?

A
  1. Loan modification
  2. Short sale
  3. Deed-in-lieu of foreclosure
  4. Forbearance.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

What is the difference between a mortgage and a deed of trust?

A

A mortgage involves two parties (borrower & lender), while a deed of trust involves three (borrower, lender, trustee).

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
23
Q

What are the three types of bankruptcy that can affect real estate?

A
  1. Chapter 7 (liquidation)
  2. Chapter 11 (business reorganization)
  3. Chapter 13 (individual repayment plan)
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
24
Q

What are the four primary channels of mortgage lending?

A
  1. Depository lenders
  2. Mortgage bankers
  3. Government agencies (Fannie Mae/Freddie Mac)
  4. Private conduits
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
25
What are the 'three Cs' of mortgage underwriting?
1. Creditworthiness 2. Capacity (income/debt ratio) 3. Collateral (property value)
26
What is a conforming loan?
A mortgage that meets Fannie Mae and Freddie Mac guidelines
27
What is a jumbo loan?
A non-conforming loan that exceeds Fannie Mae and Freddie Mac's loan limits.
28
What is private mortgage insurance (PMI)?
Insurance required for conventional loans with less than a 20% down payment to protect the lender.
29
What caused the 2008 subprime mortgage crisis?
Risky lending practices, high loan-to-value ratios, lack of documentation, excessive leverage, and falling home prices.
30
What is the difference between the primary and secondary mortgage markets?
The primary market is where loans originate, and the secondary market is where they are sold to investors.
31
Who are the major players in the secondary mortgage market?
- Fannie Mae - Freddie Mac - Ginnie Mae - Private investors
32
What is securitization in mortgage lending?
The process of pooling mortgages and selling them as mortgage-backed securities (MBS) to investors.
33
What are mortgage-backed securities (MBS)?
Investment products backed by a pool of home loans that generate returns from borrowers' payments.
34
What is an adjustable-rate mortgage (ARM)?
A mortgage with an interest rate that changes periodically based on an index.
35
What is a fixed-rate mortgage?
A mortgage with an interest rate that remains constant for the loan’s duration.
36
What are the main risks of an ARM?
- Interest rate fluctuations - Higher future payments - Possible negative amortization
37
What is a home equity loan?
A loan that allows homeowners to borrow against the equity in their property.
38
What are two advantages of home equity loans?
Lower interest rates than credit cards and tax-deductible interest.
39
What is a reverse mortgage?
A loan available to homeowners aged 62+ that allows them to convert home equity into cash.
40
What are subprime loans?
High-risk loans offered to borrowers with poor credit
41
What is predatory lending?
Unfair lending practices that take advantage of borrowers
42
What is the Dodd-Frank Act and how did it impact real estate lending?
A financial reform law passed in response to the 2008 crisis that increased regulation on mortgage lending and consumer protections.
43
What is the Truth in Lending Act (TILA)?
A law requiring lenders to disclose loan terms
44
What is the Equal Credit Opportunity Act (ECOA)?
A law that prohibits discrimination in lending based on race
45
What is the Real Estate Settlement Procedures Act (RESPA)?
A law that requires lenders to provide clear disclosures about closing costs and prohibits kickbacks in the mortgage industry.
46
What is a debt-to-income (DTI) ratio and why is it important?
A ratio that compares a borrower’s debt payments to income, used by lenders to determine loan eligibility
47
What is a balloon mortgage?
A loan with low initial payments that requires a large lump sum payment at the end of the term.
48
What is the ability-to-repay (ATR) rule?
A rule requiring lenders to verify that borrowers can afford their mortgage payments before approving loans.
49
What is meant by functional obsolescence?
Occurs when a building's design, layout, or features are outdated or less desirable compared to newer market trends.
50
What is the primary purpose of the Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA)?
Risk- based capital standards to ensure depository institutions held more capital as they took on riskier assets.
51
What is pipeline risk?
Risk that mortgage lenders and loan originators face between the time they commit to making a loan and the time they sell that loan in the secondary market.
52
Explain the importance of Fannie Mae and Freddie Mac to the housing finance system
- Provide liquidity, stability, and uniformity in the mortgage market.
53
How is Net Operating Income (NOI) calculated?
NOI = Total Revenue (rental income, parking fees) - Operating Expenses (management fees, taxes, insurance)
54
What is external obsolescence?
A loss in property value due to factors outside the property, such as economic decline or increased crime in the area.
55
Why is replacement cost different from market value?
Replacement cost is the cost to rebuild the property, while market value reflects current supply, demand, and buyer willingness to pay.
56
What are the main steps in the real estate appraisal process?
1. Identify the Problem – Define purpose, property type, and rights. 2. Determine Scope of Work – Decide level of detail and methods. 3. Collect & Analyze Data – Gather market, property, and economic data. 4. Highest & Best Use Analysis – Find the most profitable legal use. 5. Estimate Land Value – Value land separately from buildings. 6. Apply Valuation Approaches – Sales Comparison, Cost, and Income Approach. 7. Reconcile Values – Compare and weigh different valuation methods. 8. Prepare Appraisal Report – Document findings and final estimated value.
57
What is a transactional adjustment in real estate valuation?
An adjustment made for differences in financing terms, market conditions, or special sale conditions.
58
What is an Automated Valuation Model (AVM)?
A computerized program that estimates property values based on data from millions of sales (e.g., Zillow Zestimate).
59
What is a highest and best use analysis?
A process that evaluates the most profitable legal use of a property.
60
What is the effect of interest rates on real estate demand?
Lower interest rates make borrowing cheaper, increasing demand and property prices.
61
How does depreciation impact real estate investment decisions?
Higher depreciation reduces property value but can offer tax benefits to investors.
62
What is the importance of an appraisal contingency in a real estate contract?
It allows buyers to renegotiate or withdraw if the appraised value is lower than the purchase price.
63
Why might a property be worth more to an investor than its market value?
Investors consider potential rental income, tax benefits, and long-term appreciation beyond immediate market conditions.

FIN 350 (3 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2025 Bold Learning Solutions. Terms and Conditions