Brainscape's Knowledge GenomeTM


Top Flashcards (Certified)
All Flashcards

FIN 350 > quiz 3 > Flashcards

quiz 3 Flashcards

1
Q

Why would real estate values be lower without brokers?

A

Brokers bring buyers and sellers together, increasing market efficiency and helping properties reach their highest valued use.

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

What are five areas of expertise for a successful real estate broker?

A
  1. Prices and terms of recent sales
  2. Marketing procedures
  3. Legal obligations
  4. Knowledge of competing properties
  5. Procedures to complete transactions
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

What is often overlooked by for-sale-by-owners?

A

The cost of their own time and effort, and potential legal/financial risks.

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

What is the phrase that describes an agent’s relationship to a principal?

A

Stand in the shoes of the principal.

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

What are the three types of agents?

A
  1. Universal
  2. General
  3. Special agents.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

What are the six fiduciary duties owed by an agent?

A
  1. Confidentiality
  2. Obedience
  3. Accounting
  4. Loyalty
  5. Disclosure
  6. Skill and care
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

What are the three types of agency relationships in real estate?

A
  1. Single agency
  2. Dual agency
  3. Transaction brokerage
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

What is dual agency?

A

A broker represents both buyer and seller, requiring disclosure and written consent.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

What is a transaction broker?

A

A broker who assists both parties without fiduciary loyalty to either.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

What are five real estate activities that require licensing?

A
  1. Selling
  2. Leasing
  3. Renting
  4. Auctioning
  5. Managing property
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

What are the five essential elements of a valid contract?

A
  1. Competent parties
  2. Legal objective
  3. Offer and acceptance
  4. Consideration
  5. No defects to mutual assent
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

What two additional elements must a real estate sale contract have?

A

It must be in writing and contain a proper property description.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

What is legal title and what is equitable title?

A
  • Legal title is ownership
  • Equitable title is the right to obtain legal title upon fulfilling the contract.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

What are common issues omitted in simple contracts?

A

Closing date, property condition, financing, prorations, occupancy, inspections.

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

What are two advantages of using a standard form contract?

A

Covers common issues, protects both parties.

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

What is one disadvantage of a standard form contract?

A

May be inadequate for complex transactions.

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

What are the three remedies for a seller when a buyer defaults?

A

Sue for damages, retain earnest money, rescind the contract.

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

What is escrow?

A

A third party holds and disburses funds/documents to ensure contract completion.

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

Why must future cash flows be discounted to present values?

A

Because money now is worth more than the same amount in the future due to opportunity cost and risk.

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

What is the time value of money?

A

The principle that money available now is worth more than the same amount in the future.

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

What is compounding?

A

The process of finding future value of a present sum or stream of cash flows.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

What is discounting?

A

The process of finding present value of future cash flows.

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

What is present value?

A

The current worth of a future sum of money or stream of cash flows given a specified rate of return.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
24
Q

What is future value?

A

The value of an investment at a future date based on a given interest rate.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
25
What is the internal rate of return (IRR)?
The discount rate that makes the net present value of all cash flows equal to zero.
26
What is net present value (NPV)?
The difference between the present value of cash inflows and outflows over a period of time.
27
What is the relationship between risk and required return?
Higher risk requires a higher expected return.
28
What is the effect of compounding more frequently?
It increases the future value of an investment.
29
Why is present value important for real estate decisions?
It helps determine whether future cash flows justify an investment today.
30
What are the five key components for mortgage analysis?
Payment amount, loan balance, lender's yield, effective borrowing cost, and present value.
31
How is a loan payment calculated?
As the present value of future payments discounted at the loan’s interest rate.
32
What is the lender’s yield?
The internal rate of return (IRR) the lender earns on the loan.
33
What is the effective borrowing cost (EBC)?
The IRR for the borrower, including all third-party costs.
34
What is the APR?
The annual percentage rate, a standardized disclosure of borrowing cost assuming no prepayment.
35
How does prepayment affect EBC?
Prepayment increases the EBC, especially if up-front costs are high.
36
What is an interest-only loan?
A loan where only interest is paid each period and principal is paid at the end.
37
What is a partially amortized loan?
A loan with regular payments that do not fully amortize the principal by maturity.
38
What is a fully amortized loan?
A loan where payments cover both principal and interest, with zero balance at the end.
39
What is an ARM?
An Adjustable Rate Mortgage with interest rates that change periodically based on an index.
40
What do caps and adjustment periods on ARMs do?
Caps limit rate changes; adjustment periods determine how often rates change.
41
What is permanent financing in commercial real estate?
Long-term debt used to finance income-producing properties.
42
What are the most common types of long-term commercial mortgages?
Balloon mortgages, fully amortizing, and partially amortizing loans.
43
What is the difference between recourse and nonrecourse loans?
Recourse loans allow lenders to claim other borrower assets; nonrecourse loans limit liability to the property itself.
44
Why are nonrecourse loans common in commercial real estate?
They limit investors� downside risk while securing debt with only the property.
45
What is a balloon mortgage?
A mortgage with amortized payments over 25-30 years but a maturity of 3-10 years.
46
Why are balloon mortgages attractive to lenders?
They reduce interest rate risk and typically involve higher quality properties.
47
What are prepayment penalties?
Fees charged to borrowers for paying off loans early; can be fixed, yield-maintenance, or defeasance.
48
What is a floating-rate loan?
A loan with interest tied to a market index like LIBOR, offering lower rates but higher default risk.
49
What is mezzanine financing?
A loan secured by equity in the borrowing entity, offering higher returns and faster foreclosure options.
50
What is a participation loan?
A loan where the lender shares in property income or sale proceeds in exchange for larger loan amounts.
51
What is a sale-leaseback?
A financing arrangement where a firm sells its property and leases it back to free up capital.
52
What is financial leverage?
The use of debt to increase potential return on equity.
53
What is the primary risk of high leverage?
Increased variability of equity returns and risk of default.
54
Who provides government-sponsored commercial financing?
HUD, FHA, Fannie Mae, and Freddie Mac.
55
What is the estimated market value of investible U.S. commercial real estate?
$8.8 trillion.
56
What ownership forms are used to pool equity capital?
General partnerships, limited partnerships, corporations, LLCs, and tenancy-in-common.
57
What is the major benefit of a limited partnership?
Limited liability for investors while retaining flow-through tax treatment.
58
Why are C corporations rarely used for real estate?
Double taxation of income.
59
What is the advantage of LLCs over limited partnerships?
Limited liability for all members and management flexibility.
60
What is tenancy-in-common (TIC)?
Direct property ownership shared by multiple investors, allowing 1031 exchanges.
61
What is a REIT?
A Real Estate Investment Trust that owns or finances income-producing real estate.
62
What are the advantages of direct investment in real estate?
Control, flexibility, and tailoring to specific goals.
63
What is the main downside of direct investment?
Low liquidity and full exposure to investment risk.
64
Who are the major institutional investors in commercial real estate?
Pension funds, life insurance companies, foreign investors.
65
What is real estate syndication?
Pooling capital from multiple investors to acquire properties.

FIN 350 (3 decks)

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