Question 1

Suppose that a property owner plans on spending $15,000 per year over the next 5 years on maintenance and repairs. However, if she does not spend this amount, she will not be able to keep rents at market levels, vacancies will increase, and the resale value of the property in 5 years will be lower. Assume that she would lose about $7,000 a year in net income and would realize a loss of $85,000 in lower property value at the time of sale if maintenance is not maintained on the property. Determine the difference between the present value of the cost of maintaining the property and the loss to the owner if the property is not maintained assuming that the owner could earn a 7 percent return on any funds not invested in maintenance and repairs?

Accepted Answer

A)  The present value of the maintenance costs is $27,802 less than the present value of the averted loss 
B)  The present value of the maintenance costs is $27,802 greater than the present value of the averted loss 
C)  The present value of the maintenance costs is $32,802 less than the present value of the averted loss 
D)  The present value of the maintenance costs is $32,802 greater than the present value of the averted loss

Question 2

Given the following information, calculate the leasing agent's commission in dollar terms. Lease Term: 10 years, Monthly Rent: $5,000, Commission: 3%.

Accepted Answer

A)  $1,500 
B)  $150 
C)  $1,800 
D)  $18,000

Question 3

Commercial real estate returns are determined in no small part by how well the ongoing management function is performed. Management decisions can be classified into two categories: property management and asset management. Which of the following functions would be considered a primary responsibility of an asset manager?

Accepted Answer

A)  Property acquisitions and dispositions 
B)  Marketing a property to prospective tenants 
C)  Maintaining the condition of the property 
D)  Signing leases

Question 4

For residential properties, the ratio of prospective rent to gross monthly income is a valuable screening tool in judging a potential tenant's ability to fulfill rent obligations. Generally, this ratio should not exceed:

Accepted Answer

A)  10% 
B)  20% 
C)  30% 
D)  40%

Question 5

Both owners and managers must carefully designate their responsibilities in the management agreement. In a management agreement, all of the following would typically be responsibilities of the property manager EXCEPT:

Accepted Answer

A)  Maintenance of financial accounts for money collected from tenants 
B)  Liability 
C)  General property management 
D)  Reports on property performance

Question 6

While some property owners choose to perform both the property and asset manager functions themselves, many commercial property owners choose to employ professional property managers instead. The property manager works under a management contract in which the manager is empowered to serve as the owner's fiduciary. This type of relationship is more commonly referred to as a(n):

Accepted Answer

A)  agency relationship 
B)  open listing relationship 
C)  joint-venture 
D)  correspondent relationship

Question 7

Unlike many publicly traded stock and bond investments, commercial real estate investments:

Accepted Answer

A)  can be bought and sold in highly liquid markets. 
B)  yield maximized returns when assets are held for short periods of time. 
C)  yield returns generated mostly from the asset's net operating income, rather than price appreciation. 
D)  have going-in and going-out transaction costs that are low (as a proportion of asset value).

Question 8

While college-level courses are not widely available, a number of professional and trade organizations exist in the field of property management. Which of the following certifications awarded by the Institute of Real Estate Management is aimed at individuals who manage larger, residential, office, industrial, or retail properties?

Accepted Answer

A)  Certified Property Manager (CPM) 
B)  Accredited Resident Manager (ARM) 
C)  Real Property Administrator (RP
A)  
D)  Member of Appraisal Institute (MAI)

Question 9

Maintenance and repair of a property is an ongoing process that can be divided into four principal categories. Which of the following classifications includes ordinary repairs to a building on a day-to-day basis (e.g. repairing a broken window, fixing a leaking roof)?

Accepted Answer

A)  Custodial maintenance 
B)  Corrective maintenance 
C)  Preventive maintenance 
D)  Deferred maintenance

Question 10

An owner whose property is in a strong market position, where fewer services can be offered to tenants for the same dollar of rental income and where the owner will not lose tenants if the property is under-maintained, is said to participate in a market that has:

Accepted Answer

A)  a relatively elastic demand for space 
B)  a relatively inelastic demand for space 
C)  economies of scale 
D)  diseconomies of scale

Question 11

Concerned with a potential information asymmetry problem, state legislators have been proactive in passing legislation that protects the rights and interests of tenants within which of the following property types?

Accepted Answer

A)  Office 
B)  Retail 
C)  Industrial 
D)  Apartment

Question 12

The management agreement provides for a management fee that is usually in the range of 3 to 6% of which of the following measures of property income?

Accepted Answer

A)  Potential gross income 
B)  Effective gross income 
C)  Net operating income 
D)  Income tax liability

Exam 21: Managing Residential Rental Property