Unit 1 Exam: RE Investment Characteristics

Question 1

Real estate investments should be considered first and foremost from the viewpoint of:

a. the economic soundness of the project
b. the unique financing techniques available
c. the tax shelter opportunities
d. the unlimited growth potential

Answer 1

a. the economic soundness of the project (p. 7)

Real estate investors are cautioned to consider each purchase carefully from both its micro and macro positions in the realty market (including different market cycles, the existence of a bubble, long-term aspects of investments).

Question 2

Which of the following is TRUE regarding the characteristics of real estate?

a. it has a central and controlled market
b. it is a short-term asset
c. each parcel is similar to other parcels
d. its market condition is seldom in balance with supply and demand

Answer 2

d. its market condition is seldom in balance with supply and demand (p. 6)

Real estate moves in a cyclical nature, forcing a cause-and-effect relationship between supply and demand.

Question 3

Supply and demand theory indicates that if they both increase at the same rate, prices will:

a. go up
b. go down
c. first go up, then go down
d. remain constant

Answer 3

d. remain constant

Again, the supply and demand theory has a cause-and-effect relationship.

• decrease in supply, increase in demand, prices rise
• increase in supply, decrease in demand, prices drop

Question 4

A buyer’s market indicates all of the following EXCEPT:

a. excess supply
b. lower prices
c. high demand
d. flexible terms

Answer 4

c. high demand (p. 6)

A buyer’s market indicates a surplus of supply and a downward price trend, favoring the purchaser.

In a seller’s market, supply is short and demand is high; thus, prices are forced upward by the competitive market situation.

Question 5

When properties in blighted areas begin attracting investors, they are entering a period of:

a. integration
b. equilibrium
c. disintegration
d. urban renewal

Answer 5

a. integration (p. 9)

Integration: a condition of developing value when building new
Equilibrium: a condition of stable value during the holding period
Disintegration: a condition of declining value during the aging process