Download Property Management Midterm Exam Chapters1-7 Questions and Answers 2023/2024 and more Exams Property Law in PDF only on Docsity!
PropertyManagementMidtermExamChapters1-
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- The CAM designation is offered by: A. BOMA B. NARPM C. IREM D. NAA
- Jose hires a property manager after inheriting two rental houses in another city. He's probably going to sell the houses, but he's not sure yet. Jose would be described as an: A. incidental or interim owner B. investor-owner C. institutional owner D. incremental owner
- The central aim that guides a property manager's work, no matter what context the manager works in, is managing the property in order to: A. generate the greatest net income for the owners B. increase the property's value as much as possible C. ensure that the property reaches its highest and best use D. achieve the owners' goals for the property
- Which of these organizations lobbies on behalf of the commercial real estate industry and is also the oldest professional association for property managers in the United States? A. BOMA B. NARPM C. IREM D. NAA
- In states that require property managers to be licensed, which of the following is most likely to be exempt from the licensing requirement? A. An unlicensed family member of the property manager B. An unlicensed family member of the property owner C. A property manager who works with no more than five clients at a time D. A property manager with at least three years of practical experience in the field
- Which of the following is an example of industrial property? A. A regional shipping and receiving facility for a large retail business B. Military housing adjacent to an air force base C. A big-box store in a large shopping center on the outskirts of a town D. All of the above
- Probably the most widely recognized designation or certification conferred by a professional association for property managers is the CPM designation, which is offered by: A. BOMA B. NARPM C. IREM D. NAA
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- Which of these is the best example of investment property? A. A single-family home purchased by an individual who plans to live there while the home increases in value B. A single-family home owned by a bank after foreclosure on a mortgage C. An apartment building owned by a limited partnership D. A small commercial building owned by a limited partnership that occupies the building as its offices
- Which of these has the greatest impact on a property manager's day-to-day tasks in connection with a particular managed property? A. The type of property and how large it is B. How old the buildings are C. The client's goals for the property D. How volatile the current rental market is
- Eileen is a professional property manager. She currently works as a full-time employee for a corporation, managing the office building that the corporation owns and occupies as its main business location. In this capacity, Eileen would be referred to as a/an: A. institutional manager B. comptroller C. facilities manager D. asset manager
- The federal government has a large role in determining: A. occupancy rates B. absorption rates C. capitalization rates D. interest rates
- At a point in a local real estate cycle when demand for home purchases in the area is depressed, demand for residential rental units in the area: A. will also be depressed B. may increase C. will probably be unaffected D. will either stay the same or decrease
- Fred uses borrowed money to buy some real estate. This transaction involves: A. conversion B. installment sale reporting C. depreciation D. leverage
- A security: A. may represent either a debt investment or an ownership investment B. is an investment instrument that does not confer a right to direct managerial control over the enterprise C. must be issued and bought or sold in compliance with federal and state securities laws D. All of the above
- All of the following are ways in which the federal government affects real estate markets, except: A. regulating lending institutions B. involvement in the mortgage industry C. technological change D. tax policy
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- Unlimited liability means: A. the liability of the investors who own a property may exceed the value of the property itself B. any judgments entered against the business or the individual investors are not subject to the federal liability cap C. the personal assets of a business owner or investor can be reached by creditors of the business D. the debts and obligations of the business may exceed the value of the investment property owned
- All of these are usually considered to be among the fiduciary duties of a property manager (or any agent), except: A. loyalty B. accounting C. vicarious liability D. obedience
- The property owner's obligations under the terms of a typical management agreement include: A. keeping the property in compliance with all applicable legal requirements B. providing the manager with all necessary information, documents, and other records C. supplying funds for capital expenditures D. All of the above
- Someone who organizes a group of investors to purchase income property together: A. may be referred to as the syndicator or sponsor B. has unlimited liability C. has limited liability D. cannot be directly involved in managing the property purchased by the investment group
- The authority granted and the responsibilities assigned in a management agreement commonly make the property manager the client's: A. attorney in fact B. special agent C. unlimited agent D. general agent
- A management agreement: A. may not be enforceable under state law unless it is put into writing and signed by both parties B. should always be put into writing and signed, whether that is legally required or not C. may be either a preprinted form or a specially drafted contract D. All of the above
- All of the owner/investors have unlimited liability if their business is organized as a: A. general partnership B. limited partnership C. limited liability company D. corporation
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- Warren, a relatively new property manager, presented his management proposal to some potential clients. They were an attentive audience. After carefully reviewing and discussing Warren's plans for the property, the clients are eager to hire him. At the same time, though, they make it very clear that they intend to approve almost none of the proposed changes that Warren considers essential—or at least important. Warren must: A. assume that they have not understood the importance of the changes and go over that portion of the plan with them again B. decide whether working with them on those terms will be acceptable to him C. refuse to work with them unless they agree to all essential components of the plan and provide a guaranty D. refuse to work with them, since it's clear that they do not intend to fulfill the legal responsibilities of property ownership
- In the preliminary study for a management plan, the manager's property analysis should: A. focus exclusively on the property's current physical condition B. compare the property's current condition to the condition it would attain if the manager's proposals were carried out C. evaluate the property's current management and financial condition as well as its physical condition D. include a schedule of suggested rents for each type of space or unit
- For market analysis, a property's submarket should be limited to each of the following, except: A. buildings in the same neighborhood B. buildings of similar quality C. buildings of similar size D. buildings with comparable rental rates
- A property manager is performing a cost-benefit analysis concerning a change that she's considering for the client's property. If the analysis indicates that the costs would exceed the benefits: A. the manager should adjust the benefit figures until they are back in balance B. the manager should take the intangible costs into account before abandoning the idea C. then the manager must obtain the client's consent before proceeding with the change D. it means that the change is not financially justified
- In the neighborhood analysis for a management plan, a property manager will consider (among other things): A. the employment rate, major industries, and population shifts B. the curb appeal, the common areas, and the rental schedule C. the cost-benefit analysis, the submarket, and the depreciation D. zoning, transportation, and vacancy rates
- For most property, the geographical scope of a property manager's regional analysis is: A. the metropolitan statistical area (MSA) in which the property is located B. the property's neighborhood, as designated on the official census map C. the area covered by the property's zip code D. one to three square blocks, depending on the density ratio
- A management plan may have a separate section concerning the marketing plan for the property. This is generally considered necessary or appropriate: A. only for commercial property or a very large residential property B. only if the manager has extensive new ideas for marketing the property C. only if specifically requested by the client (or prospective client) D. in any comprehensive management plan developed by a professional property manager
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- Which is more likely to have a higher operating expense ratio: an older building or a newer building? A. Newer B. Older C. That will depend on the square footage D. None of the above; building age is irrelevant to the OER
- Felix keeps his clients' funds in an interest-bearing trust account at a federally insured bank. The balance in the account is about $400,000 when he is notified that the bank has become insolvent and has almost no assets. What can Felix hope for from the FDIC in the way of recovery of his clients' funds? A. Nothing; FDIC insurance doesn't apply to commercial accounts B. Complete recovery; FDIC insurance is unlimited C. The FDIC insurance is very likely to cover all of the funds in the trust account D. No more than $250,000 in the trust account will be covered, since that's the FDIC's current coverage limit
- Tobey took his first depreciation deduction on a duplex he recently bought as an investment. To calculate the amount of the deduction, the cost of the building was divided by: A. 10 B. 25 C. 27. D. 29.
- There are several ways a property manager may try to increase a property's NOI without raising the rents, including: A. improving the occupancy rate B. making a larger percentage of each tenant's security deposit nonrefundable C. cutting back on capital expenditures that are not immediately necessary D. arranging for the owner to refinance the property's mortgage
- Mariah calculates the property's potential rental income figure for the coming year. She then subtracts a vacancy and collection loss factor in order to determine the: A. net operating income B. gross income ratio C. operating expenses D. effective gross income
- Property managers distinguish between fixed and variable operating expenses, and one of the differences is how those two types of expenses may be affected by the occupancy rate. As a general rule, when the occupancy rate of a building goes up: A. variable expenses decrease, and fixed expenses increase B. variable expenses decrease, and fixed expenses stay the same C. variable expenses increase, and fixed expenses decrease D. variable expenses increase, and fixed expenses stay the same
- Public relations includes: A. community involvement B. press releases and other announcements C. responding to negative events D. All of the above
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- Jeanne manages an office building whose tenants are primarily lawyers and accountants. When advertising vacant space in the building, which target audience should Jeanne market to in order to generate the greatest number of qualified prospects? A. The entire town B. The 42 lawyers and accountants in the area C. All 325 local businesses in town D. All college graduates in the area
- To keep track of the total number of prospects who inquire about the property, and also how many heard about it through a particular source, a property manager often uses a: A. summary sheet B. conversion ratio C. traffic report D. press release
- In the first year of his property management career, George spends quite a bit of time driving through residential neighborhoods looking for vacant or rundown single-family homes. When he finds a suitable property, he contacts the owner and offers his management services. Which of the following is true? A. This could be an effective way to find clients B. Owners who let their property get into bad shape almost invariably turn out to be bad clients to work for C. This way of finding clients is a widely disapproved practice among property managers, comparable to ambulance chasing among lawyers D. Contacting a property owner in this way is illegal in most states, even if the Do Not Call registry was checked first
- Which of the following is an example of targeting different segments of a market based on demographics? A. Generational marketing B. Branding C. Classified advertising D. Incremental marketing
- Larry is designing an email flyer for his new client's apartment building. The place has wonderful features and he thinks that tenants at other buildings might think twice about renewing their current lease if he can get through to them. He buys a list of email addresses in the area from a web source. Are there any legal issues he needs to consider before letting his flyers fly? A. No; provided that a message is not fraudulent and concerns a bona fide product, the law places no other restrictions on emails sent to consumers B. No; as long as a message doesn't concern pornography or controlled substances, and provided that there is a reasonable chance that the product will be of interest to the recipient, then the law places no other restrictions on emails sent to consumers C. Yes, Larry needs to review the applicability of the CAN-SPAM Act D. Yes, Larry needs to check the email addresses against the Do Not Call Registry
- Display advertising may include any of the following, except: A. floor plans B. a virtual tour C. photographs and other graphics D. descriptive text and contact info
- A conversion ratio measures: A. how much of the multi-family housing stock in this market has been converted to condominiums B. how many prospects it takes to get a signed lease for a rental space C. what percentage of a property's tenants have occupied their spaces for over one year D. what percentage of a property's tenants renew their leases if offered the opportunity
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- Which of the following tenants is likely to have the longest rental term? A. Clothing store in large regional mall B. Individual tenant in prestigious apartment building C. Manufacturing facility in industrial park D. Restaurant in strip mall
- The tenants who just moved out left the rental house in very bad condition, and their security deposit clearly won't cover the cost of repairing the damage. The property owner: A. has no recourse against the tenants, since this was a residential lease B. has no recourse against the tenants, because a security deposit is treated as liquidated damages C. could require the property manager to cover the shortfall, under the terms of most management agreements D. could sue the tenants to recover repair costs that weren't covered by the deposit
- The rental application and supporting documents (such as profit and loss statements and tax returns) that a prospective commercial tenant is required to submit are often called the: A. leasing folio B. qualification package C. blue file D. financial profile
- A tenant will always be responsible for cleaning and simple maintenance of: A. common areas in a commercial building B. common areas in a residential building C. his own unit in a commercial building D. his own unit in a residential building
- An R/U ratio may be used to determine: A. the maximum number of people that can legally occupy a residential unit B. the optimum number of smaller stores for a shopping center with a particular type of anchor store C. how much a commercial tenant will have to pay toward the building's common area expenses D. how many parking spaces a retail building will need in order to accommodate customers and employees
Answer Key For: PropertyManagementMidtermExamChapters1-
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Question 1. Answer: D
Explanation: CAM stands for Certified Apartment Manager®, and it's a designation offered by the National Apartment Association® (NAA).
Question 2. Answer: A
Explanation: An incidental or interim owner acquired the managed property as a result of legal procedures or other circumstances (in this case, an inheritance), instead of deliberately purchasing it as an investment.
Question 3. Answer: D
Explanation: A property manager's central task is achieving the owners' goals for the property, whatever those goals may be. While generating the greatest net income and increasing the property's value are the most common goals of investor-owners, they aren't the only ones. For example, a particular client might also be especially concerned with the impact his property has on the surrounding community. Also, an institutional property owner wants the property managed in the way that will best serve the institution's own current needs.
Question 4. Answer: A
Explanation: This describes BOMA, the Building Owners and Managers Association International®.
Question 5. Answer: B
Explanation: In some states with licensing requirements for property managers, a property owner's relative can help manage the property even though the relative is unlicensed.
Question 6. Answer: A
Explanation: The industrial category includes factories and other manufacturing facilities, but it also includes properties used for business support services, such as warehouses and distribution facilities. Thus, the shipping and receiving facility for a large retail business would be considered industrial. Military housing is categorized as special-purpose property. Although big-box stores are sometimes called warehouse stores, they're retail rather than industrial property.
Question 7. Answer: C
Explanation: The CPM (Certified Property Manager®) designation is offered by IREM, the Institute of Real Estate Management®.
Question 8. Answer: C
Explanation: The apartment building owned by a limited partnership is the best example of investment property, because it was purchased to generate a financial return on the invested funds, not for the personal use of the partners. While ordinary single-family homeowners may rightly regard the home they own as an investment (since they're hoping it will have appreciated in value by the time they sell it), the home is owned primarily for personal use and therefore isn't usually classified as investment property.
Question 9. Answer: A
Explanation: A property manager's day-to-day tasks in connection with a managed property will vary dramatically depending on the type and size of the property. Managing a single-family rental home is very different from managing a downtown office building; and managing a small office building is very different from managing a skyscraper. While the manager's tasks are affected by the client's goals, the goals of most clients are fairly similar. The volatility of the rental market can also have a big impact (a period of high tenant turnover dictates a different focus than a more stable period), but it doesn't make as much difference as the type and size of the property.
Question 10. Answer: C
Explanation: Someone who manages institutional property (property occupied and used by the same entity that owns it) is commonly called a facilities manager.
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Question 21. Answer: B
Explanation: This is a liquidated damages clause. Liquidated damages is a sum of money that the parties to a contract agree in advance will serve as full compensation for one party if the other breaches the contract. Although different jurisdictions may place various restrictions on liquidated damages, this type of provision is generally accepted and legal. In many cases, it is convenient for both parties.
Question 22. Answer: A
Explanation: A management agreement usually requires the manager to submit written financial reports to the client on a monthly basis. The agreement certainly can require more frequent reports than the law does; in fact, the contract can require reports even if there's no legal requirement.
Question 23. Answer: C
Explanation: A property manager does not ordinarily give the owner tax advice or prepare the owner's tax returns, so that would not be addressed in a typical management agreement.
Question 24. Answer: C
Explanation: When an investor has limited liability (as in the case of a corporate shareholder, for example), then her home and other personal assets are protected from the creditors of the business. In contrast, an investor with unlimited liability has no such protection; if the assets of the business are insufficient to satisfy the business creditors' claims, the creditors can go after the investor's personal assets to collect the rest of the money.
Question 25. Answer: C
Explanation: Under general agency law, the potential for vicarious liability is one of the legal consequences of establishing a principal-agent relationship, but it is not one of the agent's fiduciary duties.
Question 26. Answer: D
Explanation: A typical management agreement obligates the property owner to do all of these things. The owner is usually also obligated to keep the property insured and to provide funds to cover operating deficits. And, of course, the owner is obligated to pay the manager's compensation as agreed.
Question 27. Answer: A
Explanation: The organizer of a real estate investment syndicate may be referred to as the syndicator or sponsor. Whether the syndicator has unlimited or limited liability depends (as it does for the other investors) on what form of organization was chosen for the syndicate. The syndicator may manage the property or properties, or the syndicate may hire a property manager.
Question 28. Answer: D
Explanation: The authority granted and the responsibilities assigned in a management agreement commonly make the property manager the client's general agent in regard to the managed property or properties.
Question 29. Answer: D
Explanation: All of the answer options are correct statements. Most states require a management agreement to be in writing and signed by both the manager and the client; if so, an unwritten agreement would be unenforceable. Even in those states where it is not required, a written agreement is always advisable. For most clients, a property manager can use a preprinted form to create the management agreement, but in some cases a specially drafted contract is needed.
Question 30. Answer: A
Explanation: In a general partnership, all of the partners have unlimited liability for the debts and obligations of the partnership. Each partner's personal assets can be reached by the creditors of the partnership.
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Question 31. Answer: B
Explanation: Warren must decide whether working with these clients on the terms that they've proposed (counter-proposed) would be acceptable to him. There's no reason to think that they have not understood his proposal, and they might well be annoyed, if not insulted, if he makes further efforts to persuade them at this point (as in option a). It's unlikely that a property manager, especially a new one, would have the negotiating clout or nerve that option c) suggests; in any case, that wouldn't be a good starting point for a harmonious manager-client relationship. The question doesn't provide enough information to conclude, as in option d), that these clients won't fulfill the legal responsibilities of ownership.
Question 32. Answer: C
Explanation: In the property analysis, the manager researches and evaluates the property's current physical condition, its management, leasing, and operations, and its financial condition. (A schedule of suggested rents would be part of the market analysis, not the property analysis.)
Question 33. Answer: A
Explanation: A property's submarket will consist of buildings that are similar in size and character and have similar rental rates. They do not have to be in the same neighborhood; other nearby neighborhoods may be (and perhaps should be) included if they contain similar properties that are in competition with the subject property.
Question 34. Answer: D
Explanation: In a cost-benefit analysis, if the costs and the benefits have been added up carefully and the total costs exceed the total benefits, then the project in question is not financially justified. (Both tangible and intangible costs should always be included in the cost figure. Also, the client's consent is generally needed for any significant change, but if the costs outweigh the benefits, the client is unlikely to approve it. In fact, the manager is unlikely to propose it.)
Question 35. Answer: D
Explanation: Only option d (zoning, transportation, and vacancy rates) lists three items that would all be part of the neighborhood analysis.
Question 36. Answer: A
Explanation: Most managed property is located within an MSA (or possibly in a metropolitan division of an MSA, or in a micropolitan statistical area), and this is the most likely geographical scope for the property manager's regional analysis. Data pertaining specifically to the property's neighborhood or zip code area might well be useful in the neighborhood analysis, but would usually not be part of the "big picture" regional analysis.
Question 37. Answer: B
Explanation: If the manager has some dramatically different ideas for marketing the property, then a separate marketing section would be appropriate in the management plan. Otherwise, suggestions for relatively minor marketing changes can be included in the analysis of alternatives section of the management plan, along with a cost-benefit analysis.
Question 38. Answer: B
Explanation: In a property manager's preliminary study, the property analysis is ordinarily performed before the market analysis, not after, since the manager needs to be very familiar with the client's property before comparing it to the competition. The property analysis should evaluate not only the property's physical condition and appeal, but also its operations, leasing, management, and financial condition. A recent appraisal would be of interest to the manager, but the property analysis does not have to be based on an appraisal (and, in fact, ordinarily would not be).
Question 39. Answer: C
Explanation: The property manager will use market analysis to arrive at a basic rental rate for each category of unit (studios, one-bedrooms, two-bedrooms) in the Clarion building, and then will adjust that basic rate for specific units depending on their features, both positive and negative.
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Question 50. Answer: D
Explanation: Variable expenses, such as maintenance costs, tend to increase when a building's occupancy rate increases. Fixed expenses, such as property taxes, stay the same.
Question 51. Answer: D
Explanation: All of these are forms of public relations. In the property management context, their common purpose is creating and maintaining the reputation of the property, the client, and/or the property manager.
Question 52. Answer: B
Explanation: Qualified prospects are those who have a need for the property (as well as the financial means to rent it). Marketing to the whole town or to all local businesses would probably generate considerable interest but few qualified prospects for an office building that caters to legal and accounting professionals. Although there are only 42 lawyers and accountants in town, marketing to them is likely to result in the highest number of qualified prospects for the least amount of money.
Question 53. Answer: C
Explanation: A traffic report tracks how many prospects inquired about the property, how many were shown a space or unit, and how many ended up as tenants; in addition, it lists how many prospects heard about the property through various sources.
Question 54. Answer: A
Explanation: This is generally considered an acceptable practice, and it could be an effective way for a new property manager to find clients. Property can end up in bad condition for many reasons, so that isn't a reliable indicator of what type of client the owner would turn out to be.
Question 55. Answer: A
Explanation: Demographics refers to data concerning the characteristics of a particular human population, such as age or economic status. Generational marketing segments the market for products into age-based groups that tend to share certain social, economic, and psychological characteristics. For example, it draws a distinction between the buying habits of Baby Boomers and those of Gen X-ers.
Question 56. Answer: C
Explanation: Generally, unsolicited commercial emails fall under the purview of the CAN-SPAM Act, so Larry should check that law's requirements. The Do Not Call law governs unsolicited phone calls and would not apply to an email campaign.
Question 57. Answer: B
Explanation: Display ads may contain text as well as photos, floor plans, a logo, and so on. Virtual tours are possible only in Internet advertising, not in print advertising.
Question 58. Answer: B
Explanation: A conversion ratio indicates how many prospects it takes to get a signed lease for a rental space. It is used to evaluate the effectiveness of various marketing efforts.
Question 59. Answer: D
Explanation: Branding is the process of developing an image for a company or product in the minds of the target audience.
Question 60. Answer: B
Explanation: Ads may violate the Fair Housing Act if they seem to indicate a preference for a certain type of renter. In display ads, using models that represent different types of people helps avoid giving that impression. In other words, that isn't a violation of the Fair Housing Act, it's a way of avoiding a violation.
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Question 61. Answer: A
Explanation: Most leases include a provision prohibiting assignment and subleasing without the landlord's consent. That's true of residential leases as well as commercial leases. Courts in some states have held that this type of provision does not entitle a landlord to "unreasonably" withhold consent, especially if it's a commercial tenancy. However, it's much better from the tenant's point of view if the provision itself specifically states that consent cannot be unreasonably withheld.
Question 62. Answer: A
Explanation: Any tenancy that automatically renews for a certain period (unless there is notice of termination) is a periodic tenancy. The most common example is a month-to-month apartment tenancy.
Question 63. Answer: B
Explanation: An escalation clause calls for rent increases at fixed intervals (typically once a year) during the term of a commercial lease.
Question 64. Answer: A
Explanation: A property manager is required to request identification so that she can check the prospective tenant's name against the SDN watch list, to comply with the Patriot Act. Neither a credit check nor a background check is required by law.
Question 65. Answer: D
Explanation: A sublease may be called a sandwich lease, because the sublessee pays rent to the original tenant, who in turn pays rent to the landlord. The original tenant is thus sandwiched between the landlord and the sublessee.
Question 66. Answer: C
Explanation: Leases for industrial property are usually the longest, given the need to install specialized equipment. Lease terms may be 20 or 30 years, or even longer.
Question 67. Answer: D
Explanation: As a general rule, a security deposit is not treated as liquidated damages. If it isn't enough to cover all of the damage caused by the tenants and/or all of the rent still owed, then the property owner can sue the tenants for the rest.
Question 68. Answer: B
Explanation: A prospective commercial tenant's application and other documents are commonly called the qualification package.
Question 69. Answer: D
Explanation: Residential tenants are almost always responsible for cleaning their own units and performing simple maintenance tasks in their units; the manager is responsible for the common areas. In some commercial buildings, management provides cleaning and other maintenance inside the leased spaces; in others, tenants have their own contracts with janitorial services.
Question 70. Answer: C
Explanation: An R/U ratio states the relationship between rentable area and usable area for a commercial space. The usable area is the number of square feet the tenant occupies exclusively; the rentable area is the usable area plus the common areas. The R/U ratio can be used to determine what share of the common area expenses a commercial tenant has to pay.
