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chapter022 - CHAPTER 22 Enhancing Value through Ongoing...

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CHAPTER 22 Enhancing Value through Ongoing Management Test Problems 1. The Institute of Real Estate Management (IRM) awards which of the following designations? b. CPM. 2. A contractual relationship where an individual must act in the best interests of a principal when dealing with a third party is termed: a. An agency relationship. 3. The requirement of a real estate manager to act in the best interests of the landlord when dealing with a tenant is termed: c. A fiduciary responsibility 4. Which of these is not typically a responsibility of a property manager? d. Income tax analysis. 5. Remodeling and rehabilitation: c. Are expected to add value to the property. 6. Both the owner and the manager may be better off if management’s compensation were based on a percentage of the property’s: c. Net operating income. 7. The following are necessary for a lease to be valid, except: c. Tenant’s contact phone number, or address, in the event of an emergency. 8. The asset manager is NOT responsible for: c. Making maintenance decisions. 9. Demolition of an existing property on an urban site will likely occur: c. When the site value, assuming a new use, exceeds the value of the site under its existing use, plus the cost of demolition. 10. For non-real estate corporations, which of the following is not a potential advantage of a real estate sale-leaseback? c. The firm benefits from property appreciation that occurs after the sale- leaseback. 22-1
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Study Questions 1. An investor purchased a property with an equity investment of $100,000 and an $800,000 mortgage. She has held the property for five years, and the mortgage now has a balance of $750,000. The market value of her property is estimated to be $950,000. What is her present equity investment? Solution : Her current equity investment in the property is $200,000, which is equal to the current market value of the property ($950,000) minus the current loan balance ($750,000). 2. What should be included as costs to be matched by value added after rehabilitation? Solution : An improvement, such as rehabilitation, should be undertaken only if the value added to the property exceeds the cost of improvements, which include material, labor, the contractor’s profit, architect’s fees, and an allowance for contingencies.
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