Real Estate Terminology Concepts Quiz

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Questions and Answers

What is the expense associated with the movement of people and things called?

Hard costs

Transfer costs (correct)

Linkages

Soft costs

How is a property's market area defined?

The area within which functional obsolescence is operative

A precisely definable area in terms of boundaries

The geographic area from which tenants will be drawn (correct)

Determined by subdivision controls and zoning regulations

What defines a shopping center's trade area?

The approximate geographical area from which tenants will be drawn

The geographic area from which the major portion of patronage is drawn (correct)

Determined by physical barriers to the flow of customer traffic

The area within which travel time does not exceed approximately fifteen minutes

What is the term for the loss of functional efficiency due to defective or dated design?

Functional obsolescence Signup and view all the answers

What does potential gross income represent for a property?

Potential gross income Signup and view all the answers

Which of the following is a correct definition of operating expenses?

Costs associated with the management and maintenance of a property Signup and view all the answers

What is another term for economic obsolescence?

External obsolescence Signup and view all the answers

What term describes how well a property is designed to perform its intended job?

Functional efficiency Signup and view all the answers

When looking for comparable properties, which factor can limit the selection?

All of the above Signup and view all the answers

Which of the following is not classified as an operating expense?

Income taxes Signup and view all the answers

What aspect does economic efficiency relate to in property management?

The generation of revenue relative to expenses Signup and view all the answers

Which element is essential for assessing the functional efficiency of a property?

The design layout Signup and view all the answers

What does effective gross income account for when determining the rental revenue of a property?

Losses from vacancies and uncollectible accounts Signup and view all the answers

How is net operating income calculated?

Effective gross income minus operating expenses Signup and view all the answers

Which of the following is a non-operating cash flow that might be included in an operating statement?

Capital expenditures Signup and view all the answers

Study Notes

Real Estate Terminology and Concepts

Transfer Costs: Expenses associated with the movement of people and goods.
Effective Gross Income (EGI): A property's potential gross income minus vacancy and collection losses. Calculated as Potential Gross Income- Vacancy Allowance - Other Income. Example: $1,500,000 (potential gross) - $45,000 (vacancy) - $9,000 (other) = $1,446,000 (Effective Gross Income).
Market Area: The geographic area from which tenants are drawn. It isn't precisely defined, nor determined by subdivision, zoning, or obsolescence. It defines the geographic area from which tenants are likely to be drawn.
Trade Area: The area from which the majority of a shopping center's patronage comes, not necessarily the area within a 15-minute travel time or limited by physical barriers.
Functional Obsolescence: Loss of efficiency due to defective or outdated design.
Potential Gross Income (PGI): The income a property would generate if fully occupied at market rates, with no uncollectible rent.
Functional Efficiency: How well a property is designed to perform its intended purpose.
Future Benefit Forecasting: Includes factors like past operating history, social/political changes, and market value changes. All of these contribute to evaluating future benefit.
Comparable Property Search Limitations: Factors (amenities, efficiency, location) that limit the selection of comparable properties. Comparable properties should be chosen from within the defined market area, and should be close substitutes from tenant's perspectives.
Operating Expenses: Costs of maintaining and operating a property (property taxes, maintenance, etc.) but not income taxes.
Net Operating Income (NOI): The difference between effective gross income and operating expenses.
Debt Service: Costs of borrowing money to acquire property, a cash flow factor.
Operating Statement: Shows cash inflows/outflows from operations + non-operating cash flows such as debt service, income taxes, and capital expenditures. Traditional operating statements are based on accrual accounting principals, but real estate analysts prefer actual cash flows, which is the concern.

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Description

Test your knowledge on essential real estate terminology and concepts. This quiz covers key ideas such as Effective Gross Income, Market Areas, and Functional Obsolescence. Understand the critical terms that influence the real estate market and enhance your expertise.