Test Bank for Real Estate Principles: A Value Approach 5th Edition

Test Bank for Real Estate Principles: A Value

Approach 5th Edition

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Chapter 6 – Forecasting Ownership Benefits and Value: Market Research

Multiple Choice Questions

[QUESTION]
1. Real estate market research is an important process used by analysts to facilitate a better
understanding of a property’s future profit potential. All of the following statements regarding
market research are true EXCEPT:
A. Real estate market research should always be flexible since the research depends directly
on the problem at hand.
B. Market research consists of a series of facts that fails to consider the role of investor
behavior in the decision-making process.
C. Most important data for a given market study often is not publicly available.
D. Market research should focus specifically on market segments for the property involved,
rather than on the aggregate real estate market.
Ans: B
Difficulty: Intermediate
Learning Objective: 2

[QUESTION]
2. A popular adage in real estate is that property value is all about “location, location,
location.” However, for most property types in nonresidential realms, nonlocational
requirements are equally or even more important. All of the following are examples of
nonlocational factors EXCEPT:
A. Floor plate size
B. Amount of parking
C. Nature of current tenants
D. Proximity to modes of public transportation
Ans: D
Difficulty: Intermediate
Learning Objective: 1

[QUESTION]
3. Preferences of households can vary with time, prosperity, and context. The nuances in the
preferences or needs of market subgroups are commonly referred to as:
A. market segmentation
B. market parameters
C. market projection
D. market cycles
Ans: A
Difficulty: Basic
Learning Objective: 1

[QUESTION]
4. Professor James Graaskamp often asserted that when one buys real estate, what one is
buying is a set of assumptions about the future. Therefore, it is not surprising that the

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Chapter 6 – Forecasting Ownership Benefits and Value: Market Research

beginning point of the market research process is to:

A. collect relevant data to examine the market and test initial definitions
B. evaluate the results of market analysis
C. construct a market-defining “story”
D. refine market definitions and collect additional data
Ans: C
Difficulty: Intermediate
Learning Objective: 2

[QUESTION]
5. In constructing a market-defining “story,” it is helpful to answer a series of fundamental
questions around which analysis can be built. Which of the following questions is designed to
identify the target market?
A. What is the real estate product under consideration?
B. Who are the customers?
C. What aspects of the product do the customers care about?
D. Who are the competitors?
Ans: B
Difficulty: Intermediate
Learning Objective: 3

[QUESTION]
6. In the initial round of market analysis, analysts will attempt to provide key numbers that
characterize the current condition and trend in the market. For rental retail space, the key
market parameters in question would most likely include all of the following EXCEPT:
A. Projected occupancy growth
B. Projected rental rate growth
C. Current vacancy levels
D. Projected sales rates
Ans: D
Difficulty: Advanced
Learning Objective: 2

[QUESTION]
7. In contrast to conventional market analysis, the “story” approach to market research starts
with an analysis of:
A. conditions in global real estate markets
B. conditions in national real estate markets
C. conditions in state real estate markets
D. conditions in the property specific market
Ans: D
Difficulty: Basic
Learning Objective: 2

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Chapter 6 – Forecasting Ownership Benefits and Value: Market Research

[QUESTION]
8. A planned unit development (PUD) is a residential development that differs from
traditional residential subdivisions in all of the following ways EXCEPT:
A. It encompasses a blend of detached single family, attached single family, townhouses and
apartments.
B. It typically has larger individual lots with extensive side-yards on the property.
C. It typically includes a variety of common areas
D. It typically includes a variety of recreational facilities.
Ans: B
Difficulty: Basic
Learning Objective: 2

[QUESTION]
9. In the Elysian Forest example, the planned unit development was destined to be an
unsuccessful venture from its inception because:
A. There was a comparable project in the community that was successful.
B. The site and location of the project was atypical of the area as there were significant
disadvantages in terms of location and visual appeal.
C. The target market was a nontraditional segment that relied heavily on a small portion of the
local University City population.
D. University City was a big, high density city that could not support such development.
Ans: C
Difficulty: Intermediate
Learning Objective: 3

[QUESTION]
10. In the Palm Grove Office Complex example, the project was destined to be an ill-fated
venture from its inception for all of the following reasons EXCEPT:
A. The zoning laws of University City ultimately prevented the project’s developers from
starting the construction process
B. University City was not well-suited for large office space geared toward firms with greater
than 25 employees
C. Palm Grove Office Complex lacked the visual exposure, convenient access, and parking
that its competitors held significant comparative advantages in.
D. The structures were primarily designed as general-purpose office space, which excluded
potential occupants such as laboratories or medical offices.
Ans: A
Difficulty: Intermediate
Learning Objective: 3

[QUESTION]
11. Since most data for a given market study is not readily available, analysts must be creative

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any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
Chapter 6 – Forecasting Ownership Benefits and Value: Market Research

in their use of data that they are able to obtain. The primary source for detailed household
demographic information is:
A. the U.S. Bureau of the Census
B. the Federal Reserve
C. the local tax collector’s office
D. Not available publicly
Ans: A
Difficulty: Basic
Learning Objective: 4

[QUESTION]
12. In collecting data for nonresidential property analysis, it is helpful to understand the
business community that currently exists in the specific area in question. A preliminary
approach for ascertaining the number of firms by size, industry, and location is to obtain data
from:
A. the Bureau of Labor Statistics
B. the National Transportation Service
C. the U.S. Bureau of the Census: County Business Patterns
D. the Federal Reserve
Ans: C
Difficulty: Basic
Learning Objective: 4

[QUESTION]
13. A new residential development will face competition from other new developments, other
builders, and sales of existing homes. To determine if demand in that market segment will be
sufficient to justify proceeding with the project, a developer would be most interested in
estimating a:
A. capture rate
B. capitalization rate
C. risk-free rate
D. risk premium
Ans: A
Difficulty: Intermediate
Learning Objective: 3

[QUESTION]
14. The most common definition of a city used for government data collection and reporting,
identified as a single labor market area centered around a city with a population of at least
50,000 people, is referred to as a:
A. township
B. central business district
C. metropolitan statistical area
D. county

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any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
Chapter 6 – Forecasting Ownership Benefits and Value: Market Research

Ans: C
Difficulty: Basic
Learning Objective: 4

[QUESTION]
15. The presence of real estate cycles presents a major challenge when forecasting real estate
market parameters. If the market value of a residential developer’s project exceeds its
construction costs, an increase in the supply of units will occur. As the market becomes
oversupplied, we would expect which of the following to occur?
A. an increase in occupancy levels
B. an increase in market values
C. a decrease in real rental rates
D. a decrease in construction costs
Ans: C
Difficulty: Intermediate
Learning Objective: 4

[QUESTION]
16. Development of subdivisions, apartments, offices, or other commercial structures can
have a lead time of two years or more. In general, the longer the construction lead time:
A. the lower the construction cost
B. the greater the supply of units
C. the lower the market value
D. the greater the amplitude of real estate cycles
Ans: D
Difficulty: Intermediate
Learning Objective: 4

[QUESTION]
17. Computer software systems that enable one to manipulate and “map” information with
great flexibility and speed are referred to as:
A. geographical information systems (GIS)
B. psychographics
C. survey research
D. census mapping
Ans: A
Difficulty: Basic
Learning Objective: 5

[QUESTION]
18. A tool used by real estate analysts to relate a consumer’s activities, interests, opinions, and
values to a consumer’s demographics is referred to as:
A. geographical information systems (GIS)
B. psychographics

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Chapter 6 – Forecasting Ownership Benefits and Value: Market Research

C. survey research
D. census mapping
Ans: B
Difficulty: Basic
Learning Objective: 6

[QUESTION]
19. Survey research has been applied to real estate markets at many levels. Despite its
frequent application, analysts must be cautious with survey use because:
A. it is difficult to implement
B. interviews and questionnaires are not received well by consumers
C. it cannot be used in a small sample area
D. it can be fraught with abortive errors
Ans: D
Difficulty: Intermediate
Learning Objective: 7

[QUESTION]
20. While predicting real estate cycles is difficult, a key indicator used to evaluate where a
property is within the cycle is:
A. the level of household income
B. the form of land use
C. the size of the property
D. the number of building permits issued
Ans: D
Difficulty: Intermediate
Learning Objective: 4

[QUESTION]
21. Since most data that we would like to conduct a thorough market analysis is unavailable, a
researcher will find it useful to find a data series that will closely represent the variable of
interest. We typically refer to this type of variable as a:
A. Relevant
B. Proxy
C. Correlation
D. Cluster
Ans: B
Difficulty: Basic
Learning Objective: 4

[QUESTION]
22. When you are evaluating the prospects for a project that is new in your setting and
therefore has no actual relevant market performance data, it is most helpful to use which of
the following techniques as the basis for your analysis?

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Chapter 6 – Forecasting Ownership Benefits and Value: Market Research

A. Analogy
B. Fabrication
C. Cooperation
D. Recommendation
Ans: A
Difficulty: Basic
Learning Objective: 4

Multiple Choice Problems:

[QUESTION]
23. Suppose that you were interested in building a luxury apartment complex in your
hometown. In your analysis of local demographics, you discover that the target market makes
up only 5% (core market share) of the households that currently rent (or would be interested
in renting) in this town. If market experts believe that a total of 5,000 apartment units will be
rented in your entire hometown within the next year, what is the projected number of units the
developer could expect to lease in year 1 if he is able to capture 20% of the market potential?
A. 1000 units
B. 500 units
C. 250 units
D. 50 units
Ans: D
Difficulty: Advanced
Learning Objective: 4

[QUESTION]
24. Suppose a developer is interested in building a new townhome community. Through his
market research, the developer has determined that the target market makes up 10% (core
market share) of the households that currently reside in the metropolitan area. If an analysis of
data from the MLS indicates that there should be approximately 500 residential sales in this
area over the next year, what is the projected number of units the developer could expect to
sell in year 1 if he is able to capture 50% of the market potential?
A. 500 units
B. 250 units
C. 50 units
D. 25 units
Ans: D
Difficulty: Advanced
Learning Objective: 4

[QUESTION]
25. Suppose a developer is interested in building a new residential subdivision. Through his
market research, the developer has determined that the target market segment potential in year

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any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
Chapter 6 – Forecasting Ownership Benefits and Value: Market Research

1 consists of 160 households. If the developer projects that he will be able to sell 24 homes in
the first year, what is his assumed capture rate?
A. 6.67%
B. 15%
C. 24%
D. 85%
Ans: B
Difficulty: Basic
Learning Objective: 4

[QUESTION]
26. Suppose a developer is interested in building a new apartment community. Through her
market research, the developer has determined that the target market segment potential in year
1 consists of 100 households. The developer believes that the target market segment potential
will grow by 5% annually over the next five years. If the developer projects a capture rate of
25% for each of the next five years, how many units does she plan on selling by the end of
year 5?
A. 25 units
B. 125 units
C. 138 units
D. 175 units
Ans: C
Difficulty: Advanced
Learning Objective: 4

[QUESTION]
27. Suppose that you have begun to gather some demographic data in order to project the
potential sales of a new development project. The developer hopes to be able to target the
following household types who fall in the upper 10% of income brackets: Empty Nesters,
Single Parents, and Unrelated Individuals. Utilizing the following population information,
determine the core market share that the development project yearns to target with this
project. Total Owner Occupant Households: 48,000; Traditional Families in the Upper 10% of
Income Brackets: 25,000; Empty Nesters in the Upper 10% of Income Brackets: 5,000; Single
Parents in the Upper 10% of Income Brackets: 10,000; Unrelated Individuals in the Upper
10% of Income Brackets: 8,000
A. 4.17%
B. 47.92%
C. 52.08%
D. 92.00%
Ans: B
Difficulty: Intermediate
Learning Objective: 4

[QUESTION]

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Chapter 6 – Forecasting Ownership Benefits and Value: Market Research

28. A developer of a new planned unit development (PUD) has gathered the following market
information for University City. The developer estimates that there will be 1,500 home (all
types) sales in University City over the next year. If an analysis of demographic information
has revealed that the core market share for the PUD project within the community is 14.0%,
what is the total market segment potential for this project?
A. 42 units
B. 105 units
C. 210 units
D. 1290 units
Ans: C
Difficulty: Basic
Learning Objective: 4

[QUESTION]
29. A developer of a new townhome community has gathered the following market
information for University City. The developer estimates that there will be 1,200 home (all
types) sales in University City over the next year. An analysis of demographic information
has revealed that the core market share for the townhome project within the community is
10%. Assuming a capture rate of 20%, what is the developer’s first year projection of
townhome sales in the new community?
A. 24 units
B. 120 units
C. 240 units
D. 600 units
Ans: A
Difficulty: Intermediate
Learning Objective: 4

[QUESTION]
30. Suppose a developer is interested in building a new apartment community. Through her
market research, the developer has determined that the target market segment potential in year
1 consists of 100 households. The developer believes that the target market segment potential
will grow by 5% annually over the next five years. If the developer projects a capture rate of
25% for each of the next five years, but is only to sell 26 apartment units in each of the next
five years, in which year will her actual sales first fail to meet her projected sales numbers?
A. Year 2
B. Year 3
C. Year 4
D. Year 5
Ans: B
Difficulty: Advanced
Learning Objective: 4

[QUESTION]

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Test Bank for Real Estate Principles: A Value Approach 5th Edition

Chapter 6 – Forecasting Ownership Benefits and Value: Market Research

31. Suppose that you were interested in building a new townhome community on the east side
of University City that will be marketed exclusively to senior citizens above the age of 62. In
your analysis of local demographics, you discover that the target market makes up only 10%
(core market share) of the households that currently live in this city. If market experts believe
that a total of 500 townhome (or similar condominium) units will be purchased in all of
University City within the next year, what is the projected number of units the developer
could expect to sell in year 1 if he is able to capture 40% of the market potential?
A. 500 units
B. 50 units
C. 20 units
D. 10 units
Ans: C
Difficulty: Intermediate
Learning Objective: 4

[QUESTION]
32. Suppose a developer is interested in building a new subdivision of single-family homes.
Through her market research, the developer has determined that the target market segment
potential in year 1 consists of 176 households. If the developer projects that she will be able to
sell 44 homes in the first year, what is her assumed capture rate?
A. 15%
B. 25%
C. 44%
D. 75%
Ans: B
Difficulty: Basic
Learning Objective: 4

[QUESTION]
33. Suppose that you have begun to gather some demographic data in order to project the
potential sales of a new development project. The developer hopes to be able to target the
following household types who fall in the age 55 and up housing market: Seniors - Employed
Part Time; Seniors – Retired / Not in Assisted Living. Utilizing the following population
information, determine the core market share that the development project yearns to target
with this project. Total Senior Households: 25,000; Seniors - Employed Full Time: 8,000;
Seniors - Employed Part Time: 2,500; Seniors – Retired / Not in Assisted Living: 12,000;
Seniors – Retired / In Assisted Living: 2,500
A. 58.0%
B. 80.0%
C. 90.0%
D. 100.0%
Ans: A
Difficulty: Intermediate
Learning Objective: 4

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