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Humber College PREX-1060A Exam 4: Invigilated Theory Exam Exam Practice Test

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Total 120 questions

Exam 4: Invigilated Theory Exam Questions and Answers

Question 1

Which of the following is a risk associated with investing in commercial real estate?

Options:

A.

The relative lack of liquidity

B.

The relative lack of capital growth during the holdover period

C.

The fact that rent, leased space, and building size are fixed

D.

The insufficiency of cash flow during the holding period

Question 2

A salesperson representing a client who is selling an office property has received some documents from the seller and is trying to organize them. Which of the following documents is NOT needed by the salesperson or seller when selling the property?

Options:

A.

Telephone bills

B.

Private mortgage form

C.

Income verification documents

D.

Environmental site assessments

Question 3

A buyer is purchasing a farm and all the animals are included in the sale price. The buyer is worried the animals could become infected with disease prior to closing, so the salesperson inserts a clause in the agreement of purchase and sale to address that issue. Which of the following should NOT be included in the clause to protect the buyer?

Options:

A.

The number of animals based on type, gender, and health; if the number is not the same at closing, the price will be adjusted.

B.

A condition requiring a check-up of each animal by a predetermined veterinarian during due diligence.

C.

State that the buyer is assuming all animals on an "as is" basis.

D.

State that the seller will continue the day-to-day farm operations until closing.

Question 4

Salespersons are required to verify, wherever they can, information provided by landlords, such as zoning details and permitted uses. A salesperson is helping a major landlord to lease out a big retail mall that involves complex matters. Which of the following does NOT need third-party professional advice?

Options:

A.

The total area measurements

B.

The maximum floor load of every unit

C.

The number of sprinklers required in every unit

D.

The total remuneration payable for a 20-year lease

Question 5

When discussing the sale of a business and establishing the asking price, there are questions a salesperson must ask the owner. Which of the following is one of them?

Options:

A.

Is there any easement on the property?

B.

Is the ownership of the building a corporation or a partnership?

C.

What is the construction cost of the building?

D.

Is inventory included in the sale of this business?

Question 6

In regard to cash flow into and out of a business, which of the following is correct?

Options:

A.

Operating cash flow can be positive or negative.

B.

Operating cash flow is used when determining yield on an investment property, while sales proceeds cash flow is not used for this purpose.

C.

Sales proceeds cash flow does not affect investor decisions.

D.

Sales proceeds cash flow is used when determining yield on an investment property, while operating cash flow is not used for this purpose.

Question 7

A salesperson is helping a buyer identify their needs and property requirements to select an appropriate office property and they are discussing the office layout. Which of the following is NOTa layout consideration?

Options:

A.

Storage

B.

Kitchens/lunchrooms

C.

Fitting rooms

D.

Boardrooms, private offices, and workstations

Question 8

A first-time investor is looking to purchase a commercial property and asks their salesperson about the gains they can hope to achieve from this type of asset. What should the salesperson explain to their client regarding the purchase of commercial properties as a source of capital growth?

Options:

A.

The salesperson should explain that to achieve capital growth, the client should be a long-term investor.

B.

The salesperson should explain that a better return on investment will be achieved with rising interest rates.

C.

The salesperson should explain that making a commercial property investment is an easy and smooth process that provides good short-term gains.

D.

The salesperson should explain that the client should always consider being a short-term investor.

Question 9

The key mechanical components of commercial buildings include heating, cooling, and electrical systems. Which of the following tasks is NOT usually completed by the salesperson?

Options:

A.

Ensuring inspections are being carried out as required

B.

Contacting contractors for quotes for repairing or replacing equipment

C.

Reviewing whether the technical components have been recently replaced or upgraded

D.

Learning what types of equipment are in the building and having a general understanding of theirage and condition

Question 10

If a retail unit has a usable area of 3,482 sq. ft. with a conversion rate of 1.1235, what would the tenant's rentable area be?

Options:

A.

The retail tenant's rentable area would be 3,482 sq. ft.

B.

The retail tenant's rentable area would be 3,073 sq.ft.

C.

The retail tenant's rentable area would be 3,912 sq.ft.

D.

The retail tenant's rentable area would be 3,605 sq. ft.

Question 11

A buyer looking for an industrial property tells the salesperson that on-site trailer storage space is an important feature. What is a reason on-site trailer storage might be important for the buyer's industrial business?

Options:

A.

Businesses need to transport materials to and from the site.

B.

Outgoing trucks could have difficulty if there is a lack of on-site trailer storage.

C.

Some trucks may need to park on the property overnight.

D.

Incoming trucks could have difficulty if there is a lack of on-site trailer storage.

Question 12

In regard to the adjusted book value/asset valuation method of valuing a business, which of the following is correct?

Options:

A.

A company’s adjusted book value should be equal to the actual market value of the business.

B.

The adjusted book value method should not be used when the sale of a business is being implemented or is under consideration.

C.

A company’s adjusted book value is entirely unrelated to its net worth.

D.

The adjusted book value method takes goodwill into account when establishing the value of a business.

Question 13

A tenant has an established business with good growth potential for the foreseeable future and wants to rent a retail property for expansion. If the landlord wants to have the opportunity to boost the rent when the tenant's sales are good, which type of lease would you recommend to the landlord?

Options:

A.

Net lease

B.

Percentage lease

C.

Gross lease

D.

Triple net lease

Question 14

Obtaining the size and boundaries of a commercial condominium unit is an important task for a salesperson. Which of the following statements regarding this task is NOT correct?

Options:

A.

An Ontario Land Surveyor can be hired to measure the space.

B.

Space should be measured in accordance with BOMA standards.

C.

An architect can be hired to measure the space.

D.

The original plans should be used to determine the size of a unit.

Question 15

A salesperson is representing a tenant client who is opening a new pet food store in a local strip plaza. The salesperson meets with their tenant to discuss display signage and review the guidelines in their commercial lease agreement. Which statement is NOT accurate regarding the commercial lease agreement's signage clause?

Options:

A.

The tenant's signage must be approved by the municipality and the landlord, and all associated costs shall be paid by the landlord.

B.

The tenant's signage is considered a trade fixture and shall remain the tenant's property.

C.

The tenant's signage shall be immediately removed at the end of their lease term(s) at the tenant’s expense.

D.

The tenant's signage, from approvals to installation and ongoing maintenance, shall be at thetenant's own expense.

Question 16

The key mechanical components of commercial buildings include heating, cooling, and electrical systems. Which of the following tasks is NOT usually completed by the salesperson?

Options:

A.

Ensuring inspections are being carried out as required.

B.

Contacting contractors for quotes for repairing or replacing equipment.

C.

Reviewing whether the technical components have been recently replaced or upgraded.

D.

Learning what types of equipment are in the building and having a general understanding of their age and condition.

Question 17

In regard to equipment at an industrial property that is being shown for sale, a salesperson representing a buyer should do all of the following, EXCEPT:

Options:

A.

Contact the seller's representative prior to the showing to gain awareness of safety and compliance requirements.

B.

Ensure they are informed as to whether the equipment shown will be relevant for the buyer's intended use.

C.

Ensure chattels or fixtures are not included in the sale or negotiated for in the agreement.

D.

Obtain clarification as to which equipment seen during the showing will be included in the purchase price of the property.

Question 18

A buyer wants to purchase an industrial property for its international logistics and distribution center. Currently, the building is used by a local courier company with small delivery trucks and vans. When drafting an offer to purchase this property, which of the following should be added regarding this change of use?

Options:

A.

A clause to obtain the necessary mortgage amount

B.

A clause to test the quality of the underground water source

C.

A clause to check the condition of the trucks and vans

D.

A clause to ensure the truck parking spaces and turning radius are sufficient

Question 19

Which of the following is NOT determined by zoning bylaws?

Options:

A.

The types of buildings that are permitted in a location, their height, and how they may be used

B.

Lot dimensions and parking requirements

C.

The amount of rent a building may generate

D.

Where buildings and other structures may be located

Question 20

A salesperson discusses with a buyer the potential advantages of purchasing brownfields for redevelopment. What is NOT an advantage for the buyer of a brownfield property?

Options:

A.

An owner who rehabilitates a brownfield property can receive tax incentives.

B.

The contaminants in brownfields contain precious metals that can be sold to earn additional income.

C.

Brownfield properties typically have the advantage of existing infrastructure such as roads, utilities, water/sewer servicing, schools, and transit facilities.

D.

Brownfield properties can often be purchased at well below their potential market value.

Question 21

Which of the following is NOT relevant information a salesperson must verify when representing a landlord who is planning to lease their industrial property?

Options:

A.

The salesperson must verify the zoning information for the industrial property.

B.

The salesperson must verify the previous tenant's lease rates and terms.

C.

The salesperson must verify whether the tenant's intended use for the industrial property is permitted under the zoning bylaw.

D.

The salesperson must verify the rates and terms of lease for the property.

Question 22

Which of the following statements regarding heavy industrial use and light industrial use is correct?

Options:

A.

Clay production is an example of light industrial use.

B.

Light industrial use usually results in more noise and heavier traffic.

C.

Heavy industrial use can produce more pollution than other commercial activities.

D.

Heavy industrial use usually results in less traffic in and out of the heavy industrial zone.

Question 23

A salesperson is negotiating a lease for a new retail tenant and reviewing the requirements and restrictions regarding the delivery of stock items. Which of the following is NOT a correct statement regarding stock delivery requirements and restrictions in a commercial lease?

Options:

A.

The salesperson is responsible for negotiating the tenant's stock delivery window.

B.

Should a delivery truck arrive during an emergency, the property manager must be available.

C.

Stock delivery cannot be restricted in a commercial agreement to lease.

D.

The salesperson is responsible for addressing site access and exit in the tenant's agreement to lease.

Question 24

A salesperson has a buyer client in the metal fabrication industry, which requires outdoor storage and involves substantial noise and smells. The salesperson sees a listing that says "24,000-square-foot light industrial property, multi-uses permitted.” Is this a suitable property for their client? Why or why not?

Options:

A.

Yes, the property will be suitable if the client states they will change the zoning to allow their type and classification of business to operate at this location.

B.

Yes, the property is suitable since the client is already in the metal fabrication business, and does not need to get any permits from the municipality prior to moving in and using the property.

C.

Yes, the property is suitable, as the listing says the property is light industrial and multi-uses are permitted.

D.

No, the property is not suitable, as the client's business type and classification require heavy industrial zoning.

Question 25

Asset sale and share sale are two different ways to sell a business. Which statement describes an asset sale?

Options:

A.

The buyer replaces the seller as the owner of the corporation.

B.

The buyer assumes all assets and accepts all liabilities of the business.

C.

The buyer is eligible for tax deductions and benefits by claiming capital cost allowance on depreciable property.

D.

The seller benefits from a tax standpoint since any gain to the seller on the sale will be considered under the capital gains tax exemption.

Question 26

A tenant receives the keys to their new retail space. When the tenant opens the door, they see evidence of a small fire on the walls near the electrical panel. Which of the following is an appropriate recommendation the salesperson could provide to the new tenant?

Options:

A.

Meet with the property manager, review the lease, and determine a course of action.

B.

Repair the damage and deduct the cost from the rent.

C.

Contact a lawyer and immediately start a legal action for damages.

D.

Terminate the lease and start looking for a new space.

Question 27

A salesperson sells an office building using the Commercial Agreement of Purchase and Sale along with a schedule that lists all the fixtures, chattels, and rental items of the office building. After closing the real estate transaction, a dispute arises between the seller and the buyer about which chattels, fixtures, and rental items of the office building were to be included and which were to be excluded. Which of the following is NOT an accurate statement regarding the salesperson's actions related to negotiating chattels, fixtures, and rental items?

Options:

A.

The salesperson should clearly list all rental items and service contracts, as these will not be included in the purchase price of the real property being purchased.

B.

The salesperson should specifically exclude all fixtures that are not a part of the transaction since fixtures are considered a part of the property and are normally included in the purchase price.

C.

The salesperson should clearly describe and list the fixtures and chattels in the Agreement of Purchase and Sale and mark each item as an exclusion or inclusion.

D.

The salesperson should specifically exclude all chattels that are not a part of the transaction since chattels are considered a part of the property and are normally included in the purchase price.

Question 28

A retail property buyer must consider the parking requirements associated with the site. All of the statements below are considerations for parking, EXCEPT:

Options:

A.

There may be minimum width and depth requirements for parking spaces.

B.

Parking may be impacted by zoning requirements.

C.

Parking may be impacted by the municipality’s parking bylaw.

D.

Required parking for persons with disabilities is usually fixed as a ratio based on the number of disabled persons in the community.

Question 29

A salesperson is assisting both the tenant and the landlord in a commercial property rentaltransaction. Which of the following statements about calculating the remuneration for this transaction is correct?

Options:

A.

The tenant may be required to pay the deficiency between the contracted amount in the tenant representation agreement and the amount actually paid by the landlord.

B.

Salespersons are prohibited from indicating directly that remuneration is fixed by any association but can indicate it indirectly.

C.

Remuneration can be calculated based on the difference between the listing price and the actual rental price.

D.

Remuneration can be an agreed amount or a percentage of the rental price, but not a combination of both.

Question 30

A buyer client and their salesperson are doing a visual check of the industrial property that the buyer is planning to purchase. When they get to the rear of the property, the salesperson observes a potential source of contamination. Which of the following factors is likely the cause of concern for the salesperson?

Options:

A.

The office building next door has an overflow parking lot.

B.

The neighboring property includes a restaurant, a dental clinic, and a law office.

C.

There is vacant land nearby with a small pond with discolored standing water.

D.

There is a residential neighborhood and playground nearby.

Question 31

Which of the following is most likely to be a factor in an appraisal for an industrial property?

Options:

A.

Amount of advertising and publicity

B.

Proximity to museums and historical sites

C.

Price trend for detached homes in nearby neighborhoods

D.

Access to raw materials used in the region

Question 32

A buyer client has hired a commercial appraiser to assess the market value of a fully tenanted commercial complex. The complex is mixed-use with retail on the main level and offices on the second and third levels. It is an older property with unique characteristics. Which of the following is NOT a correct statement regarding how the appraiser will determine the value of the property?

Options:

A.

The appraiser will research similar buildings, as commercial properties are usually bought and sold on a dollar value per square foot.

B.

The appraiser will assess how convenient it is to access the building and whether customers would be required to walk a significant distance within the mixed-use commercial complex to find a retailer.

C.

The appraiser will assess the layout of the complex, as it will directly establish the utility of the mixed-use building.

D.

The appraiser will research the layout of other types of commercial buildings to establish the utility of the mixed-use building.

Question 33

A landlord and a tenant have signed an agreement to lease an office space. Prior to the transaction closing, an unforeseeable event occurs that is not the fault of either party. Which statement about the return of the tenant's deposit is NOT correct?

Options:

A.

The agreement may contain a clause forfeiting all of the deposit if the landlord has started work on the premises.

B.

The parties may need to obtain a court order that clarifies how the deposit will be returned and distributed.

C.

The tenant can have the deposit back without signing a mutual release as it is not their fault.

D.

The landlord and tenant may agree to split the deposit.

Question 34

Which of the following accurately describes a landlord's commercial property insurance coverage?

Options:

A.

A landlord's commercial property insurance policy should cover the loss of the property's equity due to a change in market conditions or to a recession.

B.

A landlord’s commercial property insurance policy should cover the loss of the tenant’s assets and income due to business interruption as the result of a fire or flood.

C.

A landlord’s commercial property insurance policy should cover the loss of rental income in the event of a fire, for the period the premises is vacant while repairs are made.

D.

A landlord's commercial property insurance policy should cover the loss of the tenant's assets due to theft from their employees or third parties.

Question 35

The balance sheet of a business helps investors understand its stability and assess financial risk. A balance sheet includes details about all of the following, EXCEPT:

Options:

A.

Shareholder’s equity

B.

Assets

C.

Liabilities

D.

Net operating income

Question 36

A developer has completed the construction of a new commercial condominium project that is readyfor occupancy by the buyers. The condominium should be registered within approximately six months. Which of the following accurately describes a responsibility of the developer?

Options:

A.

The developer will be responsible for calling a general meeting within 21 days to appoint a new board of directors.

B.

The developer will be responsible for registering the declaration and description and creating the plan and vision for the property.

C.

The developer will be responsible for much of the day-to-day management of the condominium corporation's affairs after the turnover meeting.

D.

The developer will be responsible for overseeing the business affairs of the condominium corporation after the turnover meeting.

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Total 120 questions