Due Diligence & Risk Assessment Flashcards
6 cards from real REA practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 6 Due Diligence & Risk Assessment flashcards as text
What is the primary purpose of a Phase I Environmental Site Assessment in real estate due diligence?
Answer: To identify potential environmental contamination on a property
A Phase I ESA identifies recognized environmental conditions (RECs) that suggest potential contamination without invasive testing.
Which document provides a buyer with the legal description, easements, and encumbrances on a property?
Answer: Title commitment
A title commitment discloses all liens, easements, covenants, and encumbrances affecting the property's title.
During due diligence, a real estate analyst discovers that a tenant's lease contains a co-tenancy clause. What risk does this present?
Answer: Anchor tenant departure may allow other tenants to reduce rent or terminate leases
A co-tenancy clause allows tenants to reduce rent or exit their lease if a key anchor tenant leaves, threatening income stability.
What does a 'estoppel certificate' confirm during due diligence?
Answer: A tenant's acknowledgment of lease terms, rent paid, and any landlord defaults
An estoppel certificate is a signed tenant statement confirming current lease terms, rent amounts, and absence of landlord defaults.
Which risk is most directly assessed through a Property Condition Assessment (PCA)?
Answer: Deferred maintenance and capital expenditure needs
A PCA identifies physical deficiencies, deferred maintenance, and projects capital expenditure requirements over a forecast period.
What is 'concentration risk' in a real estate portfolio context?
Answer: Overexposure to a single tenant, market, or property type
Concentration risk arises when a portfolio is overly dependent on one tenant, geography, or asset class, amplifying losses if that segment underperforms.