California Real Estate Practice Exam

In a sale and leaseback situation, which of the following concerns is least important for the buyer?

1. Book value of the property, less depreciation.

2. Lessee's credit rating.

3. Location of the property.

4. Structural soundness of the building.

The correct answer is: Book value of the property, less depreciation.

In a sale and leaseback situation, the primary concerns for the buyer typically revolve around the ongoing viability and profitability of the lease arrangement. The buyer needs to ensure that the lessee is capable of making the lease payments reliably, which makes the lessee's credit rating a paramount concern. The buyer also needs to consider the location of the property, as it can significantly influence the property's value and desirability. Structural soundness is also crucial as it affects the overall investment and potential future costs associated with maintenance or repairs. If the building is not structurally sound, it could lead to unforeseen issues that impact its value and functionality. On the other hand, the book value of the property, which is adjusted for depreciation, is of lesser importance in this context. This metric reflects past value rather than current market conditions, cash flow potential, or the immediate practicality of the arrangement between the buyer and the lessee. Since the buyer is primarily concerned with the income generated from the lease payments rather than the historical accounting values of the property, the book value is less relevant to their decision-making process.