Specialty Areas

Property Owner Paul makes significant improvements to a lot that he has been holding for seven years. Which of the following statements is most likely to be true regarding Paul's improvements? Select one: A. Paul's land will increase in value B. Paul's land will decrease in value C. Paul is developing a subdivision D. either A or B

Improvements may have a positive or negative affect on the economic value of the land and surrounding area. Whether Pau's land value will increase or decrease is dependent on the type of development or improvement. The correct answer is: either A or B

In terms of management, PUDs most clearly resemble: Select one: A. leasing B. cooperative ownership C. condominium ownership D. time-share ownership

Like a condominium, PUDs have associations that manage the common areas and enforce the covenants, conditions, and restrictions of the development. The correct answer is: condominium ownership

Industrial property includes all of the following uses except: Select one: A. mines B. warehouses C. ranches D. vacant lots

Note that industrial property includes mines, warehouses, plants, factories, utilities, and vacant land suitable for industrial development. The correct answer is: ranches

To be a professional property manager of a large apartment complex, one would need to know about all of the following EXCEPT: Select one: A. property maintenance B. property insurance C. human relations D. appraisal techniques

Property maintenance, property insurance, and human relations (dealing with lessees and the lessor) would be important knowledge for a property manager. Appraisal techniques are the purview of the real estate appraiser. The correct answer is: appraisal techniques

Property management agreements usually represent: Select one: A. general agency B. special agency C. dual agency D. universal agency

Property management agreements usually represent general agency agreements. The correct answer is: general agency

A property management contract is between the property manager and: Select one: A. his or her employees B. the owner of the property C. the tenants D. all of the above

Property management contracts are between the property manager (who may or may not need to be licensed, depending on the jurisdiction) and the owner of the property in question. The correct answer is: the owner of the property

To qualify for a tax-deferred exchange, properties MUST: Select one: A. have the same income B. have different incomes C. be of like-kind D. have deeds in corporation names

The only way to qualify for a tax-deferred exchange is for the properties exchanged to be like-kind. You could NOT trade or exchange a rental property for your personal residence. However, you could exchange rental property for another investment property. The correct answer is: be of like-kind

Which of the following leases would base rent on sales volume? Select one: A. Percentage B. Graduated C. Reappraisal D. Ground Feedback

types of lease agreements) A percentage lease is one in which the tenant pays a base rent AND additional rent based on a percentage of sales. The correct answer is: Percentage

A lease where the tenant pays taxes and maintenance costs is a: Select one: A. Net lease B. Percentage lease C. Ground lease D. Gross lease Feedback

types of lease agreements) In a net lease, the tenant (lessee) agrees to pay a fixed rental amount along with a pro rata share of the landlord's building costs, including taxes, insurance, utilities, and repairs. In a gross lease, the tenant pays a fixed rental amount and the landlord pays his own building expenses. In a percentage lease, the tenant pays a fixed percent of the income earned through the rented space. The correct answer is: Net lease

For tax purposes, which of the following deductions is a homeowner allowed if he only uses his residence as a home? Select one: A. Depreciation B. Principal payments C. Interest payments D. Cost of improvements

(commercial property/income property) A homeowner may deduct the interest paid on a home mortgage from his or her personal income tax calculation. Depreciation and the cost of improvements can only be deducted if the property is income-producing property (ex. a rental). The correct answer is: Interest payments

Merging adjacent properties is known as: Select one: A. Annexation B. Abutment C. Marshalling D. Assemblage

(commercial property/income property) Assemblage is when two or more adjoining properties are combined into a larger tract of land. Assemblage may increase the value of both parcels. Think of this as assembling more than one property together. The correct answer is: Assemblage

Paul Property Owner makes significant improvements to a lot that he has held for seven years. Which of the following statements is most likely to be true? Select one: A. Paul's land will increase in value B. Paul's land will decrease in value C. Paul is developing a subdivision D. Either A or B

(commercial property/income property) Improvements may have a positive or negative affect on the economic value of the land and surrounding areas, depending on the type of development or improvement. The correct answer is: Either A or B

Assemblage most often occurs where: Select one: A. Demand is high B. Demand is low C. The whole is more valuable than the parts D. Both A and C Feedback

(commercial property/income property) Regardless of whether demand is high or low, assemblage is usually practiced when the combined property will be more valuable than the individual parcels. The correct answer is: The whole is more valuable than the parts

To qualify for a tax-deferred exchange, properties MUST: Select one: A. Have the same income B. Have different incomes C. Be of like-kind D. Have deeds in corporation names Feedback

(commercial property/income property) The only way to qualify for a tax-deferred exchange is for the exchanged properties to be of like-kind. You could NOT trade or exchange a rental property for your personal residence. However, you could exchange a rental property for another investment property. The correct answer is: Be of like-kind

When an owner of real property obtains a new mortgage to pay off an old mortgage, it is known as: Select one: A. Refinancing B. Foreclosure C. Assumption D. Subordination

(commercial property/income property) This is refinancing. In effect, the owner is selling the property to himself. He obtains a new loan on his own property and uses the money to pay off his old loan. This is very common during periods of falling interest rates. The correct answer is: Refinancing

When paying federal income taxes, what may be itemized as a personal deduction? Select one: A. The amount of interest paid on a home mortgage B. The amount of principal paid on a home mortgage C. The cost to install a fence around the residence D. The cost of homeowner's insurance

(commercial property/income property) When you itemize deductions on your income tax return, you may NOT deduct the cost of home improvements or insurance premiums. Only the interest portion of your mortgage payments are deductible, NOT the amount that is applied to the principal balance of the loan. The correct answer is: The amount of interest paid on a home mortgage

The clause in a lease that allows rent to increase is a(n): Select one: A. Acceleration clause B. Percentage clause C. Escalator clause D. Contingency clause

(lease clauses and covenants) Of the choices given, only an escalator clause specifies that rent will increase at periodic times by pre-determined amounts. The correct answer is: Escalator clause

The legal process to remove a tenant from property is: Select one: A. Eviction B. Ejection C. Quitting D. Constructive notice Feedback

(property management and landlord/ tenant) Eviction is a legal process to remove a tenant that has possession of the property. Ejection is an action by an owner to regain possession from someone has possession illegally. Quitting means departing. Constructive notice of ownership can be provided by recording a deed. The correct answer is: Eviction

An agency relationship is created when a broker employs a property manager. This agency is considered to be: Select one: A. Specific B. General C. Managerial D. Universal Feedback

(property management and landlord/tenant) A property manager is a textbook example of general agency (i.e., a person empowered to do a number of things for the principal). The correct answer is: General

A broker that is acting as a property manager could be: Select one: A. An employee of the owner B. A fiduciary C. The principal in the agreement D. Both A and B Feedback

(property management and landlord/tenant) A property manager is often controlled by an agency agreement between him (the agent) and the property owner (the principal). The agency relationship makes the property manager a fiduciary of the client (a position of trust and confidence that carries specified duties). Depending upon the terms of the contract and nature of the relationship, the broker could also be an employee or an independent contractor of the property owner. Therefore, a broker acting as a property manager is likely to be a fiduciary AND could be an employee of the property owner. The correct answer is: Both A and B

In a typical agreement, the property manager would be authorized to do all of the following EXCEPT: Select one: A. Enter into a 2 year lease, verbally B. Hire and fire employees C. Collect rent every month D. Furnish the owner with a monthly statement of income and expenditures

(property management and landlord/tenant) An oral lease that is longer than ONE year is unenforceable (statute of frauds). Regardless of the time period, a property owner would probably not be authorized to enter into a verbal lease agreement. It's in the best interest of the owner to have all lease contracts in writing. The correct answer is: Enter into a 2 year lease, verbally

To be a professional property manager of a large apartment complex, one would need to know about all of the following EXCEPT: Select one: A. Property maintenance B. Property insurance C. Human relations D. Appraisal techniques

(property management and landlord/tenant) Property maintenance, property insurance, and human relations (dealing with lessees and the lessor) would be important knowledge for a property manager. However, appraisal techniques are the purview of a real estate appraiser. The correct answer is: Appraisal techniques

Property management agreements usually represent a: Select one: A. General agency B. Special agency C. Dual agency D. Universal agency Feedback

(property management and landlord/tenant) Property management agreements usually represent a general agency relationship. The correct answer is: General agency

A property management contract is between the property manager and: Select one: A. His or her employees B. The owner of the property C. The tenants D. All of the above Feedback

(property management and landlord/tenant) The parties to a property management agreement are the manager and the owner of the property. The correct answer is: The owner of the property

As a property manager, your duties would most likely include all of the following services, EXCEPT: Select one: A. Rent collection B. Hiring and firing maintenance personnel C. Showing units to perspective renters D. Providing legal advice to the property owner

(property management and landlord/tenant) The property manager is the agent of the property owner, so he might provide all of the listed services except legal advice. Generally, only a licensed attorney may provide legal advice. Licensees that otherwise provide legal advice risk prosecution unauthorized practice of law. The correct answer is: Providing legal advice to the property owner

In terms of management, PUDs most clearly resemble: Select one: A. Leasing B. Cooperative ownership C. Condominium ownership D. Time-share ownership Feedback

(subdivisions) Like a condominium, PUDs have associations which manage the common areas and enforce the covenants, conditions, and restrictions of the development. The correct answer is: Condominium ownership

A graduated lease is defined as one: Select one: A. That includes an option to purchase B. In which all expenses are paid by the lessor C. In which rent is fixed in intervals D. Whereby rent increases with each new tenant Feedback

(types of lease agreements) A graduated lease can be compared to an adjustable rate mortgage. The rent will increase or decrease based on some future factor. However, after it is adjusted, it is fixed until the next interval. The correct answer is: In which rent is fixed in intervals

A net lease affords the lessee with: Select one: A. The right to depreciate the building B. A deduction for interest payments on the loan C. A pro rata share of building expenses D. The right to assign the lease

(types of lease agreements) Depreciation is only available to those who own property. In a net lease, the tenant does not own the building. Similarly, interest payments accompany mortgages, which are only a deductible for the landlord. A net lease may or may not permit assignment; however, the tenant agrees to pay a pro rata share of building expenses in addition to any rental payment. The correct answer is: A pro rata share of building expenses

Nate rents a vacant lot from Zach for 30 years. Nate plans to erect a building on this land at his own expense. This lease is most likely a: Select one: A. Net lease B. Gross lease C. Ground lease D. Sale and lease back Feedback

(types of lease agreements) This is a textbook example of a ground lease. Nate will pay rent for use of the land for the duration of the lease (30 years). Nate may use any improvements that he builds during his leasehold, but Zack will own those improvements at the end of Nate's leasehold. The correct answer is: Ground lease

Brock wants to open a convenience store in the local shopping center. He would like to pay $2,500 every month and have the landlord cover maintenance expenses. What kind of lease should Brock sign? Select one: A. Flat lease B. Net lease C. Land lease D. Ground lease Feedback

(types of lease agreements) Under a flat lease (also known as a gross or fixed lease), the lessee pays a fixed rate while the lessor pays taxes, insurance, and other expenses (maintenance and repairs). The correct answer is: Flat lease

When leasing property under a net lease, the tenant could deduct all of the following as business expenses, EXCEPT: Select one: A. Maintenance B. Fire insurance C. Depreciation D. Utilities

(types of lease agreements) Under a net lease, the lessee (tenant) pays for maintenance (upkeep) of the property, fire insurance, and utilities. Depreciation is an income tax deduction, available only to the owner and not the tenant. The correct answer is: Depreciation

A tenant just signed a five year lease in a shopping mall. Under this lease, the rent is $3,000 a month plus 3% of gross sales over $800,000. This agreement describes a: Select one: A. Gross lease B. Percentage lease C. Graduated lease D. Net lease

(types of lease agreements) Under a percentage lease, the lessee pays a fixed rent and a percentage of business income that exceeds an agreed minimum of gross income. The correct answer is: Percentage lease

Under a net lease, what is the tenant NOT required to pay? Select one: A. Taxes B. Repairs C. Utilities D. Mortgage

(types of lease agreements) Under the typical net lease, the tenant agrees to pay a pro-rated share of all of the listed items except the mortgage, which is paid by the landlord. The correct answer is: Mortgage