Course 2 Real Estate Exam

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Economic, tax, and market changes are types of _______ risk.

Dynamic

Your client hates the fact that out of her $1,027 monthly payment, more than $900 is going toward interest. What do you tell her?

"That's amortization for you."

Mom's Memories is a mom-and-pop scrapbook shop in the local strip mall. The annual lease for the 1,500-sq.-ft. space is $11 per square foot. What's Mom's monthly rent payment?

$1,375

Daisies in the Drive-Thru is a flower shop in a converted 2,000-sq.-ft. fast food building. Its annual rent amount is $15.25 per square foot with a triple net fee of $2 per square foot. What's the monthly lease payment?

$2,875

When prorating annual property taxes of $2,400 using the statutory calendar, what's the daily rate, rounded to the nearest cent?

$6.67

A homeowner has $80,000 of principal left to pay on her mortgage. Her home was recently appraised at $156,000, which is $13,000 more than what she purchased it for. How much equity does she have in her home?

$76,000

Which of the following formulas can be used to calculate annual rent for a percentage lease?

(Rent per square feet + TIM expenses) x base rent + percentage of gross sales

Convert 78% to a decimal.

0.78

What percentage of loss would the seller have if he paid $18,000 for a vacant lot, built a home on the lot that cost $145,000, and then sold the property for $153,000? Round your answer to the nearest percent.

6%

Steve is preparing a comparative market analysis for the Joneses and has selected three comparable properties. How many adjustments should Steve make to the Joneses' property?

Zero

Jim and Crystal bought their rundown little "shack" 15 years ago. Over the years, they've made structural improvements, built additions, and remodeled nearly every square inch of the property. They're ready for their next adventure and have sold their property for a capital gain of $300,000. Assuming they meet all the criteria to qualify for the capital gain exclusion (and are married filing jointly), how much of this gain can they exclude?

$300,000

Jason, your client, is developing a subdivision of 140 houses. He may place deed restrictions on as many as ______ properties.

140 (100%)

If a property's income value is $200,000 and it's earning a net operating income of $40,000, what is the cap rate?

20%

Tyrell and Barb bought a commercial investment property in 2009 during the real estate market downturn. Through what year will they be able to depreciate the investment?

2048

A strip mall valued at $850,000 has a $67,500 annual net operating income. What is the capitalization rate for the strip mall?

7.9% The cap rate formula is: net operating income ÷ value = rate (I ÷ V = R). So $67,500 ÷ $850,000 = .079 or 7.9%. This formula can work in reverse as well: value (purchase price) × cap rate = net operating income (V × R = I).

Jane's offer of $310,000 was accepted, but the appraisal just came in at $300,000. Jane plans to finance $250,000. What's the loan-to-value ratio?

83%

What does "cash-on-cash return" mean?

A comparison of before-tax cash flow to cash invested

Which statement best describes an adjustable-rate mortgage?

A loan with a rate that fluctuates based on the economic index to which it is tied

Lela prefers to spread her investment money over a range of properties. She's happy to let someone else oversee the day-to-day management and doesn't mind waiting a while for her investments to appreciate. Which of these is she most likely to invest in?

A portfolio of diverse small shopping centers across the country

Under RESPA's Section 8, which of the following would be considered a kickback?

A title insurance company buys you dinner to thank you for referring a client

What's a quiet title action?

An action to locate and notify all who may have some claim on the title, and determine to validity of all claims

What's required in order to call an auction?

An auctioneer's license

What is static risk?

An durable business risk that includes insuring for accident liability, fire, theft, and vandalism

What is an appraisal?

An opinion or estimate of a property's value as of specific date

The value principle of ______ is the basis of the income approach to appraisal.

Anticipation

Which type of investor markets to renters rather than buyers?

Buy-and-hold

In terms of investment, liquidity means an investment ______.

Can easily be converted to cash

What type of notice results from publicly recording a title transfer?

Constructive notice

Which agency administers the Interstate Land Sales Full Disclosure Act?

Consumer Financial Protection Bureau

When referring to private land use restrictions, fence height, additional structures, and architectural design are generally categorized under ______.

Covenants

Seller Martin is looking at his closing statement. Which one of the following items is he likely to see?

Debits

Area vacancy rates have historically been around 15% but have increased to 25%. Which of the following is a true statement?

Demand for rental space has decreased

Mario lives in a state that requires an abstract of title for property conveyance. The chain of title is broken approximately 50 years prior to the current date. Which of these properly identifies the status of Mario's title?

Depending on his state's laws, Mario may have marketable title

Which form must be used to disclose payments received from resident service companies?

Disclosure of Relationship with Residential Service Company

This term refers to the amount of income that remains after miscellaneous expenses and expense reimbursements are added to gross potential rental income, then vacancies and credit loss are subtracted.

Effective gross income

Which type of real estate investment trust is designed to deal exclusively in equities?

Equity REIT

Fiona signed a lease with her landlord for a commercial building. A percentage of Fiona's sales will be paid to the landlord, in addition to her lease payment. Why would Fiona agree to this arrangement?

Fiona wants to reduce her base rent

Which of the following statements related to 1031 tax-deferred exchanges is true?

Foreign investors may participate

In Texas, which deed type provides the strongest and broadest form of guarantee of title?

Full covenant and warranty deed

A property manager has just met with Lena, who is interested in renting a vacant unit. What's the best way for the property manager to determine how reliable Lena will be with rent?

Get permission in writing from Lena to run a credit report

Charlie, who owns and leases out a commercial building, pays taxes, maintenance, and insurance on the building. What type of lease agreement does Charlie have with his tenants?

Gross

What does the income approach to value rely on when valuing properties that are five or more units?

Gross income multiplier

An investor is analyzing a three-unit property by looking at its ability to produce future income. Which of the following would most likely be used to determine this value?

Gross rent multiplier

When appraisers look past how a property is being used to determine a more optimal function, what are they determining?

Highest and best use

Which of the following does the use provision in a lease describe?

How the tenant will use the property, including allowable activities

Which approach to value is typically used for investment property of two- to four-family units?

Income approach

Once you understand what's being asked in a word problem and have determined the appropriate formula to use, what's the next step?

Inserting

______ determines who the heir or heirs will be if a person dies without a will.

Intestate succession

Calculating the return on investment can be a part of determining a property's ______.

Investment value

When property changes hands, the deed is recorded and a fee is charged. What is the benefit to the grantee of having the deed recorded?

It puts the public on notice regarding ownership

What are prepaid expense items?

Items to be divided proportionately between the buyer and seller hasn't fully used

Who usually represents the lender at a closing?

Lender's attorney

Which of the following is a characteristic of predatory lending?

Making loans the consumers can't afford

Why is it important for tenants and owner/landlords to review the insurance section of a commercial lease?

Many times, the amount insurance specified in the lease is higher than the amount a tenant actually carries, and higher than the amount the landlord actually requires

Darrel loves working in the mortgage lending industry. On a daily basis, he works with multiple lenders to find and negotiate the best deals for his customers. What is Darrel's profession?

Mortgage broker

Which of these buildings and areas are typically owned by the public?

Municipal buildings, schools, parks, and military bases

Which one of the following statements about asbestos is true?

No amount of it is considered safe

With this type of commercial lease, if the option to drill isn't exercised within the stated timeframe, the lease expires.

Oil or gas lease

Reporting on local economic and other trends and activities will help you and the property owner plan and set goals. Which of the following trends would have the most negative impact on your property's vacancy rates?

One of your closest competitors has just finished a complete renovation of its property

Effective gross income ‒ ______ = net operating income

Operating expenses

Which of the following types of tenancy comes with an automatic renewal clause?

Periodic estate

Which of the following is the amount of money you send to the insurance company each month or once a year?

Premium

Which of these is the best explanation of the loan prequalification process?

Prequalification is a lender's assessment of what a borrower might be able to afford pay

The smallest property on the block is priced lower than any others, but the higher-priced properties that surround it help to drive the property's market value up. What economic principle is at work here?

Progression

Trudy loved her new neighbors. The investor couple bought every available house on Trudy's block and was working hard to renovate them and increase their value. Trudy decided that she'd sit back, relax, and let her property's value go up, too, thanks to ______.

Progression

Which of the following calculators would best be used for performing computations of monthly payments, maximum loan amount, and remaining balance on a loan?

Real estate

Which of the following duties is part of the licensee's role in a residential lease transaction for a tenant client?

Represent the client's interest in all negotiations and transactions regarding the property lease

Anyone working for a property management company in Texas and who works for more than one owner is _______.

Required to have a minimum of a sales agent license to collect rent and perform other real estate functions

John recently bought a home on a few acres of land from the Rubinos. The EPA notified him that a hazardous materials site had been discovered on the outskirts of his property. After an investigation, the EPA determined that both John and the Rubinos are responsible for sharing the cost of the cleanup. What type of liability is this?

Retroactive

Jillian grew up visiting her grandmother, who owned five acres of forested land and a pond that the two of them swam in frequently. When Jillian's grandmother left her the property, Jillian moved in and put a fence around the forest and pond. When her neighbor went to sell his property, he discovered via survey that the pond was actually on his property. Jillian wants to claim adverse possession and keep the pond, but she's only lived there for three years. What, if anything, can she to do valid

She can use the principle of tacking

Luciana is very successful in her profession, partially because she was fortunate enough to connect with several developers in the early days of her career. Since then, she's built a solid reputation as the "go to" person in the state to list properties on the MLS and show model homes in newly developed communities. What's Luciana's profession?

She's a real estate licensee

Brandon recently purchased an old warehouse building. This building will serve as a hub for local deliveries of fruits and vegetables within the state. During its first week in operation, one of the delivery drivers was involved in an accident that spilled coconuts all over the road and shut down the interstate for hours. What type of risk is this?

Static (risks that can be lessened with insurance)

Taxes that are set aside for redevelopment and that stem from public financing when there is little help from the government are called what?

TIFs

Which of the following is a true statement about U.S. Department of Veterans Affairs loans?

The VA will guarantee a loan based on the sales price or the certificate of reasonable value (CRV)

Which of these statements about the Texas Landlord and Tenant Law is true?

The act establishes both landlord and tenant obligations and remedies

John and Michelle received a general warranty deed when they purchased their house from Ted. A couple of months after they moved in, their neighbor, Bryant, drove his four-wheeler across their property to access the lake front. John discovered that Ted and Bryant agreed to an easement over Ted's property several years earlier. Which general warranty deed covenant does this represent?

The covenant against encumbrances

What title guarantees will Jody have when she buys a property at a foreclosure auction?

The covenant of seisin

Let's say you take out a 30-year adjustable rate mortgage loan with a five-year interest-only payment period. When will you start paying toward the principal and interest?

The last 25 years

Which party at closing requires the property to be free and clear of encumbrances and requires title insurance and hazard insurance?

The lender

Which entity establishes zoning ordinances?

The local governing body

How is reasonable belief defined in adverse possession?

The possessor must reasonably believe in the right to possess the property

In a 1031 exchange, there are rules governed by Section 1031 of the Internal Revenue Code. The rules include _______.

The property in an exchange must be like-kind

Maya owns a small graphics shop and is meeting with her tax professional to review the year's receipts and other tax documentation. Her tax advisor lets her know that she has an appreciating asset, which makes Maya very happy! Which of the following is Maya's appreciating asset?

The retail addition she put onto the building she already owned

In a typical transaction, which of these title defects is unlikely to cause a problem for the buyer?

The seller's existing mortgage

Seller Jamison is closing on his property with buyer Conrad. Jamison paid the current year's property taxes already. Is this a prepaid or accrued expense, and how will it be represented on the settlement statement?

The taxes are a prepaid expense, and will appear as a buyer debit and a seller credit

The tenants in 2B want to make a few improvements to their leased apartment. The couple would like to rip up the carpet in the living room and have the hardwood floors underneath restored. Which of the following statements about the improvements is true?

The tenants need to get the landlord's permission before they make any improvements to the property

What is the 95% rule as it relates to tax-deferred exchanges?

The total value of the property (or properties) being exchanged is at least 95% of the value of the property being sold.

Who would inherit the property if both a husband and wife died intestate, leaving behind their two grown children and five grandchildren?

The two grown children

Which of the following is true about special purpose landfills?

They contain hazardous waste

An office property manager is responsible for which area of property management?

Thinking about how much build out or change to the design, floor plan, and power requirements a tenant will require

The Loan Estimate must be provided to the consumer within ______ days after they apply for a loan.

Three

Above all, why should a property manager have some knowledge of systems such as heating, ventilation, air conditioning, structural engineering, waterproofing, plumbing, electrical, gas, oil, water, security, maintenance, and elevators?

To minimize the potential of receiving bad advice on repairs, replacements, and parts

The ______ is the whole number or amount of something.

Total

How many parties does a mortgage involve?

Two: borrower and lender

What standards do appraisers follow?

Uniform Standards of Professional Appraisal Practice

The mortgagee's title insurance policy provides for reimbursement ______________________.

Up to the current outstanding loan balance

Which of the following can be defined as what a property is worth?

Value

Which veteran loan program offers qualified veterans help with the purchase of land in Texas?

Veterans Land Program

Which one of the following terms is defined as the intentional transfer of one's own real property to another by the use of a deed?

Voluntary alienation

When are mortgage brokers and/or lenders required to provide buyers with the Loan Estimate form?

When buyers submit a loan application, or within three business days after submitting a loan application


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