Real Estate Class Part 2 Missed Practice Exam Questions

When using the farming approach, affinity is a key factor when identifying a neighborhood. Which statement best describes affinity?

An area that the licensee likes Affinity is important when choosing a neighborhood. A licensee should genuinely like the area where she intends to work.

In South Carolina, which of the following parties must coordinate a residential real estate purchase and closing?

An attorney Under South Carolina law, the buyers are given the right to choose the closing attorney, who must coordinate the transaction and closing.

If you agree to cooperate with another broker because it's best for your client, what is assumed?

Any commission sharing will be discussed and is not a requirement of cooperation. Compensation is independent of cooperation.

Carol is purchasing a home in South Carolina. When she places her earnest money deposit with the closing attorney, what form might her deposit take?

Any legal tender Earnest money in South Carolina can be paid using a personal check, cash, or through other means.

In a South Carolina sales transaction, who typically pays the transaction costs?

As agreed by the parties Under the terms of the South Carolina contract, certain provisions, such as who pays the transaction costs and whether or not the seller agrees to pay the buyer's transaction costs, are negotiable.

Shelly's real estate investment strategy is to look for smaller multi-family properties, fix them up, and rent them out. Her investment strategy most closely matches which of the following?

Buy and hold This is buy and hold. It's a long-term, active form of investing. Although Shelly does fix up the properties, she doesn't then flip them (sell them for cash).

The risk that an investor cannot secure financing at an affordable rate is called ______ risk.

Capital A purchase can be put in jeopardy if an investor cannot secure the financing needed at an affordable rate. This capital risk could make the purchase unattractive or more expensive than first analyzed and no longer a pursuable investment opportunity.

Which of the following statements about component depreciation is true?

Components that can be separated out as tangible personal property qualify for component depreciation. Investors may only use the component depreciation method on tangible personal property.

A group of investors bought property and developed a movie production studio. After a few years in business, the state passed regulations limiting the amount of tax incentives it would offer film studios shooting movies in the state. This move caused several companies to move their shooting to other states, jeopardizing the investors' ability to earn the return they were expecting. What type of risk is this?

Dynamic Dynamic risks are those business risks that cannot be lessened with insurance. This includes economic, tax, and market changes.

The risk that is directly related to leverage is called ______ risk.

Financial The more money an investor leverages (or borrows), the greater the financial risk.

Under the terms of a South Carolina residential purchase contract, the buyer must pay the purchase price using cash, ______, or a combination of the two.

Financing Under a South Carolina residential purchase contract, the property's purchase price must be paid in one of three ways: using cash, financing, or a combination of the two.

Honey is the seller in an installment sale of a residential property. She is paying her capital gains tax through installment sale deferment, and her installment obligations at the end of the tax year will be less than $5 million. Given her situation, which of the following statements is true?

Honey will only pay taxes proportionate to the gain collected each year. Through installment sale deferment, Honey will pay taxes proportionate to the gain collected each year. Her installment obligations will be less than $5 million, so she won't be subject to taxes on gains at the ordinary income rate at the time of sale.

Using a buyer's pre-approval or pre-qualification can help in ______ properties.

Identifying When identifying properties to show buyer clients, knowing their price range is key. Their pre-approval or pre-qualification gives you an idea of how much they can afford.

Land doesn't cease to exist, and it's not depreciated or covered by property insurance because of its _________.

Indestructibility Land is indestructible. This is one of the characteristics of the real estate market that makes it unique.

In South Carolina, which of the following is true about the seller's property condition disclosure?

It may be waived by the parties. Although the property condition disclosure statement is required by South Carolina law, the seller isn't required to provide it if both parties agree to this in writing in the contract. Continue Return to Course Home View Exam Results

What happens to a seller's flood insurance in a South Carolina sales transaction?

It's assigned to the buyer at closing. Flood insurance, if required by the buyer's lender or at buyer's option, is assigned to the buyer with the carrier's permission, and the premium is prorated to closing.

Janelle, a buyer of a previously occupied South Carolina home, is making her purchase contingent on a satisfactory wood inspection report. Who must order and pay for that report?

It's negotiable The buyer of a previously occupied South Carolina home may make the purchase contingent on a satisfactory wood inspection report. Either the buyer or seller may pay for the report.

Chad is purchasing Martha's South Carolina home. Who will pay the costs of the transaction?

It's negotiable Under the terms of the South Carolina contract, certain provisions, such as who pays the transaction costs and whether or not the seller agrees to pay the buyer's transaction costs, are negotiable.

Because real estate offers __________, investors can sometimes make a 100% return on their investment.

Leveraging opportunities By leveraging other people's cash, savvy real estate investors may be able to make money without actually using any of their own capital.

Which of the following is a passive type of real estate investment?

Limited partnership Limited partners are passive investors who invest funds, but don't get involved in the day-to-day activities related to the business.

Though not documented in the listing agreement, listing agent Robert told the buyer's agents that he'd compensate them an extra $250 if they brought a buyer that could close in three weeks. Wayne was representing just that sort of buyer. When the agents met for the closing, Robert handed Wayne a personal check. Was this okay?

No, all compensation must go through the broker. Compensation must go through the broker and be disclosed to all parties involved. It's unclear here whether both the buyer and seller knew of the arrangement, but the compensation certainly didn't go through the broker.

If an appraisal contingency is in place, what happens when a property appraises at higher than the agreed-upon sales price?

Nothing will happen. An appraisal higher than the sales price doesn't impact the sale. The appraisal contingency is in place to protect the buyer should the property not appraise at or above the sales price.

In a South Carolina sales transaction, what signifies "notice"?

One party notifying the other party of an event or decision Notice is one party notifying the other party of some event or decision regarding the sales transaction.

Which of the following is income that comes from investments, which includes capital gains, interest, and dividends?

Portfolio This is portfolio income, as classified by the IRS.

A neighborhood that has been disintegrating for some time is undergoing a rejuvenation, with several properties on one block being heavily renovated or entirely rebuilt. As a result, even the properties that are still old and shabby increase somewhat in value. This is the principle of ________.

Progression The principle of progression says that that a lower-value property gets a bump in value by being near a higher-value property.

Which items should sellers put into storage to help de-personalize their home?

Refrigerator magnets and children's artwork While artwork and medications should be removed or locked up, de-personalizing includes removing that adorable refrigerator magnet collection.

Which of these property owners is eligible to take advantage of a 1031 tax-deferred exchange?

Reggie sells an apartment complex and purchases a new complex a month later in a different part of the city. Reggie is the only owner using the property for investment or business purposes who's identified the property within the required deadline for a tax-deferred exchange.

The houses in one neighborhood are all of similar sizes and style. When the Smiths' house goes into foreclosure, what principle will affect the value of the next-door neighbors' house if they sell at the same time?

Regression The principle of regression says that a lower quality property located adjacent to a higher quality property can diminish the value of the higher quality property.

Matt's sellers have a valuable artwork collection displayed in their home that perfectly showcases various rooms. What advice should Matt provide to his sellers when preparing to sell the home?

Remove the artwork and replace with suitable, less-expensive pieces as necessary. Matt's buyers should accessorize the home with suitable artwork, but remove and store the expensive pieces to avoid theft.

In a South Carolina sales contract, the parties generally agree upon a/an ________ procedure unless a Due Diligence Addendum is agreed to and made part of the contract.

Repair The parties agree upon a repair procedure, which includes a deadline for inspections.

Sean represented Jamie as a buyer's agent. Jamie purchased a property that allowed cooperating agents to receive compensation of 2.5% of the sales price upon closing of the transaction. Sean hasn't been paid and the transaction closed six months ago. What can Sean do?

Sean can bring action against the broker who did not pay his commission. Sean can bring legal action.

Under which of the following real estate submarkets would an investment in public storage facilities fall?

Special use The special use submarket also includes entertainment venues (like theaters and theme parks), hotels and motels, golf courses, medical facilities, and mini warehouses.

You represent a buyer who wants to make an offer on a property. The listing agreement only offers 1.5% commission to cooperating brokers, which is a bit less than you usually work for. What can you do?

Submit the offer and accept the terms of compensation according to the listing agreement. It's unethical to try to submit an offer asking for the listing agent to change the compensation agreement that agent has with her client, or to use an offer as leverage for such a change.

What does the Broker Disclaimer in a South Carolina sales contract stipulate?

The brokers provide no warranty or representation of property condition. The broker doesn't warranty the property condition, the schools, title, zoning ordinances, or projected value or income of the property.

In South Carolina, who typically pays for the cost of the appraisal in a real estate transaction?

The buyer Buyer's typically pay for inspections, surveys, and appraisals, as well as title, mortgage, flood, and hazard insurance, and loan discount points.

Generally, whose responsibility is it in South Carolina to investigate elevation and wetland issues of a property prior to closing?

The buyer Unless the parties otherwise agree in the contract, the buyer is responsible for doing due diligence in having the property surveyed, the title examined, elevation/wetlands location determined, and obtaining new insurance policies by closing.

The Siegels are purchasing a commercial investment property and plan to use straight-line depreciation on their financial statements and tax calculations. Which of the following would NOT be included in the Siegel's depreciation basis calculations?

The loan origination and lender fees that they paid at closing The depreciable basis is composed of the sales price plus any acquisition costs, such as title insurance, and capital improvements. Loan costs aren't included in the basis, but something like electrical system upgrades are capital improvements.

Which of the following is true about attachments, other contingencies, terms and stipulations to a South Carolina sales contract?

The most recent changes are evidence of the parties' intent, when signed. Attachments, amendments, contingencies, etc., must be signed and dated by the parties, at which point they become part of the contract.

Which of the following is a common hurdle parties might encounter on the way to closing?

The property may not appraise If the property doesn't appraise, the parties will either have to renegotiate the sales price or the buyer will have to put more money down.

A South Carolina home under contract received serious damage prior to closing. If the parties decide not to terminate, how will repairs be paid for?

The seller or the seller's insurance company will pay for the repairs. If the parties choose not to terminate a contract after a fire or other property damage has occurred, the contract can complete, but the seller is responsible for paying for or having the seller's insurance company pay to repair any damages.

Lenders usually require _______ in reserve funds for homeowner's insurance, taxes, and mortgage insurance.

Two months Lenders usually require that buyers bring to closing reserves equal to two months' costs for insurance and taxes.

It's impossible to generalize the impact on real estate values from events in other areas. Which characteristic of the real estate market does this refer to?

Uniqueness

The __________ of real estate markets makes it impossible to generalize the impact events in other areas will have on real estate values.

Uniqueness This refers to uniqueness. Two identical houses on side-by-side lots have different values.

What is a gift tax?

a tax on money or property that one living person gives to another A gift tax is a tax on property received by one person when nothing of value (or less than full value) was given in return.