National Real Estate Pre and Post Test Questions
subdivision plat map The answer is a subdivision plat map. A plat is a map. A subdivision plat is a map of a subdivision showing at least those details required by local subdivision regulations.
A map illustrating the sizes and locations of streets and lots in a subdivision is called?
Consideration is an essential element of a contract. The element of consideration must be satisfied at the time the parties enter into a contract. How is this accomplished with a real estate purchase and sales contract? A) The buyer promises to pay the seller the purchase price. B) The buyer pays the seller the purchase price. C) The buyer pays the seller an earnest money deposit. D) The buyer pays the seller a good-faith deposit.
A) A sales contract is a bilateral contract. Bi means two: in a bilateral contract, the parties exchange promises. A promise is something of value and satisfies the essential element of consideration at the time the buyer and seller enter into the purchase contract. The other answer choices are incorrect. The element of consideration must be satisfied at the time the parties enter into the contract. The actual purchase price may not be paid until months later at the closing. A good-faith deposit (a.k.a. an earnest money deposit) is not required for a contract and does not satisfy the element of consideration.
A property owner purchased a home 30 years ago for $70,000. The owner wishes to sell the property and desires to receive $300,000 for the sale of the property. A recent appraisal shows the property is worth between $350,000-$375,000. The form of commission compensation in this situation that would be the LEAST beneficial to the seller is A) flat fee. B) percentage. C) net. D) exclusive right to sell.
C) net. Explanation The net listing is discouraged or prohibited in many states because of the potential conflict of interest. A broker might encourage a seller to enter into a net listing at a low listing price in order to earn a greater commission in the transaction.
A lessor and a lessee enter into a lease. Per the terms of the lease, the lessee has the right to occupy the leasehold property from June 1 (of the current calendar year) through January 15 (of the following calendar year). This is an example of A) a tenancy at will. B) a periodic tenancy. C) a tenancy at sufferance. D) a tenancy for years.
D) a tenancy for years. Explanation A lease with a specific start date and a specific termination date is a tenancy for years (a.k.a. an estate for years). This type of leasehold estate can have a term of any length of time as long as there is a specific beginning and ending date.
The market value of a parcel of real estate is A) the amount of money paid for the property. B) its value without improvements. C) an estimate of its future benefits. D) an estimate of the most probable price it should bring.
D) Explanation The answer is an estimate of the most probable price it should bring. An appraisal is the appraiser's opinion of a property's market value—the price a property would most probably bring.
Escheat
Escheat occurs when property reverts to state ownership after an individual dies without a will and without heirs. Escheat ensures that property always has ownership. If nobody else has a claim on the property, the government steps in to manage it. And the Escheat process is usually revocable, which means that ownership of the estate or property reverts to any rightful heirs that might appear. There are not many memory techniques for this one, except to say the government "cheated" to get the property because they don't know the person who died. Not trying to get political there- just a memory technique.
A parcel of land measures 75 feet by 200 feet. Property is selling for $3.50 square foot and a $10 premium per front foot. What is the estimated value of this property? A) $53,250 B) $55,750 C) $15,000 D) $52,500
Explanation 75 feet x 200 feet = 15,000 square feet. 15,000 square feet x $3.50 per square foot = $52,500. 75 feet of frontage x $10 = $750 $52,500 + $750 = $53,250
The deed that provides a grantee with the form of protection against unknown and undiscovered encumbrances is A) a special warranty deed. B) a trustee's deed upon sale. C) a general warranty deed. D) a quitclaim deed.
Explanation A general warranty deed contains the largest number of warrants (promises) from grantor to the grantee regarding defense to title for undisclosed or unknown encumbrances. A quitclaim deed offers no warranties to the buyer. A trustee's deed upon sale is the deed given to the winner of the foreclosure sale when a borrower has defaulted on a loan. The special warranty deed warrants title, but only during the term of the seller's ownership.
Which of these choices show grantee acceptance of the deed? A) Taking possession of the property B) Buyer pledging the property as collateral C) Recording the deed to the property D) All of these
Explanation All these answer choices show acceptance of the deed by the grantee. Title is transferred upon delivery of the deed by the grantor and acceptance by the grantee.
The document that summarizes all publicly recorded documents that create the chain of title is known as A) a lis pendens. B) a mortgagee policy. C) a title report. D) an abstract.
Explanation An abstract is a summary of all the title documents that create the chain of title.
Which of these agreements does NOT establish an agency relationship? A) A power of attorney B) A listing agreement C) An option contract D) A buyer representation agreement
Explanation An agency relationship is established with a licensee. An option is a contract between a seller and a potential buyer.
A buyer and seller entered into a sales contract for a lakeshore vacation home. After they signed the contract, the buyer decided the furniture in the vacation home should be included in the transaction. The highly motivated seller agreed. If the sales contract is changed to include the furniture, it would MOST likely be through A) an addendum. B) an amendment. C) an alienation. D) an accretion.
Explanation An amendment is used to change something to a contract that was not in the original document.
A broker is completing a CMA to determine the potential listing price of a seller's home. Which of the following is NOT part of the final CMA given to the seller? A) Pictures of comparables B) Adjustments to past sales C) Highest and best use evaluation D) Comparable sales analysis
Explanation An appraiser does a highest and best use evaluation, which does not appear in a CMA.
This form of encumbrance involves two parcels of real estate. Parcel A receives certain land rights from Parcel B, which said rights now attach to Parcel A and become part of the full rights available in Parcel A. This form of encumbrance is known as A) accretion. B) adverse possession. C) an easement in gross. D) an appurtenant easement.
Explanation An appurtenant easement involves two parcels of real estate. The parcel benefiting from the easement is called the dominant tenement. The parcel burdened with the easement is called the servient tenement.
A buyer purchased a home subject to an easement in gross over the west 10 feet of the property. The easement was for public utilities. Who owns the property subject to this particular easement? A) The city B) The buyer and the public utilities company together C) The public utilities company D) The buyer
Explanation An easement gives a non-owner the right to use the owner's land for a specific purpose. However, it does not impact title (ownership) of the property to be used for easement purposes. The buyer owns the land subject to the public utilities easement
A parcel of commercial property was owned in fee simple absolute. An individual had the right to possess and occupy this property for an entire month. The specific month was specified in the lease, as was the start date and the termination date. What was the name of the estate? A) Periodic estate B) Estate at will C) Estate for years D) Estate at sufferance
Explanation An estate for years is a leasehold estate held by the tenant. Or, to put it in technical terms, the estate for years is a nonfreehold estate held by the lessee. An estate for years is a leasehold estate with a specific beginning and ending date. The other answer choices are incorrect. The periodic estate renews automatically upon payment of rent by the tenant. The estate at will—prohibited in certain states—can be terminated at the will of either the landlord or the tenant. Finally, the estate at sufferance is what a holdover tenant has when the tenant remains on the leased property after the lease is over.
An optionor and optionee entered into an option contract for a property not listed on the market. The option term was from January 1 through June 30. The optionee did not exercise the option. On July 1, the owner entered into a sales contract with a totally different buyer. If the optionee sues the optionor for breach of the option contract, the optionee will A) lose because the option term expired. B) lose because the optionor did not wait for the optionee's decision on whether or not to buy. C) win because the optionee paid an option fee for the optionor to hold the offer open. D) win because the property was not listed on the market.
Explanation An option is a promise by the owner of the subject property to hold an offer open during the option term. Here, the option term was January 1 through June 30. After the option expired, the owner (optionor) was no longer bound by the terms of the option contract. Note: The option contract is a unilateral contract: Only one party (the owner) is making a promise.
An optionor and optionee entered into an option contract for an industrial building. The optionee decided not to purchase the property. The optionor sued the optionee for breach of contract. Assuming the optionor received an option fee, what damages will the optionor likely receive in the lawsuit? A) Punitive damages B) Compensatory damages C) Specific performance D) None of these e.
Explanation An optionor (owner) receives an option fee for keeping an offer open while an optionee (prospective buyer) decides whether they'll buy the property. If the optionee decides not to buy the property, the optionor has no legal recourse other than to keep the option fee.
A city discovered that one bedroom of a three-bedroom, two-bathroom home had been built without the appropriate permits. The additional bedroom had been built over 20 years ago. Upon discovery of the unpermitted bedroom, the city A) exercised its power of escheat and told the owner the bedroom was grandfathered in. B) exercised its power of eminent domain to tell the owner to demolish the bedroom. C) exercised its police power and told the owner to demolish the bedroom or bring it up to code. D) did nothing because the statute of limitations had run.
Explanation C) The city exercised its police power and told the owner to demolish the unpermitted bedroom or bring it up to code. The government's police power authorizes it to enact and enforce building codes designed to enhance public health and safety. There is no statute of limitations on the government's police power, and because the bedroom was constructed illegally, it would not be grandfathered in.
Fannie Mae, Ginnie Mae, and Freddie Mac are all engaged in the _________ where _________ are bought and sold. A) secondary mortgage market; mortgages B) primary mortgage market; promissory notes C) primary mortgage market; mortgages D) secondary mortgage market; promissory notes
Explanation Fannie Mae, Ginnie Mae, and Freddie Mac are all engaged in the secondary mortgage market where promissory notes are bought and sold. The primary mortgage market is where loans are created or originated. Mortgages are not negotiable instruments and can't be bought and sold.
Which of these does NOT fall within a governmental entity's police power? A) Prohibiting certain types of businesses from operating near a local school B) Regulating the orientation of houses on a particular street C) Forcing property owners to sell in order to widen a street D) Requiring a buffer zone in between competing land uses
Explanation Forcing property owners to sell in order to widen a street would be the governmental power of eminent domain, not police power. Reference: Land-Use Controls and Regulations > Governmental Powers/Public Controls
The owner of an apartment building signed a one-year agreement with a licensed real estate broker to manage the owner's property. Shortly after the broker began managing the property, a tenant in one of units reported a problem with drainage in the kitchen sink and a leaky bathroom faucet. The broker contacted a plumber to address the issues but did not need to get permission from the building owner to authorize the repairs. Which type of agency exists between the property owner and the broker? A) Universal agency B) Implied agency C) General agency D) Special agency
Explanation General agents are authorized to perform a variety of tasks for their clients, and also have limited ability to bind their clients.
A broker completed a competitive market analysis, listed the property, and is advertising it in the local multiple listing service. The asking or probable price listed in all advertising is known as the property's A) market price. B) market value. C) insurable value. D) loan value.
Explanation Market value is what the seller wants, or the probable price that the property will sell for.
Which of these choices is NOT needed for a valid deed? A) Delivery by the grantee B) Sane grantee C) Grantee signature D) None of these
Explanation None of these is required for a valid deed. Note: The grantee accepts—not delivers—the deed.
Which of these pairs is in an agency relationship? A) None of these B) Seller and buyer C) Listing broker and buyer D) Listing agent and selling agent
Explanation None of these pairs are in an agency relationship with each other. The listing broker is in an agency relationship with the seller. The listing agent and selling agent are agents to their clients, not to each other. The seller and buyer are not in an agency relationship to each other.
Persons A, B, C, and D purchased a commercial property together. The four unmarried, unrelated friends took title as joint tenants. Person A died in a skiing accident, and Person B subsequently died in a car crash. How is title to the property held? A) Person C and Person D, as joint tenants B) Person C and Person D, as tenants in common, and the heirs of Person A and Person B C) Person C and Person D, as joint tenants, and the heirs of Person A and Person B D) Persons A, B, C, and D, as joint tenants
Explanation Person C and Person D hold title to the property as joint tenants. A joint tenancy is concurrent ownership with the right of survivorship. This means that, at the moment of death, the interests of the deceased joint tenants passed automatically—through operation of law—to the survivors.
Which of these is a correct formula for calculations related to income-producing property? A) Net operating income × value = rate of return B) Gross rent multiplier × value = rate of return C) Rate of return × value = net operating income D) Net operating income × rate of return = value
Explanation Rate of return × value = net operating income.
The title company for the buyer recorded the warranty deed for a recent purchase. This recording has the legal effect of A) guaranteeing marketable title. B) passing title to the grantee. C) providing constructive notice. D) giving actual notice.
Explanation Recording gives constructive or legal notice to the world. Title is passed upon acceptance of the deed. Actual notice is given by physical observation, and nothing guarantees that a title is good.
An investor wants a 4% rate of return on a parcel of commercial real estate. He sends a property manager out to research which of the four listed properties will generate the desired rate of return. Which of these choices will generate a 4% return? A) $1,700,000 list price with $51,000 NOI B) $1,500,000 list price with $45,000 NOI C) $900,000 list price with $18,000 NOI D) $1,000,000 list price with $40,000 NOI
Explanation The $1,000,000 list price with $40,000 NOI is the correct choice. The formula is NOI ÷ list price = rate of return. Here, $40,000 (NOI) ÷ $1,000,000 (list price) = 4% (rate of return).
If a borrower is refused a loan because the borrower is retired and receiving public assistance, the lender is in violation of A) HUD. B) FHA. C) RESPA. D) ECOA.
Explanation The Equal Credit Opportunity Act (ECOA) adds age and public assistance as protected classes.
A buyer purchases 4.5 acres of land for $78,400. An adjoining owner wants to purchase a strip of this land measuring 150 feet by 100 feet. What should this strip cost the adjoining owner if it is sold for the same price per square foot originally paid? A) $6,000 B) $9,400 C) $7,800 D) $3,000
Explanation The answer is $6,000. Price divided by area (in square feet) gives cost per square foot. The area is 4.5 times the size of one acre, or 4.5 × 43,560 sq ft = 196,020 sq ft. Then, $78,400 divided by 196,020 sq ft = $0.3996 (essentially, $0.40) per square foot. Determining the purchase price of a 100-by-150-foot lot at the same cost per square foot requires finding the area of the lot: 100 × 150 = 15,000 sq ft. Multiply this area by $0.40: 15,000 sq ft × $0.40 = $6,000.
A mortgage reduction certificate is executed by A) a grantor. B) an abstract company. C) a lending institution. D) an attorney.
Explanation The answer is a lending institution. A mortgage reduction certificate, issued by the seller's lender, confirms the balance remaining on a loan to be assumed as well as the interest rate and the date through which interest has been paid
A property manager hires a full-time maintenance person. While repairing a faucet in one of the apartments, the maintenance person steals some jewelry and the tenant sues the owner. The property manager could protect the owner against this type of loss by purchasing A) casualty insurance. B) workers' compensation insurance. C) a surety bond. D) liability insurance.
Explanation The answer is a surety bond. The manager can protect the owner by urging the purchase of a surety bond on the building employee at the time the employee is hired. Property managers usually formulate and recommend insurance plans for an owner's consideration and decision.
A survey that provides only the location of the structures and improvements as related to property boundaries is A) an Improvement Area Certificate (IAC). B) an Improvement Location Certificate (ILC). C) an Intermediate Area Survey (IAS). D) an Intermediate Location Survey (ILS).
Explanation The answer is an Improvement Location Certificate (ILC). A survey that provides only the location of the structures and improvements as related to property boundaries is an Improvement Location Certificate (ILC).
Which of the following describes a gross lease? A) A lease in which the tenant pays the landlord a percentage of the monthly income derived from the property B) An agreement in which the tenant pays a fixed rent and some or all of the utilities and the landlord pays all taxes, insurance, and expenses related to the property C) An agreement allowing the tenant to terminate the lease if certain conditions near the premises become unbearable D) A lease in which the tenant pays rent plus some of the operating expenses related to the property
Explanation The answer is an agreement in which the tenant pays a fixed rent and some or all of the utilities and the landlord pays all taxes, insurance, and other expenses related to the property. In a gross lease, the tenant pays no part of the property's operating expenses other than utilities.
A married couple co-owns a farm and has the right of survivorship. This arrangement is MOST likely A) a tenancy in common. B) severalty ownership. C) community property. D) an estate by the entirety.
Explanation The answer is an estate by the entirety. Married persons may own property together as tenants in common, joint tenants, or as community property. Being more than one person, a couple cannot own in severalty. The right of survivorship is a distinguishing feature of tenancy by the entirety, which some states recognize as a form of joint tenancy reserved for a married couple
A buyer signed an agreement with a broker to compensate the broker even if the buyer purchases the property from a relative. This is called A) an exclusive agency buyer representation agreement. B) an exclusive buyer representation agreement. C) an open buyer representation agreement. D) an invalid agreement.
Explanation The answer is an exclusive buyer representation agreement. An exclusive buyer representation agreement binds the buyer to compensate the agent whenever the buyer purchases a property of the type described in the contract, even if the buyer finds the property independently..
Parking spaces in multiunit buildings, water rights, and similar things of value that convey with property are classified as A) covenants. B) appurtenances. C) emblements. D) chattels.
Explanation The answer is appurtenances. Appurtenances are rights or privileges associated with the property, although not necessarily part of the property.
At the closing of a real estate transaction, the person performing the settlement gave the buyer a credit for certain accrued items. These items were A) all of the seller's real estate bills. B) bills relating to the property that had already been paid by the seller. C) bills relating to the property that the buyer must pay. D) all of the buyer's real estate bills.
Explanation The answer is bills relating to the property that the buyer must pay. Accrued items are those property-related expenses (bills) that remain on the property as it is sold and that the purchasers will have to pay later.
A buyer purchased a new residence from a builder for $350,000. The buyer made a down payment of $30,000 and obtained a $320,000 mortgage loan. The builder of the house paid the lender 3% of the loan balance for the first year and 2% for the second year. This represented a total savings for the buyer of $16,000. What type of mortgage arrangement is this? A) Blanket B) Buydown C) Open-end D) Package
Explanation The answer is buydown. The builder brought down the purchaser's interest rate for two years by paying the lender advance interest. This is a buydown arrangement.
The real property interest that takes the form of personal property is A) ownership in severalty. B) condominium unit ownership. C) tenancy in common. D) cooperative unit ownership.
Explanation The answer is cooperative unit ownership. Because it involves receiving shares of stock and a leasehold—both of which are considered by common law to be personal property—cooperative ownership is personal, not real, property.
A property owner wants to use water from a river that runs through the property to irrigate a potato field. To do so, the owner is required by state law to submit an application to the Department of Water Resources describing in detail the plan for beneficial use of the water. If the department approves the owner's application, it will issue a permit allowing a limited amount of river water to be diverted onto the property. Based on these facts, it can be assumed that this property owner's state relies on which rule of law? A) Doctrine of highest and best use B) Doctrine of prior appropriation C) Riparian rights D) Littoral rights
Explanation The answer is doctrine of prior appropriation. Many states whose water is in relatively short supply have passed statutes authorizing a system of prior appropriation in which owners downstream do not necessarily have to wait for "what's left" after those upstream have drawn their fill. Priority—who is allowed to appropriate water first—is established, instead, by the date of approved filing and continued conformity with any rules and limitations on use imposed by the jurisdiction.
Which lien affects all real and personal property of a debtor? A) General B) Involuntary C) Specific D) Voluntary
Explanation The answer is general. A general lien attaches to all of a debtor's property as opposed to a specific lien, which affects only a specific property.
Which of the following is a legal life estate? A) Homestead B) Fee simple absolute C) Determinable fee D) Leasehold
Explanation The answer is homestead. Homestead rights are granted by statute in some states to provide some protection to debtors and their families against the execution of judgment liens on their homes by the action of unsecured creditors.
CERCLA regulations for administration of the Superfund, which helps pay for cleanup of uncontrolled hazardous waste sites, A) release from liability those owners of contaminated property who did not actually cause known contamination. B) exempt from responsibility those sites that contaminate neighboring properties. C) impose strict, joint and several, and retroactive liability on potentially responsible parties. D) make no provision for recovering Superfund expenses incurred in cleanup operations.
Explanation The answer is impose strict, join and several, and retroactive liability on potentially responsible parties. Strict liability means that the owner is responsible to the injured party without excuse. Joint and several liability means that each of the individual owners is personally responsible for the total damages. If only one of the owners is financially able to handle the total damages, that owner must pay the total and collect the proportionate shares from the other owners whenever possible. Retroactive liability means that the liability is not limited to the current owner but includes people who have owned the site in the past.
Which of the following are traditionally covered by a standard title insurance policy? A) Unrecorded rights of persons in possession B) Changes in land use because of zoning ordinances C) Unrecorded liens not known to the policyholder D) Improperly delivered deeds
Explanation The answer is improperly delivered deeds. The rights of persons in possession (prior to purchase) are not covered by the basic title insurance policy, but they are covered by extended coverage policies. Changes in land use related to zoning are not covered in any type of title insurance. Standard coverage will protect against improperly delivered deeds.
The amount of commission paid to a sales associate is determined by A) the local real estate board. B) state law. C) mutual agreement with the client. D) mutual agreement with the broker.
Explanation The answer is mutual agreement with the broker. All commissions must be paid through the broker, and the amount the sales associate receives is set by mutual agreement between these two parties.
There are two vacant adjacent lots in an area zoned for commercial use, each worth approximately $50,000. If their owner sells them as a single lot, however, the combined parcel will be worth $120,000. What principle does this illustrate? A) Regression B) Substitution C) Progression D) Plottage
Explanation The answer is plottage. The principal of plottage is that additional market value can be obtained in some instances by combining, and selling as a single parcel, two or more contiguous (i.e., adjacent) properties. This value exceeds the combined total that the individual properties would bring if sold separately.
A real estate professional who has several years of experience in the industry decided to retire from actively marketing properties. Now this person helps clients choose among the various alternatives involved in purchasing, using, or investing in property. What is this person's profession? A) Real estate appraiser B) Real estate counselor C) Real estate educator D) Building inspector
Explanation The answer is real estate counselor. Advising and guiding investors and other buyers is counseling them. Many states require a person to have a real estate license to serve as a real estate advisor/ counselor for a fee because it involves skills and duties closely related to real estate brokerage.
After a foreclosure sale, the borrower who has defaulted on the loan may seek to pay off the mortgage debt plus any accrued interest and costs under what right? A) Equitable redemption B) Defeasance C) Statutory redemption D) Usury
Explanation The answer is statutory redemption. The redemption of property by paying off the mortgage debt plus interest and other charges after foreclosure is the right of statutory redemption. It is only possible in states that have statutes permitting it. All states, however, permit redemption before the foreclosure sale; this right is the right of equitable redemption.
Which event will terminate an agency in a broker-seller relationship? A) The broker discovers that the market value of the property is such that an adequate commission will not be earned. B) The broker appoints other brokers to help sell the property. C) The owner abandons the property. D) The owner declares personal bankruptcy.
Explanation The answer is the owner declares personal bankruptcy. Common law holds that the bankruptcy of either the broker or the seller ends the agency relationship created by the listing.
Homeowners are frantic because they want to sell their property and the deed is missing. Which of the following is TRUE? A) They should execute a replacement deed to themselves. B) They must buy title insurance. C) They may need to sue for quiet title. D) They do not need the original deed if it has been recorded.
Explanation The answer is they do not need the original deed if it has been recorded. If the homeowners' deed was copied into the public record after they received it, that copy is all that is needed to start a title search. The original is not needed.
In one state, a mortgagee holds legal title to real property offered as collateral for a loan, and the mortgagor retains the rights of possession and use. If the borrower defaults, the lender is entitled to immediate possession and rents. This state can be BEST characterized as what kind of state? A) Title theory B) Lien theory C) Intermediate theory D) Mortgage theory
Explanation The answer is title theory. In title theory states, the mortgagor actually gives legal title to the mortgagee (or some other designated individual) and retains equitable title. Legal title is returned to the mortgagor only when the debt is paid in full (or some other obligation is performed).
A deed contains a guarantee that the grantor will compensate the grantee for any loss resulting from the title's failure in the future. This is an example of which covenant? A) Quiet enjoyment B) Further assurance C) Seisin D) Warranty forever
Explanation The answer is warranty forever. The grantor promises to compensate the grantee for the loss sustained if the title fails at any time in the future in the covenant of warranty forever.
Which of these does NOT provide enough information to calculate the area of the parcel? A) The north half of Section 35 B) Lot 1, Block A, Tree Land Estates C) One square mile D) The southwest quarter of Section 1
Explanation The area of Lot 1, Block 1, Tree Land Estates cannot be calculated without reference to a plat map to see the dimensions of the property. The area of the other choices can be determined. A section is one square mile, and one square mile contains 640 acres. The north half of Section 35 would contain 320 acres. The southwest quarter of Section 1 would contain 160 acres.
The owner of an income-producing residential rental property asked the property manager to calculate the net income (NOI) on the property. Each of the 4 units in the apartment building rented for $750 a month. The annual property taxes are $5,000, annual insurance premiums are $3,000, lawn care and maintenance is $300 monthly and monthly debit service is $1000. What is the property's net operating income? A) $27,700 B) $21,400 C) $24,400 D) $12,400
Explanation The calculation is $750 (rent monthly unit rent) × 4 = $3,000 × 12 = $36,000 (annual rent). Monthly lawn care and maintenance $300 x 12 months = $3,600 Expenses: property taxes $5000 + insurance $3000 + lawn care and maintenance $3,600 = $11,600 Gross Annual Rent $36,000 - $11,600 (annual operating expenses) = $24,400
Test Id: 230841955 Question #3 of 80 Question ID: 1425639 An apartment building has 15 units, and each unit rents for $1,100 a month. There are onsite laundry facilities, an onsite business center, and storage units that generate $700 a month in additional income. The apartment building has a 5% vacancy rate. What is the effective gross income (EGI) from this income-generating property? A) $150,080 B) $196,080 C) $96,080 D) $296,080
Explanation The calculation is 15 units × $1,100 monthly rent = $16,500 × 12 = $198,000 (annual rent). $700 (laundry/business center/storage units) × 12 = $8,400. $198,000 + $8,400 = $206,400. $206,400 - $10,320 [5% vacancy ($206,400 × 5% = $10,320)] = $196,080 (EGI). This is the formula for calculating EGI: Gross potential rent + other income = ____ - vacancies/collection losses = effective gross income.
An income-producing office building had a net operating income (NOI) of $100,000. The investor wanted to realize a 5% return on the purchase. What should the investor offer for the property? A) $3,000,000 B) $1,000,000 C) $4,000,000 D) $2,000,000
Explanation The calculation is NOI ÷ capitalization rate of return = value. So, $100,000 (NOI) ÷ 5% (cap rate of return) = $2,000,000.
A listed property recently sold. The real estate broker earned $90,000, a 6% commission on the transaction. What was the sales price of the property? A) $2,500,000 B) $1,500,000 C) $1,000,000 D) $2,000,000
Explanation The calculation is commission ÷ commission rate = sales price. So, $90,000 (commission) ÷ 6% (0.06 - commission rate) = $1,500,000 (sales price).
Which of these formulas correctly states the formula need for capitalization? A) Rate ÷ value = net operating income B) Net operating income ÷ rent = value C) Value ÷ rate = net operating income D) Rate × value = net operating income
Explanation The correct formula for capitalization is rate × value = net operating income. Rate stands for the capitalization rate of return; that is, the rate of return the investor wants to earn on a parcel of income-producing real estate.
Which of these methods of legal description is the BEST for describing an irregularly shaped parcel of real estate? A) Government survey B) Metes and bounds C) Lot and block D) Lot and tract
Explanation The metes and bounds legal description is particularly useful to describe an irregularly shaped parcel of real estate, particularly one with a lot of curves and angles.
The owner of a servient tenement noticed the owner of the dominant tenement is no longer using an appurtenant easement because of a newly constructed road. The owners meet to negotiate the termination of the appurtenant easement. Who will sign the deed releasing the easement? A) This type of interest in land can only be released by a judge in a court of law. B) The owner of the dominant tenement will sign the deed. C) Both owners will sign the deed. D) The owner of the servient tenement will sign the deed.
Explanation The owner of the dominant tenement will sign the deed releasing the servient tenement from the appurtenant easement. Note: The dominant tenement benefits from the easement, and the servient tenement is burdened with the easement.
Market data, summation, and income methods rely on what principal of value? A) Contribution B) Conformity C) Substitution D) Anticipation
Explanation The principal of substitution states that the value of a property tends to be set by the cost of purchasing an equally desirable and similar property. Therefore, all the approaches to value are affected by the principal of substitution.
Which of these will give an owner the MOST flexibility to either sell or rent to someone interested in a parcel of real estate owned by the owner? A) Option contract B) Right of first refusal C) Land contract D) Seller carryback
Explanation The right of first refusal gives the owner the most flexibility from the choices presented. The right of first refusal gives the prospective buyer or prospective tenant the right to accept the property at whatever price or rent the owner chooses. If refused, the owner can sell or rent to anyone else.
When does title transfer? A) When both the grantor and the grantee have signed a valid deed B) When the grantor delivers a valid deed to the grantee C) When the grantee accepts a valid deed from the grantor D) When the grantor executes a valid deed to the grantee
Explanation Title transfers when a valid deed has been delivered by the grantor and accepted by the grantee.
Sandra Chang, the owner of a single-family residence, did not want the home going through probate after she passed. Chang wanted her daughter to have the property immediately upon her death. Which of these choices will achieve this goal? A) The owner conveys the property to herself and her daughter, as tenants in common. B) The owner conveys the property to herself as a life tenant, with a remainder to the daughter. C) The owner drafts a will leaving the property to her daughter. D) The owner conveys the property to her daughter immediately.
Explanation To achieve her goals from these answer choices, Sandra Chang would convey the property to herself as a life tenant (and measuring life) with a remainder to the daughter. Upon Chang's death, the property will pass automatically and immediately to the daughter through operation of law. There will be no need for the daughter to go to court.
An investor purchased an income-producing residential rental property for $600,000. The improvements were valued at $400,000. For how long could the investor take a depreciation allowance on the property, and how much would the depreciation allowance be each year?
Over 27½ years, the depreciation allowance would be for $14,545.45. The depreciation allowance on residential rental property is calculated over 27½ years on the improvements only. This is a deduction on the owner's personal income taxes. It is a tax advantage for owners of business and investment property. This is occasionally referred to as book depreciation, as it has nothing to do with how well the property is being maintained. Note: Commercial real estate improvements are depreciated over 39 years. The calculation is $400,000 (value of improvements) ÷ 27½ (years allowed for residential rental property) = $14,545.45. Reference: Real Estate Calculations > Investment
To remember the 4 government powers, think of the name PETE.
Police Power Eminent Domain Taxation Escheat
police power
Police power is the state's inherent right to regulate an individual's conduct or property to protect the health, safety, welfare, and morals of the community. Some common examples of police power, as it relates to real estate, are Zoning, Building codes and Rent control Think of it this way, police power is not designed to take property away from you. It's there more to set standards on how the property can be used. That is why compensation is not paid to property owners affected by police power. This is in contrast to the next government power.
The fine for a first violation of the federal Fair Housing Act could be as much as A) $65,654. B) $37,525 C) $100,000. D) $19,987.
The answer is $19,987. A fine of not more than $19,987 is possible for a first violation.
A homebuyer purchased a residential property for $540,000 and will make down payment of $60,000 and finance the remaining balance on a new first mortgage with a lender. The borrower will pay two discount points to the lender to buydown the interest rate. How much did the borrower pay for the discount points?
The calculation is $540,000 (sale price) - $60,000 (down payment) = $480,000 (loan amount) × 2% = $9,600 One discount point is 1% of the loan amount. Here, the borrower paid two discount points to the lender.
eminent domain
Under eminent domain, the government can appropriate property if they feel it is for the greater good of the community. But the owner of any lands appropriated under eminent domain is entitled to reasonable compensation, usually defined as the fair market value of the property. Compensation for the property is paid through the process of condemnation. In some jurisdictions, the state will also delegate eminent domain power to certain public and private companies. This allows utilities, for example, to bring eminent domain actions so they can run telephone, power, water, or gas lines. However, there are times when a property owner feels that they were not appropriately compensated by the government when the powers of Eminent Domain were applied to their property. In these cases, the property owner can file for Inverse Condemnation. Inverse Condemnation sounds tricky, but basically it just allows a property owner to file a claim against the government to recover just compensation for the property that was taken.
A legal description states: "Commencing at the corner of Ridge Street and Maple, then east 40 degrees to Elm Ave." This type of description is known as A) assessor's parcel number. B) rectangular survey. C) lot, block, and subdivision. D)
metes and bounds. Explanation The metes-and-bounds method uses a beginning point (the only legal description that will state "starting at"), linear measurement, and compass degrees to describe the perimeter or boundaries of a parcel of land. No other legal description uses a starting point.
A contract for the sale of real estate that does not state the consideration and provides no basis on which the consideration could be determined is considered A) voidable. B) enforceable. C) executory. D) void.
void. Explanation The answer is void. A contract is void when a consideration is not stated because consideration is an essential element of a contract.
