MODULE 6
A builder is required to secure a loan with mortgages on three properties. This is an example of A bridge loan. A participation mortgage loan. A permanent mortgage loan. A blanket mortgage loan.
A blanket mortgage loan.
A lender is charging 2 points on a $60,000 loan. The borrower must therefore pay the lender an advance amount of $120. $300. $1,200. $3,000.
A point is one percentage point of a loan amount. Thus, 2 points on a $60,000 loan equal (.02 x $60,000), or $1,200.
One of the strengths of the sales comparison approach is that it Takes into account the subject property's investment value. Discovers the underlying value of the subject property apart from the influence of competing properties. Reveals the profit margin of the builder or developer of the subject property. Takes into account the competitive value of specific amenities of the subject property.
Takes into account the competitive value of specific amenities of the subject property.
Which laws or regulations prevent mortgage lenders from discriminating in extending credit to potential borrowers? Truth-in-Lending laws. Federal Fair Housing Laws. The Equal Credit Opportunity Act. The Real Estate Settlement and Procedures Act
The Equal Credit Opportunity Act.
The act that required federally-related appraisals to be conducted by a certified appraiser is known as The Appraisal Foundation Authorization and Reform Act (AFAR). The Federal Institution for Regulation and Enforcement of Appraisal Act (FIREAA). The Uniform Standards of Professional Appraisal Practice Act (USPAPA). The Financial Institutions Reform, Recovery and Enforcement Act (FIRREA).
The Financial Institutions Reform, Recovery and Enforcement Act (FIRREA).
When looking at the borrower's ability to repay a loan, the lender should give the least consideration to which of the following? The amount of the borrower's overtime pay The amount of the borrower's monthly income The borrower's current debt service The stability of the borrower's income
The amount of the borrower's overtime pay
A property has a net income of $150,000, interest payments of $105,000, principal payments of $30,000, and annual cost recovery of $7,000. The property's tax rate is 28%. What is the property's annual tax on income? $2,240 $10,640 $14,550 $40,040
The basic formula for tax liability is: Taxable Income x Tax Rate = Tax Liability. Taxable Income is Net Operating Income - Interest Expense - Cost Recovery Expense. Therefore, the annual tax is $150,000 (NOI) - $105,000 (Interest Expense) - $7,000 (Cost Recovery Expense) x 28% = $10,640. Note that the principal payment is not deductible in calculating taxable income.
Which of the following correctly describes the flow of money and documents in a mortgage loan transaction? The lender gives the borrower a mortgage and receives a note in exchange for loan funds. The borrower gives the lender a note and a mortgage in exchange for loan funds. The borrower receives a note in exchange for a mortgage from the lender. The lender gives the borrower a note, loan funds and a mortgage.
The borrower gives the lender a note and a mortgage in exchange for loan funds.
If a particular loan falls under Regulation Z's right of rescission provision, The lender has the right to change the terms of the loan within a certain period. The borrower has the right to pay off the loan ahead of schedule with no penalty. The borrower has a limited right to cancel the transaction within a certain period. The lender has the right to accelerate repayment of the loan because of a change in the borrower's credit status.
The borrower has a limited right to cancel the transaction within a certain period.
In a buydown, The borrower pays the lender additional funds to buy down the term of the loan. The lender lowers the interest rate on a loan in exchange for a prepayment of principal. The borrower pays additional interest at the onset in order to obtain a lower interest rate. The lender requires the borrower to buy down the price of the property by increasing the down payment.
The borrower pays additional interest at the onset in order to obtain a lower interest rate.
A sale transaction closes on April 1, the ninety-first day of the tax year. The day of closing belongs to the seller. Real estate taxes for the year, not yet billed, are expected to be $3,150. According to the 365-day method, what should appear on the closing statement? A debit to the buyer and credit to the seller for $785.34 A debit to the buyer and credit to the seller for $2,364.62 A credit to the buyer and debit to the seller for $2,364.62 A credit to the buyer and debit to the seller for $785.34
The daily tax expense, first, is ($3,150 / 365) or $8.63. Since the buyer will pay the taxes after closing, the seller must pay the buyer his or her portion of the tax bill at closing, which is the 91 days from the beginning of the year through closing. Therefore, credit the buyer and debit the seller ($8.63 x 91), or $785.34.
With various types of junior liens, the order of payment priority is generally established according to Whether the lien was subordinated. The date of recordation. What form of tax is in question. The order of disbursement.
The date of recordation.
The formula for calculating capital gain tax is the taxpayer's tax bracket multiplied by The difference between net sale proceeds and capital gain. The sum of net sale proceeds and capital gain. The difference between amount realized and adjusted basis. The sum of the beginning basis plus gain.
The difference between amount realized and adjusted basis.
The real estate business is affected by the economy. The total of all goods and services produced in the US is measured by the gross domestic product (the GDP). The business cycle is the recurring pattern of expansions and contractions within the economy. It's called a recovery when the economy expands and a recession when it contracts. The entire statement is true. The entire statement is false. Only some parts of the statement are true.
The entire statement is true.
The loan officer at Sixth Fourth Bank tells Amanda she can afford a monthly payment of $1,000 on her new home loan. Assuming this is an interest-only loan, and the principal balance is $249,000, what interest rate is Amanda getting? 3.69% 4.82% 5.03% 6.25%
The equation for the interest rate is (annual payment / loan amount) = interest rate. Thus ($1,000 x 12) / $249,000 = 4.82%.
A borrower of a $50,000 interest-only loan makes annual interest payments of $3750. What interest rate is the borrower paying? 3.75%. 7.5%. 75%. 8.5%.
The equation for the interest rate is (annual payment / loan amount) = interest rate. Thus ($3750 / $50,000) = 7.5%.
If a borrower's monthly interest payment on an interest-only loan at an annual interest rate of 6% is $500, how much was the loan amount? $50,000. $72,000. $100,000. $120,000.
The equation for the loan amount is (annual interest divided by the interest rate) = loan amount. Thus, ($500 x 12) ÷ .06 = $100,000.
Emily has an interest-only home equity loan at an annual interest rate of 5.3%. If her monthly payment is $790, how much is the loan's principal balance (to the nearest $1,000)? $95,000 $146,000 $179,000 $222,000
The equation for the loan amount is (annual interest divided by the interest rate) = loan amount. Thus, ($790 x 12) / .053 = $178,868 or $179,000 rounded.
A house sold for $250,000. The seller paid a brokerage commission of six percent, legal fees of $600, and had other closing costs of $1,500. What are net proceeds from the sale? $232,900. $233,500. $234,000. $235,000.
The figure for net proceeds from sale is expressed by the formula: sale price - costs of sale = net proceeds. Thus $250,000 - (6% x 250,000) - 600 - 1,500 = $232,900.
A lender offers the Greys two alternative loan packages for their $60,000 home equity application. One option is an interest-only loan for 5 years @ 6.5% interest with no points, and the second, a 6.25% interest-only loan for 5 years with 1 point to be paid at closing. Which loan will cost the Greys less total interest, and by how much? The second option, by 150. Both options charge the same amount of interest. The second option, by $750. The first option, by $150
The first option's interest total is (6.5% x $60,000) x 5 years, or $19,500. The second option will charge (6.25% x $60,000) x 5 years, plus $600, or a total of $19,350. The 2nd option is $150 cheaper.
The James family purchased a home for $180,000 five years ago and obtained an 80% LTV loan. Now the property has appreciated 25%. In addition, the loan has been paid down $11,000. What is the James' current equity in the home? $45,000 $47,000 $81,000 $92,000
The formula for equity is (current value - indebtedness). The current value is ($180,000 + 25% x 180,000), or ($180,000 x 125%), or $225,000. The current debt is ($180,000 x 80%) - $11,000, or $133,000. Their equity is therefore $92,000.
An investor bought 4 oversized lots in order to subdivide. He paid $70,000 for the lots. After subdividing, the investor was able to sell each lot for $23,000. Excluding commissions and closing costs, what per cent profit did the investor realize? 0% 23.9% 31.4% 45%
The formula for profit % is (profit / initial investment). The profit made was ($23,000 x 4) - 70,000 initial investment, or $22,000. Dividing this by the amount invested derives a profit percent of 31.4%.
What is a loan-to-value ratio? The percentage of a lender's portfolio that is composed of mortgage loans. The ratio of borrowed principal plus total interest to the appraised value of the collateral property. The fraction of the appraised value of the property offered as collateral which the lender is willing to lend. The ratio of a lender's return on a mortgage loan to the value of the collateral property
The fraction of the appraised value of the property offered as collateral which the lender is willing to lend.
A homeowner sold her house and realized a net proceeds amount of $210,000. Her adjusted basis in the home was $176,000. She immediately bought another house for $200,000. What was her capital gain? None. $10,000. $24,000. $34,000.
The gain on sale (capital gain) of a primary residence is represented by the basic formula: amount realized (net sales proceeds, $210,000) - adjusted basis ($176,000) = gain on sale ($34,000). Note the purchase price of the second house is irrelevant. Continue Progressive TestNext Page Allow timer to run out before moving to the next page.
A homeowner receives a tax bill that includes an amount for the library district, taxed at $1.00 per $1,000, and the fire protection district, taxed at $2.00 per $1,000. How much does the taxpayer have to pay for these two items if the property's taxable value is $147,000? $157. $441. $1,410. $1,567
The library tax is ($1.00 x 147) and the fire district tax is ($2.00 x 147). Thus the tax is $441.
Andra can afford to spend $5,000 in closing costs to refinance her home. The lender quotes closing costs of $800 plus 2 points. The house appraised out at $240,000, and she can get an 80% loan. Can Annika afford to refinance? Yes, she in fact breaks even. No, she is short by $64. Yes, with $360 left over. No, she is short by $1,600
The loan she can get amounts to ($240,000 x 80%), or $192,000. The points charge is ($192,000 x .02), or $3,840. Total closing costs are then $3,840 + 800, or $4640. Thus she has $360 to spare.
Ivan owned a 1/4 acre lot. He wanted to construct a 120' x 80' tennis court on the lot. What approximate percentage of the lot will be left over, if any, when he has completed the construction? 3% 12% 15% 88%
The lot measures 43,560 / 4, or 10,890 SF. The tennis court will take up 9,600 SF, leaving 1,290 SF. This amount is 11.8% of the total lot area.
A school district's tax rate is 10 mills. The school district's required revenue from real estate taxes is $20,000,000. What is the tax base of the area? $20,000,000. $200,000,000. $2,000,000,000. $200,000,000,000.
The mill rate = (tax requirement / the tax base). A mill is one one-thousandth of a dollar ($.001). To solve for the tax base, reconfigure this formula to be: Base = Tax Requirement / Mill Rate. Thus the Base = $20,000,000 / .010, or $2,000,000,000.
What is "absorption?" The number of available units that become occupied over a given period. The amount of new space that is added to available space over a given period. The amount of space that is occupied at any given time. The number of houses that are built over a given period.
The number of available units that become occupied over a given period.
What does "base employment" refer to in the context of real estate demand? The number of persons employed on military bases in an area The number of persons employed in base industries in an area The labor pool available for employment in all industries in an area The lowest category of employment in terms of wages and desirability
The number of persons employed in base industries in an area
The village of Goodsprings has an annual budget requirement of $8,000,000 to be funded by property taxes. Assessed valuations are $400,000,000, and exemptions total $25,000,000. What must the tax rate be to finance the budget? 1.32% 2.00% 2.13% 21.33%
The rate = budget / tax base. Thus, $8,000,000 / ( 400,000,000 - 25,000,000) = 2.13%
A family purchased a $90,000 lot to build a custom home. At the date of closing, the lot was assessed at $84,550 and the tax rate was $1.91 / $100 assessed valuation. When they completed the home, the assessment increased by $235,000 to include the new construction. If the monthly tax escrow is based on the assessed value, what will the monthly tax escrow be?
The total assessed value is ($84,550 + 235,000), or $319,550. The annual tax is based on ($319,550 / 100) = 3195.5 100's. Round up to 3196. To derive the annual tax, multiply 3,196 x 1.91, or $6,104.36. Divide this by 12 for the monthly escrow: ($6,104 / 12) = $508.
In a deed of trust transaction, which of the following occurs? The beneficiary conveys title to a trustee in exchange for loan funds. The trustee conveys title to a beneficiary in exchange for loan funds. The trustor conveys title to a trustee in exchange for loan funds from the beneficiary. The trustee conveys title to a trustor in exchange for loan funds from the beneficiary.
The trustor conveys title to a trustee in exchange for loan funds from the beneficiary.
Yard of Pizza has a percentage lease on its 1,800 SF space in Lincoln Shops. The terms are $1.40 / SF / month rent plus 1.75% of the store's gross income. If monthly sales averaged $41,500 last year, how much annual rent did Yard of Pizza pay last year? $21,525 $30,240 $38,955 $43,420
Their fixed rent is (1,800 SF x $1.40/SF) x 12 months, or $30,240. The percentage rent is ($41,500 x .0175) x 12, or $8,715. Total rent is ($30,240 + 8,715), or $38,955.
Which of the following is true with respect to real property taxation by the federal government? It may not impose property taxes or tax liens. It imposes ad valorem property taxes and capital gain tax. There are no federal ad valorem taxes on real property. It imposes ad valorem tax, but not capital gain tax.
There are no federal ad valorem taxes on real property.
A notable weakness of the sales comparison approach to value is that There may be no recent sale price data in the market. Sale prices cannot be compared, since all real estate is different. The approach is only accurate with unique, special purpose properties. The approach is not based on the principle of substitution
There may be no recent sale price data in the market.
A property is being appraised by the cost approach. The appraiser estimates that the land is worth $30,000 and the replacement cost of the improvements is $95,000. Total depreciation from all causes is $10,000. What is the indicated value of the property? $115,000. $125,000. $130,000. $135,000.
To appraise value using the cost approach, add the land value to the value of the depreciated improvement. Thus you have $30,000 + ($95,000 - 10,000), or $115,000.
What is the main goal of an IRC Section 1031 Exchange? To defer the payment of capital gain taxes until exchanged property is sold outright. To allow the taxpayer to preserve equity in their primary residence to increase their purchasing power for a replacement home. To forever avoid the payment of capital gain taxes on sold real estate. To pay taxes on the gain of a sold property so they don't accumulat
To defer the payment of capital gain taxes until exchanged property is sold outright.
In the past, borrowers were often surprised by unexpected or undisclosed borrowing fees and expenses at closing. This phenomenon has been largely corrected through disclosure requirements mandated by which of the following laws? Truth-in-Lending laws National Disclosure Procedures Act Federal Fair Housing Laws Equal Credit Opportunity Act
Truth-in-Lending laws
Which laws or regulations require mortgage lenders to disclose financing costs and annual percentage rate to a borrower before funding a loan? Truth-in-Lending laws and Regulation Z. The Equal Credit Opportunity Act. The Real Estate Settlement and Procedures Act. Federal Fair Housing Laws.
Truth-in-Lending laws and Regulation Z.
Which of the following is a good example of homogeneity? A real estate broker and a lawyer Two houses of the same architectural style A trust deed and a mortgage Two parcels of land
Two houses of the same architectural style
The Uptons carry a $140,000 property insurance policy which covers 75% of the replacement cost of their insurable property, valued at $190,000. They have an 80% co-insurance requirement in the policy. If the family incurs a $150,000 loss, what if any amount will the Uptons recover? $140,000 $140,625 $159,999 $187,500
Use the formula: (Percent of insurable property value carried / 80% replacement cost) x claim = recovery. Thus, (75% / 80% x $150,000) = $140,625. However, the face value of the policy is the maximum they can receive, which is $140,000
A rental home has monthly gross income of $1,100. A suitable gross income multiplier derived from market data is 14.7. What estimated sale price (to the nearest $1,000) is indicated? $99,000 $162,000 $173,000 $194,000
Use the formula: GIM = Price / Annual Income. To solve for price convert the formula to Price = GIM x Annual Income. Thus, ($1,100 x 12) equals $13,200 annual income. ($13,200 x 14.7 GIM) = $194,040, or $194,000 rounded.
An apartment building that recently sold for $400,000 had monthly gross rent receipts of $3,200. What is its monthly gross rent multiplier? 01 80 110 125
Use the formula: GRM = Price / Monthly Rent. Thus, $400,000 / $3,200 = 125.
George and Mary have owned a rental house for 10 years. They bought it for $240,000 and estimated the land value @ 25%. If the property is depreciated on a 39-year schedule, and appreciation totals 50% over the period, what is their gain if they sell the property today? $120,000 $159,230 $166,150 $181,538
Use the formula: Gain = (Net selling price - adjusted basis) where adjusted basis = (beginning cost - depreciation). The selling price is $240,000 x 5% annual appreciation x 10 years, or ($240,000 + 50% x 240,000), or $360,000. Since land cannot be depreciated, the depreciable basis is ($240,000 total cost - 60,000 land value), or $180,000 (land = 25% total value). Annual depreciation = ($180,000 / 39 years), or $4,615. Thus total depreciation is ($4,615 x 10 years), or $46,150. The adjusted basis is therefore ($240,000 - 46,150), or $193,850. The total gain is therefore ($360,000 - 193,850), or $166,150.
A lender determines that a homebuyer can afford to borrow $130,000 on a mortgage loan. The lender requires an 80% loan-to-value ratio. How much can the borrower pay for a property and still qualify for this loan amount? $104,000 $138,000 $162,500 $170,000
Use the formula: Price x LTV Ratio = Loan. Then plug in the figures and calculate: Price x .80 = $130,000. Therefore, Price = $130,000 / .80 = $162,500.
An apartment owner paid $500,000 for her complex 5 years ago. An appraiser at that time valued the land @ $100,000, but land has appreciated 25% over this period. The investor has used a 40-year straight-line depreciation method to depreciate the property. What is its current value using the cost approach? $437,500 $462,500 $475,000 $546,875
Use the same Cost Approach formula: Land + (Cost of Improvements + Capital Additions - Depreciation) = Value. The land is worth (100,000 x 125%), or $125,000. Remember, you cannot depreciate the land, only the cost of the improvements. Therefore, annual depreciation is ($400,000 / 40), or $10,000. Total depreciation is ($10,000 x 5 years), or $50,000. Thus the value is ($125,000 + 400,000 - 50,000), or $475,000.
An office building investor sees a listing of an office building which is priced at $2 million. He loves the property, but he knows he needs to make a return of at least 8% to satisfy his partners. If the building is 25,000 SF, rents for $10/SF per year, has 5% vacancy, and annual expenses of $70,000, should he buy it? What is his return? Yes, since he will yield 8%. Yes, since he will yield 8.375%. Yes, since he will yield 9.125%. No, since he will yield 2.00%.
Use the same formula R = I / V where V is the $2 million price, and R is the cap rate or rate of return. To identify income: (25,000 SF x $10/SF) = $250,000 gross income, minus 5% vacancy (.05 x $250,000), or $12,500, minus expenses of $70,000 = $167,500 net income. ($250,000 - 12,500 - 70,000) Now divide net income of $167,500 by $2,000,000 to derive the return of 8.375%.
A certain investor wants an 11% return on investment from any real estate investment. A property priced at $360,000 has gross income of $60,000 and expenses of $22,000. Approximately how much too high or too low is the price of this property for the investor to obtain her desired return exactly? $1,000 overpriced. $16,000 underpriced. $8,000 underpriced. $15,000 overpriced.
Use the same formula V = I / R where V is the price and R is the rate of return. Then plug in the numbers to solve for V. The NOI of this property is ($60,000 - $22,000), or $38,000. The return is 11%. Therefore, the value to get this return must be $38,000 / .11, or $345,455. Since the price is $360,000, the price exceeds the amount needed for an 11% return by approximately $15,000 ( $360,000 - $345,455 = $14,545).
A strength of the income capitalization approach is that it Uses a rate of return that is required for all potential purchasers in a market. Can be used with any type of property in any market. Yields an accurate projection of investment income. Uses a method that is also used by investors to determine how much they should pay for an investment property.
Uses a method that is also used by investors to determine how much they should pay for an investment property.
A lender who charges a rate of interest in excess of legal limits is guilty of Redlining. Nothing; there are no legal limits to interest rates. Usury. Profit-taking.
Usury
If gross income on a property is $75,000, net income is $30,000 and the cap rate is 8%, the value of the property using the income capitalization method is $375,000 $625,000 $937,500 $3,750,000
Value = Income / Cap rate. Thus, V= $30,000 / .08 = $375,000.
If net income on a property is $40,000 and the cap rate is 10%, the value of the property using the income capitalization method is $100,000. $400,000. $1,000,000. $4,000,000.
Value = Income ÷ Cap rate. Thus, V= $40,000 ÷ .10 = $400,000.
To complete the sales comparison approach, the appraiser Averages the comparable values. Weights the comparables. Identifies the subject's value as that of the nearest comparable. Identifies the subject's value as that of the middle value of the comparables.
Weights the comparables.
In a tax-deferred exchange, "boot" refers to which of the following? The amortization period used in financing. The taxable portion of the exchange transaction The capitalization rate used to determine the value of rental property. The recapture of depreciation before the exchange
When property that does not qualify as like-kind is part of an exchange, it is called boot or taxable boot. Boot is the taxable portion of a tax-deferred exchange.
Which of the following describes a purchase money mortgage financing arrangement? The seller uses the purchase money obtained from the buyer's mortgage loan to repay the seller's outstanding loan balance. A land trust holds title to the property while the buyer makes periodic installment payments to the seller. A bank gives a buyer a senior mortgage loan that fully covers the cost of purchasing the property. The buyer gives the seller a mortgage and note as part of the purchase price of the property.
With a purchase money mortgage, the borrower gives a mortgage and note to the seller to finance some or all of the purchase price of the property. The seller in this case is said to "take back" a note, or to "carry paper," on the property.
A borrower obtains a 30-year, fully amortizing mortgage loan of $50,000 at 8%. What is the principal balance at the end of the loan term? Zero. $220. $2,000. $50,000.
Zero
The instrument of record to show that a mortgage has been paid in full is called: a deed release statement. a satisfaction of mortgage. a retirement of mortgage. an estoppel certificate
a satisfaction of mortgage.
When establishing value, such things as professional landscaping, a gated community, and a valley view are called tangibles. amenities. unilaterials. emptors.
amenities.
An appraisal to place a value on a three-year-old home for fire insurance purposes would give most emphasis to the weighted average of the three approaches to value. income approach. market data approach. cost approach.
cost approach.
The loss of an improvement's value can come from any cause, such as deterioration, obsolescence, or changes in the neighborhood, is called functional malfeasance. depreciation. unearned deterioration. obsolescence.
depreciation.
Lenders use the Loan-to-Value ratio (the LTV) to determine their level of exposure to risk for a particular loan. make sure the borrower can afford their mortgage payments. make sure the borrower did not inflate the market value of the property. make sure the seller gave the buyer a good deal.
determine their level of exposure to risk for a particular loan.
The purpose of the Truth in Lending Act is to establish credit approval standards for federal loans. disclose to the consumer the cost and conditions of mortgage loan credit. establish a more uniform set of charges. assist the federal government in controlling predatory lending practices.
disclose to the consumer the cost and conditions of mortgage loan credit.
The Federal Housing Administration (FHA) does NOT insure loans for owner-occupied duplexes allow a new buyer to assume an existing mortgage insure title
insure title
A note is dated June 6, 2012, in the amount of $3,900. The annual interest rate is 6% simple interest. The maturity date of the note is May 6, 2013, at which time all of the interest will be due in addition to the principal. What is the total amount due? (Use a 365 day year to calculate and round your answer to the nearest penny from three decimal points) $4,034.09 $4,114.13 $4,134.00 $4,211.34
irst calculate the amount of interest that will be paid on the note in one year. ($3,900 x .06 = $234). Next, divide the annual amount of interest by the number of days in the calendar year. This will give the daily interest charge expressed as a daily percentage. ( $234 / 365 = .641). Now multiply the daily interest rate times the number of days between June 6 and May 6, or 334 days. (334 x .641 = $214.13) Then add the interest to the principal ($3,900 + $214.13 = $4,114.13)
An investor paid $650,000 for a four-plex. Each unit rents for $950 per month. If the investor's annual expenses total $8,000, what is the rate of return he will earn on his $650,000? 5% 5.78% 5.8% 6%
irst, calculate the net operating income. This is done by first calculating the amount of annual rents received and then subtracting from the annual rent figure the annual expenses. ( $950 x 4 units x 12 months = $45,600) Subtract the annual expenses from the gross rental income to arrive at the net operating income ($45,600 - $8,000 = $37,600) Then divide the net income by the amount paid for the building to arrive at the annual rate of return. ($37,600 / $650,000 = .0578). After that, convert the decimal to a whole to a percent by moving the decimal two places to the right. (5.78%)
A chattel mortgage is a lien against real property. both real and personal property. personal property. neither real nor personal property.
personal property.
The cost approach method of appraisal would use all of the following, EXCEPT plottage. unit-in-place. square footage. quantity survey.
plottage.
As a concept of value, the highest and best use is the use that produces the most aesthetic use of a property. contributes to the best interest of the community. produces the greatest net return on the investment. produces the highest gross income.
produces the greatest net return on the investment.
A VA certificate of eligibility is proof to the veteran's lender from the VA that the veteran meets the VA loan benefit's military service requirement. evidence of the maximum loan amount an approved lender can give to veterans. confirmation to the veteran that a lender is approved to issue VA-guaranteed loans. proof of the veteran's good credit rating.
proof to the veteran's lender from the VA that the veteran meets the VA loan benefit's military service requirement.
An eligible veteran may obtain a loan from the Oregon Department of Veterans' Affairs to acquire a farm land that won't be used as a farm. purchase a personal residence. refinance an existing loan. acquire a single-family rental property.
purchase a personal residence.
A subordination clause in a mortgage or trust deed: allows readjustment and alteration of the terms as stated in the trust deed. permits the obligation to be paid off prior to the end of the anticipated term. prohibits the grantor from obtaining another loan before the original loan is paid in full. puts the loan in an inferior position in regard to other liens and encumbrances against the property
puts the loan in an inferior position in regard to other liens and encumbrances against the property.
If a person built a high-quality $1,000,000 house in a neighborhood where other homes are valued at $350,000, there would be an immediate loss of value to this million dollar house. This type of loss in value is referred to in appraisal terminology as contribution. progression. scarcity. regression.
regression
A 5,000 square foot lot sold for $128,000. What was the cost per square foot? $25.60 $28.00 $29.40 $32.00
Divide the total sale price by the square footage of the lot. The result is the amount per square foot. ($128,000 / 5,000 sq. ft. = $25.60)
When demand exceeds supply, the price of goods and services will decrease. True False When demand exc
False
A home sells for $322,600 in Primm County. Here, transfer taxes are set at $1.00 per $500 of the sale price. Title insurance runs $450, and the attorney costs $550. The agent's commission is 7%, and the mortgage balance is $210,000. Annual real estate taxes are estimated to be $4,000, half of which will have to be charged to the seller. If the seller pays all of these expenses, what will they net at closing? $81,372 $86,372 $86,873 $88,371
First calculate the transfer tax: ($322,600 / 500) = 645.2 units of $500. Round this up to 646, then multiply times $1.00 to get $646 transfer tax cost. Next figure the commission @ ($322,600 x .07), or $22,582. Next, the seller's real estate tax proration charge will be $2,000. Then, add up the expenses: ($646 transfer tax + 450 title + 550 attorney + 22,582 commission + 210,000 loan payoff + 2,000 tax proration) = $236,228. Subtracting this from the sale price = $86,372.
Lots in the South Hyde subdivision are selling for approximately $.50 / SF. The Grandersons want to build a 2,500 SF home on a 1.5 acre corner lot. The custom builder can build the home for $135 / SF. What will the completed property cost the Grandersons? $32,670 $359,170 $370,170 $374,070
The land costs $.50 x 43,560 SF/ac. x 1.5 ac, or $32,670. The home will cost $135 / SF x 2,500, or $337,500. The total property will cost $370,170.
As an economic product, real estate is distinguished by The uniqueness of every parcel. Its variety. Its homogeneity. Its ability to appreciate in value.
The uniqueness of every parcel.
A declining vacancy rate means rental prices are likely to stay the same. decline. rise.
rise
Lynne just bought a house. She paid $187,500, for it, even though it had been listed at $195,000. An adjoining property owner, Ken, had tried to buy the property for $185,000, but had been refused. He now offers Lynne $190,000 for the house. Lynne is interested, so she hires an appraiser. The appraiser returns an estimate of value of $200,000. Which of these numbers can be called the market value? $187,500. $190,000. $195,000. $200,000.
$200,000.
If a house sold for $290,000, which was 19% more than it originally cost, what was the original cost? (in whole dollars) $234,900 $243,000 $243,697 $243,967
$290,000 / 1.19 = $243,697.47).
A broker received a commission check in the amount of $31,600. The property sold for $395,000. What was the commission rate? 5% 6.5% 7% 8%
$31,600 / $395,000 = .08, or 8%
Mack is buying Roy's house for $500,000. Mack's loan amount is $325,000. He has agreed to pay 1.5 points at closing. How much will Mack pay for points? $450 $4,500 $4,875 $7,500
$325,000 x .015 = $4,875. Remember, one point = 1% of the loan amount.
Melissa is buying Raymond's house. Melissa's loan amount is $88,750. She has agreed to pay 2 points at closing. How much will Melissa pay for points? $157.50. $177.50. $1,775.00. $887.50.
$88,750 x .02 = $1,775. Remember, one point = 1% of the loan amount.
The primary tax benefit in owning a non-income property such as a residence is A deduction for mortgage interest. Depreciation of improvements. Appreciation of land. A deduction for costs of operating the property.
A deduction for mortgage interest.
Jose recently obtained a 90% loan on his $410,000 home, and he had to pay $6,150 for points. How many points did he pay? 1.4 points 1.5 points 1.67 points 2.48 points
A discount point is one percent of the loan amount. Jose's loan is ($410,000 x 90%), or $369,000. If he paid $6,150, he paid 1.67% of the loan amount ($6,150 / 369,000), or 1.67 points.
Which of the following situations illustrates the principle of contribution? A homebuyer makes a down payment of 20% instead of the 10% the lender requires. The appraised value of a house goes up by $20,000 over a two-year period because of the prices recently paid for other houses in the neighborhood. Because of a decline in mortgage interest rates, a homeowner in a certain market is able to list her house at a higher price. A homeowner adds a third bathroom to a house and thereby increases the appraised value by $10,000.
A homeowner adds a third bathroom to a house and thereby increases the appraised value by $10,000.
Which of the following activities is not allowed under the Real Estate Settlements and Procedures Act? A broker having any business relationship with an insurance company that is involved in the broker's transaction. A broker pre-qualifying a buyer for a mortgage loan. A lender paying a fee to a broker for referring a borrower to the lender. A lender requiring a deposit from a borrower for a tax and insurance escrow account.
A lender paying a fee to a broker for referring a borrower to the lender.
The principle underlying depreciation from physical deterioration is that A property loses the same increment of value each year over the economic life of the property. The value lost to depreciation is incurable. A property loses a portion of its value each year because of economic obsolescence. Eventually, a property loses all of its value.
A property loses the same increment of value each year over the economic life of the property.
In making dollar adjustments in the sales comparison approach, the appraiser Adds value to the subject property if it is inferior to a comparable. Subtracts value from a comparable that is inferior to the subject property. Adds value to a comparable that is inferior to the subject property. Subtracts value from the subject property if it is inferior to a comparable.
Adds value to a comparable that is inferior to the subject property.
AMC Bank discovers, in considering buyer Bob's application for a mortgage loan, that Bob has borrowed the down payment from an uncle and has to repay that loan. Bob should expect that AMC Bank will Adjust the applicant's debt ratio calculation and lower the loan amount. Refuse the application. Increase the loan amount to enable the borrower to pay off the loan to the relative. Require the borrower to make payments to an escrow account for repayment of the relative's loan.
Adjust the applicant's debt ratio calculation and lower the loan amount.
The difference between a balloon loan and an amortized loan is A balloon loan must be retired in five years. An amortized loan is paid off over the loan period. An amortized loan requires interest-payments. A balloon loan always has a shorter loan term
An amortized loan is paid off over the loan period.
In addition to income, credit, and employment data, a mortgage lender requires additional documentation, usually including A subordination agreement. A criminal record report. A default recourse waiver. An appraisal report.
An appraisal report.
Which BEST describes a real estate appraisal? An estimate of value based on analysis of facts as of a specific date. An estimate of value derived from cost per square foot adjusted from the day built to the day of the appraisal. An estimate of value derived from income data. An estimate of value based on replacement costs
An estimate of value based on analysis of facts as of a specific date.
If Okapi, Inc., a company that markets its sports clothing worldwide, moves into Stevensville and hires 100 employees, it is reasonable to expect that the town will experience An immediate increase in the prices for industrial and office real estate, but no impact on the residential market. An immediate rise in the demand for industrial real estate, but no other changes in the real estate market. A housing boom, but no other changes in the real estate market. An increase in demand for all types of real estate
An increase in demand for all types of real estate.
Elmo Gilmore owns a small retail property that he inherited from his father. There are no mortgages or interest expenses connected with the property. Elmo takes an annual cost recovery expense of $5,000. The property has a monthly gross income of $1,500 and monthly operating expenses of $500. Elmo's taxable income from this property will be taxed at a rate of 30%. What is the tax liability for the year? $2,100. $3,600. $3,900. $7,000.
Annual gross operating income ($1,500 x 12 = $18,000) - annual operating expenses ($500 x 12 = $6,000) = annual net operating income ( $12,000); annual net operating income ($12,000) - cost recovery expense ($5,000) = taxable income ($7,000); taxable income ($7,000) x tax rate (30%) = tax liability ($2,100).
Chad owns a small retail property that he inherited from his father. There are no mortgages or interest expenses connected with the property. Chad takes an annual cost recovery expense of $7,000. The property has a monthly gross income of $1,650 and monthly operating expenses of $600. Chad's taxable income from this property will be taxed at a rate of 30%. What is the tax liability for the year? $1,680 $2,100 $5,940 $7,000
Annual gross operating income ($1,650 x 12 = $19,800) - annual operating expenses ($600 x 12 = $7,200) = annual net operating income ( $12,600); annual net operating income ($12,600) - cost recovery expense ($7,000) = taxable income ($5,600); taxable income ($5,600) x tax rate (30%) = tax liability ($1,680).
Adelpha's home is valued at $250,000. She has insurance coverage of $160,000 with an 80% co-insurance clause. If Adelpha has a damage claim amounting to $100,000, how much will she receive from her policy? $32,000 $60,000 $80,000 $100,000
Applying the formula (percent of insurable property value carried / 80% replacement cost) x claim = recovery), divide the amount of coverage carried ($160,000) by 80% of the insurable property value ($250,000) to get the percent of the claim the company will pay (80%). Multiply this percentage by the claim amount to get $80,000, what the company will pay.
A homeowner paid $200,000 for a house three years ago. The house sells today for $239,000. How much has the property appreciated? 16.3 %. 19.5 %. 4. %. 6.5 %.
Appreciation amount is the current value of the property minus the original cost. The total appreciation rate is derived by dividing the appreciation amount by the original cost. Subtract the estimated current market value from the price originally paid (239,000 - 200,000 = 39,000) and then divide the result by the original price (39,000 / 200,000 = . 195 or 19.5%).
A homeowner paid $185,000 for a house three years ago. The house sells today for $239,000. How much has the property appreciated? 23 % 29 % 77 % 123 %
Appreciation as a per cent can be estimated by (1) subtracting the estimated current market value from the price originally paid (239,000 - 185,000 = 54,000) and (2) dividing the result by the original price (54,000 / 185,000 = . 29 or 29%).
Which statement is true about capitalization rates? As the capitalization rate increases, value of property decreases As the capitalization rate decrease, value of property decreases A changing capitalization rate has no effect on the value of a property As the capitalization rate increases, value of property increases
As the capitalization rate increases, value of property decreases
A farmer wants to net at least $5,000/acre on the sale of their 300-acre property. If they for a total of 10% in commissions and closing costs, and to allow for negotiating room, they want to get 95% of the listing price as the selling price, what should the listing price be per acre? $4,250 $5,750 $5,848 $5,882
Be careful here. Since the net price is $5,000, the taking price (TP) minus the commission must equal the net price. In other words, the net price is 90% of the taking price. Since TP x 90% = Net, TP = Net / 90%. So the taking price is $5,556 ($5,000 / .9). Apply the same logic to deriving the asking price: the taking price is 95% of the list price, therefore the list price = (taking price / 95%), or $5,848. Now work backwards to prove your answer: (5,848 x 95% margin x .90 net of commission) = $5,000
A homeowner sold her house and had net proceeds of $265,000. Her adjusted basis in the home was $231,000. She immediately bought another house for $301,000. What was her capital gain? None $34,000 $36,000 $265,000
Capital gain = amount realized (net sales proceeds, $265,000) - adjusted basis ($231,000) = ($34,000).
A property is being appraised by the cost approach. The appraiser estimates that the land is worth $40,000 and the replacement cost of the improvements is $175,000. Total depreciation from all causes is $27,000. What is the indicated value of the property? $148,000 $162,000 $188,000 $228,000
Cost Approach formula: Land + (Cost of Improvements + Capital Additions - Depreciation) = Value. Thus you have $40,000 + ($175,000 - 27,000), or $188,000.
Cash flow is a measure of how much pre-tax or after-tax cash an investment property generates. To derive cash flow it is therefore necessary to exclude Cost recovery expense. Interest expense. Net operating income. Loan principal payments.
Cost recovery expense.
The price for real estate is a function of four fundamental determinants of value. These four determinants are: Demand, utility, scarcity, and transferability. Popularity, recognizability, promotion, and rebate. Fungibility, costs, convenience, and uniqueness. Durability, feasibility, mobility, and location.
Demand, utility, scarcity, and transferability.
The method for deriving an investor's return on investment, or ROI, is by Dividing net income by the price paid for the property. Dividing net operating income by cash flow. Multiplying cash flow times the price paid for the property. Multiplying the required yield times after-tax cash flow.
Dividing net income by the price paid for the property.
In the income capitalization approach, an appraiser Estimates effective income, subtracts tax, and applies a capitalization rate. Estimates net income and applies a capitalization rate to it. Estimates gross income and multiplies times the gross income multiplier. Estimates potential income and applies a capitalization rate to it.
Estimates net income and applies a capitalization rate to it.
If commercial real estate rental prices are falling in a market, it is likely that demand has outstripped supply of space. employment is increasing. the market is over-supplied. the market is in equilibrium.
Falling prices indicate an oversupply of commercial properties in relation to demand. In this case, construction of new supply will also slow down.
The definition of market value includes that the buyer and seller must agree on the appraised value of the property being purchased. True. False.
False.
Which of the following is NOT an institutional lender? Fannie Mae A mutual savings bank A commercial bank A mortgage banking firm
Fannie Mae
A house 32 feet wide by 63 feet long has walls 9 inches thick. What is the square footage of the floor area inside the house? (round to the nearest whole number) 1,870 sq. ft. 1,876 sq. ft. 1,898 sq. ft. 2,016 sq. ft.
First calculate the amount of square footage of the walls. Since each side of the structure has a 9" wall, the total amount of wall must be subtracted from the perimeter of the structure. Therefore, the 9" wall must be doubled for each side and must be converted to feet. ( 9" + 9" = 18" or 1.5 feet) For the perimeter dimension of 32 feet, 1.5 feet will be subtracted ( 32' - 1.5' = 30.5 feet). For the perimeter dimension of 63 feet, 1.5 will be subtracted. (63' - 1.5' = 61.5 feet) This will give the net perimeter dimensions. The net perimeter dimensions will then be multiplied to calculate the interior square footage. (30.5' x 61.5' = 1,875.75 sq. ft., or 1,876 rounded up)
How many square yards of carpeting would be needed for a room measuring 24 feet by 30 feet? 120 sq. yd. 240 sq. yd. 60 sq. yd. 80 sq. yd.
First calculate the square footage of the room. (24 ft. x 30 ft. = 720 sq. ft) Then divide the amount of total square feet by the amount of square feet in a square yard. (a square yard contains 9 square feet because 3 feet times 3 feet equals 9 square feet). (720 sq. ft. / 9 = 80 sq. yd.)
Broker Martin sold a home for $350,000, which was listed with another real estate firm for a 6% brokerage commission. The commission split between the listing firm and the selling firm was 50%-50%. The commission split between Broker Martin and his brokerage is 75% to Martin and 25% to the brokerage. How much will Martin receive? $2,625 $7,875 $10,500 $21,000
First calculate the total commission to be paid. ($350,000 x .06 = $21,000) Next, calculate the amount of commission to be paid to Broker Martin's brokerage, which is one half of the total. ($21,000 x .5 = $10,500) Then calculate the amount of commission that Broker Martin will receive. ($10,500 x .75 = $7,875)
A property has sold for $127,000. The listing agreement calls for a commission of 7%. The listing broker and selling broker agree to share the commission equally. What will the listing agent receive if the agent is scheduled to get a 40% share from his broker? $1,778 $2,667 $3,556 $4,445
First calculate the total commission, then the co-brokerage splits, then the agent-broker split. Thus: $127,000 x 7% = $8,890 total commission. ($8,890 x 50%) = $4,445 total listing broker share. ($4,445 x 40% = $1,778 agent's share.)
What is the loan amount if the interest rate is 7.5% per year and the monthly interest payment is $1,250? $150,000 $175,000 $200,000 $225,000
First convert the amount of monthly interest to an annual interest amount ($1,250 × 12 = $15,000) Then divide that amount by the interest rate expressed as a decimal ($15,000 ÷ .075 = $200,000)
The owner of a duplex has a scheduled gross income of $3,000 per month. The vacancy rate is 5% and expenses average $19,300 per year. If a buyer purchases the property for $241,500, and the income and expenses stay the same, what will the buyer's rate of return be? 5% 5.5% 6% 6.5%
First determine the net income of the duplex on an annual basis. To do this first calculate the amount of the gross annual rents. ($3,000 x 12 = $36,000) Since the vacancy rate is 5%, subtract 5% vacancy from the gross rents. This can be accomplished in one of two ways. First method: Multiply the gross rents times the vacancy rate and subtract this number from the annual gross rents to arrive at the gross rents less vacancy number. ( $36,000 x .05 = $1,800) ( $36,000 - $1,800 = $34,200) Second method: The remaining balance of gross rents after subtracting the vacancy rate would be 95% of gross rents. Therefore multiply the gross rent figure times 95% to arrive at the gross rents less vacancy rate figure. ( $36,000 x .95 = $34,200) Next determine the net operating income. To do this take the gross rent figure less the vacancy factor and subtract from this number the annual expenses of $19,300. ($34,200 - $19,300 = $14,900) Divide the net income by the purchase price of the duplex to determine the rate of return. ($14,900 / $241,500 = .06)
Maria plans to mulch the flower area around her house. The house measures 40' x 30', and she figures she'll mulch an area 8' in width to form a big rectangle all around the perimeter. What is the square footage of the resulting mulched area? 1,376 sq. ft. 1,824 sq. ft. 2,576 sq. ft. 64 sq. ft.
First figure the area to be mulched. If the home is 40 x 30, the flower area adds 8' to each side of the house. Thus the outside perimeter of the flowered area is (40+8+8) by (30+8+8), or 46' by 56'. The area of the flowered area is (46' x 56') minus the house area of 1,200 SF. This is 1,376 SF.
Lee had to report his home office depreciation for the tax year. He has a 2,500 SF home and a 500 SF office area. Lee paid $280,000 for his home, and he figures the land portion carries about 25% of that value. If Lee depreciates on a 39-year basis, how much can he write off for his home office depreciation per year? $1,077 $1,436 $2,108 $5,384
First, Lee's depreciable basis, without the land, is $280,000 x 75%, or $210,000. The annual depreciation for the entire home is ($210,000 / 39 years), or $5,384.61. Second, his office is 20% of the house (500 sf / 2,500 sf). Therefore Lee can take annual depreciation of ($5,384.61 x 20%), or $1,076.92.
A homeowner's residence has an assessed valuation of $140,000, and a market value of $170,000. The homestead exemption is $25,000. Tax rates for the property are 7 mills for schools; 3 mills for the city; 2 mills for the county; and 1 mill for the local community college. What is the homeowner's tax bill? $1,150 $1,495 $1,820 $2,210
First, always use the assessed valuation, not the market value. Subtract out the homestead exemption to derive taxable value, or $140,000 - 25,000 = $115,000. As a shortcut to calculating the tax bill, simply add up all the mills, multiply them times .001 to convert mills to decimals, then multiply this number times the taxable value. Thus (7 + 3 + 2 + 1) x .001 x $115,000 = $1,495.
A property owner wants to build a cyclone fence around their property. The lot is rectangular, 110 feet by 270 feet. The fence is 7 feet high. Cyclone fencing costs $.85 per square foot and the labor to install it is $1.70 per linear foot. How much will the fence cost? $4,667 $5,814 $7,497 $8,979
First, determine how much fencing the property owner will need to surround their property. Add the sides together to reach the total length. (110' + 110' + 270' + 270' = 760 feet). The fence is going to be 7 feet high, so multiply the length by the height of the fence. (760 ft. × 7 ft. high = 5,320 sq. ft.) The cost for fence materials is 85 cents per square foot. (5,320 sq. ft. × $.85 = $4,522) The labor to install the fence is in linear feet (i.e., the length of the property), so multiply the length by the cost of installation. (760 feet × $1.70 = $1,292) Then add the cost of materials and cost of labor to get the total cost of the fence. ($4,522 + $1,292 = $5,814)
A property is being appraised using the income capitalization approach. Annually, it has an estimated gross income of $60,000, vacancy and credit losses of $3,000, and operating expenses of $20,000. Using a capitalization rate of ten percent, what is the indicated value (to the nearest $1,000)? $370,000. $400,000. $570,000. $600,000.
First, identify net income by subtracting out vacancy and expenses. Then divide by the capitalization rate. Thus, ($60,000 -3,000 - 20,000) ÷ 10% = $370,000.
Home buyer Janet pays $1,600 / month for the interest-only loan on her new house. The loan's interest rate is 6.75%. If she obtained a 75% loan, what was the purchase price? $31,604 $256,000 $313,333 $379,259
First, the annual interest paid is $1,600 x 12, or $19,200. The interest rate is 6.75%. Using the formula (Loan = Interest / Rate), the loan amount is $19,200 / 6.75%, or $284,444. As this is 75% of the price, the price is ($284,444 / .75), or $379,259.
A homeowner wants to insulate the new recreation room in her basement. She has been told that 3" of insulation would do the job. The walls are all 9' high and respectively measure 13', 13', 18', and 18' in length. How many rolls will she need if each roll measures 3" x 2' x 50'?
First, the requirement = 2(13'x 9') +2 (18'x 9') =558 SF. Each roll is 2'x 50', or 100 SF. Thus she will need 6 rolls.
A lender offers an investor a maximum 70% LTV loan on the appraised value of a property. If the investor pays $230,000 for the property, and this is 15% more than the appraised value, how much will the investor have to pay as a down payment? $69,000 $79,350 $90,000 $93,150
First, the sale price is 115% of the appraised value, so the appraised value is $230,000 / 115%, or $200,000. The lender will lend $140,000 (70% of appraised value), so the investor will have to come up with $90,000 ($230,000 - 140,000).
An office building lacks fiber optic cabling to accommodate the latest communications equipment. This is an example of Economic obsolescence. Incurable depreciation. Physical deterioration. Functional obsolescence.
Functional obsolescence.
Cost recovery is allowed as a federal tax deduction on Principal residences that do not have a home office. Commercial properties owned by the federal government. Land. Income properties.
Income properties.
A home is located in a neighborhood where homeowners on the block have failed to maintain their properties. This is an example of Physical deterioration. Incurable economic obsolescence. Curable external obsolescence. Functional obsolescence.
Incurable economic obsolescence.
What happens when reserve requirements are raised for banks? The economy heats up. Interest rates go down. Interest rates go up. More money is made available for lending.
Interest rates go up.
Highest and best use of a property is that use which Conforms to other properties in the area. Entails the largest building that zoning ordinances will allow developers to erect. Is legal, feasible, and deemed the most appropriate by zoning authorities. Is physically and financially feasible, legal, and the most productive.
Is physically and financially feasible, legal, and the most productive.
A distinctive feature of a promissory note is that It is a negotiable instrument. It is not assignable. It may not be prepaid. It must be accompanied by a mortgage
It is a negotiable instrument.
What is the function of a note in a mortgage or trust deed financing arrangement? It is evidence of ownership of the mortgage or trust deed. It contains the borrower's promise to maintain the value of the property given as collateral for a loan. It is evidence of the borrower's debt to the lender. It is the lender's security instrument in the collateral property.
It is evidence of the borrower's debt to the lender.
Why is real estate traditionally considered a relatively illiquid economic product? It is often difficult to convert to cash. It cannot be moved. Its physical form is fixed. Real estate is defined as land, not water.
It is often difficult to convert to cash.
What is the role of Fannie Mae in the secondary mortgage market? It originates FHA-backed and VA-backed loans. It insures FHA-backed and VA-backed loans. It guarantees FHA-backed and VA-backed loans. It purchases FHA-backed and VA-backed loans.
It purchases FHA-backed and VA-backed loans.
A moratorium on new construction is an example of The natural result of demand exceeding supply in a local market. A government policy that aims to restrain a trend of rising prices in the local real estate market. Government promotion of the free market concept in the local real estate market. Local government influencing the real estate market, regardless of demand.
Local government influencing the real estate market, regardless of demand.
Which of the following statements properly describes the central concept of the sales comparison approach? Find at least three comparable properties that are currently for sale and make dollar adjustments to the listing prices to account for competitive differences with the subject. Find the median price of recently sold comparable properties and add or subtract dollar amounts in the subject property to account for competitive differences. Apply an appreciation factor to the price at which the subject property most recently sold and make dollar adjustments to account for competitive differences with comparable properties currently for sale. Make dollar adjustments to the sale prices of comparable properties to account for competitive differences with the subject.
Make dollar adjustments to the sale prices of comparable properties to account for competitive differences with the subject.
What is the difference between market value and market price, if any? Market value is an average price derived from comparable sales; market price is a price based on the cost of creating the property. Market value is a broker's estimate; market price is a precise number derived by a licensed appraiser. There is no difference. Market value is an estimate; market price is the price at which a property sold.
Market value is an estimate; market price is the price at which a property sold.
One weakness of the cost approach for appraising market value is that New properties have inestimable costs and rates of depreciation. Comparables used may not have similar quality of construction. Market value is not always the same as what the property cost. Builders may not pay market value for materials or labor.
Market value is not always the same as what the property cost.
When the terms of the mortgage loan are satisfied, the mortgagee May inspect the property before returning legal title. May be required to execute a release of mortgage document. May retain any overage in the escrow account. May be entitled to charge the borrower a small fee to close the loan.
May be required to execute a release of mortgage document.
A loan applicant has an annual gross income of $72,000. How much will a lender allow the applicant to pay for monthly housing expense to qualify for a loan if the lender uses an income ratio of 28%? $840. $1,068. $1,680. $2,160.
Monthly income qualification is derived by multiplying monthly income by the income ratio. Thus (72,000 / 12) x .28 = $1680. Remember to first derive the monthly income.
Loan applicant Taylor has an annual gross income of $76,000. How much will a lender allow Taylor to pay for monthly housing expense to qualify for a loan if the lender uses an income ratio of 30%? $1,215 $1,900 $2,160 $4,433
Monthly income qualification is derived by multiplying monthly income by the income ratio. Thus (76,000 / 12) x .30 = $1,900. Remember to first derive the monthly income.
Which of the following is an important function of the secondary mortgage market? Participants sell mortgage-backed securities in order to buy pools of loans. Participants borrow funds from banks so the banks can make more loans. Participants purchase pools of defaulted loans from lenders to keep them solvent. Participants issue tax certificates and sell them to primary lenders.
Participants sell mortgage-backed securities in order to buy pools of loans.
Net operating income is equal to Effective gross income minus potential income. Potential income minus expenses minus debt service. Potential gross income minus vacancy and credit loss minus expenses. Effective gross income minus vacancy and credit loss.
Potential gross income minus vacancy and credit loss minus expenses.
The city of Stevensville has declared a moratorium on new construction. If demand is increasing, what will be the likely effect on real estate prices in the area? Prices fall. Prices level off. Prices rise. Prices continue to follow the trend that preceded the moratorium.
Prices rise.
In a rapidly growing town with few buildable lots, what it is likely to happen to the price of existing homes? Prices will decline, since no further building can take place. Prices will stabilize, since the population must stabilize. Prices will stay the same. Prices will increase
Prices will increase.
For a loan that is not backed by the Federal Housing Administration or Veterans Administration, and for which the borrower is making a down payment of less than 20%, the lender is likely to require the borrower to obtain A letter of credit. A co-signer on the note. Private mortgage insurance. A subrogation agreement
Private mortgage insurance.
The cost of constructing a functional equivalent of a subject property is known as Restitution cost. Reconstruction cost. Replacement cost. Reproduction cost.
Replacement cost.
The best comparable property for use in the sales comparison approach is the one that Requires the fewest and smallest adjustments. Requires the most and largest adjustments. Is located closest to the subject property. Sold most recently at the highest price
Requires the fewest and smallest adjustments.
What kind of real estate users are most concerned with neighborhood quality, access to services, property amenities, and quality of life in their demand for real estate? Industrial Office Retail Residential
Residential
An investor just purchased a rectangular 2-acre retail lot for $250 a frontage foot. If she paid $100,000 total, what was the depth of the lot? 218' 250 400' 871'
Since the investor paid $100,000 total, and that equals $250 per frontage foot, there are 400 frontage feet (100,000 / 250). If the property is two acres, it total 87,120 SF. Dividing this by 400 produces a lot depth of 217.8'.
Which of the following would be eligible for a tax deferred exchange? Short-term leasehold interests Foreign real property Single-family rental property An individual partnership interest
Single-family rental property invesmtment or productive use
When selecting comparables, an appraiser would consider a similar home with equal amenities that was listed for sale by a real estate broker, but not yet sold. sold last week at a mortgage foreclosure auction. listed with the MLS, but expired two weeks ago. sold under typical market conditions six months ago. An appraiser would con
sold under typical market conditions six months ago.
If there is a significant undersupply of homes in a market, construction will tend to increase. This is an example of consumer optimism. supply outstripping demand. the market tending toward equilibrium. demand outstripping value.
the market tending toward equilibrium.
. Market value is the cost of a lot and the capitalized value of the improvements. the cost of a lot plus cost of building. the price a willing seller will accept and a willing purchaser will pay. determined by an appraiser.
the price a willing seller will accept and a willing purchaser will pay.
Tina is buying Terrell's house for $187,500. The broker's commission, to be paid by the seller, is 6%. How much will Terrell pay the broker? $2,625.00. $4,725. $11,250. $31,250.
$187,500 x 6% = $187,500 x .06 = $11,250.
A house is being appraised using the sales comparison approach. The house has three bedrooms, two bathrooms, and a patio. The appraiser selects a comparable house that has three bedrooms, 3 bathrooms, and no patio. The comparable house just sold for $200,000. A bath is valued at $7,000, and a patio at $2,000. Assuming all else is equal, what is the adjusted value of the comparable? $195,000. $202,000. $205,000. $207,000.
$195,000.
A building with a 40-year useful life depreciates at what percentage per year? 1.5% 2% 2.5% 3%
100% of value divided by the useful life equals the percentage loss in value each year. This is the depreciation rate. ( 100% / 40 years = 2.5%)
A seller wants to sell her existing house and owes $290,000 on mortgage. At closing of the sale she will pay $1,400 in closing costs, plus a 6% brokerage fee. She wants to realize at least $55,000 for a down payment for the purchase price of a new house. What is the minimum amount she must sell her house for to net $55,000? $352,420 $355,490 $364,280 $368,510
290,000 + $1,400 + $55,000 = $346,400)./.94
A homeowner bought a house five years ago for $250,000. Since then, the homeowner has spent $2,000 to build a screened porch and has added a central air-conditioning system at a cost of $5,000. What is the homeowner's adjusted basis if the house is sold today? $244,000 $245,000 $256,000 $257,000
Adjusted basis = beginning basis ($250,000) + capital improvements ($2,000 + $5,000) - depreciation (0) = adjusted basis ($257,000).
What is a lien-theory state? A state that allows a real estate owner's creditors to record liens against the owner's property. A state in which a lien is considered as a conveyance. A state in which a mortgagee holds legal title to a secured property. A state in which a mortgagee has equitable title to a secured property
A state in which a mortgagee has equitable title to a secured property.
If a property owner has the right to redeem his or her property after a tax sale, the owner has A right of homestead exclusion. A statutory right of redemption. A legal right of rescission. An equitable right to acquire title
A statutory right of redemption.
Which property type cannot be financed by a VA loan? 5-unit apartment building Single-family home Condominium Mobile or manufactured home
5-unit apartment building However, it can be used to purchase a multi-family property up to four units if the veteran will occupy one of the units as their primary residence.
A licensee sells 5/6 of an acre for $28,000, and receives a 6% commission. If she splits with her broker 50-50, what did she receive per square foot? $.023 / SF $.002 / SF $.037/ SF $.046 / SF
5/6ths of an acre = (5 x 43,560 SF) / 6, or 36,300 SF. Her commission was (.06 x $28,000) x .50, or $840. $840 / 36,300 SF = $.023 / SF.
How many square feet are in a triangle that is 50 feet wide and 30 feet in height? 1,500 sq. ft. 2,200 sq. ft. 750 sq. ft. 80 sq. ft.
750 sq. ft.
Why is a wraparound mortgage loan potentially interesting to a home seller as an investment? It is a senior loan that can be easily subordinated for additional debt. The second mortgage borrower may make payments directly to the first mortgage lender. A wraparound lender can profit when the interest rate of the wraparound exceeds that of the underlying mortgage. The underlying loan is retired early.
A wraparound lender can profit when the interest rate of the wraparound exceeds that of the underlying mortgage.
The "holder in due course" is one who has accepted a note: which appears to be regular. before it was past due and without notice of previous dishonor. in good faith and for valuable consideration. A, B, and C A and C only A only A and B only
A, B, and C
Fannie Mae purchases: government guaranteed mortgage loans. government insured mortgage loans. conventional mortgage loans, both insured and uninsured. A and B only A only C only A, B, and C
ABC
Which of the following statements properly describes the central methodology of the cost approach to appraisal? Add the estimated land value and cost of improvements and subtract the accrued depreciation of the improvements. Estimate the cost of building the improvements on the subject property. Estimate the land value and add to this the actual cost of the improvements adjusted for competitive differences with similar properties. Apply a depreciation factor to the reported actual cost of acquiring and improving the subject property.
Add the estimated land value and cost of improvements and subtract the accrued depreciation of the improvements.
Regulation Z applies to which loans? All loans. All loans secured by a residence. All loans secured by real estate. All loans over $25,000.
All loans secured by a residence.
Bill Parsons paid $150,000 for a house to operate as a rental property, figuring that he could rent it out at a rate of $900 a month. In paying a price based on the property's ability to generate a desired future income, Parsons was motivated by the economic principle known as Anticipation. Utility. Supply and demand. Substitution.
Anticipation is the value principle that a buyer will pay a price based on the benefits the buyer expects to derive from a property over a holding period. For example, if an investor anticipates an annual rental income from a leased property to be one million dollars, this expected sum has a direct bearing on what the investor will pay for the property.
The income capitalization approach to appraising value is most applicable for which of the following property types? Apartment buildings. Undeveloped land. Churches. Single family homes.
Apartment buildings.
Under the Equal Credit Opportunity Act, a lender, or a real estate agent who assists a seller in qualifying a potential buyer, may not Ask the buyer/borrower to explain unconventional sources of income. Ask the buyer/borrower about his/her religion or national origin. Use a credit report that has not been provided to the borrower. Tell a rejected loan applicant the reasons for the rejection.
Ask the buyer/borrower about his/her religion or national origin.
When a property owner combines two adjacent properties to create a single property with a higher value than the sum of the values of the two separate properties, the applicable principle of value is called Progression. Assemblage. Subdivision. Accretion
Assemblage
The difference between what a borrower has to pay to purchase a property and the amount a lender will lend on the property is the Mortgage insurance coverage amount. Lender's profit margin. Buyer's down payment. Origination fee.
Buyer's down payment.
Which of the following are methods used by the Federal Reserve System to regulate the money supply? Buying securities, changing the discount rate, and controlling banking reserves. Printing money, changing interest rates, and selling T-bills. Controlling the prime rate, trading securities, and purchasing loans. Selling securities, printing money, and controlling lending underwriting requirements.
Buying securities, changing the discount rate, and controlling banking reserves.
Nate borrowed $62,000 at 9.4% interest per year. If he owed a total of $910.90 interest when he repaid the loan, how many days did he keep the money for? (use a 365 day calendar year to calculate) 57 days 55 days 54 days 52 days
Calculate the annual interest by multiplying the amount of the loan by the annual interest. ($62,000 x .094 = $5,828). Next, divide the total annual interest by the number of days in a year to determine the daily dollar interest charge. ($5,828 / 365 = 15.967%) Then determine the number of days he paid interest by dividing the actual amount of interest paid by the daily interest figure. ($910.90 / 15.967% = 57 days)
In deriving taxable income on an investment property, it is generally legal to Deduct interest payments from income. Deduct principal and interest payments from income and capital gain. Deduct principal payments from income. Deduct principal and interest payments from income
Deduct interest payments from income.
The first step in the appraisal process, regardless of the appraisal method, is to Estimate the value of the land as if it were vacant. Collect and analyze property data. Define the appraisal problem and the purpose of the appraisal. Identify the highest and best use of the property to be appraised.
Define the appraisal problem and the purpose of the appraisal.
If the price of an item is increasing, one can usually assume that Demand for the item is decreasing in relation to supply of the item. Demand for the item and supply of the item are increasing. Demand for the item is increasing in relation to supply of the item. Supply of the item is increasing.
Demand for the item is increasing in relation to supply of the item.
In appraisal, loss of value in a property from any cause is referred to as Deflation. Obsolescence. Deterioration. Depreciation.
Depreciation.
Which of the following statements properly describes how to apply the income capitalization approach to appraisal? Estimate the rate of return a property owner receives from income generated by the property. Apply a rate of return to the price paid for an income property. Divide the income a property generates by a rate of return. Estimate the amount of income a property must generate to return the capital amount invested in it.
Divide the income a property generates by a rate of return.
$250,000 is 109% of what number? $229,357.79 $229,358.32 $233,000.00 $272,234.09
Divide the known number of $250,000 by 1.09. To do this, the 109% must first be converted to a decimal. ($250,000 / 1.09 = $229,357.79). Back To Test OverviewNext Page Allow timer to run out before moving to the next page.
Jeff buys a house on a rectangular lot that measures 150 feet along the street. The lot has a total of 12,000 square feet. How deep is the lot? 60 ft. 80 ft. 90 ft. 100 ft.
Divide the known side of the rectangle (150 feet) into the total areas of the rectangle (12,000' / 150' = 80')
What is the difference between a property's fair market value and the loans against the property? Exchanger Adjusted basis Capital gain Equity
Equity is the difference between the fair market value (FMV) and the existing loan(s) against the relinquished property.
In the cost approach, after estimating the value of the land and the cost of the improvements, the appraiser Estimates depreciation, subtracts depreciation from cost, and adds back the land value. Estimates obsolescence and subtracts from the cost of land and improvements. Estimates depreciation of land and improvements and subtracts the total from original cost. Subtracts deterioration from cost, estimates land depreciation, and totals the two values.
Estimates depreciation, subtracts depreciation from cost, and adds back the land value.
Kevin, who works for selling broker Paul, sells a house listed by listing broker Adams. The house sells for $325,000. The co-brokerage split between Paul and Adams is 50-50. Kevin is on a 65% commission schedule with Paul. If the total commission rate is 6.5%, what is Kevin's commission? $5,282 $6,866 $10,563 $13,731
Figure the total commission, then the co-brokerage splits, then the broker-agent splits. Thus, ($325,000 x 6.5%) = $21,125. ($21,125 x 50%) = $10,563. ($10,563 x .65) = $6,866.
Broker Bob receives 55% of all commissions he generates. He just sold a property listing for $250,000 at 6% brokerage commission. How much will Broker Bob earn in commission for this sale? $4,125 $6,375 $8,250 $15,000
First calculate the amount of the total commission. ($250,000 x .06 = $15,000). Next, determine Bob's commission ($15,000 x .55 = $8,250).
The roof of a property cost $16,000. The economic life of the roof is 20 years. Assuming the straight-line method of depreciation, what is the depreciated value of the roof after 3 years? $12,000 $13,600 $16,000 $18,400
First derive the annual depreciation which is the cost divided by the economic life. Then multiply annual depreciation times the number of years to identify total depreciation. Remember to subtract depreciation from the original cost if the question asks for the ending value. Thus, ($16,000 / 20 years x 3 years) = $2,400 total depreciation. The ending value is $16,000 -2,400, or $13,600.
The roof of a property cost $20,000. The economic life of the roof is 20 years. Assuming the straight-line method of depreciation, what is the depreciated value of the roof after 3 years? $3,000. $14,000. $17,000. $20,000.
First derive the annual depreciation, which is the cost divided by the economic life. Then multiply annual depreciation times the number of years to identify total depreciation. Remember to subtract depreciation from the original cost if the question asks for the ending value. Thus, ($20,000 ÷ 20 years x 3 years) = $3,000 total depreciation. The ending value is $20,000 - 3,000, or $17,000.
A home appreciated 2 2/3% one year, then 5 1/5% the next year, then 7 1/4% the third year. What was the average appreciation over the 3-year period expressed as a decimal? 4.8% 5.04% 7.56% 15.24%
First, convert to decimals: 2 2/3 % = 2.67%; 5 1/5% = 5.20%; 7 1/4% = 7.25%. Thus total appreciation = (2.67% + 5.20% + 7.25%), or 15.12%. Divide by 3 to derive the average: 15.12% / 3 = 5.04%
A sale transaction on rental property closes on December 16. The landlord received the December rent of $1,380 on December 1. Assuming the closing day is the buyer's, and that the 365-day method is used for prorating, which of the following entries would appear on the settlement statement? Credit seller $1,380.00. Debit seller $667.74. Credit buyer $712.26. Debit buyer $712.26.
For the monthly proration using the 365-day method, solve first for the daily rent amount: ($1,380 / 31), or $44.52. Since the landlord received the rent and owes the buyer portions of the rent, the buyer will be credited. The owed amount is for the 16th through the 31st, or 16 days, since the closing day belongs to the buyer. Therefore, credit the buyer and debit the seller ($44.52 x 16),or $712.26.
The formula for determining taxable income produced by an income property is Gross income minus building depreciation plus land depreciation. Gross income minus expenses minus land and building depreciation. Gross income minus expenses plus land and building depreciation. Gross income minus expenses minus building depreciation.
Gross income minus expenses minus building depreciation.
A homeowner borrows money from a lender and gives the lender a mortgage on the property as collateral for the loan. The homeowner retains title to the property. This is an example of Subordination. Forfeiture. Intermediation. Hypothecation
Hypothecation.
One of the strengths of the cost approach is that it Takes into account the amount of money required to develop a similar property. Reveals the owner's return on money invested in the cost of development. Results in an actual price in dollars instead of an estimated value. Is very accurate for a property with new improvements that represent the highest and best use.
Is very accurate for a property with new improvements that represent the highest and best use.
Alexis is buying Jack's house. The closing date (day belongs to seller) of the sale transaction is September 1 (day 244 of the year). Her loan has a monthly payment of $577.84, with $525 going to interest in the first month. At closing, Alexis must pre-pay interest for the period of Sept. 2-Sept. 30. Use the 365-day method for prorating. What is her prepaid interest amount?
If the buyer pays $525 interest for 30 days, the daily expense is ($525 / 30), or $17.50. If there are 29 days of pre-paid expense, the buyer's charge is ($17.50 x 29), or $507.50.
As a component of real estate value, the principle of substitution states that If too many properties are built in a market, the prices will tend to go down. If one of two adjacent homes is more valuable, the price of the other home will tend to rise. People will readily move to another home if it is of equal value. If two similar properties are for sale, a buyer will purchase the cheaper of the two.
If two similar properties are for sale, a buyer will purchase the cheaper of the two.
The Keegans obtain a fixed-rate amortized 30-year loan for $280,000 @ 6.25% interest. If the monthly payments are $1,724, how much interest do the Keegans pay in the second month of the loan? $1,456.95 $1,458.33 $1724.00 $1,748.33
In the first month they pay interest of ($280,000 x 6.25%) / 12, or $1,458. If their fixed payment is $1,724, they paid down the principal by $266 ($1,724 - 1,458). Now they must pay 6.25% interest on the new principal balance of $279,734. This equals (279,734 x .0625) / 12, or $1,456.95.
Of the following potential influences on a local real estate market, which one would be considered local, rather than regional, national, or global? Changes in money supply Trade imbalances with foreign trading partners Federal Reserve interest rates In- and out-migrations of major employers
In- and out-migrations of major employers
Which of the following items would affect a homeowner's adjusted basis? Installing a higher capacity air conditioning and purifying system. Replacing a washing machine. Stripping and staining hardwood floors. Replacing a broken picture window
Installing a higher capacity air conditioning and purifying system.
Which statement is FALSE? Low interest rates generate a demand for properties that might not otherwise have been considered for purchase. Low interest rates make loans more readily available to real estate consumers. Interest rates do NOT have a measurable affect on the economy. During times of low interest rates the market experiences a high demand for entry-level housing
Interest rates do NOT have a measurable affect on the economy.
How does the secondary mortgage market aid borrowers seeking a mortgage loan? It cycles funds back to primary lenders so they can make more loans. It lends funds to banks so they can make more loans. It pays off defaulted loans made by primary mortgage lenders. It issues second mortgages and sells them in the home equity market.
It cycles funds back to primary lenders so they can make more loans.
What is the role of the Veteran's Administration in the mortgage lending market? It guarantees loans made by approved lenders. It purchases loans made by approved lenders. It originates loans made by approved lenders. It insures loans made by approved lenders.
It guarantees loans made by approved lenders.
What is the role of the Federal Housing Authority in the mortgage lending market? It originates loans made by approved lenders. It guarantees loans made by approved lenders. It purchases loans made by approved lenders. It insures loans made by approved lenders
It insures loans made by approved lenders.
One distinguishing feature of real estate as an economic product is Its easy convertibility to cash. Its susceptibility to swings in the local economy. The easy substitutability of one item for another. Its quick response to changes in supply-demand balance.
Its susceptibility to swings in the local economy.
The assumability of an FHA-insured loan is Limited by when the loan was originated. Unrestricted. Prohibited on all existing loans under current regulations. Limited to owner-occupied properties.
Limited by when the loan was originated.
This type of value is described is as the price a willing seller will accept and a willing purchaser will pay; it is an estimate of the price at which a property will sell at a particular time; this type of value is the one generally sought in appraisals and used in brokers' estimates of value. What is reproduction value? What is income value? What is replacement value? What is market value?
MV
An investment property seller pays $14,000 in closing costs. These costs May be deducted from personal income. May be deducted from the sale price for gains tax purposes. May be deducted from the property's income. May be deducted from the adjusted basis for gains tax purposes.
May be deducted from the sale price for gains tax purposes.
An owner of a duplex earns a 12% return on his investment of $273,000. What is his annual net income? $23,630 $32,760 $36,270 $37,260
Multiply the amount of the annual return (12%) times the amount of the original investment. This number will represent the annual net income received on the investment. ( $273,000 x .12 = $32,760)
A rental house has monthly gross income of $1,200. A suitable gross income multiplier derived from market data is 14.1. What estimated sale price (to the nearest $1,000) is indicated? $102,000. $169,000. $173,000. $203,000.
Multiply the monthly gross income times 12 to derive annual income. Multiply annual income times the gross income multiplier to derive the estimate of price. Thus, $1,200 times 12 equals $14,400. This times 14.1 equals $203,040, or $203,000 rounded.
If a borrower obtains an interest-only loan of $200,000 at an annual interest rate of 6%, what is the monthly interest payment? $500. $600. $1,000. $1,200.
Multiply the rate times the loan amount and divide by 12 to calculate monthly interest. Thus, ($200,000 x 6%) ÷ 12 = $1,000.
A conventional mortgage loan is one that is Not FHA-insured or VA-guaranteed. Backed by the Federal National Mortgage Association. Insured under Section 203(b) of the Federal Housing Administration loan program. Guaranteed by the Government National Mortgage Association.
Not FHA-insured or VA-guaranteed.
Which of the following is true of an amortizing loan? Except for any points that may be paid, the interest on the loan balance is usually paid in advance. The amount of annual interest paid is the same for every year of the loan term. The interest rate is reduced each year to maintain equal payments even though the outstanding loan balance is smaller. Part of each periodic payment is applied to repayment of the loan balance in advance and part is applied to payment of interest in arrears.
Part of each periodic payment is applied to repayment of the loan balance in advance and part is applied to payment of interest in arrears.
Which of the following is true of a loan with negative amortization? Additional interest is being added to the monthly payment. Payments are not sufficient to retire the loan. The interest rate on the loan increases as the principal balance decreases. The loan balance is diminishing, or going negative
Payments are not sufficient to retire the loan.
The Equal Credit Opportunity Act prohibits a lender from Requiring both spouses to sign the loan application form. Including income from self-employment in the borrower's qualifying income. Refusing a loan because a borrower has a defective credit report. Refusing a loan because the borrower does not match the lender's target market.
Refusing a loan because the borrower does not match the lender's target market.
A property is being appraised using the income capitalization approach. Annually, it has potential gross income of $30,000, vacancy and credit losses of $1,500, and operating expenses of $10,000. Using a capitalization rate of 9%, what is the indicated value (to the nearest $1,000)? $167,000 $180,000 $206,000 $222,000
Remember the formula V = I / R where V is value, I is annual income, and R is the cap rate. Variations of this are: R = I / V in solving for the cap rate, and I = V x R in solving for income. Here, first identify net income by subtracting out vacancy and expenses. Then divide by the capitalization rate. Thus, ($30,000 - 1,500 - 10,000) / 9% = $205,555, or $206,000 rounded.
In the market data approach, an appraiser Gathers relevant price data, applies the data to the subject, and estimates the value. Chooses nearby comparables, adjusts the subject for differences, and estimates the value. Identifies the price previously paid, applies an appreciation rate, and estimates the value. Selects comparable properties, adjusts the comparables, and estimates the value.
Selects comparable properties, adjusts the comparables, and estimates the value. The steps are to first identify comparable sales; then compare comparables to the subject and make adjustments to comparables; then, finally, weigh values indicated by adjusted comparables for the final value estimate of the subject.
A house is being appraised using the sales comparison approach. The house has three bedrooms, two bathrooms, and a patio. The appraiser selects a comparable house that has three bedrooms, 2.5 bathrooms, and no patio. The comparable house just sold for $100,000. A half-bath is valued at $5,000, and a patio at $1,000. Assuming all else is equal, what is the adjusted value of the comparable? $96,000 $100,000 $104,000 $106,000
Since the comparable has an extra half-bath, it is adjusted downward to equalize with the subject. Conversely, since it has no patio, the appraiser adds value to the comparable. Thus, $100,000 minus $5,000 plus $1,000 equals $96,000.
Three of the four methods below are used to calculate the replacement cost of a building. Which method below is NOT used to calculate the replacement cost of a buliding? Unit-in-place. Straight-line. Quantity survey. Square foo
Straight-line.
When the market for an item has achieved market equilibrium, which of the following statements is true? Supply and demand are equal, and price and value are equal. Unmet demand for the item is directed toward demand for some other item. Demand will slowly taper off, driving the price down. New suppliers will enter the market and drive the price down.
Supply and demand are equal, and price and value are equal.
Which laws or regulations require mortgage lenders to provide an estimate of closing costs to a borrower and forbid them to pay kickbacks for referrals? Federal Fair Housing Laws. The Equal Credit Opportunity Act. The Real Estate Settlement and Procedures Act. Truth-in-Lending laws.
The Real Estate Settlement and Procedures Act.
What is effective age? The age of a structure taking into account its current condition. The actual age. The remaining useful life. The remaining economic life.
The age of a structure taking into account its current condition.
Debra bought a home for $120,000, paying $24,000 down and taking a mortgage loan of $96,000. The following year she had a new roof put on, at a cost of $5,000. What is Debra's adjusted basis in the house if she now sells the house for $150,000?
The basic formula for adjusted basis is: Beginning Basis + Capital Improvements - Exclusions and Credits = Adjusted Basis. Debra's adjusted basis is therefore $120.000 + $5,000 = $125,000. The financing terms and subsequent selling price are not relevant.
A homeowner bought a house five years ago for $150,000. Since then, the homeowner has spent $3,000 to pave the driveway and has added a central heating/airconditioning system at a cost of $4,000. What is the homeowner's adjusted basis if the house is sold today? $144,000. $145,000. $156,000. $157,000.
The beginning basis is the cost of acquiring a property. Basis is increased by capital improvements and decreased by depreciation. The basic formula for adjusted basis is Beginning basis ($150,000) + capital improvements ($3,000 + $4,000) - depreciation ($0) = adjusted basis ($157,000).
The key feature of an adjustable mortgage loan is that The loan term can be shortened or lengthened. The monthly payment increases over the life of the loan. The principal balance does not amortize. The interest rate may vary.
The interest rate may vary.
Amy obtains a 75% LTV loan on her new $200,000 home with an annual interest rate of 6%. What is the first month's interest payment? $250 $750 $900 $1,000
The loan amount is $200,000 x .75, or $150,000. The first month interest equals ($150,000 x 6%) / 12 months, or $750.
In a graduated payment mortgage loan, The interest rate periodically increases in graduated phases. The loan payments gradually increase and the loan term gradually decreases. Loan funds are disbursed to the borrower on a graduated basis. The loan payments gradually increase.
The loan payments gradually increase.
Jake does not use any part of his principal residence as a home office. Which of the following is true of the tax treatment of this property? The owner may depreciate the property and deduct depreciation expenses from ordinary income. The owner can deduct any capital gain when the property is sold. The owner may be able to avoid capital gain tax when the property is sold. The owner may deduct the property's interest and principal from ordinary income.
The owner may be able to avoid capital gain tax when the property is sold.
In an exchange, which of the following describes the replacement property? The property the taxpayer trades for the relinquished property. The property the taxpayer finally buys when they are finished exchanging properties. Any property traded in an exchange that is not "boot." The property the taxpayer is trading for the new property.
The property the taxpayer trades for the relinquished property.
In the sales comparison approach, an adjustment is warranted if One property has a hip roof and the other has a gabled roof. The buyer obtains conventional financing for the property. The seller offers below-market seller financing. A comparable is located in another, albeit similar neighborhood.
The seller offers below-market seller financing.
A certified appraiser is one who has received certification by The Appraisal Review Board. The Appraisal Institute. A licensed real estate school. The state in which the appraiser operates.The state in which the appraiser operates.
The state in which the appraiser operates.
A certified appraiser is one who has received certification by The state in which the appraiser operates. A licensed real estate school. The Appraisal Institute. The Appraisal Review Board. A state-certified appraiser is one who has passed the necessary examinations and competency standards as established by each state in conformance with the federal standards.
The state in which the appraiser operates.
A developer wants to develop a 16-acre subdivision. He figures that the streets and common area will take up about 30% of this overall area. If the minimum lot size is to be 12,000 SF, how many lots can the developer have on this property? 40 42 57 487
The total area available for lots is 11.2 acres (16 acres x 70% for houses), or 487,872 SF (11.2 x 43,560). Dividing this area by 12,000 SF / lot = 40.66. Thus he can have a 40-lot subdivision.
Jennifer advised her clients they needed to paint their living room before showing the property. The walls of these rooms were all 8' high. The wall lengths were 14', 18', 16', and 18'. If a gallon of paint covers 200 SF, how many whole gallons would the homesellers have to buy? 1 2 3 6
The total area of the living room is (8' x 14' + 8' x 18' + 8' x 16' + 8' x 18') = 528 SF. They will therefore need 528 / 200 SF, or 3 whole gallons.
What is "vacancy" in real estate market economics? A property that has no owner-occupant The total existing space of a certain type that is unoccupied at a given time The total number of properties of a certain type that are on the market at a given time The absence of certain types of users in a given market area
The total existing space of a certain type that is unoccupied at a given time
After five years of owner-occupancy, Simon Wilson sells his principal residence for a gain of $150,000, and the next month buys another principal residence that costs more than the adjusted sale price of the old home. Which of the following is true of the treatment of the tax on gain? It must be paid in the year of the sale. Tax is due on the difference between the cost of the new home and adjusted basis of the old one. There is no taxable gain. The homeowner may choose to pay it or defer it.
There is no taxable gain.
An investor paid $80,000 for a lot and $600,000 to have an apartment building constructed on it. He has depreciated the property for the past 10 years on a 39-year straight-line schedule. If he sells the property this year and realizes $780,000, what is his capital gain?
Total depreciation on this property = ($600,000 / 39 years) x 10 years, or $153,846. His adjusted basis is therefore ($680,000 original price - 153,846 depreciation taken), or $526,154. The gain is then ($780,000 - 526,154), or $253,846.
The reason lenders consider the loan-to-value ratio important in underwriting is that They want to ensure there is more than enough collateral to cover the loan amount. They don't want to lend borrowers any more money than necessary. Borrowers can only afford to borrow a portion of the entire purchase price. The higher the loan-to-value ratio, the more profitable the loan.
They want to ensure there is more than enough collateral to cover the loan amount.
Homeowner Savannah owns the Southeastern ¼ of the Southwestern ¼ of the Northwestern ¼ of Section 4. How many acres is that property? 40 acres 10 acres 4 acres 8 acres
This key to this question is to recall that a section has 640 acres. Theresa's property only is a ¼ of a ¼ of a ¼ of the entire section. Multiply 4 x 4 x 4 which equals 64. Savannah owns 1/64 of the section. Divide 640 by 64 and you get the answer of 10 acres.
A lender lends money to a homeowner and takes legal title to the property as collateral during the payoff period. They are in a Lien-theory state. State where hypothecation is illegal. Title-theory state. State allowing land trusts.
Title-theory state.
Seller Frank receives an offer of $290,000 on a property he listed at $308,000. How much is the offer as a percent of the listing price? 87% 91% 94% 106%
To find the percent of listing price the offer is, divide the offer by the listing price. In this question the offer is $290,000 and the listing price is $308,000.
When homebuyer Henry pledges his newly purchased home as collateral for a mortgage loan, the evidence of the pledge is the Loan receipt. Loan commitment. Trust deed or mortgage. Promissory note.
Trust deed or mortgage.
here is a lot of new construction going on in the town of Florence. Which of the following would most likely be the immediate effect on the real estate market? Absorption and vacancy decrease. Vacancy rises and prices fall. Supply decreases relative to demand. Demand increases and prices rise.
Vacancy rises and prices fall.
In the final step of an appraisal, the appraiser reconciles the value estimates derived by the various appraisal approaches by Disregarding the high and low extreme results. Averaging the results of all three approaches. Weighing the applicability of the approaches and considering the quality of data supporting each approach. Choosing the result that is closest to the average for properties in the immediate neighborhood.
Weighing the applicability of the approaches and considering the quality of data supporting each approach.
A construction boom in a market is an indication that prices have been declining. have been in equilibrium. have exceeded supply. have been increasing
have been increasing.
Construction financing is usually designed as high interest, short term loans. low interest, short term loans. high interest, long term loans. low interest, long term loans.
high interest, short term loans.
When compared to FHA loans, conventional loans generally demand a lower down payment. lower loan-to-value ratio. lower rates of interest. longer maturity term.
lower loan-to-value ratio.
An appraiser would be least concerned with market data. reproduction cost. original cost of material. exchange value
original cost of material.
A loan secured by a trust deed is in default and the trustee has scheduled the sale of the property. After the trustee's sale, the borrower will have 2 years within which to pay the deficiency judgment if the property does not sell for an amount to satisfy the debt the right to possess the property for ten more days 180 days to redeem his property one year in which to redeem his property
the right to possess the property for ten more days
Calculate how many acres are in the Southeastern ¼ of the Western ½ of the Eastern ½ of Section 9. 40 acres 20 acres 60 acres 5 acres
vFirst, remember that a section contains 640 acres. The area in question is a forth of a half of a half of the total section. So divide 640 by (4 x 2 x 2). 4 x 2 x 2 is 16 and 640/16= 40 acres.
The statutory right of redemption for a post-1985 Oregon real estate mortgage is terminated: 120 days following the foreclosure sale. upon entry of the judicial foreclosure decree of the court. 180 days following the foreclosure sale. 60 days following the foreclosure sale.
180 days following the foreclosure sale.
According to the principle of progression, a two-bedroom, one-story ranch house is MOST likely to bring the highest sales price if it is located in which type of neighborhood? A neighborhood in which most homes are smaller A neighborhood in which most homes are the same A neighborhood in which there are a lot of other houses for sale A neighborhood in which most homes are larger
A neighborhood in which most homes are larger
RESPA prohibits all of the following, EXCEPT: Underestimating the loan origination fee of the Loan Estimate by any amount. A real estate agent is allowed to identify and recommend service providers to a client. A real estate agent can receive a referral fee from an escrow company for referring a transaction. A seller requiring a buyer to use a specific title insurance company.
A real estate agent is allowed to identify and recommend service providers to a client.
The Equal Credit Opportunity Act prohibits lenders from discriminating on the basis of sex. refusing to grant credit on the basis of the applicant's marital status. inquiring into the applicant's childbearing plans. A and B only A, B, and C B and C only A only
A, B, and C
The trustee in an Oregon trust deed receives: full legal title to the real property described in the deed. the power to sell in the event the grantor (borrower) defaults. B only Both A and B A only Neither A nor B
B
Under Oregon law, which of the following are true? An owner occupied residential trust deed may be subject to a deficiency judgment if foreclosed by judicial procedure. When a trust deed is foreclosed by judicial foreclosure, it provides for a statutory redemption period. If the property is not owner occupied and a trust deed is foreclosed by judicial procedure, a deficiency judgment may be obtained. A and C only B and C only A only B only
B and C only
A borrower gave a lender a mortgage, pledging the property as security for a loan. The borrower: conveyed equitable title to the lender. voluntarily gave the lender a lien on the property. B only A only Both A and B Neither A nor B
B only
The purpose of the Federal National Mortgage Association (FNMA) is to: provide an easy vehicle for channeling capital into housing. increase the liquidity of primary lenders' loan portfolios. A only B only Both A and B Neither A nor B
BOTH
The Oregon Department of Veterans Affairs Loan Program: provides residential mortgage loans at below market interest rates to qualifying war veterans. receives funds for making mortgage loans to veterans through bond issues. Both A and B A only B only Neither A nor B
Both A and B
A discharged serviceperson who wants to get a VA loan must first get a Separation from the Defense Department. Certificate of Eligibility from the Department of Veterans Affairs. Certificate of Reasonable Value from the Federal Housing Administration. Certificate of Eligibility from the Oregon Department of Veterans' Affairs.
Certificate of Eligibility from the Department of Veterans Affairs.
What is the name of the organization which provides security for agricultural loans? Fanny Mae Freddie Mac Ginnie Mae Farmer Mac
FARMER MAC
Consumer spending is negatively affected by a decrease in the reserve ratio requirements of the Federal Reserve's member banks. True False
False
After the trustee's sale is held and the property has been sold to the highest bidder, the grantor has: 90 days equity of redemption. no recourse. 120 days equity of redemption. one year to redeem the property.
Five days before the trustee's sale, the borrower has no further rights or recourse, and there is no right of redemption period to wait out.
Which approach to value is concerned with the current value of future potential benefits of owning a property? Market data approach Cost approach Reconciliation Income approach
Income approach
In a lien theory state, who holds title to real property when a mortgage is given? The lending institution who gave the loan. Mortgagor Mortgagee Secondary market lender
Mortgagor
Which of the following statements regarding mortgage brokers is true? After the loan is closed, a mortgage broker usually collects the regular monthly payments for the lender. Mortgage brokers generally make loans with their own funds, then seek to sell these receivables to the highest bidder in the secondary market.
NEITHER
If demand for real estate in an area remains or increases with very few listings being added to the market which of the following will happen? Prices will rise when the supply increases Prices will rise when supply decreases due to steady or increased demand Prices will rise when supply and demand remain the same Prices will fall when supply decreases
Prices will rise when supply decreases due to steady or increased demand
You have an offer accepted for your buyer and now it's time for them to make their loan application. Your buyer is using conventional financing and has a loan-to-value ratio greater than 80%. Because the LTV is greater than 80%, your buyer will have the additional expense of Purchaser's Mortgage Insurance (PMI). Performance Matching Indemnification (PMI). Performance Mortgage Insurance (PMI) Private Mortgage Insurance (PMI).
Private Mortgage Insurance (PMI).
"RESPA" is the acronym for Real Estate Settlement Procedures Act. Real Estate Services Provisions Act. Real Estate Special Protection Account. Real Estate Sales Production Accounting.
Real Estate Settlement Procedures Act.
Which statement about real property is TRUE? Real property is tangible, homogeneous, and always has a fee-tail. Real property is non-homogeneous, it is distinguishable from any other piece of property, and it is tangible. Real property is non-tangible, non-homogenous, and non-distinguishable for any other property. Real property is tangible, and is non-homogeneous, and each piece is not unique.
Real property is non-homogeneous, it is distinguishable from any other piece of property, and it is tangible.
The Equal Credit Opportunity Act prohibits discrimination in any credit transaction on the basis of which of the following? Sex, marital status, and sexual orientation. Sex, marital status, and age. Sex and marital status. Sex, marital status, sexual orientation, and age.
Sex, marital status, and age.
As major players in the secondary market, the Federal National Mortgage Association (FNMA, "Fannie Mae"), Government National Mortgage Association (GNMA, "Ginnie Mae), and Federal Home Loan Mortgage Corporation (FHLMC, "Freddie Mac") tend to set the standards for the primary market. FHA, VA, and the Federal Reserve are not organizations in the secondary mortgage market. This statement is only partially false. Everything in this statement is true. Everything in this statement is false.
TRUE
When calculating the APR for a Closing Disclosure under Regulation Z, which of the following items would NOT be included? Discount points Service charges paid by the buyer. Tax prorations paid by the buyer. Loan fees paid by the borrower.
Tax prorations paid by the buyer.
GDP measures the total spending by consumers, total investment by business, total spending by the government, and net exports True False
True
The broker needs to understand local and national economic indicators to assist clients on real estate-related decisions. True False
True
Which of the following is NOT a negotiable instrument? Trust deed Draft Check Promissory note
Trust deed
Which is likely to have the greatest effect on your real estate business? The national economy. The GDP. Your local economy. The world economy.
Your local economy.
RESPA applies to which one of the following loan transactions? A loan to finance the purchase of a property intended for resale. A loan to finance the purchase or transfer of a vacant lot. A construction loan converted to a permanent loan to finance the first sale of the property. A loan to finance the purchase of 27 acres for growing corn.
a construction loan converted to a permanent loan to finance the first sale of the property
If you recommend to your client to apply for a loan that isn't insured or guaranteed by a governmental agency, you could also call this type of loan an FHA loan. a warranty loan. a VA loan. a conventional loan.
a conventional loan.
. The secondary mortgage market refers to a market where conforming primary loans are bought and sold. the market that offers non-conforming conventional financing. a type of second chance market for borrowers with a poor credit rating. a market for borrowers to secure second or junior loans.
a market where conforming primary loans are bought and sold.
A mortgage is best defined as: a general lien. a special lien. a document conveying a possessory interest. an involuntary lien.
a special lien. A secured lien, sometimes called a special lien, is one that is filed against a specific piece of property as the security for the payment of a debt. A conventional mortgage lien is an example of a secured lien, where the property is the only asset attached by the lien.
A court order directing the sheriff to sell property is called: a writ of execution. a notice of lis pendens. a deficiency judgment for sale. an attachment.
a writ of execution.
An Oregon State Department of Veterans' Affairs loan entitlement can be reinstated if: the veteran/borrower moves voluntarily to take advantage of new employment. a divorce decree requires the veteran to relinquish the property to a spouse. the property is destroyed. A, B, and C A only A and C only A and B only
abc
RESPA does NOT apply to residential single-family house purchase. residential lender-approved loan assumptions. an 8-plex purchase loan. residential refinance loans.
an 8-plex purchase loan.
A note is being signed by co-borrowers. To afford maximum protection to the lender, the note should state that the borrowers are obligated: severally. both jointly and severally. jointly. neither jointly nor severally.
both jointly and severally.
Interest paid on original principal and on the accrued and unpaid interest that has accumulated is called: compound interest. interest rate. annuity interest. simple interest.
compound interest.
Replacement cost is best described as the cost of building a property of equivalent utility with the same or similar materials. cost of purchasing an equally desirable property constructed of the same or similar materials. original cost of the property, adjusted for inflation. cost of building an exact replica of the subject property.
cost of building a property of equivalent utility with the same or similar materials.
Depreciation is calculated based on the cost of the structure only. cost of the structure and cost of the land. tax assessed valuation. value of the land only.
cost of the structure only.
To protect their investment in making a long-term amortized loan with a high loan-to-value ratio, lenders tend to emphasize both the value of the collateral as a marketable asset and the marital status of the borrower. credit of the buyer. selling price of the property. borrower's potential for converting assets to cash
credit of the buyer.
Peyton was making regular loan payment then suddenly stopped and defaulted on the mortgage. The mortgage contains an acceleration clause. An acceleration clause allows Peyton's lender to accelerate the foreclosure process. demand immediate payment of only the past due payments. demand immediate payment of the entire note.
demand immediate payment of the entire note.
The Truth in Lending Act seeks to: disclose the effective interest charged and express it as an annual percentage rate. establish limits on conventional loan amounts that may be borrowed without PMI. limit the number of discount points charged by lenders. limit the interest rate charged on mortgages
disclose the effective interest charged and express it as an annual percentage rate.
The most common procedure for foreclosing a trust deed is called: foreclosure by trustee sale. foreclosure by entry and possession. foreclosure by judicial proceeding. strict foreclosure.
foreclosure by trustee sale. If the borrower does not pay off the loan as agreed, the trustee will be instructed by the beneficiary to sell the property. Most lenders foreclose a loan secured by a trust deed by a foreclosure by trustee sale.
Most purchasers of homes borrow the necessary funds and pledge the property as security for the debt while they retain possession of the property. This is known as: leverage. devise. hypothecation. conveyance.
hypothecation
The economy tends to heat up when interest rates are raised. the Federal Reserve raises the overnight lending rate to preferred members. the government stops spending money. interest rates are lowered.
interest rates are lowered.
Craig bought a parcel of real property and obtained a 75% first loan. Lee, the seller, took back a mortgage for a portion of the remainder of the purchase price. This additional encumbrance is called a: package money mortgage. wraparound mortgage. junior mortgage. chattel mortgage.
junior mortgage.
When the Department of Veterans Affairs guarantees a loan, the guarantee is for the assets of the Federal National Mortgage Association. lending institution. borrower. veteran borrower.
lending institution.
To a buyer, the greatest advantage of an FHA loan is: assurance of an FHA appraisal to make sure the price is fair. low down payment. assurance that property conforms to minimum property requirements. below market interest rates.
low down payment.
Unless otherwise negotiated between the buyer and seller, when a mortgage loan is insured by FHA, the fee for the appraisal of the property is normally paid by the __________ . mortgagee. trustee. seller. mortgagor.
mortgagor
A mortgage banker does not finance construction loans. does not lend their own funds. is the largest lender of nongovernment loan transactions. originates a large number of loan transactions and then sells them at a discount to large investors in the secondary market.
originates a large number of loan transactions and then sells them at a discount to large investors in the secondary market.
A provision that prohibits a borrower from paying a loan in full for a prescribed period of time without incurring additional charges is known as the: acceleration clause. prepayment penalty clause. non-alienation clause. lock-out clause.
prepayment penalty clause.
The addition to total property value produced by an additional property component is considered to have resulted from the principle of anticipation. principle of substitution. principle of contribution. highest and best use.
principle of contribution.
The saying "No prudent person would pay more for a product than that for which they could buy a reasonable duplication, allowing for no undue delay" is known as the principle of conformity. principle of substitution. principle of balance. principle of competition.
principle of substitution.
A mortgage or trust deed is always accompanied by a: promissory note. title policy. conditional sales contract. deed.
promissory note.
The lien created by a trust deed is released by the recording of a: acknowledgement of satisfaction. satisfaction deed. reconveyance deed. reversion trust.
reconveyance deed. If the borrower pays the loan in full, as agreed, the beneficiary will direct the trustee to issue and sign a deed of reconveyance, also known as a reconveyance deed.
The Real Estate Settlement Procedures Act: applies to all mortgage loans. requires lenders to account for referral fees received by firms issuing mortgage insurance. is administered by the Federal National Mortgage Association. requires the use of a standard settlement statement called a Closing Disclosure
requires the use of a standard settlement statement called a Closing Disclosure.
The Truth in Lending Act applies to commercial and residential real estate loan transactions. residential loans whether made to corporations or individuals. personal property and real property loan transactions. residential real estate loans made to natural persons.
residential real estate loans made to natural persons.
From the lender's point of view, the most important consideration commonly evaluated when granting a mortgage loan is the condition of the property. risk of default. neighborhood where the mortgaged property is located. availability of mortgage money.
risk of default.
A defeasance clause in a mortgage: stipulates that the borrower will be able to regain clear title after the mortgage is paid in full. requires that the balance be paid in full upon default of the loan. requires that the borrower maintain the collateral and not commit waste. indicates that the borrower has the authority to pledge the collateral.
stipulates that the borrower will be able to regain clear title after the mortgage is paid in full.
An agreement to waive some rights in favor of another is called: hypothecation. an escrow. redemption. subordination.
subordination
In reconciling the data in the sales comparison approach, the appraiser generally gives the greatest consideration to no specific factor because all factors are given equal weight. the comparable properties closest in age to the subject property. the closed sales that have occurred most recently within the same market area the comparable properties for sale in the same subdivision
the closed sales that have occurred most recently within the same market area
In the case of a reverse mortgage, all of the following statements are true, EXCEPT: the homeowner must be at least 62 years of age. the homeowner does not need any equity in their home to obtain a reverse mortgage. if the homeowner dies or if the property is sold, the loan must be repaid. as long as the borrower lives in the home, no repayment is due.
the homeowner does not need any equity in their home to obtain a reverse mortgage.
Compliance with most of RESPA's rules and regulations is the responsibility of the the escrow company closing the transaction. the seller, if no real estate broker is involved in the transaction. the lender. real estate broker involved in the transaction.
the lender.
Regulation Z requires lenders to inform borrowers about the minimum and maximum interest rates throughout the life of their loan. usury rates. their finance charges. mortgage instruments that can be used for financing residential properties.
their finance charges.
The purpose of Regulation Z is to enable the consumer to compare the cost of a cash-versus-credit transaction, as well as the differences in the cost of credit offered by different lenders or loan programs. All of the following are addressed by Regulation Z EXCEPT: advertising. usury. the buyer's right of rescission. cost of credit.
usury.
When a note is endorsed to NOT guarantee payment, it is endorsed without recourse. in blank. with protest. with recourse.
without recourse.
. For a loan amount of $400,000, one discount point would be equal to $4,000 one percent of the downpayment. one percent of the sales price. $400
$400,000 X .01 = $4,000. A "point" is one-percent of the amount. For example: 1 point = 1%, 2 points = 2%, 1/2 point = .5%
In exercising the power of sale in a trust deed, at least ________ days must elapse after recording the notice of default before the trustee may hold a sale. 90 120 180 240
120
Mortgage brokers represent loan products from: one source, such as a specific commercial bank. more than one source, such as multiple commercial banks, mortgage bankers, and savings and loan associations. A only Both A and B B only Neither A nor B
B
When does the buyer take title when property is financed under a land sale contract? When the land sale contract is paid in full. When 50% of the mortgage has been paid. On whatever date is stated in the agreement for purchase and sale. On closing.
When the land sale contract is paid in full.
The type of mortgage that covers more than one parcel of real property is called: a wraparound mortgage. an all-inclusive mortgage. a package mortgage. a blanket mortgage
a blanket mortgage.
In a construction mortgage, the funds are normally disbursed to the builder in daily installments that minimize interest payments on the outstanding balance of the loan. two equal sums, one at the outset of construction and the other at completion of the project. a series of installments after each inspection of progress on the job. a lump sum upon acquisition of title to the land.
a series of installments after each inspection of progress on the job.
To be negotiable, a note does NOT need to contain an acceleration clause. the signature of the maker. a demand clause or provision making it due on a certain date. a promise to pay a sum certain.
an acceleration clause.
The Federal Home Loan Mortgage Corporation (Freddie Mac) was created to: Provide funds for elderly housing needs. Expand the secondary market for mortgages. A only B only Both A and B Neither A nor B
b
Loan payments on a note secured by a trust deed are made to the __________ . trustor beneficiary mortgagee trustee
beneficiary
Assume the trend in architectural design is toward more contemporary styled homes. Because of this trend, a conservatively designed traditional home will tend to stay the same. increase in value. stay the same and then appreciate. decrease in value.
decrease in value.
Current market value - Current loan balance(s) = appraised value. FHA minimum down reserve requirement. downpayment. equity.
equity
To hypothecate is to: devise property. pledge something as security for a debt convert a fee simple into equitable title. deliver a judicial opinion.
pledge something as security for a debt
RESPA requires a secondary market for mortgage loans. real estate syndicates to obey "blue sky" laws. all real estate advertisements to include the annual percentage rate, including all charges. that the mortgagor receives an estimate of the closing costs before the time of closing.
that the mortgagor receives an estimate of the closing costs before the time of closing.
In researching records at the county clerk's office, a first mortgage and a second mortgage on the same piece of property can usually be distinguished by: when the instruments were recorded. the words "first" or "second" preceding the phrase "this indenture." the date of the instrument. the notations made in the recording records by the county recorder.
when the instruments were recorded.