Principles 2 practice test
Ashley just bought a house. To purchase the house, she got a loan for $400,000 with three discount points. How much did she pay for the discount points?
$12,000
what are two ways that a homeowner's taxes can increase:
1. property tax rate increases 2. property's assessed value increases
Cheryl is comparing two properties and she wants to know the acreage of each property. One property is 695' x 834'. The other property is 928' x 294'. What are the properties' respective acreages?
13.3 acres and 6.26 acres
A developer plans to build an apartment building on a lot. The lot is 525,000 square feet. City regulations dictate that there can be density no greater than 20 occupants per acre. Approximately how many occupants can this lot house?
241
How many hours of appraisal education is required to become a general certified real estate appraiser?
300 hours
Lulu lives in Aceable County, which has assessed her house to be worth around $250,000. Aceable County's property tax rate is 2%. How much will Lulu owe in taxes by the end of the year?
5000
Home many hours of appraisal education is required to become an appraiser trainee?
75 hours
property report
A disclosure document required under the federal Interstate Land Sales Full Disclosure Act.
Graduated lease
A lease where the rent will increase periodically in amounts specified in the lease, as contained in the escalation clause.
Economic obsolescence
A loss in value due to factors away from the subject property but adversely affecting the value of the subject property
Functional obsolescense
A loss of value due to adverse factors from within the structure which affect the utility of the structure, value and marketability
Alienation clause
A provision in a mortgage requiring full payment of the debt upon the transfer of title to the property, due on sale. Prevents loan assumptions.
Broker Price Opinion (BPO)
An opinion of real estate value commissioned by a bank or an attorney and provided by a broker; not an appraisal.
Ben has recently purchased a policy for title insurance. Two weeks after making his purchase, it is revealed that there were unknown liens attached to the title. What is TRUE of this situation?
Any problems that arise after policy purchase are not covered.
In a real estate transaction, the lender usually selects which of the following parties:
Appraiser
What does the DUST acronym stand for, and what does it relate to?
Demand, utility, scarcity, transferability.. Recalls the characteristics that make real estate valuable
In an improper fraction, the _________ is smaller than the numerator?
Denominator
Commercial Banks
Designed to be safe depositories and lenders for a multitude of commercial banking activities, relying mainly on demand deposits (checking accounts) for their basic supply of funds
After the needed data has been obtained and verified, what is the next step in the appraisal process
Determine the highest and best use
What is the first step an appraiser takes when valuing a property using the cost approach?
Determine the value of the land as if it were vacant
This type of REIT typically owns and operates income-producing real estate, making their profits from rent and capital gains on the sale of properties:
Equity REIT. Most REITs are equity REITs. Equity REITs typically own and operate income-producing real estate. They make their profits from rents and capital gains on the sale of properties.
Income approach
Generally applied to income producing property, and involves a three-step process 1) find net annual income 2) set an appropriate capitalization rate or "present worth" factor 3) Capitalize the income dividing the net income by the capitalization rate
Grayson is worried that, because she is an elderly person, she will not get pre-approval on her loan. Analyze Grayson's worry.
He/she shouldn't worry, as only his/her financial status should be considered
What act requires that applicable contracts have a 7 day "cooling-off" period for buyers during which buyers can cancel their contract for any reason and get their money back?
Interstate land sales full disclosure act
Karissa is buying a gulf front property and deposits the necessary funds to complete the sale into escrow. The seller's title has not yet been declared acceptable, and Karissa is nervous she could lose her money. Evaluate Karissa's fear.
Karissa doesn't need to worry, as her funds will not be paid to the seller until the sellers title is deemed acceptable. There are advantages of closing a sale in escrow: the buyer's money won't be paid to the seller until the seller's title is acceptable; the seller is assured of getting the purchase price because the buyer's check must clear before title passes; neither party needs be present when title is passed.
What is the second step in the appraisal process?
List the data needed
How much experience is needed to become a real estate appraiser trainee?
None
Reconciliation
Part in the appraisal process where a single value is derived
Which would NOT be accounted for as an operating expense?
Pet Rent
A lender will most likely provide a higher LTV for which of the following property types?
Primary Residence
A property report is required when?
Prior to a buyer signing a sales contract with a developer of 25 or more lots.
REIT
Real Estate Investment Trust
RESPA
Real Estate Settlement Procedures Act - requires special information booklet, requires good faith estimate, requires uniform settlement statement
Ricky, a borrower, has a mortgage loan that has just been bought by a new investor. Ricky panics, as his loan conditions are bound to change with the new owner. Evaluate if Ricky's fear is accurate, and why/why not.
Ricky shouldn't worry; even though the loan is being sold by the lender, Ricky will most likely not be affected at all. The secondary mortgage market is the place where mortgages are bought and sold, and even though the mortgage loan is sold by the lender, the borrower will most likely not be affected at all..
The primary function of a ________ is to promote thrift and home ownership?
S&L (Savings and Loan Association)
3 appraisal approaches
Sales comparison approach (market data approach) cost approach income approach
SAFE Act
Secure and Fair Enforcement for Mortgage Licensing Act. mandates a nationwide licensing and registration system for residential mortgage loan originators (MLOs).
What is the first step in the appraisal process?
State the problem
Closing Disclosure
The CFPB form that itemizes all charges that are normally paid by a borrower and a seller in connection with settlement, whether required by the lender or another party, or paid by the lender or any other person
Insured Value
The cost of replacing a structure completely destroyed by an insured hazard
Replacement cost
The cost to replace a structure with one having utility equivalent to that being appraised, but constructed with modern materials and according to current standards, design and layout
Gross Rent Multiplier (GRM)
The figure used as a multiplier of the gross monthly income of a property to produce an estimate of the property's value.
Market Value
The highest price in terms of money which a property will bring in competitive and open market and under all conditions required for a fair sale, i.e., the buyer and seller acting prudently, knowledgeably and neither affected by undue pressures
Market price
The price paid regardless of pressures, motives or intelligence.
A new $350,000 home is being built in a neighborhood of mostly $200,000 homes. Although the home has many updates and is in better condition than the surrounding houses, its value is significantly less than the price. Which principle of appraisal can explain this?
The principle of regression states that a subject property situated in the midst of lower-value homes will experience a downward pull on its own value.
Effective Gross Income (EGI)
The total annual income the rental property produces after subtracting vacancy losses and adding miscellaneous income.
The Fannie Mae form 1003 is also known as the?
Uniform Residential Loan Application
A typical residential appraisal report is issues on a _________________?
Uniform residential appraisal report
What is a fee simple determinable estate?
When a parcel of real estate is conveyed and the deed specifically states that the land is granted so long as it is used for certain purposes (for example, as a schoolhouse or a church), the estate conveyed is a fee simple determinable.
Darla and Tim are moving out of their beach house, but want to turn it into a timeshare property. Darla has spent hours studying real estate and legal books, and has decided she feels comfortable acting as the sales agent. Is Darla's role in the sale lawful?
Yes, according to TREC rules, an owner may act as a salesperson for timeshare sales
Linda is four months into a 12 month lease when she is the victim of a sexual assault. Linda decides she needs time after the assault and packs up to go stay with her parents. If Linda leaves now, will she still be liable for the rest of her lease?
Yes, unless she provides her landlord with documentation of the assault, as outlined in Sec. 92.0161 of the Property Code.
principle of contribution
a component part of a property is valued in proportion to its contribution to the value of the whole. holds that maximum values are achieved when the improvements on a site produce the highest (net) return, commensurate with the investment
Julio considers leasing an apartment unit from Bruno, the landlord of an apartment complex. Bruno really wants Julio to sign so the complex doesn't have vacancies. To convince Julio, Bruno offers to lower Julio's rent $75 per month for the first six months of Julio's lease. Bruno is offering Julio:
a concession. Concessions are made when, to the benefit of the tenant, a property owner agrees to less than their original terms in order to influence that prospect to become a tenant.
What does constructive notice presume?
a diligent individual can search the public record to gain a sufficient understanding of the property, including those with present and past interests in that property.
What is a periodic estate?
a fixed lease period in which the lease is automatically renewed at the end of each lease period until the landlord or tenant acts to terminate it
What is a special purpose vehicle (SPV)?
a limited corporate entity created with a specific objective. A Real Estate Mortgage Investment Conduit (REMIC) is one type of special purpose vehicle that real estate investors can take advantage of.
Assessed value
a valuation placed upon a piece of property by a public authority as a basis for levying taxes on the property
principle of substitution
affirms that the maximum value of a property tends to be set by the cost of acquiring an equally desirable and value substitute property, assuming no costly delay is encountered in making the substitution
principle of anticipation
affirms that value is created by anticipated benefits to be derived in the future
A 20-acre property is about to be sold. Before it can be sold, however, the loan connected to the property has to be paid in full. What is the name of the provision in the mortgage that would require this full payment?
alienation clause. An alienation clause or due-on-sale clause is a provision in the mortgage contract that triggers the payment (in full) of a loan upon the sale or conveyance of a property.
concession
are made when, to the benefit of the tenant, a property owner agrees to less than their original terms in order to influence that prospect to become a tenant.
When must the Closing Disclosure be presented to a borrower?
at least 3 days prior to closing
incurable depreciation _____ be fixed at an economically feasible cost
cannot
Which of the following are considered advantages of nonconforming conventional loans?
conventional loans usually take less time to process and there is usually no legal limit on the amount
On the Closing Disclosure, prorated interest paid before closing on an existing assumed mortgage is a:
credit to the buyer and debit to the seller
When using sales data to compare to the subject property, appraisers should use sales that are?
current comparable close
Before closing, a seller would need to do what with pertinent documents needed to clear or convey a title, such as the deed to convey title, payoff letters from any lenders, the abstract of title, the evidence of title, etc.?
deposit documents with the escrow agent. Buyer and seller deposit all pertinent documents with the escrow agent before the specified date of closing.
If a landlord wishes to charge a tenant a late fee, the landlord MUST do all of the following EXCEPT:
give the tenant 30 days to pay the late fee
Tax incentives that cover the cost of energy efficient improvements, EEMs, and Energy Star-qualified homes are examples of:
green initiatives
Which of the following has a long lease term and is often used in the development of commercial property?
ground lease
principle of change
holds that it is the future, not the past, which is of prime importance in estimating value. Change is largely the result of cause and effect
principle of competition
holds that profits tend to breed competition and excess profits tend to breed ruinous completion
principle of conformity
holds that the maximum value is realized when a reasonable degree of homogeneity of improvements is present
What serves to protect lenders from unknown existing defects on a title?
lenders title policy. Typically, this policy is part of the lender's loan package (paid for by the buyer) and covers the balance of the mortgage. A lender's title policy assures a lender that it has a valid first lien (or in some cases second lien) against the property.
Which is NOT a reasonable deed restriction?
listing religions of purchasers who would be acceptable
Which type of loan is exempt from RESPA?
loans on vacant land
The most common objective of an appraisal is to develop an opinion of?
market value
Cost approach
method of estimating the value of a property by determining the current cost of reconstructing the property with improvements, minus the cost of depreciation, plus the value of the land itself.
RESOURCES Close Practice Tests Study Guide x x PROFILE Close Edit profile Switch course Log out Terms & conditions Refer & earn money REVIEW Principles of Real Estate 2 Practice Test Landlords MUST allow tenants with disabilities to make reasonable modifications to a property so they can enjoy it. But there are also unreasonable modifications a landlord does NOT have to allow. All of the following are unreasonable modifications EXCEPT:
modifications made at the tenants expense. When a tenant has a disability, a landlord may NOT refuse to let the tenant make reasonable modifications to their dwelling or common use areas (at the tenant's expense) if necessary for them to use the housing.
A real estate investment trust (REIT) is a company that operates much like a
mutual fund in that it allows anyone to invest in the REIT's portfolio of real estate properties.
The income approach determines value by applying a capitalization rate to the?
net operating income
the loss in value brought about by wear and tear, disintegration, and use and actions of the elements is known as?
physical deterioration
Which party is most likely to put deed restrictions in place?
property developer. Deed restrictions are most commonly put in place by the property developer. They are a non-governmental private land use control.
Land used for municipal buildings, state legislative houses, schools, military installations, streets and highways, and parks is most likely:
publicly owned land
Brad and Janet are getting divorced and splitting up their assets. Brad is leaving the state and giving up his claim to their shared property. What type of deed will Janet and Brad utilize to give sole ownership to Janet?
quitclaim deed
Potential buyers might purchase WHAT kind of property because they want a property for personal vacation use, future retirement use, or an additional revenue stream?
resort property. Personal vacation use, future retirement use, investment opportunities, rental revenue stream, and low mortgage rates are all factors that would contribute to a buyer investing in a resort property.
Utility
the capacity to satisfy human needs and desires
utility
the capacity to satisfy human needs and desires
Reproduction cost
the cost of replacing the subject improvement with one that is the exact replica, having the same quality of workmanship, design and layout, or cost to duplicate an asset
book value
the current value for accounting purposes of an asset expressed as original cost plus capital additions minus accumulated depreciation
Effective demand
the desire for possession or ownership backed by the financial means to satisfy that need
Which of the following is an example of eminent domain?
the government informs Harrison they are going to take 3 acres of his 20-acre property and fairly compensate him
principle of externalties
the influences outside of a property can have a positive or negative affect on its value
highest and best use
the most probable use to which a property is suited that results in its highest value or highest returns to the land
Market price
the price paid regardless of pressures, motives or intelligence
transferability
the relative ease with which ownership rights are transferred from one person to another
scarcity
the supply of property in relation to effective demand
What is the CFPB's role when it comes to the property report?
to require the developer to register information about the development in a property report. The CFPB requires the developer to register specific information regarding the development, to set forth this information in a property report, and to deliver the report to a prospective buyer. CFPB does NOT inspect the lot, prepare the property report, or verify the statements in it.
Alec puts his property up for sale of his own free will. He goes through with the sale, and an opera singer now owns his property. This transaction is an example of:
voluntary alienation. Voluntary alienation is the method by which property is transferred from the current owner to another party either by sale or gift.
Adverse possession is:
when an owner doesn't attend to their land for several years and loses ownership to another who has claim to, takes possession of, and uses the land