Unit 1
In general, when the supply of a certain commodity increases, A) prices tend to drop. B) demand tends to rise. C) demand tends to drop. D) prices tend to rise.
A) prices tend to drop.
The real cost of owning a home includes certain costs or expenses that many people tend to overlook. Which of the following is NOT a cost or expense of owning a home? A) Taxes on personal property B) Homeowners' insurance C) Maintenance and repairs D) Interest paid on borrowed capital
A) Taxes on personal property
Commercial real estate includes all of the following EXCEPT A) a retail space for lease. B) fast-food restaurants. C) an office building for sale. D) apartments for rent.
D) apartments for rent.
When a person buys a house using a mortgage loan, the difference between the amount owed on the property and what it is worth represents the homeowner's A) equity. B) capital gain. C) tax basis. D) replacement cost.
A) equity.
Each room of a house was preassembled at a factory, driven to the building site on a truck, and then lowered onto its foundation by a crane. Later, workers finished the structure and connected plumbing and wiring before the owners moved in. Which term BEST describes this type of home? A) Mobile B) Modular C) Manufactured D) Converted
B) Modular
Which of the following BEST expresses the concept of equity? A) Current market value minus capital gain B) Current market value minus property debt C) Replace cost minus depreciation D) Current market value minus cost of land
B) Current market value minus property debt
All of the following factors tend to affect supply EXCEPT A) government controls. B) employment and wage level. C) construction costs. D) the labor force.
B) employment and wage level.
A home inspector discovered some small problems in the bathroom of the home he inspected for the buyers. He offers to make these repairs. In Pennsylvania, when can he make these repairs? A) After 6 months B) Immediately C) After 12 months D) Never
C) After 12 months
A couple bought their house in 1968 for $25,000. Today, the neighborhood has become very fashionable, and they plan to sell the house for $450,000. How much of the gain is taxable on the couple's joint return this year? A) $25,000 B) All C) None D) $637,000
C) None
The two characteristics that have the MOST influence on the market value of land are A) rental market and sales market. B) demographics and construction costs. C) uniqueness and immobility. D) residential and commercial.
C) uniqueness and immobility.
For which risk would a homeowner have to purchase a special policy in addition to a typical basic or broad-form homeowners' insurance policy? A) Vandalism B) The cost of medical expenses for a person injured in the policyholder's home C) Theft D) Flood damage
D) Flood damage
Real estate markets are local due to the physical characteristic of A) government controls and fiscal policies. B) labor force and construction costs. C) population. D) immobility and uniqueness.
D) immobility and uniqueness.
A highrise development that includes office space, stores, theaters, and apartment units is an example of a A) proprietary lease properties. B) planned unit development. C) special cluster zoning. D) mixed-use development.
D) mixed-use development.
Who in the real estate transaction is most likely to prepare an analytical report about the condition of the property? A) Lender B) Listing Agent C) Appraiser D) Home inspector
D) Home inspector
A building that is remodeled into residential units and no longer used for the purpose for which it was originally built is A) a modular home. B) an example of urban homesteading. C) a planned unit development. D) a converted-use property.
D) a converted-use property.
What is the capital gains tax exclusion available to homeowners who file their income tax as single filers? A) $500,000 B) $125,000 C) $250,000 D) $225,000
The answer is $250,000. A taxpayer filing singly is entitled to up to a $250,000 exclusion from capital gains tax liability.
A man wants to buy his first home but doesn't know how much he can afford to pay. He has a gross monthly income of $3,000. According to the traditional lender's rule-of-thumb formula, what is the total housing expense (principal, interest, taxes, and insurance) he can bear? A) $840 B) $648 C) $1,080 D) $1,152
The answer is $840. Under the traditional lender's rule of thumb, buyers should be able to pay 28% of their gross monthly income on housing. $3,000 × 0.28 = $840.
What is the largest trade association that serves real estate licensees? A) American Society of Home Inspectors (ASHI) B) Real Estate Educators Association (REEA) C) National Association of Real Estate Brokers (NAREB) D) National Association of REALTORS® (NAR)
The answer is National Association of REALTORS® (NAR). The National Association of REALTORS® (NAR) sponsors affiliated organizations that offer professional designations to brokers, salespersons, appraisers and others who complete required courses in areas of special interest. Members subscribe to a Code of Ethics.
The buyers paid cash for their new home. At the same time, they purchased flood insurance. At what time will the flood insurance be effective? A) Seven days after closing B) After 30 days C) 60 days after closing D) Immediately
The answer is after 30 days. When lenders require flood insurance as a condition of the mortgage loan, coverage is immediately effective; cash buyers and existing homeowners do not have coverage until 30 days later.
That portion of the value of an owners' property that exceeds the amount of their mortgage debt is called A) escrow. B) equity. C) equality. D) surplus.
The answer is equity. Equity consists of the current market value minus any debt owed on the property. Today, as property values have decreased, some properties have no equity at all, even when the owners have faithfully made all mortgage loan payments.
Which of the following affects supply? A) Fiscal policies B) Wage levels C) Demographics D) Population
The answer is fiscal policies. Supply is affected by government controls, fiscal policies, labor force, and construction costs. Population, employment and wage levels, and demographics affect demand.
A world-renown company plans to open a new large manufacturing plant. In this area, housing prices are likely to A) increase due to increased demand. B) be unaffected because those who build the manufacturing plant will relocate after the plant has been built. C) wildly fluctuate, sometimes losing value. D) decrease since workers can remain in their homes and drive further distances.
The answer is increase due to increased demand. Workers who build the manufacturing plant need housing and will be willing to pay more, and so will the workers who are ultimately employed in the plant. Demand generally increases prices while lack of demand decreases prices.
The object of planned unit developments is to A) encourage separation of housing and commercial units. B) avoid the use of community associations. C) minimize open space by enlarging lot sizes and street areas. D) merge diverse land uses in one self-contained development.
The answer is merge diverse land uses in one self-contained development. Planned unit developments (PUDs) are governed by special zoning ordinances and merge diverse land uses such as housing, recreation, and commercial into one self-contained development. This permits maximum use of open space by reducing lot sizes and street areas.
In order to offset expenses, a highrise condominium community rents out the ground floor to a convenience store. The building is an example of A) mixed use. B) a planned unit development (PUD). C) commercial use. D) special-purpose use.
The answer is mixed use. A mixed-use property allows for two uses, commercial and residential, in the same building. A planned unit development merges diverse land uses such as housing, recreation, and commercial into one self-contained development.
The basic responsibility of a property manager is to A) increase rents. B) protect the owner's investment. C) slash expenses. D) minimize the return on investment.
The answer is protect the owner's investment. The basic responsibility of the property manager is to protect the owner's investment while maximizing the return on investment.
In the event that a homeowner's insurance policy provides coverage for at least 80% of the full replacement cost of the dwelling, the loss of the residence will be settled for A) the lowest repaid bid. B) the total replacement cost. C) either the actual cash value or the prorated repair cost. D) the market value of the property less the land value.
The answer is the total replacement cost. An owner who has maintained insurance equal to a specified percentage (usually 80%) of the replacement cost new (excluding the cost of land) may make a claim for the full cost of the repair or replacement of the damaged property without deduction for depreciation.
Under the current tax law, MOST homeowners A) will be taxed at the current capital gains rate. B) will be taxed at a lower rate as they get older. C) will never pay capital gains tax on the sale of their homes. D) may use a one-time $250,000 exclusion if they file their taxes jointly.
The answer is will never pay capital gains tax on the sale of their homes. The net impact of the reforms to federal capital gains tax law that occurred in 1997 is that most homeowners will not have to pay capital gains tax on the sale of their home.