NC Real Estate Exam Part 2

An 11-unit building rents 2 units for $600/month, 2 units for $750/month, and the rest for $900/month. Vacancy and losses in the area tend to average 3%. Depreciation is $23,000 annually, debt service is $3,110 per month, the property management fee is 8% or gross rent collected, and miscellaneous operating expenses are $22,000. The tax bill this year is $2,098. What value would an investor see in the 11-unit building if the investor wants a capitalization rate of 12%, rounded to the nearest tho

$602,000 When calculating the value of a property using the income approach or direct capitalization approach recall that Value = NOI / Cap Rate. When calculating NOI, recall: GI - V&C = EGI; EGI - OP Exp = NOI (no depreciation, debt service or capital improvements). Property taxes are include as operating expense and the management fee is calculated as a percentage of EGI - the actual rent collected. GROSS INCOME: Tier 1 (2X$600 X 12 = $14,400) + Tier 2 (2X$750X12 = $18,000) + Tier 3 (7X$900X12 = $75,600) = $108,000 VACANCY & COLLECTION: $108,000 X 3% = $3,240 EGI: $108,000 - $3,240 = $104,760 MANAGEMENT FEE: $104,750 X 8% = $8,380.80 NET OPERATING INCOME: $104,760 - $8,380.80 - MISC OP $22,000 - Prop Tax $2,098 = $72,281.20 VALUE: $72,281.20 / 12% = $602,343 rounded to $602,000

The grantor delivers a signed deed to her attorney, however, dies before the property closing. The deed is:

invalid as it does not meet requirements. A deed must transfer during the grantee (seller's) lifetime to the grantee, so the delivery to the attorney is not sufficient. To determine if a deed is valid, recall IGPWED (I get paid with every deal) - in writing, grantor competent, property description, words of conveyance, execution (signed by all owners), and delivery & acceptance. A power of attorney will terminate upon the death of the seller. The grantor and grantee must be identified to have a valid deed. Both seller and buyer must be identified in a deed - you must know who is selling and who is buying.

Three joint tenants own a property. One joint tenant signs a contract to sell the entire property to an investor. The contract:

is void due to an inability to perform. To sell the entire property, ALL joint tenants will need to agree and sign the offer to purchase. A joint tenant can sell his/her share of the property to another without the other joint tenants' permission. The new owner will own as a tenant in common. Purchase contracts are not recorded as not all contracts are successful.

All of the following are true of a promissory note, EXCEPT:

it must be recorded under the Connor Act to be enforceable. The promissory note is not recorded; however, the deed of trust or mortgage would be. The promissory note outlines the repayment terms. The mortgage or deed of trust provides security for the loan. The Connor Act requires certain real estate documents to be recorded to be binding against third parties.

Which of the following would be permitted by License Law?

A broker that is purchasing a property draft a contingency that the broker can terminate the contract without penalty if his/her spouse does not like the home. A broker cannot draft provisions to a contract for which they are not a party (either buyer or seller/landlord or tenant). A broker can draft provisions when they are either buyer or seller/landlord or tenant. A provisional broker cannot affiliate with more than one brokerage (specifically in different locations. As of 7/1/2020, a PB can affiliate with more than one BIC at the same office location). A provisional broker must be compensated by the firm's broker/BIC that the PB is affiliated. An unlicensed assistant cannot be paid a commission.

following deeds has no warranties other than implying that the owner has an interest in the property?

Bargain and Sale Deed A bargain and sale deed is most similar to a quitclaim deed as it makes no warranties whatsoever other than implying ownership. A general warranty deed is the strongest and best deed that a buyer/grantee can receive as it warrants title forever for past issues. A special warranty deed is limited to the time that the grantor owns the property.

Which of the following statements is CORRECT regarding the NCAR / NCBA Offer to Purchase and Contract?

The buyer takes title to the property subject to proposed assessments. The buyer takes title to the property subject to pending/proposed special assessments, while the seller is responsible for paying confirmed special assessments. The standard NCAR/NCBA OPC is not contingent upon financing or appraisal. The buyer should take steps to gain assurance about both prior to the due diligence period's expiration.A party that is using best efforts may delay settlement for 7 days. If the delay extends beyond the 7 days, the contract becomes voidable on behalf of the non-delaying party. When a property is damaged, reasonable wear and tear excepted, the contract becomes voidable. The buyer can elect to close and recover insurance proceeds to cover the damage or elect to terminate.

Which of the following statements regarding the Standard NCAR / NCBA Offer to Purchase and Contract is NOT true?

The contract is voidable when the buyer or seller cannot close by the settlement date outlined in the contract. The buyer or seller is entitled to a 7-day delay in the settlement so long as they are using their best efforts to close on the property. Closing is not "time is of the essence." The listing agent must follow the buyer's instructions when checks have not been delivered to the intended recipient. The buyer would be in breach of the contract, and the seller would be entitled to sue for damages.NOTE: NCAR revised the Standard 2-T Offer to Purchase and Contract reducing the delay from 14-days to 7-days.

A buyer enters into an option agreement to purchase an investment property that is subject to lease agreements. Which of the following is TRUE?

The tenant must be notified of the buyer's name after closing. A tenant must be made aware when the security deposit has moved to the buyer's trust account. The tenant must also be notified if there is a change in the mailing address for the monthly rent payment. An option agreement does not require the optionee to perform. A purchase contract may fail. NOTE: The lease is a lien against the property. The new owner is obligated to honor the remainder of the lease.

All of the following statements regarding amortized loans are true, EXCEPT:

a borrower will pay the same amount of principal on all payments in a properly amortized loan. In a fixed mortgage, the payment remains level over the loan term. The payment to interest and principal will change over time, with more of the payment being paid as interest than principal in the mortgage's early years. As the buyer makes payments towards the principal, the amount paid toward interest will decline.