Principles II 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
Jessie is trying to decide whether or not she should buy discount points on her loan. Which of the following is NOT true about the discount points she could buy?
Jessie should buy as many discount points as her lender allows her to.
Which of the following is an example of adverse possession?
Jim gradually takes over the vacant lot next to his property. After 10 years of using the property, Jim takes possession of the property.
What is NOT a primary tax benefit of commercial real estate investment?
ability to pull $10,000 from their IRA without penalty if they are a first-time buyer
With which type of loan will payments made at the beginning be mostly interest, while payments made at the end will be mostly principal?
amortized loan
A broker divides a commission between herself and her sales agents. This is:
an acceptable practice
In a real estate transaction, the lender usually selects which of the following parties:
appraiser
The income approach uses the potential income of a property to estimate its value. Appraisers typically use the income approach to evaluate which of the following types of properties:
commercial buildings like shopping centers, office buildings, and large apartment buildings
To perform a sales comparison approach, an agent needs to find:
comparable properties that have a number of similar features
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
A deposit is made by a buyer to a seller in order to show the buyer's good faith in the transaction. Upon closing, the buyer receives a credit for this prepaid deposit. What is this deposit known as?
earnest money
A land owner takes no action to force the removal of an encroachment. In Texas, after a period of ten years the encroachment may continue through a(n):
easement by prescription
Who administers the Interstate Land Sales Full Disclosure Act?
the CFPB
In a certain neighborhood, parking on the street is prohibited. Who is likely responsible for this regulation?
the HOA
Alicia has two people interested in the lots she is selling. She gives them both a copy of the property report. She is required to do so under what Act?
the Interstate Land Sales Full Disclosure Act
Which of the following is an example of something that would be listed on a Closing Disclosure as a credit to the buyer?
the balance of the buyer's new loan
Gabe is set to close on the condo she is selling on January 23. The condo's assessed value is $123,000 and the tax rate for her property's county, Austin County, is 1.97%. Using the 360-day year, what amount does Gabe owe for her prorated ad valorem tax?
$154.81
What is the value of a property if the net operating income is $45,600 and a cap rate of 20%?
$228,000
Angie is selling her home; she has $165,000 left on her mortgage, $15,000 in closing costs, and a 4% sale commission to pay her agent. Approximately, what's the LEAST Angie should sell for if she wants to earn at least $75,000 on the sale (so she can make a good downpayment on a new home)?
$265,625
The cost of reproduction of a 20-year-old subject property is $375,000, which has a land value of $140,625. The property has 30 remaining years of economic life. What is the property value using the cost approach?
$365,625 - Calculate depreciation percentage: 20 divided by (20+30) which is 0.4. Calculate the property value: the property cost ($375,000) minus the depreciation amount (375,000 * 0.4) and add land value ($140,625). The math looks like 375,000 - 150,000 + 140,625. The property value is $365,625.
The replacement cost to build a house is approximately $350,000. Similar lots presently sell for $100,000. The property's physical deterioration equals about $60,000. Based on the cost approach, what would be the value of this property?
$390,000
Michelle is purchasing a condo uptown. She received a loan of $145,000 for the condo, which leverages 67% of the financing. What is the amount of the down payment Michelle will be making?
$71,417.91 - The sale price is $216,417.91 (loan amount divided by percentage), minus the loan amount ($145,000) makes the down payment $71,417.91.
The Interstate Land Sales Full Disclosure Act is applicable to developers involved in the interstate sale or leasing of:
100 or more lots
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
According to the Texas Property Code, how long does a landlord have to return or account for a security deposit?
30 days
One acre is how many square feet?
43,560
alienation clause
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?
How does a REMIC lose value?
A REMIC bond decreases in value over time as the mortgages in the pool are being paid down.
RESPA
A law that requires a lender to give a buyer an estimate of closing costs
CERCLA
A major gasoline company has an oil spill in the Gulf of Mexico. In this situation, what piece of legislation will hold the the gas company responsible for the spill and also has a $9 billion Superfund to aid environmental cleanup?
A 65-year-old retiree has almost $80,000 in equity in their home. She does not have enough cash to travel as she have would have liked to do in retirement. The retiree should consider which of these financing alternatives to access her equity without selling her home?
A reverse mortgage - allows a homeowner to pledge equity to a lender in exchange for monthly payments.
Which of the following is FALSE about a sales comparison approach?
A sales comparison approach does NOT utilize the principle of contribution.
gross lease
A tenant has recently signed a lease for a new commercial property. According to the lease terms, the tenant pays a monthly rent, and the landlord covers maintenance and other property expenses. This lease is a:
What is the difference between actual and constructive notice?
Actual notice is direct or first-hand knowledge; constructive notice is the assumption of knowledge because that knowledge is in the public record.
nonconforming use
Alexis owns a fried chicken restaurant, Tender Times. When her area is rezoned from commercial to residential, Alexis chooses to continue operating Tender Times in the same location. What is this type of property use called?
Which of the following is an example of involuntary alienation?
Andrea fails to pay her property taxes, so her property is foreclosed on.
A buyer purchased property from a seller. Shortly after closing, the buyer discovered that there were serious flaws in the title that made it unlikely that the property could be resold in the future. What is the buyer's best course of action?
Because the buyer has accepted the deed, the only recourse is to sue the seller under any covenants contained in the deed.
Clara starts a new brokerage. She needs to protect herself and her agents from potential lawsuits by explicitly stating the brokerage's activity limitations. She decides to do this through verbal agreements to make each client's experience more personal. Evaluate Clara's decision.
Clara needs to explicitly state the brokerage's activity limitations in writing, not just in a verbal agreement.
Which of the following is NOT a principal responsibility of a property manager?
Forcibly removing tenants for nonpayment of rent
Which of the following is NOT a role of the Federal Reserve System?
Helps to make direct loans to buyers
Haley's condominium purchase is financed by a package mortgage. What does this imply about the condominium she purchased?
Her condominium purchase most likely includes the condominium but also all personal property and appliances installed on the premises.
Ian shops for a new loan with his broker, Barry. Barry helps Ian use a CLO to compare prices until Ian finds the best one. Barry tells Ian a fee of 0.5% of the loan amount has been earned, but Ian doesn't think much of it - Barry will pay that fee. Evaluate if Ian is correct, and why/why not.
Ian is NOT correct; the borrower, not the mortgage broker or lender, must pay the origination fee.
Rex purchased an investment property with the intention of renting it out. To finance it, he set up a partially amortized loan with a balloon payment. What risk could this pose for him as the borrower?
If his property fails to gain value through renter revenue, Rex could be caught with insufficient funds at the time of the larger balloon payment.
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 seller's title is deemed acceptable.
Mo and Curly verbally make a lease agreement which will last for six months. Should they have put the agreement in writing? Pick the BEST answer.
Legally, they don't have to put a lease agreement of less than one year in writing, but it's a good idea.
They have a general partnership
Mack and Macie have a business together. They are both hands-on managers of the business, and they equally share responsibilities, profits, and losses. What kind of business are they most likely to have?
Sharon is a buyer looking to purchase a piece of agricultural land. Which of the following license holders would Sharon be MOST likely to choose to assist in her real estate transaction and why?
Marita, who has 3 years of experience as an agricultural land specialist; her specialization makes her most appealing.
168 sq ft
Maureen's bedroom is 14' by 12'. What is the square footage?
depreciation
Natalie has owned a property in San Marcos for 15 years. She is concerned her property has gone down in value because it has become obsolete and its structures have begun to deteriorate. What concept is Natalie concerned about?
Which of these is true of the Closing Disclosure?
No fee may be charged for preparing the document.
Perry signed a graduated lease with her landlord. Which of the following is TRUE?
Perry's rental payments will increase over time in specific increments.
Which would NOT be accounted for as an operating expense?
Pet rent
What protects consumers from abusive settlement practices and provides them with information pertinent to all settlement costs?
RESPA
estate at will
Randy is renting his basement apartment to Josh, his son, who is a full-time college student. There is no formal lease involved. What type of leasehold estate best describes this arrangement?
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.
A tenant has been unable to get hot water due to the faulty water heater which the landlord has failed to repair for over a month. What recourse is NOT available to the tenant?
Sue the landlord for breach of the covenant of seisin.
Micah is an appraiser in Austin. What entity is he regulated by?
TALCB
intestate
The Texas Law of Descent and Distribution applies to real estate located in Texas and owned as separate property by a deceased owner who died:
Elmer wants to install lowered light switches in his apartment so that he can reach them from his wheelchair. The landlord says that this fine, but that Elmer must install them at his own expense. Elmer argues that the landlord must pay for them. Who is right?
The landlord. Elmer must pay for the modifications.
subject property
The property being appraised
Equity REITs
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:
Joshua is a new license holder who is trying to make the transaction process easy for his clients. Though he is not a licensed appraiser, he decides to perform appraisals so he (and his clients) don't have to work with another party (an appraiser). Evaluate if this was a good idea and why/why not.
This was not a good idea; Joshua is not a licensed appraiser and therefore cannot perform appraisals.
Illegal nonconforming use
Tina has owned a donut shop for years. The area is re-zoned as residential, making commercial activity illegal. Tina gets special permission from the zoning board to continue to run the business. Months later, she sells the property to Al, who starts a dumpling business. The new business is a(n):
a variance
What is something that allows an individual property to deviate from a specific provision of a zoning ordinance that is usually based on features such as building height, lot square footage, or setback requirements?
equity REIT
What is the most common type of REIT?
ground lease
Which of the following has a long lease term and is often used in the development of commercial property? lease of bare, undeveloped land
REO - real estate owned
a property that is owned by a lender because a third-party buyer couldn't be found at a foreclosure auction
habendum clause
a clause that addresses rights, protections, and limits for the grantee
What does constructive notice presume?
a diligent individual can search the public record to gain an understanding of a property, including present and past interests in that property
A payment plan features constant payments of principal and interest throughout the life of the loan. The lender first credits the monthly payment towards the interest owed for the month, with the remainder of that payment going towards reducing the principal balance. What is this payment plan called?
a fixed-rate amortized loan
Geraldine runs a credit report on William, an applicant wishing to become a tenant in one of her units. Based on William's credit report, Geraldine decides to reject William's application. The Fair Credit Reporting Act states Geraldine MUST:
give William the name of the credit reporting agency used
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
Rory wants to invest some of his money. He debates between investing in commercial real estate and investing in the stocks of a technology startup. What would be a potential benefit of investing in commercial real estate?
investing in commercial real estate typically produces a predictable cash flow
What is a zoning variance and what needs to happen in order for a government to approve it?
it allows individual property to deviate from a specific provision of a zoning ordinance; neighbors must approve the variance in a public hearing
Which of the following is TRUE about a Certificate of Mold Remediation?
it must be passed to property buyers for five years and it prevents insurance companies from using previous mold claims against a property
Kesha creates a deed with three grantees: Ariana, Britney, and Nicki. These grantees will assume co-ownership as:
joint tenants, tenants in common, or community property
Property managers will need to provide reports for their property owner, such as a maintenance report, a rent roll, and an operating statement. The frequency with which the property manager will need to file these reports should be outlined in the:
management agreement
Bob is a real estate agent. Can he perform an appraisal?
no, unless he is also a licensed appraiser
43,560 square feet could also be expressed as
one acre
In a fixed-rate mortgage that is fully amortized, the total amount of interest to be paid is:
predetermined
Maura is a new property manager who is eager to succeed. A good piece of advice for Maura would be to prioritize:
protecting the property owner's investment and maximizing the owner's return on that investment
Land used for municipal buildings, state legislative houses, schools, military installations, streets and highways, and parks is most likely:
publicly owned land
a deed that provides the grantee with the LEAST protection of any deed while imposing the LEAST liability on the grantor
quitclaim deed
What does the acronym REIT stand for?
real estate investment trust
A REMIC holds commercial and residential mortgages in trust, assembles the mortgages into pools based on risk, and issues bonds (securities) on these pools to sell to investors in the:
secondary mortgage market
Jennifer and Mallory, a buyer and a seller, are going through the closing process of their real estate transaction. In their transaction, like in most sales transactions, two closings will take place:
the closing of the sale and the closing of the buyer's loan
Anne leases a property that is part of an HOA which states tenants cannot park in the street (a rule that was stipulated in Anne's lease), but Anne parks in the street, regardless. Anne's landlord has the right to charge her for these HOA fees and prohibit her from parking in the street because:
the landlord addressed the use and occupancy restrictions in Anne's lease
voluntary alienation
the method by which property is transferred from the current owner to another party by either sale or gift
net operating income
the pre-tax amount of income after all necessary expenses have been taken out
What can cause a homeowner's taxes to increase
the property tax rate increases
The federal funds rate is:
the rate that banks charge to lend other bank funds
Instruments affecting real estate must be recorded with the county clerk where the land is located. What purpose does this process of recording acts serve?
the recording acts give legal priority to those interests that are recorded first
covenant of quiet enjoyment
the right of a tenant to the possession and quiet enjoyment of their property without disturbance from their landlord
What methods can be used when determining value through the cost approach?
the square-foot method, the unit-in-place method, and the quantity-survey method
What are property taxes based on?
the tax rate and the assessed value of the property
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
As opposed to general license holders, agricultural land specialists should have a more specific knowledge of:
water and mineral rights, soil requirements, public land leases, hunting tags, and livestock and farm production
Grant is making a deed. He drafts the deed, he has a lawyer look over and approve the deed, he signs the deed, and he delivers the deed to Gretta, the grantee. When does the title officially pass to Gretta?
when the deed is delivered to and accepted by Gretta
general partnership
where all members equally share responsibilities, profits, and losses
