Real Estate Brokerage
What type of organization is owned by shareholders and can enter into contracts, incur debts, and pay taxes apart from its owners? A. Corporation B. Limited liability partnership C. LLC D. Real estate syndicate
A. A corporation is owned by shareholders and can enter into contracts, incur debts, and pay taxes apart from its owners. It's an independent legal entity.
Beneficiary interest in land that's part of a land trust is considered ______. A. Personal property B. Protected from creditors C. Real property D. Subject to partition
A. Beneficiary interest is considered personal property, even though the interest conveyed is real property.
To arrive at annual debt service cost, divide ______ by the debt coverage ratio. A. Annual NOI B. Loan factor C. Maximum equity D. Maximum loan
A. Dividing annual NOI by debt coverage ratio gives you the annual debt service cost, which is important for determining the maximum loan.
Which of the following statements is true about the effect that e-commerce is having on commercial property investments? A. Factory outlets, big-box shopping centers, and shopping malls have all been hit hard. B. The demand for new retail construction has remained steady. C. There's no market for commercial property. D. Vacancy rates haven't increased.
A. E-commerce has caused a noticeable slowdown in the demand for new retail construction, and the vacancy rates in existing spaces are around 13%. Factory outlets, big box shopping centers, and malls have been hit the hardest of all retail properties.
If you have a REIT that receives most of its revenue from property rental, what type of REIT do you have? A. Equity B. Leasehold C. REMT D. Tax-deferred
A. Equity REITs invest in a wide range of property types and receive most of their revenue from rents derived from those properties.
What is the difference between operating and financial leverage? A. Financial leverage ratios compare a firm's debt to assets, equity, income, etc., while operating leverage is the relationship of fixed to variable costs. B. Nothing. They are the same thing. C. Operating leverage is a comparison of a firm's operating costs to administrative costs; financial leverage is a measure of a firm's profitability over time. D. Operating leverage is a relationship between fixed and variable costs; financial leverage is a measure of the firm's profit compared to its sales.
A. Operating leverage is a measure of a firm's variable costs and fixed costs; financial leverage is a calculation of the firms debt (liabilities) to a number of other factors, including assets, equity, income, and capital, to arrive at a specific ratio.
Tabitha, an investor, owes $85,000 in taxes for the year. She has received a $50,000 tax credit for building a low-income apartment complex. After applying the credit, what amount will Tabitha owe the IRS? A. $35,000 B. $50,000 C. $60,000 D. $85,000
A. Tabitha will owe $35,000 in taxes ($85,000 $50,000 = $35,000). A tax credit is a dollar-for-dollar reduction in taxes owed
______ is a legal action that liquidates or restructures debt. It can have a long-lasting negative impact on the borrower's ability to obtain financing. A. Bankruptcy B. Foreclosure C. Judgement lien D. Tax sale
A. There are two types of bankruptcy. One restructures debt; the other liquidates assets.
Shannon is reading through paperwork related to her upcoming home purchase when she comes across the following: "Southwest quarter of Southwest quarter (SW ¼ of SW ¼) and West Half of Southeast quarter of Southwest quarter (W½ SE¼ SW¼) of Section Eleven (11), Township Four (4) North of Range Eight (8) West." What did Shannon just find? A. Legal description B. Mortgage clause C. Quitclaim deed D. Tax description
A. This is a legal description, which provides a more complete description of a property than a street or postal address. This particular legal description uses the rectangular government survey system.
Which of the following must developers register with the Consumer Financial Protection Bureau? A. Any subdivisions that have 100 or more nonexempt lots B. Any subdivisions that have 20 or more nonexempt lots C. Any subdivisions that have 40 or more nonexempt lots D. Any subdivisions that have 80 or more nonexempt lots
A. To prevent fraudulent activity, developers have to register with the Consumer Financial Protection Bureau any subdivisions that have 100 or more nonexempt lots.
Tax credits for low-income housing are available to _______. A. Developers and investors B. Developers and renters C. Investors and renters D. Renters and owners
A. To provide incentive to build and develop low-income housing, developers and owners are often provided with tax credits.
Economic, tax, and market changes are types of _______ risk. A. Capital B. Dynamic C. Environmental D. Static
B. Dynamic risks are those business risks that cannot be lessened with insurance. This includes economic, tax, and market changes.
Which of the following best describes an equity real estate investment trust? A. Gets its income from property rent or sale as well as mortgage interest, fees, and profits earned from buying and selling mortgages B. Invests in equity by owning income-producing property, such as malls, apartments, or office parks C. Makes mortgage loans and invests in mortgage-backed securities D. Owned exclusively by banks and insurance companies
B. Equity REITs invest in equity. These REITS own income-producing property, such as malls, apartments, or office parks.
Landlords may protect themselves from having to pay for damages to the property caused by the tenant by collecting a security ______ from the tenant. A. Charge B. Deposit C. Guarantee D. Payment
B. The money a landlord may collect toward future damages or default on rent is called a security deposit.
A temporary organization that's formed by two or more parties in order to invest in real estate is known as _____________. A. A corporation B. A hybrid C. A joint venture D. An LLC
C. A joint venture is a temporary organization created for investment purposes.
Leases can end in several key ways. Mutual agreement and eviction are two. What is another way that a lease can terminate? A. Conversion B. Criminal use C. Expiration D. Neglect
C. A lease can terminate when it expires. Abandonment is another way a lease can terminate.
Moses invested in subdivided land and then sold it without improving it. This makes Moses ______. A. A developer B. An assessor C. A reviewer D. A speculator
D. A speculator will subdivide tracts and sell the lots unimproved. A developer will improve the lots (water, power, sewer, etc.) before selling them.
Tyrell and Barb bought a commercial investment property in 2009 during the real estate market downturn. Through what year will they be able to depreciate the investment? A. 2019 B. 2029 C. 2039 D. 2048
D. Depreciation may be taken for 39 years for commercial non-residential properties.
Edmund is a mortgage officer who closes loans. He is a ______________. A. Mortgage banker B. Mortgage broker C. Mortgage loan originator D. Underwriter
A. Only the mortgage banker can close and fund loans.
Sam and Monique knew that the old industrial site that they purchased needed some environmental cleanup, but they don't have the cash and put cleanup on hold. The EPA hired its own crew to deal with groundwater issues because of industrial solvents and billed Sam and Monique $164,000 when the job was complete. If Sam and Monique don't pay the bill, which one of the following could happen? A. Sam and Monique will forfeit their ownership rights to the site and will be forced to foreclose. B. The EPA can seek damages in court for up to three times the actual cleanup costs. C. The EPA will have to find the former owners of the site and bill them. D. The EPA will have to fund the cleanup itself.
B. If property owners refuse to pay cleanup costs as billed by the EPA, the EPA can seek damages of up to three times the original costs.
Which of the following options describes principal as it relates to loans? A. Amount of payment that will be applied to the interest B. Amount of payment that will be applied to the loan balance C. Amount to be sent as payment each month D. Loan balance before the monthly payment is applied
B. The principal is the amount of payment that will be applied to the loan balance. The interest is the amount paid to borrow the money.
Which of the following is an essential element of a valid real estate contract? A. Duress B. Legal purpose C. Misrepresentation D. Mutual mistake
B. There are five essential elements to a valid real estate contract: legally competent parties, offer and acceptance, legal purpose, and consideration. The agreement must also be committed to writing and must be signed by all transactional parties.
Which type of corporation involves double taxation? A. C corporation B. Closely held C. LLC D. Subchapter S
A. A C corporation is taxed at both the corporate level and the shareholder level.
Which of the following best defines capitalization rate? A. The expected rate of return on investment B. The rate at which assets depreciate over time C. The rate of capital recapture D. The value of a business as an investment
A. A capitalization rate is the expected rate of return on an investment and is based on the performance of comparable properties.
In calculating estate taxes, lifetime taxable gifts are __________ to net value, and the tax is computed. A. Added B. Averaged, as compared C. Reduced D. Subtracted
A. Lifetime taxable gifts are added to the net value, and the tax is computed. The tax can be reduced by applying the available unified credit.
What can an on-site property manager negotiate with a prospective tenant to have included in the lease agreement to ensure that the tenant is running a profitable business? A. A cancellation clause B. A right of first refusal clause C. Common area fees D. Graduated rent increases
A. New businesses'/tenants' leases usually include a cancellation clause that the property manager can exercise if the business is unable to pull in a certain gross volume.
Upon examination of Stevens and Smith's financial statements, their stockholders discover a debt-toincome ratio of 25%. Babson's financial statements indicate a debt-to-income ratio of 33%. Which of these comparison statements is accurate? A. Babson relies less heavily on debt than Stevens and Smith. B. Stevens and Smith carries a smaller percentage of debt relative to its income than Babson. C. Stevens and Smith carry less overall debt than Babson. D. Stevens and Smith's net profit related to sales is higher.
B. A ratio is a comparison of some factor (in this case, debt) to some other measure (income, assets, equity, capital, etc.) Investors compare ratios, not necessarily simple amounts of debt, income, assets, etc. Stevens and Smith's lower debt-to-income ratio means that it relies less heavily on debt as a percentage of its overall income than Babson.
Cooperative shareholders under a condop structure have ______. A. Flexibility in selling and restrictions on subletting, similar to that of condominium owners B. Flexibility in selling and subletting, similar to that of condominium owners C. Restrictions in selling and flexibility in subletting, similar to that of condominium owners D. Restrictions on selling and subletting, similar to those of condominium owners
B. Condops are a sort of hybrid between a co-op and a condominium. They allow flexibility in selling and subletting, similar to that enjoyed by condominium owners
Which type of real estate investment trust derives its income from the rent or sale of property and interest dividends? A. Equity REIT B. Hybrid REIT C. Investment REIT D. Mortgage REIT
B. Hybrid REITs are a combination of mortgage lending and equity investing. They derive their income from the rent or sale of property and interest dividends.
In the real estate market, when demand exceeds supply, what does it mean? A. There are an equal amount of homes for sale, and buyers to purchase them. B. There are more buyers than available homes, and prices will be higher. C. There are more homes than buyers, and prices will be higher. D. There are more homes than buyers, and prices will be lower.
B. If demand exceeds supply, it means that there are more buyers than available homes, and prices will be higher. Remember that demand and price move together.
Which one of the following statements about testamentary trusts is true? A. Like living trusts, testamentary trusts avoid probate. B. Testamentary trusts do not avoid probate. C. Testamentary trusts do not need to be reviewed by an attorney. D. The costs of administering a testamentary trust is not borne by the beneficiaries.
B. Property held within a testamentary trust must go through probate.
Bekah put down $50,000 toward the purchase price, financed the rest, and now has a cash flow of $10,000 after repairs and debt service. What's her ROI? A. 15% B. 20% C. 24% D. 28%
B. Return on investment or ROI = cash flow ÷ cash investment. $10,000 ÷ $50,000 = 20%.
Jackson purchased a group of unimproved single lots and improved each one before listing them for sale. What type of arrangement is this? A. Build to suit B. Improve and sell C. Lease D. Subdivision project
B. Sometimes investors will purchase unimproved land or lots and develop them, and then turn around and re-sell the land with improvements in place.
The IRS will only allow _______ of passive losses to be deducted against active taxable income. A. $2,000 B. $3,000 C. $4,000 D. $5,000
B. The IRS only allows $3,000 of passive losses to be deducted against active taxable income.
The three general groups of international buyers that real estate professionals may encounter are those who ______, those who are looking for a vacation home for when they travel to the U.S., and those who are looking for a luxury property as an investment. A. Have extra money to spend and want to invest in the cheapest U.S. properties available B. Have work visas and are looking for a home to purchase while they're in the U.S. C. Want to purchase large commercial complexes to house their international operations D. Want to purchase vacant land in the U.S. and resell it to U.S. developers
B. The three general groups of international buyers that real estate professionals may encounter are those who have work visas and are looking for a home to purchase while they're in the U.S., those who are looking for a vacation home for when they travel to the U.S., and those who are looking for a luxury property as an investment.
Private loan companies may charge higher interest, larger fees, and could require ______ to secure a loan. A. An equity interest B. Collateral C. Interest-only payments D. Sponsorship
B. These companies may charge up to the maximum allowable interest for the loan, larger fees, and require borrowers supply collateral to secure a loan. Sometimes they place a lien on the property itself.
Participants in this temporary organization are looking for profit. They may be corporations, partnerships, LLCs, or other entities. A. C Corporation B. Joint venture C. LLC D. S Corporation
B. These participants are part of a joint venture. The clue here is that it's a temporary organization.
Lizzie's on the hunt for an older, single-family house she can rehab and then put back on the market. If she has to rent the place for a while, so be it, but her ultimate goal is to sell the place for a profit. What type of investment opportunity is Lizzie considering? A. A conversion B. A fixer-upper C. A home targeted for rezoning D. An historic property
B. With a minimum outlay of cash, investors can easily increase the value of a fixer-upper by rehabbing it and then renting it out for a while, resulting in an immediate cash flow and a nice profit at resale
How can liens, such as those created by non-payment of federal income tax, result in mortgage default? A. Banks are government-owned, so a lien on unpaid taxes is equal to a mortgage default. B. Federal income taxes are part of the mortgage payment. C. New liens can threaten the lender's position as primary lienholder. Default can occur for this reason. D. The IRS requires the bank to cover the overdue amount.
C. Additional liens on property can threaten the lender's position as primary lienholder on the property. Lenders want to remain the primary lienholder to be paid first in the event of a foreclosure sale.
Kali invested in a large plot of land and planned to build a beautiful new subdivision. Imagine her dismay when a very large and vocal group from town picketed her site. What did Kali fail to do before she invested? A. Check out regulatory environment B. Obtain the necessary permits C. Verify that there was local support for the development D. Verify that utilities could be run to the new site
C. Before investing in a development project, investors should make sure they have community support. Community resistance could lead to issues with obtaining permits.
Bridget has an investment portfolio that includes an equity REIT. Which of these is most likely to be part of the REIT's investment? A. Mortgages secured by commercial properties B. Mortgages secured by residential properties C. Retail shopping centers D. Undeveloped land parcels
C. Equity REITs invest in income-producing property, such as a retail shopping center. Undeveloped land isn't likely to produce income, and equity REITs don't invest in mortgage debt. That's the role of mortgage REITs.
Dawn owns a bungalow three miles from the city center. She rents it to Bob and Jan Siegel. Dawn is a ______. A. Beneficiary B. Lessee C. Lessor D. Trustee
C. In this scenario, Dawn is the lessor, and Bob and Jan are the lessees.
Fairwell Lending must seek the court's permission to foreclose on a property used as collateral for a loan that is in default. What type of foreclosure process is likely being used? A. Arbitration B. Deed in lieu of foreclosure C. Judicial foreclosure D. Non-judicial foreclosure
C. Judicial foreclosures require court involvement.
Rufus scheduled a local business to come take a look at the roof and the siding on the building. Last week, a landscaping company was on the property. Which commercial property manager duty is Rufus performing? A. Collecting rent B. Leasing the property C. Overseeing maintenance D. Qualifying potential tenants
C. Property maintenance is one of a commercial property manager's duties.
______ taxes are a reliable source of income for the state because they are difficult to conceal, their value tends to remain relatively steady, and people tend to pay them. A. Alcohol B. Income C. Property D. Sales
C. Property values generally remain steady. Because people don't want to risk losing their home, they are highly likely to pay their property taxes. Also, because property taxes are connected to tangible property, they are very difficult to conceal.
When can specific performance be enforced under a sales contract? A. Both parties have fully met the terms of the contract. B. One or both parties have completed only a portion of the terms agreed to in the contract. C. One party didn't meet the terms of the contract in the specified timeframe, and is now being required to do exactly what was agreed to in the contract. D. The parties to a contract can't legally or practically do what they've agreed to do due to circumstances out of their control.
C. Specific performance is enforced under a sales contract when one party didn't meet the terms of the contract in the specified timeframe and is now being required to do exactly what was agreed to in the contract.
As supply decreases, what happens to price? A. Decreases B. Exceeds demand C. Increases D. Stays the same
C. Supply and price move in opposite directions, so price increases when supply decreases. When there is less to go around, prices increase. This is the same thing as saying demand exceeds supply.
Samuel is selling a 99-lot subdivision across state lines. His rival, Max, has a 123-lot subdivision that he's selling across state lines. What must Max do that Samuel doesn't have to do? A. Follow local building codes, as well as the codes in the states where he's selling. B. Get permission from the local community for the development. C. Register the project with the Consumer Financial Protection Bureau. D. Set aside at least 10% of proceeds for the Foreign Sellers of Real Property tax.
C. The Interstate Land Sales Full Disclosure Act requires developers of 100 or more lots who sell between states to register with the Consumer Financial Protection Bureau, and provide certain disclosures to buyers. Its purpose is to protect buyers from fraudulent sales of land that's purchased sight unseen.
When Saundra Neill signed a property management agreement with Awesome Altus Properties, Inc., she made sure the agreement stated explicitly that Awesome Altus owned each property she would be managing. In which section of the agreement would she find this verification? A. Description of duties B. Insurance provision C. Owner's covenants D. Signature of the parties
C. The owner's covenants serve to assure the property manager that the client actually owns it, that it's not going to be foreclosed on, and that the property manager is solely responsible for its management.
Like other agreements, the property management agreement details the terms of "employment" between the ______ and the ______. A. Landlord; tenant B. Owner; tenant C. Property manager; owner D. Tenant; property manager
C. The property management agreement cements the relationship between the property manager and the owner.
Cityville administrators are trying to control urban sprawl, but they still need to plan for the growing population. They've revamped zoning laws to allow residential units to be built on smaller lots, and multi-family housing to be built in areas once zoned for single-family housing. Which real estate trend does this describe? A. Aging of baby boomers B. Greener buyers C. Increased density D. Smaller houses, bigger houses
C. This is an example of the increased density trend.
To compute a monthly principal and interest payment, which of the following pieces of information do you need to know? A. Interest rate and loan amount B. Interest rate and term of the loan C. Monthly payment multiplier D. Mortgage loan value, annual percentage rate, loan term, and payment frequency
D. Four pieces of information are required: loan value, percentage rate, loan term, and payment frequency
Harvey is an investor who found and closed on an investment property, then decided to sell a property other than the one originally marked for the exchange. What is this an example of? A. A buy and hold B. A fickle investor C. A fix and flip D. A reverse tax-deferred exchange
D. If an investor finds and closes on an investment property and then decides to sell a property other than the one originally marked for the exchange, they can do a tax deferral "backward." This is called a reverse exchange. The investor is still required to work within the 45- and 180-day deadlines.
Which of the following statements best describes the judicial foreclosure and sale process? A. It's illegal in most states. B. It's used in cases where something other than the property is used as collateral. C. No court involvement is required. D. The lender must seek the court's permission to foreclose on the property used as collateral for the loan.
D. In a judicial foreclosure and sale process, the lender must seek the court's permission to foreclose on the property used as collateral for the loan.
"Separate property" is property most likely acquired ______. A. As community property B. As tenants in common C. In joint tenancy D. Prior to marriage
D. Separate property may be acquired before marriage, or outside of marriage. Property acquired during the marriage would be considered community property in states that recognize this legal concept.
Which one of the following property features could contaminate the soil? A. Brick pavers B. Irrigation system C. Multi-car garage D. Underground storage tanks
D. Underground storage tanks could contaminate property soils when they leak.
With a promotional land sale agreement, who usually carries back a portion of the purchase in the form of a purchase-money mortgage or an installment contract? A. Buyer B. Investor C. Lender D. Seller
D. Usually the seller carries back a portion of the purchase in the form of a purchase-money mortgage or an installment contract. This means the seller retains legal ownership of the land until the contract terms are satisfied.
Victims of fair housing discrimination can seek redress in federal court. Within how many years of the alleged violation do they have to do so? A. Four years B. One year C. Three years D. Two years
D. Victims may seek redress in federal court within two years of the alleged violation. There is no limit on the amount of punitive damages that may be awarded to a victim in federal court.
The law of agency requires Westin, a property manager, to _______. A. Act in his own interest when managing the property B. Deposit tenant funds into his business account C. Handle renters in default however he sees fit D. Maintain confidentiality and loyalty to the owner's best interests
D. Westin has a fiduciary relationship to the owner of the property and must maintain confidentiality and loyalty to the owner's best interests. He is committing to put the property owner's interests first, even above his own interests.
During the option period to renew a lease, who determines whether the option will be exercised? A. Either the landlord or the tenant can make the decision. B. It must be mutually agreed to by both the landlord and the tenant. C. The landlord makes the decision. D. The tenant makes the decision.
D. When there's an option period in play, the lease can be renewed at the sole discretion of the tenant. The landlord has no say in whether the option will be exercised (or not).
