National Extra Practice
A new property was valued at $179,000 with an estimated life of 50 years. The value of the land has been estimated at $19,000. After allowing for depreciation, what is the total value of the property at the end of 5 years? Select one: A. $163,000 B. $161,100 C. $144,000 D. $106,000
A. $163,000 Remember that you can ONLY depreciate the value of improvements: Total Value - Land Value = Property Value (improvements) Property Value (improvements) = $179,000 - $19,000 = $160,000 Now, the question did not tell us the rate of depreciation, but we can determine that information since we know the property's estimated life: 1 year Depreciation = 1 year / 50 years = 0.02 = 2% depreciation 5 years Depreciation = 2% x 5 = 10% depreciation Now that we know the amount of depreciation, we can calculate the depreciated property values: 5 years Depreciation = $160,000 x 0.10 = $16,000 Depreciated value (improvements) = $160,000 - $16,000 = $144,000 Total Depreciated value = $144,000 + $19,000 = $163,000 The correct answer is: $163,000
Liquidation of a loan is: Select one: A. Amortization B. Depreciation C. Capitalization D. Acceleration
A. Amortization Amortization is the repayment of a debt by making systematic and regular payments to principal until the debt is retired. You are liquidating (eliminating) the debt a little at a time. The correct answer is: Amortization
Property management agreements usually represent a: Select one: A. General agency B. Special agency C. Dual agency D. Universal agency
A. General agency Property management agreements usually represent a general agency relationship. The correct answer is: General agency
Jon wants to build a house on his lot. The house will sit 20 ft. from the front lot line. The city ordinance calls for a minimum setback of 25 ft. May Jon build his house in the manner described? Select one: A. No, unless Jon receives a zoning variance B. Yes, so long as Jon obtains spot zoning C. Yes, so long as Jon receives a special use permit D. Either A or C
A. No, unless Jon receives a zoning variance Conditional/Special use permits and variances are similar in function, but differ in availability. Generally, variances can be issued to remedy case-specific hardships. Meanwhile, conditional use permits are used where no hardship exists, but the change will benefit the community as a whole. At face value, there appears to be no benefit to the neighborhood as a whole for this individual homeowner's addition. The correct answer is: No, unless Jon receives a zoning variance
A couple buys a furnished home by assuming the existing loan. Which of the following papers would the settlement attorney NOT have to prepare? Select one: A. Note B. Bill of sale C. Assumption papers D. Warranty deed
A. Note The settlement agent will prepare a new deed and the assumption papers. The personal property in the home will be conveyed using a bill of sale. The buyers agree to make the payments on the existing loan, which allows the existing note and mortgage to remain in effect. The correct answer is: Note
Which of the following amounts is NOT prorated between buyer and seller at closing? Select one: A. Recording fees B. Real estate taxes C. Rents D. Homeowner's insurance premiums
A. Recording fees Recording fees are NOT prorated; each party pays his own. If insurance premiums have been paid in advance by the seller, they would be prorated if the buyer assumes the insurance policy. However, this is not as common a practice as it once was. The correct answer is: Recording fees
Which of the following practices would most likely deteriorate the economic status of a neighborhood? Select one: A. Redlining B. Steering C. Overdevelopment of property D. Bulk zoning
A. Redlining The practice of redlining would most likely lead to an economic decline. Lenders refusing to make loans would greatly restrict the sale of the properties in the neighborhood; thus, tending to depress real estate value. The facts are insufficient to determine the effect of overdevelopment, as this may or may not deteriorate a neighborhood. The correct answer is: Redlining
An owner has been using a parcel of land for heavy industry since 1973. Subsequently, the property is zoned commercial, excluding industrial uses. The owner's continued industrial use of the property is a(n): Select one: A. Violation of the existing zoning B. Deviation from the master plan C. Zoning variance D. Illegal non-conforming use
A. Violation of the existing zoning This is an example of a non-conforming use. At one time, the use of the property conformed to the zoning code. The zoning has since been changed, so the continued use for industrial purposes is in violation of current zoning. However, because the use existed before the zoning changed, it may continue. Had the use arisen after the zoning change, it would be classified as an illegal non-conforming use. Master plans contain general standards of present and future development. We do not know if this change deviated from the master plan. Therefore, we do not know whether the non-conforming use deviates from the master plan. The correct answer is: Violation of the existing zoning
Which of the following choices is NOT a freehold estate? Select one: A. A present interest in land B. A lease that does not require rent payments C. A life estate D. All of the above
B. A lease that does not require rent payments Life estates and present estates are freeholds. Regardless of the term, all leases are leaseholds (non-freehold estates). The correct answer is: A lease that does not require rent payments
What is the result of recording a deed in the public office? Select one: A. Title will pass to the new owner on the date of recording B. Constructive notice C. Actual notice D. Both B and C
B. Constructive notice The act of recording provides constructive notice to the world, regardless of whether anyone actually looks for it. Alone, the act of recording does not create actual notice (when an individual is directly informed about something). Recording the deed also has no affect on whether title will transfer. The correct answer is: Constructive notice
What is an invitation to enter into a contract? Select one: A. Acceptance B. Counteroffer C. Contract D. All of the above
B. Counteroffer A counteroffer is an offer to enter into a contract that deviates from, and rejects, the original offer. The correct answer is: Counteroffer
A title insurance policy reimburses the title holder for: Select one: A. Loss of property through foreclosure B. Loss as a result of a superior claim C. Damage caused by a fire D. Flood damage
B. Loss as a result of a superior claim Title insurance reimburses the policy holder for specified losses caused by title defects that arose before the effective date of the policy. Damage caused by fire or flood would be covered by homeowner's insurance, not title insurance. The correct answer is: Loss as a result of a superior claim
Liquidated damages from breach of a sales contract are usually available to the: Select one: A. Buyer, in the event of the seller's default B. Seller, in the event of the buyer's default C. Broker, in the event of the buyer's default D. Either the buyer or seller where the other defaults
B. Seller, in the event of the buyer's default Liquidated damages are pre-negotiated damages that are due if a party breaches a contract. In real estate sales contracts, it is common for the buyer to offer an earnest money deposit along with his offer on the property. If accepted, the buyer's earnest money is deposited into an escrow account to serve as either liquidated damages if the buyer defaults, or as a down payment on the property if the sale closes. Generally, if the seller defaults and the buyer choses to rescind the contract, the buyer is entitled to have his earnest money returned (not as liquidated damages). The correct answer is: Seller, in the event of the buyer's default
Which of the following items is NOT essential to a valid sales contract? Select one: A. Competent parties B. Termination date C. Consideration D. All of the above are essential
B. Termination date A termination date is NOT essential, but could be included in a sales contract. The correct answer is: Termination date
The capitalization approach is considered to be: Select one: A. A statement of future income B. The present value of property based on present and future income C. The actual cost of the property D. Another name for the GRM (Gross Rent Multiplier)
B. The present value of property based on present and future income The income (capitalization) approach is used to calculate the estimated present value of a property through its estimated present and future earnings. A future income statement has nothing to do with the value of the property. The correct answer is: The present value of property based on present and future income
A house was purchased for $75,000. The lender requires a 20% down payment and will charge the buyer 3.5 points. How much is the buyer required to pay at closing? Select one: A. $2,100 B. $2,625 C. $17,100 D. $18,425
C. $17,100 First, calculate the amount of the loan: Downpayment = $75,000 x 0.20 = $15,000 Loan amount = $75,000 - $15,000 = $60,000 Next, calculate the cost of the points as follows. Remember that one point is considered to be 1% of the loan amount. So, 3.5 points would be 3.5% of the loan amount: $60,000 x 0.035 = $2,100. Finally, in order to know how much the buyer should bring to closing, we need to add the downpayment to the cost for the points: Total needed: $15,000 + $2,100 = $17,100 The correct answer is: $17,100
The most predictable element of severance is: Select one: A. Attachment B. Intent C. Agreement D. Adaption
C. Agreement You should avoid doubt by putting the severance agreement in writing. A written agreement is the best way to ensure questionable items (like fixtures) transfer. The correct answer is: Agreement
Which circumstance would terminate an agency by operation of law? Select one: A. Mutual agreement B. Unilateral rescission C. Bankruptcy of the seller D. Abandonment by the broker
C. Bankruptcy of the seller Of the listed choices, bankruptcy is the only method to terminate by operation of law. The other choices describe termination by act of the parties. The correct answer is: Bankruptcy of the seller
An area where zoning regulates the specific balance of shopping, business, and recreational facilities is an example of: Select one: A. Urban renewal B. Spatial zoning C. PUD D. Commercial condition zoning
C. PUD Planned Unit Developments (PUDs) are mixed-use developments that use zoning ordinances to achieve a desired balance. The correct answer is: PUD
To be legally binding, a real estate sales contract MUST contain a: Select one: A. List of personal property B. Commission to be paid to the broker C. Property Description D. All of the above
C. Property Description Sales contracts must include a description of the property to be sold. The property address is sufficient for the sales contract, while deeds and titles require a legal description. Commission is agreed upon in the listing agreement, not the sales contract. Personal property may or may not transfer with the real property. Therefore, the best answer is property description. The correct answer is: Property Description
Industrial property includes all of the following uses except: Select one: A. Mines B. Warehouses C. Ranches D. Vacant lots
C. Ranches Note that industrial property includes mines, warehouses, plants, factories, utilities, and vacant land that is suitable for industrial development. A ranch is better classified as agricultural property. The correct answer is: Ranches
Who is an intermediary between a buyer and a seller? Select one: A. Lender B. Mortgage broker C. Real estate broker D. FDIC
C. Real estate broker The person who acts as an intermediary between the buyer and the seller is a real estate broker. The broker finds a person that wants to sell property and another person that wants to buy the property. He brings the two together and then collects a fee. The correct answer is: Real estate broker
Federal Fair Housing Laws do NOT provide protection on the basis of: Select one: A. Gender B. Handicap C. Sexual preference D. Single parenthood
C. Sexual preference Sexual orientation is not protected under Federal Fair Housing Laws. Note that it may be a protected class in some states, or in some counties or cities within states. The correct answer is: Sexual preference
Assemblage most often occurs where: Select one: A. Demand is high B. Demand is low C. The whole is more valuable than the parts D. Both A and C
C. The whole is more valuable than the parts Regardless of whether demand is high or low, assemblage is usually practiced when the combined property will be more valuable than the individual parcels. The correct answer is: The whole is more valuable than the parts
Under the Statute of Frauds, a verbal contract for the sale of real property is: Select one: A. Void B. Voidable C. Unenforceable D. Both A and C
C. Unenforceable The statute of frauds does not determine whether verbal contracts are illegal, void, or voidable. However, it does require that contracts for real property be in writing to be ENFORCEABLE. The correct answer is: Unenforceable
A private homeowner is selling his property, but refuses to enter into a contract because the offerors are a black couple. Has the homeowner violated the law and, if so, which law? Select one: A. Yes, Title VIII of the 1968 Federal Fair Housing Act B. Yes, the Civil Rights Act of 1964 C. Yes, the Civil Rights Act of 1866 D. No, the owner is exempt from the law because he is selling his own property in his own name
C. Yes, the Civil Rights Act of 1866 The 1968 Fair Housing Act grants an exemption to homeowners. However, no one is exempt from the 1866 Civil Rights Act, which prohibits racial discrimination. This is also supported by the 14th Amendment to the Constitution. Note than an action for this type of violation is filed in the Federal Courts, not with HUD. The correct answer is: Yes, the Civil Rights Act of 1866
Private restrictions on the use of land may be created by: Select one: A. Deeds B. Written agreement C. General restrictions in a subdivision's regulation D. All of the above
D. All of the above Private restrictions on the use of land may be created by any of the cited instruments. These are restrictions that are placed on a property by the owner. The correct answer is: All of the above
Which of the following is derived from the police power of government? Select one: A. Escheat B. Eminent domain C. Taxation D. Building codes
D. Building codes Escheat, eminent domain, taxation, and police powers are all government rights in land. However, escheat, eminent domain, and taxation are explicit powers unto themselves, not derived from any other power. Of the listed choices, only building code restrictions (zoning enforcements) are derived from the police powers of government. The correct answer is: Building codes
Under RESPA, the Settlement Costs Booklet informs borrowers of: Select one: A. All the payments expected to be deposited into the escrow account B. The actual fees and services will be provided C. Whether the lender expects someone else to service the loan D. How to get the best possible mortgage and tips on homeownership
D. How to get the best possible mortgage and tips on homeownership The Settlement Costs Booklet (also known as the Special Information Booklet) contains a guide on how to get the best possible mortgage, information about closing costs and procedures, and general advice about homeownership. The correct answer is: How to get the best possible mortgage and tips on homeownership
Land is insurable primarily because of its: Select one: A. Uniqueness B. Indestructibility C. Improvement D. None of the above
D. None of the above The concept of indestructibility is the legal basis for neither insuring land nor being able to depreciate it. Therefore, the question states a negative and none of the answers are true. The correct answer is: None of the above
In a real estate transaction, which of the following facts MUST an agent disclose to his principal? Select one: A. That a minority is moving into the area B. The average commission C. That the buyer intends to violate deed restrictions D. That the buyer has had previous credit problems
D. That the buyer has had previous credit problems The only answer choice that must be disclosed is the buyer's credit problems. This is true because the buyer's credit problems could impact the sale (ability to qualify for a loan). The correct answer is: That the buyer has had previous credit problems
Which of the following principles of value would a real estate salesperson consider first when preparing to do a CMA? Select one: A. The principle of conformity B. The principle of contribution C. The principle of substitution D. The principle of highest and best use
D. The principle of highest and best use While the CMA is based largely on the principle of substitution, the first step is to locate comparable properties. The best comparable properties are those with the same highest and best use. The salesperson would then examine comparables and make adjustments as necessary. The correct answer is: The principle of highest and best use