Real Estate Practice Exam #4

A buyer is considering purchase of a home that has annual property tax of $2,800. The buyer's annual income is $64,000 and is paying $334.50 per month for a car loan. If the lender uses 40% TDS ratio, what would be his maximum monthly P & I payment? A. $1,565.50 B. $1,389.37 C. $1,829.17 D. $1,447.58

a

A few days before the closing date, the buyer's lawyer finds out that the seller had paid $5,000 as partial payment for the annual property tax. The annual property tax for the current year is $9,670 and closing date is August 25, 20xx. Who gets credit on Statement of Adjustments and what would be the amount? A. Buyer - $1,252.38 B. Buyer - $6,252.68 C. Seller - $5,000.00 D. Seller - $9,670.43

a

A small town north of Cram City has a total of 1,800 homes. 56% of these homes are two storey and 32% are bungalows. The remaining homes are one and half storey. What is the number of one and half storey, bungalows and two storey homes respectively? A. 216, 576, 1008 B. 216, 1008, 576 C. 1008, 216, 576 D. 576, 216, 1008

a

A two-storey sloped roof house has an area of 1,200 square feet per floor. The height of the house when measured from the floor surface is 6.2 meters and the roof is 12 feet high. If the cost of construction is $6.75 per cubic foot, what is the total cost of construction for this structure? Round your answer to nearest $100? (1 Metre = 3.281 Feet) A. $217,400 B. $103,000 C. $135,000 D. $301,100

a

Buyer Benjamin buys a freehold property for $764,000. Assuming that there was no house on the property, but it was only a vacant parcel of land, what would be the Land Transfer Tax? A. $11,755 B. $5,950 C. $7,710 D. $9,935

a

Buyer Bright is considering purchase of a condominium unit. He will use 20% of the purchase price from his own resources and the balance 80% would be financed with a monthly mortgage payment plan. He has provided the following information to the lender: • Gross Annual Salary = $66,000 • Net Annual Salary = 52,000 • Annual Heating Costs = $1,350 • Monthly Condo Fees = $220 • Monthly Property Taxes = $235 • Monthly Payment for Car Loan = $380 • Outstanding Balance of Credit Cards = $17,400 The lender informs Bright that his monthly mortgage payment would be $1,090.45. Based on all this information, what would be the GDS ratio of buyer Bright? A. 28.14% B. 32.38% C. 25.82% D. 27.58%

a

Consumers have specific needs when it comes to buying real estate. Accordingly, which of the following is a true statement? A. Salespersons can provide better services to their clients by properly understanding their needs and wants. B. Buyers are mostly desperate to buy real estate and would not consider any other aspect of a property other than its size and location. C. When it comes to buying real estate, most consumers would simply follow what their salesperson is telling them. D. It is really not necessary for salespeople to understand consumer needs because ultimately everyone needs a house.

a

Investor Ingrid is interested to purchase a rental apartment building that has gross floor area of 10,800 square feet. The annual potential rental income is estimated at $460,000; with a vacancy and bad debt rate of 4% of potential income. The operating expenses of this property are 58% of the annual effective gross income. If a capitalization rate of 12.75% is used, what would be the value per square foot? A. $134.69 B. $152.80 C. $120.00 D. $255.39

a

Market analysts gather data about real estate price trends from several different sources. Which of the following would NOT be a source of such information? A. The Real Estate Council of Ontario. B. The regional Land Registry Office. C. The Multiple Listing Service® database. D. Data from builders and lenders.

a

Marketing is a critical part of business for a real estate brokerage. Accordingly, which of the following is appropriate when a brokerage is planning its marketing activities? A. The brokerage needs to have plans for institutional advertising as well as for specific advertising. B. When a brokerage has listed a property on the local Multiple Listing Service®, it is unnecessary to advertise it on other marketing channels. C. Buyers themselves are the best judges of their needs and wants, therefore salespersons of a brokerage only need to select and show properties and prepare offers. D. Since a real estate brokerage sells and leases real estate only, it should only be concerned about improving their services and may disregard the products.

a

Registered salespersons must complete certain articling courses after their initial registration. Which of the following statements is correct in this regard? A. The requirement for articling courses is for newly registered salespersons and not for newly registered brokers. B. All salespersons must complete at least one articling course within one year of initial registration. C. Only attendance is mandatory for articling courses and there are no examinations. D. Once the articling courses are successfully completed, a salesperson is qualified for registration as a broker.

a

Salesperson Jim of Power Realty Inc. received a commission cheque of $11,658.60 from his brokerage. Jim is working on 85/15 split with his brokerage. The gross commission that the brokerage got was 60% of the total commission. The seller had agreed to pay 4.5% of the sale price as commission. What was the sale price of the property? A. $508,000 B. $412,400 C. $496,000 D. $615,350

a

Salespersons may be hired by a real estate brokerage as independent contractors or as employees. Which of the following statements is correct in this regard? A. An employee salesperson is typically not responsible to pay operating expenses to the brokerage. B. Hiring employees certainly increases the brokerage responsibility for trading activities of its salespersons. C. Independent contractors are themselves responsible for their trading activities, which greatly reduces the responsibility of the brokerage for compliance with REBBA 2002. D. Brokerages typically hire more salespersons and brokers as independent contractors because of limited or no liability for their trading activities.

a

The property manager hired by a condominium corporation's board of directors has a number of responsibilities but there are also certain limitations to these responsibilities. Which of the following activity would exceed the responsibility of a property manager? A. Preparation and approval of the annual operating budget. B. Negotiate and finalize lease contracts with prospective tenants and ensuring that they understand the rules and regulations of the building. C. Negotiation of contracts with service companies for regular maintenance and repairs to the property. D. Preparation and submission of monthly operating statements to the owners of the building.

a

When a condominium corporation is created: A. The legal structure is set out in the documents named Declaration and Description. B. The condominium corporation holds title to all the units and common elements. MiniCram Real Estate Exam Course 1 MiniCram Notes 90 C. The buyers of units enter into a lease with the condominium corporation by buying shares in the corporation. D. The purpose of condominium registration is to ensure that unit owners are not liable for the debts of the corporation.

a

Which of the following statements correctly describes the mandate of Real Estate Council of Ontario (RECO)? A. To protect public interest, trust and confidence in real estate trading. B. To maintain the Multiple Listing Service®. C. To enforce the CREA® Code of Ethics. D. Development and delivery of registration courses.

a

A buyer purchases a luxury cottage in northern Ontario for $2,346,000. What will be the amount of Land Transfer Tax he will have to pay at the time of closing? A. $58,650 B. $45,125 C. $31,050 D. $23,400

b

Builder Bob is currently working on his new development project for construction of 8 townhouses, each having its own private driveway. The driveways are similar in size: 24 feet long, 14 feet 9 inches wide and 4 inches in depth. What would be cost of these driveways if the paving company has quoted $190 per cubic yard? Round your answer to nearest dollar. (1 Cubic yard = 27 Cubic feet) A. $1,868 B. $6,643 C. $14,947 D. $75,662

b

Buyer Binny is looking for a warehouse for his distribution business. He finds one such building with external measurements of 136 feet by 64 feet. The ceiling height, when measured from six inches below the surface, is 21.5 feet. The sellers inform Binny that the construction company charged them $8.25 per cubic foot. What would have been the construction cost of this warehouse? A. $1,579,776 B. $1,543,872 C. $5,718,044 D. $2,859,022

b

Continuation of real estate education is mandatory for all registrants as per the provisions of Real Estate and Business Brokers Act 2002. Which of the following is NOT a correct statement in this regard? A. Registrants who have completed their initial 2 years of registration must complete mandatory continuing education courses after renewal of registration. B. The requirement of mandatory continuing education is for salespersons and not for brokers. C. If mandatory continuing education requirements are not met the registrar may refuse renewal of registration. D. Completion of additional articling courses is not a substitute for mandatory continuing education courses.

b

In a brokerage, the registrant responsible to ensure compliance with REBBA 2002 and other related statues is designated as: A. Broker of Compliance B. Broker of Record C. Associated Broker D. Broker Manager

b

Membership in organized real estate is not mandatory under REBBA 2002. Which of the following statements is incorrect regarding this membership? A. Organized real estate provides its own benefits, such as access to Multiple Listing Service® to its members. B. Membership in organized real estate entitles the registrants to get exemption from RECO insurance. C. REBBA 2002 educational requirements apply equally to members and nonmembers. D. Membership in organized real estate does not eliminate the requirement to comply with REBBA 2002 Code of Ethics.

b

Owner Smart has received a tax assessment notice from the local municipality. According to this notice, the current value assessment of his house is $428,000. The amount of taxes to be collected by the municipality in the current year is $1,080,000. If the total tax base is $87,320,000; what would be the amount of property tax for Smart's house? A. $4,228.48 B. $5,293.63 C. $8,560.72 D. $12,821.20

b

Real estate market is dynamic and seldom remains the same over a period of time. Both the seller's market and the buyer's market have specific characteristics of their own. Which of the following is a characteristic of a typical buyer's market? A. Most properties sell for much more than the listed price. B. The properties available for sale exceed the demand and there are very few buyers. C. The average time to sell a property is reduced and properties sell very quickly. D. Buyers only consider the objective value of the property.

b

Registered salespersons and brokers in Ontario have the authority to trade in real estate because: A. Membership in local real estate board provides the necessary authority to represent buyers and sellers. B. REBBA 2002 authorizes registered brokerages to delegate the agency duties to its salespersons/brokers. C. The Agency Law specifically provides this authority. D. Seller and buyer clients provide this authority in representation agreements.

b

Salesperson Kim of Cram Realty Inc. listed a property for $356,900 at 5% total commission. The commission allocation for listing and selling portions is 45/55. The property was sold by salesperson Jim of the same brokerage for $352,000. Kim is working on 85/15 split while Jim is working on 90/10 split with the brokerage. What would be the difference in commission of these salespersons? A. $1,230 B. $1,980 C. $1,760 D. $2,528

b

Salesperson Kim works for Cram Realty Inc. She is analyzing the current price trend in a community by comparing recent sales of two storey houses. House A was listed for $349,000 and was sold for $12,000 less. House B was listed for 324,500 and it was sold for 305,800. House C was listed for 339,900 and was sold for 336,000. What is the sale to list price ratio of these houses in ascending order? A. House C; House B; House A B. House B; House A; House C C. House B; House C; House A D. House A; House B; House C

b

There are several methods by which different levels of government keep control on the real estate market. Which of the following is NOT one of them? A. Zoning by-laws B. Statistical Analysis C. Taxation D. Monetary Policies

b

A buyer is considering purchase of a property for $365,000. There is an existing mortgage on the house in the amount of $120,000 but it will be discharged by the seller. The buyer will pay all cash for the purchase of the property. The total closing costs are as follows: • Land Transfer Tax and Legal Fees $2,700 • Closing Adjustments $1,360 • Moving Expenses $1,100 • Funds for Major Expenses $2,300 What liquid assets are required by the buyer at the time of closing? A. $120,000 B. $152,460 C. $372,460 D. $127,000

c

A buyer is considering purchase of his new home in a location where most of his friends and relatives have recently moved. This behaviour of the buyer is best described as: A. Brand Loyalty B. Consumer Vulnerability C. Personality Trait D. Product Appeal

c

A rental property is sold with a closing date of September 17, 20xx. The tenant pays the monthly rent of $1,850 in advance. Who gets credit on the Statement of Adjustments and what would be the amount? A. Seller - $1,048.33 B. Seller - $986.67 C. Buyer - $863.33 D. Buyer - $801.67

c

A small trapezoidal parcel of land needs to be flattened. The two parallel sides are 86 feet and 120 feet respectively, with a perpendicular distance of 15.7 metres between them. The left and right sides are 49 feet and 63 feet respectively. What is the area of this parcel of land in square feet? (1 Metre = 3.281 Feet) A. 1,617.10 Square Feet B. 2,884.65 Square Feet C. 5,305.53 Square Feet D. 5,769.30 Square Feet

c

Buyer Bright is aware that the 1.5-acre parcel of land he intends to buy is under expropriation notice. He wants to subdivide the land into six smaller lots, but the expropriation will take away nearly 18% of land. What would be square footage of each parcel of land after expropriation and subsequent division? (1 Acre = 43,560 Square feet) A. 16,613.52 Square Feet B. 10,890.03 Square Feet C. 8,929.80 Square Feet D. 6,257.22 Square Feet

c

Buyer Smart arranges two mortgages for the property he wants to purchase. The first mortgage is for $475,000 at an interest rate of 4.25% per annum. The second mortgage is for $240,000 at an annual interest rate of 10.50%. Assuming that both mortgages have identical terms and amortization periods, what would be the overall average interest rate? A. 3.26% B. 4.67% C. 6.35% D. 11.71%

c

Buyers typically insert a home inspection condition in the Agreement of Purchase and Sale. Which of the following would be a correct statement in this regard? A. Home inspectors are regulated under the Real Estate and Business Brokers Act 2002. B. When a qualified home inspector is not available, a registered salesperson is authorized by law to conduct a home inspection. C. A home inspector inspects the general condition of the structure and would include limiting conditions of inspection in the report. D. The physical inspection of the property by an appraiser is sufficient to waive the home inspection condition in the agreement.

c

How does the Real Estate Council of Ontario (RECO) fulfill its mandate of protecting consumer confidence in real estate trading? A. By making the continuing educational mandatory for applicants. B. By making the RECO insurance mandatory for all brokerages. C. By having a complaints and inquiries process so that consumers may make a written complaint against any registrant. D. By enforcing the real estate board by-laws.

c

Real estate market is affected by several factors including social, political and economic. Which of the following statements is correct in this regard? A. When the real estate supply goes up sharply, it is easy to create an equivalent demand by lowering the mortgage interest rates. B. The real estate brokerages, local boards and associations are responsible to keep the market in balanced shape. C. An overheated market with aggressive activities of buyers, lenders and developers generally leads to a market bubble. D. Market correction is indicated by decrease in employment rates and high consumer confidence.

c

Smart and his two friends purchase a commercial building. Smart currently has 1/5th ownership share. In the next 6 months, he plans to acquire another 25% share of ownership. What would be his ownership share after this acquisition? A. 20% B. 35% C. 45% D. 75%

c

The Personal Information Protection and Electronic Documents Act (PIPEDA): A. Is not applicable to real estate trading because REBBA 2002 has provisions to protect personal information of buyers and sellers. B. Is a federal law which requires that real estate brokerages must share the factual information collected from the sellers in order to co-operate with other brokerages for selling the listed property. C. Is a federal law which mandates that all businesses, including real estate brokerages must obtain consent of the consumers before collecting personal information and it must be safeguarded. D. Is a provincial law which requires that real estate brokerages must get consent for collecting personal information and it can be provided to related professionals such as mortgage brokers without their consent.

c

Which of the following statements best describes the difference between subjective and objective values? A. The value of land plus improvements makes up the subjective value. B. When it comes to estimating market value, the difference between subjective and objective value is eliminated. C. Subjective value is based on individual perceptions and future benefits of ownership. D. Objective value is based on certain unique characteristics in the property.

c

Which of the following statements is correct about the Consumer Price Index (CPI)? A. It measures the periodic change in prices of goods and services for urban consumers. B. It keeps a check on sales of major retail chains to predict future economic trends. C. It is a valid measure of purchasing power of Canadian dollar. D. It measures the strength of economy based on the overall employment rate.

c

Which of the following statements is incorrect regarding real estate marketing? A. Market segment is based on similar housing requirements of consumers based on their interests and opinions. B. Marketing mix is typically employed by brokerages to enhance their sales. C. Specific advertising is targeted to a particular community. D. Brokerage policies typically govern the advertising activities of salespersons.

c

A buyer with annual income of $76,000 needs a mortgage loan for the home he intends to purchase. The annual property tax of this house is $3,200. The buyer's other monthly obligations include a car loan payment in the amount of $420. If the lender uses 38% TDS ratio and the interest rate is 5.5% per annum, amortized over a period of 25 years, what is the maximum amount the buyer can borrow? Round your answer to nearest dollar. A. $358,400 B. $325,280 C. $299,430 D. $281,786

d

A buyer's estimated P & I monthly payment is $1,150. He is also making a monthly payment of $396 for a car loan. The annual tax of the property he wishes to purchase is $2,400. If the TDS ratio used by the lender is 42%, what minimum annual income is required to qualify for the loan? A. $51,429 B. $55,000 C. $58,000 D. $49,886

d

According to the Common Law of Agency, a person or party who is authorized by a client to represent him/her in a business transaction with a third party is known as: A. Representative B. Independent Contractor C. Person of Interest D. Agent

d

Buyer Bright purchases a bungalow in Cram City for $245,800. He also purchases a vacant parcel of land for $65,000. The closing date of both properties is set for September 15, 20xx. What would be the combined Land Transfer Tax on both properties? A. $2.403 B. $3,100 C. $3,359 D. $2,558

d

Owner Binny is proud to have the new freehold house on a 2-acre lot. This huge bungalow currently has 2,600 square foot of total living area. Binny would like to extend the house to accommodate his family needs. The municipality allows this extension if the total lot size is minimum 7,500 square metres. If yes, Binny would be permitted to extend the house by 8% of existing area. Does the lot meet this requirement? If yes, how much Binny can extend the property? A. Yes, the lot meets requirements and Binny can build 647.48 Square Metres. B. No, the lot does not meet requirements and Binny is not permitted to build any structure. C. Yes, the lot meets requirements and Binny can build 8,090 Square Metres. D. Although the lot does not meet requirements, he can still build because this is a freehold house.

d

Owner Smart has built an extra fireplace in his living room in addition to the one in the family room. He has also added a single car garage to the property and an enclosed porch. He has spent nearly $32,000 on all these improvements. His house now looks different from other similar houses in the neighbourhood. He is expecting that he should get at least $32,000 more for his property. Which of the following principles of value may be used to dispute Smart's estimate of value? A. Principle of Conformity B. Principle of Progression C. Principle of Contribution D. Principle of Increasing/Decreasing Returns

d

Registered real estate brokerages in Ontario may pay their salespersons and brokers in many different ways. Which of the following statements correctly describes the difference in methods of payment? A. Independent contractors are typically paid a fixed salary while employees get payments based on the sales they complete. B. Payment of desk fee by salespeople is the distinguishing factor between an independent contractor and an employee. C. Employee salespeople are paid salary by the brokerage while independent contractors are paid directly by buyer or seller clients. D. Independent contractors typically pay for their trade related expenses while the brokerages bear these expenses for employee salespeople.

d

The Real Estate and Business Brokers Act 2002 grants exemptions from registration to certain persons when trading in real estate. According to the Act, which of the following would qualify for such exemption? A. A full-time employee of a shopping centre, working on salary and leases only new stores for the owner of the shopping centre. B. Salespersons and brokers who have their own corporations and are 100% shareholders. C. Business corporations when the trade is made under normal business activities as per their Article of Incorporation. D. A property manager of a residential complex who is leasing units in that building under the provisions of the Residential Tenancies Act.

d

Three salespersons of Cram Realty Inc. are talking about their real estate business. Salesperson A says that he gets referrals from 20% of his clients. Salesperson B says that he gets a referral from 1 out of every 6 clients. Salesperson C says that he gets referrals from 3 persons out of every 8 clients. Accordingly, which of the following statements is correct? A. Salesperson A gets more referrals than both B and C. B. Salesperson B gets more referrals than C but less than A. C. Salesperson A gets more referrals than C but less than B. D. Salesperson C gets more referrals than both A and B.

d

Which of the following best describes the characteristics of Canadian economy? A. It is a completely free economy which is based on the forces of supply and demand. B. Canadian economy is entirely dependent on decisions made by the government. C. It is a capitalist economy and involves decision making by corporations at the federal level. D. It is a mixed economy with involvement of and individuals, families, businesses and the government.

d

Which of the following would be an indication of a typical buyers' market? A. Supply and demand of real estate is high. B. Supply and demand of real estate is low. C. The demand of real estate is high as compared to supply. D. The supply of real estate is high as compared to demand.

d