Real Estate Study Questions pt.4

In order to purchase a home, Darla needs to take out a mortgage. A mortgage is an example of a(n): a) Executory contract b) Executed contract c) Implied contract d) Unilateral contract

a) executory contract An executory contract is a contract that has terms to be completed at a later date. It is not fully performed until all acts required are completed, such as a mortgage. An executed contract is a fully performed contract. A unilateral contract involves a promise to induce the other party to do some act, such as an open listing contract, where the property owner can cancel the listing at any time prior to an agreed upon deal. An implied contract is formed based upon the actions of the parties that evidence an intent to enter into a contract, such as where a seller permits a broker to show a property before any formal agreement is entered into

The profit realized from the sale of real estate held for 3 years is: a) Long term capital gains b) General capital gains c) Gross income d) Short term capital gains

a) long term capital gains Capital gains represent the profits on a capital investment, such as real estate. The profit realized from the sale of real estate held for 3 years is long term capital gains. Long term capital gains are profits on assets that are owned for more than 12 months. Short term capital gains are profits on assets that are owned for 12 months or less. Profit on long term capital gains is subject to a reduced tax rate and is not taxed as ordinary gross income, but profit on short term capital gains is taxed as ordinary gross income

Helga purchases an investment property in the city for $750,000. In the first year, the property generated an annual cash flow of $75,000, but she sustains a $25,000 tax loss that she can apply against the income of a very successful car wash that she owns. If Helga is in the 35% tax bracket, what is her after-tax cash flow related to the city property? a) $75,000 b) $35,000 c) $100,000 d) $26,250

b) $35,000 $35,000. $75,000 (annual cash flow) + $25,000 (tax loss) = $100,000 x .35 = $35,000. After-tax cash flow is calculated by adding back the tax loss to the income and then multiplying by the tax rate. A tax savings is possible when a tax loss can reduce the taxable income of a separate investment.

Lanie owns a home in the mountains. If the home's appraised market value is $540,000 and the loan balance is $135,000, what is the loan to value ratio? a) 10% b) 25% c) 30% d) 40%

b) 25% To compute the loan to value ratio, which is the ratio of the loan balance to the property value, you divide the loan balance by the market value. $135,000 / $540,000 = .25, so the loan to value ratio is 25%

Which of the following is not true about the 1988 Amendment to the Fair Housing Act adding protected classes to the law? a) It added families b) It added elderly persons c) It added persons with mental disabilities d) It added persons with physical disabilities

b) it added elderly persons The 1988 Amendment to the Fair Housing act added protected classes to the law. It added families and persons with mental and physical disabilities to the law. Elderly persons were not added to law. However, senior citizen housing is exempt from the Fair Housing Act if it complies with the exemption requirements. By restricting tenants to people 55 and over, an exemption to the Fair Housing Act could apply

Which fiduciary duty requires the agent to act with care with respect to handling funds received on behalf of the principal? a) Full disclosure b)Loyalty c) Accountability d) Reasonable skill and care

c) accountability Accountability means financial accountability and is the fiduciary duty that requires the agent to act with care and properly handle funds received on behalf of the principal. Reasonable care, skill and diligence, along with full disclosure of pertinent information, obedience and loyalty are also all a part of a licensee's fiduciary duty to the principal

Paula enters into a contract for the purchase of Jordan's home. Paula applies for a mortgage. The contract requires her to get a document from her mortgage lender stating that the lender will be loaning her the necessary funds. What is that document called? a) An assurance b) A promissory note c) A commitment d) A letter of approval

c) commitment A commitment is a document from a mortgage lender stating that the lender will be loaning the purchaser/borrower the necessary funds. The promissory note contains the borrower's promise to repay the debt and the manner and frequency of payment (e.g., monthly via check). The note also contains the principal balance owned and the interest rate. A letter of approval may refer to a pre-approval letter issued by the lender to show potential sellers that the borrower may be approved for a loan for a particular amount

Ownership of real property for an undetermined length of time is called: a) A leasehold estate b) An estate c) A nonfreehold estate d) A freehold estate

d) a freehold estate A freehold estate is ownership of real property for an undetermined length of time. A nonfreehold or leasehold estate has a determinable end. An estate is simply an interest in property that provides the right to possess the land

Halley owns 25 acres of land in a residential area and wants to develop a real estate complex containing 50 single family homes. What type of mortgage can she obtain that will permit her to pay it off as she sells each home? a) PMI b) Pledged Account c) Open-End d) Blanket

d) blanket A blanket mortgage is a commercial mortgage often used by real estate developers to finance a project. At least two parcels of property are pledged as collateral. The release clause allows the lien to be lifted on particular parcels when a certain amount of the loan balance is paid, such as when a new home is sold and the developer uses the proceeds from the sale to pay off a portion of the Blanket mortgage. PMI is private mortgage insurance, which is not a type of mortgage. It is used when the down payment is less than 20% to insure the top portion of the loan in case of default. An insurance premium is typically added to the monthly mortgage payment. A Pledged Account involves the purchaser placing money in a savings account and using the earned interest to supplement the mortgage payment. With an Open-End mortgage, the mortgagor (purchaser/borrower) is entitled to demand additional loan funds without the need to undergo a new underwriting process.