Florida Real Estate Exam TEST-with 100% verified solutions 2024-2025, Exams of Business Administration

Download Florida Real Estate Exam TEST-with 100% verified solutions 2024-2025 and more Exams Business Administration in PDF only on Docsity! Florida Real Estate Exam TEST-with 100% verified solutions 2024-2025 Binder deposit shows up as what on closing statement? Credit to buyer Which of the following is true about leverage? Leverage is the use of borrowed funds to purchase assets. Which of the following liens would take priority? A property tax lien In which of the following theories of mortgage lending does the borrower not retain ownership of the property during the loan period? Title theory What is the status of a sales associate's license if he does not complete the required 45-hour post license course before the first expiration of his license? Null and void Which mortgage clause allows the mortgagee the right to demand the outstanding loan balance plus accrued interest in the event that the borrower sells or transfers any interest in the property without the lenders prior written consent? Due-on-sale clause Which of the following is the type of method a surveyor would use to describe a property that is in a subdivision? The lot and block method Which of the following is also called "legal notice" and is the act of recording documents in the public records? Constructive notice What kind of rights are associated with water flowing through your property? Riparian rights Which of the following expenses associated with a principal residence are deductible for income tax purposes? Mortgage interest and property taxes In platted subdivision, the legal description most often used is? Lot and block An option contract is a? Unilateral contract Assuming that the broker is a seller's agent, the sales commission would appear most commonly on the closing disclosure as a? Debit to seller Harold filed his application for sales associate licensure 31 days ago. To date he has not heard if his application has been approved or not. What is the status of Harold's application? It is still pending approval until 90 days have passed. Which Florida statute establishes real estate licensees' legal rights and responsibilities? Chapter 475 What is the best definition for "real estate"? Interest in land, business enterprises, or business opportunities with some exceptions Which of the following is a requirement of the general licensing provisions? Social Security number Florida sales associate educational requirements include 14 hours of continuing education every 2 years Florida broker pre-license requirements include 72 hours of pre-licensing coursework. Which of the following real estate services can legally be offered by someone not licensed as a real estate broker, broker associate, or sales associate? An individual renting properly licensed public lodging Which of the following must be licensed as a real estate broker, broker associate, or sales associate? Anyone procuring purchasers of business opportunities The Florida Real Estate Commission consists of seven members, all appointed by the Governor. Which of the following is true regarding the Florida Real Estate Commission? The Commission is responsible for fostering the education of brokers in the principles that should govern their conduct. If a broker's license has become void during a period of economic hardship, when can his license be reinstated? It can be reinstated within 6 months. Tania has just received her sales associate license. When must she complete her post-license education requirements? Prior to the first renewal of her license Broker John changed his business address and did not notify the Commission during the required time period. What is the status of John's license? It has ceased to be in force. Which of the following is a duty or power of the Department of Business and Professional Regulation? Suspend the license of a broker who is not in compliance with a support order An agency relationship is formed when a customer gives a broker authority to act on his/her behalf. Which type of agency is illegal in Florida? Dual In Florida, it is presumed that all licensees are operating as transaction brokers unless another type of relationship is established in writing. In a brokerage relationship that involves designated sales associates, what is the role of the broker? To advise and assist the sales associates The Brokerage Relationship Disclosure Act establishes brokerage representation disclosure requirements. The disclosure requirements covered in the Brokerage Relationship Disclosure Act only apply to residential sales. Which type of property would not be classified as residential? 10 residential units in one building Which of the following is a duty of a transaction broker but not a duty of a single agent? Limited confidentiality Florida's real estate disclosure requirements apply in which of the following situations? The 3-residential-unit property is being rented with an option to buy. A broker who represents as a fiduciary both the buyer and seller in a real estate transaction is a dual agent. If a broker receives a kickback, what must he or she do? Disclose it to all involved parties Which of the following business entities may not register as a brokerage? Corporate sole A trade name must not be used by a sales associate. An unlicensed associate may not sign a listing agreement. A broker-associate may be a business entity officer, director, or partner if he/she Upgrades to an active broker If a sales associate terminates his employment with one broker and becomes employed with another broker, what happens to the associate's license? It ceases to be in force. Broker Chad received an under-the-table payment from Tom's Home Inspection Services for recommending Tom to a home buyer. Chad must tell everyone involved in the same transaction about the payment. Broker Sal sold Owner John's home and is not being paid his commission. What type of lien rights does Sal have for the unpaid commission? Sal has no lien rights for the unpaid commission. Regarding escrow accounts, which of the following is true? The broker has 30 days to correct any account errors In what they believed was a smart business decision, Roy's Realty and Wescott brokerages have created a monopoly for real estate services in their small town of Bakersville. Was this indeed a smart business decision? Why or why not? No, because they have violated antitrust laws What is the statute of limitation for filing any action in a claim for an antitrust law violation? 4 years Florida allows brokers to deposit personal funds into a sales escrow account. What is the allowed limit of personal funds? $1000 Florida allows brokers to deposit personal funds into a property management escrow account. What is the allowed amount of personal funds in this type of account? $5000 When may escrow account funds be disbursed? When transaction closes What is the broker's monthly responsibility regarding all escrow accounts? Create a written statement of liabilities and balances If a rental information list is provided for a fee, the tenant may be fully reimbursed for the fee unless the tenant demanded the refund after 60 days of paying the fee. The Florida Antitrust Act of 1980 was enacted to complement the federal antitrust laws A broker has not violated Florida antitrust laws if he/she meets with another brokerage to compare listed properties. A sales associate may collect a commission directly from the seller only when his/her employer consents. What is a kickback? Monies paid to a broker for using a particular service provider during a real estate transaction Which of the following is not required when filing a complaint against a licensee for a rule or regulation violation? Complaint must include witnesses to the action. Which of the following is not an option for the respondent to a filed complaint? Dispute the allegations and be provided an informal hearing Which of the following is not an administrative penalty for law or rules violations? License cancelation What is the maximum imprisonment time allowed for a misdemeanor of the second degree? 60 days Being compensated for practicing real estate without a license is a Felony of the 3rd degree A notice of noncompliance may be issued for a minor violation. Which of the following falls within the statutory guidelines of a "minor violation"? Broker Hale failed to maintain a sign at his brokerage office Property Seller Sue believes she has a valid case against Broker Bob because Sue suffered monetary damages due to Bob's action as her real estate agent. Before Sue can seek recovery payment from the Florida Real Estate Recovery Fund, who must determine whether or not she suffered the damages? A civil court To qualify for recovery funds, the complainant must file a claim within 2 years of discovering damaging act A person may be qualified to make a claim for recovery from the Real Estate Recovery Fund if the person notified the FREC of the claim by certified mail. Payments from the Real Estate Recovery Fund are limited for each broker to an aggregate $150,000 When the DRE attorneys and the licensee and his/her attorneys come to an agreement regarding the statement of facts and the imposed penalty associated with a complaint, this is known as Stipulation Charlene, who is located in Michigan, is looking to purchase a home in Florida based solely on her broker's recommendations because she will not see the home prior to purchase. Her broker has told her that he found a beautiful home on a lake that is just what she is looking for. In actuality, the home is a fixer-upper at best, and the lake is infested with alligators and poisonous snakes. Which of the following statements is FALSE? Charlene should file a citation against the broker. A licensee who has received a final order of guilty for a violation complaint may appeal the order within 30 days after the final order. If a licensee is suspended prior to any hearing for a complaint of a serious law violation, this action is known as a Which of the following is covered by the provisions of the Florida Residential Landlord and Tenant Act? A leased condominium Which of the following is not a basis for the granting of additional homestead ? Familial status Which of the following contracts would be covered by Florida's Statute of Frauds? A purchase contract on a property for $109,000 Which of the following must be disclosed regarding radon gas? An explanation of what radon gas is Which of the following would be defined as real estate as opposed to real property? Wells, driveways, and signs on a parcel of land. Which of the following would be considered a property improvement? A chicken coop permanently attached to land. A waterfront homeowner has just died. What will become of the water rights the owner enjoyed while living in the home? They transfer with the property when the property is sold. Which of the following best describes a "fixture?" An item of personal property that has been converted to real property. An item may be considered personal property as opposed to real property provided that the owner intended to remove it after a period of time. Two people own a house, each having an undivided equal interest. Which of the following best describes what each party owns? Fifty percent of the estate consisting of the indivisible whole of the real property. A real property interest that includes the right to possess is considered An estate in land The right to control land usage by zoning and eminent domain is an example of A public interest If the duration of an owner's rights in an estate is not determinable, the owner has A freehold estate The distinguishing feature of a leasehold estate is that the estate is limited by a lease term. A landowner conveys a parcel of property with the provision that the land cannot be developed for retail purposes. The new owner immediately begins to develop a retail shopping outlet, the grantor finds out and takes the property back. What kind of estate did this landowner convey? Fee simple defeasible Which of the following best describes the physical boundaries of land? The center of the earth and infinite space above the earth. Ned grants his sister Alice an estate for as long as she lives. Her descendants, however, cannot inherit the estate. What kind of estate is it? An ordinary life estate Homestead estates are examples of A legal life estate Louis owned a boat and a house before marrying Barbara. While she was single, Barbara owned a new car. The two got married and bought a second home. As a wedding present, Barbara's father bought Louis a motorcycle. Under the law of community property, what property can Louis sell without his wife's consent or signature? The boat, house, and motorcycle. Which of the following would be considered community property? Income derived from community property When real property is held in a land trust, who controls the property? The beneficiary In a community property state, John marries Patricia. Prior to the marriage John owned an SUV. During the marriage, John bought a Buick, John and Patricia bought a second property with money earned from Patricia's job, and each individual received a motorcycle from Patricia's uncle as a gift. What property is community property in this marriage? The Buick and the second property. Which of the following is true of a cooperative? A cooperative may hold an owner liable for the unpaid operating expenses of other tenants. Which of the following is true of a tenancy in common? The owners enjoy an indivisible interest. Which of the following best describes the legal concept of personal property? Any item of property that is not definable as real property. Carissa and Robert acquire a condominium as tenants in common. In this circumstance, Carissa can sell her interest to a third party without the consent of Robert. When a tenant in common dies, what happens to the tenant's interest in the estate? It passes by probate to the deceased tenant's heirs. We have an expert-written solution to this problem! Which of the following is true of a joint tenancy? The tenants have an equal and indivisible ownership interest. In contrast to a tenancy in common, in a joint tenancy there is a single title to the property. If a joint tenant sells his or her interest to an outside party, the new owner becomes a tenant in common with the other owners, who continue to hold a joint tenancy with each other and a tenancy in common with the new owner. When a joint tenant dies, what happens to the tenant's interest in the estate? It passes to the surviving joint tenants. Under what conditions can two individuals own a property as tenants by the entireties? If they are married. 4 Unities Unity of Possession (joint ownership and control); Unity of Interest (the interests in the account must be identical); Unity of Title (the interests must have originated in the same instrument); Unity of Time (the interests must have commenced simultaneously) When an estate is held in a trust, which party holds legal title? The trustee Tanya buys a 4-bedroom condominium. As the new owner, she has the right to sell or mortgage the unit without impediment from individual owners of neighboring units. A condominium owner's share of maintenance and operations expenses are based on the unit's pro rata share of the property value as defined in the declaration. The right to encumber a property means that the owner can pledge the property as collateral for debt. A proceeding to enforce a lien by forcing the sale or transfer of a secured property. A property is secured by a mortgage that does not contain a "power of sale" clause. To foreclose, the lien holder will have to file a foreclosure suit. A homeowner defaults on his mortgage loan. In the subsequent foreclosure action, the lender takes title to the liened property directly instead of initiating a court-ordered public sale. This is an example of strict foreclosure. A property owner gives Deanna permission to cross his property as a shortcut to her kindergarten school bus. One day the property owner dies. What right was Deanna granted originally, and will it survive the owner's death? A license, which terminates upon the owner's death. On two adjacent properties, there is an easement that allows property A to use the driveway that belongs to property B. Here, property A is said to be which of the following in relation to property B? Dominant tenement. A property owner who is selling her land wants to control how it is used in the future. She might accomplish her aim by means of A deed restriction What distinguishes a lien from other types of encumbrance? It involves a monetary claim against the value of a property. Mr. King wants to offer 100 acres of his property for sale. Since the property is landlocked, he will have to put in a driveway to the road that will run across his remaining property. What kind of easement will he have to grant? An easement appurtenant. Which of the following defines actual notice? It is knowledge received or imparted through direct experience. Which of the following defines constructive notice? It is knowledge one could have or should have obtained. Ownership of real estate can be transferred voluntarily or involuntarily. The three ways title can be transferred voluntarily are by grant, deed, and will. Involuntary alienation is the transfer of real estate by law and without the owner's consent. There are 4 methods by which this is accomplished: foreclosure, eminent domain, adverse possession, and by escheat. What is the function of recording a deed? It gives constructive notice of ownership. The only clause that is actually required in a deed is the Granting clause The type of deed that offers the grantee the fullest protection against claims to the title is the general warranty deed. What is one of the purposes of a lawsuit to "quiet title"? To have an encumbrance removed if the lienholder cannot prove its validity. Which of the following best describes the documentary stamp tax? A transfer tax based on the price of the property being conveyed. The court proceeding that generally settles a decedent's estate is called probate. If an owner of real property dies intestate and has no legal heirs, what will happen to the property? It will escheat to the state or county. A landlord generally has the right to enter the leased premises for specified reasonable purposes. When a tenant rents an apartment, he or she is usually responsible for compliance with the rules and regulations of the building. easement appurtenant benefits one parcel of land to the detriment of another parcel of land. easement in gross benefits a person or entity and not a parcel of land. servient estate The land that has the easement on it dominant estate the land that benefits from the easement Under landlord-tenant laws, landlords must treat tenants fairly and honestly. In a residential leasehold, this requirement would include providing required building support and services. While a one-year lease is in effect, the tenant dies of a sudden illness. In this situation, the tenant's estate is still obligated under the lease. Three students rent a house together, and all three sign a one-year lease. Six months later, two students move out. Which of the following is true of the remaining rent obligation? The remaining tenant is responsible for the full rent obligation. A tenant transfers a portion of the leasehold interest to another party. The instrument that accomplishes this transfer is a(n) Sublease Vijay enters into a lease for his new store. The provisions of the lease require Vijay to pay the operating expenses of the premises such as janitorial and repair expenses. This is an example of a net lease. A tenant obtains a full-service lease where the landlord agrees to pay all operating expenses in exchange for an additional $5.00 rent per square foot. Another term for this lease is a(n) gross lease. Which of the following circumstances is the most likely scenario for a ground lease? An owner-developer wants to retain ownership of the land portion of the improved real property. A court might grant an easement by prescription if a trespasser has been using an owner's property for a certain period with the owner's knowledge but without permission. A tenancy at will can usually be terminated by either party giving proper notice. Under the Uniform Residential Landlord and Tenant Act, if a lease does not state a clear expiration date, the lease is regarded as a tenancy from period-to-period The Uniform Residential Landlord and Tenant Act generally does not apply to A hotel In executing a condominium lease, a tenant has acquired a temporary possessory interest. When a tenant acquires a leasehold estate through a lease, what does the property owner acquire? A leased fee estate. If a municipality exerts its power of eminent domain against a certain property owner, what happens? The owner must sell the property in exchange for market-value compensation. To be valid, a local zoning ordinance must reasonably promote community health, safety and welfare. Why do communities require building permits? To ensure that improvements comply with codes. What is the purpose of residential zoning? To regulate the density of dwellings in the residential zone. A non-profit organization wants to erect an urgent care facility in a residential zone. Given other favorable circumstances, the local authorities may grant permission by allowing a special exception. A property that conformed with zoning ordinances when it was developed but does not conform to new ordinances is said to be a legal nonconforming use. The approval process for development of multiple properties in an area includes submission of a plat of subdivision Why do zoning authorities create different types of zones? To separate land uses so that they do not interfere with each other. A legal description of a property is one which accurately identifies the boundaries of the property as distinct from all other properties. The essential elements of the metes and bounds system are reference points, angles, and distances In the Rectangular Survey System, a range is the area in between two consecutive meridians. In the Rectangular Survey System, what are the dimensions of a township? Six miles by six miles, or 6 miles square. What portion of a section is ten acres? 1/64 A certain legal description contains the phrase, "...northwesterly along Erie Road to the POB...". What kind of description is this? Meets and bounds The key consideration in granting a zoning exception known as a special exception is which of the following? The public interest The valuable consideration necessary to make a contract valid must be something of value traded in exchange for something of value. A real estate sales contract, to be enforceable, must contain a legal description of the property. How much time does a seller have to accept a buyer's offer? A reasonable time, or until the expiration date on the offer. A buyer submits an offer to a seller and then dies in a car accident. Before learning of the buyer's death, the seller accepts the offer. Which of the following is true? The buyer's death terminated the offer. Which of the following contracts can be assigned to another party? Is void The statute of limitations requires that parties to a contract who have been damaged or who question the contract's provisions must act within a statutory period. The purpose of the statute of frauds is to require certain conveyance-related contracts to be in writing. A seller immediately accepts a buyer's offer but waits ten days before returning the accepted document to the buyer. Meanwhile, the offer has expired. Which of the following is true? The buyer has no obligations to the seller whatsoever. How does Planned Unit Development zoning vary from ordinary zoning? It requires that multiple tracts of land be developed according to a single design. Which of the following situations is most likely to represent an illegal nonconforming use? A homeowner in a residential zone converts her residence to a private school. What is the difference between a variance and a nonconforming use? A variance is granted by the zoning board if the owner has a justifiable reason A document certifying that a structure complies with building codes and is ready for use is referred to as a(n) certificate of occupancy. Which of the following is true of an eminent domain proceeding? It conveys legal title to the acquiring entity. Which of the following business entities is generally prohibited from brokering real estate? Non-profit corporation. A joint venture may generally broker real estate if the co-venturers are properly licensed. Under what circumstance may a property listed for sale with a brokerage be advertised without identifying the broker? Never. Competing brokers in a county seat agree on a standard commission rate for principals within the county. This is a possible violation of fair trade and anti-trust laws. What is co-brokerage? Outside brokers assist a listing agent in procuring a buyer. Which of the following may associate his or her name or title with the term "Realtor®"? Only members of the National Association of Realtors®. Real estate sales agents are legally authorized to negotiate and execute contracts for sale on behalf of the client. How does the position of an independent contractor licensee (IC) differ from that of an employee licensee? The IC is responsible for his or her own taxes; the broker does not withhold. A broker associate's commission rate and structure is established by competitive conditions. In obtaining offers from a buyer, an agent must be careful to avoid disclosing what price the owner will accept. Commingling is the practice of mixing escrow funds with the broker's operating funds. On Wednesday, Fred offers to sell his property to Jack for $275,000, with the offer to remain open until 5 p.m. the next day. On Thursday morning, Sally offers Fred $280,000 for the property and Fred accepts. At 1 p.m. on Thursday afternoon, Jack accepts. Which of the following is true of this situation? Fred has entered into contracts with both Jack and Sally to sell the same property. Which of the following activities is a licensed sales associate allowed to engage in? Offer a property for lease on behalf of the employing broker Among the items that normally must be disclosed in a sale contract or its addenda is/are the agency relationships and property condition. To create an enforceable option-to-buy contract, there must be an exchange of valuable consideration and a right to buy Mary Carboy buys a house from Jim Schmidt and at the same time obtains an option to purchase the adjoining vacant lot for $10,000 within one year. A few months later, Carboy informs Schmidt that she is ready to exercise her option, but finds that Schmidt has received an offer of $12,000 from another party. Schmidt states that he will accept the offer unless Carboy is willing to match the $12,000 offer. Which of the following is true of this situation? Schmidt must sell to Carboy for $10,000 Which of the following is true regarding the assignability of an option? It is always assignable unless the contract prohibits assignment. Which of the following is true of a contract for deed transaction? At the end of the contract period, the vendor conveys legal title, provided the vendee has fulfilled all obligations. Several buyers are competing for the last available home in a desirable new subdivision. One buyer calls the owner-developer directly on the phone and offers $20,000 over and above the listed price. The developer accepts the offer. At this point, the parties have completed a verbal, executory contract. An owner completes a sales contract on her property with a buyer. Before closing, the seller runs into financial trouble and assigns the contract to her principal creditor. The buyer cries foul, fearing the property will be lost. Which of the following is true? The assignor has completed a legal action. A due-on-sale clause in a sale contract puts parties on notice that any conveyance may trigger an acceleration of any loans secured by the property. A tenant has an option-to-purchase agreement with the landlord that expires on June 30. On July 1, the tenant frantically calls the landlord to exercise the option, offering the apology that she was busy with a death in the family. Which of the following is true? The option is expired, and the tenant has no rightful claim to money paid for the option. Two parties enter into a contract for deed agreement. In this form of agreement, the seller retains legal title while the buyer makes partial payments until the contract is fully executed. If a sales associate has worked on a completed transaction that involved a listing agent, a selling agent, and several subagents for each of these, from whom will the sales associate receive any compensation that is due? The employing broker. A property has sold for $380,000. The listing agreement calls for a commission of 6.5%. The listing broker and selling broker agree to share the commission equally. What will the listing agent receive if the agent is scheduled to get a 40% share? USD 4,940. A real estate sales associate finds a buyer to a For Sale By Owner property. The home sells for $245,000, and the seller agrees to pay a commission of 3%. The sales associate is on a 65% commission schedule with her broker, who pays her 65% minus office expenses of $500. How much will the sales associate receive from this transaction? USD 4,278. Under the Equal Credit Opportunity Act, a lender, or a real estate agent who assists a seller in qualifying a potential buyer, may not ask the buyer/borrower about his/her religion or national origin. A conventional mortgage loan is one that is not FHA-insured or VA-guaranteed. The assumability of an FHA-insured loan is limited by when the loan was originated. When homebuyer Henry pledges his newly purchased home as collateral for a mortgage loan, the evidence of the pledge is the trust deed or mortgage. A VA certificate of eligibility determines how much of a loan the VA will guarantee. A borrower obtains a 30-year, fully amortizing mortgage loan of $50,000 at 8%. What is the principal balance at the end of the loan term? Zero. Which of the following describes a purchase money mortgage financing arrangement? The buyer gives the seller a mortgage and note as part of the purchase price of the property. A homeowner borrows money from a lender and gives the lender a mortgage on the property as collateral for the loan. The homeowner retains title to the property. This is an example of hypothecation. Which of the following correctly describes the flow of money and documents in a mortgage loan transaction? The borrower gives the lender a note and a mortgage in exchange for loan funds. In a deed of trust transaction, which of the following occurs? The trustor conveys title to a trustee in exchange for loan funds from the beneficiary. A lender lends money to a homeowner and takes legal title to the property as collateral during the payoff period. They are in a title-theory state. A lender who charges a rate of interest in excess of legal limits is guilty of usury. A lender is charging 2 points on a $60,000 loan. The borrower must therefore pay the lender an advance amount of USD 1,200. The difference between a balloon loan and an amortized loan is an amortized loan is paid off over the loan period. The borrower in a mortgage loan transaction is known as the mortgagor. A distinctive feature of a promissory note is that it is a negotiable instrument. When the terms of the mortgage loan are satisfied, the mortgagee may be required to execute a release of mortgage document. In addition to income, credit, and employment data, a mortgage lender requires additional documentation, usually including an appraisal report. The three overriding considerations of a lender's mortgage loan decision are the ability to re-pay, the value of the collateral, and the profitability of the loan. What is the role of the Federal Housing Authority in the mortgage lending market? It insures loans made by approved lenders. What is the role of the Veteran's Administration in the mortgage lending market? It guarantees loans made by approved lenders. In a graduated payment mortgage loan, the loan payments gradually increase. In a buydown, the borrower pays additional interest at the onset in order to obtain a lower interest rate. If a borrower's monthly interest payment on an interest-only loan at an annual interest rate of 6% is $500, how much was the loan amount? USD 100,000. A borrower of a $50,000 interest-only loan makes annual interest payments of $3750. What interest rate is the borrower paying? 7.5%. Maria borrows $100,000 and pays two points for the loan. How much does she pay in points? USD 2,000. Which of the following is true of an amortizing loan? Part of each periodic payment is applied to repayment of the loan balance in advance and part is applied to payment of interest in arrears. For a loan that is not backed by the Federal Housing Administration or Veterans Administration, and for which the borrower is making a down payment of less than 20%, the lender is likely to require the borrower to obtain private mortgage insurance. If the price of an item is increasing, one can usually assume that demand for the item is increasing in relation to supply of the item. When the market for an item has achieved market equilibrium, which of the following statements is true? Supply and demand are equal, and price and value are equal. If commercial real estate rental prices are falling in a market, it is likely that the market is over-supplied. A construction boom in a market is an indication that prices have been increasing. Why is real estate traditionally considered a relatively illiquid economic product? Its physical form is fixed. What does "base employment" refer to in the context of real estate demand? The number of persons employed in base industries in an area What is "vacancy" in real estate market economics? The total existing space of a certain type that is unoccupied at a given time A moratorium on new construction is an example of local government influencing the real estate market, regardless of demand. Of the following potential influences on a local real estate market, which one would be considered local, rather than regional, national, or global? In- and out-migrations of major employers In the final step of an appraisal, the appraiser reconciles the value estimates derived by the various appraisal approaches by weighing the applicability of the approaches and considering the quality of data supporting each approach. Which of the following statements properly describes the central concept of the sales comparison approach? Make dollar adjustments to the sale prices of comparable properties to account for competitive differences with the subject. One of the strengths of the sales comparison approach is that it takes into account the competitive value of specific amenities of the subject property. In making dollar adjustments in the sales comparison approach, the appraiser adds value to a comparable that is inferior to the subject property. The best comparable property for use in the sales comparison approach is the one that requires the fewest and smallest adjustments The city of Stevensville has declared a moratorium on new construction. If demand is increasing, what will be the likely effect on real estate prices in the area? Prices rise. A house is being appraised using the sales comparison approach. The house has three bedrooms, two bathrooms, and a patio. The appraiser selects a comparable house that has three bedrooms, 3 bathrooms, and no patio. The comparable house just sold for $200,000. A bath is valued at $7,000, and a patio at $2,000. Assuming all else is equal, what is the adjusted value of the comparable? USD 195,000. Since the comparable has an extra bath, it is adjusted downward to equalize with the subject. Conversely, since it has no patio, the appraiser adds value to the comparable. Thus, $200,000 minus $7,000 plus $2,000 equals $195,000. Which of the following statements properly describes the central methodology of the cost approach to appraisal? Add the estimated land value and cost of improvements and subtract the accrued depreciation of the improvements. One of the strengths of the cost approach is that it is very accurate for a property with new improvements that represent the highest and best use. The principle underlying depreciation from physical deterioration is that a property loses the same increment of value each year over the economic life of the property. A property is being appraised by the cost approach. The appraiser estimates that the land is worth $30,000 and the replacement cost of the improvements is $95,000. Total depreciation from all causes is $10,000. What is the indicated value of the property? USD 115,000. Which of the following statements properly describes how to apply the income capitalization approach to appraisal? Divide the income a property generates by a rate of return. A strength of the income capitalization approach is that it uses a method that is also used by investors to determine how much they should pay for an investment property. A property is being appraised using the income capitalization approach. Annually, it has an estimated gross income of $60,000, vacancy and credit losses of $3,000, and operating expenses of $20,000. Using a capitalization rate of ten percent, what is the indicated value (to the nearest $1,000)? USD 370,000. An apartment building that sold for $450,000 had monthly gross rent receipts of $3,000. What is its monthly gross rent multiplier? 150.0 A rental house has monthly gross income of $1,200. A suitable gross income multiplier derived from market data is 14.1. What estimated sale price (to the nearest $1,000) is indicated? One weakness of the cost approach for appraising market value is that market value is not always the same as what the property cost. What is "absorption?" The number of available units that become occupied over a period of time. The cost of constructing a functional equivalent of a subject property is known as replacement cost. We have an expert-written solution to this problem! An office building lacks fiber optic cabling to accommodate the latest communications equipment. This is an example of functional obsolescence. A home is located in a neighborhood where homeowners on the block have failed to maintain their properties. This is an example of incurable economic obsolescence. In appraisal, loss of value in a property from any cause is referred to as depreciation. In the cost approach, after estimating the value of the land and the cost of the improvements, the appraiser estimates depreciation, subtracts depreciation from cost, and adds back the land value. When vacancies are declining in a real estate market, it is common for the market to experience rising prices. The price for any product is a function of four fundamental determinants of value. These are desire, utility, scarcity, and purchasing power. A town is rapidly growing, but all the buildable vacant lots in the most desirable area have already been occupied. In this case, it is likely that the price of existing homes in that area will increase. If there is a significant undersupply of homes in a market, construction will tend to increase. This is an example of the market tending toward equilibrium. When an investor has to pay a lender more to finance the investment than the investment property generates in income, the investor suffers from negative leverage. Cost recovery is allowed as a federal tax deduction on income properties. All investors desire their investments to increase in value. However, the more the investor stands to gain, the greater the risk that the investor may lose. Two of the financial rewards that investments offer are income and tax benefits. Because a real estate investment can take a long time to sell, real estate investments are considered to be relatively illiquid. Compared to a stock portfolio, a real estate investment would be considered a more management-intensive investment. Six investors purchase a shopping center. One investor manages the tenants and another handles the marketing and leasing. Two investors manage accounting and finance, and the remaining two run the management office. This is a possible example of a general partnership. The formula for determining taxable income produced by an income property is What is a tax deed? A conveyance instrument for a property that is sold to enforce a tax lien. If a property owner has the right to redeem his or her property after a tax sale, the owner has a statutory right of redemption. The formula for deriving a municipal jurisdiction's ad valorem tax base is the total of all assessed values of properties minus exemptions. A homeowner's total tax bill is derived by multiplying each district's tax rate times the taxable value of the property. The primary tax benefit in owning a non-income property such as a residence is a deduction for mortgage interest. The fair housing law that first protected people against discrimination in housing based on race was the Civil Rights Act of 1866. The classes protected against discrimination by the Fair Housing Act of 1968 are race, color, religion, and national origin. An agent is committing an act of discriminatory advertising by doing which of the following? Advertising a property as available to individuals of a particular race. Which of the following is an example of blockbusting? An agent persuades a family to put their house on the market because ethnic minority families are beginning to move into the neighborhood. The practice of redlining is specifically prohibited by The Home Mortgage Disclosure Act. Title VIII of the Civil Rights Act of 1968 applies to the sale of privately owned single-family residences listed with a broker. A broker signs a listing agreement to sell a home for $200,000. An immigrant couple are interested in the house and ask the agent the price. The agent states the price as $210,000. According to the fair housing laws, such an action is illegal, because the agent changed the terms of the sale to discourage this particular couple. Which of the following actions is allowed under federal fair housing laws? The owner of a duplex who resides in one of the units refuses to rent the other unit to a non-Christian. Cecily Longstreet believes a real estate agent has kept her from seeing a certain property for rent because she is a woman. What actions should she take if she wants legal satisfaction for her complaint? File a complaint with HUD and/or file suit against the offending parties in a state or federal court within the prescribed time period. George Scott hires Shannon Lang to sell his house, with the condition that he will not be the first one in the neighborhood to sell to members of a certain ethnic group. What should Shannon do about this condition? Inform Scott that the condition is illegal and that she cannot comply with it. A house sold for $250,000. The seller paid a brokerage commission of six percent, legal fees of $600, and had other closing costs of $1,500. What are net proceeds from the sale? USD 232,900. The figure for net proceeds from sale is expressed by the formula: sale price - costs of sale = net proceeds. Thus $250,000 - (6% x 250,000) - 600 - 1,500 = $232,900. Under federal fair housing laws, the owner of a ten-unit apartment building may legally require families without children to pay the same security deposit that families with children must pay. expenses of $500. Elmo's taxable income from this property will be taxed at a rate of 30%. What is the tax liability for the year? USD 2,100. Annual gross operating income ($1,500 x 12 = $18,000) - annual operating expenses ($500 x 12 = $6,000) = annual net operating income ( $12,000); annual net operating income ($12,000) - cost recovery expense ($5,000) = taxable income ($7,000); taxable income ($7,000) x tax rate (30%) = tax liability ($2,100). The conditions of an escrow agreement cannot be met and the related transaction cannot be completed. In such a case, the escrow agent returns funds to the buyer. To avoid violating the Real Estate Settlement Procedures Act, parties who are providing services to the buyer or seller in a transaction must disclose in writing any business relationships they have with other parties involved in the transaction. Julie is buying Florence's house. The closing date (day belongs to seller) of the sale transaction is September 1 (day 244 of the year). The buyer's loan amount is $78,750 (90%; 30 years @ 8%). The monthly payment on this loan is $577.84, with $525 going to interest in the first month. At closing, Julie must pre-pay interest for the period of Sept. 2-Sept. 30. Use the 365-day method for prorating. What is Julie's prepaid interest amount? USD 525.00. If the buyer pays $525 interest for 30 days, the daily expense is ($525 ÷ 30), or $17.50. If there are 29 days of pre-paid expense, the buyer's charge is ($17.50 x 29), or $507.50. Melissa is buying Raymond's house. Melissa's loan amount is $88,750. She has agreed to pay 2 points at closing. How much will Melissa pay for points? USD 1,775.00. $88,750 x .02 = $1,775. Remember, one point = 1% of the loan amount. A sale contract stipulates that a buyer is to pay the seller's transfer tax expenses. This practice is not customary in the area. In this case, the buyer must pay the expense. What a buyer has to pay at closing is equal to the excess of the buyer's debits over the buyer's credits. The standard E & O policy covers damages resulting from negligence, error or omission in carrying out professional services. A certain item is to be prorated between a buyer and seller. If no outside party is concerned, which of the following statements is true? The item must be prorated and recorded as a debit to one party and a credit to the other party for the same amount. An item is said to be paid in arrears if it is normally paid at some time after the expense is incurred. A seller received a rental payment of $900 in advance. At closing, the seller has earned only $320 of this rent. What should appear on the closing statement? A debit to the seller and credit to the buyer for $580. We have an expert-written solution to this problem! A buyer will receive a water bill for an estimated $100 at the end of the month. At closing, the seller has used an estimated $43 in water. What should appear on the closing statement? A debit to the seller and credit to the buyer for $43. A sale transaction closes on April 1, the ninety-first day of the tax year. The day of closing belongs to the seller. Real estate taxes for the year, not yet billed, are expected to be $2,190. According to the 365-day method, what is the seller's share of the tax bill? USD 546.00. The daily tax expense, first, is ($2,190 ÷ 365) or $6.00. Since the buyer will pay the taxes after closing, the seller will owe the buyer his or her portion of the tax bill, which is the 91 days from the beginning of the year through closing. Therefore, credit the buyer and debit the seller ($6.00 x 91), or $546.00. A sale transaction closes on July 4. The day of closing belongs to the seller. On January 1, the seller paid a hazard insurance premium of $375 for the calendar year. According to the 12-month/30-day method, what is the seller's share of the insurance premium? USD 191.67. Severable Rights What is the highest form of land ownership which includes the full and complete bundle of property rights Fee Simple Absolute It is the highest level of property ownership giving the owner(s) the right of possession, control, exclusion, enjoyment, & disposition. What type of ownership would allow two or more owners to have various unequal percentages of ownership? Tenancy in Common It grants owners to have an equal, undivided interest in a property, but also allows for owners to have varying percentages of unequal ownership as well. Tenancy in Severalty is best described as One property owner 'Severing all other owners' Which of the following is NOT one of the four land use controls? Police Power Intestate Escheat Eminent Domain Intestate The four public land use controls in real estate are Police Power, Escheat, Eminent Domain, and Taxation What is the general purpose for cities to require building permits? To require a minimum level of construction standards. This maintains the safety and well being of the public. Andy's Arcade has been in business in the same location for 15 years. The city recently rezoned the area, no longer allowing commercial usage. Soon after the rezoning, Andy's suffered a devastating fire and the arcade was a total loss. What will Andy need to obtain from the city in order to rebuild the arcade in the same location? Andy will need to obtain a variance The city of Brownwood plans to build a new water treatment facility but the land that is required to privately owned. Eminent domain allows the city to Take possession of the land against the owner's wishes, yet the owner must be compensated Mr. Thompson passed away. He had no heirs and left no will or instructions as to whom he wanted to leave his property to. In this situation, his property will revert back to the state under the doctrine of Escheat Agent Brook is preparing for a listing appointment and has gathered information to prepare a report of recent market data for the seller to review. The report agents reconcile to obtain a reasonable list price for a property based on current listings, recent sales, and expired's would be called Comparative Market Analysis (CMA) Paul owns an older residential property in an area now zoned for commercial use. Paul decides to renovate the home into a laundry mat. The change in the properties functionality for Paul's financial gain is an example of what? Highest and Best use Jon's Tire Store is being built across the street from Big Bob's Tires. What appraisal principle describes this situation? Competition The appraisal principle of Competition states that two similar businesses attract more customers when within close proximity than they would separately. Buyer Sam purchased a run down residential home in a neighborhood with many nice well kept properties. Sam intends to renovate the home and resell it for a profit. Considering the nicer homes in the neighborhood help raise his property value, what appraisal principle is Sam leveraging? Progression Progression is the appraisal principle that a dilapidated property will gain value when the surrounding properties are well kept. Nicer homes Agent Anna has a home listed for sale and sows the home to the Quinns whom she does have a buyer's agency agreement with . The Quinns are Cusomers What duty requires a licensee to follow the principal's orders and requests as long as they are not unethical or illegal Obedience Melissa went on a listing appointment and the sellers were asking legal questions. Questions she felt certain she knew the answers to, what should Melissa do? Suggest they seek legal counsel Agent Terry convinces an owner to list his property way under market value. Terry sells the property to his brother Mark without disclosing the relationship to the buyer in writing. Mark turns around and sells the property for a profit to split with Terry. This is an example of Self dealing This is intentional misrepresentation of an agent's relationship and interest in a transaction Agent Paula found a buyer for her listing, the seller accepted the buyer's offer, and both parties received copies of the contract documents. The seller decides one week prior to closing they no longer want to sell the home. What could happen? The seller owes Paula Commission Larry listed his home for sale with an agent. The property was exposed to an open and free market and after a reasonable time the property sold to a buyer unrelated to Larry. This type of sale would be considered Arm's length transaction How is real estate defined Land including, water, air, and improvements A fence that extends onto the land of another from a neighboring property is called an Encroachment Marvin owns an easement to use the driveway of his neighbor Bob. Marvin's property is considered the Dominant Estate The property that benefits from an easement to another parcel is called the Dominant Estate Which of the following best describes the economic characteristics of land Demand, utility, scarcity, transferability, situs Kevin is leasing a storefront to open a pizza parlor. Any items he attaches to the property which he will use to conduct his business would be Trade fixtures Items and equipment used to conduct business, such as pizza ovens, walk-in coolers, and salad bars are considered trade fixtures and property of the tenant What is accumulation of land caused by the natural flow of water called accretion Donnie leaves his home to his third wife Trish with the clause that after her passing the home goes to his first son Logan. What type of interest does Logan have in the property? Remainder Man A remainder man is a third party interest in a property that will revert to them at the time a life tenant passes away New agent Matt is listing a home for sale which was built in 1965. What disclosure should Matt have the seller complete due to the age of the home? Lead based paint disclosure Properties constructed prior to 1978 fall under the Federal requirement to provide buyers with a Lead Based Paint Disclosure Part of agent Connie's listing packet includes a form for the seller to complete that covers the components of the home for sale and the seller's knowledge of the condition of such items. This form is referred to as Seller's Disclosure Shane is offering an open listing on his home to all local brokers. Shane has offered to pay a 3% commission to the broker that brings him a ready, willing and able buyer. What type of contract did Shane offer? Unilateral contract To be enforceable real estate contracts must be in writing according to the Statute of Frauds A valid contract must contain valuable consideration which means something clearly offered for something else in exchange A valid contract must contain a two-party exchange of valuable consideration and performance In order for a contract to convey ownership in a property transaction the contract must include a legal description In order for a contract to convey ownership in a property the contract must include a legal description that describes the property so that its geographic location is identifiable Which of the following is not a requirement for a contract to be valid and enforceable? Competent parties authority notarization valuable consideration Notarization The required components of a valid contract include competent Parties, Legal Purpose, Voluntary Good Faith, Mutual Consent, and Valuable Consideration In a real estate transaction, when someone is forced into a contract by intimidation or some other type of coercion it is called Duress A contract that does not have all the necessary elements of a contract is Void LeAnn entered into a contract that called for $1000 in monetary damages if the contract was breached. The $1000 in the contract is referred to as Liquidated damages When a contract calls for a specified amount of monetary compensation (earnest money) to be paid to one party of the contract upon a breach of contract this is referred to as liquidated damages. After the offer and acceptance, when the terms of a contract are in the process of being completed, and prior to closing, the contract is said to be Executory Eric rents an apartment at only 17 years old. The lease agreement contract is voidable because Eric is not of legal age to en4ter a contract but who has the ability to void the agreement? Eric Sharon made an offer on her dream home and to show the seller she was a serious buyer she offered a sum of money to be held in escrow that she will forfeit if she does not fulfill her end of the deal. What is the sum of money to be held in escrow as a good faith deposit called? Earnest Money Once all terms of a contract have benn fulfilled and the transaction has closed the contract status is said to be fully Executed Jon signs a six month lease on an apartment beginning Jan 1st and ending June 30th. His lease does not automatically renew and no notice is required on his part to vacate the expiration date. What type of lease did John sign? Estate for years An estate for years is a lease for a fixed period of time, rather than month- to-month, that does not automatically renew and requires no notice to terminate at the end of the term. What duty does an agent acting as a property manager owe a property owner?