1. According to the net present value decision rule, an investor who is considering a project which has a net present value of $1 would
A. reject the investment.
B. lose more money on the investment.
C. accept the investment.
D. be indifferent between accepting or rejecting the investment.
1. Which of the following is considered representative, thus, usable as a comparable sale for a market-value estimate?
A. A voluntary sale in lieu of foreclosure.
B. A forced tax sale.
C. A sale to a family member.
D. A house sold under normal market conditions.
1. A borrower is offered a mortgage loan for $100,000 with a fixed interest rate of 4% and a 30-year amortization period with monthly payments. What are the monthly payments?
1. The primary difference between a life estate and a fee simple absolute estate is that life estates
A. automatically terminate upon the death of a named person.
B. are descendible.
C. are devisable.
D. are not subject to corporate tax.
1. Which of the following describes the formula for the capitalization rate?
A. Actual Gross Rental income divided by listed price
B. Estimated Gross rental income divided by assessed value
C. Net income divided by listed selling price
D. Net income divided by appraised value
1. Use the following table to answer the next three questions:
Net Income Annual
Gross Income Selling Price
Property 1 82,000 122,000 1,250,600
Property 2 75,000 111,500 1,145,300
Property 3 145,000 175,000 1,433,600
Subject 60,000 108,000 ?
2. If properties are residential properties, what is the Gross Income Multiplier for Property 2?
1. What is the Cap Rate of Property 3?
1. Using the cap rate of Property 3, what selling price should be set for the Subject property?
1. Amortization is the
A. practice of charging interest on a loan
B. process of gradually retiring a debt by periodic payments
C. compounding of interest
D. use of debt to enhance the rate of return
1. The Real Estate Settlement Procedures Act (RESPA) prohibits all of the following except
A. kickbacks paid to brokers.
B. referral fees paid to brokers.
C. mandatory use of a title insurance company.
D. disclosure of closing costs prior to the closing.
1. Real estate refers to
A. land and structures attached to it.
B. legal benefits, interests or rights inherent in the ownership of real estate.
C. movable property.
D. land, but not structures attached to it.
1. If the total debt ratio is 36%, and the allowable mortgage debt ratio is 28%, what debt ratio would an applicant qualify for if:
The loan applicant’s gross monthly income is $2,500,
with a mortgage payment of $600,
a car payment of $250,
and minimum monthly credit card payment of $75?
A. the mortgage debt ratio only.
B. both the mortgage debt and total debt ratios.
C. the total debt ratio only.
D. neither ratio.
1. An apartment complex has the following characteristics:
6 three-bedroom units $600 monthly rent
12 two-bedroom units $475 monthly rent
2. Given an expected vacancy rate of 5% percent, what is the potential annual gross income for this property?
1. A deed that transfers any interest which a grantor may or may not have in a property without promising that the grantor actually has such an interest is called a(n) _____________ deed.
A. bargain and sale
D. special warrantee
1. Fred purchased a small retail center for $350,000. Fred placed $100,000 down and obtained an interest-only loan for $250,000 at 10% annual interest. At the end of one year, the building was sold for $410,000. How much money did Fred gain on this investment?
1. The internal rate of return is that discount rate at which
A. the future worth of present cash flows is exactly equal to the initial cash investment.
B. the present value of future cash flows is larger than the initial cash investment.
C. the future worth of cash flows is larger than the initial cash investment.
D. the net present value of future cash flows is exactly equal to zero.
1. Because many mortgage loans are sold in the secondary market, lenders use _____________ guidelines that are based on what secondary market participants are willing to buy.
A. income ratio
D. architectural style
1. The term _____________ refers to the process of spreading risk exposure across different investment opportunities.
1. Suppose an investor buys a property today for $70,000. If it increases in value by 10% each year, what will it be worth at the end of three years?
D. None of the above is correct.
1. To reduce the risk to the borrower, adjustable rate mortgages typically have
A. an interest rate cap.
B. a wraparound clause.
C. a prepayment clause.
D. negative amortization.
1. The final step in the process of transferring title of real property from one party to the other occurs when the deed is
1. _____________ is defined as the possibility of loss resulting from not being able to convert an asset into cash quickly should the need arise.
A. Business risk
B. Financial risk
C. Purchasing power risk
D. Liquidity risk
1. An investor is considering the purchase of a residential rental property that has an asking price of $400,000. The property has four rental units that are expected to rent for $1,200 each per month.
Operating expenses and vacancy allowances are expected to be 45% of gross income.
An 5% interest only mortgage loan is available for 5 years at 100% of the purchase price.
How much cash income will the investor receive each month of the first year after paying the monthly mortgage payment?
1. Private Mortgage Insurance (PMI) provides protection for _____________ in the event of mortgage default.
A. The broker
B. the lender
D. the borrower
1. A sales contract specifies a 6 percent commission. 40 percent of this commission goes to the listing agent, 20 percent goes to the selling agent and 40 percent goes to the brokerage firm. How much commission will the seller pay when his or her property sells for $65,000?
1. When the lessee pays the operating expenses, the insurance premiums and the real estate taxes, the lease is a _____________ lease.
1. Which of the following is not considered to be personal property?
A. an automobile
B. stocks and bonds
C. wall-to-wall carpeting
1. In a dual agency situation, a broker may represent both the seller and the buyer in the same transaction if
a. The buyer and the seller are related by blood or marriage
b. Both parties are represented by attorneys
c. Both parties consent in writing to the dual agency
d. The broker informs either the buyer or the seller of this fact
1. Method of annexation, adaptation, to real estate, and agreement between the parties are the legal tests for determining whether an item is
a. An improvement
b. Real property or real estate
c. A fixture or personal property
d. A repair or capital expenditure
1. The BEST reason for a buyer to obtain title insurance is
a. To pay future liens that may be filed
b. That the mortgage lender requires it
c. To ensure that the seller can deliver marketable title
d. To ensure that the abstractor has prepared a complete summary of title
1. The LEAST specific method for identifying real property is
a. Metes and bounds
b. Rectangular survey
c. Street address
d. Lot and block
1. Under the Fair Housing Act, which action is legally permitted?
A. Telling a member of a protected class that an apartment has been rented when in fact it has not
B. Altering the terms of a loan for a member of a protected class
C. Refusing to make a mortgage loan to a member of a protected class because of a poor credit history
D. Advertising property for sale only to a special group
1. When an area was rezoned as residential, a store was grandfathered in and allowed to continue in business. This is an example of
A. A conditional use
B. A variance
C. An amendment
D. A nonconforming use
1. Asbestos is most harmful when it is disturbed or exposed
1. Lead based paint is found in about 75% of all private housing built before
1. One objective of investing in income producing property is to generate income also called
C. Cash flow
1. Which approach to value is most commonly used to estimate the value of rental property?
A. Cost approach
B. Sales comparison approach
C. Reconciliation approach
D. Income approach
1. What is a BENEFIT of investing in real estate?
A. Lack of short term liquidity
B. Tax credits for certain projects
C. Investment of large amounts of capital
D. Need for active management
1. Using the 1% rule-of-thumb, a rental property that gererates $1,000 per month in gross rents could potentially be a very good deal if it were listed for a sale price of
1. Zoning ordinances affect all of the following EXCEPT
A. Racial composition of neighborhoods
B. Building heights
C. Lot size
D. Permitted uses
1. Sealing off asbestos instead of removing it is called
A. Irresponsible remediation
D. Extended liability
1. Touching up peeling paing is an example of curing
A. Functional obsolescence
B. Straight-line depreciation
C. External economic obsolescence
D. Physical deterioration
1. Your bank created a fixed interest fully amortizing loan for a client that has a term of 5 years, an interest rate of 6%, and monthly payments of $850. What was the amount of the loan?
1. A document that stipulates the conditions of a loan is referred to as a
A. Promissory note
B. Deed of trust
D. Mortgage deed
1. Of the following, a HIGH vacancy rate most likely indicates
A. An undesirable property
B. Building management is effective and responsive
C. The property is attractive
D. Rental rates are too low
1. Borrowers have the right to inspect the completed HUD-1 form one business day before closing.
1. All of these are roles of the Federal Reserve System EXCEPT
A. help conteract inflationary trends
B. create a favorable economic climate
C. make direct loans to buyers
D. maintain sound credit conditions
1. A package loan includes
A. private mortgage insurance
B. multiple parcels or lots
C. real and personal property
D. cash for the construction of improvements on real estate
1. What does private mortgage insurance cover?
A. It pays the lender if the borrower dies
B. It protects the top 20% to 30% of the loan against borrower default
C. It reimburses the cosigner if the borrower defaults
D. It pays the borrower if the borrower loses the house to a title claim
1. A house had a sale price of $240,000. The buyer obtained a loan for $220,000. If the lender charges three points, how much will the buyer pay in points?
1. The Equal Credit Opportunity Act prohibits discrimination in the lending process based on
C. marital status
D. All of the above
1. Which of these may lawfully be used as part of a loan application evaluation process?
A. A credit score
B. None of these
C. The fact that the borrower is over 40 years old
D. The applicant’s religious beliefs
1. A SELLER would be responsible for providing all of these items EXCEPT
A. affidavits of title
B. the preparation of a mortgage and note
C. documents necessary to clear any clouds on the title
D. the deed
1. A plat map is BEST described as
A. a detailed map that illustrates landscape preferences
B. a detailed map that illustrates the geographic boundaries of individual lots.
C. a detailed map that illustrates where a variance might be allowed
D. none of the above
1. A city passed a zoning ordinance that prohibits all commercial structures over 30 feet high. A man wants to build an office building that will be 45 feet high. In order to obtain permission for the building, the man may apply for a
A. nonconforming use permit
B. conditional use permit
C. variance or zoning change
D. zoning permit
1. A man goes all over the country buying large tracts of vacant land, splitting them into smaller parcels, and building identical communities of single-family homes surrounding a central shopping center. He sells the homes to residents and leases space in the shopping center to merchants. The man is
A. a subdivider only
B. an assembler
C. a developer only
D. both a developer and a subdivider
1. Which of these has been proven to pose a health hazard?
B. Lead-based paint
D. All of the above
1. Which of these is responsible for administering the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA)?
B. Fannie Mae
C. The EPA
D. The Federal Reserve
1. Which of these is the byproduct of fuel combustion that may result in death if such combustion equipment is not properly vented.
A. Carbon monoxide
1. In terms of real estate investment, another name for depreciation is
A. cost recovery
C. market price