Ch 9: Home Ownership, Insurance and Construction

Question 1

A deduction a homeowner has for income tax purposes is:

a. Depreciation
b. Interest expense
c. Insurance cost
d. Maintenance expense

Answer 1

b. Interest expense

Correct! The deduction of interest expense up to certain limits in the determination of taxable income is one of the benefits of homeownership.

Question 2

All of the following are benefits of homeownership, EXCEPT:

a. Creative opportunities
b. Mobility
c. Independence
d. Tax benefits

Answer 2

b. Mobility

Correct! Mobility is a benefit of renting.

Question 3

A dwelling insurance policy covers losses from all of the following risks, EXCEPT:

a. Fire
b. Lightning
c. Internal explosion
d. Theft

Answer 3

d. Theft

Correct! A standard dwelling insurance policy does not cover losses from theft. Generally, coverage for additional risks can be covered through the purchase of an extended policy.

Question 4

A CLUE report can be obtained by the:

a. Listing broker
b. Seller
c. Seller’s insurance agent
d. Buyer

Answer 4

c. Seller’s insurance agent

Correct! Only the seller’s insurance agent can obtain a CLUE report.

Question 5

A commercial building with a market value of $200,000 has an insurance policy with an 80 percent coinsurance clause. The owner carried $120,000 of insurance and sustained a covered loss of $60,000.

a. $60,000
b. $80,000
c. $120,000
d. $45,000

Answer 5

d. $45,000

Correct! The owner carried 75% of the amount of insurance required pursuant to the coinsurance clause ($120,000 divided by $160,000). The $160,000 is equal to 80% of the market value of the building. The insurance company will cover 75% of the $60,000 loss (%60,000 time 75%) which is $45,000.

Question 6

A home warranty contract generally covers the cost of all of the following repairs, EXCEPT:

a. Unknown defect that was not detectable to the buyer, seller or agent through visual inspection or simple mechanical test
b. Exhaust fans not working at the start of coverage
c. Central air-conditioning
d. Kitchen appliances

Answer 6

b. Exhaust fans not working at the start of coverage

Question 7

Who is the party responsible for informing a buyer that a property requires flood insurance because it is located in a floodplain?

a. Insurance agent
b. Broker
c. Escrow officer
d. The buyer has sole responsibility

Answer 7

b. Broker

Correct! A broker is responsible for informing the buyer of the flood insurance requirements when negotiating the sale.

Question 8

A CLUE report:

a. Provides a buyer with indications of structural defects
b. Can affect the cost or availability of property insurance coverage.
c. Provides investigative data on the condition of title
d. Has no relevance to a real estate transaction

Answer 8

b. Can affect the cost or availability of property insurance coverage.

Correct! CLUE stands for the Comprehensive Loss Underwriting Exchange. Every time an insurance agent is contacted about a claim or any inquiry, it is noted on the Exchange. An inquiry is any call to the insurance agent about an actual or potential loss that would be covered by a homeowner’s policy.

Question 9

Buyers with the following number of inquiries in the prior 3 years might not be insurable with a major insurance company:

a. One or more
b. Two or more
c. Four or more
d. Three or more

Answer 9

b. Two or more

Correct! Buyers with two or more inquiries or claims during the prior 3 years may not be insurable at all or might not be insurable with a major insurance company.

Question 10

A Homeowners’ Insurance policy:

a. Is known as a Multiline policy
b. Reduces the number of insurance policies a homeowner needs to purchase
c. Liability coverage includes personal injuries and expenses sustained by guest or resident employees.
d. Does not cover any damage that the homeowner may cause to the property of others

Answer 10

a. Is known as a Multiline policy

Correct! A homeowner’s insurance policy does cover any damage that the homeowner may cause to the property of others.

Question 11

Federal flood insurance covers all of the following, EXCEPT:

a. Run-off of surface waters
b. Mudslides
c. Erosion caused by floods
d. Flooding caused by plumbing failure

Answer 11

d. Flooding caused by plumbing failure

Correct! The federal flood insurance program provides aid to victims of disastrous flooding caused by natural disasters.

Question 12

A coinsurance clause:

a. Eliminates the need to monitor the adequacy of insurance coverage
b. Requires coverage of a certain percentage of the property’s market value
c. Requires reinsurance
d. Is generally included in a homeowner’s policy

Answer 12

b. Requires coverage of a certain percentage of the property’s market value

Correct! Commercial insurance often includes a coinsurance clause that requires the policy owner to insure at least 80 percent of the value of the property in exchange for a premium discount.

Question 13

When planning major remodeling of the interior of a home, which of the following is the MOST important factor?

a. Spacing of electrical outlets
b. Load-bearing walls
c. Distance between centers of studs
d. R-factor of wall insulation

Answer 13

b. Load-bearing walls

Correct! A load-bearing wall supports the weight of the roof. There is generally one load-bearing wall between the exterior walls in a flat roof or wood frame constructed home. Interior load-bearing walls can be eliminated with the use of Trusses

Question 14

A roof with two sloping sides rising to a ridge is called a:

a. Mansard
b. Hip
c. Gambrel
d. Gable

Answer 14

d. Gable

Correct! A gable roof has two sloping sides that rise to the ridge with the siding continuing up to the ridge on the gable ends.

Question 15

Footings, foundation, and floor all poured in one place is called?

a. Monolithic slab
b. Yard of concrete
c. Foundation slab
d. Pier and bean

Answer 15

a. Monolithic slab

Correct! The term monolithic slab is derived from the word “mono” meaning one.

Question 16

What holds up the second story of a two-story house?

a. Rafters
b. Trusses
c. Joists
d. Pillars

Answer 16

c. Joists

Correct! The joists are the horizontal ceiling or floor members.

Question 17

Contractors who perform residential and commercial remodeling and construction must be licensed unless there is no building permit required and the work costs less than:

a. $500
b. $250
c. $1,000
d. $750

Answer 17

c. $1,000

Contractors who perform residential and commercial remodeling and construction must be licensed and bonded unless the work costs less than $1,000 and there is no building permit required.

Question 18

The jurisdiction over a contractor’s workmanship is with the:

a. Registrar of Contractors
b. Department of Financial Institutions
c. Department of Real Estate
d. Trade Unions

Answer 18

a. Registrar of Contractors

The Registrar of Contractors has jurisdiction over a contractor’s workmanship. The registrar of Contractors cannot award monetary damages, but in certain cases may suspend or revoke a contractor’s license.

Question 19

In January 20xx, an owner completed a significant renovation to the owner occupied residential property. The owner did not use a licensed contractor in accordance with the Owner Licensing Exemption that requires that the renovation project be intended for occupancy solely by the owner. In March 20xx, the owner listed the residential property for sale. The listing of the property is prima facie evidence that the project was undertaken for the purpose of sale or rent when the listing is entered into within:

a. One year from the completion of the project
b. One year from the start of the project
c. 6 months from the start of the project
d. 6 months after the completion of the project

Answer 19

a. One year from the completion of the project.

The owner licensing exemption from contractor licensing requirements applies when the property is intended for occupancy solely by the owner. Proof of sale or rent or the offering of sale or rent of the property subject to the owner’s licensing exemption within one year after completion of the project is prima facie evidence that such project was undertaken for the purpose of sale or rent.

Question 20

An initial offense of contracting without a license is punishable by a fine up to $2,500 and jail up to:

a. 1 year
b. 2 years
c. 6 months Correct! Contracting without a license is punishable by up to a $2,500 fine and six months in jail.
d. 18 months

Answer 20

c. 6 months

Contracting without a license is punishable by up to a $2,500 fine and six months in jail.