Chapter 17: Real Estate Investments, Business Brokerage and Auctioning (MC)

Question 1

The process of real estate investment analysis is important to an investor as it

a. helps an investor select properties that meet personal objectives.
b determines the amount of taxes due on income-producing property.
c. determines the exact cash flow from an investment property.
d. makes possible the best use for a property based on zoning.

Answer 1

a. helps an investor select properties that meet persona objectives.

Question 2

Fixed expenses typically include

a. real estate taxes and hazard insurance.
b. management fees and depreciation.
c. utilities and repairs.
d. mortgage payments and income taxes.

Answer 2

a. real estate taxes and hazard insurance.

Question 3

Reserves for replacements

a. are a cash expense.
b. should not be considered in a residential income property.
c. are used to pay for normal maintenance of the property.
d. are a noncash expense used to replace short-lived components that wear out from time to time.

Answer 3

d. are a noncash expense used to replace short-lived components that wear out from time to time.

Question 4

The correct formula for loan-to-value ratio is

a. loan times value.
b. value divided by loan.
c. loan divided by value.
d. value times loan.

Answer 4

c. loan divided by value.

Question 5

What type of risk is caused by changes in general business conditions?

a. dynamic
b. operating
c. capital
d. static

Answer 5

a. dynamic

Question 6

If an investor earns a lower rate of return on capital invested that the rate paid on borrowed funds, what type of leverage is indicated?

a. positive
b. neutral
c. negative
d. cumbersome

Answer 6

c. negative

Question 7

John purchased his home for $328,000 with 95% financing. Calculate the down payment required.

a. $16,400
b. $32,800
c. $295,200
d. $311,600

Answer 7

a. $16,400

Question 8

When estimating the value of a business, which item is NOT relevant?

a. personal property owned
b. short-term liabilities
c. business goodwill
d. personal income taxes

Answer 8

d. personal income taxes

Question 9

Which document indicates the financial condition of a business as of a particular time?

a. operating statement
b. profit and loss statement
c. balance sheet
d. bank statement

Answer 9

c. balance sheet

Question 10

Business brokerage

a. should not be conducted by real estates licensees.
b. cannot be conducted by real estate licensees until they also possess a mortgage broker’s license.
c. consists primarily of analyzing financial statements.
d. would rarely involve securities transactions.

Answer 10

c. consists primarily of analyzing financial statements.

Question 11

Real estate licensees that are engaged in business brokerage might need to have a securities license if the transaction involves

a. negotiation of a new mortgage loan.
b. an analysis of financial statements.
c. renegotiation of an existing lease.
d. transferring shares of stock or limited partnership interests.

Answer 11

d. transferring shares of stock or limited partnership interests.

Question 12

The document used to secure financing of personal property under the Uniform Commercial Code is a

a. deed.
b. bill of sale.
c. security agreement.
d. trust agreement.

Answer 12

c. security agreement.

Question 13

The assets of a business do NOT include

a. goodwill
b. notes payable.
c. accounts receivable.
d. furniture and equipment.

Answer 13

b. notes payable.

Question 14

Which document most closely resembles a deed?

a. bill of sale
b. security agreement
c. balance sheet
d. operating statement

Answer 14

a. bill of sale

Question 15

The use of “by-bidders” in the auctioning of property is

a. a common practice
b. required under Florida Statute 475
c. not allowed.
d. used in the sale of personal property only.

Answer 15

c. not allowed.