Flash Cards for Natiaonal Exam
Lenore makes a 95% offer on a townhouse that’s listed at $285,000 and includes an earnest money deposit for 10% of her offer, which the seller accepts. She brings to closing a cashier’s check for $35,025 comprising the balance of her 20% down payment and closing costs. What’s the amount of her total down payment?
The listed sale price of Lenore’s townhouse is $285,000. Her offer is 95% of that price ($285,000 × .95 = $270,750). Her total down payment is 20% of the $270,750 offer price ($270,750 × .20), which is $54,150 (option B.).
A property’s daily tax rate is $1.23 and closing is August 31. Assuming the buyer owns the property on closing day, and the seller hasn’t made any payments, what will the seller owe at closing using the calendar year proration method? Round to the nearest whole dollar.
The seller owes $298. The seller owned the property for 242 days of the year, and 242 x $1.23 = $297.66, or $298 if rounded to the nearest whole dollar.
A seller wants to net $10,000 after the broker’s commission of 6% and a loan balance of $250,000 are paid. For how much does the property need to sell?
A seller owns 100% of the property. If the seller agrees to pay a broker 6% (100% – 6%), that leaves them with a total percentage of 94%. You’d want to then convert 94% to a decimal, .94. Since the seller still owes $250,000 on the loan, but wants to net $10,000 more than what the bank will be paid, add the $10,000 to the remaining loan balance ($250,000 + $10,000 = $260,000). Finally, divide that total amount by the percentage the seller will be left with after the broker’s commission (94%). $260,000 ÷ .94 = $276,596 (option C).
Helen is purchasing a home for $150,000 and provides a $2,500 earnest money check to the seller. Her closing costs and down payment total $4,800. Assuming her earnest money check will be applied to her down payment, how much should Helen bring to the closing?
The earnest money Helen paid will be applied to her total closing costs. So, you take the total amount of $4,800 then subtract the $2,500 she’s already paid in earnest money to determine what she still owes. $4,800 – $2,500 = $2,300 (option A).
A buyer with a 15-year, $250,000 loan at a 5.5% interest rate has a monthly mortgage payment of $2,042.71. Assuming he pays taxes and insurance separately, if $1,145.83 of his payment is interest, how much is applied to the loan’s principal?
All we have to do is subtract the interest paid ($1,145.83) from the total monthly payment ($2,042.71) to determine the amount remaining, paid toward principal. $2,042.71 – $1,145.83 = $896.88 (option A).
Over how many years is a residential income-producing property depreciated?
27.5 years
Using the capitalization formula, what is a property’s value if it brings in $20,000 in income and the capitalization rate is 10%?
The capitalization formula is: income ÷ capitalization rate = value. In this calculation, that’s $20,000 ÷ 10% (or .10) = $200,000 (option B). Remember, it’s easier to multiply or divide with percentages by first converting them to decimals.
What is the Capitalization formula?
income / capitalization = value
Your investor client Julia wants to buy a three-bedroom, one-bath rental property for $125,000. It rents for $820/month. Comparable three-bedroom, two-bath homes in the area rent for around $1,000/month and are valued an average of $20,000 more. The gross rent multiplier is 147. Use the capitalized value method to calculate the loss in income due to depreciation based on functional obsolescence.
The property’s value is affected due to some kind of functional issue, making it less desirable and lowering its value. In this situation, we’re talking bathrooms. It is more desirable to live in a home with two bathrooms instead of only one. So let’s figure out the loss of income (based on the difference in rent) that’s occurring between the one-bath properties vs. the two-bath properties ($1,000 – $820). There’s a $180 difference, or loss of income, for an investor only renting out a one-bath home. Take that loss amount and multiply it by the GRM (147). $180 x 147 = $26,460 (option A).
- D: Calendar Year Proration
- D: Gross Income Mulitplier
- D: Capitalization Rate
- When prorating expenses for a real estate transaction, this method uses the actual number of days in a year
Ex. When determining amounts to prorate, the lender used a 365-day calendar year to figure daily rates. - A figure used as a multiplier of gross annual income of a property; used to estimate property value for properties of five-plus units.
Ex. The GIM represents the ratio between the sales price and effective gross income.
GIM = sales price divided by effective gross income.
- Cap Rate = net operating income / current mkt value
a high capitalization rate implies higher risk while a low capitalization rate implies lower risk.
What is included in Total Debt Ratio?
Your debt-to-income ratio (DTI) is all your monthly debt payments divided by your gross monthly income.
Chain of title always begins with…
the current owner and goes back in time.
What are the essential elements a deed?
(1) written instrument,
(2) competent grantor,
(3) identity of the grantee,
(4) words of conveyance,
(5) adequate description of the land,
(6) consideration,
(7) signature of grantor,
(8) witnesses,
(9) delivery of the completed deed to the grantee.
Stu is buying Freddie’s property. What must occur for the transfer of title to take place?
Freddie must deliver the deed to Stu.
- D: General Warranty Deed
- D: Special Warranty Deed
- General warranty deeds provide guarantees that the grantor has the right to sell the property and that the grantee will be receiving a title that is free of debt, claims, or other legal encumbrances. These deeds effectively protect the grantee from present and future legal issues regarding the property, should any arise.
- A special warranty deed, also known as a limited warranty deed, is used when the seller of a property (grantor) only guarantees that the property incurred no outstanding claims or liens during their physical ownership. This type of deed does not protect the buyer (grantee) from any defects in the clear title before the grantor took possession. As its name suggests, this type of deed is typically only used for certain types of deed transfers.
What are the covenants of the General Warranty Deed and define them?
When to use a General Warranty Deed?
- Covenant of Seisin. Guarantees the grantor has legal possession of the property.
- Covenant of Right To Convey. Guarantees that the grantor has the right to sell the property.
- Covenant Against Encumbrances. Guarantees the grantor has disclosed to the grantee any and all of the property’s encumbrances.
- Covenant of Warranty. Guaranteeing the grantor will protect the property against any claims of ownership from another party.
- Covenant of Quiet Enjoyment. Guaranteeing that the grantee will maintain the property’s ownership free of future interferences from third parties.
- ## Covenant of Further Assurances. Guaranteeing the grantor will continue to take steps towards fixing any encumbrances within the grantor’s title.
- Finalizing the purchase of any real property.
- Transferring a property’s ownership to a trust.
- You suspect there are problems with a property and want to ensure the previous owner remedies them.
When to use the Special Warranty Deed.
- Commercial property transactions. A special warranty deed is usually used for commercial property transactions because a business property may go through several owners, none of whom want to be held liable for what occurred during a previous owner’s tenancy.
- Foreclosures. Buyers should be wary of special warranty deeds on foreclosed properties. If a previous owner had trouble making property payments, they most likely had other financial troubles. A new owner might expect to pay back taxes or other fees to remove any liens on their new property.
- Estate transactions for a deceased owner. When an executor is handling the property of someone who passed away, they may only be able to attest that the property has no current liens that occurred under the previous owner.
D: Habendum Clause
A habendum clause is a section of a contract that deals with property rights, interests, and other aspects of ownership given to one of the parties to a deal. Consisting of basic legal language, it is usually included in property-related documents.
How might the lengthy purchase process for a short sale or foreclosure impact a buyer’s financing?
An existing interest rate lock may expire before the transaction is ready to close.
Ashton, an appraiser, is estimating value using the sales comparison approach. He applies more weight to two comparables over several others he used. What process is he utilizing?
Correlation
Through a correlation process, the most weight may be given to one or two comparables, or equal weight may be given to all. The term reconciliation is often synonymous with correlation.
Steve is preparing a market analysis for the Jones’s and has selected three comparables. What’s the maximum number of adjustments Steve should make to the Jones’s property?
0
One month after passing his real estate licensing exam, Max was contacted by a couple via referral, asking him to represent them in the sale of their home. Max meets with his clients at their home, does a walk-through, takes a drive through the neighborhood, and then heads back into the office to conduct a comparative market analysis on the property. They’ve communicated to him that they’d obviously like to make as much off the sale as possible, but need to complete the sale in the next three months, in time for the wife to start a new job in another state. To accurately calculate a suggested price range for their property, Max will have to ______.
Use adjusted prices from sold comparables, refining the price range with data from active listings, expired listings, and possibly pending sales
- Acre is how many sqft?
- Section is equal to how many sq miles?
- Section is equal to how many acres?
- a sq mile is equal to how many acres?
- hectare is equal to how many acres?
- 1 acre = 43,560 sq ft
- 1 section = 1 sq mile
- 1 section = 640 acres
- 1 sq mile = 640 acres
- 1 hectare = 100 acres
A rental property owner purchased a property for $400,000 and pays $36,000 in ownership expenses, plus $30,000 in operating expenses. The owner would like to achieve an ROI of 8%. What’s the minimum annual rent that would accomplish this?
Minimum rent = Operating expenses + Owner expenses + ROI Margin. ROI margin is the owner’s initial investment x ROI. In this example $32,000 ($400,000 x .08). The minimum rent to achieve the owner’s goals is $98,000.
Lenore makes a 95% offer on a townhouse that’s listed at $285,000 and includes an earnest money deposit for 10% of her offer, which the seller accepts. She brings to closing a cashier’s check for $35,025 comprising the balance of her 20% down payment and closing costs. What’s the amount of her total down payment?
Lenore’s offer is $270,750 which is 95% of the list price ($285,000 x .95 = $270,750 ). Her total down payment is 20% of her accepted offer of $270,750, which is $54,150 (or $270,750 x .2).
A buyer with a 15-year, $250,000 loan at a 5.5% interest rate has a monthly principal and interest payment totaling $2,042.71. If $1,145.83 is interest, how much is applied to principal?
If $1,145.83 of the total payment is interest, that leaves $896.88 to be applied to the principal.
