Nation Broker Only

Question 1

A purchaser paid $35,000 for a lot 7 years ago. What is the lot’s current value if it has appreciated at the rate of 2% per annum (not compounded)?

A)
$39,900
B)
$30,100
C)
$4,900
D)
$35,700

Answer 1

A purchaser paid $35,000 for a lot 7 years ago. What is the lot’s current value if it has appreciated at the rate of 2% per annum (not compounded)?

A)
$39,900
Correct Answer
B)
$30,100
Incorrect Answer
C)
$4,900
Incorrect Answer
D)
$35,700
Incorrect Answer
Explanation
2% per annum × 7 years = 14%

100% + additional 14% = 114%

$35,000 (the original) cost × 114% (1.14) = $39,900 (the current value)

Reference: Broker Only > Real Estate Calculations > Investment

Question 2

The entity MOST likely to use a 1031 tax-deferred exchange would be

A)
a lender using federal financing.
B)
any owner selling a primary home.
C)
an owner selling her primary home.
D)
an investor selling income property.

Answer 2

The entity MOST likely to use a 1031 tax-deferred exchange would be

A)
a lender using federal financing.
Incorrect Answer
B)
any owner selling a primary home.
Incorrect Answer
C)
an owner selling her primary home.
Incorrect Answer
D)
an investor selling income property.
Correct Answer
Explanation
A 1031 tax deferred exchange may be used only in the sale of investment property. Lenders and primary homeowners do not need the deferment from taxes.

Reference: Broker Only > Real Estate Calculations > Investment

Question 3

A buyer purchased a property that is one mile square and another that measures 511.23 ft. × 511.23 ft. At a cost of $2,000 an acre, how much did she pay for the property?

A)
$1,921,999
B)
$1,373,435
C)
$1,733,435
D)
$1,291,999

Answer 3

A buyer purchased a property that is one mile square and another that measures 511.23 ft. × 511.23 ft. At a cost of $2,000 an acre, how much did she pay for the property?

A)
$1,921,999
Incorrect Answer
B)
$1,373,435
Incorrect Answer
C)
$1,733,435
Incorrect Answer
D)
$1,291,999
Correct Answer
Explanation
Property 1: 5,280 × 5,280 = 27,878,400; 27,878,400 ÷ 43,560 = 640 acres.

Property 2: 511.23 × 511.23 = 261,356.1129; 261,356.1129 ÷ 43,560 = 5.9999 acres.

640 + 5.9999 = 645.9999 total acreage 645.9999 × $2,000 = $1,291,999

Reference: Broker Only > Real Estate Calculations > Investment

Question 4

A father and his daughter have equal shares in a home they bought one year ago. They list the home and sell it within six weeks. According to federal tax laws, what is their exclusion on any capital gains acquired from selling the house?

A)
The father and his daughter qualify for a $500,000 exclusion from capital gains taxes.
B)
Each qualifies for a $125,000 exclusion from capital gains taxes.
C)
The father and his daughter qualify for a $250,000 exclusion from capital gains taxes.
D)
The father and his daughter do not qualify for any exclusion from capital gains taxes.

Answer 4

A father and his daughter have equal shares in a home they bought one year ago. They list the home and sell it within six weeks. According to federal tax laws, what is their exclusion on any capital gains acquired from selling the house?

A)
The father and his daughter qualify for a $500,000 exclusion from capital gains taxes.
Incorrect Answer
B)
Each qualifies for a $125,000 exclusion from capital gains taxes.
Incorrect Answer
C)
The father and his daughter qualify for a $250,000 exclusion from capital gains taxes.
Incorrect Answer
D)
The father and his daughter do not qualify for any exclusion from capital gains taxes.
Correct Answer
Explanation
The father and his daughter did not live in the house for the two years required to qualify for any exclusion from capital gains taxes. If they had lived in the house for two of the most recent five years and each filed a separate income tax return, then each of them as a co-owner of the property would qualify for an exclusion of $250,000.

Reference: Broker Only > Real Estate Calculations > Investment

Question 5

Thirty years ago, Buyer purchased a residential condominium for $100,000. Buyer purchased an owner’s policy of title insurance. The owner’s policy had insurance coverage of $100,000. In order to finance the transaction, Buyer got a loan from ABC Bank for $80,000. As a loan condition, ABC Bank required Buyer to purchase a lender’s policy of title insurance for $80,000. This was the only time Buyer has ever purchased title insurance. The loan has now been paid in full. Which of the following is a correct statement as to current title insurance coverage on the Buyer’s residential condominium?

A)
Buyer has no coverage, and ABC Bank has $80,000 coverage.
B)
Buyer has $100,000 coverage, and ABC Bank has no coverage.
C)
Buyer’s coverage increased to match the condo’s appreciation, and ABC Bank has $80,000 coverage.
D)
Because Buyer did not make any premium payments, title insurance coverage lapsed for both Buyer and ABC Bank.

Answer 5

Thirty years ago, Buyer purchased a residential condominium for $100,000. Buyer purchased an owner’s policy of title insurance. The owner’s policy had insurance coverage of $100,000. In order to finance the transaction, Buyer got a loan from ABC Bank for $80,000. As a loan condition, ABC Bank required Buyer to purchase a lender’s policy of title insurance for $80,000. This was the only time Buyer has ever purchased title insurance. The loan has now been paid in full. Which of the following is a correct statement as to current title insurance coverage on the Buyer’s residential condominium?

A)
Buyer has no coverage, and ABC Bank has $80,000 coverage.
Incorrect Answer
B)
Buyer has $100,000 coverage, and ABC Bank has no coverage.
Correct Answer
C)
Buyer’s coverage increased to match the condo’s appreciation, and ABC Bank has $80,000 coverage.
Incorrect Answer
D)
Because Buyer did not make any premium payments, title insurance coverage lapsed for both Buyer and ABC Bank.
Incorrect Answer
Explanation
Buyer has $100,000 coverage (because of the owner’s policy of title insurance), and ABC Bank has no coverage. An owner’s policy of title insurance does not diminish from the original amount of coverage (no matter how much time has passed) and is paid for by a one-time policy premium payment. There is also a one-time policy premium payment for the lender’s title insurance policy. However, a lender’s policy of title insurance diminishes with each loan payment, and expires when the loan is paid in full. The expiration of the lender’s coverage is logical: After the loan is paid in full, the lender has no interest in title issues related to the collateral property (like the Buyer’s condominium). If the property appreciated in value and the Buyer wanted additional title insurance coverage, then the buyer would have to purchase that additional coverage. However, the test question states that the purchase of the owner’s policy (with $100,000 coverage) and the lender’s policy was the only time Buyer purchased title insurance. There are no annual premium payments with title insurance, the premium is paid once, typically at the closing.

Broker Only > Transfer of Title > Title Insurance

Question 6

An apartment building has a semiannual net income of $48,000 and has been appraised for $1,250,000. What is the cap rate?

A)
7.68%
B)
7.86%
C)
4.38%
D)
3.84%

Answer 6

An apartment building has a semiannual net income of $48,000 and has been appraised for $1,250,000. What is the cap rate?

A)
7.68%
Correct Answer
B)
7.86%
Incorrect Answer
C)
4.38%
Incorrect Answer
D)
3.84%
Incorrect Answer
Explanation
$48,000 × 2 = $96,000

$96,000 ÷ $1,250,000 = 7.68% (0.0768)

Reference: Broker Only > Real Estate Calculations > Investment

Question 7

Three years ago, a buyer paid $150,000 for a three-bedroom home. The property has appreciated at 5% each year. What is the value of the property today?

A)
$175,464
B)
$179,300
C)
$172,500
D)
$173,644

Answer 7

Three years ago, a buyer paid $150,000 for a three-bedroom home. The property has appreciated at 5% each year. What is the value of the property today?

A)
$175,464
Incorrect Answer
B)
$179,300
Incorrect Answer
C)
$172,500
Incorrect Answer
D)
$173,644
Correct Answer
Explanation
$150,000 + 5% (0.05) + 5% (0.05) + 5% (0.05) = $173,643.75, round up to $173,644

Reference: Broker Only > Real Estate Calculations > Investment

Question 8

All of the following are incorrect statements regarding the American Land Title Association (ALTA) title insurance policies, EXCEPT

A)
an ALTA policy covers everything that is insured under a standard policy.
B)
an ALTA policy contains less coverage than a standard policy.
C)
a lender’s ALTA policy continues until title to the property is sold.
D)
an ALTA policy provides standard, rather than extended, coverage.

Answer 8

All of the following are incorrect statements regarding the American Land Title Association (ALTA) title insurance policies, EXCEPT

A)
an ALTA policy covers everything that is insured under a standard policy.
Correct Answer
B)
an ALTA policy contains less coverage than a standard policy.
Incorrect Answer
C)
a lender’s ALTA policy continues until title to the property is sold.
Incorrect Answer
D)
an ALTA policy provides standard, rather than extended, coverage.
Incorrect Answer
Explanation
An ALTA title insurance policy (the extended coverage policy) covers everything that is insured under the standard title insurance policy, but also provides coverage against more risks. A lender’s ALTA policy of title insurance continues only until the loan is satisfied, and then expires.

Broker Only > Transfer of Title > Title Insurance

Question 9

An owner of a fourplex has one unit that rents for $450 a month, one unit that rents for $475 per month, and two units that rent for $500 per month. The vacancy rate is 4%, and the monthly expenses average $350. If the rate of return on the property is 10%, what is the value?

A)
$218,260
B)
$179,760
C)
$118,260
D)
$189,760

Answer 9

An owner of a fourplex has one unit that rents for $450 a month, one unit that rents for $475 per month, and two units that rent for $500 per month. The vacancy rate is 4%, and the monthly expenses average $350. If the rate of return on the property is 10%, what is the value?

A)
$218,260
Incorrect Answer
B)
$179,760
Correct Answer
C)
$118,260
Incorrect Answer
D)
$189,760
Incorrect Answer
Explanation
$17,976 ÷ 10% (0.10) = $179,760

1 × $450 × 12 =

1 × $475 × 12 =

2 × $500 × 12 =

$5,400

$5,700

$12,000

Income from units
$23,100 Potential gross income (PGI)
– 924 (4)% Vacancy rate
$22,176 Effective gross income (EGI)
$350 × 12 = – 4,200 Annual expenses
$17,976 Annual net operating income (NOI)
Reference: Broker Only > Real Estate Calculations > Investment

Question 10

An income-producing apartment building was owned by a Real Estate Investment Trust (REIT). This particular REIT had 200 shareholders. How was title held to the apartment building?

A)
A trust deed
B)
As tenants in common
C)
As joint tenants
D)
In severalty

Answer 10

An income-producing apartment building was owned by a Real Estate Investment Trust (REIT). This particular REIT had 200 shareholders. How was title held to the apartment building?

A)
A trust deed
Incorrect Answer
B)
As tenants in common
Incorrect Answer
C)
As joint tenants
Incorrect Answer
D)
In severalty
Correct Answer
Explanation
Although there are 200 shareholders, the REIT constitutes a sole entity for the purposes of title to the property: The REIT holds title in severalty. If one trust or one person or one partnership or one city holds title to a parcel of real estate that is an estate in severalty. Both a tenancy in common and a joint tenancy refer to multiple (or concurrent) owners holding title to the same parcel of real estate. A trust deed is not a way of holding title to real estate: It is a loan document—similar in many ways to a mortgage—that is used in some states.

Broker Only > Forms of Ownership > Sole Versus Concurrent Ownership

Question 11

A homeowner purchased his home for $80,000 and later sold it for $10,000 more than she paid for it. What percentage of profit did she realize when she sold it?

A)
110%
B)
11.1%
C)
10%
D)
12.5%

Answer 11

A homeowner purchased his home for $80,000 and later sold it for $10,000 more than she paid for it. What percentage of profit did she realize when she sold it?

A)
110%
Incorrect Answer
B)
11.1%
Incorrect Answer
C)
10%
Incorrect Answer
D)
12.5%
Correct Answer
Explanation
$80,000 (purchase price) + $10,000 (the increase) = $90,000 (total sales price) ÷ $80,000 (the original purchase price) = 112.5% ‒ 100% = 12.5%. To check your answer: $10,000 (increase from original price) ÷ $80,000 (original price) = 12.5% (0.125) (percentage of profit).

Reference: Broker Only > Real Estate Calculations > Investment

Question 12

Which of the following might appear on the online Multiple Listing Service (MLS)?

A)
Properties to rent
B)
FSBO properties for sale
C)
All of these
D)
Businesses for sale

Answer 12

Which of the following might appear on the online Multiple Listing Service (MLS)?

A)
Properties to rent
Incorrect Answer
B)
FSBO properties for sale
Incorrect Answer
C)
All of these
Correct Answer
D)
Businesses for sale
Incorrect Answer
Explanation
All of these might appear as a post on an MLS database. Even a FSBO (For Sale by Owner) property might appear on the MLS: Some Real Estate Agents—for a flat fee—agree to post a FSBO property on the MLS database for the unrepresented seller.

Broker Only > Practice of Real Estate > Advertising and Technology

Question 13

A building is valued at $215,000 and contains four apartments that rent for $470 each per month. The owner estimates that the net operating income (NOI) is 65% of the gross rental receipts. What is the capitalization rate?

A)
14.2%
B)
6.8%
C)
3.7%
D)
10.5%

Answer 13

A building is valued at $215,000 and contains four apartments that rent for $470 each per month. The owner estimates that the net operating income (NOI) is 65% of the gross rental receipts. What is the capitalization rate?

A)
14.2%
Incorrect Answer
B)
6.8%
Correct Answer
C)
3.7%
Incorrect Answer
D)
10.5%
Incorrect Answer
Explanation
To find the rate, divide the NOI by the value of the building. First, calculate the NOI: $470 (unit rent for one month) × 4 (number of units) = $1,880 × 12 (months in a year) = $22,560 × 65% (0.65) (owner’s estimate of NOI) = $14,664 (NOI). $14,664 ÷ $215,000 (building’s value) = 6.8% (0.068)

Reference: Broker Only > Real Estate Calculations > Investment

Question 14

Which of the following is a correct statement regarding special exceptions appearing on a policy of title insurance?

A)
Special exceptions relate specifically to unusual amenities of the insured property.
B)
Special exceptions are items that relate specifically to the insured property.
C)
None of these
D)
Special exceptions on a title insurance policy benefit the insured.

Answer 14

Which of the following is a correct statement regarding special exceptions appearing on a policy of title insurance?

A)
Special exceptions relate specifically to unusual amenities of the insured property.
Incorrect Answer
B)
Special exceptions are items that relate specifically to the insured property.
Correct Answer
C)
None of these
Incorrect Answer
D)
Special exceptions on a title insurance policy benefit the insured.
Incorrect Answer
Explanation
A “special exception” appearing on a policy of title insurance is an exclusion from insurance coverage for an item specifically related to the insured property. Some examples of special exceptions include a mortgage lien, an easement, a land contract, or a break in the chain of successive ownership deed conveyances. A special exception has nothing to do with the amenities of the insured property. Finally, because it is an exclusion from title insurance coverage, it does not benefit the insured.

Broker Only > Transfer of Title > Title Insurance

Question 15

Four units are renting for $450 each per month. There is a 5% vacancy factor and annual expenses are $3,547. The owner wants an 8% return on his investment, and the property has additional monthly income of $464. What is the effective gross income (EGI) of the property?

A)
$25,810
B)
$21,796
C)
$21,976
D)
$20,984

Answer 15

Four units are renting for $450 each per month. There is a 5% vacancy factor and annual expenses are $3,547. The owner wants an 8% return on his investment, and the property has additional monthly income of $464. What is the effective gross income (EGI) of the property?

A)
$25,810
Correct Answer
B)
$21,796
Incorrect Answer
C)
$21,976
Incorrect Answer
D)
$20,984
Incorrect Answer
Explanation
4 × $450 × 12 = $21,600

$464 × 12 = $5,568 annual income

$21,600 + 5,568 = $27,168 potential gross income (PGI)

$27,168 ‒ $1,358.40 (5% vacancy rate) = $25,809.60, round to $25,810

Reference: Broker Only > Real Estate Calculations > Investment

Question 16

A builder wants to purchase a parcel of land of 17,500 square feet at $60,000 per acre. What is the cost of the land (round to the nearest dollar)?

A)
$24,150
B)
$62,000
C)
$48,300
D)
$124,000

Answer 16

A builder wants to purchase a parcel of land of 17,500 square feet at $60,000 per acre. What is the cost of the land (round to the nearest dollar)?

A)
$24,150
Correct Answer
B)
$62,000
Incorrect Answer
C)
$48,300
Incorrect Answer
D)
$124,000
Incorrect Answer
Explanation
To find the cost of the parcel, first convert the cost per acre into the cost per square foot: $60,000 per acre ÷ 43,560 sq. ft. (square feet per acre) = $1.38 (rounded) per sq. ft. Then, multiply the square feet of the parcel by the cost per square foot: $1.38 × 17,500 = $24,150.

Reference: Broker Only > Real Estate Calculations > Investment

Question 17

A hurricane destroyed several apartment buildings in a community, creating an imbalance between the supply and demand of rental units. If the local government imposes a law that restricts the amount of rent a landlord may charge, it is known as

A)
fixed rent.
B)
gross rent.
C)
rent restriction.
D)
rent control.

Answer 17

A hurricane destroyed several apartment buildings in a community, creating an imbalance between the supply and demand of rental units. If the local government imposes a law that restricts the amount of rent a landlord may charge, it is known as

A)
fixed rent.
Incorrect Answer
B)
gross rent.
Incorrect Answer
C)
rent restriction.
Incorrect Answer
D)
rent control.
Correct Answer
Explanation
Rent control is by definition government restriction on the amount a property owner may charge. Rent restrictions are tied to property requirements, such as every building having a certain number of low-income residents. A gross or fixed lease is when the tenant pays only rent.

Reference: Broker Only > Leasing and Property Management > Property Manager’s Fiduciary Responsibilities

Question 18

A year ago, a Real Estate Licensee was a member of the National Association of Realtors® (NAR). During the time of NAR membership, the Real Estate Licensee achieved e-Pro® certification and the Green Designation®. However, the following year, the Real Estate Licensee let the NAR membership lapse. Assuming the Licensee completed all of the necessary education and testing, what will the Licensee still be allowed to do after allowing the NAR membership to lapse?

A)
Put REALTOR® on business cards
B)
Claim Green Designation®
C)
Claim e-PRO® certification
D)
None of these

Answer 18

A year ago, a Real Estate Licensee was a member of the National Association of Realtors® (NAR). During the time of NAR membership, the Real Estate Licensee achieved e-Pro® certification and the Green Designation®. However, the following year, the Real Estate Licensee let the NAR membership lapse. Assuming the Licensee completed all of the necessary education and testing, what will the Licensee still be allowed to do after allowing the NAR membership to lapse?

A)
Put REALTOR® on business cards
Incorrect Answer
B)
Claim Green Designation®
Incorrect Answer
C)
Claim e-PRO® certification
Incorrect Answer
D)
None of these
Correct Answer
Explanation
In order to use any of these NAR copyrighted designations, a Real Estate Licensee must have an active NAR membership.

Broker Only > Practice of Real Estate > Advertising and Technology

Question 19

In MOST market areas, rents are determined by

A)
supply and demand factors.
B)
the local apartment owners association.
C)
Department of Housing and Urban Development (HUD).
D)
a tenants union.

Answer 19

In MOST market areas, rents are determined by

A)
supply and demand factors.
Correct Answer
B)
the local apartment owners association.
Incorrect Answer
C)
Department of Housing and Urban Development (HUD).
Incorrect Answer
D)
a tenants union.
Incorrect Answer
Explanation
The amount of properties and vacancy determine rent values. If the supply is low and demand is high, rents go up. If the supply is high and demand is low, rents go down. HUD, tenants unions, and apartment owners associations do not play a major factor in determining rents.

Reference: Broker Only > Leasing and Property Management > Property Manager’s Fiduciary Responsibilities

Question 20

Two years ago, a buyer paid $175,000 for a house. Since that time, the property has depreciated 3% each year. What is the value of the property today?

A)
$185,500
B)
$185,657
C)
$164,500
D)
$164,658

Answer 20

Two years ago, a buyer paid $175,000 for a house. Since that time, the property has depreciated 3% each year. What is the value of the property today?

A)
$185,500
Incorrect Answer
B)
$185,657
Incorrect Answer
C)
$164,500
Incorrect Answer
D)
$164,658
Correct Answer
Explanation
$175,000 – 3% (0.03) – 3% (0.03) = $164,657.50, round up to $164,658

Reference: Broker Only > Real Estate Calculations > Investment

Question 21

A building is 250 feet wide, 350 feet long, and six stories high (each story 12 feet in height). How much does the building cost at $0.98 per cubic foot?

A)
$3,087,000
B)
$6,174,000
C)
$2,600,000
D)
$1,029,000

Answer 21

A building is 250 feet wide, 350 feet long, and six stories high (each story 12 feet in height). How much does the building cost at $0.98 per cubic foot?

A)
$3,087,000
Incorrect Answer
B)
$6,174,000
Correct Answer
C)
$2,600,000
Incorrect Answer
D)
$1,029,000
Incorrect Answer
Explanation
A cubic foot is a measurement of volume. To find the volume of the building, multiply the width × the length × the height: 250 × 350 × 12 = 1,050,000 cubic feet (for each floor). The cost per floor is 1,050,000 × $0.98 = $1,029,000. The building is six stories high, so to find the total cost multiply 6 × $1,029,000 = $6,174,000.

Reference: Broker Only > Real Estate Calculations > Investment

Question 22

Five apartments rent for $550 per month and five others for $600 per month. There is an 8% vacancy rate and monthly expenses of $250. If a buyer wants to yield an 8% return, what should he pay for the property?

A)
$790,735
B)
$790,375
C)
$756,000
D)
$765,000

Answer 22

Five apartments rent for $550 per month and five others for $600 per month. There is an 8% vacancy rate and monthly expenses of $250. If a buyer wants to yield an 8% return, what should he pay for the property?

A)
$790,735
Incorrect Answer
B)
$790,375
Incorrect Answer
C)
$756,000
Correct Answer
D)
$765,000
Incorrect Answer
Explanation
Potential gross income (PGI) = (5 × $550 × 12 = $33,000) + (5 × $600 × 12 = $36,000) = $69,000 PGI

$69,000 – $5,520 (8%) = $63,480 effective gross income (EGI)

$250 × 12 = $3,000 expenses

$63,480 ‒ $3,000 = $60,480 ÷ 8% (0.08) = $756,000

Reference: Broker Only > Real Estate Calculations > Investment

Question 23

A major title insurance company missed the deed showing the seller held title to only one-half of the subject property. Escrow closed on the all-cash purchase transaction and the title insurance company issued the owner’s policy of title insurance. The missed owner of the half interest came forward and refused to sell to the buyer. All of the following statements are incorrect, EXCEPT

A)
the title insurance policy is related to missed liens, not missed deeds.
B)
based upon the title policy, the title insurance company can force the co-owner to sell.
C)
the lender can file a claim with the title insurance company.
D)
absent buyer’s knowledge about the missed co-owner, the title company will pay the buyer’s claim.

Answer 23

A major title insurance company missed the deed showing the seller held title to only one-half of the subject property. Escrow closed on the all-cash purchase transaction and the title insurance company issued the owner’s policy of title insurance. The missed owner of the half interest came forward and refused to sell to the buyer. All of the following statements are incorrect, EXCEPT

A)
the title insurance policy is related to missed liens, not missed deeds.
Incorrect Answer
B)
based upon the title policy, the title insurance company can force the co-owner to sell.
Incorrect Answer
C)
the lender can file a claim with the title insurance company.
Incorrect Answer
D)
absent buyer’s knowledge about the missed co-owner, the title company will pay the buyer’s claim.
Correct Answer
Explanation
Provided the buyer did not know about the other owner, the title insurance company will likely pay out under the policy. The title insurance company has no authority to force a vested owner sell their interest merely because of a mistake the title company made during the search of the public records. This was an all-cash deal, meaning there was no lender and no lender’s policy of title insurance. A title insurance search is related to both deeds and encumbrances (like liens).

Broker Only > Transfer of Title > Title Insurance

Question 24

A building has a semiannual effective gross income (EGI) of $250,000. If the annual expenses are 20% of the EGI, what is the net operating income (NOI)?

A)
$100,000
B)
$400,000
C)
$200,000
D)
$500,000

Answer 24

A building has a semiannual effective gross income (EGI) of $250,000. If the annual expenses are 20% of the EGI, what is the net operating income (NOI)?

A)
$100,000
Incorrect Answer
B)
$400,000
Correct Answer
C)
$200,000
Incorrect Answer
D)
$500,000
Incorrect Answer
Explanation
$250,000 × 2 = $500,000

$500,000 ‒ $100,000 (20%) = $400,000

Reference: Broker Only > Real Estate Calculations > Investment

Question 25

The replacement cost of a building is $250,000. It has an annual depreciation of 8%, a site value of $50,000, and annual taxes of $3,950. What is the value of the property?

A)
$276,050
B)
$230,000
C)
$280,000
D)
$283,950

Answer 25

The replacement cost of a building is $250,000. It has an annual depreciation of 8%, a site value of $50,000, and annual taxes of $3,950. What is the value of the property?

A)
$276,050
Incorrect Answer
B)
$230,000
Incorrect Answer
C)
$280,000
Correct Answer
D)
$283,950
Incorrect Answer
Explanation
$250,000 – $20,000 (8%) = $230,000

$230,000 + 50,000 = $280,000

Reference: Broker Only > Real Estate Calculations > Investment

Question 26

For solicitations purposes, a Real Estate Licensee made one phone call to a landline number registered on the National Do Not Call List. If this violation is pursued by the Federal Trade Commission (FTC), how much could the real estate brokerage firm face in federal fines?

A)
Under $20,000
B)
Over $40,000
C)
Over $30,000
D)
Under $30,000

Answer 26

For solicitations purposes, a Real Estate Licensee made one phone call to a landline number registered on the National Do Not Call List. If this violation is pursued by the Federal Trade Commission (FTC), how much could the real estate brokerage firm face in federal fines?

A)
Under $20,000
Incorrect Answer
B)
Over $40,000
Correct Answer
C)
Over $30,000
Incorrect Answer
D)
Under $30,000
Incorrect Answer
Explanation
A federal fine for even a single violation of the National Do Not Call List is currently over $40,000. The National Do Not Call List allows people to register their landlines—not cellphones—to prevent telemarketing phone calls being made to the registered number. This rule prohibits most unsolicited marketing phone calls to registered landlines from, for example, real estate brokerage firms.

Broker Only > Practice of Real Estate > Advertising and Technology

Question 27

What capitalization rate is indicated by a property producing $10,000 annual net operating income (NOI) for which an investor paid $105,263 (rounded)?

A)
9.50%
B)
10%
C)
9%
D)
10.50%

Answer 27

What capitalization rate is indicated by a property producing $10,000 annual net operating income (NOI) for which an investor paid $105,263 (rounded)?

A)
9.50%
Correct Answer
B)
10%
Incorrect Answer
C)
9%
Incorrect Answer
D)
10.50%
Incorrect Answer
Explanation
$10,000 (annual NOI) ÷ $105,263 (purchase price) = 9.5% (0.095) the capitalization rate.

Reference: Broker Only > Real Estate Calculations > Investment

Question 28

What did it cost to construct a building that is worth $155,200 today if it has depreciated at the rate of 2% per year (50 years useful life) for the past 4 years?

A)
$168,695.65
B)
$167,993.47
C)
$143,703.70
D)
$167.616

Answer 28

What did it cost to construct a building that is worth $155,200 today if it has depreciated at the rate of 2% per year (50 years useful life) for the past 4 years?

A)
$168,695.65
Correct Answer
B)
$167,993.47
Incorrect Answer
C)
$143,703.70
Incorrect Answer
D)
$167.616
Incorrect Answer
Explanation
Depreciation is 2% per year for 4 years = 8% depreciation. Original cost at 100% ‒ depreciation at 8% = 92%. $155,200 (the current value) ÷ 92% (0.92) = $168,695.65 (the original cost).

Reference: Broker Only > Real Estate Calculations > Investment

Question 29

Two siblings were purchasing a parcel of real estate together. Both agreed that, when one sibling died, the other sibling should immediately acquire the interest of the deceased. Which of the following ways of holding title will allow the siblings to achieve this goal?

A)
Joint tenancy
B)
Tenants by the entirety
C)
Community property with right of survivorship
D)
Tenants in common

Answer 29

Two siblings were purchasing a parcel of real estate together. Both agreed that, when one sibling died, the other sibling should immediately acquire the interest of the deceased. Which of the following ways of holding title will allow the siblings to achieve this goal?

A)
Joint tenancy
Correct Answer
B)
Tenants by the entirety
Incorrect Answer
C)
Community property with right of survivorship
Incorrect Answer
D)
Tenants in common
Incorrect Answer
Explanation
Based upon these answer choices, the only way for the siblings to achieve their goal is to hold title in a joint tenancy. One of the advantages of holding title as joint tenants is the right of survivorship. The right of survivorship means that, when a joint tenant dies, the interest of the deceased joint tenant in the real estate passes automatically, through operation of law, to the survivor. With a very few exceptions, only married couples can hold title as tenants by the entirety or community property with right of survivorship. The test question specifies that these are two siblings, not spouses. Finally, there is no right of survivorship with a tenancy in common.

Broker Only > Forms of Ownership > Sole Versus Concurrent Ownership

Question 30

An agent is managing a 15-unit apartment building and is paid 9% of the gross income. She leases five apartments for $500, five for $550, and five for $600. There is a 3% vacancy rate and additional income of $450 per month. The monthly operating expenses are $1,749, and the owner is generating an 8% return on the investment. What is the effective gross income (EGI) on the building?

A)
$101,268
B)
$80,442
C)
$96,030
D)
$99,000

Answer 30

An agent is managing a 15-unit apartment building and is paid 9% of the gross income. She leases five apartments for $500, five for $550, and five for $600. There is a 3% vacancy rate and additional income of $450 per month. The monthly operating expenses are $1,749, and the owner is generating an 8% return on the investment. What is the effective gross income (EGI) on the building?

A)
$101,268
Correct Answer
B)
$80,442
Incorrect Answer
C)
$96,030
Incorrect Answer
D)
$99,000
Incorrect Answer
Explanation
5 × $500 × 12 = $30,000

5 × $550 × 12 = $33,000

5 × $600 × 12 = $36,000

Annual income from units = $99,000

Annual additional income = $5,400 ($450 x 12)

$99,000 + $5,400 = $104,400 - $3,132 (3%) = $101,268.

Reference: Broker Only > Real Estate Calculations > Investment

Question 31

An owner of a duplex lives in one unit, and wants to find a tenant who follows the same religion for the adjacent unit. Under federal fair housing laws, all of the following statements are incorrect, EXCEPT

A)
because the owner lives in one unit of the duplex, the broker can assist the owner.
B)
a real estate broker can assist the owner, provided no discriminatory advertising is used.
C)
discrimination on the basis of religion is always illegal under federal fair housing laws.
D)
the owner may discriminate, but must do so quietly and without discriminatory ads.

Answer 31

An owner of a duplex lives in one unit, and wants to find a tenant who follows the same religion for the adjacent unit. Under federal fair housing laws, all of the following statements are incorrect, EXCEPT

A)
because the owner lives in one unit of the duplex, the broker can assist the owner.
Incorrect Answer
B)
a real estate broker can assist the owner, provided no discriminatory advertising is used.
Incorrect Answer
C)
discrimination on the basis of religion is always illegal under federal fair housing laws.
Incorrect Answer
D)
the owner may discriminate, but must do so quietly and without discriminatory ads.
Correct Answer
Explanation
Under federal fair housing laws, there is an exemption that allows an owner of a 1–4 unit residential property to discriminate, when the owner lives in one of the units. However, this exemption must be exercised quietly: No discriminatory advertising is allowed. Also, if taking this exemption, the owner cannot hire a real estate licensee. This is informally called the “Mrs. Murphy Exemption.” Note: Discrimination on the basis of race is never permitted.

Broker Only > Practice of Real Estate > Advertising and Technology

Question 32

The rent collected in a 9-unit building is as follows: three apartments, $550; three apartments, $600; and three apartments, $650. There is a vacancy rate of 4%, additional annual income of $2,400, and annual expenses of $5,000. With a cap rate of 9%, how much should the buyer pay for this property?

A)
$717,866
B)
$661,244
C)
$773,422
D)
$698,534

Answer 32

The rent collected in a 9-unit building is as follows: three apartments, $550; three apartments, $600; and three apartments, $650. There is a vacancy rate of 4%, additional annual income of $2,400, and annual expenses of $5,000. With a cap rate of 9%, how much should the buyer pay for this property?

A)
$717,866
Incorrect Answer
B)
$661,244
Correct Answer
C)
$773,422
Incorrect Answer
D)
$698,534
Incorrect Answer
Explanation
$59,512 net operating income (NOI) ÷ 0.09% (cap rate) = $661,244 value

$550 × 12 × 3 = $19,800 $64,800 $67,200 $64,512
$600 × 12 × 3 = $21,600 + 2,400
– 2,688

(4% Vacancy )

– 5,000
$650 × 12 × 3 = $23,400

$64,800

Annual income

from units

$67,200

Potential

gross income (PGI)

$64,512

Effective

gross income (EGI)

$59,512

(NOI)

Reference: Broker Only > Real Estate Calculations > Investment

Question 33

A property is now worth $117,978. If it has appreciated 6% each year for the past 2 years, what was the original investment?

A)
$111,300
B)
$110,899
C)
$104,245
D)
$105,000

Answer 33

A property is now worth $117,978. If it has appreciated 6% each year for the past 2 years, what was the original investment?

A)
$111,300
Incorrect Answer
B)
$110,899
Incorrect Answer
C)
$104,245
Incorrect Answer
D)
$105,000
Correct Answer
Explanation
Year 1 $117,978 ÷ 106% (100% + 6%) (1.06) = $111,300

Year 2 $111,300 ÷ 106% (1.06) = $105,000

Reference: Broker Only > Real Estate Calculations > Investment

Question 34

Seller, a private individual, listed a commercial property. Buyer, a private individual, made an all-cash offer, contingent on the transaction closing in a short period of time. Seller communicated acceptance, and escrow opened. No title insurance company could insure within the short timeframe agreed to by both the Seller and the Buyer. Assuming all of the following are legal in the state in which the property is situated, which properly-executed conveyancing instrument will the Buyer prefer?

A)
A quitclaim deed
B)
A special warranty deed
C)
A general warranty deed
D)
A dedication

Answer 34

Seller, a private individual, listed a commercial property. Buyer, a private individual, made an all-cash offer, contingent on the transaction closing in a short period of time. Seller communicated acceptance, and escrow opened. No title insurance company could insure within the short timeframe agreed to by both the Seller and the Buyer. Assuming all of the following are legal in the state in which the property is situated, which properly-executed conveyancing instrument will the Buyer prefer?

A)
A quitclaim deed
Incorrect Answer
B)
A special warranty deed
Incorrect Answer
C)
A general warranty deed
Correct Answer
D)
A dedication
Incorrect Answer
Explanation
The Buyer will prefer the general warranty deed. One advantage of the general warranty deed for the buyer is that the protections or “warrants” of title will not only include the time when the Seller owned the property, but will extend to include the time prior to the Seller’s acquisition of the property. Out of these answer choices, the general warranty deed provides, by far, the largest number of title-related promises made by the grantor to a grantee. The promises and covenants contained in a special warranty deed only covers the period of time when the seller (or grantor) owned the property. A quitclaim deed includes no grantor covenants or warranties. Using this deed is like the grantor telling the grantee: “Anything I currently own in the property, if anything, I hereby convey to you.” Finally, a dedication occurs when a private person or a private entity conveys real estate to a governmental entity. Dedications typically occur when developers give land for a street, park, or school to a city, frequently as a condition for development. Here, however, the test question specifies that both the Seller and the Buyer are private individuals. Note: The dedication must be accepted by the governmental entity.

Broker Only > Transfer of Title > Title Insurance

Question 35

A developer wants to purchase four acres of land that sell for $2.20 per square foot. What is the cost for the parcel of land?

A)
$574,992
B)
$287,496
C)
$383,328
D)
$191,664

Answer 35

A developer wants to purchase four acres of land that sell for $2.20 per square foot. What is the cost for the parcel of land?

A)
$574,992
Incorrect Answer
B)
$287,496
Incorrect Answer
C)
$383,328
Correct Answer
D)
$191,664
Incorrect Answer
Explanation
To find the cost of the land, first convert the acreage to square feet: 43,560 sq. ft. (per acre) × 4 = 174,240 sq. ft. Then multiply the total square feet times the price per square foot: 174,240 × $2.20 = $383,328.

Reference: Broker Only > Real Estate Calculations > Investment

Question 36

The primary purpose of a profit and loss statement is to analyze

A)
how the operating budget was calculated and budget projections for the new year.
B)
the ratio of the rate of return to the debt service.
C)
how the property was managed and make projections for the new year.
D)
the ratio of the operating expenses to the operating income.

Answer 36

The primary purpose of a profit and loss statement is to analyze

A)
how the operating budget was calculated and budget projections for the new year.
Incorrect Answer
B)
the ratio of the rate of return to the debt service.
Incorrect Answer
C)
how the property was managed and make projections for the new year.
Correct Answer
D)
the ratio of the operating expenses to the operating income.
Incorrect Answer
Explanation
The purpose of a profit and loss statement is to analyze how the property was managed, what changes should be made, and projections for the new year. How budgets are calculated and ratios for expenses or rates of return are not part of the profit and loss statement.

Reference: Broker Only > Leasing and Property Management > Property Manager’s Fiduciary Responsibilities

Question 37

Two owners, Owner A and Owner B, held title as joint tenants to a single-family residence. Owner A was convicted of intentionally murdering Owner B. Who owns the property?

A)
Owner B’s heirs, because this person was intentionally murdered by the other joint tenant
B)
The entire property will escheat to the state
C)
Owner A, through the right of survivorship
D)
Owner A, as to A’s half, and Owner B’s heirs, as to B’s half

Answer 37

Two owners, Owner A and Owner B, held title as joint tenants to a single-family residence. Owner A was convicted of intentionally murdering Owner B. Who owns the property?

A)
Owner B’s heirs, because this person was intentionally murdered by the other joint tenant
Incorrect Answer
B)
The entire property will escheat to the state
Incorrect Answer
C)
Owner A, through the right of survivorship
Incorrect Answer
D)
Owner A, as to A’s half, and Owner B’s heirs, as to B’s half
Correct Answer
Explanation
Owner A will own half of the property, and the heirs of Owner B will own the other half. When a joint tenant intentionally and unlawfully murders the other joint tenant, the interest of the deceased joint tenant passes as though there was no right of survivorship. Owner B’s heirs will not own the entire property: The murder of a co-owner by another co-owner does not extinguish the murderer’s ownership interest in the property. Finally, the entire property will not escheat to the state. Escheat is one the government’s major rights in property. If an owner has abandoned property or has died without a will and without heirs, the property will escheat to the state, meaning title will transfer to the state. Here, however, Owner A is still alive and still owns one-half of the property. If Owner B died without a will and without any living family members, then Owner B’s half interest in the property would escheat to the state.

Reference: Broker Only > Forms of Ownership > Sole Versus Concurrent Ownership

Question 38

An investment property had a net operating income (NOI) of $75,230, and expenses of $4,900, a cap rate of 8%. What is the effective gross income (EGI)?

A)
$82,630
B)
$80,130
C)
$77,730
D)
$79,500

Answer 38

An investment property had a net operating income (NOI) of $75,230, and expenses of $4,900, a cap rate of 8%. What is the effective gross income (EGI)?

A)
$82,630
Incorrect Answer
B)
$80,130
Correct Answer
C)
$77,730
Incorrect Answer
D)
$79,500
Incorrect Answer
Explanation
$75,230 NOI + 4,900 expenses = $80,130 EGI.

Reference: Broker Only > Real Estate Calculations > Investment

Question 39

If a property’s net operating income (NOI) is $24,000, and the property is valued at $300,000, what is its capitalization rate?

A)
8%
B)
15%
C)
10.5%
D)
12%

Answer 39

If a property’s net operating income (NOI) is $24,000, and the property is valued at $300,000, what is its capitalization rate?

A)
8%
Correct Answer
B)
15%
Incorrect Answer
C)
10.5%
Incorrect Answer
D)
12%
Incorrect Answer
Explanation
The formula is NOI ÷ market value = capitalization rate. $24,000 ÷ $300,000 = 8% (0.08).

Reference: Broker Only > Real Estate Calculations > Investment

Question 40

For which of the following properties is title held in an estate in severalty?

A)
Ownership by four siblings
B)
Ownership by a married couple
C)
Ownership by one municipality
D)
Ownership by three corporations

Answer 40

For which of the following properties is title held in an estate in severalty?

A)
Ownership by four siblings
Incorrect Answer
B)
Ownership by a married couple
Incorrect Answer
C)
Ownership by one municipality
Correct Answer
D)
Ownership by three corporations
Incorrect Answer
Explanation
An estate in severalty (a.k.a. tenancy in severalty) is ownership of a parcel of real estate by one sole individual or entity. The only answer choice to show sole ownership is “ownership by one municipality.”

Reference: Broker Only > Forms of Ownership > Sole Versus Concurrent Ownership

Question 41

Three years ago a couple moved from the house they had owned for 20 years but did not sell it. They decided to travel and bought a mobile home to use as their residence. They have now decided to sell the house. How much of their capital gain on the house will be taxable?

A)
None of it, if the capital gain is less than $500,000
B)
15%, depending on their tax bracket
C)
28%, depending on their tax bracket
D)
All of it, if the capital gain is over $500,000

Answer 41

Three years ago a couple moved from the house they had owned for 20 years but did not sell it. They decided to travel and bought a mobile home to use as their residence. They have now decided to sell the house. How much of their capital gain on the house will be taxable?

A)
None of it, if the capital gain is less than $500,000
Correct Answer
B)
15%, depending on their tax bracket
Incorrect Answer
C)
28%, depending on their tax bracket
Incorrect Answer
D)
All of it, if the capital gain is over $500,000
Incorrect Answer
Explanation
Federal law requires that the couple must have lived in the house for two out of the last five years to receive the $500,000 exemption from capital gains tax. The couple lived in the house for two years before they purchased the mobile home three years ago. The couple qualifies for the capital gain exception of $500,000.

Reference: Broker Only > Real Estate Calculations > Investment

Question 42

Two single, unrelated friends are purchasing a residential condominium together, and plan on remaining concurrent owners for the foreseeable future. They are not in a relationship with each other. If they want to hold title in a manner that includes the right of survivorship, the friends should take title as

A)
tenants by the entirety.
B)
community property.
C)
joint tenants.
D)
community property with right of survivorship.

Answer 42

Two single, unrelated friends are purchasing a residential condominium together, and plan on remaining concurrent owners for the foreseeable future. They are not in a relationship with each other. If they want to hold title in a manner that includes the right of survivorship, the friends should take title as

A)
tenants by the entirety.
Incorrect Answer
B)
community property.
Incorrect Answer
C)
joint tenants.
Correct Answer
D)
community property with right of survivorship.
Incorrect Answer
Explanation
Unmarried, unrelated co-owners can hold title as joint tenants. Joint tenancy includes the right of survivorship. The right of survivorship means that, when one friend dies, the ownership interest of the deceased friend passes automatically through operation of law to the surviving friend. With a few exceptions, these are available only to married couples.

Reference: Broker Only > Forms of Ownership > Sole Versus Concurrent Ownership

Question 43

A house is now worth $105,000. The lot is now worth $50,000. If the house depreciated 4% each year for the past 2 years, and the lot appreciated 6% each year for the past 2 years, what was the approximate combined original value of the house and lot?

A)
$113,932
B)
$156,544
C)
$109,375
D)
$158,432

Answer 43

A house is now worth $105,000. The lot is now worth $50,000. If the house depreciated 4% each year for the past 2 years, and the lot appreciated 6% each year for the past 2 years, what was the approximate combined original value of the house and lot?

A)
$113,932
Incorrect Answer
B)
$156,544
Incorrect Answer
C)
$109,375
Incorrect Answer
D)
$158,432
Correct Answer
Explanation
House Year 1: $105,000 ÷ 96% (100% ‒ 4%) (0.96) = $109,375 ÷ 96% (0.96) = $113,932

Lot year 1: $50,000 ÷ 106% (100% = 6%) (1.06) = $47,170

Lot year 2: $47,170 ÷ 106% (1.06) = $44,500

Total of house and lot together: $113,932 + $44,500 = $158,432

Reference: Broker Only > Real Estate Calculations > Investment

Question 44

An apartment building with a $90,000 net operating income (NOI) and an 8% cap rate has a value of

A)
$1,720,000.
B)
$1,000,000.
C)
$1,125,000.
D)
$1,500,000.

Answer 44

An apartment building with a $90,000 net operating income (NOI) and an 8% cap rate has a value of

A)
$1,720,000.
Incorrect Answer
B)
$1,000,000.
Incorrect Answer
C)
$1,125,000.
Correct Answer
D)
$1,500,000.
Incorrect Answer
Explanation
$90,000 ÷ 8% (0.08) = $1,125,000.

Reference: Broker Only > Real Estate Calculations > Investment

Question 45

A commercial tract of land is 1.25 acres. The lot is 150 feet deep. What is the selling price of the lot at $26,500 per front foot?

A)
$932,800
B)
$9,619,500
C)
$1,442,920
D)
$3,975,000

Answer 45

A commercial tract of land is 1.25 acres. The lot is 150 feet deep. What is the selling price of the lot at $26,500 per front foot?

A)
$932,800
Incorrect Answer
B)
$9,619,500
Correct Answer
C)
$1,442,920
Incorrect Answer
D)
$3,975,000
Incorrect Answer
Explanation
1.25 acres × 43,560 (sq. ft. per acre) = 54,450 (total sq. ft.) ÷ 150 ft. (the depth of the lot) = 363 front ft. × $26,500 per front ft. = $9,619,500 (the selling price). The term front foot refers to a unit of frontage of a lot, usually the street frontage or water frontage. When two dimensions are given for a tract and not labeled, the first dimension is the frontage. Each front foot extends the depth of the lot.

Reference: Broker Only > Real Estate Calculations > Investment

Question 46

Co-owner Hernandez and co-owner Larsen are married. Both have been married previously and both have children from their former marriages. The married couple are purchasing a single-family residence together, and each will own a one-half interest. They want to leave their respective interests in the property to their own children. Both have drafted wills doing exactly this. What is the best way for this couple to hold title to the real estate?

A)
Hernandez and Larsen, as Tenants by the Entirety
B)
Hernandez and Larsen, as Community Property with Right of Survivorship
C)
Hernandez and Larsen, as Joint Tenants
D)
Hernandez and Larsen, as Tenants in Common

Answer 46

Co-owner Hernandez and co-owner Larsen are married. Both have been married previously and both have children from their former marriages. The married couple are purchasing a single-family residence together, and each will own a one-half interest. They want to leave their respective interests in the property to their own children. Both have drafted wills doing exactly this. What is the best way for this couple to hold title to the real estate?

A)
Hernandez and Larsen, as Tenants by the Entirety
Incorrect Answer
B)
Hernandez and Larsen, as Community Property with Right of Survivorship
Incorrect Answer
C)
Hernandez and Larsen, as Joint Tenants
Incorrect Answer
D)
Hernandez and Larsen, as Tenants in Common
Correct Answer
Explanation
If Hernandez and Larsen want their respective interests in the single-family residence to pass to the children each has from a former marriage, then the married couple should hold title as “tenants in common.” Upon the death of each co-owner, their one-half interest in the property will pass per each spouse’s will to their own respective children. There is a right of survivorship for these other answer choices, meaning the interest of the first co-owner to die will pass immediately—through operation of law—to the survivor.

Broker Only > Forms of Ownership > Sole Versus Concurrent Ownership

Question 47

If the effective gross annual income generated by an apartment house is $112,000 and operating expenses are $53,700, what capitalization rate is used to obtain an indicated value of $542,325?

A)
10.25%
B)
9.75%
C)
10.50%
D)
10.75%

Answer 47

If the effective gross annual income generated by an apartment house is $112,000 and operating expenses are $53,700, what capitalization rate is used to obtain an indicated value of $542,325?

A)
10.25%
Incorrect Answer
B)
9.75%
Incorrect Answer
C)
10.50%
Incorrect Answer
D)
10.75%
Correct Answer
Explanation
$112,000 (effective gross income (EGI)) ‒ $53,700 (expenses) = $58,300 (net operating income (NOI))

$58,300 ÷ $542,325 (property value) = 10.75% (0.1075) (the capitalization rate).

Reference: Broker Only > Real Estate Calculations > Investment

Question 48

For Real Estate Licensees, which of the following are lawful advertisements?

A)
“Fluent in Mandarin and Tagalog.”
B)
All of these
C)
“Listed property has the most beautiful view of the ocean in the entire state.”
D)
“I will rebate $500 to every buyer and seller who uses my brokerage firm services in June.”

Answer 48

For Real Estate Licensees, which of the following are lawful advertisements?

A)
“Fluent in Mandarin and Tagalog.”
Incorrect Answer
B)
All of these
Correct Answer
C)
“Listed property has the most beautiful view of the ocean in the entire state.”
Incorrect Answer
D)
“I will rebate $500 to every buyer and seller who uses my brokerage firm services in June.”
Incorrect Answer
Explanation
All of these are examples of legal advertisements. The advertised rebate offered to buyers and sellers who use a brokerage firm’s services is legal. The rationale is that a rebate helps the consumer by lowering the cost of the purchase transaction. The example of an advertisement stating that the property has the most beautiful view of the ocean in the entire state would typically fall under the category of “puffing.” This is an exaggerated form of sales talk that cannot be objectively measured or verified, and would not be relied upon by a reasonable consumer. Finally, an advertisement that indicates the broker is fluent in one or more languages assists consumers who want to converse in their native language while conducting real estate transactions.

Broker Only > Practice of Real Estate > Advertising and Technology

Question 49

Four years ago, a buyer purchased a property for $148,000. For three years, it appreciated 4% each year, but the fourth year it depreciated 4%. What was the approximate value of the property at the end of the fourth year?

A)
$159,020
B)
$159,130
C)
$159,900
D)
$159,820

Answer 49

Four years ago, a buyer purchased a property for $148,000. For three years, it appreciated 4% each year, but the fourth year it depreciated 4%. What was the approximate value of the property at the end of the fourth year?

A)
$159,020
Incorrect Answer
B)
$159,130
Incorrect Answer
C)
$159,900
Incorrect Answer
D)
$159,820
Correct Answer
Explanation
Year 1 $148,000 × 104% (1.04) = $153,920

Year 2 $153,920 × 104% (1.04) = $160,076.80

Year 3 $160,076.80 × 104% (1.04) = $166,479.87

Year 4 $166,479.87 × 96% (0.96) = $159,820.68

Reference: Broker Only > Real Estate Calculations > Investment

Question 50

A lender negotiated an $82,250 loan, which was 80% of the appraised value. The appraised value of the property is

A)
$82,250.50.
B)
$102,812.50.
C)
$68,500.50.
D)
$65,800.50.

Answer 50

A lender negotiated an $82,250 loan, which was 80% of the appraised value. The appraised value of the property is

A)
$82,250.50.
Incorrect Answer
B)
$102,812.50.
Correct Answer
C)
$68,500.50.
Incorrect Answer
D)
$65,800.50.
Incorrect Answer
Explanation
$82,250 ÷ 80% (0.80) = $102,812.50.

Reference: Broker Only > Real Estate Calculations > Investment

Question 51

Last year, an apartment building had an effective gross income (EGI) of $55,575 and expenses of $5,500. If the cap rate is 10%, what is the value?

A)
$500,000
B)
$500,750
C)
$555,750
D)
$555,555

Answer 51

Last year, an apartment building had an effective gross income (EGI) of $55,575 and expenses of $5,500. If the cap rate is 10%, what is the value?

A)
$500,000
Incorrect Answer
B)
$500,750
Correct Answer
C)
$555,750
Incorrect Answer
D)
$555,555
Incorrect Answer
Explanation
$55,575 – 5,500 = $50,075

$50,075 ÷ 10% (0.10) = $500,750

Reference: Broker Only > Real Estate Calculations > Investment

Question 52

If the gross rent multiplier of a property is 112 and the rent is $600 monthly, what is the value of the property?

A)
$62,700
B)
$67,200
C)
$27,600
D)
$76,200

Answer 52

If the gross rent multiplier of a property is 112 and the rent is $600 monthly, what is the value of the property?

A)
$62,700
Incorrect Answer
B)
$67,200
Correct Answer
C)
$27,600
Incorrect Answer
D)
$76,200
Incorrect Answer
Explanation
112 × $600 = $67,200.

Reference: Broker Only > Real Estate Calculations > Investment

Question 53

A property is now worth $98,250. If it has depreciated in value 5% each year for the past 2 years, what was the original investment?

A)
$103,421
B)
$108,864
C)
$103,241
D)
$108,320

Answer 53

A property is now worth $98,250. If it has depreciated in value 5% each year for the past 2 years, what was the original investment?

A)
$103,421
Incorrect Answer
B)
$108,864
Correct Answer
C)
$103,241
Incorrect Answer
D)
$108,320
Incorrect Answer
Explanation
Year 1 $98,250 ÷ 95% (100% ‒ 5%) (0.95) = $103,421

Year 2 $103,421 ÷ 95% (0.95) = $108,864

Reference: Broker Only > Real Estate Calculations > Investment

Question 54

If a circular property has a diameter of 50 feet and costs $120 per square foot, what is the cost of the property?

A)
$2,356,200
B)
$942,480
C)
$235,620
D)
$1,235,620

Answer 54

If a circular property has a diameter of 50 feet and costs $120 per square foot, what is the cost of the property?

A)
$2,356,200
Incorrect Answer
B)
$942,480
Incorrect Answer
C)
$235,620
Correct Answer
D)
$1,235,620
Incorrect Answer
Explanation
A = 3.1416 × 25 ft. × 25 ft. = 1,963.5 sq. ft.

A = 1,963.5 sq. ft. × $120 = $235,620

Reference: Broker Only > Real Estate Calculations > Investment

Question 55

Residential leases are usually expressed as

A)
an annual or monthly rate per square foot.
B)
a percentage of total space available.
C)
an annual rate per room.
D)
a monthly rate per unit.

Answer 55

Residential leases are usually expressed as

A)
an annual or monthly rate per square foot.
Incorrect Answer
B)
a percentage of total space available.
Incorrect Answer
C)
an annual rate per room.
Incorrect Answer
D)
a monthly rate per unit.
Correct Answer
Explanation
Residential leases are for an apartment or home and are expressed in a per unit rate. Commercial space can be expressed in price per square foot or percentage of space available. Hotel rooms are expressed in the rate per room.

Reference: Broker Only > Leasing and Property Management > Property Manager’s Fiduciary Responsibilities

Question 56

If the potential gross rental income from a property is $20,000, the vacancy rate is 5%, and the additional income from the laundry facilities and extra storage is $700, what is the effective gross income (EGI)?

A)
$20,700
B)
$19,665
C)
$19,000
D)
$20,000

Answer 56

If the potential gross rental income from a property is $20,000, the vacancy rate is 5%, and the additional income from the laundry facilities and extra storage is $700, what is the effective gross income (EGI)?

A)
$20,700
Incorrect Answer
B)
$19,665
Correct Answer
C)
$19,000
Incorrect Answer
D)
$20,000
Incorrect Answer
Explanation
The EGI is the result of all incomes minus any losses due to vacancy, bad checks, et cetera: $20,000 (potential gross income (PGI)) + $700 (other income) = $20,700 – $1,035 [vacancies at 5% (0.05) (0.05 × $20,700)] = $19,665

Reference: Broker Only > Real Estate Calculations > Investment

Question 57

Listing agents typically market properties on an online electronic database. An online listing includes information about, and pictures of, the subject property. Which of the following terms best describes the relationship of real estate licensees when they work online using this current internet technology?

A)
Multiple Listing Service
B)
Cooperation
C)
Farming
D)
Bilateral agreement

Answer 57

Listing agents typically market properties on an online electronic database. An online listing includes information about, and pictures of, the subject property. Which of the following terms best describes the relationship of real estate licensees when they work online using this current internet technology?

A)
Multiple Listing Service
Incorrect Answer
B)
Cooperation
Correct Answer
C)
Farming
Incorrect Answer
D)
Bilateral agreement
Incorrect Answer
Explanation
Cooperation best describes the relationship between a seller’s agent and a buyer’s agent on the Multiple Listing Service (MLS). The MLS is the online site where properties are listed by sellers’ agents. This online database makes properties widely visible to buyers’ agents who have a paid membership in the MLS. The name of the MLS, however, is not the focus of the test question. The question is asking for the term that best describes the relationship between the seller’s agent and the buyer’s agent. The term “farming” describes a real estate licensee calling and canvassing a particular geographic area (like a neighborhood) to create good will and cultivate relationships that might lead to a future client. Finally, a bilateral agreement is a contract where both parties are making promises to each other. That is not what occurs on the MLS: When the seller’s agent lists a property on the MLS, it is a unilateral offer of compensation to the agent who brings the buyer to the transaction.

Broker Only > Practice of Real Estate > Advertising and Technology

Question 58

What is the monthly rent for a 1,750 sq. ft. office that rents for $14.50 per square foot annually?

A)
$23,375
B)
$2,114.58
C)
$2,022.44
D)
$3,192.51

Answer 58

What is the monthly rent for a 1,750 sq. ft. office that rents for $14.50 per square foot annually?

A)
$23,375
Incorrect Answer
B)
$2,114.58
Correct Answer
C)
$2,022.44
Incorrect Answer
D)
$3,192.51
Incorrect Answer
Explanation
1,750 sq. ft. × $14.50 per sq. ft. = $25,375 (annual rent)

$25,375 ÷ 12 months = $2,114.58 (monthly rent)

Reference: Broker Only > Real Estate Calculations > Investment

Question 59

To compute the return on investment (ROI), a property manager must

A)
multiply the after-tax cash flow by the equity and divide by 100%.
B)
divide the after-tax cash flow by the equity and multiply by 100%.
C)
multiply the before-tax cash flow by the after-cash tax flow.
D)
divide the before-tax cash flow by the after-cash tax flow.

Answer 59

To compute the return on investment (ROI), a property manager must

A)
multiply the after-tax cash flow by the equity and divide by 100%.
Incorrect Answer
B)
divide the after-tax cash flow by the equity and multiply by 100%.
Correct Answer
C)
multiply the before-tax cash flow by the after-cash tax flow.
Incorrect Answer
D)
divide the before-tax cash flow by the after-cash tax flow.
Incorrect Answer
Explanation
The answer is divide the after-tax cash flow by the equity and multiply by 100%. The ROI formula: after-tax cash flow ÷ equity × 100% of the return.

Reference: Broker Only > Leasing and Property Management > Property Manager’s Fiduciary Responsibilities

Question 60

The buyers secured a loan with a 75% loan-to-value (LTV) ratio. The interest rate was 7.125%, and the term was for 30 years. The first month’s interest payment was $477.82. What was the appraised value of the property?

A)
$107,300
B)
$80,475
C)
$79,239
D)
$103,700

Answer 60

The buyers secured a loan with a 75% loan-to-value (LTV) ratio. The interest rate was 7.125%, and the term was for 30 years. The first month’s interest payment was $477.82. What was the appraised value of the property?

A)
$107,300
Correct Answer
B)
$80,475
Incorrect Answer
C)
$79,239
Incorrect Answer
D)
$103,700
Incorrect Answer
Explanation
$477.82 × 12 = $5,733.84 annual interest

$5,733.84 ÷ 7.125% (0.07125) = $80,475

$80,475 ÷ 75% (0.75) = $107,300

Reference: Broker Only > Real Estate Calculations > Investment

Question 61

The N½ of the SW¼ of the NE¼ sold for $2,500 per acre. What was the selling price?

A)
$50,000
B)
$40,000
C)
$10,000
D)
$20,000

Answer 61

The N½ of the SW¼ of the NE¼ sold for $2,500 per acre. What was the selling price?

A)
$50,000
Correct Answer
B)
$40,000
Incorrect Answer
C)
$10,000
Incorrect Answer
D)
$20,000
Incorrect Answer
Explanation
Use the denominator for each section to determine how many acres. Chain them in the calculator without totaling.

640 ÷ 4 ÷ 4 ÷ 2 = 20 acres

20 × $2,500 = $50,000

Reference: Broker Only > Real Estate Calculations > Investment

Question 62

The effective gross annual income from a property is $112,000. Total expenses for this year are $53,700. What capitalization rate was used to obtain a valuation of $542,325?

A)
10.75%
B)
9.75%
C)
10.5%
D)
10.25%

Answer 62

The effective gross annual income from a property is $112,000. Total expenses for this year are $53,700. What capitalization rate was used to obtain a valuation of $542,325?

A)
10.75%
Correct Answer
B)
9.75%
Incorrect Answer
C)
10.5%
Incorrect Answer
D)
10.25%
Incorrect Answer
Explanation
The capitalization rate may be found by dividing the net operating income (NOI) by the value of the property (rate = NOI ÷ value). In this case, the annual NOI is found by subtracting the yearly expenses from the gross annual income: $112,000 (annual income) ‒ $53,700 (total expenses) = $58,310 (the NOI). $58,301 (ROI) ÷ $542,325 (the value) = 10.75% (0.1075)

Reference: Broker Only > Real Estate Calculations > Investment

Question 63

If there is a low vacancy rate, the property manager should probably

A)
raise the rent.
B)
lower the rent.
C)
offer free rent.
D)
offer rebates.

Answer 63

If there is a low vacancy rate, the property manager should probably

A)
raise the rent.
Correct Answer
B)
lower the rent.
Incorrect Answer
C)
offer free rent.
Incorrect Answer
D)
offer rebates.
Incorrect Answer
Explanation
Low vacancy rates means that there is a high demand for rentals. The principal of supply and demand states when there is not enough supply and there is high demand, value and rent rise. If demand lowers and supply increases, the rents would go down.

Reference: Broker Only > Leasing and Property Management > Property Manager’s Fiduciary Responsibilities