Set 5 Flashcards
What is the best approach to value a special purpose property (such as church or hospital)
Cost approach
special purpose property -> cost approach
COST APPROACH
An approach to value best used on special purpose properties, such as churches and hospitals; the approach values a property by determining the current replacement cost, less depreciation, plus the current land value
T/F: Both improvements and land can depreciate
False
land NEVER depreciates
T/F: A property that is not an investment property may be depreciated for tax purposes
False
Only investment property (rentals) can be depreciated for tax purposes
A person may depreciate property for tax purposes when the property is:
A » a rental property held for investment
B » sold
C » a second home
D » exchanged for a smaller property
A rental property held for investment
(A) Only investment property (rentals) can be depreciated for tax purposes. (B) A property cannot be tax depreciated just because it is sold or (C) is a second home. (D) An exchange of property can have special tax treatment for deferral of capital gains, but cannot be tax depreciated unless it is an investment property.
What is a sinking fund created for?
A sinking fund is created to save money to satisfy a debt.
What is it called when a person takes the cost of purchase and then recaptures this amount?
A » A sinking fund
B » Escrow
C » Profit
D » Depreciation
D » Depreciation
Another word for tax depreciation is to recapture the cost of purchase over a certain time period allowed by IRS regulations. (A) A sinking fund is created to save money to satisfy a debt. (B) Escrow is an account held by a neutral third party. (C) Profit is the difference between what a property is sold for less the costs incurred in acquisition
Is “economic life” or “physical life” shorter?
Economic life is shorter
PHYSICAL LIFE
Number of years item is physically sound
ECONOMIC LIFE
Number of years item is profitable; economic life is shorter than the physical life
T/F: The income approach is best used on income producing properties such as apartments.
True
The income approach is best used on income producing properties such as apartments.
Which approach to value would be best for an apartment complex?
A » Market data approach
B » Income approach
C » Cost approach
D » Sales comparison approach
B » Income approach
(B) The income approach is best used on income producing properties such as apartments. (A) The market data approach or (D) sales comparison is best used on residential property and vacant land. (C) The cost approach is best used on special purpose properties like churches.
T/F: The market data approach is used in residential property and vacant land
True
Market data is used in residential property and vacant land by analyzing the comparables.
T/F: Capitalization refers to the market data valuation approach
False
Capitalization -> income approach
Capitalization is taking the net income divided by the capitalization rate (rate of return) to get the value of an income property
Jon works for Builder Bob, selling his new construction homes in Illinois. Does Jon need a real estate license?
A » Yes, this is a licensed activity
B » Yes, as new construction sales require a licensed agent
C » No, as long as Jon is Bob’s regular employee
D » No, as new construction is exempt
C » No, as long as Jon is Bob’s regular employee
Regular employees of the owner of the property are exempt from licensing in Illinois. A regular employee must work at least 20 hours a week and be classified as an employee by IRS guidelines.
T/F: Illinois Law dictates that you are assumed to be the designated agent of the party you are working with, unless you somehow alter that assumption in advance.
True
Illinois Law dictates that you are assumed to be the designated agent of the party you are working with, unless you somehow alter that assumption in advance.
The largest monetary penalty, per transaction, for a license law violation in Illinois is _____
$25k
$25,000 is the largest fine that can be imposed by DFPR per transaction.
Under Illinois real estate law, it is required that all clients be given written disclosure of who is their:
ANSWERS A » lawyer B » loan officer C » subagent D » designated agent
D » designated agent
On both the listing and the selling side, all clients must get a written disclosure of what agent will be serving as their “designated agent” within the office. In cases of sales teams or licensed personal assistants, there may be more than one agent named.