KPRINCIPLES OF REAL ESTATE 2
PRACTICE TEST QUESTIONS AND
ANSWERS
Karissa is buying a gulf front property and deposits the necessary funds to complete the sale into
escrow. The seller's title has not yet been declared acceptable, and Karissa is nervous she could lose her
money. Evaluate Karissa's fear. - - Karissa doesn't need to worry, as her funds will not be paid to the seller
until the seller's title is deemed acceptable.
- When a buyer closes in escrow, money won't be paid to the seller until the seller's title is acceptable.
The seller is assured of getting the purchase price because the buyer's check must cl Karissa is buying a
gulf front property and deposits the necessary funds to complete the sale into escrow. The seller's title
has not yet been declared acceptable, and Karissa is nervous she could lose her money. Evaluate
Karissa's fear. - - Karissa doesn't need to worry, as her funds will not be paid to the seller until the seller's
title is deemed acceptable.
- When a buyer closes in escrow, money won't be paid to the seller until the seller's title is acceptable.
The seller is assured of getting the purchase price because the buyer's check must clear before title
passes. Neither party needs to be present when title is passed.
Joselyn is buying a new condo in New York City. The seller is responsible for any expenses through the
March 1st closing date. The condo has a prepaid HOA fee of $8,640. How much of that fee will Joselyn be
responsible for if it is calculated on a 360-day year? - - $7,176
- Remember that when you're calculating prorated expenses for a prepaid item, you need to first
determine the period of time for which the expense has been prepaid. In this case, the seller has prepaid
for the year and is responsible for expenses up for January, February, and March 1st. First, find the
monthly HOA expense by dividing the annual HOA fee by 12: $8,640 ÷ 12 = $720. Next, find the daily
HOA expense by dividing the monthly HOA fee amount by 30 days: $720 ÷ 30 = $24. Now multiply the
monthly bill by the number of months that are prepaid: $720 x 2 = $1,440. There is one day in March
that the seller is responsible for so next add the daily HOA fee amount to the monthly amount: $24 +
$1,440 = $1,464. The last step is to subtract the amount the seller is responsible for from the annual
HOA fee amount: $8,640 - $1,464 = $7,176. Joselyn is responsible for $7,176 of the HOA fee.
Haley's condominium purchase is financed by a package mortgage.
What does this imply about the condominium she purchased? - - Her purchase most likely includes the
condominium but also all personal property and appliances installed on the premises.
- A package mortgage includes not only the real estate but also all personal property and appliances
installed on the premises.
,Which of the following statements is TRUE about investment property buyers? - - They often make
multiple "low ball" offers on multiple properties.
- Investment property buyers are unique in a number of ways. These buyers are often very
knowledgeable about the intricacies of investment property purchases, and they often do their own
research. Additionally, the investment property buyer will often make multiple "low ball" offers on
multiple properties as they try to secure the very best deal. For the investment property buyer, the
transaction is purely profit-driven without much of the emotional component you might expect with
residential purchases and other transactions.
What protects buyers and families from potential exposure to lead from paint, dust, and soil when
purchasing a home built prior to 1978? - - Lead-Based Paint Disclosure
Rory wants to invest some of his money. He debates between investing in commercial real estate and
investing in the stocks of a technology startup. What would be a potential benefit of investing in
commercial real estate? - - Investing in commercial real estate typically produces a predictable cash flow.
- Investing in commercial real estate yields a predictable cash flow (through recurring rent payments,
etc.). This minimizes the risk of the investment itself and provides funds for further investment
opportunities, as well.
The loss of property value caused by negative forces beyond the control of the owner is called: - -
economic obsolescence
On the Closing Disclosure, prorated interest paid before closing on an existing assumed mortgage is a: - -
debit to the buyer and credit to the seller
- The buyers will be paying a mortgage payment for the month of the sale in arrears. Normally at that
time, they'll be paying for the days the seller lived in the house during that month. However in this case
the interest was prepaid by the seller before closing, so the buyer will need to pay the seller back for the
days they live in the home. This means that prorated interest will show as a DEBIT to the BUYER, and a
CREDIT to the SELLER.
Landlords MUST allow tenants with disabilities to make reasonable modifications to a property so they
can enjoy it. But there are also unreasonable modifications a landlord does NOT have to allow.
Which of the following would be considered a reasonable modification? - - modifications made at the
tenant's expense
- When a tenant has a disability, a landlord may NOT refuse to let the tenant make reasonable
modifications to their dwelling or common use areas (at the tenant's expense) if necessary for them to
use the housing. Unreasonable modifications that would not have to be allowed could include
something unrelated to the tenant's disability, something that would be cost-prohibitive, or something
that might significantly alter the property. A landlord would not be obligated to accommodate
unreasonable requests.
A 65-year-old retiree has almost $80,000 in equity in their home. She does not have enough cash to
travel as she would have liked to do in retirement.
,The retiree could consider which of these financing alternatives to access her equity without selling her
home? - - a reverse mortgage
- A reverse mortgage allows a homeowner to pledge equity to a lender in exchange for monthly
payments. The retiree could consider this type of mortgage as a way to fund her travel without selling
her home.
A granting clause: - - states the property is being conveyed from the grantor to the grantee
A tenant remains in possession of a landlord's property without a current lease agreement or the
landlord's approval.
Which statement is TRUE in this situation? - - The landlord can pursue actual eviction.
A deed contains the names of the grantor and grantee, statement of consideration, granting clause
(words of conveyance), habendum clause, legal description of the conveyed property, exceptions and
reservations, and acknowledgment of the grantor's signature. What more does it need to be a valid
deed? - - delivery and acceptance
- Delivery and acceptance are required for it to be a valid deed.
Which of the following is TRUE about a sales comparison approach? - - A sales comparison approach
uses both the principle of contribution AND the principle of substitution.
If a landlord wishes to charge a tenant a late fee, the landlord MUST do all of the following EXCEPT: - -
give the tenant 30 days to pay the late fee
- Landlords can charge tenants late fees for not paying their rent on time, but there are three conditions
that must take place in order for them to charge a tenant a late fee: The landlord must include the late
fee in the lease, the late fee must be reasonable, and the tenant must be at least one full day late. Note:
If no late rent fee is mentioned in the lease, the landlord cannot charge the tenant a late fee.
Andy is the landlord of a rental home. Andy neglects to trim the tree that shades the home and the tree
creates a hole in the roof. This develops into a severe roof leak.
The ensuing roof repair would qualify as: - - corrective maintenance
The roof repair would qualify as corrective maintenance, which is maintenance that involves the repair
of property after it has been damaged.
A property is sold for $100,000. The buyer has paid $12,000 as earnest money and is obtaining a 70%
loan. Based on the information provided, how much additional cash will the buyer have to bring to the
closing? - - $18,000
- The buyer still needs to account for 30% of the money not provided by the loan. 30% of $100,000 is
$30,000. Subtract the $12,000 of earnest money from the $30,000 left to be paid to get $18,000.
Which type of loan is exempt from RESPA? - - loans on vacant land
, James owns several properties that are close to a state park. In marketing these properties, he denotes
that the properties have easy access to the park, but he does NOT describe the type of buyer this feature
might appeal to, i.e., "outdoorsy people," etc.
What activity is James attempting to avoid? - - illegal target marketing
- Advertisement by a housing provider in niche publications that target specific ethnic or religious groups
to the exclusion of the general public is called illegal target marketing. Also, housing providers need to be
careful about using certain words in ads that could be interpreted as being exclusionary rather than
inclusionary. Saying something that may seem innocuous, like, "Ideal for Large Families," may send a
message that a single person may not be welcome.
What is the value of a property if the net operating income is $45,600 and the cap rate is 20%?
Hint: "Ask IRV" - - $228,000
- Use the formula Net operating income (I) ÷ Capitalization rate (R) = Value (V): $45,600 ÷ 0.20 =
$228,000.
What is a ground lease? - - the leasing of bare, undeveloped land
ear before title passes. Neither party needs to be present when title is passed.
Joselyn is buying a new condo in New York City. The seller is responsible for any expenses through the
March 1st closing date. The condo has a prepaid HOA fee of $8,640. How much of that fee will Joselyn be
responsible for if it is calculated on a 360-day year? - - $7,176
- Remember that when you're calculating prorated expenses for a prepaid item, you need to first
determine the period of time for which the expense has been prepaid. In this case, the seller has prepaid
for the year and is responsible for expenses up for January, February, and March 1st. First, find the
monthly HOA expense by dividing the annual HOA fee by 12: $8,640 ÷ 12 = $720. Next, find the daily
HOA expense by dividing the monthly HOA fee amount by 30 days: $720 ÷ 30 = $24. Now multiply the
monthly bill by the number of months that are prepaid: $720 x 2 = $1,440. There is one day in March
that the seller is responsible for so next add the daily HOA fee amount to the monthly amount: $24 +
$1,440 = $1,464. The last step is to subtract the amount the seller is responsible for from the annual
HOA fee amount: $8,640 - $1,464 = $7,176. Joselyn is responsible for $7,176 of the HOA fee.
Haley's condominium purchase is financed by a package mortgage.
What does this imply about the condominium she purchased? - - Her purchase most likely includes the
condominium but also all personal property and appliances installed on the premises.
- A package mortgage includes not only the real estate but also all personal property and appliances
installed on the premises.
Which of the following statements is TRUE about investment property buyers? - - They often make
multiple "low ball" offers on multiple properties.
- Investment property buyers are unique in a number of ways. These buyers are often very
knowledgeable about the intricacies of investment property purchases, and they often do their own
research. Additionally, the investment property buyer will often make multiple "low ball" offers on
PRACTICE TEST QUESTIONS AND
ANSWERS
Karissa is buying a gulf front property and deposits the necessary funds to complete the sale into
escrow. The seller's title has not yet been declared acceptable, and Karissa is nervous she could lose her
money. Evaluate Karissa's fear. - - Karissa doesn't need to worry, as her funds will not be paid to the seller
until the seller's title is deemed acceptable.
- When a buyer closes in escrow, money won't be paid to the seller until the seller's title is acceptable.
The seller is assured of getting the purchase price because the buyer's check must cl Karissa is buying a
gulf front property and deposits the necessary funds to complete the sale into escrow. The seller's title
has not yet been declared acceptable, and Karissa is nervous she could lose her money. Evaluate
Karissa's fear. - - Karissa doesn't need to worry, as her funds will not be paid to the seller until the seller's
title is deemed acceptable.
- When a buyer closes in escrow, money won't be paid to the seller until the seller's title is acceptable.
The seller is assured of getting the purchase price because the buyer's check must clear before title
passes. Neither party needs to be present when title is passed.
Joselyn is buying a new condo in New York City. The seller is responsible for any expenses through the
March 1st closing date. The condo has a prepaid HOA fee of $8,640. How much of that fee will Joselyn be
responsible for if it is calculated on a 360-day year? - - $7,176
- Remember that when you're calculating prorated expenses for a prepaid item, you need to first
determine the period of time for which the expense has been prepaid. In this case, the seller has prepaid
for the year and is responsible for expenses up for January, February, and March 1st. First, find the
monthly HOA expense by dividing the annual HOA fee by 12: $8,640 ÷ 12 = $720. Next, find the daily
HOA expense by dividing the monthly HOA fee amount by 30 days: $720 ÷ 30 = $24. Now multiply the
monthly bill by the number of months that are prepaid: $720 x 2 = $1,440. There is one day in March
that the seller is responsible for so next add the daily HOA fee amount to the monthly amount: $24 +
$1,440 = $1,464. The last step is to subtract the amount the seller is responsible for from the annual
HOA fee amount: $8,640 - $1,464 = $7,176. Joselyn is responsible for $7,176 of the HOA fee.
Haley's condominium purchase is financed by a package mortgage.
What does this imply about the condominium she purchased? - - Her purchase most likely includes the
condominium but also all personal property and appliances installed on the premises.
- A package mortgage includes not only the real estate but also all personal property and appliances
installed on the premises.
,Which of the following statements is TRUE about investment property buyers? - - They often make
multiple "low ball" offers on multiple properties.
- Investment property buyers are unique in a number of ways. These buyers are often very
knowledgeable about the intricacies of investment property purchases, and they often do their own
research. Additionally, the investment property buyer will often make multiple "low ball" offers on
multiple properties as they try to secure the very best deal. For the investment property buyer, the
transaction is purely profit-driven without much of the emotional component you might expect with
residential purchases and other transactions.
What protects buyers and families from potential exposure to lead from paint, dust, and soil when
purchasing a home built prior to 1978? - - Lead-Based Paint Disclosure
Rory wants to invest some of his money. He debates between investing in commercial real estate and
investing in the stocks of a technology startup. What would be a potential benefit of investing in
commercial real estate? - - Investing in commercial real estate typically produces a predictable cash flow.
- Investing in commercial real estate yields a predictable cash flow (through recurring rent payments,
etc.). This minimizes the risk of the investment itself and provides funds for further investment
opportunities, as well.
The loss of property value caused by negative forces beyond the control of the owner is called: - -
economic obsolescence
On the Closing Disclosure, prorated interest paid before closing on an existing assumed mortgage is a: - -
debit to the buyer and credit to the seller
- The buyers will be paying a mortgage payment for the month of the sale in arrears. Normally at that
time, they'll be paying for the days the seller lived in the house during that month. However in this case
the interest was prepaid by the seller before closing, so the buyer will need to pay the seller back for the
days they live in the home. This means that prorated interest will show as a DEBIT to the BUYER, and a
CREDIT to the SELLER.
Landlords MUST allow tenants with disabilities to make reasonable modifications to a property so they
can enjoy it. But there are also unreasonable modifications a landlord does NOT have to allow.
Which of the following would be considered a reasonable modification? - - modifications made at the
tenant's expense
- When a tenant has a disability, a landlord may NOT refuse to let the tenant make reasonable
modifications to their dwelling or common use areas (at the tenant's expense) if necessary for them to
use the housing. Unreasonable modifications that would not have to be allowed could include
something unrelated to the tenant's disability, something that would be cost-prohibitive, or something
that might significantly alter the property. A landlord would not be obligated to accommodate
unreasonable requests.
A 65-year-old retiree has almost $80,000 in equity in their home. She does not have enough cash to
travel as she would have liked to do in retirement.
,The retiree could consider which of these financing alternatives to access her equity without selling her
home? - - a reverse mortgage
- A reverse mortgage allows a homeowner to pledge equity to a lender in exchange for monthly
payments. The retiree could consider this type of mortgage as a way to fund her travel without selling
her home.
A granting clause: - - states the property is being conveyed from the grantor to the grantee
A tenant remains in possession of a landlord's property without a current lease agreement or the
landlord's approval.
Which statement is TRUE in this situation? - - The landlord can pursue actual eviction.
A deed contains the names of the grantor and grantee, statement of consideration, granting clause
(words of conveyance), habendum clause, legal description of the conveyed property, exceptions and
reservations, and acknowledgment of the grantor's signature. What more does it need to be a valid
deed? - - delivery and acceptance
- Delivery and acceptance are required for it to be a valid deed.
Which of the following is TRUE about a sales comparison approach? - - A sales comparison approach
uses both the principle of contribution AND the principle of substitution.
If a landlord wishes to charge a tenant a late fee, the landlord MUST do all of the following EXCEPT: - -
give the tenant 30 days to pay the late fee
- Landlords can charge tenants late fees for not paying their rent on time, but there are three conditions
that must take place in order for them to charge a tenant a late fee: The landlord must include the late
fee in the lease, the late fee must be reasonable, and the tenant must be at least one full day late. Note:
If no late rent fee is mentioned in the lease, the landlord cannot charge the tenant a late fee.
Andy is the landlord of a rental home. Andy neglects to trim the tree that shades the home and the tree
creates a hole in the roof. This develops into a severe roof leak.
The ensuing roof repair would qualify as: - - corrective maintenance
The roof repair would qualify as corrective maintenance, which is maintenance that involves the repair
of property after it has been damaged.
A property is sold for $100,000. The buyer has paid $12,000 as earnest money and is obtaining a 70%
loan. Based on the information provided, how much additional cash will the buyer have to bring to the
closing? - - $18,000
- The buyer still needs to account for 30% of the money not provided by the loan. 30% of $100,000 is
$30,000. Subtract the $12,000 of earnest money from the $30,000 left to be paid to get $18,000.
Which type of loan is exempt from RESPA? - - loans on vacant land
, James owns several properties that are close to a state park. In marketing these properties, he denotes
that the properties have easy access to the park, but he does NOT describe the type of buyer this feature
might appeal to, i.e., "outdoorsy people," etc.
What activity is James attempting to avoid? - - illegal target marketing
- Advertisement by a housing provider in niche publications that target specific ethnic or religious groups
to the exclusion of the general public is called illegal target marketing. Also, housing providers need to be
careful about using certain words in ads that could be interpreted as being exclusionary rather than
inclusionary. Saying something that may seem innocuous, like, "Ideal for Large Families," may send a
message that a single person may not be welcome.
What is the value of a property if the net operating income is $45,600 and the cap rate is 20%?
Hint: "Ask IRV" - - $228,000
- Use the formula Net operating income (I) ÷ Capitalization rate (R) = Value (V): $45,600 ÷ 0.20 =
$228,000.
What is a ground lease? - - the leasing of bare, undeveloped land
ear before title passes. Neither party needs to be present when title is passed.
Joselyn is buying a new condo in New York City. The seller is responsible for any expenses through the
March 1st closing date. The condo has a prepaid HOA fee of $8,640. How much of that fee will Joselyn be
responsible for if it is calculated on a 360-day year? - - $7,176
- Remember that when you're calculating prorated expenses for a prepaid item, you need to first
determine the period of time for which the expense has been prepaid. In this case, the seller has prepaid
for the year and is responsible for expenses up for January, February, and March 1st. First, find the
monthly HOA expense by dividing the annual HOA fee by 12: $8,640 ÷ 12 = $720. Next, find the daily
HOA expense by dividing the monthly HOA fee amount by 30 days: $720 ÷ 30 = $24. Now multiply the
monthly bill by the number of months that are prepaid: $720 x 2 = $1,440. There is one day in March
that the seller is responsible for so next add the daily HOA fee amount to the monthly amount: $24 +
$1,440 = $1,464. The last step is to subtract the amount the seller is responsible for from the annual
HOA fee amount: $8,640 - $1,464 = $7,176. Joselyn is responsible for $7,176 of the HOA fee.
Haley's condominium purchase is financed by a package mortgage.
What does this imply about the condominium she purchased? - - Her purchase most likely includes the
condominium but also all personal property and appliances installed on the premises.
- A package mortgage includes not only the real estate but also all personal property and appliances
installed on the premises.
Which of the following statements is TRUE about investment property buyers? - - They often make
multiple "low ball" offers on multiple properties.
- Investment property buyers are unique in a number of ways. These buyers are often very
knowledgeable about the intricacies of investment property purchases, and they often do their own
research. Additionally, the investment property buyer will often make multiple "low ball" offers on
