TEXAS PRINCIPLES OF REAL ESTATE II
CORRECT 100%
Mixed Numbers - ANSWER A number containing both a whole number and a fraction
(examples: 1⅓; 9⅞)
Improper Fractions - ANSWER a fraction with its numerator equal to or greater than its
denominator
Commission Calculation - ANSWER Sales price X rate of commission = total
commission
Solving for the Commission Rate - ANSWER Commission Rate = Commission ÷ Price
Solving for the Property's Price - ANSWER Price = Commission ÷ Commission Rate
Profit - ANSWER Profit (or Loss) = Selling price - Original cost
Profit Percentage - ANSWER Percentage of profit = Profit ÷ Original cost
Profit Margin - ANSWER Profit margin = Profit ÷ Selling price
Interest - ANSWER the price paid for the use of borrowed money
3 types of interest calculations - ANSWER Simple interest, add-on interest, and
compound interest
Simple interest - ANSWER Interest = principal x rate x time
Add-on interest - ANSWER loan amount x contracted interest rate x number of
payments
Add-on interest APR - ANSWER APR = 2 x number of payment periods in one year x
total financing charges ÷ (principal, or amount borrowed x (number of scheduled
payments +1)
Compound interest - ANSWER interest which is computed on the principal amount plus
the accrued interest.
Compound Interest Formula - ANSWER Compound amount = Initial deposit (1 +
Interest rate)n
Points - ANSWER a one-time service charge to the borrower for making the loan
,Two types of points - ANSWER origination fee and discount points
Loan-to-Value Ratio (LTV) - ANSWER expresses the relationship between a property's
purchase price and its loan amount.
Loan-to-Value formula - ANSWER LTV ratio = (Loan amount ÷ Value)
Area of a rectangle - ANSWER Area = length x width
Area of a square - ANSWER Area = side x side
Area of a triangle - ANSWER Area = ½ base x height
Perimeter - ANSWER a lot or other shape is the sum of the length of all its sides.
Acre - ANSWER A measure of land equal to 43,560 square feet.
Hectare - ANSWER is equal to 10,000 square meters or approximately 2.47 acres.
To convert acres to hectares - ANSWER divide the total acres by 2.47
Appraisal - ANSWER is an unbiased estimate of the nature, quality, value or utility of an
interest in or aspect of identified real estate and related personalty as of a certain date.
Specific data - ANSWER This is information and details about the subject property, as
well as data (used for comparison) about comparable properties' costs, income and
expenses, sales and other relevant information
General data - ANSWER This is information about the property's location - its country,
region, city, and, most importantly, its neighborhood
Steps in Appraisal Process - ANSWER 1. Define problem and scope of work
2. Collect, record, and verify the required data
3. Determine the property's highest and best use
4. Estimate the land value
5. Use ALL THREE approaches to estimate value
6. Reconcile the estimated values to determine the final value estimate
7. Communicate the final value estimate
Highest and Best Use - ANSWER Legally permissible
Physically possible
Financially feasible
Maximally productive
Describe the difference between specific and general data - ANSWER Specific data is
information and details about the subject property and the comparables.
, General data is information about the property's location - its country, region, city, and
neighborhood.
Direct sales comparison - ANSWER sales of comparable vacant parcels are analyzed
and adjusted to indicate a value for the subject land
Insured value - ANSWER is the face amount a casualty or hazard insurance policy will
pay in case a property is deemed unusable
Use value - ANSWER (also known as value-in-use) of a property is the value the
property holds for the owner. Several factors contribute to this value
Mortgage value - ANSWER is the value the lender places on a property as collateral for
the loan, especially in the event of a foreclosure when the lender must recover the debt
through the sale of the property
Market value - ANSWER The amount you could realistically sell an asset for today
Explain the difference between market value and market price - ANSWER Market value
is an opinion of the value of a property based on analyzing data collected about the
property. The market price of a property is the actual sales price and can in some
circumstances be greater or lesser than market value
What does the term anticipation mean as it relates to property value? - ANSWER The
benefits a buyer expects to receive over the period of time he or she holds the property
Explain the principle of substitution - ANSWER says a buyer will not pay more for a
home than what he or she would pay for another home that is equally desirable and
available
Sales Comparison Approach - ANSWER is based on the principle of substitution - which
says that a buyer will not pay more for the subject property than he or she would pay for
a property that is similar in characteristics and amenities
Cost approach steps - ANSWER Step 1 - Estimate Land Value
Step 2 - Estimate Cost of Improvements
Step 3 - Estimate Depreciation
Income Approach Steps - ANSWER Step 1: Estimate the potential gross income
Step 2: Estimate the effective gross income
Step 3: Estimate the net operating income
Step 4: Select a capitalization rate
Step 5: Apply the capitalization rate
What's the difference between reproduction cost and replacement cost? - ANSWER
Reproduction cost is the cost at today's prices of producing an exact duplicate of the
CORRECT 100%
Mixed Numbers - ANSWER A number containing both a whole number and a fraction
(examples: 1⅓; 9⅞)
Improper Fractions - ANSWER a fraction with its numerator equal to or greater than its
denominator
Commission Calculation - ANSWER Sales price X rate of commission = total
commission
Solving for the Commission Rate - ANSWER Commission Rate = Commission ÷ Price
Solving for the Property's Price - ANSWER Price = Commission ÷ Commission Rate
Profit - ANSWER Profit (or Loss) = Selling price - Original cost
Profit Percentage - ANSWER Percentage of profit = Profit ÷ Original cost
Profit Margin - ANSWER Profit margin = Profit ÷ Selling price
Interest - ANSWER the price paid for the use of borrowed money
3 types of interest calculations - ANSWER Simple interest, add-on interest, and
compound interest
Simple interest - ANSWER Interest = principal x rate x time
Add-on interest - ANSWER loan amount x contracted interest rate x number of
payments
Add-on interest APR - ANSWER APR = 2 x number of payment periods in one year x
total financing charges ÷ (principal, or amount borrowed x (number of scheduled
payments +1)
Compound interest - ANSWER interest which is computed on the principal amount plus
the accrued interest.
Compound Interest Formula - ANSWER Compound amount = Initial deposit (1 +
Interest rate)n
Points - ANSWER a one-time service charge to the borrower for making the loan
,Two types of points - ANSWER origination fee and discount points
Loan-to-Value Ratio (LTV) - ANSWER expresses the relationship between a property's
purchase price and its loan amount.
Loan-to-Value formula - ANSWER LTV ratio = (Loan amount ÷ Value)
Area of a rectangle - ANSWER Area = length x width
Area of a square - ANSWER Area = side x side
Area of a triangle - ANSWER Area = ½ base x height
Perimeter - ANSWER a lot or other shape is the sum of the length of all its sides.
Acre - ANSWER A measure of land equal to 43,560 square feet.
Hectare - ANSWER is equal to 10,000 square meters or approximately 2.47 acres.
To convert acres to hectares - ANSWER divide the total acres by 2.47
Appraisal - ANSWER is an unbiased estimate of the nature, quality, value or utility of an
interest in or aspect of identified real estate and related personalty as of a certain date.
Specific data - ANSWER This is information and details about the subject property, as
well as data (used for comparison) about comparable properties' costs, income and
expenses, sales and other relevant information
General data - ANSWER This is information about the property's location - its country,
region, city, and, most importantly, its neighborhood
Steps in Appraisal Process - ANSWER 1. Define problem and scope of work
2. Collect, record, and verify the required data
3. Determine the property's highest and best use
4. Estimate the land value
5. Use ALL THREE approaches to estimate value
6. Reconcile the estimated values to determine the final value estimate
7. Communicate the final value estimate
Highest and Best Use - ANSWER Legally permissible
Physically possible
Financially feasible
Maximally productive
Describe the difference between specific and general data - ANSWER Specific data is
information and details about the subject property and the comparables.
, General data is information about the property's location - its country, region, city, and
neighborhood.
Direct sales comparison - ANSWER sales of comparable vacant parcels are analyzed
and adjusted to indicate a value for the subject land
Insured value - ANSWER is the face amount a casualty or hazard insurance policy will
pay in case a property is deemed unusable
Use value - ANSWER (also known as value-in-use) of a property is the value the
property holds for the owner. Several factors contribute to this value
Mortgage value - ANSWER is the value the lender places on a property as collateral for
the loan, especially in the event of a foreclosure when the lender must recover the debt
through the sale of the property
Market value - ANSWER The amount you could realistically sell an asset for today
Explain the difference between market value and market price - ANSWER Market value
is an opinion of the value of a property based on analyzing data collected about the
property. The market price of a property is the actual sales price and can in some
circumstances be greater or lesser than market value
What does the term anticipation mean as it relates to property value? - ANSWER The
benefits a buyer expects to receive over the period of time he or she holds the property
Explain the principle of substitution - ANSWER says a buyer will not pay more for a
home than what he or she would pay for another home that is equally desirable and
available
Sales Comparison Approach - ANSWER is based on the principle of substitution - which
says that a buyer will not pay more for the subject property than he or she would pay for
a property that is similar in characteristics and amenities
Cost approach steps - ANSWER Step 1 - Estimate Land Value
Step 2 - Estimate Cost of Improvements
Step 3 - Estimate Depreciation
Income Approach Steps - ANSWER Step 1: Estimate the potential gross income
Step 2: Estimate the effective gross income
Step 3: Estimate the net operating income
Step 4: Select a capitalization rate
Step 5: Apply the capitalization rate
What's the difference between reproduction cost and replacement cost? - ANSWER
Reproduction cost is the cost at today's prices of producing an exact duplicate of the
