Principles of Real Estate 2
(Exam Review) Questions &
Answers(RATED A+)
Math Calculation - Principal, Interest, and Term - ANSWER Principal: the amount of the loan itself
Interest: money paid at a particular rate for the use of money loaned to a person or entity
Term: the term of the debt obligation(s)
Real Estate Transaction Terminology - ANSWER Funding: process of transferring funds to a title or
escrow company for disbursement
Servicing: includes sending monthly payment statements and collecting monthly payments,
maintaining records of payments and balances, collecting and paying taxes and insurance, remitting
funds to the note holder, and following up on delinquencies
Origination: the process of creating a new mortgage loan, including all steps taken by a lender to
attract and qualify a borrower
Consummation: the closing of a real estate transaction in which all appropriate documents are
signed and the proceeds are disbursed
Closing: final phase of mortgage loan processing in which the property title passes from the seller to
the buyer
Appraisal Principles - ANSWER 1) Principle of Contribution - suggests that a property's value is equal
to the sum of the contributory value of each of its component parts; cost does not equal value
, 2) Principle of Change - forces of change can be specific or external to the property
3) Principle of Anticipation - states that the purchase price is affected by the expectation of future
appeal and benefits
4) Principle of Substitution - a commodity's value is influenced by the cost of acquiring a substitute or
comparable item
5) Principle of Conformity - suggests that value is maximized when there is a reasonable degree of
homogeneity, or sameness, in a neighborhood
6) Principle of Increasing & Decreasing Returns - it is prudent to improve property when the value
added by the improvement exceeds the cost of the improvement; owner should not "over-improve"
a property
7) Principle of Supply & Demand - when the demand for real estate is great, and the supply is short,
prices go up. When supply is low, and demand is low, prices decline; does not respond as quickly
8) Principle of Regression - the presence of lower-priced properties in the area will cause a decline in
the value of subject property
Principle of Progression - the value of a subject property is increased by the value of the surrounding
properties
9) Principle of Competition - the absence of competition will cause prices to increase in the
marketplace; increased competition tends to bring prices down
10) Principle of Balance - states that mixed land use should result in the maximum value for all
properties involved
Types of Agency Employment Contracts - ANSWER 1) Listings - an employment contract and agency
agreement between a broker and a seller
2) Management Agreement - establishes the role of a property manager
(Exam Review) Questions &
Answers(RATED A+)
Math Calculation - Principal, Interest, and Term - ANSWER Principal: the amount of the loan itself
Interest: money paid at a particular rate for the use of money loaned to a person or entity
Term: the term of the debt obligation(s)
Real Estate Transaction Terminology - ANSWER Funding: process of transferring funds to a title or
escrow company for disbursement
Servicing: includes sending monthly payment statements and collecting monthly payments,
maintaining records of payments and balances, collecting and paying taxes and insurance, remitting
funds to the note holder, and following up on delinquencies
Origination: the process of creating a new mortgage loan, including all steps taken by a lender to
attract and qualify a borrower
Consummation: the closing of a real estate transaction in which all appropriate documents are
signed and the proceeds are disbursed
Closing: final phase of mortgage loan processing in which the property title passes from the seller to
the buyer
Appraisal Principles - ANSWER 1) Principle of Contribution - suggests that a property's value is equal
to the sum of the contributory value of each of its component parts; cost does not equal value
, 2) Principle of Change - forces of change can be specific or external to the property
3) Principle of Anticipation - states that the purchase price is affected by the expectation of future
appeal and benefits
4) Principle of Substitution - a commodity's value is influenced by the cost of acquiring a substitute or
comparable item
5) Principle of Conformity - suggests that value is maximized when there is a reasonable degree of
homogeneity, or sameness, in a neighborhood
6) Principle of Increasing & Decreasing Returns - it is prudent to improve property when the value
added by the improvement exceeds the cost of the improvement; owner should not "over-improve"
a property
7) Principle of Supply & Demand - when the demand for real estate is great, and the supply is short,
prices go up. When supply is low, and demand is low, prices decline; does not respond as quickly
8) Principle of Regression - the presence of lower-priced properties in the area will cause a decline in
the value of subject property
Principle of Progression - the value of a subject property is increased by the value of the surrounding
properties
9) Principle of Competition - the absence of competition will cause prices to increase in the
marketplace; increased competition tends to bring prices down
10) Principle of Balance - states that mixed land use should result in the maximum value for all
properties involved
Types of Agency Employment Contracts - ANSWER 1) Listings - an employment contract and agency
agreement between a broker and a seller
2) Management Agreement - establishes the role of a property manager
