THE CE SHOP PRINCIPLES OF REAL
ESTATE EXAM QUESTIONS WITH 100%
CORRECT ANSWERS
At closing, who pays for and receives clear title for the property being purchased? -
Answer-Buyer
Which type of RD loan program provides eligible applicants with the option to build,
rehab, improve, or even relocate a dwelling in an eligible rural area? - Answer-Single
Family Housing Guaranteed Loan Program
You are in the middle of a house sale with someone claiming power of attorney for the
property owner. What must be done before the deed can be executed? - Answer-Power
of attorney must be filed on record in the county where the property is located.
Noah owns an LLC that buys and sells stocks on the NASDAQ 100. He needs some
additional financing. To which type of lending institution might he prefer to go? -
Answer-An investment group
The doctrine of "use it or lose it" is known as the doctrine of ______. - Answer-Laches
Which document is used to establish proof of ownership and to transfer the title? -
Answer-Deed
A property is generating $100,000 in income and has expenses of $25,000. The
investor pays $3,000 toward mortgage principal each year and $32,000 toward interest,
plus another $4,000 in income taxes. What is the before-tax cash flow? - Answer-
$40,000
To arrive at before-tax cash flow, you subtract from income ($100,000) expenses
($25,000) and debt service ($3,000 + $32,000 = $35,000). So $25,000 + $35,000 =
$60,000. Then $100,000 - $60,000 = $40,000. You don't subtract income taxes of
$4,000.
What is dynamic risk? - Answer-An uninsurable business risk resulting from economic,
tax, and market changes
With the cost approach to value, what is the replacement cost? - Answer-Cost to build a
functionally equivalent improvement
What is the 200% rule as it relates to tax-deferred exchanges? - Answer-The combined
fair market value of the property (or properties) being exchanged into cannot be more
than 200% of the relinquished property.
,Jared has a 70/30 split with his brokerage firm, and his firm has a 50/50 split with
cooperating brokerages. Last month, he was paid $12,239.50 in commissions from his
home sales, which totaled $538,000. What is the brokerage's commission rate? -
Answer-6.5%
Jared was paid $12,239.50, which is 70% of the amount paid to his broker as
commission. That makes his firm's commission $12,239.50 ÷ .70 = $17,485. Multiply
that by two for the total commission the firm grossed, since it's shared 50/50 with a
cooperating brokerage (the brokerage that brings the buyer to the sale), giving you
$34,970. Then divide by the total sales amount for the brokerage's commission rate:
$34,970 ÷ $538,000 = 0.065, or 6.5%.
Which of the following is a benefit of unimproved land? - Answer-If land is scarce, it can
be valuable.
You're on a planning board that's discussing how to keep the city more livable by
reducing building density. The subject of bulk zoning comes up. What is your response?
- Answer-"That's a great way to meet our objectives."
What is the name of the FTC regulation that requires a landlord or property manager to
obtain a tenant's written consent before sharing any information about the tenant with
an unaffiliated third party? - Answer-Privacy rule
What is the best description of a deed? - Answer-A document to transfer
ownership/interest in real estate
Above all, why should a property manager have some knowledge of systems such as
heating, ventilation, air conditioning, structural engineering, waterproofing, plumbing,
electrical, gas, oil, water, security, maintenance, and elevators? - Answer-To minimize
the potential of receiving bad advice on repairs, replacements, and parts
Which of the following is an instrument of conveyance? - Answer-Deed
The economic principle known as ______ means that the value of property today is
impacted by the current value of the total expected future benefits. - Answer-
Anticipation
Which of these types of tenants most often uses a percentage lease? - Answer-Retail
What is capital risk? - Answer-The risk that an investor cannot secure financing at an
affordable rate
What does a balloon payment represent at the end of a loan term? - Answer-It means
that some principal remains at the end of the loan term.
,If the insurance rate per $500 of coverage is $6 per year and your home would be
replaced for $250,000 if destroyed, then what would the annual premium be? - Answer-
$3,000
Which of the following properties is exempt from the FIRREA federal appraisal
guidelines? - Answer-A refinance of a property valued at $375,000
When co-owners of a property decide to partition the property, what does it mean? -
Answer-They're dividing the property proportionally so that each co-owner becomes
sole owner of a portion.
Finn wants to know how much he'll net on the sale of his property. His property sold for
$385,000. He paid a real estate commission of 6%, his other closing costs totaled
$3,837, and he must pay off a loan balance of $127,715. What's his net? - Answer-
$230,348
Property manager Dawson was reviewing a property management agreement and was
happy to learn that he would be indemnified for any losses due to tenant negligence.
Where is this likely found in the property management agreement? - Answer-Insurance
Provision
_______ is the principle that the more similar properties there are on the market, the
lower the price will be driven. - Answer-Competition
Using the income approach, determine the value of a property that has a net operating
income of $15,000 and a cap rate of 15%. - Answer-100,000
(15,000 / .15)
Forecasting the income and expenses that we can reasonably expect to bring in and
pay out over a short term results in a budget that's every property manager's dream.
That budget is ______. - Answer-Stabilized
What are the two types of Real Estate Investment Trusts? - Answer-Mortgage and
equity
What's a fraction? - Answer-Something that's divided into a number of equal parts
Randa is trying to lower the vacancy rates for the commercial property she manages
because her revenue targets have increased by 8% over the next year. What type of
budget contains this revenue detail? - Answer-Operating Budget
The owner's covenants section of the property management agreement between
manager Fred Baines and owner Lilian James contains three key pieces of information.
First, Fred is named as the person responsible for managing the building. Secondly,
, Lillian is identified as the property's legal owner. What's the third key piece of
information? - Answer-The fact that the owner is not facing foreclosure
What does a mortgage Real Estate Investment Trust invest in? - Answer-Real estate
debt
When working with flippers, it is recommended you have systems in place that ______.
- Answer-Allow you to make offers quickly
Which of the following will be issued only if title is acceptable and an attorney provides a
certificate of title opinion? - Answer-Title insurance policy
To compute a monthly principal and interest payment, which of the following pieces of
information do you need to know? - Answer-Mortgage loan value, annual percentage
rate, loan term, and payment frequency
When tenants in common can't agree on how to manage the property and want to
terminate their co-ownership without selling the property, how can this be
accomplished? - Answer-Partition
To whom does the subprime market cater? - Answer-Less creditworthy borrowers
An affidavit of title is a ______. - Answer-Sworn statement by the seller that no unpaid
bills remain for repairs or improvements to the property
Shopping centers and malls belong to which of these property categories? - Answer-
Retail
In this type of commercial lease, the tenant leases the property where they intend to
build a permanent structure. - Answer-Ground lease
Glenda's lender is requesting __________________ to the standard coverage on her
title insurance policy to cover any additional risks that may appear down the road. -
Answer-Endorsements
If a property is 500 feet by 800 feet, what's the front footage? - Answer-500 feet
SARA is an amendment to which environmental act? - Answer-CERCLA
When a property owner wishes to convey her property to a new owner, she will
generally use a ______. - Answer-Deed
Burt owns a development company that specializes in constructing new, energy-efficient
houses. The best approach for an appraiser to use in the appraisal of Burt's newly built
homes is the ______. - Answer-Cost approach
ESTATE EXAM QUESTIONS WITH 100%
CORRECT ANSWERS
At closing, who pays for and receives clear title for the property being purchased? -
Answer-Buyer
Which type of RD loan program provides eligible applicants with the option to build,
rehab, improve, or even relocate a dwelling in an eligible rural area? - Answer-Single
Family Housing Guaranteed Loan Program
You are in the middle of a house sale with someone claiming power of attorney for the
property owner. What must be done before the deed can be executed? - Answer-Power
of attorney must be filed on record in the county where the property is located.
Noah owns an LLC that buys and sells stocks on the NASDAQ 100. He needs some
additional financing. To which type of lending institution might he prefer to go? -
Answer-An investment group
The doctrine of "use it or lose it" is known as the doctrine of ______. - Answer-Laches
Which document is used to establish proof of ownership and to transfer the title? -
Answer-Deed
A property is generating $100,000 in income and has expenses of $25,000. The
investor pays $3,000 toward mortgage principal each year and $32,000 toward interest,
plus another $4,000 in income taxes. What is the before-tax cash flow? - Answer-
$40,000
To arrive at before-tax cash flow, you subtract from income ($100,000) expenses
($25,000) and debt service ($3,000 + $32,000 = $35,000). So $25,000 + $35,000 =
$60,000. Then $100,000 - $60,000 = $40,000. You don't subtract income taxes of
$4,000.
What is dynamic risk? - Answer-An uninsurable business risk resulting from economic,
tax, and market changes
With the cost approach to value, what is the replacement cost? - Answer-Cost to build a
functionally equivalent improvement
What is the 200% rule as it relates to tax-deferred exchanges? - Answer-The combined
fair market value of the property (or properties) being exchanged into cannot be more
than 200% of the relinquished property.
,Jared has a 70/30 split with his brokerage firm, and his firm has a 50/50 split with
cooperating brokerages. Last month, he was paid $12,239.50 in commissions from his
home sales, which totaled $538,000. What is the brokerage's commission rate? -
Answer-6.5%
Jared was paid $12,239.50, which is 70% of the amount paid to his broker as
commission. That makes his firm's commission $12,239.50 ÷ .70 = $17,485. Multiply
that by two for the total commission the firm grossed, since it's shared 50/50 with a
cooperating brokerage (the brokerage that brings the buyer to the sale), giving you
$34,970. Then divide by the total sales amount for the brokerage's commission rate:
$34,970 ÷ $538,000 = 0.065, or 6.5%.
Which of the following is a benefit of unimproved land? - Answer-If land is scarce, it can
be valuable.
You're on a planning board that's discussing how to keep the city more livable by
reducing building density. The subject of bulk zoning comes up. What is your response?
- Answer-"That's a great way to meet our objectives."
What is the name of the FTC regulation that requires a landlord or property manager to
obtain a tenant's written consent before sharing any information about the tenant with
an unaffiliated third party? - Answer-Privacy rule
What is the best description of a deed? - Answer-A document to transfer
ownership/interest in real estate
Above all, why should a property manager have some knowledge of systems such as
heating, ventilation, air conditioning, structural engineering, waterproofing, plumbing,
electrical, gas, oil, water, security, maintenance, and elevators? - Answer-To minimize
the potential of receiving bad advice on repairs, replacements, and parts
Which of the following is an instrument of conveyance? - Answer-Deed
The economic principle known as ______ means that the value of property today is
impacted by the current value of the total expected future benefits. - Answer-
Anticipation
Which of these types of tenants most often uses a percentage lease? - Answer-Retail
What is capital risk? - Answer-The risk that an investor cannot secure financing at an
affordable rate
What does a balloon payment represent at the end of a loan term? - Answer-It means
that some principal remains at the end of the loan term.
,If the insurance rate per $500 of coverage is $6 per year and your home would be
replaced for $250,000 if destroyed, then what would the annual premium be? - Answer-
$3,000
Which of the following properties is exempt from the FIRREA federal appraisal
guidelines? - Answer-A refinance of a property valued at $375,000
When co-owners of a property decide to partition the property, what does it mean? -
Answer-They're dividing the property proportionally so that each co-owner becomes
sole owner of a portion.
Finn wants to know how much he'll net on the sale of his property. His property sold for
$385,000. He paid a real estate commission of 6%, his other closing costs totaled
$3,837, and he must pay off a loan balance of $127,715. What's his net? - Answer-
$230,348
Property manager Dawson was reviewing a property management agreement and was
happy to learn that he would be indemnified for any losses due to tenant negligence.
Where is this likely found in the property management agreement? - Answer-Insurance
Provision
_______ is the principle that the more similar properties there are on the market, the
lower the price will be driven. - Answer-Competition
Using the income approach, determine the value of a property that has a net operating
income of $15,000 and a cap rate of 15%. - Answer-100,000
(15,000 / .15)
Forecasting the income and expenses that we can reasonably expect to bring in and
pay out over a short term results in a budget that's every property manager's dream.
That budget is ______. - Answer-Stabilized
What are the two types of Real Estate Investment Trusts? - Answer-Mortgage and
equity
What's a fraction? - Answer-Something that's divided into a number of equal parts
Randa is trying to lower the vacancy rates for the commercial property she manages
because her revenue targets have increased by 8% over the next year. What type of
budget contains this revenue detail? - Answer-Operating Budget
The owner's covenants section of the property management agreement between
manager Fred Baines and owner Lilian James contains three key pieces of information.
First, Fred is named as the person responsible for managing the building. Secondly,
, Lillian is identified as the property's legal owner. What's the third key piece of
information? - Answer-The fact that the owner is not facing foreclosure
What does a mortgage Real Estate Investment Trust invest in? - Answer-Real estate
debt
When working with flippers, it is recommended you have systems in place that ______.
- Answer-Allow you to make offers quickly
Which of the following will be issued only if title is acceptable and an attorney provides a
certificate of title opinion? - Answer-Title insurance policy
To compute a monthly principal and interest payment, which of the following pieces of
information do you need to know? - Answer-Mortgage loan value, annual percentage
rate, loan term, and payment frequency
When tenants in common can't agree on how to manage the property and want to
terminate their co-ownership without selling the property, how can this be
accomplished? - Answer-Partition
To whom does the subprime market cater? - Answer-Less creditworthy borrowers
An affidavit of title is a ______. - Answer-Sworn statement by the seller that no unpaid
bills remain for repairs or improvements to the property
Shopping centers and malls belong to which of these property categories? - Answer-
Retail
In this type of commercial lease, the tenant leases the property where they intend to
build a permanent structure. - Answer-Ground lease
Glenda's lender is requesting __________________ to the standard coverage on her
title insurance policy to cover any additional risks that may appear down the road. -
Answer-Endorsements
If a property is 500 feet by 800 feet, what's the front footage? - Answer-500 feet
SARA is an amendment to which environmental act? - Answer-CERCLA
When a property owner wishes to convey her property to a new owner, she will
generally use a ______. - Answer-Deed
Burt owns a development company that specializes in constructing new, energy-efficient
houses. The best approach for an appraiser to use in the appraisal of Burt's newly built
homes is the ______. - Answer-Cost approach
