Real Estate Licensing Exam Questions
and Answers
In the sales comparison approach, using comparables that are five and 15 years old
when appraising a subject that is 10 years old is an example of what? - Answer-
Bracketing
A poor floor plan is an example of which type of depreciation? - Answer-
Functional Obsolescence-Functional obsolescence is a form of depreciation or loss
in value caused by defects in design.
In the sales comparison approach, which of these are selected and evaluated both
quantitatively and qualitatively against the subject property? - Answer-
Comparables-When sizing up the competition to the subject in the marketplace,
comparable properties must be selected and compared both qualitatively and
quantitatively.
What's the capitalization formula used in the income approach? - Answer-
Value=Net operating income/ Cap rate-The basic capitalization formula used in the
income approach has three parts: value, capitalization (cap) rate, and net operating
income. The formula is value = net operating income divided by cap rate.
If a property's income value is $200,000 and it's earning a net operating income of
$40,000, what is the cap rate? - Answer- 20%-The cap rate is 20%. To calculate
cap rate, divide the income by the property value. The formula for this is rate =
income / value.
The loss in value caused by deterioration in physical condition is called _______. -
Answer- Physical Depreciation-Physical depreciation is a loss in value caused by
deterioration in physical condition.
To make valid computations of adjustments for the sales comparison approach to
value, elements of comparison must be applied in a specific order. Which one of
these elements listed has the highest priority? - Answer- Conditions of Sale-The
elements appraisers consider in the sales comparison approach are applied in a
specific order: financing terms and cash equivalency, conditions of sale, market
conditions at the time of contract and closing, location, and physical characteristics.
What's the estimated value by cost approach for a property if the site value is
$25,000, the new cost of improvements is $100,000, and the total depreciation
estimate is $15,000? - Answer- $110,000-To estimate value using the cost
approach, an appraiser adds the site value to the cost to replace improvements,
,then subtracts the amount of depreciation. Here, that gives us $100,000 + $25,000 -
$15,000.
CMA (Comparative Market Analysis) - Answer- an opinion of price arrived at by
evaluating the property, its location within the market, its condition, competing
properties for sale, recent sales, and current buying tastes and trends. (Cost is free
or minimal)
Appraisal - Answer- a detailed analysis of market conditions, the property itself,
comparables within close proximity to the subject property, recent sales and listings,
land value, construction costs—everything a lender wants to know to value the
property as collateral for a loan.
Steve is preparing a market analysis for the Joneses and has selected three
comparable properties. What's the maximum number of adjustments Steve should
make to the Joneses' property? - Answer- Zero-Steve won't adjust the subject
property. Only the comparable sales price is adjusted. If it is inferior, adjust upward.
If it's superior, adjust downward.
Which of the following statements is true about appraisals? - Answer- Appraisals
can only be performed by certified appraisers (with certain exceptions in some
states)
Which type of listing can help a real estate professional determine how quickly a
home in a given price range received an accepted offer? - Answer- Pending-
When a property goes under contract, it's said to be pending. The timeframe from
the date the property was listed until it goes under contract (becomes pending) tells
the licensee how many days the property was on the market (days on market or
DOM).
Mary Jane shows her client Margaret a 2,500-square-foot home priced at $240,000.
What is the price per square foot? - Answer- $96-To find the price per square foot,
we divide the price by the square footage. So, $240,000 ÷ 2,500 = $96.
Mortgage Banker - Answer- -lends money
-has in house loan processors and underwriters
-can close quickly because it funds loans in house
-Offers a limited # of products
Mortgage Broker - Answer- -Works with multiple lenders to search for and locate
the best deal
-Doesn't lend money itself
Fannie Mae - Answer- Federal National Mortgage Association-can purchase any
type of loan, but primarily deals with conventional loans from commercial banks.
,Freddie Mac - Answer- Federal Home Loan Mortgage Corporation-an purchase
any type of loan, but primarily deals with conventional loans from smaller lending
institutions (thrifts)
Farmer Mac - Answer- The Federal Agricultural Mortgage Corp - a privately
owned and publicly traded company established by Congress to create a secondary
market for agricultural mortgage and rural utilities loans.
Ginnie Mae - Answer- Government National Mortgage Association-guarantees
mortgage-backed securities (MBSs) that contain loans insured or guaranteed by a
U.S. government agency.
amortized loan - Answer- A loan in which the principal as well as the interest is
payable in monthly or other periodic installments over the term of the loan.
Fixed Rate Loan - Answer- A loan with a rate that does not change over the life of
the loan.
Growing Equity Mortgage - Answer- fixed-rate mortgage with payments that
increase over a specific period. Extra funds are applied to the principal so that the
loan is paid off more quickly
Renegotiable Rate - Answer- loan in which the interest rate is renegotiated
periodically
Low-Documentation Loan - Answer- refers to loans that do not require borrowers
to provide documentation of their income to lenders or do not require much
documentation.
Bridge Loan - Answer- Not used much anymore, bridge loans are obtained by
those who have not yet sold their previous property, but must close on a purchase
property. The bridge loan becomes the source of their funds for the down payment.
One reason for their fall from favor is that there are more and more second
mortgage lenders now that will lend at a high loan to value. In addition, sellers often
prefer to accept offers from buyers who have already sold their property.
Construction Mortgage - Answer- A loan secured by real estate which is for the
purpose of funding the construction of improvements or building(s) upon the
property.
Balloon Loan - Answer- Loan characterized by an amortization term that is longer
than the loan term. Because the loan balance will not be zero at the end of the loan
term, a balloon payment is necessary to pay off the remaining loan balance in full.
, home equity loan - Answer- a loan based on the difference between the current
market value of a home and the amount the borrower owes on the mortgage
Home Equity Line of Credit - Answer- A mortgage loan, usually in second
position, that allows the borrower to obtain cash drawn against the equity of his
home, up to a predetermined amount.
Reverse Mortgage - Answer- An arrangement where the lender agrees to pay
money to a homeowner, either regularly or occasionally, and to be repaid from the
homeowner's equity when he or she sells the home or obtains other financing.
Blended Rate - Answer- the interest rate for a refinancing loan which includes
both the original loan rate and the current market interest rate and which may or
may not include any additional funds and their interest rate
Land Contract - Answer- The seller accepts a down payment on a parcel of land
but title to the property does not pass until the last principal payment has been
received. This is referred to as an installment sales contract or a contract for a deed.
Lease with option to buy - Answer- Allows tenant to purchase property at end of
lease term-Buyer and Seller will negotiate a sales price
Purchase Money Mortgage - Answer- A mortgage given by the seller to the buyer
to cover all or part of the sale price. Seller financing. (Downpayment)
Wrap-around Mortgage - Answer- A junior mortgage which provides an owner
additional capital without refinancing the first mortgage. (The original mortgage is not
disturbed)
Blanket Mortgage - Answer- A mortgage which covers more than one piece of
real estate. Often used by a developer in the financing of undeveloped lots. Contains
a partial release clause.
Package Mortgage - Answer- A mortgage, used in the purchase of new residential
property which, in addition to real property, covers certain personal property items
and equipment. (Washer, dryer, drapes, refrigerator, stove)
shared equity mortgage - Answer- loan in which investor shares payments and
profits
Which statement is true about government loans? - Answer- They're insured or
guaranteed by a government agency
Commercial lenders operate in the _____mortgage market, making loans directly to
consumers. - Answer- Primary
and Answers
In the sales comparison approach, using comparables that are five and 15 years old
when appraising a subject that is 10 years old is an example of what? - Answer-
Bracketing
A poor floor plan is an example of which type of depreciation? - Answer-
Functional Obsolescence-Functional obsolescence is a form of depreciation or loss
in value caused by defects in design.
In the sales comparison approach, which of these are selected and evaluated both
quantitatively and qualitatively against the subject property? - Answer-
Comparables-When sizing up the competition to the subject in the marketplace,
comparable properties must be selected and compared both qualitatively and
quantitatively.
What's the capitalization formula used in the income approach? - Answer-
Value=Net operating income/ Cap rate-The basic capitalization formula used in the
income approach has three parts: value, capitalization (cap) rate, and net operating
income. The formula is value = net operating income divided by cap rate.
If a property's income value is $200,000 and it's earning a net operating income of
$40,000, what is the cap rate? - Answer- 20%-The cap rate is 20%. To calculate
cap rate, divide the income by the property value. The formula for this is rate =
income / value.
The loss in value caused by deterioration in physical condition is called _______. -
Answer- Physical Depreciation-Physical depreciation is a loss in value caused by
deterioration in physical condition.
To make valid computations of adjustments for the sales comparison approach to
value, elements of comparison must be applied in a specific order. Which one of
these elements listed has the highest priority? - Answer- Conditions of Sale-The
elements appraisers consider in the sales comparison approach are applied in a
specific order: financing terms and cash equivalency, conditions of sale, market
conditions at the time of contract and closing, location, and physical characteristics.
What's the estimated value by cost approach for a property if the site value is
$25,000, the new cost of improvements is $100,000, and the total depreciation
estimate is $15,000? - Answer- $110,000-To estimate value using the cost
approach, an appraiser adds the site value to the cost to replace improvements,
,then subtracts the amount of depreciation. Here, that gives us $100,000 + $25,000 -
$15,000.
CMA (Comparative Market Analysis) - Answer- an opinion of price arrived at by
evaluating the property, its location within the market, its condition, competing
properties for sale, recent sales, and current buying tastes and trends. (Cost is free
or minimal)
Appraisal - Answer- a detailed analysis of market conditions, the property itself,
comparables within close proximity to the subject property, recent sales and listings,
land value, construction costs—everything a lender wants to know to value the
property as collateral for a loan.
Steve is preparing a market analysis for the Joneses and has selected three
comparable properties. What's the maximum number of adjustments Steve should
make to the Joneses' property? - Answer- Zero-Steve won't adjust the subject
property. Only the comparable sales price is adjusted. If it is inferior, adjust upward.
If it's superior, adjust downward.
Which of the following statements is true about appraisals? - Answer- Appraisals
can only be performed by certified appraisers (with certain exceptions in some
states)
Which type of listing can help a real estate professional determine how quickly a
home in a given price range received an accepted offer? - Answer- Pending-
When a property goes under contract, it's said to be pending. The timeframe from
the date the property was listed until it goes under contract (becomes pending) tells
the licensee how many days the property was on the market (days on market or
DOM).
Mary Jane shows her client Margaret a 2,500-square-foot home priced at $240,000.
What is the price per square foot? - Answer- $96-To find the price per square foot,
we divide the price by the square footage. So, $240,000 ÷ 2,500 = $96.
Mortgage Banker - Answer- -lends money
-has in house loan processors and underwriters
-can close quickly because it funds loans in house
-Offers a limited # of products
Mortgage Broker - Answer- -Works with multiple lenders to search for and locate
the best deal
-Doesn't lend money itself
Fannie Mae - Answer- Federal National Mortgage Association-can purchase any
type of loan, but primarily deals with conventional loans from commercial banks.
,Freddie Mac - Answer- Federal Home Loan Mortgage Corporation-an purchase
any type of loan, but primarily deals with conventional loans from smaller lending
institutions (thrifts)
Farmer Mac - Answer- The Federal Agricultural Mortgage Corp - a privately
owned and publicly traded company established by Congress to create a secondary
market for agricultural mortgage and rural utilities loans.
Ginnie Mae - Answer- Government National Mortgage Association-guarantees
mortgage-backed securities (MBSs) that contain loans insured or guaranteed by a
U.S. government agency.
amortized loan - Answer- A loan in which the principal as well as the interest is
payable in monthly or other periodic installments over the term of the loan.
Fixed Rate Loan - Answer- A loan with a rate that does not change over the life of
the loan.
Growing Equity Mortgage - Answer- fixed-rate mortgage with payments that
increase over a specific period. Extra funds are applied to the principal so that the
loan is paid off more quickly
Renegotiable Rate - Answer- loan in which the interest rate is renegotiated
periodically
Low-Documentation Loan - Answer- refers to loans that do not require borrowers
to provide documentation of their income to lenders or do not require much
documentation.
Bridge Loan - Answer- Not used much anymore, bridge loans are obtained by
those who have not yet sold their previous property, but must close on a purchase
property. The bridge loan becomes the source of their funds for the down payment.
One reason for their fall from favor is that there are more and more second
mortgage lenders now that will lend at a high loan to value. In addition, sellers often
prefer to accept offers from buyers who have already sold their property.
Construction Mortgage - Answer- A loan secured by real estate which is for the
purpose of funding the construction of improvements or building(s) upon the
property.
Balloon Loan - Answer- Loan characterized by an amortization term that is longer
than the loan term. Because the loan balance will not be zero at the end of the loan
term, a balloon payment is necessary to pay off the remaining loan balance in full.
, home equity loan - Answer- a loan based on the difference between the current
market value of a home and the amount the borrower owes on the mortgage
Home Equity Line of Credit - Answer- A mortgage loan, usually in second
position, that allows the borrower to obtain cash drawn against the equity of his
home, up to a predetermined amount.
Reverse Mortgage - Answer- An arrangement where the lender agrees to pay
money to a homeowner, either regularly or occasionally, and to be repaid from the
homeowner's equity when he or she sells the home or obtains other financing.
Blended Rate - Answer- the interest rate for a refinancing loan which includes
both the original loan rate and the current market interest rate and which may or
may not include any additional funds and their interest rate
Land Contract - Answer- The seller accepts a down payment on a parcel of land
but title to the property does not pass until the last principal payment has been
received. This is referred to as an installment sales contract or a contract for a deed.
Lease with option to buy - Answer- Allows tenant to purchase property at end of
lease term-Buyer and Seller will negotiate a sales price
Purchase Money Mortgage - Answer- A mortgage given by the seller to the buyer
to cover all or part of the sale price. Seller financing. (Downpayment)
Wrap-around Mortgage - Answer- A junior mortgage which provides an owner
additional capital without refinancing the first mortgage. (The original mortgage is not
disturbed)
Blanket Mortgage - Answer- A mortgage which covers more than one piece of
real estate. Often used by a developer in the financing of undeveloped lots. Contains
a partial release clause.
Package Mortgage - Answer- A mortgage, used in the purchase of new residential
property which, in addition to real property, covers certain personal property items
and equipment. (Washer, dryer, drapes, refrigerator, stove)
shared equity mortgage - Answer- loan in which investor shares payments and
profits
Which statement is true about government loans? - Answer- They're insured or
guaranteed by a government agency
Commercial lenders operate in the _____mortgage market, making loans directly to
consumers. - Answer- Primary
