Principles of Real Estate 2- Study Guide Questions and Answers with Complete Solutions

Principles of Real Estate 2- Study Guide Questions and
Answers with Complete Solutions

The percentage of value or sales price that a lender is willing to finance
A) Principle of Contribution
B) Principle of Anticipation
C) Loan-to-Value Ratio (LTV)
D) Principle of Substitution
C
T/F: Since an appraisal gives an expert's opinion of a property's value,
the lender will use it to ensure that the loan amount does not exceed
the established loan-to-value ratio.
T
If the loan limits the loan-to-value ratio to a maximum of 90%, and the
appraised value of the home is $100,000, the maximum loan amount
permitted under that program is $90,000.
A) $80,000
B) $90,000
C) $100,000
D) $110,000
B
When calculating the loan-to-value ratio, the lender will use the sales
price or appraised value, whichever is _______.

,A) Higher
B) Lower
B
An appraisal that is less than the sales price will generally result in
which of the following:
A) Termination of the transaction
B) Reduction of the sales price by the seller to match the appraised
value
C) Payment of the difference between the sales price and the appraised
value by the buyer/ borrower
D) All of the above
D
*Principles of Appraisals*
Used for almost all properties that have improvements on the property.
Each component of the property contributes something to the overall
value of the property. A lot of times, people will add things to their
properties that are considered over-improvements to their property--
Ex: add a swimming pool that cost 40-50k, and it only adds about 25%
of the overall cost (15-20k) contribution to the overall value.
A) Highest and best use
B) Principle of Contribution
C) Principle of Change
D) Principle of Anticipation
E) Principle of Supply and Demand

,B
Principles of Appraisals
A property is defined as the legal use that gives the highest return in
money and/or amenities. A site's value arises from its potential or
actual use. The characteristics of the site itself (for example, size and
topography) make specific uses possible and others impossible
A) Highest and best use
B) Principle of Contribution
C) Principle of Change
D) Principle of Anticipation
E) Principle of Supply and Demand
A
*Principles of Appraisals*
Change is constant; therefore, the forces acting on a parcel of land are
always affecting the value of the land. An appraisal has a relatively short
shelf life as property values will fluctuate up and down. Can only go
6/mo back in sales to find comparable properties because you can miss
an upward/downward trend in the market
A) Highest and best use
B) Principle of Contribution
C) Principle of Change
D) Principle of Anticipation
E) Principle of Supply and Demand
C

, *Principles of Appraisals*
States that the purchase price is affected by the expectation of future
appeal and benefits (ex: future school sites)
A) Highest and best use
B) Principle of Contribution
C) Principle of Change
D) Principle of Anticipation
E) Principle of Supply and Demand
D
Principles of Appraisals
When the demand for real estate is great, and the supply is short, prices
in the marketplace go up. Likewise, when the supply is high and
demand is low, prices decline.
- Buyers market favor the buyers
- Sellers market favor the sellers
- Balanced market doesn't favor either buyer or seller.
A) Highest and best use
B) Principle of Contribution
C) Principle of Change
D) Principle of Anticipation
E) Principle of Supply and Demand
E
Principles of Appraisals
Suggests that value is maximized when there is a reasonable degree of
homogeneity, or sameness, in a neighborhood. The home that is