RECA RESIDENTIAL UNIT 1 EXAM
QUESTIONS WITH CORRECT
ANSWERS (GRADED A+)
What does the Principal of Substitution state - Answer- The Principal of Substitution
states that a buyer will pay no more for a property than the cost of acquiring a similar
and equally desirable property available on the market.
3 Disadvantages to clients of volunteering their confidential information - Answer- 1.
REPs, other than the REP representing them, are under no obligation to keep this
information confidential. 2. Confidential information that clients reveal to other REPs
may ultimately disadvantage them in the ability to negotiate the best terms and
conditions in the sale or purchase of the property. 3. The client's disclosure of
confidential information to other REPs can frustrate the clients REP in doing their best
efforts on behalf of the client.
Why should REP document when a client shares their confidential information to out
side REPs or publicly (after the representing REP has explain the disadvantages of
doing so) - Answer- Documenting the discussion and the client's decision to disclose will
provide proof that the discussion occurred and the the client made an informed decision
to proceed contrary to the advice of the REP. Public awareness of why the client is
selling or buying, the client's motivation to sell or buy, the price the client will accept or
pay, and details of any offers received or submitted was not the result of the REP failing
to protect the client's confidential information. The client made an informed decision not
to protect their information and therefore not to protect themselves and their best
interest in the potential sale or purchase of property
5 examples/locations of inadvertent disclosure - Answer- Brokerage meetings, Real
Estate Open Houses, Public Open Houses, Property Tours, Property Viewings
4 key differences between investor clients - Answer- 1. Investor Type (fixing and flipping
for profit, or renting out for cash flow) 2. Investor Objectives (investment strategy,
objectives and time horizon (short-term or long-term) 3. Investor Terminology: Know
and explain different terms (eg. cash flow, occupancy rate, vacancy rate, gross income)
4. able to prepare and explain property valuation for revenue properties. such as
capitalization rate, gross income multiplier, or monthly rental factor
"gross income multiplier" meaning - Answer- A gross income multiplier (GIM) is a rough
measure of the value of an investment property. It is calculated by dividing the
property's sale price by its gross annual rental income.
, "monthly rental factor" meaning - Answer- A method of income analysis for small
income producing properties with a single rental unit. The Monthly Rental Factor relates
the gross monthly income of comparable properties to the value of the subject property.
Monthly Rental Factor formula - Answer- Monthly Rental Factor = Value ÷ Gross
Monthly Income.
Capitalization Rate formula - Answer- cap rate = net operating income / property value
What does POA stand for? - Answer- power of attorney
Power of Attorney - Donor - Answer- the person who appoints another individual to act
on his or her behalf
Power of Attorney - Attorney - Answer- the person(s) appointed to act on the donor's
behalf
Power of Attorney - Witness - Answer- The person who is present when the POA is
created and signs the document to confirm its authenticity and legality
3 requirements that create a valid Power of Attorney - Answer- 1. The donor must be at
least 18 years old 2. The POA must be written, dates and signed by both the donor and
witness in each other's presence 3. The donor at the time of signing must be mentally
capable of understanding the nature and effect of the POA otherwise it will be void
6 individuals that cannot act as witness to a power of attorney - Answer- 1. Anyone
under the age of 18 2. Anyone who is mentally incapacitated 3. The person being
named as the attorney 4. The spouse or adult interdependent partner of the donor 5.
The person who signed the POA on behalf of the donor 6. The person or adult
interdependent partner of the person who signed the POA on the donor's behalf
For a power of attorney, can a donor appoint more than one person to act as attorney? -
Answer- Yes. The appointment can be a person, financial institution or both
For Power of attorney, must the attorney reside in Alberta - Answer- No
If attorneys are appointed "severally and jointly" what does this allow - Answer- it allows
any of the attorneys to be able to act individually on the donor's behalf and the sign the
document together or without the others
If attorneys are appointed "jointly" what does this allow - Answer- the attorneys must act
together, all agree to any decision and must all sign all documents together
What happens to "power of attorney" when the donor dies - Answer- It is no longer
effective. Upon the donor's death, his or her Will, if one exists, takes effect.
QUESTIONS WITH CORRECT
ANSWERS (GRADED A+)
What does the Principal of Substitution state - Answer- The Principal of Substitution
states that a buyer will pay no more for a property than the cost of acquiring a similar
and equally desirable property available on the market.
3 Disadvantages to clients of volunteering their confidential information - Answer- 1.
REPs, other than the REP representing them, are under no obligation to keep this
information confidential. 2. Confidential information that clients reveal to other REPs
may ultimately disadvantage them in the ability to negotiate the best terms and
conditions in the sale or purchase of the property. 3. The client's disclosure of
confidential information to other REPs can frustrate the clients REP in doing their best
efforts on behalf of the client.
Why should REP document when a client shares their confidential information to out
side REPs or publicly (after the representing REP has explain the disadvantages of
doing so) - Answer- Documenting the discussion and the client's decision to disclose will
provide proof that the discussion occurred and the the client made an informed decision
to proceed contrary to the advice of the REP. Public awareness of why the client is
selling or buying, the client's motivation to sell or buy, the price the client will accept or
pay, and details of any offers received or submitted was not the result of the REP failing
to protect the client's confidential information. The client made an informed decision not
to protect their information and therefore not to protect themselves and their best
interest in the potential sale or purchase of property
5 examples/locations of inadvertent disclosure - Answer- Brokerage meetings, Real
Estate Open Houses, Public Open Houses, Property Tours, Property Viewings
4 key differences between investor clients - Answer- 1. Investor Type (fixing and flipping
for profit, or renting out for cash flow) 2. Investor Objectives (investment strategy,
objectives and time horizon (short-term or long-term) 3. Investor Terminology: Know
and explain different terms (eg. cash flow, occupancy rate, vacancy rate, gross income)
4. able to prepare and explain property valuation for revenue properties. such as
capitalization rate, gross income multiplier, or monthly rental factor
"gross income multiplier" meaning - Answer- A gross income multiplier (GIM) is a rough
measure of the value of an investment property. It is calculated by dividing the
property's sale price by its gross annual rental income.
, "monthly rental factor" meaning - Answer- A method of income analysis for small
income producing properties with a single rental unit. The Monthly Rental Factor relates
the gross monthly income of comparable properties to the value of the subject property.
Monthly Rental Factor formula - Answer- Monthly Rental Factor = Value ÷ Gross
Monthly Income.
Capitalization Rate formula - Answer- cap rate = net operating income / property value
What does POA stand for? - Answer- power of attorney
Power of Attorney - Donor - Answer- the person who appoints another individual to act
on his or her behalf
Power of Attorney - Attorney - Answer- the person(s) appointed to act on the donor's
behalf
Power of Attorney - Witness - Answer- The person who is present when the POA is
created and signs the document to confirm its authenticity and legality
3 requirements that create a valid Power of Attorney - Answer- 1. The donor must be at
least 18 years old 2. The POA must be written, dates and signed by both the donor and
witness in each other's presence 3. The donor at the time of signing must be mentally
capable of understanding the nature and effect of the POA otherwise it will be void
6 individuals that cannot act as witness to a power of attorney - Answer- 1. Anyone
under the age of 18 2. Anyone who is mentally incapacitated 3. The person being
named as the attorney 4. The spouse or adult interdependent partner of the donor 5.
The person who signed the POA on behalf of the donor 6. The person or adult
interdependent partner of the person who signed the POA on the donor's behalf
For a power of attorney, can a donor appoint more than one person to act as attorney? -
Answer- Yes. The appointment can be a person, financial institution or both
For Power of attorney, must the attorney reside in Alberta - Answer- No
If attorneys are appointed "severally and jointly" what does this allow - Answer- it allows
any of the attorneys to be able to act individually on the donor's behalf and the sign the
document together or without the others
If attorneys are appointed "jointly" what does this allow - Answer- the attorneys must act
together, all agree to any decision and must all sign all documents together
What happens to "power of attorney" when the donor dies - Answer- It is no longer
effective. Upon the donor's death, his or her Will, if one exists, takes effect.
