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Quiz Session - Attempts With Random Questions

National Real Estate Licensing Exam Questions

Page 8 of 35

141.

What is an example of a property where a highest and best use analysis could significantly alter its appraised value versus market value approach and should, therefore, be applied?

  • A single-family home on thirty acres off a highway with residential zoning with a commercial overlay

  • A single-family home on a single lot in the suburbs

  • A warehouse in an industrial part of town

  • A 10 unit rental building on NY's Upper East Side

Correct answer: A single-family home on thirty acres off a highway with residential zoning with a commercial overlay

A single-family home on thirty acres off a highway with residential zoning with a commercial overlay is an example of a property where a highest and best use analysis could significantly affect its appraised value because the highest and best use of the property might not be its current use. A highest and best use analysis determines the most profitable use to which a property may be adapted given the legal constraints. The correct answer, for example, could be turned into a subdivision or a something else that would benefit from its location off the highway. 

The other examples provided depict properties whose current use is their highest and best use and a market value approach would produce a more accurate picture of their value than a highest and best use approach.

142.

Jacob and Annie want to buy a house. Their combined gross yearly income is $95,000 with current recurring monthly debt of $550 excluding their current housing payments. Before they start house shopping with Alex the agent, Alex does some quick calculations to determine how much of a mortgage the couple will likely be approved for. Assuming they will apply for a conventional loan, what will their maximum allowed monthly mortgage payments be based on the lender’s back-end ratio?

  • $3,012.50

  • $2,612.50

  • $2,854.17

  • $2,454.17

Correct answer: $3,012.50

Their maximum allowed monthly debt (mortgage payments +  recurring monthly debt) will be $3,012.50  based on the conventional mortgage lending standard's back-end ratio. The back-end ratio for a conventional loan is 45% of the applicant's gross monthly income. Jacob and Annie's gross monthly income is $7,916.67 (95,000 / 12).

143.

Rental income would be classified as what type of income?

  • Passive

  • Active

  • Capital gains

  • Employment

Correct answer: Passive

Passive activities are business activities in which the taxpayer does not materially participate in the production of income. Rental activity is considered passive for tax purposes. Rental income would be included on a Schedule C tax form, as it is considered a business income, and the Schedule C tax form is for the profit or loss from business.

Active is incorrect because rental income is considered to be passive. Capital gains is incorrect because it applies to income derived from a sale. Employment is incorrect because it refers to gain from work done as an employee.

144.

As an appraiser, you locate sales of properties similar to the property being appraised and provide details describing them in the appraisal report. Which of the following valuation approaches does this reflect?

  • Sales comparison approach

  • Cost approach

  • Income capitalization approach

  • None of these

Correct answer: Sales comparison approach

The sales comparison approach (formerly known as the market approach) takes into consideration the fact that no reasonable person would pay more for a property than it would cost to purchase an equally desirable substitute property (the principle of substitution). The appraiser finds sales of properties similar to the property being appraised (comparable sales) and provides details describing them in the appraisal report. These sale properties are then compared to the property being appraised and adjustments are made for differences between each. The reliability of this approach is related directly to the quality and quantity of the sales data along with the familiarity of the appraiser of the values in the subject market.

145.

Suzie is the exclusive rental agent for Sam’s 10-family apartment building. There’s a vacancy, and Sam asks Suzie to “give him a rundown” on each potential applicant before she shows them units, saying that he wants to avoid potentially “problem” tenants. Should Suzie comply with Sam’s request?

  • Yes, so long as she only provides Sam with information such as credit score and income

  • No, because doing so would be a potential violation of Fair Housing laws

  • Yes, so long as she does not reveal the potential applicant’s race, religion, or national origin

  • Yes, because she has a fiduciary obligation to carry out his directions

Correct answer: Yes, so long as she only provides Sam with information such as credit score and income

So long as she is not disclosing to Sam that an applicant is a member of a protected class or allow him to discriminate based on race, religion, sex, handicapped status, disability or family status, Suzie can provide Sam with a "rundown." Financial status and credit score are not characteristics of a protected class.

146.

Competitive pricing has the ability to increase the demand for real estate in which of the following manners?

  • By being valued appropriately for the market and the location

  • By having the expected standard features and bonus features the market desires

  • By being situated in a well-established and desirable area

  • By having various housing options at multiple price levels

Correct answer: By being valued appropriately for the market and the location

Competitive pricing has the ability to increase the demand for real estate by being valued appropriately for the market and the location.

Good quality property has the ability to increase the demand for real estate by having the expected standard features and bonus features the market desires. Good location has the ability to increase the demand for real estate by being situated in a well-established and desirable area. The cost of alternatives has the ability to increase the demand for real estate by having various housing options at multiple price levels.

147.

Nicole inherited real estate under the terms of her mother’s will. What is Nicole?

  • Devisee

  • Remainderman

  • Life tenant

  • Escheat

Correct answer: Devisee

Nicole is considered a devisee. A devisee is an individual who inherits a land estate under a devise or will.

Remainderman is incorrect because it refers to the individual who will acquire ownership of real estate once the life tenant passes away. Life tenant is incorrect because it refers to the individual who has the right to use, enjoy, and occupy the real estate while they are alive. Escheat is incorrect because it refers to the process in which the government gains the right to property due to someone passing away without a will or an heir.

148.

Which statement is false regarding a ground lease?

  • The landlord receives gross rent

  • It is used to lease land or air space

  • The tenant is permitted to build whatever is desired

  • It is long term and can range from 25 to 99 years

Correct answer: The landlord receives gross rent

It is false to state that the landlord receives gross rent when a ground lease is used. Landlords receive triple-net rent when ground leases are used. This typically means the tenant is responsible for paying all operating and maintenance expenses of the property, including insurance and property taxes directly to the collecting entities. Gross rent or a gross lease is a lease payment to the landlord that encompasses rent and all costs associated with ownership, such as taxes, insurance, and utilities; the landlord pays insurance, real estate taxes, maintenance.

A ground lease may be a long-term lease where the tenant is permitted to build a structure on the premises, provided such construction is in compliance with local, state and federal laws and with the terms of the lease.

149.

A comparable sale has five bedrooms compared to the subject property's four bedrooms. The fifth bedroom is worth $40,000. As an appraiser, what do you do with that number?

  • Subtract it from the comparable property's sale price

  • Subtract it from the subject property's value

  • Omit this comparable sale

  • Add it to the comparable property's sale price

Correct answer: Subtract it from the comparable property's sale price

Adjustments can be made for bedrooms, square footage, age, or any other variable. The idea is to use a negative adjustment on the comparable property if the comp has superior features and positive adjustments on the comparable property if the comp has inferior features to subject property.

Adjustments can be made in terms of percentages or in dollar amounts. Either the total sales price may be adjusted, or the adjustments can be applied to one or more units of comparison.

In this example, the comp has superior features (one extra bedroom); therefore, the comp should receive a negative adjustment. The bedroom, at a value of $40,000, should be subtracted from the comparable property's sale price.

150.

Clark Kent (no relation to Superman) is a real estate broker with a billboard saying that he's the "superman of real estate". Mr. Luthor hires Clark to sell his gleaming twin office towers and includes in the contract that Clark may only collect his commission if he can fly from the south tower to the north tower. Clark signs it, but fifteen days later, when he realizes that Luthor was serious about the flying clause, sues Luthor to cancel the contract. For what reason did judge Lois invalidate the contract?

  • Infeasibility

  • Cooling-off period

  • Revocation

  • Abandonment

Correct answer: Infeasibility

Because the flying clause is impossible for Clark to perform, it is not a valid contract, and Lois correctly cancelled it under the doctrine of infeasibility. 

Cooling-off periods are typically only a few days, not fifteen days. Revocation is cancellation of the contract by one party without the consent of the other and, because Clark sued to cancel the contract, it is not the case here. Abandonment (when parties fail to perform contractual obligations) is not the case here.

151.

The valuation of a property for real estate tax purposes results in which of the following?

  • Assessed value

  • Going-concern value

  • Insurable value

  • Value in exchange

Correct answer: Assessed value

Assessed value (assessed valuation) is the value of property established for property tax purposes.

Going-concern value is the worth of a business, such as a restaurant, based on its operations. the replacement cost of the property may be much more or much less than the business is worth.

Insurable value is the cost of total replacement of its destructible improvements. For example, consider a home that sold for $150,000 ten years ago would cost $250,000 to rebuild today, excluding the cost of land. Its insurable value would be $250,000 even if its current market value, land included, was only $225,000.

Value in exchange is the value of a commodity to people in general rather than to a specific person. Value in exchange is a more objective measure and is commonly identified with market value.

152.

Mark is selling his single-family home to Jake for $100,000. Due to Jake’s inadequate credit, the lender is only willing to allow Jake to finance $90,000. In order for the sale to occur, Mark decides to accept a mortgage loan from Jake for the remaining $10,000. What type of mortgage does this best describe?

  • Purchase money mortgage

  • Package mortgage

  • Chattel mortgage

  • Blanket mortgage

Correct answer: Purchase money mortgage

Mark offered Jake a purchase money mortgage. A purchase money mortgage is one in which the seller accepts a mortgage loan in place of cash for all or part of the selling price.

Package mortgage is incorrect because it is a loan for real estate and personal property such as a condominium and the appliances, furniture, and drapes inside. Chattel mortgage is incorrect because it is a loan for movable personal property such as a car. Blanket mortgage is incorrect because it is a loan spread across multiple properties.

153.

When a buyer or renter has a buyer/renter's broker representing him in a transaction, who usually pays the broker's fee to the byer's/renter's broker?

  • Seller

  • The buyer and seller split the commission 50-50

  • Buyer

  • The MLS mandates that buyer's broker's receive a 2% commission

Correct answer: Seller

When a buyer has a buyer's broker representing him in a transaction, the seller usually pays the broker's fee to the seller's broker, who then splits the commission between herself and the buyer's broker. While this practice is most common in real estate transactions, it is not mandated and may be changed by agreement between the agents and/or between the buyer and their agent. 

The other answers are incorrect.

154.

Sharon decided to buy Ken’s house using a contract for deed in which she owes Ken $1,500 per month for 60 months. Sharon pays the first 33 installments on time, and she is now 90 days late on the 34th installment payment. Which statement is true?

  • Ken may evict Sharon and regain full possession and ownership

  • Sharon is entitled to live in the house since she has paid more than half of the installment payments

  • Ken may evict Sharon and regain full possession, but he will be required to give Sharon a full refund

  • Sharon has 180 days before she has to make the 34th payment

Correct answer: Ken may evict Sharon and regain full possession and ownership

It is true that Ken may evict Sharon and regain full possession and ownership. This is true in some states. In the states that it is not true, Ken can still regain full possession and ownership, but he must go through the foreclosure process. A contract for deed is used when the seller of real estate finances the sale for the buyer and keeps the deed until the final payment is made. If Sharon had completed all her payments and Ken refused to give her ownership, Sharon could sue Ken for the deed and full ownership rights. 

It is false to state that Sharon is entitled to live in the house because she has paid more than half of the installment payments, that Ken will be required to give Sharon a full refund if he chooses to evict her, or that Sharon has 180 days before she has to make the 34th payment.

155.

Federal Home Loan Mortgage Corporation (FHLMC or Freddie Mac) is classified as which of the following?

  • A privately owned corporation

  • A federally chartered organization

  • A U.S. government entity

  • A USDA rural development agency

Correct answer: A privately owned corporation

Federal Home Loan Mortgage Corporation (FHLMC or Freddie Mac) is classified as a privately owned corporation sponsored by the U.S. government.  FHLMC buys mortgages on the secondary market and sells interests in pools of mortgages. It does not originate or service mortgages, but instead, buys loans from mortgage lenders.

Federal National Mortgage Association (FNMA or Fannie Mae) is a public shareholder-owned corporation operating under a US congressional charter. Government National Mortgage Association (GNMA or Ginnie Mae) is a U.S. government entity. Farmers Home Administration (FmHA) is a USDA rural development agency.

156.

Which of the following government bodies do not levy taxes on real property?

  • Federal

  • State 

  • County 

  • Township

Correct answer: Federal

Local governments (townships) most commonly levy taxes on real property. States and counties can also do so. The federal government does not. It is common for counties to collect all property taxes and distribute them among other taxing bodies.

157.

Carl’s property taxes are $2,500 for the year. The first half of Carl’s taxes is due on March 31st and the second half is due on July 31st. For each month the taxes are late, the county charges a penalty of 2% each month on the amount that is late. If Carl does not pay his taxes until October 31st, how much will his penalty be?

  • $250

  • $100

  • $175

  • $350

Correct answer: $250

Carl’s penalty for paying his taxes late will be $250. The first half of Carl’s taxes is four months late by the time the second half is due; therefore, for the first half, Carl will owe: $1,250 x 0.02 = $25; $25 x 4 = $100. The first and second half of Carl’s taxes are three months late by the time Carl pays his taxes, and he will owe $2,500 x 0.02 = $50; $50 x 3 = $150. Carl’s total penalty will be $100 + $150 = $250.

158.

The true cost of credit is expressed using which of the following?

  • Annual percentage rate

  • Interest rate

  • Gross percentage rate

  • Net percentage rate

Correct answer: Annual percentage rate

The true cost of credit is express as the annual percentage rate (APR). Creditors must disclose the APR in writing during the credit transaction.

The other options are incorrect because the true cost of credit is expressed by the APR, not the interest rate, the gross percentage rate, or the net percentage rate.

159.

Jessie is a real estate agent selling Gerard's condo. Halle loves the condo and puts in an offer to buy it and she says that she needs a mortgage but that she can definitely get one. What type of loan letter would satisfy Jessie that Halle is telling the truth?

  • A firm commitment

  • Satisfaction letter

  • Conditional commitment

  • Take-out commitment

Correct answer: A firm commitment

A firm commitment would satisfy Jessie that Halle is telling the truth. A firm commitment is a straight forward offer from the lender to make a specific loan at a specific interest rate for a specific term. 

A satisfaction letter is incorrect because it is a letter from the lender stating that the mortgage is paid off. Conditional commitment is incorrect because it offers to make a loan only if certain provisions are met and is usually is not considered firm enough to rely upon. A take-out commitment offers to make a loan that will "take out" another lender's loan, such as in the case of a refinance, and does not apply to an initial purchase.

160.

Carlos has agreed to rent living quarters from Jonathon. What would Carlos be referred to as in the real estate contract?

  • Lessee

  • Lessor

  • Grantor

  • Grantee

Correct answer: Lessee

Carlos would be referred to as the lessee in the real estate contract that he would have with Jonathon for the rental of living quarters because he is the one receiving the contract. The real estate contract used for the rental of living quarters is known as a lease.

Jonathon would be considered the lessor of the lease because he is the one giving the contract. Grantor and grantee are incorrect because they are terms used when one grants or receives a deed.

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