Principles & Law True/False Flashcards
Recording is essential to the validity of a deed.
False
In order for a deed to be valid it must be signed by two witnesses.
True
Acknowledgment by a notary is required for a valid deed.
False
When taking a credit application it is ok to ask the applicant’s current number of dependents.
True
It is acceptable for a loan officer to ask if the applicant is widowed or divorced.
False
An appraiser trying to determine the highest and best use would NOT require that the use be the current use.
True
The highest and best use of a property must be legally permissible, financially feasible, and compatible with adjacent properties.
True
A condominium & detached single-family dwelling are similar in that owners of each pay separate mortgage & property taxes.
True
A utility company uses condemnation to get the right to use the rear 5 feet of property. The right held by the power company is an encroachment.
False: its an easement
The surplus of a 310 foreclosure sale is paid to the clerk of the court.
True
A lease expires. The tenant sends a rent check to the landlord. There has been no communication between the landlord & the tenant. The tenant holds a tenancy at sufferance.
True
The secondary mortgage market was developed to provide a constant source of funds for real estate loans
True
The secondary mortgage market is a regulatory agency.
False
According to the telephone consumer protection act of 1991, a licensee may NOT call residences before 8am or after 9pm local time.
True
The Telephone consumer protection act of 1991 is a state law & the Florida Department of Agriculture & consumer services maintains the State’s “Do Not Solicit” list.
False
A broker is looking to purchase an existing building for a real estate office. In order to comply with the Americans with Disabilities Act (ADA), the broker is required to provide separate bathrooms for the handicapped.
False
The fair housing act of 1968 prohibits discrimination based upon race, with a few exceptions & the anti-discrimination act of 1866 allowed ALL citizens to own, buy, & sell real estate.
True
The fair housing act of 1968 did NOT prohibit discrimination based upon disability.
True: disability was added in 1988
In a contract for deed, title transfers at closing.
False
Buyer & Seller entered into a contract for deed. Buyer receives title upon final payment.
True
Radon disclosure in the state of Florida must be given to tenants leasing for a period of 30 days or less.
False: more than 45 days
The required radon disclosure specifies that information regarding radon may be obtained from the County Health Department.
True
Title insurance protects the insured against damage that results from a forged deed.
True
The articles of incorporation create a unit boundaries, operating budgets, bylaws & other governing rules in a Florida condominium.
False: is the Declaration
A condominium is created by filing a declaration.
True
Recording at the county is NOT required for a valid deed.
True
A major benefit to the manufacturer owner of a sale-leaseback is the ability to expand with easy access to cash without borrowing.
True
According to the landlord act, the landlord must notify the tenant within 30 days of termination in the event landlord is claiming any portion of the deposit.
True
The landlord act requires each landlord to return 100% of the deposit within 10 days of termination.
False
The primary purpose of a quitclaim deed is to clear clouds on title.
True
A tenant wants to renew a long-term lease on a property that the landlord is planning to sell soon. The agent should put a cancellation clause into the lease to allow the landlord to cancel the lease upon the sale of the property.
True
A primary benefit of operating as a corporation is less paperwork and fewer formalities.
False
A primary benefit of operating as a sole proprietorship is less paperwork and fewer formalities.
True
A conventional loan is neither insured nor guaranteed by the federal government.
True
Subject is 5 bedrooms in better condition than the comparable sale. Condition is worth $1,000. The value of a bedroom in the market is $3,000. Comparable is 4 bedrooms in worse condition that sold for $62,000. Adjusted value of comparable is $58,000.
False:
$62,000 (comp price)
+ $3,000 (bedroom)
+ $1,000 (condition)
= $66,000
An appraiser is trying to estimate the cost to rehab a Victorian style house. Reproduction cost would be the most appropriate method to estimate the cost new.
True
When making percentage adjustments on an appraisal, the first adjustment is physical characteristics.
False:
Financing & conditions of sale
A mortgage banker is most likely to issue a mortgage loan from its own funds and sell it to a long-term investor.
True
A mortgage with a 15-year term with payments based on a 30-year schedule is said to be fully amortized.
False:
Partially amortized
In order for a property to qualify as a comparable sale, it must be a genuine arms-length transaction.
True
A company’s quick ratio is an indicator of a company’s ability to satisfy short term obligations.
True
Business broker has been asked to perform an analysis of Seller’s business. Broker calculated the value of the current assets, subtracted current inventories, and divided by current liabilities. Broker computed the company’s quick ratio.
True
The lower the quick ratio, the better the position of the company.
False:
The higher the ratio the higher the ability to satisfy short term obligations
A sensitivity analysis is a technique that analyzes risk by measuring anticipated returns using best case, worst case, & most likely case scenarios.
True
Intangible assets of a business include goodwill, trademarks, licenses, & patents.
True
Improvements, trade fixtures, & inventory are intangible assets.
False:
They are tangible
Broker is performing an analysis of an apartment building. Broker has noticed that the owner has recently replaced the roof, replaced the HVAC, & completed extensive landscaping. These are classified as capital improvements.
True
The cost of capital improvements will be included in the property’s operating expenses.
False
Utilities, management fees, & interior maintenance are classified as operating expenses.
True
Investor is in the 32% tax bracket. This year investor had $550,000 Gross Operating Income; $368,000 Operating Expense including $18,000 Reserves for Replacement; $30,000 Depreciation; $102,000 Debt Service of which $100,000 was Interest. What is Investor’s Income Tax Expense & After Tax Cash Flow?
$22,400 income tax expense; $57,600 after tax cash flow
$550,000 Income - $368,000 Operating Expense = $182,000 NOI;
$182,000 NOI - $102,000 Debt Service = $80,000 Before Tax Cash Flow;
$182,000 NOI + $18,000 Reserves - $100,000 Interest - $30,000 Depreciation =
$70,000 Taxable;
$70,000 Taxable Income x 32% tax bracket =
$22,400 Income Tax Expense;
$80,000 Before Tax Cash Flow - $22,400 Income Tax Expense =
$57,600 After Tax Cash Flow
Long term capital gain is the taxable profit from a sale computed based upon total gains & recapture of depreciation.
True
To compute the taxable income of an investment property, add depreciation & interest to the Net Operating Income.
False:
Add reserves and subtract depreciation & interest from the net operating income
The yield to an investor who places a mortgage for 92% of the balance at 12% interest is 12.5%
False:
13%; placing for 92% is the same as charging 8 points = 1% yield increase (1/8% yield increase per point)
Straight line depreciation is the same amount of depreciation each year.
True
The process of individual investors bypassing financial institutions to get higher yields in real estate or other investments is known as disintermediation.
True
Consumers in a marketplace are putting money into savings institutions instead of higher yielding but more risky investments. This is an example of intermediation.
True
Mr. Jones, age 62, purchased a property in 1966 for $62,000. He recently sold it for $480,000 with a 7% commission going to the broker. One month prior to sale he replaced the roof for $4,200. Mr. Jones will be required to spend how much for his next home in order to limit or avoid capital gains tax?
$0; there is no requirement related to purchase of another home
Net operating income minus debt service minus income tax expense equals after tax cash flow.
True
A property is valued at $1,025,000 with an 80% mortgage. The net income is $96,000 with an annual mortgage constant of .10. What is the equity dividend rate?
7% Equity dividend rate (cash on cash) = Before tax cash flow / cash invested (equity)
$1,025,000 x 80% = $820,000 mortgage x .1 = $82,000 debt service;
$96,000 income - $82,000 debt service = $14,000 cash flow;
$14,000 / $205,000 equity = .0682% = 7% equity dividend rate
Net operating income divided by total debt service = debt service coverage ratio.
True
If the debt service coverage ratio is less than 1 the property has a positive cash flow.
False:
that a negative cash flow
A $100,000 home has an 80% mortgage at 12% for 25 years. The MONTHLY mortgage constant is .010532. What is the annual debt service?
$10,110
.010532 x $80,000 = $842.56 monthly P&I x 12 = $10,110 annual debt service
In the cost-depreciation approach to value the building & the site MUST be valued separately.
True
The difference between budgeted & actual operating income & expenses is known as operating business risk.
True
Static risk can be protected by insurance.
True
A competitor has hired someone to steal trade secrets. This is an example of static risk.
False:
This is dynamic risk
The business is suffering reduced cash flow due to increased property tax rates. This is an example of dynamic risk.
True
A condominium has been sold for the first time by a developer. The purchaser has a 3-day right of rescission.
False:
They have a 15-day right of rescission
Broker hires licensed assistant & offers $7 per hour & 20% of all commissions earned. The broker MUST pay all commissions & earned. The broker MUST pay all commissions & follow through.
True
The monthly sales report & annual sales budget are two financial statements indicating the relationship of current sales to sales goals.
True
A licensee is selling her own home. She must either use her broker’s name (if listed) or disclose her licensed status before serious negotiations.
True
A branch office registration is expiring soon. The broker must register before expiration & every year thereafter.
False:
Every 2 years
A new broker opens up a trust account. Binders from multiple transactions must each be deposited into a different account.
False:
They can be deposited into this one account
An owner has listed with Broker A & Broker B. Broker A presents an offer within the listing terms, but owner sells to Broker B buyer for cash. Broker B will receive a commission.
True
One benefit to the broker of having sales associates employed as independent contractors is that the broker DOESN’T pay social security tax.
True
A sales associate’s license expires on March 31. She changes her home address on March 1st. She should send a note listing her new address along with her renewal.
False:
Must notify within 10 days
An unlicensed person, with the expectation of receiving a commission showed property to a buyer who never bought. The unlicensed person is subject to a $5,000 fine & criminal prosecution as a 3rd degree felony.
True
A sales associate who sues a consumer for collection of a commission has violated Chapter 475.
True
Broker has had a complaint filed against her. Broker goes to a witness & offers a bribe to not testify. The action is a misdemeanor of the 3rd degree.
False:
It’s a misdemeanor of the 2nd degree
Agent went to an extended vacation & gave a list of referrals to Broker. Broker mailed several referral fees to Agent. Agent returned & immediately left to work for another Broker. The other referrals must be paid to the new Broker.
False:
Broker is fine paying old & also paying future referrals
A broker guaranteed that title was merchantable. The penalty is suspension & fine.
True
Broker violated USPAP. Broker is subject to administrative penalties under Chapter 475 F.S.
True
A broker offering rental services is required to deliver the prospective tenants with a rental receipt agreement.
True
A broker has a fiduciary relationship based upon the licensed status from the Florida DBPR.
True
