Set 5

Question 1

What is the best approach to value a special purpose property (such as church or hospital)

Answer 1

Cost approach

special purpose property -> cost approach

COST APPROACH
An approach to value best used on special purpose properties, such as churches and hospitals; the approach values a property by determining the current replacement cost, less depreciation, plus the current land value

Question 2

T/F: Both improvements and land can depreciate

Answer 2

False

land NEVER depreciates

Question 3

T/F: A property that is not an investment property may be depreciated for tax purposes

Answer 3

False

Only investment property (rentals) can be depreciated for tax purposes

Question 4

A person may depreciate property for tax purposes when the property is:

A » a rental property held for investment
B » sold
C » a second home
D » exchanged for a smaller property

Answer 4

A rental property held for investment

(A) Only investment property (rentals) can be depreciated for tax purposes. (B) A property cannot be tax depreciated just because it is sold or (C) is a second home. (D) An exchange of property can have special tax treatment for deferral of capital gains, but cannot be tax depreciated unless it is an investment property.

Question 5

What is a sinking fund created for?

Answer 5

A sinking fund is created to save money to satisfy a debt.

Question 6

What is it called when a person takes the cost of purchase and then recaptures this amount?

A » A sinking fund
B » Escrow
C » Profit
D » Depreciation

Answer 6

D » Depreciation

Another word for tax depreciation is to recapture the cost of purchase over a certain time period allowed by IRS regulations. (A) A sinking fund is created to save money to satisfy a debt. (B) Escrow is an account held by a neutral third party. (C) Profit is the difference between what a property is sold for less the costs incurred in acquisition

Question 7

Is “economic life” or “physical life” shorter?

Answer 7

Economic life is shorter

PHYSICAL LIFE
Number of years item is physically sound

ECONOMIC LIFE
Number of years item is profitable; economic life is shorter than the physical life

Question 8

T/F: The income approach is best used on income producing properties such as apartments.

Answer 8

True

The income approach is best used on income producing properties such as apartments.

Question 9

Which approach to value would be best for an apartment complex?

A » Market data approach
B » Income approach
C » Cost approach
D » Sales comparison approach

Answer 9

B » Income approach

(B) The income approach is best used on income producing properties such as apartments. (A) The market data approach or (D) sales comparison is best used on residential property and vacant land. (C) The cost approach is best used on special purpose properties like churches.

Question 10

T/F: The market data approach is used in residential property and vacant land

Answer 10

True

Market data is used in residential property and vacant land by analyzing the comparables.

Question 11

T/F: Capitalization refers to the market data valuation approach

Answer 11

False

Capitalization -> income approach

Capitalization is taking the net income divided by the capitalization rate (rate of return) to get the value of an income property

Question 12

Jon works for Builder Bob, selling his new construction homes in Illinois. Does Jon need a real estate license?

A » Yes, this is a licensed activity
B » Yes, as new construction sales require a licensed agent
C » No, as long as Jon is Bob’s regular employee
D » No, as new construction is exempt

Answer 12

C » No, as long as Jon is Bob’s regular employee

Regular employees of the owner of the property are exempt from licensing in Illinois. A regular employee must work at least 20 hours a week and be classified as an employee by IRS guidelines.

Question 13

T/F: Illinois Law dictates that you are assumed to be the designated agent of the party you are working with, unless you somehow alter that assumption in advance.

Answer 13

True

Illinois Law dictates that you are assumed to be the designated agent of the party you are working with, unless you somehow alter that assumption in advance.

Question 14

The largest monetary penalty, per transaction, for a license law violation in Illinois is _____

Answer 14

$25k

$25,000 is the largest fine that can be imposed by DFPR per transaction.

Question 15

Under Illinois real estate law, it is required that all clients be given written disclosure of who is their:

ANSWERS
   A  »  lawyer
   B  »  loan officer
   C  »  subagent
   D  »  designated agent

Answer 15

D » designated agent

On both the listing and the selling side, all clients must get a written disclosure of what agent will be serving as their “designated agent” within the office. In cases of sales teams or licensed personal assistants, there may be more than one agent named.

Question 16

T/F: Complexes with more than 25 units must pay interest on security deposits

Answer 16

True, must pay interest

Apartment complexes with more than five units must return deposits within 30 days and complexes with more than 25 units must pay interest on those deposits, if held more than six months.

Question 17

T/F: Apartment complexes with more than five units must return security deposits within 30 days

Answer 17

True

Apartment complexes with more than five units must return deposits within 30 days

Question 18

T/F: Any interest of more than 1% in a real estate related company, other than a publicly traded one, must be disclosed.

Answer 18

True

Any interest of more than 1% in a real estate related company, other than a publicly traded one, must be disclosed.

Question 19

When the public tries to get money from the real estate recovery fund, what is the statute of limitations?

Answer 19

2 years

There is a two-year statute of limitations and limits on collection of funds.

Question 20

T/F: A securities license is required to buy and sell portions of a real estate partnership or a real estate investment trust.

Answer 20

True

A securities license is required to buy and sell portions of a partnership, shares of stock in a corporation, real estate investment trusts and most syndications.