Florida Real Estate Broker Exam — All Questions

On a Florida closing statement, unpaid real estate taxes prorated to the closing date normally appear as:

• a.A credit to the seller and a debit to the buyer
• b.A debit to the seller and a credit to the buyer✓
• c.A debit to both the seller and the buyer alike
• d.A credit to both the seller and the buyer alike

Because Florida real estate taxes are paid in arrears, the tax bill covering the seller's period of ownership has not yet been paid at closing, and the buyer will eventually pay the full year. The seller therefore owes the buyer for the seller's share, which is recorded as a debit to the seller and a matching credit to the buyer. The mirror image occurs with items the seller has prepaid, such as an annual association assessment, which produce a credit to the seller and a debit to the buyer. A prorated item is always entered on both sides of the statement, one party debited and the other credited, never both the same way.

A married couple filing jointly who owned and occupied a Florida home as their principal residence for 2 of the last 5 years may generally exclude gain up to:

• a.$250,000
• b.$500,000✓
• c.$300,000
• d.$1,000,000

Internal Revenue Code section 121 allows a taxpayer to exclude gain on the sale of a principal residence if the property was owned and used as the principal residence for at least 2 of the 5 years preceding the sale. The exclusion is $250,000 for a single filer and $500,000 for a married couple filing jointly, and it may generally be claimed once every two years. The exclusion applies to gain rather than to sale proceeds, so a seller computes gain by subtracting the adjusted basis from the amount realized. Gain above the exclusion is taxed, ordinarily at long-term capital gain rates for property held more than a year.

Residential rental property placed in service today is depreciated for federal income tax purposes over:

• a.39 years
• b.31.5 years
• c.15 years
• d.27.5 years✓

Under the modified accelerated cost recovery system, residential rental property is depreciated straight-line over 27.5 years while nonresidential real property uses 39 years, so the classification of the building drives the annual deduction. Only the improvements are depreciable: land is never depreciated, so the investor must allocate the purchase price between land and building. The 31.5-year figure is a historical recovery period for nonresidential property that predates current law, and 15 years applies to certain land improvements rather than to the building itself. Depreciation reduces adjusted basis, which increases the gain recognized on a later sale.

In a delayed exchange under Internal Revenue Code section 1031, the replacement property must be identified within:

• a.45 days, and the exchange completed within 180 days✓
• b.30 days, and the exchange completed within 180 days
• c.45 days, and the exchange completed within 90 days
• d.60 days, and the exchange completed within 180 days

A delayed like-kind exchange runs on two deadlines that both start on the date the relinquished property transfers: the taxpayer must identify replacement property in writing within 45 days, and must receive the replacement property within 180 days or by the due date of the tax return for that year, whichever is earlier. The periods run concurrently rather than consecutively, so the identification period is part of the 180 days. Since the 2017 Tax Cuts and Jobs Act, section 1031 applies only to real property held for productive use in a trade or business or for investment, not to personal property.

Under FIRPTA, a buyer purchasing United States real property from a foreign seller must generally withhold:

• a.10 percent of the amount realized
• b.20 percent of the amount realized
• c.25 percent of the amount realized
• d.15 percent of the amount realized✓

The Foreign Investment in Real Property Tax Act makes the buyer, as transferee, responsible for withholding on the purchase of a United States real property interest from a foreign person, and the general rate is 15 percent of the amount realized, which is normally the gross sales price rather than the seller's gain. Reduced rates or exemptions can apply for certain residences within stated price bands where the buyer will use the property as a residence, and a seller may apply for a withholding certificate based on actual expected tax. The obligation falls on the buyer, so a Florida licensee should raise the issue early when a seller may be foreign.

An investor's adjusted basis in a Florida rental property equals the original cost:

• a.Plus capital improvements, minus depreciation taken✓
• b.Minus capital improvements, minus depreciation taken
• c.Plus annual operating expenses, minus depreciation taken
• d.Plus capital improvements, plus depreciation taken

Adjusted basis starts with the original cost of acquisition, is increased by capital improvements that add value or prolong useful life, and is decreased by depreciation deductions taken over the holding period. The figure matters because gain on sale is the amount realized minus adjusted basis, so years of depreciation deductions enlarge the eventual gain, a result often described as depreciation recapture. Operating expenses such as utilities, insurance, and routine repairs are deducted annually against rental income and do not adjust basis, which is the distinction between a repair and a capital improvement.

Net operating income for an investment property is found by subtracting from effective gross income:

• a.Operating expenses, debt service, and depreciation
• b.Operating expenses and debt service together
• c.Debt service, but not operating expenses
• d.Operating expenses, but not debt service✓

Net operating income measures the earning power of the property itself, independent of how any particular owner financed it, so it is effective gross income less operating expenses only. Debt service is excluded because it varies with the buyer's loan rather than the property, and depreciation is excluded because it is a tax accounting entry rather than a cash expense. That is precisely what makes net operating income comparable across properties and suitable for capitalization. Subtracting annual debt service from net operating income produces before-tax cash flow, which is the figure that describes the individual investor's return.

Under a triple net lease, the tenant pays base rent plus:

• a.Property taxes and insurance, but not maintenance
• b.Property taxes, insurance, and maintenance✓
• c.A stated percentage of gross sales above a breakpoint
• d.Only the utilities the tenant actually consumes

In a triple net lease the tenant pays base rent and also bears the three named property charges: real estate taxes, insurance, and maintenance, which is what the three nets refer to. The structure shifts operating cost risk to the tenant and is common in single-tenant commercial property. A lease covering only taxes and insurance is a double net lease. A lease measuring rent as a percentage of gross sales above a stated breakpoint is a percentage lease, typical of retail. A gross lease, by contrast, has the landlord pay the operating expenses out of the rent collected.

A Florida rental property produces net operating income of $48,000 and carries annual debt service of $33,000. Before-tax cash flow is:

• a.$48,000
• b.$33,000
• c.$81,000
• d.$15,000✓

Before-tax cash flow is net operating income minus annual debt service, so $48,000 minus $33,000 leaves $15,000. The $48,000 figure is the net operating income itself, which ignores the mortgage payments the owner actually makes and therefore overstates what reaches the owner's pocket. The $33,000 figure is the debt service alone. The $81,000 figure adds the two rather than subtracting, which no measure of return would do. If the owner's initial cash investment were known, dividing this $15,000 by that equity would give the cash-on-cash return.

An investor pays $850,000 for a property producing net operating income of $68,000. The capitalization rate is:

• a.12.5 percent
• b.8 percent✓
• c.6 percent
• d.0.8 percent

The capitalization rate is net operating income divided by value, so $68,000 divided by $850,000 equals 0.08, or 8 percent. The 12.5 percent figure inverts the fraction, dividing value by income, which yields the number of years of income needed to equal the price rather than a rate. The 0.8 percent figure is the right division with a misplaced decimal. Keep the relationships straight: value equals income divided by rate, income equals value times rate, and rate equals income divided by value, so for a given income a higher capitalization rate always implies a lower value.

A Florida owner whose lot is too narrow to meet the setback required by the zoning code would seek:

• a.A special exception from the local board of adjustment
• b.A rezoning of the parcel by the governing body
• c.A variance from the local board of adjustment✓
• d.A nonconforming use ruling from the building official

A variance is relief from a dimensional requirement such as a setback, lot width, or height limit, granted where strict application would impose an unnecessary hardship arising from the physical characteristics of the parcel rather than from the owner's own choices. A special exception, sometimes called a conditional use, authorizes a use the code already contemplates in that district subject to stated conditions, so it addresses use rather than dimensions. Rezoning changes the district classification itself and is a legislative act of the governing body. A nonconforming use is a lawful use predating the ordinance, not a form of relief an owner applies for.

Liability for cleanup costs under CERCLA is best described as:

• a.Negligence-based, several only, and prospective in effect
• b.Strict, several only, and prospective in effect
• c.Negligence-based, joint and several, and retroactive
• d.Strict, joint and several, and retroactive✓

The Comprehensive Environmental Response, Compensation, and Liability Act imposes strict liability, meaning fault need not be shown; joint and several liability, meaning any one potentially responsible party can be made to pay the entire cleanup cost and must then seek contribution from others; and retroactive liability, reaching disposal that was perfectly lawful when it occurred. Those three features together are why a current owner can be liable for contamination caused decades earlier by someone else. The innocent landowner defense is available only to a purchaser who conducted all appropriate inquiry into prior ownership and use before acquiring the property.

Under s. 83.49(3), F.S., a Florida landlord who intends to impose a claim on a tenant's security deposit must give written notice within:

• a.30 days after termination of the rental agreement✓
• b.15 days after termination of the rental agreement
• c.45 days after termination of the rental agreement
• d.60 days after termination of the rental agreement

Section 83.49(3)(a), F.S., sets two deadlines that are easy to transpose. If the landlord does not intend to impose a claim, the security deposit must be returned, with interest where required, within 15 days after termination of the rental agreement. If the landlord does intend to impose a claim, the landlord must, within 30 days after termination, give the tenant written notice by certified mail to the last known address or by email under s. 83.505, F.S., stating the intention to impose a claim and the reason for it. The statute prescribes the wording of that notice, and the tenant then has 15 days to object in writing.

Which characteristic of land best explains why real estate markets are local rather than national?

• a.Indestructibility of the land itself
• b.The long lead time required to add new supply
• c.Immobility of the land itself✓
• d.The high transaction cost of a typical sale

Immobility is the physical characteristic that land cannot be moved, so supply in one market can never be shifted to satisfy demand in another. That single fact forces real estate markets to clear locally, and it is why value responds to neighborhood conditions, local employment, and local government decisions on zoning and services. Indestructibility explains why land endures rather than why markets are local. Long development lead times explain why supply responds slowly to price changes, and high transaction costs explain why real estate markets are relatively illiquid, but neither confines a market geographically.

A Florida listing brokerage earns a 6 percent commission on a $300,000 sale and splits it equally with the cooperating brokerage. The listing brokerage's share is:

• a.$9,000✓
• b.$18,000
• c.$4,500
• d.$36,000

Work the total commission before the split: 6 percent of $300,000 is $18,000, and dividing that equally between the listing and cooperating brokerages leaves the listing brokerage $9,000. The $18,000 figure is the whole commission, correct right up to the point where the split was forgotten. The $4,500 figure comes from halving one time too many, and would be the listing agent's share only if the brokerage then split its half again with its own sales associate. The $36,000 figure doubles rather than halves. Note that this is the brokerage's share, from which any associate's split is still paid.

A rectangular Florida lot measures 150 feet by 290.4 feet. Its area is closest to:

• a.Half an acre
• b.1.5 acres
• c.2 acres
• d.1 acre✓

Multiply the dimensions to get the area in square feet: 150 feet times 290.4 feet equals 43,560 square feet. One acre is defined as 43,560 square feet, so the lot is almost exactly one acre. That constant is worth memorizing, because area problems on the Florida broker examination routinely require converting between square feet and acres in either direction. A useful check is that a square acre measures roughly 208.7 feet on a side, so a lot 150 feet wide must run a bit under 300 feet deep to reach an acre, which is consistent with the 290.4-foot dimension given.