Minnesota Real Estate Salesperson Exam — All Questions

An investor buys a property for $500,000 at a 7.5% capitalization rate. What annual net operating income does that imply?

• a.$37,500✓
• b.$66,667
• c.$3,750
• d.$46,500

NOI = Value x Rate = $500,000 x 0.075 = $37,500. Rearranging IRV, the income equals the value multiplied by the cap rate.

A rental has potential gross income of $100,000, a 5% vacancy and collection loss, and $35,000 of annual operating expenses. What is its net operating income?

• a.$95,000
• b.$60,000✓
• c.$65,000
• d.$45,000

Effective gross income = $100,000 - (5% x $100,000 = $5,000) = $95,000. NOI = $95,000 - $35,000 operating expenses = $60,000. Note that mortgage debt service is NOT an operating expense and is never subtracted when computing NOI.

A home sold for $240,000 and rents for $2,000 per month. What is its gross rent multiplier (GRM) based on monthly rent?

• a.480
• b.12
• c.10
• d.120✓

Monthly GRM = price / monthly rent = $240,000 / $2,000 = 120. The GRM is a quick screening ratio; dividing by annual rent instead would give the gross income multiplier of 10.

Comparable properties in an area sell at a monthly GRM of 110. A subject property rents for $1,800 per month. What value does the GRM indicate?

• a.$180,000
• b.$237,600
• c.$198,000✓
• d.$16,364

Value = GRM x monthly rent = 110 x $1,800 = $198,000. Once a market-derived GRM is known, multiplying it by the subject's rent gives a fast value estimate.

An investor uses a gross income multiplier (GIM) of 8 based on ANNUAL income. If a property's annual gross income is $48,000, what is its indicated value?

• a.roughly $96,000
• b.about $48,000
• c.$384,000✓
• d.around $6,000

Value = GIM x annual gross income = 8 x $48,000 = $384,000. The GIM works like the GRM but uses annual gross income rather than monthly rent.

For federal income-tax purposes, a residential rental building (excluding land) is depreciated straight-line over 27.5 years. If the depreciable improvement value is $275,000, what is the annual depreciation deduction?

• a.$7,051
• b.$10,000✓
• c.$5,000
• d.$27,500

Straight-line depreciation = improvement value / recovery period = $275,000 / 27.5 = $10,000 per year. Only the improvements are depreciated; land is never depreciated because it is considered to have an unlimited life.

Nonresidential (commercial) real property is depreciated straight-line over 39 years for federal tax purposes. What is the annual depreciation on a commercial building valued at $390,000 (excluding land)?

• a.$9,750
• b.$39,000
• c.$10,000✓
• d.$14,182

Annual depreciation = $390,000 / 39 = $10,000. Commercial improvements use a 39-year recovery period, versus 27.5 years for residential rentals.

An investor pays $400,000 for a residential rental; 25% of the value is allocated to land. Using a 27.5-year period, what is the approximate annual depreciation deduction?

• a.$14,545
• b.$3,636
• c.$10,909✓
• d.$40,000

Land is not depreciable. Improvements = $400,000 x (1 - 0.25) = $300,000. Annual depreciation = $300,000 / 27.5 = $10,909. Allocating value between land and building first is essential, since only the building is written off.

In the cost approach, a building has a replacement cost new of $300,000, an effective age of 10 years, and a total economic life of 50 years. Using the straight-line (age-life) method, what is the accrued depreciation?

• a.$30,000
• b.$240,000
• c.$60,000✓
• d.$6,000

Depreciation rate = effective age / economic life = 10 / 50 = 20%. Accrued depreciation = 20% x $300,000 = $60,000. The depreciated cost of the improvements would be $240,000, to which land value is then added.

A parcel contains 435,600 square feet. Given that one acre is 43,560 square feet, how many acres is the parcel?

• a.1 acre
• b.10 acres✓
• c.100 acres
• d.4.356 acres

Acres = square feet / 43,560 = 435,600 / 43,560 = 10 acres. Memorizing that an acre equals 43,560 square feet turns this into a one-step division.

Under the rectangular (government) survey system, how many acres are in the NE 1/4 of the SW 1/4 of a section?

• a.80 acres
• b.40 acres✓
• c.20 acres
• d.160 acres

A section is 640 acres. Each fraction multiplies: 640 x 1/4 x 1/4 = 640 / 16 = 40 acres. Multiply all the fractional descriptions together, then apply them to 640.

How many acres are in one-half of a section of land?

• a.320 acres✓
• b.80 acres
• c.640 acres
• d.160 acres

A full section is 640 acres, so one-half section = 640 / 2 = 320 acres. There are 640 acres in a section (one square mile).

A rectangular lot measures 90 feet by 145 feet. What is its area in square feet?

• a.13,050 square feet✓
• b.about 1,305 square feet
• c.just 235 square feet
• d.only 470 square feet

Area of a rectangle = length x width = 90 x 145 = 13,050 square feet. The 235 figure mistakenly adds the two dimensions instead of multiplying them.

A rectangular lot contains exactly 0.25 acre and has 100 feet of street frontage. What is its depth?

• a.108.9 feet✓
• b.43.56 feet
• c.10,890 feet
• d.217.8 feet

0.25 acre = 0.25 x 43,560 = 10,890 square feet. Depth = area / frontage = 10,890 / 100 = 108.9 feet. Dividing the total area by the known side gives the unknown side.

A triangular lot has a base of 200 feet and a height of 150 feet. What is its area?

• a.30,000 square feet
• b.7,500 square feet
• c.350 square feet
• d.15,000 square feet✓

Area of a triangle = 1/2 x base x height = 0.5 x 200 x 150 = 15,000 square feet. Forgetting the 1/2 factor gives the incorrect 30,000.

A builder constructs a 2,400-square-foot house at a cost of $145 per square foot. What is the total construction cost?

• a.$240,145
• b.$16.55
• c.$348,000✓
• d.$34,800

Total cost = area x cost per square foot = 2,400 x $145 = $348,000. Cost-per-unit problems are a straightforward multiplication once the units line up.

An investor bought a property for $180,000 and later sold it for $216,000. What was the percentage of profit based on the original cost?

• a.16.7%
• b.18%
• c.20%✓
• d.36%

Profit = $216,000 - $180,000 = $36,000. Percent profit = profit / cost = $36,000 / $180,000 = 0.20 = 20%. Profit percentages use the original cost (the 'made') as the base, not the sale price.

A property sold for $230,000, which represented a 15% profit over what the seller originally paid. What was the original purchase price?

• a.$200,000✓
• b.$195,500
• c.$264,500
• d.$34,500

The sale price is 115% of cost, so cost = sale price / 1.15 = $230,000 / 1.15 = $200,000. You divide by 1 plus the profit rate; subtracting 15% of the sale price would give the wrong answer because the profit was figured on the lower cost.

An owner sells a property for a 12% loss relative to the $250,000 originally paid. What is the sale price?

• a.$220,000✓
• b.$30,000
• c.$222,000
• d.$280,000

A 12% loss means the owner receives 88% of cost: $250,000 x (1 - 0.12) = $250,000 x 0.88 = $220,000. The loss is measured against the original cost.

A lot with 80 feet of frontage sold for $120,000. What was the price per front foot?

• a.$150 per front foot
• b.$1,200 per front foot
• c.$1,500 per front foot✓
• d.$9,600,000 per front foot

Price per front foot = price / frontage = $120,000 / 80 = $1,500. Front-foot pricing is common for waterfront and commercial lots where street or water frontage drives value.

A property is appraised at $320,000 and the lender will make a loan at an 80% loan-to-value (LTV) ratio. What is the maximum loan amount?

• a.$288,000
• b.$256,000✓
• c.$64,000
• d.$400,000

Loan = value x LTV = $320,000 x 0.80 = $256,000. The remaining 20% ($64,000) is the required down payment/equity.

A borrower obtains a $270,000 loan that represents a 90% loan-to-value ratio. What is the property's value?

• a.$330,000
• b.$243,000
• c.$300,000✓
• d.$297,000

Value = loan / LTV = $270,000 / 0.90 = $300,000. Dividing the loan by the LTV ratio recovers the underlying value.

A buyer agrees to a $250,000 price, but the appraisal comes in at $240,000. The lender's 80% LTV applies to the LESSER of price or appraised value. What is the maximum loan?

• a.$200,000
• b.$192,000✓
• c.$240,000
• d.$48,000

Lenders base the LTV on the lower of sale price or appraised value: 0.80 x $240,000 = $192,000. The buyer must cover the $10,000 appraisal gap plus the down payment out of pocket, because the lender will not lend against value the appraisal does not support.

A home is purchased for $360,000 with an 85% loan-to-value loan. What is the required down payment?

• a.$45,000
• b.$306,000
• c.$54,000✓
• d.$61,200

Loan = $360,000 x 0.85 = $306,000. Down payment = price - loan = $360,000 - $306,000 = $54,000, which is the 15% equity portion (0.15 x $360,000).

A property is assessed at $200,000 and the tax rate is 25 mills. (One mill equals $1 of tax per $1,000 of assessed value.) What is the annual property tax?

• a.$50,000
• b.$8,000
• c.$500
• d.$5,000✓

25 mills = $25 per $1,000. Tax = ($200,000 / $1,000) x $25 = 200 x $25 = $5,000. A mill is one-thousandth of a dollar, so 25 mills is a 2.5% effective rate on assessed value.

A jurisdiction levies property tax at $2.50 per $100 of assessed value. What is the annual tax on a property assessed at $200,000?

• a.$800
• b.$500
• c.$50,000
• d.$5,000✓

Tax = (assessed value / $100) x rate = ($200,000 / $100) x $2.50 = 2,000 x $2.50 = $5,000. Expressing the rate per $100 is just another way of stating the same effective rate.

A property has a market value of $300,000 and is assessed at 40% of market value. If the tax rate is $3.00 per $100 of assessed value, what is the annual tax?

• a.$9,000
• b.$4,000
• c.$3,600✓
• d.$1,200

First apply the assessment ratio: assessed value = $300,000 x 0.40 = $120,000. Then tax = ($120,000 / $100) x $3.00 = 1,200 x $3.00 = $3,600. Many jurisdictions tax only a fraction of market value, so applying the ratio first is essential.

A homeowner's property is worth $400,000 and the remaining mortgage balance is $250,000. How much equity does the owner have?

• a.$150,000✓
• b.$650,000
• c.$400,000
• d.$250,000

Equity = value - debt = $400,000 - $250,000 = $150,000. Equity is the portion of the property's value the owner actually holds free of the loan.

In a CMA, a comparable sold for $300,000. The subject home is 200 square feet larger, and the market supports an adjustment of $50 per square foot for size. What is the size-adjusted value of the comparable?

• a.$310,000✓
• b.$350,000
• c.$300,050
• d.$290,000

Because the SUBJECT is superior (larger), you adjust the comparable UP to reflect it: 200 sq ft x $50 = $10,000, added to $300,000 = $310,000. The rule is to adjust the comparable, never the subject, and to add value for features the subject has that the comp lacks.

On a $300,000 loan, the lender charges 2 loan-origination-related points. What is the up-front dollar cost of those points?

• a.$6,000✓
• b.$600
• c.$3,000
• d.$60,000

Points = percentage of the loan amount: 2% x $300,000 = $6,000. Whether they are origination or discount points, each point equals 1% of the loan.

A $200,000 loan at 6% closes on the 21st of a 30-day month, and the buyer prepays interest from closing through the end of the month (10 days). Using a 360-day year, how much prepaid interest is collected?

• a.$33.33
• b.$666.67
• c.$1,000.00
• d.$333.33✓

Per-diem interest = $200,000 x 0.06 / 360 = $33.333 per day. For 10 days: $33.333 x 10 = $333.33. Lenders collect interim (prepaid) interest at closing to cover the days before the first regular payment period begins.

An investment property generates $12,000 of annual pre-tax cash flow, and the investor put in $150,000 of cash. What is the cash-on-cash return?

• a.6%
• b.8%✓
• c.12.5%
• d.1.25%

Cash-on-cash return = annual cash flow / cash invested = $12,000 / $150,000 = 0.08 = 8%. Unlike the cap rate, cash-on-cash reflects the effect of financing because it uses the actual cash the investor put in.

A property purchased for $250,000 is now worth $325,000. What is the total percentage of appreciation?

• a.75%
• b.23%
• c.30%✓
• d.13%

Appreciation = ($325,000 - $250,000) / $250,000 = $75,000 / $250,000 = 0.30 = 30%. Percentage change is always measured against the original (beginning) value.

A room measures 15 feet by 18 feet and will be carpeted at $22 per square yard. What is the carpet cost? (9 square feet = 1 square yard.)

• a.$270
• b.$73.33
• c.$660✓
• d.$5,940

Area = 15 x 18 = 270 square feet. Convert to square yards: 270 / 9 = 30 square yards. Cost = 30 x $22 = $660. Carpet is priced by the square yard, so you must convert from square feet first.

An income property produces $80,000 of NOI. If the market capitalization rate rises from 8% to 10%, what happens to the indicated value?

• a.It would instead rise from $1,000,000 up to about $1,250,000
• b.It falls only slightly, from $1,000,000 to roughly $960,000
• c.It stays unchanged at exactly $1,000,000 regardless of the rate
• d.It falls from $1,000,000 to $800,000✓

At 8%: $80,000 / 0.08 = $1,000,000. At 10%: $80,000 / 0.10 = $800,000. Value and cap rate move inversely: as investors demand a higher return (higher cap rate) for the same income, the price they will pay drops.

A lender quotes a monthly payment factor of $6.00 per $1,000 of loan for a given rate and term. What is the monthly principal-and-interest payment on a $180,000 loan?

• a.$108
• b.$30,000
• c.$10,800
• d.$1,080✓

Payment = (loan / $1,000) x factor = ($180,000 / $1,000) x $6.00 = 180 x $6.00 = $1,080. Amortization factor tables give the payment per $1,000 borrowed, so you just multiply by the number of thousands.