North Carolina Real Estate Broker 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.

A home sells for $340,000. The listing brokerage charges a 6% commission, split equally between the listing and selling firms. How much does the listing firm receive?

• a.$13,600
• b.$20,400
• c.$10,200✓
• d.$5,100

The total commission is 6% of $340,000, which equals $20,400. Splitting that equally between the listing and selling firms gives each firm half, or $10,200. The $20,400 figure is the full commission before the split, and the other options do not match a 50/50 division of the 6% fee.

A rectangular lot measures 150 feet by 200 feet. How many acres is the lot, rounded to the nearest hundredth? (One acre = 43,560 square feet.)

• a.0.69 acres✓
• b.1.38 acres
• c.0.34 acres
• d.0.55 acres

The lot area is 150 x 200 = 30,000 square feet. Dividing 30,000 by 43,560 square feet per acre yields about 0.69 acres. Answers such as 0.34 or 1.38 result from halving or doubling the area incorrectly, and 0.55 does not match the correct division.