Florida Real Estate Sales Associate — All Questions

A property has EGI of $90,000, operating expenses of $30,000, and an 8% capitalization rate. What is its indicated value?

• a.$60,000
• b.$750,000✓
• c.$375,000
• d.$1,125,000

First find NOI: $90,000 - $30,000 = $60,000. Then divide by the cap rate: $60,000 / 0.08 = $750,000. The income approach capitalizes NOI, not gross income.

The appraisal principle holding that an improvement's value equals what it adds to the whole property, not what it cost, is the principle of:

• a.Conformity with the neighborhood
• b.Anticipation of future benefits
• c.Contribution✓
• d.Competition among sellers

The principle of contribution states that the value of an improvement is measured by how much it adds to the property's overall value, which may differ from its cost. Overimprovements often fail to return their full cost.

The appraisal principle holding that value is created by the expectation of future benefits is:

• a.Regression toward lower value
• b.Balance of land uses
• c.Substitution of an equivalent
• d.Anticipation✓

The principle of anticipation holds that value is based on the present worth of expected future benefits, such as income or appreciation. It underlies the income approach, where future income drives value.

Combining two adjacent lots to create a single, more valuable parcel produces added value called:

• a.Progression from neighbors
• b.Contribution of an improvement
• c.Accretion from water action
• d.Plottage✓

Assemblage is the act of combining adjacent parcels, and plottage is the increase in value that can result when the combined parcel is worth more than the sum of the separate lots. This often occurs with development sites.

Depreciation is considered 'curable' when:

• a.It results only from the age of the structure
• b.The cost to fix it is less than the value it adds✓
• c.It can never be economically repaired at all
• d.It is caused by factors located outside the property

Depreciation is curable when the cost to remedy the item is equal to or less than the value the cure adds to the property. If repair costs more than the value gained, the depreciation is considered incurable.

The recognized standards that guide professional appraisal practice in the United States are the:

• a.National Association of REALTORS Code of Ethics
• b.Uniform Standards of Professional Appraisal Practice (USPAP)✓
• c.Generally Accepted Accounting Principles (GAAP)
• d.Uniform Residential Landlord and Tenant Act

USPAP sets the ethical and performance standards for appraisers in the United States. Appraisers performing appraisals for federally related transactions must comply with USPAP. It is updated periodically.

A federally related mortgage transaction generally requires an appraisal performed by a:

• a.State-licensed or state-certified appraiser✓
• b.Real estate sales associate preparing a CMA
• c.Home inspector reviewing the condition
• d.Mortgage loan officer at the lender

Federally related transactions above threshold amounts require an appraisal by a state-licensed or state-certified appraiser. A licensee's CMA or a broker price opinion is not a substitute for such an appraisal.

A broker price opinion (BPO) is best described as:

• a.The county's assessed value used for taxation
• b.A binding guarantee of the future sale price
• c.A broker's estimate of value that is not a formal appraisal✓
• d.A certified appraisal accepted for all mortgage loans

A BPO is a broker's or agent's opinion of likely value, often used by lenders for non-lending decisions such as short sales. It is not a certified appraisal and cannot substitute for one where an appraisal is legally required.

The best comparable sales for the sales comparison approach are those that are:

• a.Recent, nearby, and similar to the subject✓
• b.Active listings that have not yet gone under contract
• c.The highest-priced sales found anywhere in the county
• d.Sales that closed more than five years ago

Good comparables are recent, located near the subject, and physically and functionally similar. Using current, nearby, similar sales minimizes the adjustments needed and improves the reliability of the value estimate.

If market prices have risen since a comparable sold, the appraiser applies a:

• a.Positive market-conditions (time) adjustment to the comparable✓
• b.No adjustment, because time never affects value
• c.Downward adjustment to the comparable's sale price
• d.Negative adjustment to the subject property itself

When prices rose after a comparable sold, its older price understates current value, so the appraiser adds a positive market-conditions (time) adjustment to the comparable. Adjustments are made to comparables, not the subject.

A gross income multiplier (GIM) applied to a commercial property is based on:

• a.Net operating income after all expenses
• b.The loan-to-value ratio of financing
• c.Annual gross income rather than monthly rent✓
• d.The property's capitalization rate

A gross income multiplier typically uses annual gross income for commercial or larger properties, while a monthly gross rent multiplier is common for residential rentals. Both are quick tools that ignore operating expenses.

For a given net operating income, a higher capitalization rate results in:

• a.A higher gross rent multiplier
• b.A higher indicated value
• c.No change in the indicated value
• d.A lower indicated value✓

Because value equals NOI divided by the cap rate, a higher cap rate produces a lower value for the same income. Higher cap rates generally reflect greater perceived risk in the investment.

A property's net operating income is $80,000. At a 10% capitalization rate, its indicated value is:

• a.$8,000,000
• b.$88,000
• c.$720,000
• d.$800,000✓

Value equals NOI divided by the cap rate: $80,000 / 0.10 = $800,000. Dividing income by a decimal rate is the core calculation of the income approach.

Potential gross income is $200,000, vacancy is 10%, and operating expenses are $50,000. What is the net operating income?

• a.$180,000
• b.$140,000
• c.$150,000
• d.$130,000✓

First find effective gross income: $200,000 - (10% x $200,000) = $180,000. Then subtract operating expenses: $180,000 - $50,000 = $130,000. NOI does not deduct mortgage payments.

A building generating $90,000 in net operating income is valued at $1,000,000. The capitalization rate is:

• a.0.9%
• b.90%
• c.9%✓
• d.11%

The cap rate equals NOI divided by value: $90,000 / $1,000,000 = 0.09, or 9%. This rate can then be applied to similar properties to estimate their values.

Improvements originally worth $300,000 have lost $30,000 in value. Expressed as a percentage, the depreciation is:

• a.3%
• b.30%
• c.10%✓
• d.13%

Percentage depreciation equals the loss divided by the original value: $30,000 / $300,000 = 0.10, or 10%. The remaining depreciated value of the improvements would be $270,000.

External obsolescence is generally considered:

• a.Incurable, because its cause lies outside the property✓
• b.Always curable through interior renovation
• c.A form of ordinary physical wear and tear
• d.Caused only by an outdated interior floor plan

External (economic) obsolescence results from negative influences outside the property boundaries, such as a nearby nuisance or a declining area. Because the owner cannot control off-site factors, it is usually incurable.

Which of the following is an example of functional obsolescence?

• a.A five-bedroom home with only one bathroom✓
• b.A worn roof that needs full replacement
• c.A new landfill built next to the property
• d.A cracked and settling foundation

Functional obsolescence stems from outdated or poorly designed features within the property, such as too few bathrooms for the number of bedrooms. A worn roof is physical deterioration, and a nearby landfill is external obsolescence.

In the cost approach, depreciation is applied to the:

• a.Land only, since it wears out over time
• b.Both the land and the improvements equally
• c.Outstanding mortgage balance on the loan
• d.Improvements only, not the land✓

Depreciation in the cost approach applies only to the improvements, because land is generally considered not to depreciate. The appraiser estimates improvement cost, subtracts depreciation, and adds land value separately.

A property's assessed value, used for taxation, is:

• a.The same figure as its replacement cost
• b.Always exactly equal to its market value
• c.Set each year by the listing broker
• d.Often different from its market value✓

Assessed value is determined by the taxing authority and, due to exemptions, caps such as Save Our Homes, and timing, often differs from current market value. Market value reflects what a willing buyer and seller would agree on.

A triangular lot has a base of 300 feet and a height of 200 feet. What is its area?

• a.45,000 square feet
• b.30,000 square feet✓
• c.60,000 square feet
• d.15,000 square feet

The area of a triangle is one-half the base times the height: 0.5 x 300 x 200 = 30,000 square feet. Forgetting the one-half factor would incorrectly give 60,000.

A room measures 15 feet by 12 feet. How many square yards of carpet are needed to cover the floor?

• a.15 square yards
• b.20 square yards✓
• c.60 square yards
• d.540 square yards

The floor is 15 x 12 = 180 square feet. Because one square yard equals 9 square feet, 180 / 9 = 20 square yards.

A floor of 40 square yards is carpeted at $18 per square yard. What is the total carpet cost?

• a.$360
• b.$720✓
• c.$3,240
• d.$6,480

Multiply the number of square yards by the price per square yard: 40 x $18 = $720. Using square feet instead of yards is a common error.

An investor buys 6 acres of land at $28,000 per acre. What is the total price?

• a.$18,000
• b.$140,000
• c.$1,680,000
• d.$168,000✓

Total price equals acreage times price per acre: 6 x $28,000 = $168,000. Careful decimal placement avoids the off-by-ten errors.

A 3.5-acre parcel sells for $210,000. What is the price per acre?

• a.$52,500
• b.$735,000
• c.$60,000✓
• d.$6,000

Divide the total price by the number of acres: $210,000 / 3.5 = $60,000 per acre.

A waterfront lot with 90 feet of frontage sells for $270,000. What is the price per front foot?

• a.$30,000
• b.$3,000✓
• c.$300
• d.$2,700

Price per front foot equals total price divided by the number of front feet: $270,000 / 90 = $3,000.

A parcel contains 130,680 square feet. How many acres is that? (1 acre = 43,560 sq ft)

• a.4 acres
• b.1.5 acres
• c.2 acres
• d.3 acres✓

Divide total square feet by 43,560: 130,680 / 43,560 = 3 acres. Memorizing 43,560 square feet per acre is essential.

A rectangular tract contains 217,800 square feet. How many acres does it contain?

• a.6 acres
• b.10 acres
• c.4 acres
• d.5 acres✓

Divide square footage by 43,560: 217,800 / 43,560 = 5 acres.

A property sells for $525,000 with a total commission of 6 percent. What is the total commission?

• a.$26,250
• b.$31,500✓
• c.$315,000
• d.$3,150

Multiply the sale price by the commission rate: $525,000 x 0.06 = $31,500.

On a $525,000 sale the total 6 percent commission ($31,500) is split 50/50 between the listing and selling brokerages. The listing agent keeps 60 percent of the listing brokerage's share. How much does the listing agent earn?

• a.$6,300
• b.$18,900
• c.$15,750
• d.$9,450✓

The listing brokerage receives half of $31,500, which is $15,750. The agent keeps 60 percent: $15,750 x 0.60 = $9,450.

A sale of $400,000 pays a graduated commission of 8 percent on the first $150,000 and 4 percent on the balance. What is the total commission?

• a.$16,000
• b.$22,000✓
• c.$18,000
• d.$32,000

The first tier is $150,000 x 0.08 = $12,000; the balance is $250,000 x 0.04 = $10,000. Added together the commission is $22,000.

A seller wants to net $235,000 after paying a 6 percent commission and no other costs. What must the sale price be?

• a.$249,100
• b.$251,000
• c.$235,000
• d.$250,000✓

The seller keeps 94 percent of the price, so price = $235,000 / 0.94 = $250,000. Dividing by (100% minus the rate) avoids the common add-back error.

A home sells for $400,000. The seller pays a 6 percent commission, $4,800 in other closing costs, and a $250,000 loan payoff. What are the net proceeds to the seller?

• a.$150,000
• b.$126,000
• c.$121,200✓
• d.$145,200

Commission is $400,000 x 0.06 = $24,000. Net = $400,000 - $24,000 - $4,800 - $250,000 = $121,200.

A Florida deed transfers property for $360,000. At $0.70 per $100 of consideration, what is the documentary stamp tax on the deed?

• a.$3,600
• b.$1,260
• c.$25,200
• d.$2,520✓

Florida deed stamps are $0.70 per $100: $360,000 / 100 = 3,600 units, times $0.70 = $2,520.

A Florida deed shows consideration of $283,450. Documentary stamp tax on deeds is $0.70 per $100 or fraction thereof. What is the deed stamp tax?

• a.$1,984.15
• b.$2,834.50
• c.$1,983.80
• d.$1,984.50✓

The tax rounds up to the next full $100, so $283,450 becomes 2,835 taxable units. At $0.70 each, 2,835 x $0.70 = $1,984.50.

A buyer signs a $250,000 promissory note secured by a Florida mortgage. Documentary stamp tax on notes is $0.35 per $100. What is the note stamp tax?

• a.$875✓
• b.$1,750
• c.$525
• d.$8,750

Note stamps are $0.35 per $100: $250,000 / 100 = 2,500 units, times $0.35 = $875.

A new Florida mortgage of $250,000 is recorded. Florida's intangible tax is 2 mills ($0.002 per $1). What is the intangible tax?

• a.$250
• b.$5,000
• c.$500✓
• d.$50

The intangible tax is $0.002 per dollar of the mortgage: $250,000 x 0.002 = $500.

A $300,000 Florida mortgage is recorded. Documentary stamp tax on the note is $0.35 per $100 and intangible tax is 2 mills. What is the combined tax on the mortgage?

• a.$600
• b.$1,650✓
• c.$1,050
• d.$1,950

Note stamps are 3,000 x $0.35 = $1,050 and intangible tax is $300,000 x 0.002 = $600. Combined, $1,050 + $600 = $1,650.

A buyer finances a Florida purchase with a $320,000 mortgage. Using $0.35 per $100 for note stamps and 2 mills for intangible tax, what is the total tax charged on the mortgage?

• a.$2,800
• b.$640
• c.$1,120
• d.$1,760✓

Note stamps are 3,200 x $0.35 = $1,120 and intangible tax is $320,000 x 0.002 = $640. The total on the mortgage is $1,760.

A lender makes a $255,000 loan on a home valued at $300,000. What is the loan-to-value ratio?

• a.85 percent✓
• b.75 percent
• c.90 percent
• d.80 percent

LTV equals the loan divided by value: $255,000 / $300,000 = 0.85, or 85 percent.

A lender will lend at a 75 percent LTV on a property valued at $340,000. What is the maximum loan amount?

• a.$453,333
• b.$255,000✓
• c.$272,000
• d.$85,000

Maximum loan equals value times LTV: $340,000 x 0.75 = $255,000.

A buyer purchases a $420,000 home with an 80 percent loan. How large is the required down payment?

• a.$8,400
• b.$336,000
• c.$84,000✓
• d.$42,000

An 80 percent loan means a 20 percent down payment: $420,000 x 0.20 = $84,000.

A home is priced at $305,000 but appraises for $295,000. The lender uses a 90 percent LTV on the lower of price or appraised value. How much cash (excluding closing costs) must the buyer bring to close?

• a.$44,500
• b.$30,500
• c.$39,500✓
• d.$61,000

The loan is 90 percent of the lower $295,000 value: $265,500. Cash needed is $305,000 - $265,500 = $39,500.

A borrower pays 2.5 discount points on a $280,000 loan. What is the cost of the points?

• a.$5,600
• b.$7,000✓
• c.$70,000
• d.$700

One point is one percent of the loan, so 2.5 points equal 0.025 x $280,000 = $7,000.

A borrower pays 3 discount points to lower the rate on a $200,000 loan. How much do the points cost?

• a.$9,000
• b.$6,000✓
• c.$2,000
• d.$600

Three points equal 3 percent of the loan amount: $200,000 x 0.03 = $6,000. Points are figured on the loan, not the sale price.

A lender uses a 28 percent front-end (housing) qualifying ratio. If a borrower's gross monthly income is $7,200, what is the maximum monthly PITI payment?

• a.$2,592
• b.$1,296
• c.$2,016✓
• d.$20,160

The maximum housing payment is 28 percent of gross monthly income: $7,200 x 0.28 = $2,016.

A lender uses a 36 percent back-end ratio. A borrower earns $8,000 per month and has $530 in other monthly debt. What is the maximum allowable monthly housing payment?

• a.$2,350✓
• b.$530
• c.$2,880
• d.$2,470

Total debt cannot exceed 36 percent of $8,000, which is $2,880. Subtracting the $530 of other debt leaves $2,350 for housing.

A loan has monthly principal and interest of $1,400, annual taxes of $3,600, and annual hazard insurance of $1,200. What is the monthly PITI payment?

• a.$5,300
• b.$1,800✓
• c.$1,900
• d.$1,700

Monthly taxes are $3,600 / 12 = $300 and monthly insurance is $1,200 / 12 = $100. PITI = $1,400 + $300 + $100 = $1,800.

A $180,000 loan carries a 5.5 percent annual interest rate. Using simple interest, how much interest accrues in one month?

• a.$9,900
• b.$825✓
• c.$750
• d.$412.50

Annual interest is $180,000 x 0.055 = $9,900. One month is $9,900 / 12 = $825.

A $250,000 loan at 6 percent annual interest has a monthly payment of $1,600. After the first payment, what is the new principal balance?

• a.$249,650✓
• b.$248,750
• c.$249,350
• d.$250,350

First-month interest is $250,000 x 0.06 / 12 = $1,250, so $1,600 - $1,250 = $350 reduces principal. The balance becomes $250,000 - $350 = $249,650.