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Real Estate Investment Practice Exam 2025: High-
Quality Questions and Detailed Answers to Help
You Succeed in Real Estate Licensing and
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Question 1: Amanda wants to know how long, on average, homes are staying on the market before they sell. What market indicator can give her this information? a) Inventory rates b) Price levels c) Sales volume d) Vacancy rates Correct Answer: a) Inventory rates Rationale: Inventory rates, often expressed as the "months of supply," indicate the relationship between the number of homes available for sale and the rate at which they are selling. A lower inventory rate suggests homes are selling quickly, while a higher rate indicates a slower market with more homes staying on the market longer. Price levels show the average or median selling prices. Sales volume indicates the number of homes sold. Vacancy rates are relevant for rental properties. Question 2: Who might be impacted by the expiration of abatements? a) Adjoining states b) New buyers c) Prior homeowners d) Renters Correct Answer: b) New buyers Rationale: Abatements are temporary reductions in property taxes. When these expire, the property taxes will likely increase to their full amount. This increase in cost will primarily impact new buyers who purchase the property after the abatement has ended, as the previous owners benefited from the lower tax rate during the abatement period.
Renters might see indirect effects if the owner passes on the increased costs, but the direct impact is on the property owner at the time of expiration. Adjoining states are not directly affected. Question 3: Which of these property owners is eligible to take advantage of a 1031 tax-deferred exchange? a) Ann owns a single-family home, but rents it out to a coworker while she's on a two- year military tour. b) Chanel sells an investment property. A year later, she finds an almost identical investment property to purchase, and does so. c) Reggie sells an apartment complex and purchases a new complex a month later in a different part of the city. d) Sigmund sells his single-family home and purchases a new home for his family to reside in. Correct Answer: c) Reggie sells an apartment complex and purchases a new complex a month later in a different part of the city. Rationale: A 1031 tax-deferred exchange allows investors to defer capital gains taxes when they sell an investment property and reinvest the proceeds in^1 a "like-kind" investment property.
- a) While Ann is renting out her single-family home, its primary use might still be considered personal residence, making it ineligible.
- b) Chanel's purchase a year later does not meet the timeline requirements for a 1031 exchange, which typically requires the replacement property to be identified within 45 days and acquired within 180 days of the sale of the relinquished property.
- c) Reggie is selling an investment property (apartment complex) and purchasing another investment property (another apartment complex) within a suitable timeframe, qualifying for a 1031 exchange.
- d) Sigmund is selling his primary residence and purchasing a new primary residence, which does not qualify for a 1031 exchange. Question 4: Ken understands the importance of interpreting market conditions. He has found that keeping track of how many new homes are being built in his area is a valuable indicator of demand. Which market indicator provides this information?
c) Smart business d) Supply and demand Correct Answer: b) Niche marketing Rationale: Niche marketing involves specializing in a specific segment of the market to cater to the unique needs and preferences of a particular group of buyers or sellers. By focusing on a niche, licensees can become experts in that area and potentially reduce competition by dominating that specific market segment. While it can be a smart business strategy, the term specifically used to describe this focused approach is niche marketing. Question 7: When does partial performance of a contract occur? a) Both parties fully meet the terms of the contract. b) Due to circumstances out of their control, the parties cannot legally or practically do what they've agreed to do. c) One or both parties have completed only a portion of the terms agreed to in the contract. d) One party did not meet the terms of the contract in the specified time frame and is being required to do exactly what was agreed to in the contract. Correct Answer: c) One or both parties have completed only a portion of the terms agreed to in the contract. Rationale: Partial performance signifies that the obligations outlined in the contract have not been fully completed by one or both parties. Option a describes complete performance. Option b describes impossibility of performance. Option d describes a situation where specific performance might be sought after a breach. Question 8: Which of these statements accurately represents one of the required elements in a deed? a) The deed includes an act of conveyance. b) The grantee must be legally competent. c) The grantee must be of legal age. d) The grantee must sign the deed and provide consideration. Correct Answer: a) The deed includes an act of conveyance.
Rationale: A deed must contain words that clearly indicate the grantor's present intention to transfer title to the grantee; this is the act of conveyance (the granting clause). While the grantor must be legally competent to convey property, the grantee's competency (b) is generally not a requirement for the validity of the deed itself. The grantee is not required to be of legal age (c). The grantor typically signs the deed, not the grantee, and while consideration is often present, it is not strictly a required element in all jurisdictions for a valid conveyance (d). Question 9: When calculating square footage in an office building, the hallways, lobby, basement, elevators and elevator shafts, and storage areas ______. a) Are considered non-productive space b) Are considered part of the usable square footage c) Are considered productive space d) Aren't taken into consideration Correct Answer: a) Are considered non-productive space Rationale: In commercial real estate, particularly office buildings, the total square footage includes both usable and non-productive areas. Hallways, lobbies, elevators, and common storage are generally considered non-productive space because they do not directly generate income for tenants. Usable square footage is the area that tenants can actually occupy and use for their business operations. While these non-productive areas are part of the building's total square footage and are taken into consideration for overall building costs and management, they are not typically included in a tenant's usable or rentable square footage. Question 10: What's the purpose of an attornment clause in a lease? a) It notifies tenants that their lease is still in effect if the building ownership changes. b) It notifies tenants that the landlord may begin eviction proceedings if the tenant doesn't pay the rent. c) It provides for the return of the security deposit in the event the building changes ownership. d) It requires tenants to notify the landlord if guests will stay beyond seven days. Correct Answer: a) It notifies tenants that their lease is still in effect if the building ownership changes.
Ricky Nubbins is three months behind in his rent and has received several reminders from the landlord that the rent is past due. As a result, the landlord has begun working through proper channels to legally end Ricky's lease before the contract end date. The landlord is terminating his lease through ______. Abandonment Eviction Expiration Mutual agreement - - correct ans- - Eviction What's depreciation? A decrease in property value An increase in property value A refinancing strategy Paying off of a loan over time - - correct ans- - A decrease in property value Which type of store is usually the major tenant for a neighborhood shopping center? Bank with ATM Furniture store Shoe store Supermarket - - correct ans- - Supermarket Adjustable rate mortgage interest rates are often linked with a recognized ______. Bank Government entity
Index Public figure - - correct ans- - Index When discounted cash flow analysis is used, income that will be received in the future is discounted. Why? To account for inflation and the time value of money To provide a higher rate of return To provide shareholders a larger dividend To save money on income taxes - - correct ans- - To account for inflation and the time value of money Why would a property manager need to know an owner's desired return on investment? To decide if the owner is worth working for To determine how much of an annual raise to request To determine how to generate the required net profit To recommend other investments to achieve that goal - - correct ans- - To determine how to generate the required net profit Chadwick is a developer considering purchasing a large piece of unimproved land for a subdivision development. What should he do before committing to the project? Apply for financing. Conduct a feasibility study. Phone a friend. Start marketing the property to see if there are buyers. - - correct ans- - Conduct a feasibility study.
Choice of building materials Number of nearby restaurants Popularity of the local mayor - - correct ans- - Availability or lack of employment Gloria is renting a cottage from Edward when she lands a job in Canada. She still has six months left on her lease, but Edward tells her he usually has no problem renting the cottage and releases her with no penalty. What type of lease termination is this? Constructive eviction Expiration Mutual agreement Periodic estate termination - - correct ans- - Mutual agreement Which of the following best describes foreclosure by writ of entry? Notification of pending auction, public auction, notice of eviction Petition for immediate repossession and eviction Petition for legal ownership, opportunity to redeem property, notice of eviction if property is not redeemed Petition to enter, repossession, notice of eviction - - correct ans- - Petition for legal ownership, opportunity to redeem property, notice of eviction if property is not redeemed Which of the following must developers register with the Consumer Financial Protection Bureau? Any subdivisions that have 100 or more nonexempt lots Any subdivisions that have 20 or more nonexempt lots Any subdivisions that have 40 or more nonexempt lots
Any subdivisions that have 80 or more nonexempt lots - - correct ans- - Any subdivisions that have 100 or more nonexempt lots Which of the following properties has the best chance for good appreciation in the relatively short term? A piece of land in a remote mountain community A piece of land in the middle of nowhere A piece of land near a highway A piece of land on the outskirts of town, along a small dirt road - - correct ans- - A piece of land near a highway Direct capitalization converts what into a market value? A single year's expected income Projected income and expenses for the next five years. Projected income for the next five years. Sales price - - correct ans- - A single year's expected income Which type of real estate property can be divided into classes A, B, and C? Industrial Mixed-use Office buildings Retail - - correct ans- - Office buildings Which of the following individuals would be a competent party to a contract? Byron, a 17-year-old MENSA member
There's no such thing as a limited partnership. - - correct ans- - All limited partnerships must have at least one general partner. What type of deed are you likely to receive if you purchase a property with cash at a foreclosure auction? Bargain and sale deed Executor's deed Full covenant and warranty deed Referee's deed - - correct ans- - Referee's deed In this type of corporation, a centralized management group of elected officers governs the company's affairs, while the designated licensed broker is directly responsible for the real estate transactions. Close Franchise General C corporation Limited - - correct ans- - General C corporation What is maximum equity? An interest factor used to calculate the cost of debt service A subjective figure, based on the borrower's comfort level The maximum amount the borrower is willing/able to invest The maximum amount the lender is willing to loan - - correct ans- - The maximum amount the borrower is willing/able to invest Which of the following items does the IRS consider personal tangible property?
A building A swimming pool Office equipment Paved parking areas - - correct ans- - Office equipment What type of income is received through activities not directly related to active participation in a business or earnings from wages, such as rental income? Active Passive Portfolio Stock - - correct ans- - Passive As responsibility for the property is transferred, the manager should pay special attention to ______. A startup cash fund Other sources of income besides rental The accounts payable ledger The mortgage payments - - correct ans- - The accounts payable ledger You have a client who's leasing commercial space. The lease terms call for him to pay a portion of the landlord's taxes, insurance, and maintenance. What type of lease does your client have? Itemized lease Percentage lease Sublease
Develop an investment portfolio Immediately increase a credit rating Make a quick profit Preserve capital - - correct ans- - Preserve capital Under ______, landowners can be held responsible for the cleanup costs of hazardous waste, even if they did not cause the waste. CERCLA DECLRA SARA SEQRA - - correct ans- - CERCLA What is assessed value? A figure used to calculate the amount of money needed for a down payment A percentage of market value; also the amount of property value to which the tax rate is applied The amount applied by local government to individual parcels of real estate that will benefit from road or other infrastructure improvements The probable sales price if the property were listed today and a willing seller and buyer were involved in the transfer of ownership - - correct ans- - A percentage of market value; also the amount of property value to which the tax rate is applied Which of the following is a true statement regarding property taxes and investments? As much as 50% of the property taxes paid for investment properties are deductible for tax purposes. Only the first $10,000 of property taxes for investments are deductible.
Property taxes for investment properties are fully deductible as a business expense. Property taxes paid for investment properties aren't deductible for tax purposes. - - correct ans- - Property taxes for investment properties are fully deductible as a business expense. Joaquim analyzed a potential opportunity and determined that if he invested $250, in the commercial property, he'd likely see a return of 12% on this investment. After several years, Joaquim is seeing a measly 2% return. What type of risk did he fall victim to? Business risk Capital risk Financial risk Leverage risk - - correct ans- - Business risk The owner's covenants and an insurance provision are included in which of the following documents? Listing agreement Property management agreement Property management proposal Property management waiver - - correct ans- - Property management agreement Private loan companies may charge higher interest, larger fees, and could require ______ to secure a loan. An equity interest Collateral Interest-only payments Sponsorship - - correct ans- - Collateral
______ rights mean real estate acquired by either spouse during the marriage (with a few exceptions) is considered community property. Community property Joint tenancy Tenants in common Tenants in severalty - - correct ans- - Community property Under current tax law, what's the maximum tax-free gift an individual can give to another individual annually? $10, $12, $15, $56,000 - - correct ans- - $15, Tyrell and Barb bought a commercial investment property in 2009 during the real estate market downturn. Through what year will they be able to depreciate the investment? 2019 2029 2039 2048 - - correct ans- - 2048 Virginia is finally living her dream—she bought a coffeehouse in a charming college town. After she closed on it, her attorney sat down with her to discuss various business licensing and legal requirements she'll have to meet. Virginia was surprised to learn that her five-table establishment is affected by the Americans with Disabilities Act. What must be true about the coffeehouse?
It includes at least 400 square feet of public space. It's a commercial enterprise that's open to the public. It sits in a city center. It was built after 1978. - - correct ans- - It's a commercial enterprise that's open to the public. Which of the following is a true statement about the relationship between capitalization rate and value? Capitalization rate and value are the same thing. There is an inverse relationship between the two. When capitalization rate goes down, so does value. When capitalization rate goes up, so does value. - - correct ans- - There is an inverse relationship between the two. Which type of value is used to calculate property taxes? Assessed value Depreciated value List price Market value - - correct ans- - Assessed value Which of the following is true regarding estate tax? If your estate is worth less than a specific monetary threshold, the estate tax will not apply. Most estates are subject to estate tax. Spouses must pay estate tax.
