Real Estate Fundamentals Practice Exam

Question 1 Real Estate Fundamentals

What is flood insurance?

Coverage for water damage from flooding; often required in flood zones. Insurance protecting against claims or defects on title. A legal document transferring ownership of real property. Comparing total ownership cost to renting over time horizon.

Question 2 Real Estate Fundamentals

What is BPO?

Fair market value paid in eminent domain takings. Broker Price Opinion — an estimate of value by a broker. An agent who is a member of the National Association of Realtors (NAR). Impact of climate change on property values (flooding, wildfire, heat).

Question 3 Real Estate Fundamentals

What is the typical US commission?

A legal settlement changing how buyer agent commissions are disclosed and paid. Traditionally 5-6% of sale price split between agents; under recent change. Movable items not permanently attached to real estate. Document showing a building is safe and ready for use.

Question 4 Real Estate Fundamentals

What is mixed-use real estate?

Property combining multiple uses, e.g., retail with apartments above. A lender's preliminary commitment based on financial review. Government's power to take private property for public use with compensation. Percentage of units unrented; inverse of occupancy.

Question 5 Real Estate Fundamentals

What is mortgage securitization?

The most probable price a property would sell for in an open market. Firm handling day-to-day operations of rental properties. Pooling mortgages into bonds (MBS) sold to investors. "Location, location, location."

Question 6 Real Estate Fundamentals

What are the three main types of real estate?

Federal National Mortgage Association — government-sponsored enterprise. Property used for manufacturing, warehousing, distribution. Residential, commercial, and industrial. Similar to rent control but applies more broadly to rent increases.

Question 7 Real Estate Fundamentals

What is a "highest and best" request?

Pace at which available properties sell in a market. Tenant pays rent plus taxes, insurance, and maintenance. Asking all bidders to submit their top offer by a deadline. The form in which title is held (sole, joint, tenancy in common, etc.).

Question 8 Real Estate Fundamentals

What is the rent-vs-buy calculation?

Spending so much on housing there's little left for other goals. Any claim or restriction on property limiting its use or transfer. Comparing total ownership cost to renting over time horizon. Co-ownership with right of survivorship.

Question 9 Real Estate Fundamentals

What is real property?

Examination of public records to verify property ownership history. The agreed-upon purchase price. Real estate plus the legal rights associated with ownership. Wealthier residents moving into a lower-income area, often raising costs.

Question 10 Real Estate Fundamentals

What is housing affordability?

Whether typical household income can afford typical local housing. Property used for business purposes — office, retail, hotel. Varies; depends on cost, location, incentives, electricity prices. A mortgage with an interest rate that changes periodically.

Question 11 Real Estate Fundamentals

What is the waterfall (real estate)?

Gradual loan repayment through scheduled payments of principal and interest. How profits are distributed among investors in a deal. Legal process by which a lender repossesses property after default. Tenant pays base rent plus percentage of sales (common in retail).

Question 12 Real Estate Fundamentals

What is the importance of location?

Pooling mortgages into bonds (MBS) sold to investors. Government's power to take private property for public use with compensation. Monthly/annual payments for community maintenance and amenities. Often the most important factor in real estate value.

Question 13 Real Estate Fundamentals

What is FEMA flood zones?

Federal classifications of flood risk. Buy, Rehab, Rent, Refinance, Repeat — investing strategy. LEED, ENERGY STAR, Passive House, etc. A loan repaid over 30 years; most common in the US.

Question 14 Real Estate Fundamentals

What is a property manager?

Person handling tenants, maintenance, and operations. Money held by landlord to cover potential damage or unpaid rent. Document showing a building is safe and ready for use. Annual review of escrow account for taxes/insurance.

Question 15 Real Estate Fundamentals

What is the importance of professional help?

Americans with Disabilities Act requirements for accessibility. A neutral third party holding funds and documents during a transaction. Real estate transactions are complex and high-stakes; mistakes are costly. Operating expenses divided by gross income.

Question 16 Real Estate Fundamentals

What is property due diligence?

Property consisting of land and any permanent improvements attached to it. Fees and expenses paid at the closing of a real estate transaction. Investigation before purchase: title, inspection, finances, zoning. A legal settlement changing how buyer agent commissions are disclosed and paid.

Question 17 Real Estate Fundamentals

What is title search?

First impression from a home's exterior. Examination of public records to verify property ownership history. Preparing a home to appeal to buyers. Often the most important factor in real estate value.

Question 18 Real Estate Fundamentals

What is a condominium?

How long current listings would take to sell at current pace. Ownership of an individual unit in a multi-unit building with shared common areas. Government limit on how much landlords can charge or raise rent. Professional estimate of a property's market value.

Question 19 Real Estate Fundamentals

What is a landlord?

Owner of property leased to a tenant. Investigation before purchase: title, inspection, finances, zoning. A mortgage with an interest rate that changes periodically. First impression from a home's exterior.

Question 20 Real Estate Fundamentals

What is gross rent multiplier (GRM)?

Government's power to take private property for public use with compensation. Common Area Maintenance — fees for shared spaces in commercial property. Property purchased to earn rental income. Property price divided by gross annual rent.

Question 21 Real Estate Fundamentals

What is an FHA loan?

Increased risk; insurance and prices already affected in some areas. A government-backed loan with lower down payment requirements (often 3.5%). Pooling mortgages into bonds (MBS) sold to investors. A right to use another's property for a specific purpose.

Question 22 Real Estate Fundamentals

What is the principal (mortgage)?

A multi-floor home sharing walls with adjacent units. Tax deduction for the wear of investment property buildings. Net Operating Income — revenue minus operating expenses (before debt/tax). The amount borrowed.

Question 23 Real Estate Fundamentals

What is the role of property insurance?

Protects against loss from fire, theft, weather; required by lenders. A legal settlement changing how buyer agent commissions are disclosed and paid. Whether typical household income can afford typical local housing. The value assigned for tax purposes by a government.

Question 24 Real Estate Fundamentals

What is exclusive right to sell?

A legal settlement changing how buyer agent commissions are disclosed and paid. Fair market value paid in eminent domain takings. A listing where the agent earns commission regardless of who finds the buyer. Money landlords give tenants to customize space.

Question 25 Real Estate Fundamentals

What is the price-to-income ratio?

A listing where the agent earns commission regardless of who finds the buyer. Median home price divided by median household income. Items needing repair before closing. Gradual loan repayment through scheduled payments of principal and interest.

Question 26 Real Estate Fundamentals

What is blockbusting?

Living in part of a property while renting out the rest. Gradual loan repayment through scheduled payments of principal and interest. Inducing rapid sales by spreading fear of demographic change; illegal. Median home price divided by median household income.

Question 27 Real Estate Fundamentals

What is residential real estate?

REITs must distribute 90%+ of taxable income to shareholders. Americans with Disabilities Act requirements for accessibility. Property used for housing — single-family, multi-family, condos, co-ops. The most probable price a property would sell for in an open market.

Question 28 Real Estate Fundamentals

What is a private REIT?

When supply and demand are roughly equal. Person occupying property under a lease. A non-publicly-traded REIT, less liquid. Undeveloped land without buildings or infrastructure.

Question 29 Real Estate Fundamentals

What is ADA compliance?

Americans with Disabilities Act requirements for accessibility. Money landlords give tenants to customize space. Costs the seller pays on behalf of the buyer (e.g., closing costs). The portion of a home owned outright; value minus debt.

Question 30 Real Estate Fundamentals

What is Fannie Mae?

Any claim or restriction on property limiting its use or transfer. 20% to avoid PMI; 3-5% is possible with PMI. Federal National Mortgage Association — government-sponsored enterprise. Typically 30-60 days from offer accepted to closing.

Question 31 Real Estate Fundamentals

What are the three rules of real estate?

Principal, Interest, Taxes, Insurance — total monthly housing cost. "Location, location, location." A recently sold similar property used to estimate value. Refinancing for more than you owe and taking the difference in cash.

Question 32 Real Estate Fundamentals

What are the federal protected classes (Fair Housing Act)?

Typically 30-60 days from offer accepted to closing. Examination of public records to verify property ownership history. Race, color, national origin, religion, sex, familial status, disability. When supply and demand are roughly equal.

Question 33 Real Estate Fundamentals

What is a VA loan?

Decrease in property value. Where lenders sell mortgages to investors. A loan for US veterans with no down payment requirement. Mortgage amount divided by property value, expressed as a percentage.

Question 34 Real Estate Fundamentals

What is raw land?

Tax on profit from sale of property. Undeveloped land without buildings or infrastructure. Traditionally 5-6% of sale price split between agents; under recent change. Gradual loan repayment through scheduled payments of principal and interest.

Question 35 Real Estate Fundamentals

What is wholesaling?

Contracting a property and assigning the contract to another buyer for a fee. PMI protects the lender; homeowner's protects you. Property price divided by gross annual rent. Residential, commercial, industrial, agricultural, mixed-use.

Question 36 Real Estate Fundamentals

What is absorption rate?

Pace at which available properties sell in a market. A building containing two separate dwelling units. A mortgage with the same interest rate for the entire term. A diagram showing property boundaries and improvements.

Question 37 Real Estate Fundamentals

What is FSBO?

Impact of climate change on property values (flooding, wildfire, heat). A group of investors pooling capital to buy properties. For Sale By Owner — selling without an agent. Costs the seller pays on behalf of the buyer (e.g., closing costs).

Question 38 Real Estate Fundamentals

What is debt-to-income ratio (DTI)?

A contract between seller and listing agent. Title free of liens, claims, or other encumbrances. Notice → court filing → judgment → sheriff enforcement (varies by jurisdiction). Monthly debt payments divided by gross monthly income.

Question 39 Real Estate Fundamentals

What is Freddie Mac?

Federal Home Loan Mortgage Corporation — another GSE. A condition that must be met for a contract to be binding (e.g., inspection, financing). Pooling mortgages into bonds (MBS) sold to investors. A loan for US veterans with no down payment requirement.

Question 40 Real Estate Fundamentals

What is personal property?

Multiple Listing Service — agents' shared database of listings. Transfers any interest the grantor has without warranties. Real estate plus the legal rights associated with ownership. Movable items not permanently attached to real estate.

Question 41 Real Estate Fundamentals

What is the closing process?

The final step in transferring property ownership. Buying and quickly reselling property, often with renovations. Movable items not permanently attached to real estate. Additional liability coverage beyond home/auto policies.

Question 42 Real Estate Fundamentals

What is joint tenancy?

Co-ownership with right of survivorship. A building containing two separate dwelling units. How easy it is to accomplish errands on foot. An informal estimate of borrowing capacity.

Question 43 Real Estate Fundamentals

What is the 28/36 rule?

Contracting a property and assigning the contract to another buyer for a fee. A legal claim against property as security for a debt. Recovery, expansion, hyper-supply, recession — typical phases. Housing costs ≤ 28% of gross income; total debt ≤ 36%.

Question 44 Real Estate Fundamentals

What is an encumbrance?

Any claim or restriction on property limiting its use or transfer. Real Estate Owned — bank-owned property after foreclosure. A residential building with multiple units (duplex, triplex, fourplex, apartments). The amount of tax per $1,000 of assessed value.

Question 45 Real Estate Fundamentals

What is a buyer's agent?

The agent representing the buyer. Comparative Market Analysis — pricing analysis based on similar properties. Property price divided by gross annual rent. Coverage for water damage from flooding; often required in flood zones.

Question 46 Real Estate Fundamentals

What is walkability?

The portion of a home owned outright; value minus debt. How easy it is to accomplish errands on foot. PMI protects the lender; homeowner's protects you. The cost of borrowing money, expressed as a rate.

Question 47 Real Estate Fundamentals

What is a non-conforming use?

A use that was legal when established but no longer complies with current zoning. Money today is worth more than future money due to interest and inflation. Required distance from property lines for construction. Residential, commercial, and industrial.

Question 48 Real Estate Fundamentals

What is eviction?

A legal settlement changing how buyer agent commissions are disclosed and paid. Camera inspection of sewer line condition. Legal process to remove tenants for cause. Tenant pays base rent plus percentage of sales (common in retail).

Question 49 Real Estate Fundamentals

What is the sales price?

Tax reduction for owner-occupied primary residences. Money held by landlord to cover potential damage or unpaid rent. The agreed-upon purchase price. "Location, location, location."

Question 50 Real Estate Fundamentals

What is eminent domain?

Legal claim by unpaid contractors against improved property. Varies; depends on cost, location, incentives, electricity prices. Government's power to take private property for public use with compensation. Replacing an existing mortgage with a new one, often at better terms.