Unit 1 - Introduction to the Real Estate Business

The business of bringing people together in a real estate transaction is known as...

• real estate brokerage

• appraisal

• real estate counseling

• property management

Answer explanation

Brokerage is conducted by a real estate broker or by a real estate salesperson (sales associate) who conducts brokerage activities on behalf of the broker.

The process of developing an opinion of a property's value (typically, market value) based on established methods and a professional judgement is...

• appraisal

• home inspection

• appreciation

• property certification

Answer explanation

Licensed appraisers use established and regulated methods of valuation to estimate a property's value.

Selling real estate can take a long time when compared to other types of investments. This disadvantage of owning real estate is called...

• appreciation

• equity buildup

• lack of liquidity

• permanence

Answer explanation

Liquid assets can be sold quickly. Real estate lacks liquidity-- so selling it is complex, and can take a long time.

A disadvantage to owning real estate is...

• it requires a loan to buy.

• the lack of liquidity.

• the cost to sell is high compared to value.

• it appreciates.

Answer explanation

The lack of liquidity is a disadvantage of owning real estate instead of something liquid, like stocks.

Fran sold her house that she owned in severalty and had a capital gain of $175,000. To exclude that gain from her income for tax purposes, she must...

• be at least 55 years old.

• have lived in the house for 3 years.

• have lived in the house for 2 of the last 5 years.

• have lived in the house for 2 of the last 3 years.

Answer explanation

Homeowners may exclude gain from the sale of a principal residence they have lived in for 2 of the last 5 years. The maximum exclusion is $250,000 for a single person.

What can be deducted from income taxes?

• Points, interest, and HOA dues

• Taxes, points, and insurance

• Origination fees, points, interest, and taxes

• Points, insurance, taxes, and interest

Answer explanation

Remember POIT: points, origination fees, interest, and taxes can be deducted. HOA dues and principal payments are not deductible from income taxes.

To deduct items on personal income tax, the taxpayer...

• should have the form prepared by an accountant.

• must use an itemized form.

• may deduct only those items that apply to the taxpayer's primary residence.

• must determine if a gain was made before filing.

Answer explanation

Itemized tax forms must be used to obtain deductions, such as depreciation.

An investor who does not want to pay capital gains tax on the sale of investment property should consider...

• claiming the investment property as a primary residence.

• moving into the property for a year to get a primary residence exclusion.

• not filing an itemized return.

• using a 1031 tax-deferred exchange.

Answer explanation

A 1031 tax-deferred exchange would allow the investor to defer paying capital gains until a later date.

Who do clients hire for representation in real estate transactions?

• Brokerage firm

• Salesperson

• Broker-associate

• Provisional broker

Answer explanation

Only brokerage firms are allowed to enter into agency agreements with clients. Licensees act on behalf of the brokerage firm that employs them.

The terms real estate agent, licensee, and real estate professional generally refer to...

• real estate brokerage firms.

• licensed brokers.

• real estate salespersons.

• all of these.

Answer explanation

Terms such as real estate agent, licensee, and professional generally refer to anyone or any entity holding a real estate license, such as licensed real estate firms, brokers, and salespersons.