80 Financing & Valuation Practice Questions & Answers

1. 1. A promissory note in a real estate loan transaction primarily serves as:

   • A.The security instrument that pledges the property as collateral
   • B.The borrower's personal promise to repay the debt✓ Answer
   • C.The lender's guarantee to the secondary market
   • D.The document that transfers legal title to the trustee

   The promissory note is the borrower's personal promise to repay and is the evidence of the debt itself; the mortgage or deed of trust is the separate security instrument that pledges the property as collateral.

   Ref QB-PRU5TWSource: National uniform exam — Financing: note (debt) vs. security instrumentReport a problem with this question

2. 2. Hypothecation, as used in real estate finance, means:

   • A.Transferring possession of the property to the lender
   • B.Releasing a lien once the debt is paid in full
   • C.Pledging property for a debt while keeping possession✓ Answer
   • D.Selling the loan on the secondary market

   Hypothecation is pledging property as security for a debt while the borrower keeps possession and use of the property, which is exactly how a mortgaged home works.

   Ref QB-59BN2VSource: National uniform exam — Financing: hypothecationReport a problem with this question

3. 3. In a deed of trust, who holds the bare (naked) legal title to the property?

   • A.The trustor (borrower)
   • B.The beneficiary (lender)
   • C.The mortgagee
   • D.The trustee (neutral third party)✓ Answer

   A deed of trust has three parties; the trustee, a neutral third party, holds bare legal title until the debt is repaid, which permits non-judicial power-of-sale foreclosure. Candidates often wrongly name the lender.

   Ref QB-NRGTMVSource: National uniform exam — Financing: deed of trust partiesReport a problem with this question

4. 4. The three parties to a deed of trust are the trustor, the trustee, and the:

   • A.Beneficiary✓ Answer
   • B.Vendee
   • C.Mortgagor
   • D.Grantor

   In a deed of trust the borrower is the trustor, the neutral third party is the trustee, and the lender is the beneficiary who benefits from the security.

   Ref QB-89DNJYSource: National uniform exam — Financing: deed of trust partiesReport a problem with this question

5. 5. In a mortgage (as opposed to a deed of trust), the borrower is called the:

   • A.Mortgagor✓ Answer
   • B.Trustee
   • C.Beneficiary
   • D.Mortgagee

   A mortgage has two parties: the mortgagor is the borrower who gives the mortgage, and the mortgagee is the lender who receives it. The '-or' gives, the '-ee' receives.

   Ref QB-RRJT5ZSource: National uniform exam — Financing: mortgage partiesReport a problem with this question

6. 6. In a lien-theory state, when a borrower mortgages real property, the lender holds:

   • A.Legal title to the property until the loan is paid
   • B.Equitable title transferred by the trustee
   • C.Possession of the property during the loan term
   • D.A lien against the property✓ Answer

   In lien-theory states the borrower retains legal title and the lender merely holds a lien as security; in title-theory states the lender holds title until the debt is paid.

   Ref QB-792BDXSource: National uniform exam — Financing: lien theory vs. title theoryReport a problem with this question

7. 7. Which document actually creates the lien that pledges real property as collateral for a loan?

   • A.The promissory note
   • B.The Closing Disclosure
   • C.The mortgage or deed of trust✓ Answer
   • D.The estoppel certificate

   The mortgage or deed of trust is the security instrument that creates the lien on the real property; the note only evidences the debt and the borrower's promise to pay.

   Ref QB-QR7GYXSource: National uniform exam — Financing: security instrument creates the lienReport a problem with this question

8. 8. An acceleration clause in a mortgage or note allows the lender to:

   • A.Demand the entire balance at once upon default✓ Answer
   • B.Charge a fee when the loan is paid off early
   • C.Call the loan due when the property is sold or transferred
   • D.Release part of the collateral from the lien

   An acceleration clause lets the lender demand the entire unpaid balance immediately upon default; it is a prerequisite to foreclosure. Calling the loan on transfer is the due-on-sale clause.

   Ref QB-299NHRSource: National uniform exam — Financing clauses: accelerationReport a problem with this question

9. 9. A due-on-sale (alienation) clause is triggered by:

   • A.The borrower missing a monthly payment
   • B.The property being reassessed for taxes
   • C.The lender selling the loan on the secondary market
   • D.The transfer or sale of the property to a new owner✓ Answer

   A due-on-sale/alienation clause lets the lender call the entire balance due when the property is transferred, effectively blocking loan assumption. It is triggered by transfer, not by default.

   Ref QB-JRET4SSource: National uniform exam — Financing clauses: due-on-sale/alienationReport a problem with this question

10. 10. A subordination clause in a loan document provides that:

    • A.The lien takes a lower priority than another lien✓ Answer
    • B.The borrower may pay off the loan early without penalty
    • C.Individual parcels may be released from a blanket loan
    • D.The lien is released when the debt is fully paid

    A subordination clause is an agreement by which a lien voluntarily takes a lower priority than a lien that would otherwise be junior to it, changing the normal order of priority.

    Ref QB-FT3CE8Source: National uniform exam — Financing clauses: subordinationReport a problem with this question

11. 11. A defeasance clause requires the lender to:

    • A.Accelerate the debt upon default
    • B.Approve any assumption of the loan
    • C.Reduce the interest rate as equity grows
    • D.Release the lien once the debt is paid✓ Answer

    A defeasance clause requires the lender to release the lien and, in title-theory states, return legal title to the borrower once the debt is fully satisfied.

    Ref QB-XAW6U7Source: National uniform exam — Financing clauses: defeasanceReport a problem with this question

12. 12. A partial release clause is most commonly associated with which type of loan?

    • A.An FHA-insured loan
    • B.A blanket loan✓ Answer
    • C.A purchase-money mortgage
    • D.A home equity line of credit

    A blanket loan covers multiple parcels and contains a partial release clause so the developer can release (free from the lien) individual lots as they are sold.

    Ref QB-GTEPK9Source: National uniform exam — Financing: blanket loan / partial releaseReport a problem with this question

13. 13. In an adjustable-rate mortgage (ARM), the margin is:

    • A.The lender's constant markup added to the index✓ Answer
    • B.The moving economic indicator to which the rate is tied
    • C.The fee paid to buy down the starting rate
    • D.The maximum the rate can rise in one adjustment period

    In an ARM the interest rate equals the index plus the margin; the index moves with the market, but the margin is the lender's constant markup that stays the same for the life of the loan.

    Ref QB-YA9HZ8Source: National uniform exam — Financing: ARM index + marginReport a problem with this question

14. 14. A fully amortized loan is characterized by:

    • A.Payments that never fully retire the debt
    • B.A small balloon payment at the end of the term
    • C.Interest-only payments with the full principal due as a balloon
    • D.Level payments that reduce the balance to zero at maturity✓ Answer

    A fully amortized loan uses level principal-and-interest payments that pay off the entire balance by maturity, leaving a zero balance with no balloon payment.

    Ref QB-HTSZRASource: National uniform exam — Financing: amortizationReport a problem with this question

15. 15. Which loan structure ends with a balloon payment of the full principal at maturity?

    • A.A fully amortized loan
    • B.A biweekly amortizing loan
    • C.A conventional 30-year loan
    • D.A straight interest-only loan✓ Answer

    A straight (term) loan is interest-only during the term, so the entire principal remains and comes due as a balloon at maturity. A fully amortized loan has no balloon.

    Ref QB-ZAMU6ASource: National uniform exam — Financing: straight/term loanReport a problem with this question

16. 16. With respect to a conventional loan, private mortgage insurance (PMI) is:

    • A.Required at a high loan-to-value but cancellable later✓ Answer
    • B.The same thing as an FHA MIP
    • C.Required for the entire life of the loan and never cancellable
    • D.Paid by the lender to protect the borrower

    On conventional loans PMI is required when the loan-to-value ratio is high (small down payment) and protects the lender, but it is cancellable once the borrower builds sufficient equity.

    Ref QB-JT5CXBSource: National uniform exam — Financing: conventional loan / PMI conceptReport a problem with this question

17. 17. Under an FHA-insured loan, the FHA:

    • A.Insures the lender against loss on default✓ Answer
    • B.Makes the loan directly to the borrower
    • C.Guarantees the top portion of the loan for veterans
    • D.Buys the loan on the secondary market

    The FHA insures the lender against loss; it does not make or guarantee the loan. The borrower pays a mortgage insurance premium (MIP), and FHA loans are generally assumable.

    Ref QB-2BY6CBSource: National uniform exam — Financing: FHA insuresReport a problem with this question

18. 18. Under a VA-guaranteed loan, the Department of Veterans Affairs:

    • A.Guarantees a portion of the loan✓ Answer
    • B.Insures the borrower's monthly payments
    • C.Originates the loan directly to the veteran
    • D.Sets the interest rate charged by the lender

    The VA guarantees part of the loan for eligible veterans, which reduces the lender's risk and allows low or no down payment; the VA neither makes nor insures the loan.

    Ref QB-KTGP4DSource: National uniform exam — Financing: VA guaranteesReport a problem with this question

19. 19. A purchase-money mortgage most commonly refers to:

    • A.A loan in which the seller carries back the buyer's note✓ Answer
    • B.A loan that covers several parcels of land
    • C.A loan insured by the FHA
    • D.A loan that includes personal property with the real estate

    A purchase-money mortgage is seller financing (a carryback) in which the seller extends credit to the buyer and takes back a note and mortgage as part of the purchase price.

    Ref QB-3BBHHCSource: National uniform exam — Financing: purchase-money mortgageReport a problem with this question

20. 20. A wraparound (all-inclusive) mortgage is one in which:

    • A.A new, larger loan includes the existing loan✓ Answer
    • B.Personal property is pledged along with the real estate
    • C.Several parcels are covered by one lien
    • D.The loan releases individual lots as they are sold

    A wraparound or all-inclusive trust deed (AITD) is a new, larger junior loan that 'wraps around' the existing loan, which stays in place; the wrap lender makes payments on the underlying loan.

    Ref QB-RBZFMWSource: National uniform exam — Financing: wraparound/AITDReport a problem with this question

21. 21. A package mortgage is distinguished by the fact that it:

    • A.Wraps around an existing underlying loan
    • B.Is financed directly by the seller
    • C.Covers several separate parcels of real estate
    • D.Also covers personal property✓ Answer

    A package mortgage finances real property together with personal property or fixtures (such as appliances or furnishings) under a single loan, common in some condominium sales.

    Ref QB-9U6N7XSource: National uniform exam — Financing: package mortgageReport a problem with this question

22. 22. Under a land contract (contract for deed), during the contract term the seller:

    • A.Retains legal title until the buyer pays in full✓ Answer
    • B.Conveys legal title to the buyer immediately at signing
    • C.Must record a deed of trust in the buyer's name
    • D.Has no interest in the property once payments begin

    In a land contract the seller retains legal title while the buyer takes possession and makes installment payments; title passes only when the buyer has paid as agreed.

    Ref QB-SBCTSXSource: National uniform exam — Financing: land contract / contract for deedReport a problem with this question

23. 23. Judicial foreclosure differs from non-judicial (power-of-sale) foreclosure primarily in that judicial foreclosure:

    • A.Is faster and rarely permits a deficiency judgment
    • B.Never requires the property to be sold
    • C.Is court-run and may permit a deficiency judgment✓ Answer
    • D.Is used only with FHA loans

    Judicial foreclosure is a court-ordered and court-supervised sale that may allow the lender to obtain a deficiency judgment for the shortfall; non-judicial power-of-sale is faster and often bars a deficiency.

    Ref QB-AUHYCYSource: National uniform exam — Foreclosure: judicial vs. non-judicialReport a problem with this question

24. 24. A deficiency judgment allows a lender to:

    • A.Reclaim the property after a deed in lieu
    • B.Force the borrower to reinstate the loan before sale
    • C.Waive the borrower's right of redemption
    • D.Recover the unpaid shortfall from the borrower✓ Answer

    A deficiency judgment is a personal judgment against the borrower for the difference when the foreclosure sale proceeds are less than the debt owed; it is more available in judicial foreclosures.

    Ref QB-TBQ5YYSource: National uniform exam — Foreclosure: deficiency judgmentReport a problem with this question

25. 25. The equity of redemption gives a defaulting borrower the right to:

    • A.Force the lender to accept a deed in lieu
    • B.Obtain a deficiency judgment against the lender
    • C.Redeem the property for a period after the foreclosure sale
    • D.Redeem the property before the foreclosure sale✓ Answer

    The equity of redemption lets the borrower cure the default and redeem the property by paying the full debt before the foreclosure sale; statutory redemption (where it exists) applies after the sale.

    Ref QB-BUVAJZSource: National uniform exam — Foreclosure: equity of redemptionReport a problem with this question

26. 26. Statutory redemption, where it exists, allows the borrower to:

    • A.Redeem the property only before the sale
    • B.Avoid any deficiency judgment automatically
    • C.Transfer the loan to a new borrower
    • D.Redeem the property for a set period after the sale✓ Answer

    Statutory redemption, available only in some states, gives the borrower a defined period after the foreclosure sale to redeem the property by paying the required amount.

    Ref QB-UB3G52Source: National uniform exam — Foreclosure: statutory redemptionReport a problem with this question

27. 27. A deed in lieu of foreclosure is best described as:

    • A.A period to cure the default before sale
    • B.A voluntary transfer of the property to the lender✓ Answer
    • C.A clause that makes the entire balance due on default
    • D.A court order transferring the property to the highest bidder

    A deed in lieu of foreclosure is a voluntary conveyance in which the borrower gives the property directly to the lender to satisfy the debt and avoid the foreclosure process.

    Ref QB-CU8NQ2Source: National uniform exam — Foreclosure: deed in lieuReport a problem with this question

28. 28. Reinstatement of a defaulted loan means the borrower:

    • A.Brings the loan current before the sale✓ Answer
    • B.Redeems the property after the foreclosure sale
    • C.Voluntarily deeds the property to the lender
    • D.Pays the full accelerated balance after the sale

    Reinstatement lets the borrower cure the default by paying the missed payments plus costs to bring the loan current before the foreclosure sale, without paying off the entire balance.

    Ref QB-MBK5XRSource: National uniform exam — Foreclosure: reinstatementReport a problem with this question

29. 29. RESPA (the Real Estate Settlement Procedures Act) primarily applies to:

    • A.Commercial loans over $1 million
    • B.All-cash residential purchases
    • C.Farm and ranch land only
    • D.Federally related loans on 1-4 unit homes✓ Answer

    RESPA applies to federally-related mortgage loans secured by 1-4 unit residential property; it requires settlement-cost disclosures and prohibits kickbacks and referral fees among settlement service providers.

    Ref QB-5URAHSSource: RESPA — 12 U.S.C. 2601 et seq. (scope)Report a problem with this question

30. 30. A core prohibition of RESPA is against:

    • A.Charging any origination fee
    • B.Making adjustable-rate loans
    • C.Kickbacks, referral fees, and unearned fees✓ Answer
    • D.Disclosing the APR to the borrower

    RESPA Section 8 prohibits giving or accepting kickbacks, referral fees, or unearned fees for the referral of settlement service business, protecting consumers from inflated costs.

    Ref QB-UDZM52Source: RESPA Section 8 — anti-kickbackReport a problem with this question

31. 31. The Truth in Lending Act (Regulation Z) requires lenders to disclose the cost of credit primarily as the:

    • A.APR and finance charge✓ Answer
    • B.Gross rent multiplier
    • C.Note (nominal) interest rate only
    • D.Loan-to-value ratio

    TILA/Reg Z requires disclosure of the total cost of credit as the annual percentage rate (APR) and the finance charge, so borrowers can compare loans on a uniform basis.

    Ref QB-BWTFJZSource: TILA / Regulation Z — APR & finance charge disclosureReport a problem with this question

32. 32. Under TILA's right of rescission, on which type of loan may a borrower cancel the transaction within three business days?

    • A.A purchase-money loan on a new home
    • B.A loan to buy an investment fourplex
    • C.A refinance or home-equity loan on a primary home✓ Answer
    • D.A commercial construction loan

    The TILA three-business-day right of rescission applies to refinances and home-equity loans on a borrower's primary residence; it does NOT apply to a purchase-money loan to buy a home.

    Ref QB-TDNAYYSource: TILA / Regulation Z — right of rescissionReport a problem with this question

33. 33. In advertising loan terms, which of the following may be stated ALONE without triggering full disclosure of all credit terms?

    • A.The monthly payment amount
    • B.The amount of the down payment
    • C.The annual percentage rate (APR)✓ Answer
    • D.The number of payments

    Under Reg Z, the APR is not a 'trigger term' and may be advertised alone. Trigger terms (down payment amount, payment amount, number of payments, or the term) require full disclosure of all credit terms.

    Ref QB-AWF5DYSource: TILA / Regulation Z — advertising trigger termsReport a problem with this question

34. 34. The Equal Credit Opportunity Act (ECOA) prohibits:

    • A.Advertising a specific interest rate
    • B.Discrimination in lending based on protected classes✓ Answer
    • C.Selling loans on the secondary market
    • D.Charging discount points on a loan

    ECOA prohibits discrimination in any aspect of a credit transaction based on protected classes such as race, color, religion, national origin, sex, marital status, age, or receipt of public assistance.

    Ref QB-WDQAG4Source: ECOA — 15 U.S.C. 1691 (anti-discrimination in lending)Report a problem with this question

35. 35. TRID integrates the disclosures of TILA and RESPA into which two forms?

    • A.The Note and the Deed of Trust
    • B.The Loan Estimate and the Closing Disclosure✓ Answer
    • C.The Uniform Residential Appraisal Report and the CMA
    • D.The HUD-1 and the Good Faith Estimate

    The TILA-RESPA Integrated Disclosure (TRID) rule combined the older disclosures into the Loan Estimate (given early) and the Closing Disclosure (given before closing), enforced by the CFPB.

    Ref QB-DWH5W3Source: TRID — CFPB integrated disclosure rule (LE + CD)Report a problem with this question

36. 36. A licensee refers every buyer to one title company and receives a cash payment for each referral. This most likely violates:

    • A.The Statute of Frauds
    • B.TILA / Regulation Z
    • C.ECOA
    • D.RESPA✓ Answer

    Paying or receiving a fee simply for referring settlement service business (like title insurance) is a prohibited kickback under RESPA Section 8, which bars unearned referral fees.

    Ref QB-VDCYA3Source: RESPA Section 8 — anti-kickback (applied)Report a problem with this question

37. 37. The primary mortgage market is where:

    • A.Ginnie Mae guarantees mortgage-backed securities
    • B.The Federal Reserve sets the discount rate
    • C.Lenders originate loans directly to borrowers✓ Answer
    • D.Existing loans are bought and sold among investors

    In the primary market lenders originate loans directly to borrowers; the secondary market is where those existing loans are bought and sold to provide liquidity.

    Ref QB-CW6TQ2Source: National uniform exam — money market: primary vs. secondaryReport a problem with this question

38. 38. Fannie Mae (FNMA) and Freddie Mac (FHLMC) function in the mortgage market primarily by:

    • A.Buying existing loans on the secondary market✓ Answer
    • B.Originating loans directly to homebuyers
    • C.Setting the federal funds rate
    • D.Insuring lenders against borrower default

    Fannie Mae and Freddie Mac buy existing loans from lenders on the secondary market, which replenishes lender funds and provides liquidity so more loans can be originated.

    Ref QB-QDKAFVSource: National uniform exam — secondary market: FNMA/FHLMC buy loansReport a problem with this question

39. 39. Ginnie Mae (GNMA) differs from Fannie Mae and Freddie Mac in that Ginnie Mae:

    • A.Buys conventional loans on the secondary market
    • B.Guarantees securities backed by FHA/VA loans✓ Answer
    • C.Originates loans directly to veterans
    • D.Sets reserve requirements for banks

    Ginnie Mae, a government corporation, guarantees mortgage-backed securities backed by government-insured or guaranteed (FHA and VA) loans; it does not buy loans the way Fannie and Freddie do.

    Ref QB-7WD5VUSource: National uniform exam — GNMA guarantees government-backed securitiesReport a problem with this question

40. 40. When the Federal Reserve tightens monetary policy by selling government securities in open-market operations, the general effect is:

    • A.Less money in circulation and higher rates✓ Answer
    • B.No change in the money supply
    • C.Automatic cancellation of PMI
    • D.More money in circulation and lower interest rates

    Selling securities on the open market pulls money out of the banking system, reducing the money supply and pushing interest rates, including mortgage rates, higher. Buying securities does the opposite.

    Ref QB-T3T7ZYSource: National uniform exam — Federal Reserve tightening raises ratesReport a problem with this question

41. 41. One discount point paid on a mortgage loan equals:

    • A.1% of the loan amount✓ Answer
    • B.1% of the sale price of the property
    • C.1% of the appraised value
    • D.1% of the borrower's down payment

    A discount point is 1% of the loan amount (not the sale price), paid to the lender to buy down the interest rate. On a $200,000 loan, one point equals $2,000.

    Ref QB-BKYCKZSource: National uniform exam — finance: discount points = 1% of loanReport a problem with this question

42. 42. When calculating loan-to-value (LTV), the value used in the denominator is:

    • A.The lower of the sale price or appraised value✓ Answer
    • B.The higher of the sale price or appraised value
    • C.Always the sale price
    • D.Always the appraised value

    Lenders base LTV on the lower of the sale price or the appraised value to limit their risk, so the loan amount is divided by whichever figure is smaller.

    Ref QB-S3FVTXSource: National uniform exam — finance: LTV uses lower of price or valueReport a problem with this question

43. 43. In real estate investment, leverage refers to:

    • A.Using borrowed funds to increase returns✓ Answer
    • B.Insuring the loan against default
    • C.Paying all cash to avoid interest costs
    • D.Combining adjacent parcels to raise value

    Leverage is the use of borrowed money (other people's money) to control an asset and increase the potential return on the investor's own equity invested.

    Ref QB-AKM2EYSource: National uniform exam — finance: leverageReport a problem with this question

44. 44. The four characteristics that an item must have to possess value (DUST) are demand, utility, scarcity, and:

    • A.Transferability✓ Answer
    • B.Timeliness
    • C.Tangibility
    • D.Taxability

    Value requires DUST: Demand, Utility, Scarcity, and Transferability. Without the ability to transfer ownership, an item cannot have market value even if the other elements are present.

    Ref QB-V3HVB3Source: National uniform exam — valuation: DUST characteristics of valueReport a problem with this question

45. 45. Market value is best defined as:

    • A.The cost to construct the improvements today
    • B.The assessed value used for property taxes
    • C.The most probable price between willing, informed parties under no undue pressure✓ Answer
    • D.The dollar amount actually paid for a property at its most recent closing

    Market value is the most probable price a willing, informed buyer and seller would agree upon in an arm's-length transaction with no undue pressure; it differs from price (what was paid) and cost (to create).

    Ref QB-DKP2X3Source: National uniform exam — valuation: market value vs. price vs. costReport a problem with this question

46. 46. A buyer pays $500,000 for a home that would cost $560,000 to rebuild new today and recently appraised at $505,000. The $500,000 figure represents the:

    • A.Cost
    • B.Assessed value
    • C.Price✓ Answer
    • D.Market value

    Price is the amount actually paid in a specific transaction ($500,000). Cost is what it takes to create/rebuild ($560,000), and value is an opinion of worth; the three are distinct concepts.

    Ref QB-U36J62Source: National uniform exam — valuation: price vs. cost vs. valueReport a problem with this question

47. 47. Which of the following is one of the four broad forces that influence real property value?

    • A.The buyer's credit score
    • B.Governmental factors✓ Answer
    • C.The listing broker's commission rate
    • D.The seller's original purchase price

    The four forces influencing value are social, economic, governmental (political/legal, including zoning and taxes), and physical/environmental factors.

    Ref QB-CKBQR2Source: National uniform exam — valuation: four forces affecting valueReport a problem with this question

48. 48. In the sales comparison approach, adjustments are made to:

    • A.The comparable properties✓ Answer
    • B.The subject property
    • C.The land value only
    • D.Both the subject and the comparables equally

    In the sales comparison approach the appraiser adjusts the comparable sales toward the subject, never the subject itself: subtract from a superior comp and add to an inferior comp.

    Ref QB-P3DVAUSource: National uniform exam — valuation: adjust comparables not subjectReport a problem with this question

49. 49. A comparable sale is superior to the subject property because it has an extra garage. To adjust, the appraiser should:

    • A.Add value to the subject
    • B.Subtract value from the subject
    • C.Add value to the comparable
    • D.Subtract value from the comparable✓ Answer

    You always adjust the comparable, never the subject. Because the comp is superior (has a feature the subject lacks), you subtract that feature's value from the comp to make it equivalent to the subject.

    Ref QB-7KJ2WUSource: National uniform exam — valuation: subtract from superior compReport a problem with this question

50. 50. The principle of substitution, which underlies the sales comparison approach, holds that:

    • A.A buyer won't pay more than an equal substitute costs✓ Answer
    • B.Combining parcels always increases value
    • C.The most expensive comparable sets the value
    • D.Value always increases over time

    The principle of substitution says a prudent buyer will pay no more for a property than the cost of acquiring an equally desirable substitute; it is the foundation of the sales comparison approach.

    Ref QB-W5TCH4Source: National uniform exam — valuation: principle of substitutionReport a problem with this question

51. 51. The cost approach to value is generally MOST appropriate for:

    • A.Large apartment complexes bought for income
    • B.New or special-purpose properties✓ Answer
    • C.Vacant residential land
    • D.Older single-family tract homes

    The cost approach is best for new or special-purpose properties (schools, churches, libraries) that rarely sell and produce no income, because comparable sales and income data are scarce.

    Ref QB-DNM7X3Source: National uniform exam — valuation: cost approach best for special-purposeReport a problem with this question

52. 52. The difference between replacement cost and reproduction cost is that replacement cost is the cost to build:

    • A.An exact replica using the same materials and design
    • B.A structure of equal utility with modern materials✓ Answer
    • C.The improvements at their original historical price
    • D.Only the land beneath the improvements

    Replacement cost is the cost to build a structure of equivalent utility using current materials and methods; reproduction cost is the cost to build an exact replica of the original.

    Ref QB-X56QP5Source: National uniform exam — valuation: replacement vs. reproduction costReport a problem with this question

53. 53. In the cost approach, value is estimated as:

    • A.Sale price ÷ monthly rent
    • B.Net operating income ÷ capitalization rate
    • C.Comparable sales adjusted to the subject
    • D.Land value + cost of improvements − depreciation✓ Answer

    The cost approach formula is: land value plus the reproduction or replacement cost of the improvements, minus accrued depreciation. Depreciation is deducted only from the improvements, not the land.

    Ref QB-ENYH45Source: National uniform exam — valuation: cost approach formulaReport a problem with this question

54. 54. In the income capitalization approach, the formula for value is:

    • A.Net operating income × capitalization rate
    • B.Net operating income ÷ capitalization rate✓ Answer
    • C.Capitalization rate ÷ net operating income
    • D.Gross income × the GRM

    Value equals net operating income divided by the capitalization rate (V = NOI ÷ R). This IRV relationship lets an appraiser solve for any one variable given the other two.

    Ref QB-U54Q62Source: National uniform exam — valuation: V = NOI ÷ cap rateReport a problem with this question

55. 55. A property produces $60,000 in net operating income and the market cap rate is 8%. Its indicated value is:

    • A.$600,000
    • B.$750,000✓ Answer
    • C.$4,800,000
    • D.$480,000

    Value = NOI ÷ cap rate = $60,000 ÷ 0.08 = $750,000. Dividing the income by the rate (as a decimal) yields the indicated value.

    Ref QB-BNWHKZSource: National uniform exam — valuation math: V = NOI ÷ cap rateReport a problem with this question

56. 56. If two properties have identical net operating income, the one valued using a HIGHER capitalization rate will have a:

    • A.Higher value
    • B.Identical value
    • C.Lower value✓ Answer
    • D.Undeterminable value

    Because value equals income divided by the cap rate, a higher cap rate (which signals higher risk) produces a lower value for the same income; rate and value move inversely.

    Ref QB-V5F2C3Source: National uniform exam — valuation: higher cap rate = lower valueReport a problem with this question

57. 57. When computing net operating income (NOI) for the income approach, which expense is NOT deducted?

    • A.Insurance premiums
    • B.Property taxes
    • C.Debt service✓ Answer
    • D.Property management fees

    NOI is effective gross income minus operating expenses; debt service (mortgage payments) is a financing cost, not an operating expense, and is never deducted when calculating NOI.

    Ref QB-CN9VR2Source: National uniform exam — valuation: NOI excludes debt serviceReport a problem with this question

58. 58. The Gross Rent Multiplier (GRM) for small residential rental property is calculated as:

    • A.Monthly rent ÷ sale price
    • B.Net operating income ÷ cap rate
    • C.Sale price ÷ monthly rent✓ Answer
    • D.Sale price × the cap rate

    The GRM equals sale price divided by monthly rent. Once derived from comparables, it can be multiplied by a subject's monthly rent to estimate value (price = GRM × rent).

    Ref QB-S5D2UXSource: National uniform exam — valuation: GRM = price ÷ monthly rentReport a problem with this question

59. 59. Reconciliation in the appraisal process is best described as:

    • A.Averaging the values from the three approaches
    • B.Adjusting the comparables to the subject
    • C.Weighing the approaches to reach a final value✓ Answer
    • D.Selecting only the highest of the three approaches

    Reconciliation is the appraiser's analysis of weighing the three approaches, giving most weight to the most reliable for the property type, to reach a final opinion of value; it is NOT a simple average.

    Ref QB-9N7V8XSource: National uniform exam — valuation: reconciliation is not averagingReport a problem with this question

60. 60. Physical deterioration as a form of depreciation refers to:

    • A.A nearby nuisance lowering value
    • B.An outdated floor plan or obsolete design
    • C.A decline in the surrounding neighborhood
    • D.Wear and tear from use and age✓ Answer

    Physical deterioration is loss in value from ordinary wear and tear, use, and the action of the elements; it is often curable through repair or maintenance.

    Ref QB-JV3HXBSource: National uniform exam — depreciation: physical deteriorationReport a problem with this question

61. 61. A home with only one bathroom and a poor, outdated floor plan suffers from:

    • A.External obsolescence
    • B.Functional obsolescence✓ Answer
    • C.Economic appreciation
    • D.Physical deterioration

    Functional obsolescence is a loss in value caused by outdated design, features, or a poor floor plan within the property itself; it may be curable or incurable.

    Ref QB-3D9PHCSource: National uniform exam — depreciation: functional obsolescenceReport a problem with this question

62. 62. External (economic) obsolescence is distinguished by the fact that it:

    • A.Arises off-site and is generally incurable✓ Answer
    • B.Is always inexpensive to cure
    • C.Can be fixed by remodeling the interior
    • D.Results from wear and tear inside the structure

    External (economic) obsolescence is caused by factors outside the property boundaries, such as a nearby nuisance or a declining neighborhood, and is generally incurable because the owner cannot control off-site conditions.

    Ref QB-KVEU4DSource: National uniform exam — depreciation: external/economic obsolescenceReport a problem with this question

63. 63. Under the principle of progression, a modest home located among larger, more expensive homes will tend to:

    • A.Gain value from its higher-value neighbors✓ Answer
    • B.Have its value averaged with the neighbors
    • C.Be unaffected by neighboring values
    • D.Lose value because of its higher-value neighbors

    Progression holds that the value of a modest property is enhanced (gains value) by its proximity to higher-value properties; regression is the opposite, where a superior home loses value among lesser ones.

    Ref QB-4DMZPDSource: National uniform exam — value principles: progression/regressionReport a problem with this question

64. 64. Highest and best use of a parcel must be legally permissible, physically possible, financially feasible, and:

    • A.Maximally productive✓ Answer
    • B.The least expensive to build
    • C.The current use of the land
    • D.Approved by the listing broker

    Highest and best use is the use that is legally permissible, physically possible, financially feasible, and maximally (most) productive, yielding the greatest net return to the land.

    Ref QB-GVCUK9Source: National uniform exam — value principles: highest and best useReport a problem with this question

65. 65. The principle of contribution states that an improvement adds:

    • A.Exactly what it cost to install
    • B.Value only if it is the newest feature
    • C.Only the value it contributes to the whole✓ Answer
    • D.Always more value than its cost

    Contribution holds that an improvement is worth only the value it adds to the whole property, which may be more or less than its cost; a $30,000 pool might add only $10,000 of value.

    Ref QB-ZCJZ6ASource: National uniform exam — value principles: contributionReport a problem with this question

66. 66. Combining two or more adjacent parcels under one ownership to create greater total value is known as:

    • A.Reconciliation
    • B.Subordination
    • C.Assemblage✓ Answer
    • D.Accretion

    Assemblage is the act of combining adjacent parcels into one larger tract; the increase in value resulting from that combination is called plottage value.

    Ref QB-HVQ6SASource: National uniform exam — value principles: assemblage/plottageReport a problem with this question

67. 67. Which fee arrangement for a residential appraisal assignment is consistent with appraiser independence rules?

    • A.A share of the sales commission once the deal closes
    • B.A set fee agreed before the work, whatever the value✓ Answer
    • C.A percentage of whatever value the report concludes
    • D.A bonus paid only if the value supports the loan

    USPAP's Ethics Rule bars compensation that is contingent on the value reported, on reaching a predetermined result, or on a subsequent event such as the sale or loan closing. A fee agreed in advance that does not depend on the value concluded keeps the appraiser independent; USPAP does not require any particular fee amount or format.

    Ref QB-2DWBCBSource: USPAP Ethics Rule (Management) — contingent compensation prohibitedReport a problem with this question

68. 68. A Comparative Market Analysis (CMA) prepared by a real estate licensee is:

    • A.A pricing tool, NOT a formal appraisal✓ Answer
    • B.A formal appraisal that meets USPAP standards
    • C.A guarantee of the property's market value
    • D.A required federal disclosure at closing

    A CMA (like a broker price opinion) is a licensee's estimate used to help price a property for listing or offer; it is not a formal appraisal and does not meet appraisal (USPAP) standards.

    Ref QB-PVGUMGSource: National uniform exam — CMA/BPO is not a formal appraisalReport a problem with this question

69. 69. Annual property taxes of $3,650 are paid in arrears for the calendar year. A sale closes on June 14 of a non-leap year. Using a 365-day year, with the seller owning the day of closing, how is the tax proration entered on the closing statement?

    • A.Credit seller and debit buyer $1,650
    • B.Debit seller and credit buyer $1,640
    • C.Debit seller and credit buyer $2,000
    • D.Debit seller and credit buyer $1,650✓ Answer

    The daily tax is $3,650 / 365 = $10. The seller owns January 1 through June 14: 31+28+31+30+31+14 = 165 days, or $1,650. Because taxes are paid in arrears, the buyer will later pay the whole year's bill, so the seller is debited and the buyer credited for the seller's share. $1,640 counts only 164 days, giving the closing day to the buyer; crediting the seller reverses the direction; $2,000 is the buyer's own 200 days.

    Ref QB-7DPZ7HSource: Pearson VUE National Salesperson outline 094905 §VIII.E (prorations); standard arrears-tax proration: debit seller / credit buyer for the seller's daysReport a problem with this question

70. 70. A seller has already paid the full calendar-year property taxes of $4,320 in advance. The sale closes on September 15. Using a 360-day year (30-day months), with the buyer owning the day of closing, how is the tax proration entered?

    • A.Credit seller and debit buyer $1,260
    • B.Credit seller and debit buyer $3,048
    • C.Debit seller and credit buyer $1,272
    • D.Credit seller and debit buyer $1,272✓ Answer

    The daily tax is $4,320 / 360 = $12. The buyer owns September 15 through December 31: 16 days in September plus 90 days = 106 days, or $1,272. The seller prepaid those days, so the seller is credited and the buyer debited for the unused portion. $1,260 uses 105 days, wrongly giving the closing day to the seller; $3,048 is the seller's own 254 days already used; debiting the seller reverses the direction for prepaid taxes.

    Ref QB-NX3PFFSource: Pearson VUE National Salesperson outline 094905 §VIII.E (prorations); standard prepaid-tax proration: credit seller / debit buyer for unused daysReport a problem with this question

71. 71. A seller owns a duplex with two units renting for $1,500 per month each, and collected both units' October rent on October 1. The sale closes October 21. Treat October as a 30-day month, with the buyer owning the day of closing. How is the rent proration entered?

    • A.Credit buyer and debit seller $2,000
    • B.Credit buyer and debit seller $1,000✓ Answer
    • C.Credit buyer and debit seller $900
    • D.Credit seller and debit buyer $1,000

    Total monthly rent is $3,000, or $100 per day over 30 days. The buyer owns October 21 through 30, which is 10 days, or $1,000. The seller collected rent the buyer will earn, so the buyer is credited and the seller debited for the unearned part. $900 counts 9 days, giving the closing day to the seller; $2,000 is the seller's own 20 days; crediting the seller reverses the direction for rent collected in advance.

    Ref QB-5FWGVESource: Pearson VUE National Salesperson outline 094905 §VIII.E (prorations); standard rule: rent collected in advance = credit buyer / debit seller for unearned daysReport a problem with this question

72. 72. Homeowners association dues of $372 per month are paid in advance on the first of each month, and the seller has paid the March dues. The sale closes March 12. Using the actual 31 days in March, with the seller owning the day of closing, how is the HOA proration entered?

    • A.Credit buyer and debit seller $228
    • B.Credit seller and debit buyer $144
    • C.Credit seller and debit buyer $228✓ Answer
    • D.Credit seller and debit buyer $240

    The daily dues are $372 / 31 = $12. The seller owns March 1 through 12, so the buyer owns March 13 through 31, which is 19 days, or $228. The seller prepaid those days, so the seller is credited and the buyer debited. $240 uses 20 days, giving the closing day to the buyer; $144 is the seller's own 12 days; crediting the buyer reverses the direction for prepaid dues.

    Ref QB-MXQBAESource: Pearson VUE National Salesperson outline 094905 §VIII.E (prorations); prepaid expense rule: credit seller / debit buyer for the buyer's daysReport a problem with this question

73. 73. A buyer assumes the seller's loan with a $180,000 balance at 6% annual interest. Interest is paid in arrears, and the April 1 payment (covering March interest) has been made. The sale closes April 16. Using a 360-day year (30-day months), with the seller owning the day of closing, how is the interest proration entered?

    • A.Debit seller and credit buyer $420
    • B.Debit seller and credit buyer $480✓ Answer
    • C.Credit seller and debit buyer $480
    • D.Debit seller and credit buyer $450

    Monthly interest is $180,000 x 6% / 12 = $900, or $30 per day. April interest will be paid in arrears by the buyer on May 1, but the seller owns April 1 through 16 (16 days), so the seller is debited and the buyer credited $480. $450 uses 15 days, dropping the closing day the seller owns; $420 is the buyer's own 14 days; crediting the seller reverses the direction for interest paid in arrears.

    Ref QB-4FJ6QDSource: Pearson VUE National Salesperson outline 094905 §VIII.D-E (interest, prorations); assumed-loan interest in arrears: debit seller / credit buyerReport a problem with this question

74. 74. A home sells for $480,000 with a 5% total commission, split equally between the listing and buyer's brokerages. The listing brokerage first deducts a flat $500 franchise fee from its share, then pays its listing agent 60% of the remainder. How much does the listing agent receive?

    • A.$6,700
    • B.$7,200
    • C.$6,900✓ Answer
    • D.$14,100

    Gross commission is $480,000 x 5% = $24,000; the listing side is $12,000. The franchise fee comes off the top of that share: $12,000 - $500 = $11,500, and 60% of that is $6,900. $6,700 applies the agent split first and then charges the whole fee to the agent; $7,200 ignores the fee; $14,100 skips the split with the buyer's brokerage.

    Ref QB-KXCZ4DSource: Pearson VUE National Salesperson outline 094905 §VIII.C (commission and splits): gross commission, off-the-top fees, cooperating split, broker/agent splitReport a problem with this question

75. 75. A listing agreement sets a graduated commission: 6% on the first $100,000 of the price, 4% on the next $200,000, and 2% on any amount above $300,000. The property sells for $420,000. What is the total commission?

    • A.$20,400
    • B.$18,800
    • C.$8,400
    • D.$16,400✓ Answer

    Each rate applies only to its own band: 6% x $100,000 = $6,000; 4% x $200,000 = $8,000; 2% x $120,000 (the amount above $300,000) = $2,400; total $16,400. $18,800 charges 4% on all $320,000 above the first band and ignores the 2% tier; $20,400 treats the second band as $300,000 wide; $8,400 applies the top-tier 2% to the whole price.

    Ref QB-3F7UHCSource: Pearson VUE National Salesperson outline 094905 §VIII.C (commission); graduated commission = each rate applied to its own bandReport a problem with this question

76. 76. A buyer contracts to purchase a home for $350,000, but it appraises at $340,000. The lender's maximum loan-to-value ratio is 90%, and the buyer borrows the maximum. How much cash must the buyer provide as the down payment?

    • A.$45,000
    • B.$44,000✓ Answer
    • C.$34,000
    • D.$35,000

    LTV is based on the lesser of price or appraised value, so the loan is $340,000 x 90% = $306,000, and the down payment is $350,000 - $306,000 = $44,000. $35,000 bases the loan on the higher price; $34,000 is only 10% of the appraisal and leaves the $10,000 gap unpaid; $45,000 adds the full gap to 10% of the price.

    Ref QB-JXZNXBSource: Pearson VUE National Salesperson outline 094905 §VIII.D (LTV); LTV = loan / lesser of sale price or appraised valueReport a problem with this question

77. 77. A buyer purchases a home for $400,000 with 20% down. The lender charges a 1% origination fee and 2.5 discount points on the new loan. How much does the buyer pay for the discount points alone?

    • A.$11,200
    • B.$8,000✓ Answer
    • C.$10,000
    • D.$2,000

    One discount point equals 1% of the loan amount, not the price. The loan is $400,000 x 80% = $320,000, so 2.5 points cost $320,000 x 2.5% = $8,000. $10,000 applies the points to the price; $11,200 adds the 1% origination fee to the points; $2,000 applies the points to the $80,000 down payment.

    Ref QB-2FUGCBSource: Pearson VUE National Salesperson outline 094905 §VIII.D (discount points); one point = 1% of the loan amountReport a problem with this question

78. 78. A seller wants to net $276,000 from a sale. The seller will pay a 5% commission on the sale price plus $9,000 in other closing costs. Rounded to the nearest dollar, what is the lowest sale price that achieves this net?

    • A.$299,250
    • B.$309,000
    • C.$300,000✓ Answer
    • D.$299,526

    The commission is a percentage of the final price, so add the fixed costs to the desired net and divide by (1 - 0.05): ($276,000 + $9,000) / 0.95 = $300,000. $299,250 multiplies $285,000 by 1.05, which takes the 5% on too small a base; $299,526 grosses up only the net and then adds the costs; $309,000 multiplies the net by 1.05 and then adds the costs.

    Ref QB-SXGZ5MSource: Pearson VUE National Salesperson outline 094905 §VIII.E (net to seller); price = (desired net + costs) / (1 - commission rate)Report a problem with this question

79. 79. An investor buys a lot for $180,000. Its value rises 20% in the first year and then falls 20% in the second year, each change measured from the value at the start of that year. What is the lot worth at the end of the second year?

    • A.$187,200
    • B.$172,800✓ Answer
    • C.$180,000
    • D.$144,000

    Percentage changes compound on each new base: $180,000 x 1.20 = $216,000 after year 1, then $216,000 x 0.80 = $172,800 after year 2, a net 4% loss. $180,000 assumes a 20% gain and a 20% loss cancel (or takes the decline on the original price); $187,200 treats the net 4% change as a gain; $144,000 ignores the first-year gain.

    Ref QB-9FBUJKSource: Pearson VUE National Salesperson outline 094905 §VIII.F (appreciation); compound appreciation multiplies year by year on the new baseReport a problem with this question

80. 80. A lot's front and rear lot lines are parallel, measuring 220 feet and 330 feet, and the perpendicular distance between them is 396 feet. What is the lot's area?

    • A.87,120 sq ft (2.0 acres)
    • B.130,680 sq ft (3.0 acres)
    • C.217,800 sq ft (5.0 acres)
    • D.108,900 sq ft (2.5 acres)✓ Answer

    The lot is a trapezoid, so area = (sum of the parallel sides / 2) x height = (220 + 330) / 2 x 396 = 275 x 396 = 108,900 sq ft; dividing by 43,560 sq ft per acre gives 2.5 acres. 217,800 sq ft forgets to halve the sum of the sides; 130,680 sq ft uses only the longer line, as if the lot were a rectangle; 87,120 sq ft uses only the shorter line and drops the triangular strip.

    Ref QB-PK7R8USource: Pearson VUE National Salesperson outline 094905 §VIII.A (area calculations); trapezoid area = ((b1 + b2) / 2) x h; 1 acre = 43,560 sq ftReport a problem with this question

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