Real Estate Sales Exam Financing and Valuation 4 — Questions and Answers
Question 1: Which of the following best describes 'functional obsolescence' in real estate appraisal?
- Loss in value due to nearby industrial development
- Loss in value from physical deterioration of the structure
- Loss in value from outdated or poor design features (Correct answer)
- Loss in value from environmental contamination
Correct answer: Loss in value from outdated or poor design features
Functional obsolescence results from flaws in the property's design or outdated features, such as a bedroom accessible only through another bedroom.
Question 2: Under RESPA, which of the following is prohibited between settlement service providers?
- Charging origination fees
- Paying kickbacks or unearned referral fees (Correct answer)
- Providing a good faith estimate
- Collecting escrow for taxes and insurance
Correct answer: Paying kickbacks or unearned referral fees
RESPA Section 8 prohibits kickbacks and fee-splitting arrangements that inflate settlement costs for consumers.
Question 3: A VA loan is guaranteed by the Department of Veterans Affairs primarily to:
- Eliminate the need for an appraisal
- Allow eligible veterans to buy with no down payment (Correct answer)
- Reduce property taxes for veterans
- Provide fixed-rate loans only
Correct answer: Allow eligible veterans to buy with no down payment
VA loans allow eligible veterans and service members to purchase homes with no down payment and no PMI.
Question 4: Which principle of value states that the value of a property is affected by the value of surrounding properties?
- Principle of substitution
- Principle of conformity (Correct answer)
- Principle of regression
- Principle of progression
Correct answer: Principle of conformity
The principle of conformity holds that maximum value is realized when a property is compatible with surrounding land uses.
Question 5: An FHA loan differs from a conventional loan in that FHA loans:
- Require no appraisal
- Are insured by the federal government (Correct answer)
- Allow unlimited loan amounts
- Carry no mortgage insurance requirement
Correct answer: Are insured by the federal government
FHA loans are insured by the Federal Housing Administration, allowing lenders to offer more flexible qualifying terms.
Question 6: The income capitalization approach would be MOST appropriate for valuing which property type?
- A vacant residential lot
- A 20-unit apartment building (Correct answer)
- A newly built single-family home
- A church
Correct answer: A 20-unit apartment building
The income approach values a property based on the income it produces and is best suited for investment or income-generating properties.
Question 7: What does 'amortization' mean in the context of a mortgage loan?
- The process of increasing the interest rate over time
- The gradual reduction of the loan balance through scheduled payments (Correct answer)
- Transferring the loan to another lender
- Calculating the property's current market value
Correct answer: The gradual reduction of the loan balance through scheduled payments
Amortization is the repayment of a loan through regular installments that reduce principal over time.
Real Estate Sales Exam Financing and Valuation 4
Which of the following best describes 'functional obsolescence' in real estate appraisal?