Valuing and Financing Property Flashcards
6 cards from real Wisconsin Real Estate License practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 6 Valuing and Financing Property flashcards as text
An appraiser is valuing a 15-year-old, single-family home in a well-established suburban neighborhood in Wisconsin. Which approach to value would the appraiser most likely give the most weight to?
Answer: Sales Comparison Approach
The Sales Comparison Approach (also known as the market data approach) is the most reliable method for appraising single-family homes. It compares the subject property to similar, recently sold properties in the same area. The Cost Approach is best for new construction or unique properties like schools, and the Income Approach is used for income-generating properties like apartment buildings.
A home in Green Bay, Wisconsin sells for $350,750. What is the amount of the Wisconsin Real Estate Transfer Fee (RETF) that must be paid at closing?
Answer: $1,053.00
The Wisconsin Real Estate Transfer Fee is calculated at a rate of $3.00 for every $1,000 of value. The value is rounded up to the next nearest $100. In this case, $350,750 is rounded up to $350,800. The calculation is ($350,800 / $1,000) * $3.00 = $1,052.40. An easier way to calculate is to round the value up to the next $100 and multiply by 0.003. So, $350,800 * 0.003 = $1,052.40.
A buyer is purchasing a home for $400,000 and obtains a mortgage for $320,000. What is the loan-to-value (LTV) ratio, and what will the lender likely require as a result?
Answer: 80% LTV; the lender will not require private mortgage insurance (PMI).
The Loan-to-Value (LTV) ratio is calculated by dividing the loan amount by the property's value ($320,000 / $400,000 = 0.80, or 80%). Lenders typically require Private Mortgage Insurance (PMI) when the LTV is above 80%. Since the LTV is exactly 80%, PMI would not be required.
When an assessor in Wisconsin is determining the value of a property for tax purposes, which of the following is considered the BEST evidence of the property's value according to state guidelines?
Answer: A recent, arm's-length sale of the property itself.
Wisconsin statutes and the Wisconsin Property Assessment Manual state that a recent, arm's-length sale of the subject property is the best indicator of its full market value. If such a sale hasn't occurred, the next best information is recent arm's-length sales of reasonably comparable properties. Other methods are used only when sales data is insufficient.
Which of the following is a key difference between the mortgage insurance required for an FHA loan (MIP) and a conventional loan (PMI) for a borrower with a low down payment?
Answer: FHA MIP typically remains for the life of the loan, while conventional PMI can be cancelled at 80% LTV.
A significant difference is the cancellation policy. For conventional loans, Private Mortgage Insurance (PMI) can be requested for removal once the loan-to-value ratio reaches 80% and must be automatically terminated at 78%. For most FHA loans originated today, the Mortgage Insurance Premium (MIP) must be paid for the entire loan term, unless the borrower made a down payment of 10% or more, in which case it lasts for 11 years.
An appraiser is using the cost approach to value a property. They have determined the cost to build a similar structure with modern materials and standards. What is this specific cost known as?
Answer: Replacement Cost
Replacement Cost is the cost to construct a building with similar utility using modern materials and construction standards. In contrast, Reproduction Cost is the cost to build an exact duplicate of the structure, including any outdated features, which is often more expensive and less practical.