68 Financing & Valuation Practice Questions & Answers
Every Financing & Valuation practice question from the Real Estate License Practice Test, with the correct answer and a short explanation.
Start practice test →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 and the evidence of 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.
Source: National uniform exam — Financing: note (debt) vs. security instrumentReport a problem with this question
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 as security for a debt while retaining 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.
Source: National uniform exam — Financing: hypothecationReport a problem with this question
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.
Source: National uniform exam — Financing: deed of trust partiesReport a problem with this question
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.
Source: National uniform exam — Financing: deed of trust partiesReport a problem with this question
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.
Source: National uniform exam — Financing: mortgage partiesReport a problem with this question
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 while the borrower retains title✓ 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.
Source: National uniform exam — Financing: lien theory vs. title theoryReport a problem with this question
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.
Source: National uniform exam — Financing: security instrument creates the lienReport a problem with this question
8. An acceleration clause in a mortgage or note allows the lender to:
- A.Demand the entire remaining 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.
Source: National uniform exam — Financing clauses: accelerationReport a problem with this question
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.
Source: National uniform exam — Financing clauses: due-on-sale/alienationReport a problem with this question
10. A subordination clause in a loan document provides that:
- A.The lien will voluntarily take a lower priority position to 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.
Source: National uniform exam — Financing clauses: subordinationReport a problem with this question
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 and return title once the debt is fully 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.
Source: National uniform exam — Financing clauses: defeasanceReport a problem with this question
12. A partial release clause is most commonly associated with which type of loan?
- A.An FHA-insured loan
- B.A blanket loan covering multiple parcels✓ 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.
Source: National uniform exam — Financing: blanket loan / partial releaseReport a problem with this question
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.
Source: National uniform exam — Financing: ARM index + marginReport a problem with this question
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.Equal principal-and-interest 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.
Source: National uniform exam — Financing: amortizationReport a problem with this question
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 (term) 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.
Source: National uniform exam — Financing: straight/term loanReport a problem with this question
16. With respect to a conventional loan, private mortgage insurance (PMI) is:
- A.Required when the loan-to-value is high but cancellable as equity builds✓ 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.
Source: National uniform exam — Financing: conventional loan / PMI conceptReport a problem with this question
17. Under an FHA-insured loan, the FHA:
- A.Insures the lender against loss if the borrower defaults✓ 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.
Source: National uniform exam — Financing: FHA insuresReport a problem with this question
18. Under a VA-guaranteed loan, the Department of Veterans Affairs:
- A.Guarantees a portion of the loan for eligible veterans✓ 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.
Source: National uniform exam — Financing: VA guaranteesReport a problem with this question
19. A purchase-money mortgage most commonly refers to:
- A.Seller financing where the seller carries back a note from the buyer✓ 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.
Source: National uniform exam — Financing: purchase-money mortgageReport a problem with this question
20. A wraparound (all-inclusive) mortgage is one in which:
- A.A new, larger loan wraps around and 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.
Source: National uniform exam — Financing: wraparound/AITDReport a problem with this question
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.Includes personal property or fixtures along with the real 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.
Source: National uniform exam — Financing: package mortgageReport a problem with this question
22. Under a land contract (contract for deed), during the contract term the seller:
- A.Retains legal title until the buyer completes the payments✓ 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.
Source: National uniform exam — Financing: land contract / contract for deedReport a problem with this question
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-supervised 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.
Source: National uniform exam — Foreclosure: judicial vs. non-judicialReport a problem with this question
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 shortfall from the borrower when the sale doesn't cover the debt✓ 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.
Source: National uniform exam — Foreclosure: deficiency judgmentReport a problem with this question
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 by paying the debt 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.
Source: National uniform exam — Foreclosure: equity of redemptionReport a problem with this question
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 foreclosure 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.
Source: National uniform exam — Foreclosure: statutory redemptionReport a problem with this question
27. A deed in lieu of foreclosure is best described as:
- A.A period to cure the default before sale
- B.A voluntary conveyance of the property to the lender to avoid foreclosure✓ 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.
Source: National uniform exam — Foreclosure: deed in lieuReport a problem with this question
28. Reinstatement of a defaulted loan means the borrower:
- A.Cures the default by bringing 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.
Source: National uniform exam — Foreclosure: reinstatementReport a problem with this question
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 mortgage loans on 1-4 unit residential property✓ 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.
Source: RESPA — 12 U.S.C. 2601 et seq. (scope)Report a problem with this question
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 among settlement service providers✓ 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.
Source: RESPA Section 8 — anti-kickbackReport a problem with this question
31. The Truth in Lending Act (Regulation Z) requires lenders to disclose the cost of credit primarily as the:
- A.Annual percentage rate (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.
Source: TILA / Regulation Z — APR & finance charge disclosureReport a problem with this question
32. Under TILA's right of rescission, a borrower may cancel the transaction within three business days on a:
- 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 residence✓ 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.
Source: TILA / Regulation Z — right of rescissionReport a problem with this question
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.
Source: TILA / Regulation Z — advertising trigger termsReport a problem with this question
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.
Source: ECOA — 15 U.S.C. 1691 (anti-discrimination in lending)Report a problem with this question
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.
Source: TRID — CFPB integrated disclosure rule (LE + CD)Report a problem with this question
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.
Source: RESPA Section 8 — anti-kickback (applied)Report a problem with this question
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.
Source: National uniform exam — money market: primary vs. secondaryReport a problem with this question
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.
Source: National uniform exam — secondary market: FNMA/FHLMC buy loansReport a problem with this question
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 government (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.
Source: National uniform exam — GNMA guarantees government-backed securitiesReport a problem with this question
40. When the Federal Reserve tightens monetary policy by selling government securities and raising reserve requirements, the general effect is:
- A.Less money in circulation and higher interest rates✓ Answer
- B.No change in the money supply
- C.Automatic cancellation of PMI
- D.More money in circulation and lower interest rates
Tightening (selling securities on the open market and raising reserve requirements) pulls money out of circulation, reducing the money supply and pushing interest rates higher.
Source: National uniform exam — Federal Reserve tightening raises ratesReport a problem with this question
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.
Source: National uniform exam — finance: discount points = 1% of loanReport a problem with this question
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.
Source: National uniform exam — finance: LTV uses lower of price or valueReport a problem with this question
43. In real estate investment, leverage refers to:
- A.Using borrowed funds to increase the potential return on invested equity✓ 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.
Source: National uniform exam — finance: leverageReport a problem with this question
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.
Source: National uniform exam — valuation: DUST characteristics of valueReport a problem with this question
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 a willing, informed buyer and seller would agree upon without undue pressure✓ Answer
- D.The dollar amount actually paid for a property
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).
Source: National uniform exam — valuation: market value vs. price vs. costReport a problem with this question
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.
Source: National uniform exam — valuation: price vs. cost vs. valueReport a problem with this question
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 (political and legal) 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.
Source: National uniform exam — valuation: four forces affecting valueReport a problem with this question
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.
Source: National uniform exam — valuation: adjust comparables not subjectReport a problem with this question
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.
Source: National uniform exam — valuation: subtract from superior compReport a problem with this question
50. The principle of substitution, which underlies the sales comparison approach, holds that:
- A.A buyer will pay no more than the cost of an equally desirable substitute✓ 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.
Source: National uniform exam — valuation: principle of substitutionReport a problem with this question
51. The cost approach to value is generally MOST appropriate for:
- A.Large apartment complexes bought for income
- B.New or special-purpose properties such as schools and churches✓ 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.
Source: National uniform exam — valuation: cost approach best for special-purposeReport a problem with this question
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 equivalent utility using current materials and methods✓ 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.
Source: National uniform exam — valuation: replacement vs. reproduction costReport a problem with this question
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 + (reproduction or replacement cost of improvements − accrued 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.
Source: National uniform exam — valuation: cost approach formulaReport a problem with this question
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.
Source: National uniform exam — valuation: V = NOI ÷ cap rateReport a problem with this question
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.
Source: National uniform exam — valuation math: V = NOI ÷ cap rateReport a problem with this question
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.
Source: National uniform exam — valuation: higher cap rate = lower valueReport a problem with this question
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 (mortgage principal and interest)✓ 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.
Source: National uniform exam — valuation: NOI excludes debt serviceReport a problem with this question
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).
Source: National uniform exam — valuation: GRM = price ÷ monthly rentReport a problem with this question
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 arrive at a final opinion of 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.
Source: National uniform exam — valuation: reconciliation is not averagingReport a problem with this question
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 on the property 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.
Source: National uniform exam — depreciation: physical deteriorationReport a problem with this question
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.
Source: National uniform exam — depreciation: functional obsolescenceReport a problem with this question
62. External (economic) obsolescence is distinguished by the fact that it:
- A.Arises from causes outside the property and is incurable by the owner✓ 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.
Source: National uniform exam — depreciation: external/economic obsolescenceReport a problem with this question
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.
Source: National uniform exam — value principles: progression/regressionReport a problem with this question
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.
Source: National uniform exam — value principles: highest and best useReport a problem with this question
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, which may differ from its cost✓ 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.
Source: National uniform exam — value principles: contributionReport a problem with this question
66. Combining two or more adjacent parcels under one ownership to create greater total value is known as:
- A.Reconciliation
- B.Subordination
- C.Assemblage, and the added value is called plottage✓ 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.
Source: National uniform exam — value principles: assemblage/plottageReport a problem with this question
67. An appraiser's fee for a residential appraisal assignment should be based on:
- A.The commission earned on the sale
- B.A flat fee for the assignment, regardless of the value concluded✓ Answer
- C.A percentage of the value concluded
- D.The loan amount requested by the borrower
To keep appraisals independent, an appraiser is paid a flat fee for the assignment and never a percentage of the value concluded, which would create a conflict of interest.
Source: National uniform exam — appraisal ethics: fee never a % of valueReport a problem with this question
68. A Comparative Market Analysis (CMA) prepared by a real estate licensee is:
- A.A pricing tool to help set a listing or offer price, 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.
Source: National uniform exam — CMA/BPO is not a formal appraisalReport a problem with this question
Practice questions cover the uniform national portion of the real estate exam. Your state adds a state-law portion — study your state's official materials before testing. Licensing info (ARELLO) →