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MiniCram Real Estate Exam Course 1


Study Notes & Practice Questions

Updated: February 2017

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Warning and DisclaimerThe information contained in this publication is essentially a summary, for the only purpose of

review of key concepts for exam preparation, and is not intended to replace direct research or original source documents, actual classroom training or expert advice. This publication is for the sole purpose of education.

Every effort has been made to make this book as complete, error free and as accurate as possible,

but no warranty or fitness is implied. The information is provided on 'as is' basis. The author and thepublisher shall have neither liability nor responsibility to any person or entity with respect to damages arising from the information contained in this publication.

This warning and disclaimer applies regardless of whether you access this publication in paperformat or using any electronic means. In case you are accessing this publication in any electronic format,including through the Internet, you expressly agree that the author or the publishers are not responsible orliable for any loss or corruption of data, and damage to hardware, software, applications and the operating system.

► There is no representation, warranty or guarantee, of any kind whatsoever, whether expressed or implied, that the student will pass the exam. We provide only sample practice questions to help you in exam preparation. These practice questions should not be considered actual exam questions. No return, exchange or refund will be issued once the book has been purchased. You are encouraged to review the Samples before placing your order.

The author and publishers are not affiliated with, endorsed by or have any sponsorship from theReal Estate Council of Ontario (RECO), the Ontario Real Estate Association® or any Real Estate Board.

AcknowledgementsThe terms MLS® and REALTOR® are registered trademarks of the Canadian Real Estate

Association® (CREA®). OREA® is a trademark of the Ontario Real Estate Association®. RECO® is a trademark of Real Estate Council of Ontario. The use of these trademarks or logos in this publication is intended only for the purpose of general information and education and is not to affect any validity or legal status associated with them.

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MiniCram Notes 2


TABLE OF CONTENTS

CopyrightTable of ContentsIntroduction and Exam FormatChanges to Educational Requirements10 Tips for the ExamSummary of Math FormulasPART I – SUMMARY NOTES

1. The Real Estate Career2. Regulatory Requirements3. Economic Principles and Real Estate4. Profiles, Trends and Real Estate Values5. Consumer Behaviour and Protection6. Marketing and Advertising7. Basic Math and Measurements8. Mortgage Math9. Capitalization, Taxation and Closing Adjustments

PART II – PRACTICE QUESTIONSSample Exam 1

Quick Answer KeySample Exam 2



Quick Answer KeyDetailed Answers

Sample Exam 1Sample Exam 2Sample Exam 3Sample Exam 4

MiniCram Notes 3


INTRODUCTION

Dear Reader,Congratulations on purchasing our MiniCram for Ontario Real Estate License Exam

preparation. The purpose of this book is to provide you with last minute review of important theory and math concepts for the exam.

This booklet has been written so that you can focus on key areas of study as well as prepare to overcome most common mistakes the students make on the actual test day.

How to Use This MiniCramYou do not have enough time to waste. This MiniCram booklet is designed in such a way

that your review for the exam is fast paced. It is suggested that you go through each topic one by one. It is assumed that you have already covered the topics in details in either the actual class or by self-study.

We Want to Hear from YouThis book is written by a practicing Real Estate Broker who is also a trained adult trainer.

If you have a feedback for the author, need more information or have general comments, please send an email to [email protected].

We hope you enjoy your review. Good luck for the exam!------------------

COURSE 1 - EXAM FORMAT

Real Estate as A Professional Career

First 10 Questions 1 Mark Each 10 Marks

Next 45 Questions 2 Marks Each 90 Marks

Total 100 Marks

• The marks for each question are given against the question itself.• Take a simple calculator. HP10BII Calculator is not absolutely necessary.• The exam booklet is separate from the answer sheet, which is a machine-readable

Scantron® sheet. The answer sheet is to be filled up with pencil only.• Cell phones or tablets are not permitted in exam centre.

For more information on the exam, visit the official website at www.orea.com.

------------------Back to Table of Contents

MiniCram Notes 4


CHANGES TO EDUCATIONAL REQUIREMENTS

Enrolled On or After April 1, 2016

Pre-registration Courses: Students are required to complete 5 Pre-registration Courses within 18 months of registration in first course before registration as Real Estate Salesperson.

1. Real Estate As A Professional Career

2. Land Structures And Real Estate Trading

3. The General Real Estate Transaction & The Residential Real Estate

Transaction 4. The Commercial Real Estate Transaction

5. Real Property Law

Articling Course: 1 of the following 4 elective courses must be done within 2 years of initial registration as Salesperson.

Ø Principles of AppraisalØ Principles of Mortgage FinancingØ Principles of Property ManagementØ Real Estate Investment Analysis

Enrolled Before April 1, 2016

Pre-registration Courses: Students are required to complete 3 Pre-registration Courses within 18 months of registration in first course before registration as Salesperson.

1. Real Estate As A Professional Career

2. Land Structures And Real Estate Trading

3. The Real Estate Transaction – General, and

Ø The Residential Real Estate Transaction, orØ The Commercial Real Estate Transaction

Articling Courses: The following 3 Articling courses must be completed within 2 years of initial registration as Salesperson.

1. The Commercial Real Estate Transaction or The Residential Real Estate Transaction(Whichever is not done before registration)

2. Real Property Law

3. One of the following 4 Electives

Ø Principles of AppraisalØ Principles of Mortgage FinancingØ Principles of Property ManagementØ Real Estate Investment Analysis


MiniCram Notes 5


10 TIPS FOR THE EXAM

1. RELAX! Too much anxiety, panic, stress and fear are big distractions. Focus on the

question and choose the best answer.

2. GAME OF WORDS. All multiple choice exams are merely variation of words. If you

know your course materials, it's only a matter of interpreting the question and then

selecting a correct option.

3. EASY ONES FIRST. In this exam the first 10 questions are easy, simple and

straightforward questions. Do these questions first. If math is your weakness start

with these easy the questions.

4. READ ALL OPTIONS. Even if you think A is the correct answer, read options B, C and

D to make sure they are incorrect.

5. MANAGE YOUR TIME WISELY. Divide it according to marks for each question. Do

not spend too much time on 1 mark questions. Skip the question that you think is

difficult to answer. Mark it for review and proceed to the next one.

6. EXTREME PHRASES. Beware of absolute words in any option such as ALL, NONE,

ALWAYS, NEVER, MUST, NONE, EVERY, EXACTLY, ONLY, etc. In most cases, the

options that include any of these words are rarely correct.

7. HEDGE PHRASES. When a question asks you to conclude something and includes

words such as MAYBE, LIKELY, OFTEN, ALMOST, USUALLY, GENERALLY,

TYPICALLY, SOMETIMES, etc. Do not pick any answer that does not leave any room

for exception.

8. ALWAYS read the question twice. You must know what information is given and

exactly what is being asked. More than one choice may seem to be correct if you do

not understand the question properly. If that is the case use the method of elimination.

9. REMEMBER that your first instinct is mostly a correct answer. Be careful when

changing your answer but don't be afraid if you have to change it.

10. REVIEW. Make sure you did not skip any question and the answer sheet is neatly filled

in. Never mark more than one answer. If you need to change a marked answer erase

the previous one nicely. Otherwise, the machine may not be able to scan your answer.


MiniCram Notes 6


SUMMARY OF MATH FORMULAS

PercentagesPart = Whole X Rate%Whole = Part ÷ Rate%Rate = Part ÷ Whole X 100Percentage Change = (New Value – Old Value) ÷ Old Value X 100

Mean, Median and ModeMean (Average) = Add all Values & Divide by Number of Values.Median = Middle Value. Arrange values in ascending order.►Tip: (If Even values then Take 2 Middles and Divide by 2)

Mode = Value that Appears Most Frequently.

Area (Square Feet or Square Metres) Rectangle = Length X WidthArea of Triangle = ½ X Base X HeightParallelogram = Length X Perpendicular HeightTrapezoid = ½ X Sum of Parallel Sides X Perpendicular Height

Volume (Cubic Feet or Cubic Yard)Volume of Driveway = Length X Width X HeightVolume of Gable/Sloped Roof Building = Floor Area X HeightHeight = Wall height + ½ Roof Height + 0.5►Tip: If Cost is given as ‘Per Cubic Yard’ ― Divide by 27

Mortgage MathLiquid Assets = (Purchase Price + Closing Costs) ― Mortgage LoanGDS Ratio = (PI+ T) ÷ Annual Income X 100TDS Ratio = (PI + T + Other Debt) ÷ Annual Income X 100

MiniCram Notes 7


Monthly Payment = Monthly Mortgage Payment Factor X Loan ÷ 1000Overall Average Interest Rate= (1st Mortgage X Int Rate) + (2nd Mortgage X Int Rate) ÷ Total Loan X 100

To Calculate Payment (3 Steps)1. Multiply Income with GDS% (or TDS%)2. Subtract Annual Taxes (and Annual Loan, if TDS%)3. Divide by 12 ►Divide by 26 for ‘Biweekly’ Payment

Maximum Loan = Mortgage Payment ÷ Payment Factor X 1000Down Payment = Purchase Price – Mortgage Loan

Capitalization1. Potential Gross Income2. Less: Vacancy and Bad Debt3. Effective Gross Income = Potential Income – Vacancy Loss4. Net Operating Income (NOI) = Effective Income – Operating Expenses 5. Value (V) = Net Operating Income ÷ Cap Rate► V = I ÷ R ► I = V X R ► R = I ÷ V

Property TaxTax Rate = Tax Budget ÷ Tax Base X 100Property Tax = Assessed Value X Tax Rate►Tip: Tax Budget is also written as ‘Amount of Taxes to be Collected’


MiniCram Notes 8


PART I – SUMMARY NOTES

1. THE REAL ESTATE CAREER

1.1 The Real Estate Brokerage

Terminology

• Real Estate Trading: Any activity which is related to sale, purchase, acquisition, disposition, exchange, leasing, or any other transaction of real estate is called real estate

trading.• Brokerage: A business operation which deals in real estate on behalf of others.• Agent and Client: An Agent is hired by a Client to represent it in a transaction with a Third

Party. A real estate brokerage is considered the Agent of a Client/Principle (seller or buyer).

• Salesperson/Broker: Salespersons and Brokers are considered Employees of thebrokerage for trading purposes.

• Ripple Effect: Series of events that occur as a result of new development. Examples – jobs for construction workers, new consumers for local businesses, tax revenue for the municipality,

jobs for renovation people, business for professionals (lawyers, appraisers)and real estate salespeople.

Real Estate Brokerage

• A real estate brokerage may be a corporation, a partnership or a sole proprietorshipbusiness.

• Every brokerage must have a Broker of Record and is treated as employee of brokerage.

• A brokerage may be an independent brokerage or a franchise brokerage and, it may bea limited service brokerage or a full service brokerage.

• Corporation: A Corporation brokerage provides distinction between the owners

(shareholders) and the business.

• Partnership: A brokerage owned by two or more partners who have a Partnership Agreement. A change in partnership is considered new partnership and new registrationis required. Partnership is personal and every partner has several and joint liability.

• Sole Proprietorship: A brokerage owned by a single person who owns all assets but is also responsible for all liabilities. The brokerage must run using the name of the owner and

the owner must be its Broker of Record. A sole proprietorship brokerage is apersonal business and, all assets and liabilities are personal.

• Branch Office: A branch must have a separate registration and a Branch Manager. The Branch Manager may be a broker or a salesperson with 2 years’ experience and under

direct supervision of a broker.

MiniCram Notes 9


1.2 Working with a Brokerage

Employee vs. Independent Contractor

• Salespersons and brokers must be employed by a brokerage either as an Employee oras an Independent Contractor.

• The difference between an employee and independent contractor is only for taxpurposes (Canada Revenue Agency).

• For real estate trading purposes, both the Employees and Independent Contractors aretreated as Employees.

• In both cases, the brokerage is responsible for the trading activities of the salespersonsand brokers.

• The Canada Revenue Agency (CRA) uses Common Law tests to determine whether asalesperson is an Employee or an Independent Contractor.

• Employee: The job is regulated under Employment Standards Act (ESA).Ø The employee salesperson does not pay any Desk Fee.Ø The brokerage bears operating expenses.Ø Paid a salary or salary plus commission and may be getting certain benefits such

as Employment Insurance, Health Insurance, etc.Ø Taxes are deducted by the brokerage from salary.

• Independent Contractor: The job is regulated under Real Estate and Business BrokersAct 2002 (REBBA 2002).Ø The salesperson works using his/her own judgment and methodØ The independent contractor salesperson typically pays a desk fee and/or other

administration fees.Ø These salespersons are responsible for their own expenses such as advertising,

car insurance, etc.Ø They are typically paid a commission through their brokerage which is subject to a

Split or administration charges.

Remuneration

• Independent Contractor salespersons and brokers are typically paid commission.• Commission may be a percentage of sale price or a fixed amount (flat fee) or a

combination of both.• The total commission is typically collected by Listing Brokerage from sellers’ lawyer.• Commission Sharing: Commission is divided into two parts – listing portion and selling

portion.Ø Commission Distribution: Division of commission between listing and selling

portions for different brokerages.Ø Commission Allocation: Division of commission between listing and selling portions

within the same brokerage.

• Commission Split: Division of commission between a brokerage and its salesperson.• Conventional Plans: In this case, the brokerage keeps a large part of the commission,

such as 50/50 split or 60/40 split.

MiniCram Notes 10


• Desk Fee or Split Plans: Salespersons/brokers pay a monthly Desk Fee but pay smaller

part of commission to brokerage, such as 90/10 or 95/5 split.

1.3 Typical Listing and Selling Process

• Listing: The Listing Brokerage (as Agent) and the seller sign a Listing Agreement. Real Estate and Business Brokers Act 2002 (REBBA 2002) makes certain disclosures mandatory

before the brokerage obtains the Listing. The sellers must receive a copy ofthe agreement immediately.

• Prospecting: This refers to searching the qualified buyers for the property who are looking

for the same type of property, location and price range.

• Qualifying and Showing: This refers to understanding buyers’ needs and wants. The activities depend on whether the buyer is represented by the broker age or is only being

provided selected services. Required disclosures must be made to the buyer beforeentering into any agreement.

• Offer Preparation: The salesperson has a responsibility to ensure that the offer and other documents include all terms and conditions required by the buyer. The offer must have

all elements to create a binding contract.

• Offer Presentation & Negotiations: This refers to conveying the buyers’ offer to the seller. The offer may be accepted, rejected or countered by the sellers. When accepted, the copies

of offer are given to both parties. The buyers give a deposit which is kept by theListing Brokerage in a Real Estate Trust Account until closing date.

• Follow Up After Sale: This refers to follow up on fulfillment of conditions and related written notifications to the sellers to make the offer a legally binding agreement. In case

the conditions are not fulfilled or waived by the buyer, the offer becomes null and void.

1.4 The Real Estate Industry in Ontario

Industry Organization

• The real estate industry is organized in three main levels – National, Provincial and Local. • Membership in Organized Real Estate is not mandatory but if a real estate brokerage is

a member, it may require all its salespersons and brokers to become members.

National

• Canadian Real Estate Association (CREA) looks after national activities in real estate. • It owns trademarks such as MLS® and REALTOR®.

Provincial and Territorial

• Ontario Real Estate Association (OREA)® is at provincial level.• Its main functions include –

MiniCram Notes 11


Ø Development and delivery of education,Ø Lobbying with provincial government,Ø Arbitration among real estate boards, andØ Standardization of forms.

Local Boards

• Local Real Estate Boards have pre-defined jurisdictions.• They manage day-to-day activities of the Multiple Listing Service (MLS)®.• They make board by-laws and provide arbitration service to member brokerages.• Board by-laws regulate co-operation between brokerage for showings, negotiating

offers, etc.

Related Professional Organizations• Appraisal Institute of Canada: Professional designations awarded by this institute are -

Canadian Residential Appraiser (CRA), Accredited Appraiser Canadian Institute (AACI)and Professional Appraiser (P. App).

• Real Estate Institute of Canada: This institution is an educational branch of Canadian Real Estate Association. It awards designations such as Fellow of Real Estate Institute (FRI),

Certified Property Manager (CPM), Accredited Residential Manager (ARM),Certified Commercial Leasing Officer (CLO), etc.

• The CCIM Institute: The Certified Commercial and Investment Manager (CCIM)designation is provided by this institute.

• Society of Industrial and Office REALTORS®: The SOIR designation is provided topractitioners working in commercial and office real estate.

1.5 Opportunities in Real Estate Market

Residential Resale

• Most salespersons go for residential resales where they find irregular working hours. • Most people like to view properties either during evenings or during weekends.• They deal with emotions of buyers and sellers and therefore people skills are extremely

important.

New Home Sales

• These salespersons typically work on fixed office hours of builders/developers.• Their functions include showing fully completed or model homes to buyers, explain floor

plans, optional upgrades and closing/possession dates.• They may also explain pre-packaged financing options to buyers.• These salespersons and are not involved in listing or selling of resale homes.

Condominiums

• A Condominium Corporation is created after registration of Declaration and Description.

MiniCram Notes 12


• Condominiums buildings (apartments or townhouses) have Units and Common

Elements.• A unit is a specified space in the condominium property.• All property except units is known as Common Elements.• Unit owners have exclusive ownership of their unit and also have Tenancy-in-Common

ownership in Common Elements according to their proportionate share.• Unit owners pay a monthly maintenance fee to cover common expenses.• Unit owners are personally liable for the liabilities of the corporation.

Rural, Recreational and Agricultural Sales

• Salespersons working in rural areas need specialized knowledge of local by-laws,permitted uses of land and land use restrictions.

• Knowledge of water wells, septic tanks, fuel tanks, etc. is required.

Commercial Real Estate

• Commercial real estate consists of Industrial, Commercial and Investment (ICI)properties.

• Commercial buildings are classified into Single Purpose, Special Purpose and GeneralPurpose.

• Commercial real estate trading includes sale/purchase and leasing of retail, office,industrial properties and sale/purchase of investment properties

• Commercial transactions usually involve complex negotiations and they take longer time

to close.

Property Management

• A Property Manager works as an administrator for the property owners and assumes all

executive functions on behalf of the owners.• He is responsible for dealing with tenants, keeping the property leased, maintaining the

property, payment of expenses and collection of rents.• Property manager is not a Building Superintendent or a Leasing Agent.

Mortgage Financing

• A Mortgage Broker acts as intermediary between the lender (Mortgagee) and theborrower (Mortgagor).

• They get Finder’s Fee from the lender or a Brokerage Fee from the borrower.

Appraisal

• Appraisers perform market valuation of properties.• Professional appraisers are usually members of Appraisal Institute of Canada (AIC) and

are called Fee Appraisers.• They are awarded Canadian Residential Appraiser (CRA) and Accredited Appraiser Canadian Institute (AACI), Professional Appraiser (P. App) designations by the institute.

MiniCram Notes 13


1.6 Commission Calculations

Typical Commission Calculation Process

• Total Commission is received by the listing brokerage and divided into two portions:Listing Portion and Selling Portion.

• If a Co-operating Brokerage is involved, it gets the selling portion.• Each brokerage splits the commission with its salesperson.• Gross to Brokerage is the commission before split.• Net to Brokerage is the commission after split.• A 70/30 split means that the Salesperson gets 70% of brokerage gross and the

brokerage gets 30% of its gross.

Straight Commission CalculationExample: Salesperson Kim of Power Realty Inc. lists a property for $309,900. The seller

agreed to pay 5% total commission. The property is sold by salesperson Jim of a Cram Realty Inc. for $300,000. The listing brokerage has an even distribution policy for listing and selling portions. Kim works with her broker age on 80/20 split while Jim works on 70/30 split.

Total Commission = 300,000 x 5% = $15,000Allocation between listing and selling portions is even (50/50).Gross Commission to each brokerage = 15,000 x 50% = $7,500Kim = 7,500 x 80% = $6,000Net to Power Realty = 7,500 x 20%= $1,500Jim = 7,500 x 70% = $5,250Net to Cram Realty = 7,500 x 30%= $2,250

Reverse CalculationsTo calculate sale price of a property when you are given the commission received by a

salesperson, his split with brokerage, the commission allocation and rate of total commission.

►Sale Price = Salesperson Commission ÷ Split% ÷ Brokerage% ÷ Total%Example: Salesperson Kim of Power Realty Inc. gets a commission of $9,250 from her

brokerage. Kim works on 85/15 split with the brokerage. The commission that Power Realty got was 60% of the total commission. The seller had agreed to pay 5.5% of sale price as total commission. What was the sale price?

You have to work backwards. Keep dividing with percentage to go back to the sale price. Sale Price = 9,250 ÷ 85% ÷ 60% ÷ 5.5%

= $329,768


MiniCram Notes 14


2. REGULATORY REQUIRMENTS

2.1 Real Estate Council of Ontario (RECO)

Real Estate Council of Ontario

• Real estate trading in Ontario is regulated under the Real Estate and Business BrokersAct 2002 (REBBA 2002).

• This Act is enforced by the Real Estate Council of Ontario (RECO), which works underthe Ministry of Consumer Affairs.

• RECO has a Board of Directors with 12 members – 9 are elected from the industry and3 are appointed by the ministry.

• The Registrar of RECO is responsible to grant, renew, suspend, revoke or terminateregistrations.

• The Registrar also approves educational courses and sets advertising guidelines forregistrants.

Protecting Public Interest

• RECO’s mandate is to protect public interest, trust and confidence in real estate trading. • RECO protects public interest in real estate trading with following activities –

Ø Enforcing standards of education and setting up educational requirements forregistration.

Ø Enforcing mandatory continuing education for registrants.Ø Enforcing insurance requirements for registrants.Ø Addressing complaints and inquiries.Ø Conducting routine inspections of brokerages.

2.2 Obtaining and Maintaining Registration

New Requirements Effective April 1, 2016

Ø Individuals who are registered with OREA® before April 1, 2016 have to complete 3 pre-registration courses. Then, within 2 years of Articling Period, they have to

complete 3 more Articling Courses. These are – The Commercial Real Estate Transaction or The Residential Real Estate Transaction (whichever is not done before

registration); Real Property Law and 1 Elective (Mortgage Financing,Appraisal, Property Management or Investment Analysis).

Ø Effective April 1, 2016 the applicant must have passed 5 courses before applying for registration. Then within 2 years of Articling Period, they have to complete 1

Articling course. This may be any one of the Electives referred above.

Eligibility

• The applicant must be a resident of Canada and must be over 18 years of age. • He/she must be employed by a brokerage.• The applicant must have good past record of financial responsibility and conduct.

MiniCram Notes 15


• The person must have passed the required pre-registration courses within 18 months of

enrolment in first course.• The application must be made with 12 months of passing the last course.• A Police Clearance Certificate in original must be enclosed with the application.

• Work Permit: Persons on work permit may be eligible for registration. This is not a reason

for refusal of registration application.

• Disclosures: The application must include disclosures about any proposal or bankruptcy

and any pending criminal charges.

Reasons for Refusal

• If application is refused, the applicant must wait 12 months before applying again.• Application may be refused:

Ø If the applicant has not completed the required educational courses.Ø If more than 1 year has passed since completing the last pre-registration exam.Ø If necessary disclosures are not made about criminal activities,

bankruptcies/proposals and/or unpaid judgments.Ø If the past record of the applicant is not satisfactory.Ø If false information is given in application.

Initial Registration

• If the application is approved, the registration cycle is 2 years.• The initial registration period is called Articling Period.• Articling Courses: The registrant must complete the required Articling Courses within 2

years of initial registration.• Mandatory Continuing Educational (MCE): After the initial 2 years Articling Period, every

salesperson and broker must complete Mandatory Continuing Educational (MCE) courses.

Becoming a Broker

• For registration as a Broker, the person must have at least 2 years’ experience as asalesperson

• The person must complete an additional elective and the Real Estate Broker course.

Registration Exemptions

• Some people are exempted from registration for trading in real estate.• Persons selling an owned property.• Auctioneers, Solicitors of Superior Court of Justice, when the trade is made during their

normal course of business.• Persons arranging leases under Residential Tenancies Act.• Salespersons that are working as full time employees on salary with home builders and

sell only new homes are also exempted.

MiniCram Notes 16


2.3 RECO Insurance

• Annual RECO insurance is mandatory for salespersons and brokers and if not paid, theregistration is terminated.

• The insurance is on Claims Made basis but potential claims must also be reported.• Potential Claim: This refers to a situation wherein a registrant believes that some

situation may lead to a claim by a client.• Just reporting a claim or a potential claim does not mean that the registrant has

committed some negligent act.• Registrants may get 24 months extended coverage after they decide to retire from

profession.

Coverage• Errors and Omissions Insurance: This coverage is for alleged or committed negligent

act. The deductible is $2,500 which is increased with each claim.

Ø No coverage is provided if the registrant is involved in fraud or criminal activity. Ø If there is a direct/indirect interest in trade, coverage may not be provided.

• Commission Protection Insurance: This coverage is for lost commission due tobrokerage bankruptcy, misuse of funds or fraud. The deductible is $250 per claim.

Ø The registrant is not covered if he knows that the brokerage does not maintain aCommission Trust Account.

• Consumer Deposit Protection Insurance: This coverage is for lost deposits of consumers.

There is no deductible.

2.4 Complaints, Inspections and Investigations

The RCI Process

• All written complaints are handled by Registrar’s Complaints and Inquiries (RCI) process. • The process handles complaints for non-compliance with REBBA 2002 Code of Ethics. • Consumer may make a complaint against a registrant (consumer to member complaint)

or a registrant may make a complaint against another registrant (member to membercomplaint).

• Based on the nature of the complaint, the Registrar has many options such as –

Ø Mediation for resolving the complaint.Ø Give written warning to the registrant.Ø Impose conditions on registration.Ø Refer the registrant to discipline committee.Ø Require completion of further educational courses.Ø Impose a fine.

• Registrar may propose to revoke or terminate the registration. In this case the registrant

may appeal to License Appeals Tribunal within 15 days.

MiniCram Notes 17


• Appeal to Court: The Registrar may make an appeal to court where the registrant is prosecuted under Provincial Offenses Act. If convicted, an individual may be fined up to$50,000 and/or up to 2 years in jail. Corporations may be fined up to $250,000.

Brokerage Inspections/Investigations

• Inspections are conducted to ensure compliance with REBBA 2002 regulations.• RECO inspectors have access to trade related documents.• Real Estate Trust Accounts, where deposit money is kept, are closely inspected.• Inspections are of three types –

Ø Routine Inspection (Random Inspection): is done after RECO randomly selectsbrokerages and informs them about inspection.

Ø Complaint-initiated Inspection: This is based on a consumer complaint.Ø Courtesy Inspection: This type of inspection is typically requested by the

brokerage.Ø Reconciliation Inspection: Randomly selected brokerages are asked to submit

monthly reconciliation of Real Estate Trust Account and bank statements.


MiniCram Notes 18


3. ECONOMIC PRINCIPLES AND REAL ESTATE

3.1 Canadian Economy

Economic Principles

• Canadian economy is mixed and follows a cyclic pattern. Individuals, families,government and business corporations make their contribution.

• Economy includes production, distribution and consumption of goods and services. There are 4 factors of production – Land, Labour, Capital and Co-ordination

(Entrepreneur Skills).• Labour and capital make up the Resource Market.• The two aspects of economy are Supply (Businesses) and Demand (Consumers). The

government plays a vital role to balance these two aspects by making rules andregulations.

• Statistics Canada collects, analyses and publishes data about economy including dataon real estate market.

• National production includes Gross National Product (GNP) and Gross DomesticProduct (GDP).

• Consumer Disposable Income and Average Household Debt show the ConsumerConfidence which provides indications about future trend of economy.

Consumer Price Index (CPI)

• CPI measures prices of 600 goods and services.• It is a valid measure of purchasing power of Dollar.• Inflation means that the purchasing power of dollar has decreased and Deflation means

that the purchasing power of Dollar has increased.• CPI of new houses accounts only for cost of material and labour but land cost is

excluded.

Data Analysis

• Seasonal adjustment in data is done for comparison within a year.• For year-to-year analysis, unadjusted data is used.• Analysts focus on central tendency in data such as Mean, Median and Mode of values.• Weighted Average of values is considered more reliable than simple average.• Real estate data is analyzed by considering a three month moving average so that

monthly variations in data may be avoided.

3.2 Market Forces

Supply and Demand

• The forces of supply and demand drive the market.• Buyers’ Market: When the supply is more than demand it is typically a buyer’s market

and the prices tend to decrease.• Sellers’ Market: When the demand is more than supply it is typically a seller’s market,

there may be lack of supply resulting in increase of prices.

MiniCram Notes 19


• A Balanced Market (Perfect Market): This stage is also known as Market in Equilibrium. This happens when the supply and demand forces are roughly balanced. Prices becomestable, buyers/ sellers negotiate freely and properties sell within reasonable time.

• Market Bubble: An overheated or overactive real estate market results in Market Bubble

where lenders, builders, etc. also take advantage of the situation.• Market Correction: Market bubble leads to Market Correction which creates

unemployment, financial problems, inability of owners to make mortgage payments and power of sale or foreclosure actions by lenders.

3.3 Business Cycles

Stages of Business Cycle

• Business Cycle refers to series of events in business environment that occur roughly the

after the same interval.• It follows a cyclic pattern with three stages –

Ø Prosperity: In this stage, there is high consumer confidence, high employmentrates and the market is very active.

Ø Recession: In this stage, unemployment starts increasing, consumer confidencefalls, there is no real growth and financial problems start. Prolonged recessionleads to Depression.

Ø Recovery: In this stage things start improving again and there is visible growth.Recovery leads the businesses back to Prosperity stage and the cycle begins again.

The Role of Bank of Canada

• The government interferes in economy by making or amending laws and by directintrusion in economy.

• Bank of Canada sets monetary policies to affect economic flow in order to controlinflation.

• Overnite Rate is the interest that banks charge each other.• Bank of Canada sets the Operating Band for banks with upper and lower limits.• The Target Rate is in the middle of the operating band.• Lenders set their Prime Lending Rates and mortgage rates based on the target rate. • Bank of Canada also purchases and sells bonds to affect cash flow in the market.

3.4 The Real Estate Market

Characteristics

• Real estate is not a standard product because no two properties are similar insize/shape, location or appearance.

• Markets are local and local employment, wage levels and economic conditions affectvalues.

• Properties have a fixed location, they are immobile and location factors affect values.• Transactions between buyers and sellers are private matters and data may not be

available for analysis.

MiniCram Notes 20


• Real estate is slow in adjusting to the impact of supply and demand forces. It takes time

to introduce properties in the market and finally sell them.

Factors Affecting Real Estate Market

• Demography (population trends) and Family Formation Rates affect real estate demand.

• Mortgage Loans: Availability of mortgage loans and their attractiveness (interest rates)also affects supply and demand scenario.

• Interest Rates: Low interest rates are attraction to buyers and generally increase real estate demand because loans become affordable. High interest rates generally have a

negative impact on real estate markets.

The Real Estate Business Cycle

• Real estate business cycles are different from typical business cycles.• They have more peaks and valleys and are difficult to predict.• Sometimes developers create undesired recession in real estate market by starting

many new home projects while the demand may be decreasing.

3.5 Mean, Median and Mode

The measure of Central Tendency of real estate values.Assume the following range of values ($):234,200 230,800 218,450 233,000 228,460 222,350233,000 219,600 233,000 227,240 234,800

Mean (Average)

►Add all Values and Divide by Number of Values.Mean or Average = 2,514,900 ÷ 11Mean = $228,627 (Rounded)

Median (The Value in Middle)

►Arrange all values in Ascending Order and Pick the Value in the middle.If the number of values is even (6, 8, 10, 12, etc.) take the average of the two values in the middle.

Example: Odd number of values (5, 7, 9, 11, 13, etc.)Arrange in Ascending Order

MiniCram Notes 21


218,450 219,600 222,350 227,240 228,460 230,800233,000 233,000 233,000 234,200 234,800

Since there are 11 values, the 6th value is in the middle.Median = $230,800

Mode

►The Value that appears most frequently or the most repeated value.

The value 233,000 appears most frequently in the given range.

Mode = $233,000


MiniCram Notes 22


4. PROFILES, TRENDS & REAL ESTATE VALUES

4.1 Ontario Profiles

Theories of Urban Economics• Urban economics considers general economics as well as geographic impacts on human

activities.• Geography is a study of earth, its features and how it affects human behavior.• Ontario may be divided into six geographic regions. The Southern Ontario has four

regions while the Northern Ontario has 2 regions.• The studies of urban economics concentrate on how cities grow, in what shape and what

patterns are formed in land use, densities of cities and, location of residential, commercial and transportation systems.

• Every theory considers five zones –

Ø Central Business ZoneØ Transition/Light IndustrialØ Working Class HomesØ Middle and Higher Income HomesØ Suburban/Commuter

Four Models• Concentric Circle Theory: This theory states that urban growth happens in concentric circles.

The central core is dedicated to business activities and is called Central BusinessDistrict (CBD).

• Axial Theory: This theory is based on Concentric Circles Theory but provides allowance for transportation systems. More growth occurs along major transportation routes. The

time taken to commute to and from work is taken into account.

• Sector Theory: This theory assumes that development occurs in sectors from the central business core. The factors for formation of sectors are transportation, commuting

time, etc. Each sector grows outwards and the division of sectors is based on income andsocial classes.

• Multiple Nuclei Theory: This theory considers growth of sub-urban core commercialareas which results in different traffic patterns, densities and land usage.

4.2 Types of Values

Different Perspectives

• Subjective Value: An estimate of value based on individual perception and exists only in the minds of buyers and sellers. It depends on Present Worth of Future Benefits of

ownership. Most estimates of value rely on Subjective Value.

• Objective Value: The direct cost or creating or Reproduction Cost. It includes cost of land

and improvements (building).

MiniCram Notes 23


• Market Price: The established sale price of a single property and is historic in nature (not

an estimate).

• Value in Use: This value is based on some unique improvements in property by seller (wheelchair accessible home) or certain specific needs of buyer (the home is close to

buyer’s aging parents).

• Value in Exchange: The probable price at which a commodity trades in free, competitive

and open market. This term is synonymous with the term Market Value.

• Investment Value: This value term is used for commercial properties. The estimate ofvalue is based on cash flows, return on investment and investor objectives.

Market Value

• Market Value is an estimate of value based on many Market Prices (sale prices).• Professional Appraisers use both Subjective and Objective values to provide final

estimate of Market Value.• They insist that their estimate is provided for a specific date only, known as Effective

Date of Appraisal.• Certain Assumptions are made during estimating market Value of a property –

Ø The property is exposed in open market.Ø Reasonable time is given for sale.Ø There is no undue pressure on either the seller or the buyer.Ø Both the seller and the buyer are equally informed, knowledgeable and willing.

4.3 Principles of Value

Anticipation• Buyers look for present worth of future benefits of ownership.• Example: A buyer considering a home may be looking at double garage as a definite

benefit while another buyer may think that it is wastage of space. Each of them is determining the value based on his/her anticipated benefits of the property.

Balance• Too much or too little services/amenities in a neighbourhood have an adverse effect on

property values.• Example: If just one grocery store is sufficient for a community, having two or three will

affect the value as none of them will achieve desired profits. Similarly, a single car garage in a very big house (should have been two or three) may affect its value.

Competition• Excessive profit breeds dirty and ruining competition where no competitor gets good

profit.• Example: Assume that two builders start new home projects in some town; none of them

will achieve expected profits if the consumer demand does not change.

MiniCram Notes 24


Conformity• Properties must conform to existing structural standards as per zoning to maintain value. • Example: Municipalities use zoning by-laws to maintain reasonable conformity of

structures in a particular zone.Builders maintain reasonable conformity in sub-divisions by maintaining a variety inresidential structures. A row of identical structures is an example of too much conformity,which may also be a negative factor.

Change• Value estimates are given for a specific date only because social, political and economic

factors impact the real estate market.• Example: An appraiser estimated the value of Judy’s bungalow in March at $295,000. In

the following months people started moving out of the area. This negatively affected the property values. In October of the same year, the estimated value of Judy’s bungalow

was reduced to $250,000.

Substitution• Buyers look for alternatives/comparable properties and best value for their money.• Example: Buyers usually do not make quick decisions when buying a property. They

consider other alternative properties and want the best bargain.

Consistent Use• Only one standard should be used to estimate value when the use of the property is

being converted (e.g. from residential to commercial).• Example: Consider an old residential property which is being converted to a commercial complex, which is the highest and best use. The appraiser should estimate its value based

on the converted highest and best use only and should not add the value ofexisting residential structure.

Highest and Best Use• Appraisers base the value estimate on highest and best use of land as permitted by

zoning by-laws, demand and financial feasibility.• Example: Consider a residential building where the zoning by-laws permit construction

of a three storey commercial complex. If it is financially viable and demand exists, a commercial plaza will provide highest and best use and, in turn, enhance the value of the property.

Supply and Demand• When supply is high (a large number of listings) but demand is low (very few buyers),

property values decrease and vice-versa.• Example: Assume that two large factories close down in some township resulting in lost

jobs for several thousand employees. This may result in large scale exodus of people from the town and the market would be flooded with listings. This will pull down the value of real estate in the town.

MiniCram Notes 25


External Factors• Things surrounding the property affect value such as value of a property backing on to heavy industrial area will be negatively affected. Also, the local economy; property taxes,wage levels; etc. affect real estate values.

• Example: One property is located in an area which is close to a big shopping mall. This has a positive effect on his property. Another is located in a different neighbourhood

known for a high crime rate. This has a negative effect on the value of this property.

Progression• If a small property is located among larger properties; its value tends to increase as

compared to its value if it were located among similar properties.• Example: Assume that owner Larson’s house is a small 1,200 square foot bungalow

located in a neighbourhood where all other houses are more than 2,500 square foot. The value of Larson’s house will tend to be higher than its normal value if it were located

among similar houses.

Regression• If a large property is located among smaller properties; its value tends to decrease as

compared to its value if it were located among similar properties.• Example: Value of a large property located among smaller properties will tend to

decrease. Consider Matheson’s large 3,500 square foot house located in a neighbourhood where most properties are smaller 1,800 to 2,000 square foot. The valueof Matheson’s house will be lower than its value if it were located among similar houses.

Contribution• If some feature is added to a property, appraisers look at its contribution to value and

may ignore the cost.• Example: Spending $15,000 to add a nice swimming pool may only add $8,000 to the

value of the house.

Increasing/Decreasing Returns• Successive addition of features in a property may not increase the value significantly as

value will reach its maximum at some point.• Example: If having one garage in a house adds 15,000 to its value it is not necessary

that having three garages would add 45,000 to the value.

Surplus Productivity• Four factors are involved in operation of a commercial property - Labour, Capital, Co-

ordination and Land.• When three factors of Labour, Capital and Co-ordination are satisfied, the remaining Net

Income can be used to estimate the value of fourth factor which is Land.


MiniCram Notes 26


5. CONSUMERS BEHAVIOUR & PROTECTION

5.1 Needs and Wants

Consumer Behaviour

• Consumer decisions are affected by both internal and external factors.• When it comes to buying or selling real estate, the decision is based on many factors

and is not quick.• Personality Traits and Psychographics affect the decisions because people have

different life styles, interests and activities.• Most people would follow what their friends and relatives are doing for the sake of

conformity.• Market Niche refers to segmentation of market based on similar psychographics, income

levels, lifestyles, ethnicity or culture.• Cultural values affect real estate buying decisions and marketing experts know how to

match available properties with needs of people with their culture.• People usually like to live with people of similar cultural values, ethics, rituals and

traditions.• Brand Loyalty refers to consumer’s commitment for a specific product or brand. In real

estate, buyers may go for homes built by a specific builder only. They may sacrifice other factors such as location.

• Product Appeal refers to increasing the appearance and attractiveness of a commodity. • Home Staging is an example of increasing the Product Appeal of the property by making

internal adjustments when showing it to buyers.

Needs and Wants

• Need is the fundamental biological or psychological aspect of desire; something that we

must have to survive.• Want is what we think we require to fulfill that need.• Humans live in the world of needs but marketing companies live in the world of wants.

Maslow’s Hierarchy of Needs

• According to Maslow, people keep moving up and down in a hierarchy of needsdepending on their specific circumstances.

• Physiological Needs are for self-preservation or survival. In real estate a shelter for living

refers to this need.• Security Needs refer to financial or physical security where money is the main issue. A

home in safe community is example.• Social Needs means that people want to belong to the society and have family relations.

A family buying a big home or a home with recreational room or large yard is an example.

• Ego Needs mainly serve the social or financial status of the person. For example,someone wants a very special custom built home.

• Self-Actualization Needs are for personal fulfillment or for satisfaction of one’s internal

potential or creativity. Needs of painters, writers, musicians are in this category.

MiniCram Notes 27


5.2 Consumer Vulnerabilities

• Representation Confusion: Consumers do not understand Agency Law and may disclose confidential information if registrants do not disclose who they represent in a transaction.

REBBA 2002 Code of Ethics makes it mandatory for registrants to disclose agencyrelationships before an offer is made.

• No Cooling Off Period: Cooling Off period refers to the time given to a consumer to cancel whatever action has been taken. In real estate, this time period typically does not exist

when a binding contract has been signed.

• Signing Documents: Consumers do not understand the wording of agreements and related documents. Registrants must ensure that consumers understand the wording of

agreements before signing.

• Including Conditions in Agreements: Registrants must protect the interests of their client by inserting necessary conditions in the agreements, such as mortgage financing and home

inspection. This is to make sure that the agreement does not become a legallybinding contract unless conditions are fulfilled.

• Respect Time Deadlines: Agreements related to real estate have time deadlines andregistrants must work diligently to ensure agreements do not get terminated.

• Legally Binding Contract: Consumers must understand that after acceptance andfulfillment of conditions, there is little chance to cancel the agreement.

• Keeping Finances in Order: Registrants must ensure that the consumer understandsadditional closing costs my increase the amount of down payment required.

5.3 Consumer Protection

The Consumer Protection Act

• The Consumer Protection Act is applicable to registrants when they make

representations about services.• Listing Agreements and Buyer Representation Agreements may fall under this law.• This law is not applicable when trading in real estate because the consumer is protected

by REBBA 2002.

The Competition Act

• The federal Competition Act is to ensure fair marketing practices by businesses including

real estate registrants.• Registrants must not make false, misleading or deceptive statements in advertisements.• Proof of intention to deceive is not required for charges under the Competition Act. • Due Diligence must be used to correct the error.• Material Fact refers to any information that may affect buying or selling decision.

MiniCram Notes 28


• General Impression Test: The definition of ‘Misleading’ includes non-literal impression given by advertisements. The actual wording of the advertisement may be technically

correct but its General Impression may still be false.

Ontario Human Rights Code

• This is an anti-discrimination law, provides for equal treatment to all consumers.• Consumers cannot be denied services based on their age, sex, ethnicity, race, colour,

nationality, family status, marital status or handicap, etc.

Personal Information Protection and Electronic Documents Act (PIPEDA)

• Consumer Consent: Registrants must get informed written consent from consumerswhen collecting, storing or disclosing personal information of consumers.

• Personal information can only be collected for a specific purpose. When the purposechanges, written consent must be taken again.

• Business Employees: The name, title or business address and telephone number of anemployee is not considered personal information.

• Safeguarding Personal Information: Registrants must take adequate steps to safeguard personal information. It must not be disclosed to third parties without written consent of

the consumers.

5.4 Morals and Ethics

• Morals are based on fundamental principles of personal beliefs regarding right and wrong. They are typically passed from generation to generation based on religious and

cultural values.• Ethics are cultural standards adopted by a particular society.• Business Ethics are complementary to Morals but are more specific to a particular

business.• Professional Standards are specific rules and regulations set out by professional

associations or regulatory bodies for a particular business activity.• Professional Conduct refers to activities of practitioners according to rules or guidelines

set out in applicable Codes.

5.5 Related Professionals

• Home Inspectors: Home inspection is typically requested by a buyer who wants to know the condition of the property before entering into a legally binding agreement. Home inspection

includes general condition of the structure, all visible components and electrical and mechanical systems. The home inspection should not be confused with

municipal building inspection under the Ontario Building Code (OBC).

• Mortgage Brokers: Mortgage Brokers act as an intermediary between lenders/investors and borrowers. They shop with different lenders to get competitive mortgage loan offers

from lenders. Their activities are regulated by the Financial Services Commission ofOntario (FSCO.

MiniCram Notes 29


• Lawyers: Lawyers provide legal advice to buyers of real estate. They are typically involved in closing procedures for residential and commercial properties. Lawyers are

regulated by the Law Society of Upper Canada (LSUC).

• Appraisers: Professional appraisers provide estimates of value or value opinions to consumers, which may be verbal or written. Written value estimates may be given usinga Form Report (short pre-printed form) or a Narrative Report (lengthy). Value estimates are provided for a specific date only.

• Surveyors: Land survey refers to diagrammatic representation of land and improvements. It legally defines property boundaries for the consumer. Surveys are

prepared by Ontario Land Surveyors who are subject to the Surveys Act and theSurveyors Act.

• Lenders: Chartered banks, trust companies, credit unions, life insurance companies, pensions funds, government agencies, etc. are primary sources of mortgage loans for

buyers. Private investors and sellers may also help finance the sale/purchase of properties. Lenders must provide a Cost of Borrowing Disclosure to borrowers becausethe true rate of interest may be different from the stated rate of interest.

• Insurance Brokers: Consumers need protection against property or business loss by getting insurance. Buyers typically seek Title Insurance for protection against defective title due to fraud, forgery or documentation errors. Insurance brokers also arrange Creditor Life

Insurance to buyers of real estate. Licensing and professional activities of insurance brokers are regulated by the Registered Insurance Brokers of Ontario (RIBO).


MiniCram Notes 30


6. MARKETING AND ADVERTISING

6.1 Marketing

Products and Services

• Tangible and Intangible: A property is a tangible (physical) product and marketing it isintangible service.

• Marketing Mix refers to combining activities and plans in order to sell a product or service. • Marketing Strategy vs. Marketing Plan: Marketing Strategy sets out specific

target markets to for effective marketing while Marketing Plan refers to the efforts and actionbased on the strategy.

• Core Competencies refer to skills and techniques to make up the competitive capacity. • Market Position refers to creating an identity in the minds of consumers.

4 P’s of Marketing• Product: The brokerage provides details of its services including brand name, guarantees,

quality of service, add-on services, etc. For the property, details of featuressuch as location, size, number of bedrooms, bathrooms, etc. may be provided.

• Promotion: For the brokerage, it includes institutional and specific advertising. For the property, it includes specific marketing efforts such as advertising media, direct

marketing, open houses, For Sale signs, etc.• Price: For the brokerage, it includes setting commission plans, incentives to clients,

bundled services. For the property, it refers to establishing a reasonable listing price.• Place: For the brokerage, it refers to methods used for send out the message to target

markets. For the property, it refers to methods used to attract buyers and sellers.

Customer Satisfaction

• Customer Service: Customer service in real estate is typically customized for specific buyers or sellers. For example, advertising in a specific manner, customized commission

plans, locating a specific property for the buyer, etc.• Defining Moments: This refers to reputation of the brokerage. Consumers keep track of

their experiences with any brokerage, its salespersons/brokers and its administrative staff. If the communication link is broken or if the customer is unhappy or had bad experience, it is unlikely that he/she will deal with the brokerage again.

• Value Added Services: Brokerages may use additional methods to promote seller’sproperty such as local MLS®, newspaper advertisements, providing home staging, etc.

6.2 Advertising

• Advertising by registrants is regulated under REBBA 2002, The Competition Act and the brokerage policy manuals. CREA®, OREA® and the local real estate board may also

establish advertising guidelines.• Institutional Advertising focuses on services provided in general rather than a particular

property.• Specific Advertising focuses on promoting a specific property.• Advertising on internet includes websites, email and social media.

MiniCram Notes 31


• Registrants can include added services such as mortgage calculator, links to lawyers,home inspectors, moving companies, etc. on their websites.

• Push Technology refers to pushing data to consumer’s computers using email.• Pull Technology refers to attracting consumers to web site, blogs, social media, etc.

The AIDA Rule• AIDA refers to Attention, Interest, Desire and Action.

Ø Attention: Attract the attention of the reader by creating a unique heading.Ø Interest: The advertisement must be able to generate interest of the reader by

listing features of services or the property.Ø Desire: Including plus points of the property or the neighbourhood generates a

desire in the consumer’s mind.Ø Action: The consumer must take an action such as making a call or by sending an

email.

6.3 Marketing Seller’s Property

The FOR SALE Sign

• The For Sale sign is very cost-effective method of advertising the listed property. • It is a 24-hour advertiser of the property and lets the property speak for itself.• The disadvantage is that if property is not sold the sign leaves a bad impression.

Open House

• An open house exposes the property to prospective buyers.• It and gives opportunity to the salesperson to expand contacts.• It convinces the seller that the registrant is making sincere efforts to sell the property.

The Multiple Listing Service®

• The MLS® service is provided by local real estate board to its members.• It is a centralized source of information on properties for sale, sold, expired listings and

other information such as analysis of market trends.• Sellers receive the benefit of wide market exposure to property while buyers get the

benefit of expanded selection.• MLS® procedures are regulated by board by-laws.


MiniCram Notes 32


7. BASIC MATH AND MEASUREMENTS

7.1 Percentages: The Whole, Part and Rate Concept

The Whole is a big number, the Part is a small number and the Rate (%) is a Percentage. The small number is a percentage of the big number.

►Part = Whole x Rate%

►Whole = Part ÷ Rate%

►Rate = Part ÷ Whole x 100

Calculating Part or Small AmountExample 1: Owner Bright sells his property for $420,000 (Whole) and pays 5%

commission (Rate) on the sale price. What is the amount of commission (Part)?Commission = 420,000 x 5%= $21,000

Calculating Whole or Big AmountExample 2: A brokerage gets $16,200 (Part) commission on a sale which is 4.5% (Rate)

of the sale price. What was the sale price (Whole)?Sale Price = 16,200 ÷ 4.5%= $360,000

Calculating Rate or PercentageExample: A property was sold for $350,000 and the brokerage got $19,250 commission.

What was the percentage of commission (Rate)?Commission Rate = 19,250 ÷ 350,000 x 100= 5.5%

Percentage Change (Increase or Decrease)To increase or decrease a number by given Rate, simply add or subtract the percentage. Example 1: A property was purchased last year for $376,000. The prices have gone up

this year by 8%. What is the current value of the property?Value = 376,000 + 8%= $406,080Example 2: The real estate prices in Cram City have decreased by 12% over the past

year. Mr. Horton purchased his home last year for $290,000. What is the value of his house this year?

290,000 ― 12%= $255,200

MiniCram Notes 33


To Calculate Percentage Change (Increase or Decrease)There are two values, one of them is the New Value and the other is Old Value.

►%Change = (New ― Old) ÷ Old x 100Example: The value of Martin's home last year was $340,000. Due to increased activity in

local real estate market, the value of his house this year has gone up to $370,000. What is the Percentage Change in value?

(370,000 ― 340,000) ÷ 340,000 x 100= 8.82%

Sale to List Price Ratio

►Sale Price ÷ List Price x 100Example: Seller Warden listed his home for $379,900 with Cram Realty Inc. After two

weeks in the market it was sold for $360,000. What was the Sale to List Price Ratio (rounded to two decimal places)?

360,000 ÷ 379,900 x 100= 94.76%

---------------------------------------------------

7.2 Measurements, Area and Volume

7.2.1 Area

Rectangle

►Area of Rectangle = Length X WidthExample: Buyer Bright wants to purchase an 1,800 square feet home and extend it by

making an additional room. He consults the city building department and is advised that he can extend his property by 12% of current area. What is the maximum size of the room he can build?

Permitted Extension = 1,800 x 12%= 216 Square FeetThe following room sizes are within permitted limits:

• 10 feet x 21 feet = 210 Square Feet• 12 feet x 18 feet = 216 Square Feet• 14 feet x 15 feet = 210 Square Feet

The following room sizes are not permitted as the area is over the limits:

• 11 feet x 20 feet = 220 Square Feet• 12 feet x 19 feet = 228 Square Feet

MiniCram Notes 34


Triangle

►Area of Triangle = Base X Perpendicular Height ÷ 2Example: Calculate the area in Square Feet of a right angled triangle which has a base of

47 metres and a perpendicular distance of 53 metres. (1 Square Metre = 10.76 Square Feet).Area = 47 x 53 ÷ 2 = 1,245.50 Square Metres.Convert to Square Feet1,245.50 X 10.76= 13,401.58 Square Feet.►Tip: Notice that the dimensions are given in Feet but the answer is required in terms

of Square Metres.

Parallelogram

►Area of Parallelogram = Length X Perpendicular Distance

Trapezoid

►Area of Trapezoid = Sum of Parallel Sides X Perpendicular Distance ÷ 2

7.2.2 Volume and Cost Estimate

Driveway

►Volume of Driveway = Length X Width X Height►Tip: Be aware that the depth of the driveway is typically given in Inches. Divide by 12

to calculate in feet.

Example: Owner Baldwin wants to construct new asphalt drive way for his new house.The driveway measures 36 feet long, 22 feet wide and 4 inches deep. The cost of construction is $130 per Cubic Yard. What would be total cost? Round your answer to nearest dollar. (1 Cubic Yard = 27 Cubic Feet)

Volume of the Driveway = 36 x 22 x 4 ÷ 12 = 264 Cubic FeetCost = 264 x 130 ÷ 27 = $1,271.11Rounded to Nearest Dollar = $1,271

Flat Roof Building (Warehouse or Industrial Building)

►Volume of Flat Roof Building = Floor Area X HeightExample: A flat roofed warehouse building has a frontage of 60 feet and depth of 230 feet.

The floor to top of roof distance is 21.5 feet. What is the approximate volume of this building inCubic Yards? (1 Cubic Yard = 27 Cubic Feet)

Wall Height = 21.5 + 0.5 = 22 feetVolume = 60 x 230 x 22 = 303,600 Cubic FeetConvert to Cubic Yard = 303,600 ÷ 27

MiniCram Notes 35


= 11,244 Cubic Yards►Tip: 6 inches (0.5 foot) below surface is added to wall height.

Gable/Sloped Roof Building

►Volume = Length X Width X Height

Or, = Floor Area X Height

Where; ►Height = Wall height + ½ Roof Height + 0.5 Ft.►Tip: Do not add 6 inches (0.5 foot) if the height is measured ‘from 6 inches below

surface’.

Example: The floor area of a two storey house is 1,040 square feet. The wall is 18 feethigh and the perpendicular height from eaves to the ridge is 8 feet. The construction cost is $126 per cubic yard. What would be the cost of construction? (1 Cubic Yard = 27 Cubic Feet)

Height = 18 + (8 ÷ 2) + 0.5 = 22.5 FeetVolume = 1,040 x 22.5 = 23,400 Cubic FeetCost = 23,400 x 126 ÷ 27= $109,200►Tip: Roof Height is the perpendicular distance between the ridge and the eves.


MiniCram Notes 36


8. MORTGAGE MATH

8.1 Liquid Assets and Closing Costs

Down Payment and Liquid Assets

►Down Payment = Purchase Price ― Mortgage Loan

►Mortgage Loan = Purchase Price ― Down Payment

►Liquid Assets = Purchase Price + Closing Costs ― Mortgage LoanThe mortgage loan may be a New Loan (buyer arranges his own loan) or Assumed Loan

(buyer assumes seller's loan)Example: Buyer Bright is looking to buy a home for $365,000. The lender has given him

pre-approval for a loan of $320,000. The total closing costs are $10,500. What Liquid Assets are required at the time of closing?

Total Closing Costs = $10,500Liquid Assets = 365,000 + 10,500 ― 320,000= $55,500

8.2 Mortgage Interest Rates

Compound Interest

►Amount Due After the Term = P x (1 + i)n

Where; P = Principal amounti = Interest rate per compounding periodn = Number of compounding periods in term

►Interest Amount = Total Amount ― PrincipalExample: Buyer Susan needs $18,000 after closing to do some renovations to the

property. Lender Power Financials Inc. has offered her this loan for a short term of three months at an interest rate of 9% per annum, compounded monthly. She does not have to make any payments drying the term. What is the amount of Principal and Interest payable after the term? What would be the amount of interest paid?

Interest Rate 9% Per Annum, Compounded Monthlyi = 9 ÷ 100 ÷ 12 = 0.0075Add 1 to get (1 + i) = 1.0075For 3 Months 1.0075 x 1.0075 x 1.0075Multiply with Principal 18,000 x (1.0075 x 1.0075 x 1.0075)Amount Owed After the Term (Principal and Interest) = $18,408.05Interest Paid = 18,408.05 ― 18,000 = $408.05

MiniCram Notes 37


Mortgage Averaging Formula

►Overall Average Interest

= [(1st Mortgage X Int. Rate) + (2nd Mortgage X Int. Rate)] ÷ Total Loan X 100

Example: Assume that an owner has a first mortgage for $250,000 at an interest rate of4.5% per annum. The second mortgage of $40,000 is at an interest rate of 8% per annum. Whatis the Overall Average Interest Rate if both mortgages have similar terms and amortizationperiods?

Total Loan = 250,000 + 40,000 = $290,000Multiply First Loan with its Interest Rate:250,000 x 4.5% = 11,250Multiply Second Loan with its Interest Rate:40,000 x 8% = 3,200Average Interest Rate = (11,250 + 3,200) ÷ 290,000 x 100= 4.98%

Principal & Interest (P&I) PaymentLocate the mortgage Payment Factor for the given Payment Frequency, Interest Rate

and Amortization Period.

►Payment = Loan x Payment Factor ÷ 1000Examples: Mortgage Loan = $250,000, Interest Rate = 6%, Amortization = 25 Years Monthly Payment = 250,000 x 6.398066 ÷ 1000 = $1,599.52Semi-monthly Payment = 250,000 x 3.195033 ÷ 1000 = $798.76Bi-weekly Payment = 250,000 x 2.949037 ÷ 1000 = $737.26Weekly Payment = 250,000 x 1.473680 ÷ 1000 = $368.42►Tip: Mortgage Payment Factors are provided in the exam.

8.3 GDS and TDS Ratios

Gross Debt Service Ratio (GDS)

►GDS% = (Principal & Interest + Tax) ÷ Income x 100Example: Ann has an annual income of $72,000 and is looking for a mortgage loan. The

estimated monthly Principal and Interest (P & I) payment would be $1,327.50. The annual property tax is $3,400. What is her GDS ratio?

Annual P & I Payment = 1,327.50 x 12 = $15,930GDS Ratio = (15,930 + 3,400) ÷ 72,000 x 100= 26.85%

MiniCram Notes 38


Total Debt Service Ratio (GDS)

►TDS% = (Principal & Interest + Tax + Loan) ÷ Income x 100Example: Buyer Sam has annual income of $64,000. His monthly mortgage payment is

$1,276.30 for a property that has annual tax of $3,240. In addition to this, he also pays $380.36 for a car loan. What is his TDS ratio?

Annual P & I Payment = 1,276.30 X 12) = $15,315.60Annual Loan Payment = 380.36 X 12 = $4,564.32TDS Ratio = (15,315.60 + 3,240 + 4,564.32) ÷ 64,000 x 100= 36.12%

Annual Income Using GDS or TDS Ratio

►Income = (P & I + Tax) ÷ GDS%

►Income = (P & I + Tax + Loan) ÷ TDS%Example: A buyer will have monthly mortgage payment of $1,240.70 on a property that

has monthly tax of $285.56. He also makes a monthly payment of $550 for another loan. If the lender uses 40% TDS ratio, what minimum annual income is required to qualify for this loan?

Annual P & I Payment = 1,240.70 x 12 = $14,888.40Annual Property Tax = 285.56 x 12 = $3,426.72Annual Loan Payment = 550 x 12 = $6,600Annual Income = (14,888.40 + 3,426.72 + 6,600) ÷ 40%= $62,287.80

Payment Using GDS or TDS

Step 1: Multiply Income with GDS% (or TDS%)

Step 2: Subtract Tax (and Loan if TDS ratio)

Step 3: Divide by 12 to get Monthly Payment

Example: Buyer Mac is considering purchase of a property with monthly tax of $312. Hisgross annual income is $55,000. What the maximum monthly payment (P & I) the lender will permit if a GDS ratio of 28% is used?

Annual Property Tax = 312 x 12 = $3,744Amount for PI and Tax = 55,000 x 28% = $15,400Annual P & I Payment = 15,400 ― 3,744 = $11,656Monthly P & I Payment = 11,656 ÷ 12= $971.33

MiniCram Notes 39


Maximum Mortgage Loan

Step 1: Multiply Income with GDS% (or TDS%)

Step 2: Subtract Tax (and Loan if TDS ratio)

Step 3: Divide by 12 to get Monthly Payment

Step 4: Locate the Monthly Payment Factor from Amortization tables

►Maximum Loan = Payment ÷ Monthly Payment Factor x 1000

►Down Payment = Purchase Price ― Maximum Mortgage Loan

Example: A buyer with annual income of $76,000 needs a mortgage loan for his new home purchase. The home has annual property tax of $3,200. Other monthly obligations amount to $420. If the lender uses 38% TDS ratio and the interest rate is 5.5% per annum amortized over a period of 25 years what is the maximum amount the buyer can borrow?

Annualized Loan Payment = 420 x 12 = $5,040Amount for PI, Tax and Other Loan = 76,000 x 38% = $28,880Annual P & I Payment = 28,880 ― 3,200 ― 5,040 = $20,640Monthly P & I Payment = 20,640 ÷ 12 = $1,720►Monthly Mortgage Payment Factor for 5.5% and 25 year Amortization is 6.103915. Maximum Mortgage Loan = 1,720 ÷ 6.103915 x 1000= $281,786.36


MiniCram Notes 40


9. CAPITALIZATION, TAXATION AND CLOSING

ADJUSTMENTS 9.1 Capitalization

9.1.1 Estimate of Value Using Cap Rate

►Value (V) = Net Operating Income (I) ÷ Cap Rate (R)

►Cap Rate (R) = Net Operating Income ÷ Value (V) x 100

►Net Operating Income = Effective Income ― Operating ExpensesExample: The annual Effective Gross Income of a commercial rental property is $550,000

and the annual operating expenses are $326,500. What would be the estimated value of this property based on a Cap Rate of 11.5%?

Net Operating Income = 550,000 ― 326,500 = $223,500Value = 223,500 ÷ 11.5% = $1,943,478.26Valued Rounded to Nearest $100 = $1,943,500

9.1.2 Estimate of Net Income from Operating Statement

Net Income = Potential Income ― Loss ― ExpensesExample: Investor James is considering purchase of a rental apartment building located

in Cram City. The owners have given him the last years operating statement which shows annual gross potential income of $785,600 with a vacancy and credit loss of 4.5%. The annual operating expenses are estimated to be $527,850. What is the estimated value of this property if a cap rate of 9.5% is used?

Net Operating Income = 785,600 ― 4.5% ― 527,850 = $222,398Value = 222,398 ÷ 9.5% = $2,341,031.58Valued Rounded to Nearest $100 = $2,341,000►Tip: To estimate of Value per Square Foot or per Square Metre, divide by total area of

the property.

Example: Buyer Bright is purchasing a 9,500 square feet commercial building. The owner's operating statement shows an annual Effective Gross income of $364,500 with annual operating expenses amounting to $276,200. If a cap rate of 12.5% is used, what is the estimated per square foot value of the property?

Net Operating Income = 364,500 ― 276,200 = $88,300Value = 88,300 ÷ 12.5% = $706,400Value per Square Foot = 706,400 ÷ 9,500= $74.36

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MiniCram Notes 41


9.2 Property Tax

• Annual Property Tax is based on the Assessment Value of the property. Assessment Value

is also known as Current Value Assessment (CVA).• Tax Budget is also referred to as ‘Amount of Taxes to be Collected’ by the Municipality.

►Tax Rate = Tax Budget ÷ Tax Base x 100

►Property Tax = Assessment Value x Tax RateExample 1: The municipality of Cram City has a Tax Base of $96,800,000 and the amount

of taxes to be collected this year is $3,100,000. What tax rate is required to meet the budget?Tax Rate = 3,100,000 ÷ 96,800,000 x 100= 3.20%Example 2: If Henderson's house in Cram City has assessment value of $425,000 what

is his annual Property Tax in the current year?Property Tax = 425,000 x 3.20%= $13,600

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- 9.3 Land Transfer Tax

• The provincial Land Transfer Tax is based on provisions of the Land Transfer Tax Act.• It is calculated on Purchase Price (Value of Consideration).• A graduated scale of tax rates is used instead of single tax rate.

Residential Single-family and Duplex Properties

On the first $55,000 0.5%

On next $195,000 1.0%

On next $150,000 1.5%

On balance over $400,000 2.0%Example 1: Single-family home, Purchase Price $48,000.Amount is below $55,000.Land Transfer Tax = 48,000 x 0.5% = $240

Example 2: Purchase Price $165,000.Amount is over $55,000 but below $250,000.Break up the amount-55,000 x 0.5% = 275

MiniCram Notes 42


110,000 x 1.0% = 1,100Land Transfer Tax = 275 + 1,100 = $1,375

Example 3: Purchase Price $320,700.Amount is over $250,000 but below $400,000. Break up the amount-55,000 x 0.5% = 275195,000 x 1.0% = 1,95070,700 x 1.5% = 1,060.50Land Transfer Tax = 275 + 1,950 + 1,060.50 = $3,285.50

Example 4: Purchase Price $448,300.Amount is over $400,000. Break up the amount-55,000 x 0.5% = 275195,000 x 1.0% = 1,950150,000 x 1.5% = 2,25048,300 x 2% = 966Land Transfer Tax = 275 + 1,950 + 2,250 + 966 = $5,441

Vacant Land and Commercial Properties

On the first $55,000 0.5%

On the next $195,000 1.0%

On balance over $250,000 1.5%►Tip: Up to a value of $250,000 there is no difference in calculations for residential

property and vacant land.

Example 1: Vacant parcel of land purchased for $240,000.55,000 x 0.5% = 275185,000 x 1.0% = 1,850Land Transfer Tax = 275 + 1,850= $2,125

Example 2: A commercial building purchased for $650,000.55,000 x 0.5% = 275195,000 x 1.0% = 1,950

MiniCram Notes 43


400,000 x 1.5% = 6,000Land Transfer Tax = 275 + 1,950 + 6,000= $8,225

Example 3: Industrial Building (Commercial) purchased for $825,000.55,000 x 0.5% = 275195,000 x 1.0% = 1,950575,000 x 1.5% = 8,625Land Transfer Tax = 275 + 1,950 + 8,625= $10,850

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- 9.4 Closing Adjustments

Statement of Adjustments• After closing, the lawyers for sellers and buyers send a Final Reporting Letter to their

respective clients.• This letter contains Statements of Adjustments showing the history of financial

transactions.• For the purpose of adjustments, the seller is owner of the property up to 1 day before

closing.• The buyer is owner from the closing date onwards.• Typically, adjustments are done for Fuel Tank, Rents, Property Tax, Unmetered Utilities

and Mortgage Interest.• Adjustments are not done for Metered Utilities and Mortgage Principle.• Seller’s property insurance is neither adjusted, not it is transferred to buyer. The buyer

must arrange own insurance.

9.4.1 Fuel Tank Adjustments

• Ignore the Closing Date.• Calculate the amount required to fill the tank.• Typically, the credit goes to the seller.

Example: A seller sells a property with a closing date of August 15, 20xx. The propertyhas an oil fired furnace and there is a 250-gallon oil tank. The seller fills the tank a day beforeclosing. The fuel cost is $5.75 per gallon. On the Statement of Adjustments who gets credit andwhat is the amount?

Adjustment = 250 x 5.75= $1,437.50 Credit to Seller.

MiniCram Notes 44


9.4.2 Rent Adjustments

Rent is usually paid on monthly basis. You need to know the closing date as well as number of days in the month of closing for adjustment calculations. Seller is owner of the property up to one day before closing.

Advance Rent (Paid on 1st Day of Every Month)

• Count the buyer’s days of ownership.• Credit goes to the buyer.

Example: A rental property is sold with a closing date of September 17, 20xx. The tenantpays the monthly rent of $1,850 in advance every month. Who gets credit on Statement of Adjustments and what would be the amount?

Days in September = 30Seller’s days = 16Buyers day’s = 14Adjustment = 1,850 ÷ 30 x 14= $863.33 Credit to Buyer.

Rent in Arrears (Paid on Last Day of Every Month)

• Count the seller’s days of ownership. It is up to one day before closing.• Credit goes to the seller.

Example: A property is sold with a closing date of May 10th. The tenant pays the monthly

rent of $1,400 in arrears. On the Statement of Adjustments who gets credit and what would be the amount?

Days in May = 31Sellers Days = 9Buyers Days = 22Adjustment = 1,450 ÷ 31 X 9= $420.97 Credit to Seller.

9.4.3 Property Tax Adjustments

Property Tax adjustment is done on an annual basis i.e. 365 days.You need to know the closing date and number of days in each month of the year.

• Count the days for the person who did not pay.

MiniCram Notes 45


• If Tax is Paid, count buyer’s days and the credit goes to the seller.• If Tax is Not Paid, count Seller’s days and the credit goes to the buyer.

Example 1: Seller Paid the TaxSeller Smart has sold his property with a closing date set for October 12, 20xx. In the

current year the property tax is $2,760 and he has paid the amount in full. Who gets credit on the Statement of Adjustments and in what amount?

Count Buyer’s days of ownership from Closing Date October 12th to December 31st. Buyers Days = 81Buyer’s Share of Tax = 2,760 ÷ 365 x 81 = $612.49Adjustment = $612.49 Credit to Seller.

Example 2: Seller Did Not Pay the TaxSeller Smart sells his property with a closing date of May 20, 20xx. The annual property

tax is $3,280 and has not been paid yet. Who gets credit on the Statement of Adjustments andwhat would be the amount?

Count seller’s days of ownership which is from Jan 1st up to one day before closing i.e. May 19th.

Seller’s Days = 139Seller’s Share of Tax = 3,280 ÷ 365 x 139 = $1,249.10Adjustment = $1,249.10 Credit to Buyer.


MiniCram Notes 46


PART II – PRACTICE QUESTIONS

SAMPLE EXAM 1

Take a blank sheet of paper to write your answers. The Quick Answer Key is located after the last question followed by Detailed Answers.

1. Which of the following statements is correct about organized real estate?A. OREA® is responsible for licensing of real estate salespersons in the province of

Ontario.B. All registrants must abide by the CREA® Code of Ethics.C. REBBA 2002 does not require any registrant to become a member of organized

real estate.D. It is mandatory for every registrant to become a member of organized real estate.

2. Which of the following statements is correct about typical real estate commission?A. Commission is paid by the seller to the listing brokerage and then it is forwarded

to lawyers for distribution.B. Commission split refers to division of commission between a brokerage and its

salesperson.C. Commission allocation is decided by the seller's lawyer based on sale price.D. Gross commission to a brokerage is also known as the total commission paid by

the seller.

3. Which of the following statements correctly describes the role of a property manager?A. A property manager performs administrative activities on behalf of the owners. B. A property manager is essentially a building superintendent.C. Since the function of the property manager is to keep the property leased and

collect rental income, he is essentially a leasing agent.D. A property manager helps the owners in all financial matters including evaluation

for the purpose of sale.

4. Which of the following RECO insurance coverage does not have a provision for deductible when a salesperson makes a claim?

A. Errors and OmissionsB. Commission ProtectionC. Negligent MisrepresentationD. Consumer Deposit Protection

5. Which of the following is a correct statement regarding real estate market?A. When the number of properties available for sale roughly equals the number of

buyers the values start increasing.B. When the market starts correcting itself, consumer confidence increases and

demand for real estate suddenly goes up.C. Real estate market is rarely impacted by demographic changes as housing is

primary necessity and everyone needs a shelter.

MiniCram Notes 47


D. When many builders start new subdivisions resulting in excessive inventory of new

houses, the prices may fall.

6. Which of the following is an example of subjective value?A. An owner making a recreation room by spending $25,000.B. The cost of replacing the roof is $3,600.C. A builder spending $12,000 on upgrades to a home and asking for $15,000 more.D. A property sold a week ago for $285,000.

7. Which of the following is a correct statement regarding statistical analysis of economy?A. When consumer confidence increases, it is an indication that the demand will also

increase.B. A decline in purchasing power of dollar is an indication of decline in consumer

prices.C. Consumer Price Index rarely helps analysts in study and identification of the

changes in economy.D. The data about resource markets is essentially comprised of labour, finances and

consumers.

8. Which of the following statements is correct about real estate values?A. Value in Use is same as Objective Value but it is used for commercial properties. B. Subjective Value is based on perception of future benefits of ownership.C. Market Price is an estimate of value based on buyer’s interest in a specific

property.D. Market Value is an established value based on some specific improvements in the

property.

9. Which of the following disclosures is mandatory for consumer protection when a salesperson presents an offer to his client for signing?

A. The number of years the salesperson has been registered.B. Motivational information of the client.C. Commission split of the salesperson with his brokerage.D. The role of the brokerage in the transaction.

10. In order to be successful in real estate trading, the salesperson:A. Needs to understand the needs and wants of the clients.B. Must make sure that clients select only the houses made by a specific builder.C. Should be proficient in all information related to residential as well as commercial

structures.D. Must make sure that any information that harms personal interests of the client is

not disclosed.

11. Builders usually hire a number of salespersons for marketing activities. Which of the following situations would permit a salesperson to sell new homes without being registered under REBBA 2002?

A. When the salesperson is working full time with a registered brokerage.

MiniCram Notes 48


B. When the salesperson works as full time salaried employee and only sells newhomes of that builder.

C. When the salesperson works either full time or part time as an employee and getsa fixed commission for each sale.

D. When the salesperson works as full time independent contractor and getscommission for each sale.

12. A real estate brokerage is treated as a business entity. Which of the following statements is correct in this regard?

A. If the brokerage is a sole proprietorship, there is an assurance of continuity ofbusiness after the death of the owner.

B. A brokerage as a corporation must hire a Broker of Record who is responsible forcompliance with REBBA 2002.

C. In case of partnership, each partner is severally and jointly responsible for theliabilities of the brokerage business.

D. For trading purposes, REBBA 2002 does not differentiate between a corporation,partnership or a sole proprietorship.

13. Salesperson Mini of Cram City Realty Inc. is looking at alternate business activities to expand her client base. Which of the following statements is correct regarding activities related to real estate trading?

A. A mortgage broker acts as a middleman between the lenders and investors and ispaid by both upon finding a borrower.

B. The main function of a property manager is to keep the property leased, deal withtenants and act as an administrator for the owners.

C. Although appraisers are qualified to evaluate real property, they are rarely hired by

residential or commercial buyers.D. Since real estate brokerages are directly regulated under REBBA 2002, they need

not comply by any other provincial or federal law.

14. Identify which of the following statements correctly describes the characteristics of real estate market.

A. Real estate market is a part of national economy and must follow the typicalbusiness cycles.

B. The real estate market is impacted by local economy but is never impacted by local

tax levels or employment conditions.C. Real estate market cycles have more variations than typical business cycle and it

is difficult to make forecasts.D. Real estate sales data is always available from local boards and mortgage lenders.

15. A new car plant has been planned for Cram City and it is expected to create employment for about 1,500 people. As a result of this:

A. The demand for real estate may increase and prices are expected to go up.B. The real estate market will not be affected because the builders will balance the

supply and demand easily with quick addition of new residential subdivisions.C. The Consumer Price Index will stabilize due to increased employment

opportunities.

MiniCram Notes 49


D. There will be no effect on real estate market but local businesses may get someadvantage.

16. Real estate market in a typical urban area is impacted by many factors. Which of the following is NOT one of them?

A. New developments in the town increase availability of new homes and widerselection to buyers.

B. New industries in the town rarely affect the local real estate market becauseworkers do not prefer living near their workplace.

C. Mortgage rates are dominated by supply and demand of capital and have a majorimpact on real estate activities.

D. Higher wage levels in a particular town result in more and more buyers looking forlarger homes.

17. Businesses undergo a series of changes over a period of time, resulting in a pattern known as business cycle. Which of the following statements is incorrect with respect to a typical business cycle?

A. The consumer confidence is typically high during prosperity and the demand forreal estate goes up.

B. In recession times, there may be a large number of listings but very few buyers.C. When recovery starts, it creates new employment opportunities and slowly the

demand for real estate picks up.D. The real estate market during recession is known as seller’s market due to high

supply and low demand.

18. Newly registered salesperson Mini is studying a neighborhood to gain some experience. She wants to learn about things that usually affect property values. Which of the following is a correct statement regarding principles of value?

A. Principle of Substitution states that buyers usually look for better maintainedproperties even if they cost more.

B. Principle of Highest and Best Use states that a property must be evaluatedaccording to its commercial use.

C. Principle of Progression states that the value of a 20-year old 1,200 square foot house, located in a neighborhood where other houses are 30-year old and 3000

square feet, will tend to increase.D. Principle of Change suggests that changes in real estate market rarely affect the

property prices because market is usually balanced.

19. A neighborhood in Cram City is in bad shape as the properties have become very old and even inhabitable. Owner Smart in that neighborhood sells his 65 year old house situated on a 1.2 acre lot. It is purchased by a builder with a clear intention of demolishing the house and converting it into an office building. Smart tells salesperson Kim that he got $550,000 for the property and out of this price, $100,000 was for the house. Kim insists that he only got land value. Which principle of value is applicable in this situation?

A. Principle of ChangeB. Principle of Consistent useC. Principle of Supply and demandD. Principle of External factors

MiniCram Notes 50


20. Owner Bright is discussing sale of his upgraded house with salesperson Mini of Cram Realty Inc. During the conversation, Bright makes the following statement:

"When I'm telling you that I spent $12,000 on new windows, $20,000 on new sun room and $6,000 on the swimming pool, why don't you agree that my house value has gone up by $38,000? Why do you insist that it has increased only by $30,000?"

Which principle of value that can be used to dispute the above statement by the owner?A. Principle of ContributionB. Principle of Highest and Best UseC. Principle of BalanceD. Principle of Increasing/Decreasing Returns

21. A new home buyer is negotiating purchase of a home with a builder. Duringdiscussions, the buyer insists that his home should look entirely different from others so thatpeople can recognize it from a distance. As per Maslow's Hierarchy, this type of need is best known as:

A. Social NeedB. Ego NeedC. Physiological NeedD. Security Need

22. In real estate business, the registrants are required to ensure that the interests of their clients are protected. Which of the following statements correctly describes an acceptable activity by a salesperson?

A. A salesperson advises his buyer client that new homes are already inspected andthey need not spend money on another home inspection.

B. A salesperson advises a seller client that they need to disclose material facts about

the property only if the buyer requests.C. A salesperson asks the buyer client to use only that lawyer which he recommends

to every client.D. A salesperson asks several questions from the seller client during listing

agreement and discloses the role of his brokerages in the transaction.

23. Consumers consider several factors before deciding to buy a home and they do not make quick decisions. Which of the following statements is incorrect regarding typical consumer behaviour?

A. Many buyers stick to homes built by a particular builder because of brand loyalty. B. Most buyers make a decision based on their specific needs and wants at a

particular stage of life.C. Cultural values rarely impact buying decisions because buyers always want

affordable home irrespective of where it is located.D. Division of real estate market based on similar interests of consumers creates a

market niche.

24. Seller Smart has listed his business for sale with salesperson Mini of Cram Realty Inc. Smart had given a number of financial statements to the salesperson in order to help sell

MiniCram Notes 51


the property. Which of the following statements is correct regarding these documents as per the PIPEDA?

A. The brokerage is permitted to keep the documents in electronic format if the sellerwants the originals returned to him.

B. All documents related to the business, including the listing agreement and financial statements must remain in the brokerage office and the salesperson cannot keepthe copies in his possession.

C. The salesperson working on behalf of the brokerage can disclose businessinformation to any buyer without seller’s consent.

D. The salesperson must convert all documents to electronic format in order tocomply with the Act.

25. Real estate brokerages employ several methods to promote their services and products. Which of the following statement is incorrect regarding marketing activities?

A. While promotion of services of a real estate brokerage as a whole is important, thebrokerages also promote current listings they have.

B. Establishment of right commission structure for the sellers is one of the elementsof a marketing mix known as ‘Product’.

C. While the services of the brokerage are an intangible aspect of marketing, thelisted properties are tangible.

D. Brokerages can enhance customer satisfaction by providing value added services.

26. Salesperson Mini of Cram Realty Inc. is trying to get an idea of market trend of residential properties in Cram City. During her research she has come across the following sale prices in recent past:

240,000; 236,800; 242,400; 233,600; 235,000; 242,900;

237,200; 234,500; 241,400; 243,100; 235,000; 238,300;

235,600

What are the Mean, Median and Mode of above Values?A. 234,500; 245,100; 233,000B. 238,138; 237,200; 235,000C. 234,500; 237,200; 242,900D. 238,138; 235,000; 238,300

27. Salesperson Mini of Cram Realty Inc. lists a residential property for $795,900 at 5.5% total commission. The sellers agreed for even distribution of commission between listing and selling brokerages. After a few days on MLS®, the property is sold by salesperson Skinny of the same brokerage for 96% of asking price. Mini works on 75/25 split while Skinny works on 90/10 split. What would be the commission for Mini, Skinny and the brokerage?

A. Mini - $15,758.82; Skinny - $18,910.58; Brokerage - $21,011.76B. Mini - $18,910; Skinny - $5,252.94; Brokerage - $2,101.18C. Mini - $15,758.82; Skinny - $18,910.58; Brokerage - $21,011.76D. Mini - $15,758.82; Skinny - $18,910.58; Brokerage - $7,354.12

MiniCram Notes 52


28. Salesperson Mini lists a different property for $579,900 at a total commission of 5% with 55% for the co-operating brokerage. The property is sold by salesperson Kim of Power Realty Inc. for $562,000. Mini works with her brokerage Cram Realty Inc. at 70/30 split while salesperson Kim works with Power Realty Inc. at 85/15 split. What was the commission for these two salespersons and for the two brokerages?

A. Mini - $8,851.50; Kim - $13,136.75; Cram - $3,793.50; Power - $2,318.25 B. Mini - $13,136.75; Kim - $8,851.50; Cram - $3,793.50; Power - $12,645 C. Mini - $8,851.50; Kim - $13,136.75; Cram - $2,318.25; Power - $3,793.50 D. Mini - $8,851.50; Kim - $13,136.75; Cram - $15,455; Power - $2,318.25

29. Mini was also working on another deal in the same town which closed last week. She got a commission cheque in the amount of $11,687.50 for that deal. The total commission 5% which seller paid was evenly distributed between listing and selling brokerages. If Mini’s brokerage had kept 15% of its gross commission, what was the sale price?

A. $550,000B. $489,900C. $390,000D. $505,500

30. Salesperson Mini now starts prospecting in the area and finds another buyer who is interested in buying a small home. He has an equity of $70,000 available for the purchase. He does not want the mortgage loan to exceed 8/10th of the value of home. What is the maximum value of home he can buy?

A. $320,000B. $350,000C. $380,000D. $420,000

31. Salesperson Mini lists one of her client’s property for sale. The property is about 2.5 Acres in size. After the listing is posted online, a builder expresses interest in it. He would like to sever the land into four equal parcels after purchase. The municipal zoning permits this with 15% allocation for a sidewalk. What would be the square footage of each parcel ofland? (1 Acre = 43,560 Square Feet)

A. 21,411 Square FeetB. 22,675 Square FeetC. 23,141 Square FeetD. 23,847 Square Feet

32. Salesperson Mini of Cram Realty Inc. is getting ready for another listing presentation. She is comparing three recent sales in the community. Property A was listed for $824,900 and was sold for $805,000. Property B was listed for $799,900 and sold for $788,500. Property C was listed for $809,900 but sold for $33,700 less. Arrange these properties in ascending order of Sale to List price ratio.

A. Property C, Property B, Property AB. Property B, Property C, Property AC. Property A, Property C, Property BD. Property C, Property A, Property B

MiniCram Notes 53


33. Buyer Binny needs to rent a 3,600 square feet office in a building in downtown area of Cram City. The annual rental rate in this building last year was $12.50 and it goes up by $1.25 every year. What is the percentage change in rent from last year to this year and from this year to next year respectively? What will be the monthly rent next year?

A. 8.05%; 9.09%; $3,579B. 10%; 9.09%; $4,500C. 10.5%; 8.09%; $4,500D. 8.05%; 10.89%; $3,579

34. Since Binny has a huge lot size he would like to sever a triangular portion out of it. This right angled triangle has two perpendicular sides- one side being 197 feet and the other 240 feet. The third side is 310.5 feet. What is the area of this piece of land in square metres?

(1 Square foot = 0.0929 Square Metre)A. 2,196 Square MetresB. 5,910 Square MetresC. 11,820 Square MetresD. 23,640 Square Metres

35. Calculate the area of the shaded portion of the following parcel of land:

A. 210.12 Square MetreB. 219.08 Square MetreC. 238.70 Square MetreD. 245.68 Square Metre

36. For the bungalow mentioned in earlier question, the driveway would have the following dimensions. Length is 45.5 feet and the width is 24 feet 9 inches. The paving company needs a minimum of 4-inch depth for gravel and asphalt. If the cost is $97.50 per cubic yard, calculate this amount to the nearest dollar. (1 Cubic Yard = 27 Cubic Feet)

A. $4,068B. $1,356C. $16,272D. $36,599

MiniCram Notes 54


37. Six months after buying the property, Binny wants to construct a single storey addition to this property. The plan is to have a floor area of 1,460 square feet. The wall height would be 2.89 metres with roof being 7.5 feet high. If the construction company quotes $146.80 per cubic yard, what would be the construction cost? Round your answer to nearest $100. (1 Metre = 3.281 Feet)

A. $109,000B. $134,760C. $160,438D. $560,000

38. Instead of the additional bungalow, Binny decides to go for a one and half storey home with two dormers - one measuring 4.25 feet x 5.30 feet and the other 4.70 feet x 6.10 feet. The floor at the ground level would be 34 feet wide with a depth of 46.8 feet. The upper level would have width of 22 feet. What is the total square footage of this house?

A. 2,621.80 Square feetB. 1,934 Square feetC. 3,234 Square feetD. 2,672 Square feet

39. Buyer Binny is informed by the bank that it uses 38% TDS ratio for all mortgage loans. Binny estimates that his monthly payment of principle and interest would be $1,683.46. The annual property tax is $6,800. Binny is also making a monthly payment of $515.30 for a car loan. What is the minimum income required to qualify for the mortgage loan? Round your answer to nearest $100.

A. $43,600B. $72,400C. $87,300D. $98,700

40. Binny's friend approaches salesperson Mini with a few mortgage related questions. This lady has an annual income of $78,000. She wants to buy a bungalow in the downtown area. The bank uses 32% GDS ratio for all mortgage loans. If the annual property tax is $3,250 for the property she selects, what would be her P & I payment per month?

A. $1,809.17B. $2,140.54C. $2,432.50D. $2,500.48

41. Mini has become a popular salesperson in the community. Another prospective buyer needs a mortgage loan for his property. He has annual income of $62,500 and is paying $340 per month for a car loan. His monthly property tax is $321.68. The bank uses 40% TDS ratio and is ready to finance at an interest rate of 5.75% per annum, amortized over 25 years. What is the maximum amount this buyer can borrow (rounded to nearest dollar)?

A. $177,592B. $227,456C. $256,782D. $271,298

MiniCram Notes 55


42. Buyer Binny is ready to buy the property listed by salesperson Mini and is calculating the liquid assets he would need for closing. The purchase price is $764,000 and seller has an existing mortgage of $456,500. Buyer will not be assuming this mortgage but paying all cash for the purchase.

Other closing costs are as follows:

• Land transfer tax $15,280• Legal fees $1,560• Closing adjustments $4,800• Moving expenses $1,600• Funds for major purchases $3,500

What liquid assets would be required by the buyer at the time of closing?A. $334,240B. $564,000C. $972,470D. $790,740

43. Binny just realized that the house on the property would need major renovations. He estimated expenses would be $46,000. Binny approaches a lender who offers this loan at 18% per annum interest rate compounded monthly for a term of 3 months. If Binny does not have to pay principal or interest during the term, how much interest would Binny owe to lender after the term?

A. $24,840.56B. $1,710.47C. $2,101.21D. $48,101.21

44. The deal for the freehold house is done for $764,000 and is set to close on August 25, 20xx. What would be the amount of land transfer tax that buyer Binny would have to pay?

A. $7,640B. $9,460C. $9,935D. $11,755

45. The Cram City municipality has a tax base of $92,000,000 and the amount of taxes to be collected his year is $1,200,000. If Binny’s property has a current value assessment of $742,000 what would be his monthly property tax?

A. $573.58B. $806.52C. $6,882.96D. $9,678.26

46. Binny finds out that the house has an apartment which is rented at $1,650 per month to a tenant. Salesperson Mini tells buyer Binny that he can continue to rent the apartment. The tenant pays the rent in advance. If the property is sold as scheduled on August 25, 20xx who will get credit on the statement of adjustments and what would be the amount?

MiniCram Notes 56


A. Seller - $319.35B. Seller - $1,277.42C. Buyer - $1,375.00D. Buyer - $372.58

47. The property has an oil fired furnace with a 600 litre on-site oil tank. The seller is ready to put about 270 litres of oil to fill the tank before closing date. If heating oil is available for $1.25 per litre, who gets credit and what would be the amount?

A. Buyer - $337.50B. Seller - $750.00C. Buyer - $412.50D. Seller - $337.50

48. Binny is considering investment in a commercial building comprising of 11,400 square feet of gross floor area. The annual potential income is estimated to be $484,200 with a Vacancy loss of 4%. The annual operating expenses are estimated to be $322,500. If a cap rate of 11.25% is used, what is the estimated value of this building per square foot and persquare meter? (1 Square Metre = 10.76 Square feet)

A. $110.98; $10.31B. $173.33; $1,109.8C. $110.98; $1,194.14D. $128.92; $1,941.37

49. What would be the estimated value of a property which has gross effective income of $180,000; expenses amounting to $105,800 and capitalization rate of 9.85%?

A. $1,0741,000B. $753,300C. $550,260D. $$285,800

50. Binny's house currently has 248 square meters of living area. He wants to make an additional structure. The Cram City municipality permits such an extension but the additional structure cannot be more than 22% of the existing living area. Which of thefollowing dimensions would be permitted for the additional structure? (1 SquareFoot = 0.0929 Square Metre)

A. 19.54 ft X 28.26 ftB. 21.35 ft X 31.20 ftC. 22.50 ft X 32.15 ftD. 24.80 ft X 26.42 ft

------------------Back to Sample Exam 1 Detailed Answers

Back to Table of Contents

MiniCram Notes 57


QUICK ANSWER KEY

SAMPLE EXAM 1

1. C 2. B 3. A 4. D 5. D

6. C 7. A 8. B 9. D 10. A

11. B 12. C 13. B 14. C 15. A

16. B 17. D 18. C 19. B 20. D

21. B 22. D 23. C 24. A 25. B

26. B 27. D 28. A 29. A 30. B

31. C 32. D 33. B 34. A 35. A

36. B 37. A 38. D 39. C 40. A

41. B 42. D 43. C 44. D 45. B

46. D 47. B 48. C 49. B 50. A

------------------

Back to Sample Exam 1 Detailed Answers


MiniCram Notes 58


SAMPLE EXAM 2


1. Which of the following is a correct statement about condominiums?A. The unit owners participate in the registration of the condominium corporation.B. Unit owners are only responsible for their unit while the corporation is responsible

for the common elements.C. Unit refers to a specified space in the building while common elements are outside

units.D. A condominium corporation is created after registration of an Article of

Incorporation.

2. Salesperson Jenny of Power Realty Inc. wants to work in rural areas. For this:A. Jenny is required to have knowledge of local regulations affecting the use of

properties.B. She can assume the transactions are very similar to those in urban areas. C. She has to get rural/recreational specialist designation from RECO.D. Jenny must join a rural brokerage because only these are permitted to trade in

rural properties.

3. Which of the following is a correct example of subjective value?A. An owner spending $20,000 to make a recreational room in the basement.B. A builder spending $110,000 to buy land and another $175,000 to make the

structure.C. Owner Bright spending $3,500 to paint the entire house before listing and

increasing the list price by $8,000D. A developer purchasing 12 acres of development land at the rate of $85,000 per

acre.

4. Which of the following statements most correctly describes consumer behavior when deciding about purchase of a house?

A. People always follow their friends and relatives when buying a house.B. Most people look at the price affordability in addition to their social and security

needs.C. People are rarely concerned about cultural values when making a decision.D. Typically, people with different mind sets and different age groups will go for same

type of housing when it comes to buying a new house.

5. Which of the following is an example of characteristics of real estate market?A. Real estate market is local because properties have fixed location and values are

impacted by local economic conditions.B. The real estate market reacts very quickly in response to deteriorating overall

economic conditions.C. All data about real estate transactions is available because real estate boards post

it on the internet.

MiniCram Notes 59


D. Real estate business cycles are similar to other business cycles because bothhave similar peaks and valleys.

6. Which of the following theories of urban development considers more than just one central business district?

A. Axial TheoryB. Multiple Nuclei TheoryC. Sector TheoryD. Concentric Circles Theory

7. Which of the following is NOT a pre-requisite when an individual applies for salesperson registration?

A. Evidence that the applicant has completed the education process.B. Police clearance certificate as an evidence of no criminal charges.C. Completed RECO registration application along with applicable registration fees. D. A copy of credit report as an evidence that there are no bankruptcies or proposals.

8. If property values start declining in a town due to closure of two factories, which principle of value is affecting the real estate market?

A. Principal of External FactorsB. Principal of ChangeC. Principal of Supply and DemandD. Principal of Surplus Productivity

9. A salesperson can work with a brokerage as an employee or as an independent contractor. Which of the following is NOT a correct statement regarding this?

A. Being an independent contractor does not mean that the brokerage is notresponsible for the activities of its salespersons.

B. The difference is mainly for the trading purposes but for taxation purposes bothare treated as employees.

C. The difference is only for taxation purposes but for trading purposes both aretreated as employees.

D. The main difference is that the employee works according to the specificinstructions of the brokerage but an independent contractor uses his own judgment and methods.

10. After completing the required educational real estate courses, Jerry had applied for salesperson registration. Unfortunately, his application is refused by the Registrar of RECO due to some reason. Which of the following is NOT one of the reasons for refusal?

A. Jerry disclosed that he was only a permanent resident but not a citizen of Canada. B. Jerry disclosed that two months ago he had filed a proposal to settle his debt.C. Jerry was found to have given false information about his current job in the

application.D. Jerry did not make a disclosure about a pending criminal case against him.

11. Salesperson Kim of Cram Realty Inc. has signed a listing agreement with his seller friend Bright. In this agency relationship, which of the following statements is correct?

MiniCram Notes 60


A. Bright is the client of salesperson Kim and Cram Realty Inc. will be a third party. B. Kim is the client of Cram Realty Inc. while Bright is a third party.C. Cram Realty Inc. has no relationship with Bright as Kim is the agent.D. Bright is the client of Cram Realty Inc. and Kim is an employee of the brokerage.

12. There are certain exemptions from registration when a trade is made in real estate. Which of the following correctly describes a situation where such an exemption would be permitted?

A. When a property owner sells his own property.B. When a solicitor sells a property and charges a commission for the trade.C. When a salesperson working for a builder is employed as an independent

contractor and is working full time.D. When a salesperson is working with a builder as an employee and is getting a

commission for each sale.

13. After obtaining her salesperson registration eight months ago, Jenny has been working with Cram Realty Inc. Currently, she had three listings and about half a dozen buyer clients. She wants to switch to Power Realty Inc. due to recent changes in commission structure of the brokerage. What happens to the representation agreements she procured from buyers and sellers?

A. Jenny can transfer all buyer and seller agreements to the new brokerage withoutany concerns for the old brokerage and the clients.

B. Typically, the independent contractor agreements permit the salesperson to assign

representation agreements to another brokerage provided that the clients give their consent.

C. All listings and buyer agreements automatically get terminated when Jenny leavesthe brokerage.

D. The listing agreements and buyer agreements are with the brokerage and alwaysstay with the brokerage.

14. A buyer found after closing that certain appliances in the house are not working. He contacts his lawyer, who informs him that there is no such warranty clause in the agreement of purchase and sale. Being upset with the negligence of his salesperson, the buyer makes a written complaint to the Registrar of RECO. The Registrar has many options in this regard. Which of the following is NOT one of them?

A. The Registrar may call the salesperson and the buyer to its office in an effort toresolve the problem.

B. Depending on the nature of the complaint, the salesperson may be given a writtenwarning.

C. Since the complaint is serious in nature, the Registrar will immediately suspendthe salespersons registration and impose a fine of $15,000.

D. The registrar may impose conditions on salespersons registration and may require

him to complete certain educational course(s).

15. There are several factors that may impact real estate values in a particular neighbourhood. Which of the following statements correctly describes such principles of value?

MiniCram Notes 61


A. The Principle of Change suggests that if a property value was $350,000 six months

ago, it may not be same as of todayB. The Principle of External factors suggests that properties are unique and things

nearby rarely have an impact on value.C. The Principle of Balance states that the real estate values are more or less stable

irrespective of availability of services or amenities.D. The Principle of Conformity states that since no two properties are similar in shape,

size or location they do not have to be of same value.

16. An old neighborhood in Cram City has been ignored by buyers because of the poor condition of roads, parks and schools. Businesses have also been slowly closing down. As a result, property values are adversely affected in the entire neighborhood. Surprisingly, owner Bright’s house is nicely maintained and is probably the best in area. Bright insists that he should get approximately $385,000 although properties in this area are being sold in the range 320,000 to $350,000. Which principle of value can be used to dispute Bright's value estimate?

A. Principle of RegressionB. Principle of External FactorsC. Principle of ConformityD. Principle of Substitution

17. A buyer is comparing two properties that he has inspected. The first property is listed for $349,000 and has a nice sunroom with sliding doors with a door to the deck. This allows for sunlight to pass into the structure. The second property in the same neighbourhood is listed for $329,000. It has same number of rooms, floor area and a beautiful cozy family room with fireplace. Right now, it is summer time and buyer’s family is paying more attention to the sunroom and walkout to deck in the first property. The nice family room and fireplace in the second property do not make any difference to them. Finally, the buyer decides to go for the expensive first property. Which principle of value is used by the buyer when making this decision?

A. Principle of SubstitutionB. Principle of BalanceC. Principle of AnticipationD. Principle of Highest and Best Use

18. A buyer is negotiating purchase of a new home with a builder. The buyer insists that his home should look entirely different from others so that people can recognize it from a distance. As per Maslow’s hierarchy, this type of need is best described as:

A. Social needB. Ego needC. Physiological needD. Security need

19. A salesperson is about to present an offer to his client for signing. Which of the following disclosures is mandatory for consumer protection?

A. The number of years the salesperson has been registered.B. Motivational information of the client.C. Commission split of the salesperson with his brokerage.

MiniCram Notes 62


D. The role of the brokerage in the transaction.

20. Personal information of a client includes several aspects of an individual. Which of the following statements is incorrect in this regard?

A. Registrants must not collect personal information without prior informed writtenconsent of the client.

B. Personal information may be forwarded to a third party without the consent of theclient if the registrant believes it protects their interests.

C. Registrants must ensure that the personal information of clients is safeguarded. D. Personal information must be obtained for a specific purpose and if the purpose

changes, client’s consent must be taken again.

21. It is a nice summer weekend and a property is exposed to potential buyers for viewing. The salesperson is assuring the seller that he is making a sincere effort to sell the property. At the same time, the salesperson is actively engaged in expanding his client base. What specific term is used for this type of marketing activity?

A. The AIDA RuleB. ProspectingC. Open HouseD. 4 P’s of Marketing

22. The Consumer Protection Act applies to business transactions with a consumer and includes real estate trading. Under which of the following situations it will apply to real estate registrants?

A. When a brokerage is advertising properties for sale.B. When a salesperson is making representations about his marketing activities in

order to obtain listings.C. When a commercial brokerage provides financial statements of a business about

future income to a buyer.D. When a salesperson is describing material facts about the property to a buyer

client.

23. Salesperson Kim of Power Realty Inc. is excited after successful sale of her listing. She prints ‘Just Sold’ cards and distributes them in the neighbourhood asking for more listings. This type of advertising is best described as:

A. Specific AdvertisingB. Institutional AdvertisingC. Targeted AdvertisingD. Motivational Advertising

24. The Competition Act has provisions with respect to fair practices in promotion of businesses. Which of the following statements is correct in this regard?

A. This Act does not apply to real estate trading because consumers are protectedby REBBA 2002.

B. This Act has provisions for consumer protection when personal information iscollected or used.

C. This Act applies to all types of businesses including real estate trading.

MiniCram Notes 63


D. This Act applies to real estate business only when making representations duringpromotion of services but does not apply during trading.

25. Open house is an excellent method of promoting a listed property. There are several benefits of doing open houses. Which of the following is NOT one of them?

A. Prospective buyers in the neighbourhood get a chance to view the property.B. There are chances that the salesperson would find a buyer during the open house.C. The salesperson can expand his contact base by doing open houses.D. The sellers are always assured of multiple offers in an open house.

26. Calculate the mean and median of the following range of values:234,200 230,800 218,450 233,000 228,460 222,350233,000 219,600 233,000 227,240 234,800

A. 228,627; 230,800B. 234,200; 234,800C. 227,680; 222,420D. 233,000; 227,356

27. Salesperson Kim is a salesperson working with Cram Realty Inc. on 85/15 split. She has just completed sale of a property for $329,500. She had listed this property at $339,000 at 5% total commission. The property was sold by salesperson Jim of Power Realty Inc. Jim’s split with his brokerage is 75/25. The allocation for listing and selling portions is 50/50. What is the commission for the brokerages and what commission do the salespersons get? Answers may be rounded to nearest dollar.

A. Cram $2,059; Power $1,236; Kim $7002; Jim $6,718B. Cram $1,326; Power $2,059; Kim $6,178; Jim $7,002C. Cram $1,236; Power $2,059; Kim $7002; Jim $6,178D. Cram $1,326; Power $2,059; Kim $7002; Jim $6,718

28. Salesperson Kim works with her brokerage at 75/25 split. She listed a property for $285,000 which is sold by salesperson Jim of the same brokerage for 278,500. Jim works on a 70/30 split. If the seller had agreed to pay 5.5% total commission with even commission allocation for listing and selling portions, what amount of commission Kim and Jim got and what did the brokerage get? Answers may be rounded to nearest dollar.

A. Kim $7,659; Jim $5,361; Brokerage $1,915B. Kim $5744; Jim $5,361; Brokerage $4,212C. Kim $5744; Jim $5,631; Brokerage $2,298D. Kim $5,361; Jim $5,474; Brokerage $4,212

29. Salesperson Jim of Power Realty Inc. got a commission in the amount of $9,350 which is 85% of his brokerage gross. Power Realty Inc. got 55% of the total commission. The total commission was 5% of the sale price of the property. What was the sale price?

A. $358,000B. $397,500C. $400,000D. $425,000

MiniCram Notes 64


30. Buyer Bright is looking for a bungalow and has decided to use his savings of $85,000 as a down payment. He does not want his mortgage loan to be more than 6/10th of the purchase price. What is the maximum value of the house he can buy?

A. $212,500B. $320,400C. $51,000D. $141,667

31. Builder Bob is considering purchase of 1.25 Acres of development land at a price of $350,000 and sever it into three equal parcels. He contacts the city planning department and comes to know that this severance will be permitted only after an allocation of 12% which is required to facilitate construction of a sidewalk. If Bob complies with this regulation, what would be area of each parcel of land in square feet after severance?

(1 Acre = 43,560 Square feet)A. 20,328 Square FeetB. 18,387 Square FeetC. 12,247 Square FeetD. 15,972 Square Feet

32. Business owner Berry is looking for retail space and has found a suitable 2,560 square feet unit in a commercial plaza. The listed rent for current year is $12.50 per square foot per annum which is $0.75 more than the last year rent. Next year, the rent will increase at the same rate. What is the respective percentage change in rent from last year to current year and from current year to next year? What would be the monthly rent next year?

A. 6.38%; 6.00%; $2,826.67B. 5.42%; 6.13%; $16,960.00C. 5.76%; 6.93%; $2,682.67D. 6.80%; 6.00%; $16,282.36

33. Owner Albert has a parcel of land with a frontage of 85 feet and a depth of 165 feet. He is interested in construction of a custom home. The city zoning by-laws allow a maximum of 24% of land size for the building provided that the land area is at least 1,300 sq. meters. Check if Albert’s land size meets the city requirements and what would be the maximum building size he can have?

(1 Square Foot = 0.0929 Square Metre)A. No. Albert’s property does not meet the requirementsB. Yes. Albert’s property meets requirements and he can build 312 Square MetreC. No. Albert must consult the planning department of the city to get some relaxed

criteria.D. Albert need not worry because he has a freehold land and he can build as he

wishes.

34. Calculate the area of the following right angled triangle, rounded to nearest square feet.

(1 Square Metre = 10.76 Square Feet)

MiniCram Notes 65


A. 594 Square FeetB. 1,276 Square FeetC. 876 Square FeetD. 6,391 Square Feet

35. Calculate the area of the following shape rounded to nearest square feet. (1 Square Metre = 10.76 Square Feet)

A. 1,312 Square feetB. 1,353 Square feetC. 14,117 Square feetD. 28,234 Square feet

36. A sloped roof house measures 35 feet by 52 feet on the main floor based on external measurements. The height of the wall from the surface of the basement floor is 18 feet and the height of the roof is another 8 feet. What would be the cost of construction of this building if the contractor has given an estimate of $105 per cubic yard?

(1 Cubic Yard = 27 Cubic Feet)A. $155,711B. $159,250C. $318,500D. $429,975

37. Calculate the area of the following shape in Square Metres. Round your answer to nearest Square Metre.

MiniCram Notes 66


A. 147 Square MetreB. 154 Square MetreC. 123 Square MetreD. 130 Square Metre

38. Buyer bright earns $66,800 per annum and is looking to buy a home which has monthly property tax of $387.50. He also pays a monthly car loan in the amount of $419.30. If the lender uses a TDS ratio of 42% what would be the maximum Bright can afford towards principle and interest payments every month?

A. $1,256.90B. $1,531.20C. $1,311.06D. $1,045.24

39. A buyer will have monthly mortgage payment of $1,240.70 on a property that has monthly property tax of $285.56. He also makes a monthly payment of $550 for another loan. If the lender uses 40% TDS ratio, what minimum annual income is required to qualify for a mortgage loan?

A. $36,780.06B. $62,287.80C. $76,346.34D. $55,050.63

40. A few days before closing buyer Bright comes to know that he would need a second mortgage loan. He has already arranged a first mortgage for $250,000 at an interest rate of 4.5% per annum. A second lender has offered him a loan of $40,000 at an interest rate of 8% per annum. What is the Overall Average Interest Rate?

A. 3.71%B. 4.98%C. 12.5%D. 7.60%

MiniCram Notes 67


41. Buyer Peter is looking to buy a home for $365,000. The lender has given him pre- approval for a loan of $320,000. The following are estimated Closing Costs:

• Land Transfer Tax $3,950• Legal Fees $1,250• Closing Adjustments $1,300• Moving Expenses $800• New Furniture $3,200

The seller has an existing mortgage of $235,000 but Peter is not assuming this amount. What Liquid Assets are required at the time of closing?

A. $280,000B. $55,500C. $46,800D. $235,000

42. Buyer Susan needs $18,000 after closing to do some renovations to the property. The lender Power Financials Inc. has offered her this loan for a short term of three months at an interest rate of 9% per annum, compounded monthly. She does not have to make any payments during the term.

What is the amount of Principal and Interest payable after the term?A. $90,000B. $12,600C. $8,408.05D. $18,408.05

43. The annual effective gross income of a commercial rental property is $550,000 and the annual operating expenses are shown as $326,500. What would be the estimated value of this property based on a capitalization rate of 11.5%?

A. $1,943,500B. $2,834,783C. $ 1,250,440D. $4,782,609

44. Buyer Bright is purchasing a 9,500 square feet commercial building. The owner's operating statement shows an annual effective gross income of $364,500 with annual operating expenses amounting to $276,200.

If a capitalization rate of 12.5% is used, what is the estimated per square foot value of the property?

A. $154.80B. $306.95C. $74.36D. $87.50

45. An income producing property has annual gross potential income of $485,000 with a vacancy loss of 3.5% of the gross potential income.

MiniCram Notes 68


If the annual operating expenses of this property are estimated at $345,100, what would be its estimate of value based on a capitalization rate of 9.5%?

A. $1,567,568B. $1,293,947C. $ 1,405,395D. $1,395,405

46. Buyer Julie has just finalized purchase of a house for $387,500. The assessed value of this house is 85% of the purchase price. If the municipality has a tax base of $88,500,000 and the tax budget for the current year is $2,548,800, what would be the property tax for Julie's house?

A. $11,160B. $10,458C. $9,486D. $7,932

47. Buyer Bright is looking for a two-storey home and is currently debating between two listings. One of the properties is listed for $389,000 and the other for $429,000. What would be the difference in land transfer tax if he is ready to pay the listed prices?

A. $1,100B. $876C. $802D. $745

48. A seller sells a property with a closing date of August 15, 20xx. The property has an oil fired furnace and there is a 250-gallon oil tank. The seller fills the tank the day before closing with 135.5 gallons of fuel. The fuel cost is $5.75 per gallon.

On the Statement of Adjustments, who gets credit and what would be the amount?A. Buyer - $779.13B. Seller - $1,437.50C. Buyer - $1,374.50D. Seller - $890.54

49. Seller Smart has sold his property and the closing date is set for October 12, 20xx. In the current year the property tax is $2,760 and he has paid the amount in full. Who gets credit on the Statements of Adjustments and in what amount?

A. Buyer - $2,120.99B. Buyer - $2,147.51C. Seller - $604.93D. Seller - $612.49

50. Buyer Bright wishes to purchase a home for $360,000 with a closing date of May 20, 20xx. The current annual tax on this property is $4,200. Bright comes to know from the listing salesperson that the seller has paid half of the taxes in advance.

On the Statement of Adjustments, who will get credit and what would be the amount?

MiniCram Notes 69


A. Seller – $489.04B. Buyer - $568.23C. Seller - $500.55D. Buyer - $489.04



MiniCram Notes 70


QUICK ANSWER KEY

SAMPLE EXAM 2

1. C 2. A 3. C 4. B 5. A

6. B 7. D 8. C 9. B 10. A

11. D 12. A 13. B 14. C 15. A

16. B 17. C 18. B 19. D 20. B

21. C 22. B 23. A 24. C 25. D

26. A 27. C 28. B 29. C 30. A

31. D 32. A 33. B 34. D 35. C

36. B 37. D 38. B 39. B 40. B

41. B 42. D 43. A 44. C 45. B

46. C 47. D 48. B 49. D 50. C



MiniCram Notes 71


SAMPLE EXAM 3


1. The rules and regulations of the Multiple Listing Service® are:A. Established by brokerages to comply with REBBA 2002.B. Enacted and enforced by the local real estate board.C. Enacted and enforced by Ontario Real Estate Association.D. Mandated by RECO in compliance with REBBA 2002.

2. A salesperson cannot claim commission unless he has paid:A. Brokerage desk fees.B. Local board fees.C. OREA® and CREA® fees.D. RECO Insurance premiums

3. Which of the following statements is incorrect regarding real estate salespersons in Ontario?

A. Upon completion of salesperson registration, if a salesperson wants to obtain theFRI designation, he will contact Real Estate Institute of Canada.

B. An individual working as an independent contractor for a brokerage is not requiredto maintain any trust account for deposits or commissions.

C. All salespersons in Ontario who sell new homes are exempt under REBBA 2002from having registration.

D. When an offer is received for a listed property, the salesperson cannot decidewhether to accept, reject or counter the offer.

4. Which of the following statements is correct regarding registration under REBBA 2002 and the role of organized real estate?

A. It is possible to be registered under REBBA 2002 and not be a member of the local

Real Estate Board.B. Registration with RECO permits registrants to trade in real estate anywhere

Canada.C. The MLS® and the REALTOR® trademarks are owned, promoted and protected

by the Real Estate Council of Ontario.D. The CREA® Code of Ethics and Standards of Business Practice is a provincial

statue mandatory for all registrants

5. Which of the following statements is correct about disclosures in salesperson application?

A. The applicant is required to provide RECO with a police clearance certificate anda copy of Consumer Report.

B. If the applicant was tried but not convicted for a criminal offence, he need not make

any disclosure.C. If a bankruptcy was more than 5 years ago, it need not be disclosed.

MiniCram Notes 72


D. The applicant must disclose any bankruptcies and any current or pending criminalcharges.

6. Measuring the periodic price variations of some essential goods and services by Statistics Canada is typically known as:

A. Cost of Living IndexB. Consumer Price Index.C. Consumer Confidence.D. Consumer Disposable Income.

7. Which of the following statements is correct about Market Value?A. Value in exchange is sometimes referred to as market value.B. The terms Market value and market price can be used interchangeably.C. Investment value is another form of objective value.D. Market Value for a property can only be established by professional appraisers.

8. A property is located in an area where noise pollution is a big problem. The effect of this on the value of the property will be considered a principle of:

A. Contribution.B. Substitution.C. External factors.D. Regression.

9. Which of the following statements is correct regarding the provisions of the Consumer Protection Act?

A. It does not apply to seller and buyer representation agreements.B. It is a federal statute that applies to consumer protection in all Canadian provinces.C. It applies to almost all consumer transactions for purchase, sale or lease of real

property.D. It has provisions for stiff penalties, including fines and possible sentences.

10. Which of the following is NOT considered an advantage of a ‘For Sale’ sign?A. It is relatively an inexpensive method of advertising the property.B. Neighbours and anyone who notices the sign may bring referrals to the

salesperson.C. If the property does not sell for a long time, it is a good advertisement for the listing

salesperson.D. This sign lets the property speak for itself.

11. A salesperson has just obtained a listing for sale of a single family residential property. For marketing purposes and selling the property as soon as possible, the salesperson is least likely to be involved in the following activity.

A. Conduct open house.B. Promote the property using websites and blogs.C. Post the listing on MLS®.D. Reduce the commission.

MiniCram Notes 73


12. When a seller lists a property for sale with a registered real estate brokerage, the commission charged may be in several forms. Which of the following is a permitted method of charging commission?

A. The difference in list price and actual sale price.B. A percentage of the sale price, flat fee or several percentages in descending order. C. A percentage of the list price or the sale price whichever is higher.D. A percentage of the sale price or a flat fee, whichever is higher.

13. Bright has completed his Real Estate Broker course and is now registered as a Broker. He would like to start his own real estate brokerage business as a sole proprietorship. Which of the following statements is incorrect regarding a brokerage as a sole proprietorship?

A. Owner Bright may hire a broker of record.B. He must designate a broker of record.C. Owner Bright himself must be the broker of record.D. The brokerage may hire other salespersons and brokers.

14. Which of the following statements is correct with respect to disclosures in a registration application?

A. A brokerage must make a disclosure of all its salespersons and brokers.B. A brokerage application must disclose the name of the lender providing financial

assistance for the business.C. A salesperson application must include disclosure of any previous or current

bankruptcy and/or criminal records.D. A broker application must include disclosure about the numbers of transactions

completed till the time of application.

15. Salesperson Mini of Cram Realty Inc. has just sold her brother’s property. Mini made a negligent mistake and it seems that the buyers are not happy. They have threatened legal action against Mini. Salesperson Mini may not be covered under which policies of RECO Insurance?

A. Consumer DepositB. Commission ProtectionC. The salesperson will not be covered at all.D. Errors and Omissions

16. The Real Estate and Business Brokers Act 2002 has several provisions for penalties in case of complaints and enquiries for violations of the Code of Ethics by registrants. Which of the following statements is correct regarding these provisions?

A. A salesperson convicted under the Act may be liable for a maximum penalty of$250,000.

B. A salesperson or broker convicted of a serious offence may be tried in court underthe Provincial Offences Act.

C. A salesperson or broker convicted of an offence is always liable to paycompensation to the client.

D. RECO cannot disclose the details of a disciplinary action taken against a registrant

due to confidentiality concerns.

MiniCram Notes 74


17. Complaints regarding violation of REBBA 2002 Code of Ethics are addressed to the Registrar’s Complaints and Inquiries (RCI) process. Which of the following statements is correct regarding this process?

A. All written complaints are first scrutinized and, depending on the nature ofcomplaint, the registrar may make an attempt to resolve it by mediation.

B. The RCI process only considers complaints from consumers while complaints ofregistrants against each other are heard by the local board.

C. The RCI process sends all complaints to the discipline committee regardless of the

nature of complaint.D. The RCI process has provisions for immediate suspension of registration upon

receipt of any complaint.

18. When analyzing market data, real estate analysts try to eliminate monthly fluctuations in data. Which of the following methods is helpful in this regard?

A. By calculating an average on annual basis.B. By calculating a three-month moving average.C. By considering only mean and mode of values.D. By considering only mode and median of values.

19. Economy is mainly driven by supply and demand forces. Which of the following statements is correct in this regard?

A. Resource markets are comprised mainly of labour, capital, land and consumers;and availability of these is considered good for the economy.

B. Abundant supply of goods is always good for the current and future growth ofeconomy.

C. Consumer confidence is related to demand and when demand declines itnegatively affects economy.

D. Government of Canada rarely intervenes in the natural forces of supply anddemand.

20. The value of seller Smith’s property is affected because a car plant in the town closed and several people want to move out. The number of listings in the area has almost become double in the last one month. Whic principle of value is playing a role in this situation?

A. Principle of Supply/DemandB. Principle of ChangeC. Principle of ContributionD. Principle of Increasing/Decreasing Returns

21. A buyer is debating whether to buy a house in Town A or in Town B. Town A is well established while Town B is fairly new with limited municipal services in terms of parks, schools and recreation centres. The values in Town B are much lower than in Town B. Moreover, taxes in Town A are comparatively high.

Which principle of value is applicable in this scenario?A. Principle of ChangeB. Principle of External Factors

MiniCram Notes 75


C. Principle of ConformityD. Principle of Anticipation

22. Salesperson Mini of Cram Realty Inc. has just sold one of her listed properties. The buyer customers are extremely happy with her diligent service and sincerity. They send a cheque for $1,000 as a gift to Mini. Mini keeps the gift cheque without telling anyone. As per REBBA 2002 Code of Ethics, do you think Mini is in violation of any legal provisions?

A. No, giving the gift was buyers’ personal decision and Mini has not violated the law. B. Yes, Mini must disclose this to her Broker of Record because she is an employee

of the brokerage.C. No, Mini is authorized under REBBA 2002 to accept gifts from her clients and

customers.D. Yes, Mini cannot accept any remuneration from anyone accept her employer

brokerage.

23. Salesperson Kim of Power Realty Inc. has shown several rural properties to her buyer clients. They have selected a beautiful house situated on 2-acre lot. The buyer clients are not aware of certain fundamental issues with the property such as the water well, septic tank, underground oil tank, etc. Salesperson describes these things to her clients. Based on verbal assurances by sellers regarding good working conditions and buyers’ eagerness to buy the property quickly, the salesperson does not include any conditions in the agreement. Has salesperson Kim violated any of her ethical or legal duties?

A. Yes. The salesperson must take written assurance from the sellers regarding good

working condition of these items.B. No. Since there is verbal assurance from the sellers, there is no need for any

conditions in the agreement.C. Yes. The salesperson should include carefully worded conditions for inspection of

these items in order to protect the best interest of the buyers.D. No. Including conditions in the agreement would have delayed the closing and this

would have harmed buyers’ interests.

24. Cram Realty Inc. is an upcoming brokerage in Cram City. It offers a flat fee service to buyers and sellers and places this fact prominently on its website and in its printed advertisements. The brokerage wants to offer low cost as compared to other competing brokerages and to target the low and middle class consumers. What is the brokerage trying to accomplish by adopting this strategy?

A. The brokerage is trying to adopt a marketing mix based on ‘Price’ and ‘Place’. B. The brokerage is trying to expand its business by using core competencies. C. The brokerage is providing value added services to consumers.D. This is known as specific advertising because the low and middle class consumers

are specific targets of the brokerage.

25. Personal information includes several aspects about an individual. Which of the following is a correct statement in this regard?

A. Personal information includes name, telephone number and business address ofan employee of a business.

B. Personal information includes only factual information but not opinions.C. Personal information can only be used for the purpose it is collected.

MiniCram Notes 76


D. Businesses are permitted to share personal information about an individual toother related businesses.

26. Market analyst Anne is working on a new assignment to get some idea on the price trend in the local real estate market. Calculate the mean and median of the following array of sale prices.

314,600 322,500 320,000 313,000 318,100310,200 320,700 316,000 317,500 319,300

A. 318,200; 317,500B. 317,250; 313,000C. 317,190; 317,800D. 316,000; 322,170

27. A property listed by salesperson Kim of Cram Realty Inc. is sold by salesperson Jim of the same company for $456,800. The commission stated on the listing agreement is 5% with even allocation for listing and selling portions. The commission split for Kim with the brokerage is 75/25 while for Jim it is 85/15. What is Jim’s commission for this sale?

A. $4,160B. $9,707C. $8,565D. $11,420

28. Salesperson Jim of Power Realty Inc. listed a property for $349,900 was sold by salesperson Kim of Cram Realty Inc. for 96% of the asking price. The total commission stated on the listing agreement was 5% with 60% for the selling brokerage. Jim works with his brokerage at 65/35 split while Kim works at 85/15. What is the commission these salespersons received and what is the net commission for the brokerages?

A. Jim $4,336.75; Kim $8,655.45; Power $2,351.33; Cram $1,151.57B. Jim $8,565.45; Kim $4,366.75; Power $2,351.33; Cram $1,511.57C. Jim $4,366.75; Kim $8,565.45; Power $2,351.33; Cram $1,511.57D. Jim $4,366.75; Kim $8,565.45; Power $1,151.57; Cram $2,351.33

29. Builder Bob is planning construction of new apartment building and is working on distribution of total number of units into studio, 1 bedroom and 2 bedroom units. The building will have a total of 860 units out of which 20% must be studio units and 55% must be 1 bedroom units. The remaining units would have 2 bedrooms. What would be the number of studio, 1 bedroom and 2 bedroom units respectively?

A. 315; 433; 112B. 473; 172; 215C. 112; 315; 433D. 172; 473; 215

30. A buyer has saved $70,000 as down payment for purchase of his next home. He expects that out of this amount he needs to keep aside $12,000 to meet closing costs. He wants to have a minimum of 1/5th of the purchase price as down payment and the balance would be financed.

MiniCram Notes 77


What is the maximum value of the house this buyer can buy?A. $410,000B. $350,000C. $174,000D. $290,000

31. Salesperson Jim of Power Realty Inc. is looking at price trend from of recent sales of homes in a neighbourhood. The property at 32 River Crescent was listed for $284,900 and sold for $275,000. A second property at 41 Banks Road was listed for $299,900 but sold for $13,500 less. The third property at 12 Fishing Crescent was listed for $309,000 and sold for $302,900.

What was the sale to list price ratio of these properties in descending order?A. 12 Fishing Crescent; 32 River Crescent; 41 Banks RoadB. 32 River Road; 12 Fishing Crescent; 41 Banks RoadC. 32 River Road; 41 Banks Road; 12 Fishing CrescentD. 12 Fishing Crescent; 41 Banks Road; 32 River Crescent

32. Broker Janice of Cram Realty Inc. is looking to lease about 3,200 square feet office space for her new business. She has found a commercial building where a 3,450 square feet office is available. The landlord has informed that the annual rent per square foot last year in the complex was $14.50 with annual increases of $1.50. If the lease terms are acceptable to Janice, what would be the percentage increase in rent from last year to this year and from this year to next year respectively? What would be the monthly rent in the next year (rounded to nearest dollar)?

A. 9.5%, 9.85%, $4,667B. 8.11%, 17.5%, $3,866.67C. 10.34%, 9.38%, $5,031.25D. 17.5%, 8.11%, $3,135

33. Calculate the area of the following shape in square feet.

A. 1,650 sfB. 1,900 sfC. 2,500 sfD. 825 sf

MiniCram Notes 78


34. Calculate the area of the parcel of land shown in the following illustration.

A. 3,878 sfB. 5,428 sfC. 2,714 sfD. 3,127 sf

35. Calculate the area of the parcel of land shown in the following illustration.

A. 198.62 Square MetreB. 201.04 Square MetreC. 367.12 Square MetreD. 174.48 Square Metre

36. Builder Bob wants to pour concrete on driveways of four newly built homes. Each driveway is 38 feet long, 18 feet 3 inches wide and 4 inches in depth. If the cost of pouring concrete is $127 per cubic yard, what is his total cost (round to the nearest dollar)? (1 Cubic yard = 27 Cubic feet)

A. $1,087B. $117,423C. $4,936D. $4,349

MiniCram Notes 79


37. Calculate the total living area of the following one and half storey home. Round to nearest square feet.

A. 1,105 sfB. 1,787 sfC. 1,539 sfD. 980 sf

38. A buyer has an annual income of $68,000 and the property he wishes to purchase has monthly taxes in the amount of $330. Assuming that the buyer does not have any other monthly obligations and the lender uses 30% GDS ratio, what would be the amount of monthly mortgage payment?

A. $1,700B. $1,370C. $1,672D. $1,456

39. A buyer has an income of $75,000 per year and intends to buy a property with monthly property tax of $250. He is also paying a car loan of $350 per month. What would be his maximum monthly mortgage payment (principle and interest) if the lender uses a TDS ratio of 42%?

A. $1,900B. $1,875C. $2,025D. $2,100

40. Buyer bright anticipates that he would need additional $14,000 after closing for major upgrades to the house he intends to buy. Power Lender Inc. has offered him this loan at an Interest Rate of 6% per annum, compounded monthly, for a term of three months. Assuming that Bright does not have to pay any principal or interest during the term, what would be the amount of interest the lender will earn on this loan?

A. $14,112.05B. $905.15C. $11,412.05D. $211.05

MiniCram Notes 80


41. A homeowner is considering a second mortgage of $38,000 at an interest rate of9.25%. He already has a first mortgage in the amount of $235,000 on which he is paying aninterest rate of 4.75%. Calculate the overall average interest rate using the mortgage averaging formula.

A. 8.35%B. 4.68%C. 5.38%D. 6.75%

42. A buyer is looking to borrow 90% of his purchase price as a mortgage loan. The property he wishes to buy is listed for $420,000 and he is ready to pay the full list price. While one lender offers the required loan at 5.5% per annum amortized over a period of 25 years, the other is offering the same loan at 6% per annum but the amortization is 20 years. What would be the difference in his monthly payments when comparing these two arrangements?

A. $127.68B. $384.79C. $167.12D. $415.87

43. What cap rate would be required for an income producing property valued at $580,000 with annual effective gross income of $245,000? The annual operating expenses are estimated to be $180,000.

A. 12.83%B. 11.21%C. 10.50%D. 9.13%

44. A commercial building contains 10,650 square feet of area. The estimated annual gross potential income is $340,000 with a vacancy and bad debt loss of 4.5%. The owner’s operating statement shows annual operating expenses in the amount of $215,000. Provide an estimate of value per square metre for the following commercial property based on acapitalization rate of 12%. (1 Square metre = 10.76 Square feet)

A. $624.67B. $721.45C. $834.50D. $923.64

45. An apartment building produces an effective gross income of $895,300. The annual operating expenses are estimated to be 58.5% of the effective gross income. What would be the estimate of value of this building based on a capitalization rate of 11.5%? Round your answer to nearest $1000.

A. $945,000B. $3,231,000C. $4,554,000D. $5,782,000

MiniCram Notes 81


46. The closing date of a transaction is March 23, 20xx. The property is oil heated and has a 250-gallon tank. The current cost of heating oil is $6.65 per gallon and the tank is filled with 120 gallons of oil prior to the closing date. Who receives a credit on the Statement of Adjustments and in what would be the amount?

A. Seller - $1,662.50B. Seller - $798.80C. Buyer - $831.25D. Buyer - $798.80

47. A rental residential property is being sold with a closing date of July 10, 20xx. The amount of rent is $1,700 per month and it is paid in advance. The tenant is willing to stay in the property after closing. On the Statement of Adjustments, who gets credit and what would be the amount?

A. Buyer - $1,190B. Seller - $1,151.61C. Buyer - $1,206.45D. Seller - $548.39

48. The annual tax on a property is $1,800 and the seller has already paid it in full. The property is sold and the closing date is set for September 15, 20XX. Who gets credit on the Statement of Adjustments and what would be the amount?

A. Seller - $1,272.33B. Buyer - $527.57C. Buyer - $1,272.33D. Seller - $532.60

49. A parcel of industrial land is purchased for $845,000. What would be the land transfer tax on this property?

A. $8,925B. $12,675C. $11,150D. $13,375

50. The tax base for a municipality is $82,500,000. The amount of taxes to be collected is $1,860,000 for the current year. The current value assessment of a property in this town is $328,000. What would be the amount of monthly taxes levied on this property?

A. $616.21B. $728.10C. $827.56D. $980.34



MiniCram Notes 82


QUICK ANSWER KEY

SAMPLE EXAM 3

1. B 2. D 3. C 4. A 5. D

6. B 7. A 8. C 9. D 10. C

11. D 12. B 13. A 14. C 15. D

16. B 17. A 18. B 19. C 20. A

21. B 22. D 23. C 24. A 25. C

26. C 27.B 28. C 29. D 30. D

31. A 32. C 33. A 34. C 35. A

36. D 37. B 38. B 39. C 40. D

41. C 42. B 43. B 44. D 45. B

46. A 47. C 48. D 49. C 50. A

------------------



MiniCram Notes 83


SAMPLE EXAM 4


1. Which of the following statements correctly describes the mandate of Real Estate Council of Ontario (RECO)?

A. To protect public interest, trust and confidence in real estate trading. B. To maintain the Multiple Listing Service®.C. To enforce the CREA® Code of Ethics.D. Development and delivery of registration courses.

2. In a brokerage, the registrant responsible to ensure compliance with REBBA 2002 and other related statues is designated as:

A. Broker of ComplianceB. Broker of RecordC. Associated BrokerD. Broker Manager

3. According to the Common Law of Agency, a person or party who is authorized by a client to represent him/her in a business transaction with a third party is known as:

A. RepresentativeB. Independent ContractorC. Person of InterestD. Agent

4. How does the Real Estate Council of Ontario (RECO) fulfill its mandate of protecting consumer confidence in real estate trading?

A. By making the continuing educational mandatory for applicants. B. By making the RECO insurance mandatory for all brokerages.C. By having a complaints and inquiries process so that consumers may make a

written complaint against any registrant.D. By enforcing the real estate board by-laws.

5. Registered salespersons and brokers in Ontario have the authority to trade in real estate because:

A. Membership in local real estate board provides the necessary authority torepresent buyers and sellers.

B. REBBA 2002 authorizes registered brokerages to delegate the agency duties toits salespersons/brokers.

C. The Agency Law specifically provides this authority.D. Seller and buyer clients provide this authority in representation agreements.

6. When a condominium corporation is created:A. The legal structure is set out in the documents named Declaration and Description. B. The condominium corporation holds title to all the units and common elements.

MiniCram Notes 84


C. The buyers of units enter into a lease with the condominium corporation by buyingshares in the corporation.

D. The purpose of condominium registration is to ensure that unit owners are notliable for the debts of the corporation.

7. Which of the following would be an indication of a typical buyers’ market?A. Supply and demand of real estate is high.B. Supply and demand of real estate is low.C. The demand of real estate is high as compared to supply.D. The supply of real estate is high as compared to demand.

8. Which of the following statements best describes the difference between subjective and objective values?

A. The value of land plus improvements makes up the subjective value.B. When it comes to estimating market value, the difference between subjective and

objective value is eliminated.C. Subjective value is based on individual perceptions and future benefits of

ownership.D. Objective value is based on certain unique characteristics in the property.

9. Which of the following statements is correct about the Consumer Price Index (CPI)?A. It measures the periodic change in prices of goods and services for urban

consumers.B. It keeps a check on sales of major retail chains to predict future economic trends.C. It is a valid measure of purchasing power of Canadian dollar.D. It measures the strength of economy based on the overall employment rate.

10. There are several methods by which different levels of government keep control on the real estate market. Which of the following is NOT one of them?

A. Zoning by-lawsB. Statistical AnalysisC. TaxationD. Monetary Policies

11. Which of the following best describes the characteristics of Canadian economy?A. It is a completely free economy which is based on the forces of supply and

demand.B. Canadian economy is entirely dependent on decisions made by the government.C. It is a capitalist economy and involves decision making by corporations at the

federal level.D. It is a mixed economy with involvement of and individuals, families, businesses

and the government.

12. Which of the following statements is incorrect regarding real estate marketing?A. Market segment is based on similar housing requirements of consumers based on

their interests and opinions.B. Marketing mix is typically employed by brokerages to enhance their sales.

MiniCram Notes 85


C. Specific advertising is targeted to a particular community.D. Brokerage policies typically govern the advertising activities of salespersons.

13. Salespersons may be hired by a real estate brokerage as independent contractors or as employees. Which of the following statements is correct in this regard?

A. An employee salesperson is typically not responsible to pay operating expensesto the brokerage.

B. Hiring employees certainly increases the brokerage responsibility for tradingactivities of its salespersons.

C. Independent contractors are themselves responsible for their trading activities,which greatly reduces the responsibility of the brokerage for compliance with REBBA 2002.

D. Brokerages typically hire more salespersons and brokers as independentcontractors because of limited or no liability for their trading activities.

14. Membership in organized real estate is not mandatory under REBBA 2002. Which ofthe following statements is incorrect regarding this membership?

A. Organized real estate provides its own benefits, such as access to Multiple ListingService® to its members.

B. Membership in organized real estate entitles the registrants to get exemption fromRECO insurance.

C. REBBA 2002 educational requirements apply equally to members and non-members.

D. Membership in organized real estate does not eliminate the requirement to comply

with REBBA 2002 Code of Ethics.

15. Registered real estate brokerages in Ontario may pay their salespersons and brokers in many different ways. Which of the following statements correctly describes the difference in methods of payment?

A. Independent contractors are typically paid a fixed salary while employees getpayments based on the sales they complete.

B. Payment of desk fee by salespeople is the distinguishing factor between anindependent contractor and an employee.

C. Employee salespeople are paid salary by the brokerage while independentcontractors are paid directly by buyer or seller clients.

D. Independent contractors typically pay for their trade related expenses while thebrokerages bear these expenses for employee salespeople.

16. Continuation of real estate education is mandatory for all registrants as per the provisions of Real Estate and Business Brokers Act 2002. Which of the following is NOT a correct statement in this regard?

A. Registrants who have completed their initial 2 years of registration must completemandatory continuing education courses after renewal of registration.

B. The requirement of mandatory continuing education is for salespersons and notfor brokers.

C. If mandatory continuing education requirements are not met the registrar mayrefuse renewal of registration.

MiniCram Notes 86


D. Completion of additional articling courses is not a substitute for mandatorycontinuing educational courses.

17. Real estate market is affected by several factors including social, political and economic. Which of the following statements is correct in this regard?

A. When the real estate supply goes up sharply, it is easy to create an equivalentdemand by lowering the mortgage interest rates.

B. The real estate brokerages, local boards and associations are responsible to keepthe market in balanced shape.

C. An overheated market with aggressive activities of buyers, lenders and developers

generally leads to a market bubble.D. Market correction is indicated by decrease in employment rates and high

consumer confidence.

18. Market analysts gather data about real estate price trends from several different sources. Which of the following would NOT be a source of such information?

A. The Real Estate Council of Ontario.B. The regional Land Registry Office.C. The Multiple Listing Service® database.D. Data from builders and lenders.

19. The Real Estate and Business Brokers Act 2002 grants exemptions from registration to certain persons when trading in real estate. According to the Act, which of the following would qualify for such exemption?

A. A full-time employee of a shopping centre, working on salary and leases only newstores for the owner of the shopping centre.

B. A property manager of a residential complex when leasing units in that buildingunder the provisions of the Residential Tenancies Act.

C. Salespersons and brokers who have their own corporations and are 100%shareholders.

D. Business corporations when the trade is made under normal business activities asper their Article of Incorporation.

20. Registered salespersons must complete certain articling courses after their initial registration. Which of the following statements is correct in this regard?

A. The requirement for articling courses is for newly registered salespersons and notfor newly registered brokers.

B. All salespersons must complete at least one articling course within one year ofinitial registration.

C. Only attendance is mandatory for articling courses and there are no examinations.D. Once the articling courses are successfully completed, a salesperson is qualified

for registration as a broker.

21. Buyers typically insert a home inspection condition in the agreement of purchase and sale. Which of the following would be a correct statement in this regard?

A. Home inspectors are regulated under the Real Estate and Business Brokers Act2002.

MiniCram Notes 87


B. When a qualified home inspector is not available, a registered salesperson isauthorized by law to conduct a home inspection.

C. A home inspector inspects the general condition of the structure and would include

limiting conditions of inspection in the report.D. The physical inspection of the property by an appraiser is sufficient to waive the

home inspection condition in the agreement.

22. Real estate market is dynamic and seldom remains the same over a period of time. Both the seller’s market and the buyer’s market have specific characteristics of their own. Which of the following is a characteristic of a typical buyer’s market?

A. Most properties sell for much more than the listed price.B. The properties available for sale exceed the demand and there are very few

buyers.C. The average time to sell a property is reduced and properties sell very quickly. D. Buyers only consider the objective value of the property.

23. Owner Smart has built an extra fireplace in his living room in addition to the one in the family room. He has also added a single car garage to the property and an enclosed porch. He has spent nearly $32,000 on all these improvements. His house now looks different from other similar houses in the neighbourhood. He is expecting that he should get at least $32,000 more for his property. Which of the following principles of value may be used to dispute Smart’s estimate of value?

A. Principle of ConformityB. Principle of ProgressionC. Principle of ContributionD. Principle of Increasing/Decreasing Returns

24. Consumers have specific needs when it comes to buying real estate. Accordingly, which of the following is a true statement?

A. Salespersons can provide better services to their clients by properly understanding

their needs and wants.B. Buyers are mostly desperate to buy real estate and would not consider any other

aspect of a property other than its size and location.C. When it comes to buying real estate, most consumers would simply follow what

their salesperson is telling them.D. It is really not necessary for salespeople to understand consumer needs because

ultimately everyone needs a house.

25. A buyer is considering purchase of his new home in a location where most of his friends and relatives have recently moved. This behaviour of the buyer is best described as:

A. Brand LoyaltyB. Consumer VulnerabilityC. Personality TraitD. Product Appeal

26. Salesperson Kim of Cram Realty Inc. listed a property for $356,900 at 5% total commission. The commission allocation for listing and selling portions is 45/55. The property was sold by salesperson Jim of the same brokerage for $352,000. Kim is working

MiniCram Notes 88


on 85/15 split while Jim is working on 90/10 split with the brokerage. What would be the difference in commission of these salespersons?

A. $1,230B. $1,760C. $1,980D. $2,528

27. Salesperson Jim of Power Realty Inc. received a commission cheque of $11,658.60 from his brokerage. Jim is working on 85/15 split with his brokerage. The gross commission that the brokerage got was 60% of the total commission. The seller had agreed to pay 4.5% of the sale price as commission. What was the sale price of the property?

A. $508,000B. $412,400C. $496,000D. $615,350

28. Three salespersons of Cram Realty Inc. are talking about their real estate business. Salesperson A says that he gets referrals from 20% of his clients. Salesperson B says that he gets a referral from 1 out of every 6 clients. Salesperson C says that he gets referrals from 3 persons out of every 8 clients. Accordingly, which of the following statements is correct?

A. Salesperson A gets more referrals than both B and C.B. Salesperson B gets more referrals than C but less than A.C. Salesperson A gets more referrals than C but less than B.D. Salesperson C gets more referrals than both A and B.

29. Smart and his two friends purchase a commercial building. Smart currently has 1/5th ownership share. In the next 6 months, he plans to acquire another 25% share of ownership. What would be his ownership share after this acquisition?

A. 20%B. 35%C. 45%D. 75%

30. A small town north of Cram City has a total of 1,800 homes. 56% of these homes are two storey and 32% are bungalows. The remaining homes are one and half storey. What is the number of one and half storey, bungalows and two storey homes respectively?

A. 216, 1008, 576B. 1008, 216, 576C. 576, 216, 1008D. 216, 576, 1008

31. Salesperson Kim works for Cram Realty Inc. She is analyzing the current price trend in a community by comparing recent sales of two storey houses. House A was listed for $349,000 and was sold for $12,000 less. House B was listed for 324,500 and it was sold for 305,800. House C was listed for 339,900 and was sold for 336,000. What is the sale to list price ratio of these houses in ascending order?

MiniCram Notes 89


A. House C; House B; House AB. House B; House A; House CC. House B; House C; House AD. House A; House B; House C

32. Owner Binny is proud to have the new freehold house on a 2-acre lot. This huge bungalow currently has 2,600 square foot of total living area. Binny would like to extend the house to accommodate his family needs. The municipality allows this extension if the total lot size is minimum 7,500 square metres. If yes, Binny would be permitted to extend the house by 8% of existing area. Does the lot meet this requirement? If yes, how much Binny can extend the property?

A. No, the lot does not meet requirements and Binny is not permitted to build anystructure.

B. Yes, the lot meets requirements and Binny can build 8,090 Square Metres. C. Yes, the lot meets requirements and Binny can build 647.48 Square Metres.D. Although the lot does not meet requirements, he can still build because this is a

freehold house.

33. A small trapezoidal parcel of land needs to be flattened. The two parallel sides are 86 feet and 120 feet respectively, with a perpendicular distance of 15.7 metres between them. The left and right sides are 49 feet and 63 feet respectively. What is the area of this parcelof land in square feet? (1 Metre = 3.281 Feet)

A. 1,617.10 Square FeetB. 2,884.65 Square FeetC. 5,305.53 Square FeetD. 5,769.30 Square Feet

34. Builder Bob is currently working on his new development project for construction of 8 townhouses, each having its own private driveway. The driveways are similar in size: 24 feet long, 14 feet 9 inches wide and 4 inches in depth. What would be cost of these driveways if the paving company has quoted $190 per cubic yard? Round your answer tonearest dollar. (1 Cubic yard = 27 Cubic feet)

A. $1,868B. $6,643C. $14,947D. $75,662

35. Buyer Bright is aware that the 1.5-acre parcel of land he intends to buy is under expropriation notice. He wants to subdivide the land into six smaller lots but the expropriation will take away nearly 18% of land. What would be square footage of each parcel of land after expropriation and subsequent division?

(1 Acre = 43,560 Square feet)A. 16,613.52 Square FeetB. 10,890.03 Square FeetC. 8,929.80 Square FeetD. 6,257.22 Square Feet

MiniCram Notes 90


36. What would be the area of the right angled triangle shown in the illustration?

A. 1,701 Square MetreB. 1,071 Square MetreC. 1,989 Square MetreD. 918 Square Metre

37. A two-storey sloped roof house has an area of 1,200 square feet per floor. The height of the house when measured from the floor surface is 6.2 meters and the roof is 12 feet high. If the cost of construction is $6.75 per cubic foot, what is the total cost of construction forthis structure? Round your answer to nearest $100? (1 Metre = 3.281 Feet)

A. $217,400B. $103,000C. $135,000D. $301,100

38. Calculate the total living area of the a one and half storey home shown in the illustration. Round your answer to nearest square feet.

A. 2,281 sfB. 1,522 sfC. 2,231 sfD. 1,778 sf

MiniCram Notes 91


39. Buyer Binny is looking for a warehouse for his distribution business. He finds one such building with external measurements of 136 feet by 64 feet. The ceiling height, when measured from six inches below the surface, is 21.5 feet. The sellers inform Binny that the construction company charged them $8.25 per cubic foot. What would have been the construction cost of this warehouse?

A. $1,579,776B. $1,543,872C. $5,718,044D. $2,859,022

40. Buyer Benjamin buys a freehold property for $764,000. Assuming that there was no house on the property but it was only a vacant parcel of land, what would be the difference in Land Transfer Tax between a property with house and a property without any house?

A. $1,820B. $5,950C. $7,710D. $9,935

41. Buyer Smart arranges two mortgages for the property he wants to purchase. The first mortgage is for $475,000 at an interest rate of 4.25% per annum. The second mortgage is for $240,000 at an annual interest rate of 10.50%. Assuming that both mortgages have identical terms and amortization periods, what would be the overall average interest rate?

A. 3.26%B. 4.67%C. 6.35%D. 11.71%

42. A buyer’s estimated P & I monthly payment is $1,150. He is also making a monthly payment of $396 for a car loan. The annual tax of the property he wishes to purchase is $2,400. If the TDS ratio used by the lender is 42%, what minimum annual income is required to qualify for the loan?

A. $51,429B. $55,000C. $49,886D. $58,000

43. A buyer is considering purchase of a property for $365,000. There is an existing mortgage on the house in the amount of $120,000 but it will be discharged by the seller. The buyer will pay all cash for the purchase of the property. The total closing costs are as follows:

• Land Transfer Tax and Legal Fees $2,700• Closing Adjustments $1,360• Moving Expenses $1,100• Funds for Major Expenses $2,300

What liquid assets are required by the buyer at the time of closing?A. $120,000

MiniCram Notes 92


B. $152,460C. $372,460D. $127,000

44. A buyer is considering purchase of a home that has annual property tax of $2,800. The buyer's annual income is $64,000 and is paying $334.50 per month for a car loan. If the lender uses 40% TDS ratio, what would be his maximum monthly P & I payment?

A. $1,565.50B. $1,389.37C. $1,829.17D. $1,447.58

45. A buyer with annual income of $76,000 needs a mortgage loan for the home he intends to purchase. The annual property tax of this house is $3,200. The buyer’s other monthly obligations include a car loan payment in the amount of $420. If the lender uses 38% TDS ratio and the interest rate is 5.5% per annum, amortized over a period of 25 years, what is the maximum amount the buyer can borrow? Round your answer to nearest dollar.

A. $358,400B. $325,280C. $299,430D. $281,786

46. Owner Smart has received a tax assessment notice from the local municipality. According to this notice, the current value assessment of his house is $428,000. The amount of taxes to be collected by the municipality in the current year is $1,080,000. If the total tax base is $87,320,000; what would be the amount of property tax for Smart’s house?

A. $4,228.48B. $5,293.63C. $8,560.72D. $12,821.20

47. Investor Ingrid is interested to purchase a rental apartment building that has gross floor area of 10,800 square feet. The annual potential rental income is estimated at $460,000; with a vacancy and bad debt rate of 4% of potential income. The operating expenses of this property are 58% of the annual effective gross income. If a capitalization rate of 12.75% is used, what would be the value per square foot?

A. $134.69B. $152.80C. $120.00D. $255.39

48. Buyer Bright purchases a bungalow in Cram City for $245,800. He also purchases a vacant parcel of land for $65,000. The closing date of both properties is set for September 15, 20xx. What would be the combined Land Transfer Tax on both properties?

A. $2.403B. $2,558C. $3,100

MiniCram Notes 93


D. $3,359

49. A few days before the closing date, the buyer’s lawyer finds out that the seller had paid $5,000 as partial payment for the annual property tax. The annual property tax for the current year is $9,670 and closing date is August 25, 20xx. Who gets credit on Statement of Adjustments and what would be the amount?

A. Buyer - $1,252.38B. Buyer - $6,252.68C. Seller - $5,000.00D. Seller - $9,670.43

50. A rental property is sold with a closing date of September 17, 20xx. The tenant pays the monthly rent of $1,850 in advance. Who gets credit on the Statement of Adjustments and what would be the amount?

A. Buyer - $863.33B. Seller - $1,048.33C. Seller - $986.67D. Buyer - $801.67



MiniCram Notes 94


QUICK ANSWER KEY

SAMPLE EXAM 4

1. A 2. B 3. D 4. C 5. B

6. A 7. D 8. C 9. C 10. B

11. D 12. C 13. A 14. B 15. D

16. B 17. C 18. A 19. B 20. A

21. C 22. B 23. D 24. A 25. C

26. C 27. A 28. D 29. C 30. D

31. B 32. C 33. C 34. B 35. C

36. D 37. A 38. A 39. B 40. A

41. C 42. C 43. C 44. A 45. D

46. B 47. A 48. B 49. A 50. A

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MiniCram Notes 95


DETAILED ANSWERS

SAMPLE EXAM 1

1. C. The Real Estate and Business Brokers Act 2002 does not require membership of organized real estate.

OREA® is not responsible for licensing salespersons as this is under RECO’s authority. CREA® Code of Ethics is for members of the Canadian Real Estate Association only and not for all registrants. It is not mandatory for all registrants to become members of organized real estate.

2. B. In in a typical real estate transaction the gross commission to brokerage is split with its salesperson.

Commission is first collected and distributed by the listing brokerage, not by lawyers. Commission is also not decided by lawyers but is mutually agreed between the listing brokerage and the seller during listing agreement. Gross commission to brokerage refers to commission it receives after distribution.

3. A. The property manager takes up administrative functions on behalf of the owners.

A property manager is not a building superintendent or a leasing agent for the owners. He may help the owners in some financial matters such as collection of rental income and payment of expenses. But he does not undertake market valuation the property for selling purpose.

4. D. The Consumer Deposit Protection insurance does not have any deductible.

Errors and Omissions insurance coverage has a deductible of $2,500 per claim and is incremental with each successive claim. Commission Protection insurance has a deductible of $250 per claim. Claims for negligent representation are included in Errors and Omissions coverage.

5. D. When builders start many new developments without considering the demand there may be over supply of houses. As a result, prices may start falling.

When supply and demand of housing is roughly equal prices do not increase. Consumer confidence usually falls due to increase in unemployment. Real estate market is impacted by many factors including demographic changes.

6. C. This is an example of subjective value because $15,000 is, in fact, the value of upgrades.

Other answers give examples of objective value which considers the cost.

7. A. An increase in consumer confidence is a positive indicator for economy and generally results in increase in real estate demand. This is because consumers can afford to buy homes.

MiniCram Notes 96


A decline in purchasing power of dollar indicates inflation and thus consumer prices increase. Consumer price index is an important factor in analysis. The date about resource market includes labour and finances but not consumers.

8. B. Subjective value is related to present worth of future benefits of ownership of property. It is a perception of value based on an individual’s mindset.

Value in use is different from objective value because objective value is based on cost of reproduction (land and improvements). Market price is an established value and not an estimate. Market value is an estimate of value based on certain assumptions made during evaluation process.

9. D. As per REBBA 2002 Code of Ethics, the role of the brokerage in a particular real estate transaction must be disclosed to all parties.

The salesperson does not have to disclose his experience to any party to the transaction. The motivational information about the client is confidential and must not be disclosed. Salesperson’s commission split with the brokerage need not be disclosed.

10. A. A salesperson can provide better services if he has good understanding of the needs and wants of the clients.

Salespersons must not force the clients to buy a home from a particular builder. They are not required to be expert in all matters related to building structures. Salespersons must not let their personal interests interfere with the interests of the client. The interests of the client must be protected.

11. B. One of the registration exemptions under REBBA 2002 is for salespersons working with new home builders when they are full time salaried employees and sell only new homes of that builder.

Just working full time with a builder, working as independent contractor and getting commission for each sale does not qualify for registration exemption.

12. C. Partners have personal liability for the business operation of the brokerage.

A sole proprietorship business lacks continuity after death of the owner. It is incorrect to say that a brokerage as corporation must hire a broker of record because the owner may designate himself as such. REBBA 2002 has different registration requirements for corporation, partnership and a sole proprietorship.

13. B. This statement correctly describes typical activities of a property manager.

A mortgage broker is a middleman between lenders/investors and borrowers and is paid by either the lender or the borrower. Appraisers may be hired by buyers, sellers, lenders, insurance companies or even government agencies for real estate evaluation. Real estate activities are not only regulated under REBBA 2002 but under many other laws such as the Contract Law, the Competition Act, the Consumer Protection Act, etc.

MiniCram Notes 97


14. C. The real estate market has many variations and is subject to many factors and hence, it is difficult to predict.

It is incorrect to say that real estate business must follow a normal business cycle or it is never impacted by local tax levels. Not all real estate data is available from local boards and mortgage lenders as there are several other sources of real estate data.

15. A. Increased employment opportunities in a town will create demand for real estate in the local market.

It is incorrect to say that the local real estate market will not be affected as there will definitely be new demand for housing. People generally prefer want to live near their workplaces. The consumer price index is not affected by this activity.

16. B. Start of new industries in an urban area do impact real estate market. Industries hire hundreds of employees and most employees prefer to live near their workplaces.

It is incorrect to say that industries hire only local employees. Other statements correctly describe the factors that impact real estate market in general.

17. D. The real estate market during period of recession is generally a buyer’s market. This is due to the fact that the supply is more than demand.

Other statements regarding business cycles are correct. Consumer confidence is high during periods of prosperity resulting in more demand for real estate. Recovery periods create new employment opportunities.

18. C. A smaller house in a locality of larger houses typically increases its value.

The principle of substitution states that buyers look for alternative properties but they do not buy a property for more value just because it is better maintained. The principle of highest and best use does not give maximum value to only commercial use but other factors are involved. The principle of change states that social, political and economic changes do affect real estate market as it is a part of total economy.

19. B. The buyer did not consider the value of current structure and paid the land valueonly.

This is not due to principle of change only because the use of property is being changed. It is also incorrect to say that the supply and demand or external factors are affecting value.

20. D. The principle of increasing/decreasing returns states that continuously adding features to the property do not necessarily continue to add value. The value reaches its maximum level and after that the extra features become an over-improvement.

Principle of contribution typically relates to the effect on value due to a specific feature. The principle of highest and best use and the principle of balance are not applicable in this scenario.

MiniCram Notes 98


21. B. Ego needs are related to someone’s social, financial or political status and he wants to exhibit it by having an entirely different house.

The given scenario is not related to social, physiological or security need.

22. D. The salesperson is trying to protect seller client’s interests by getting as much information as possible about the property. This helps in marketing efforts. At the same time the salesperson is disclosing the role of the brokerage to comply with REBBA 2002 code of ethics.

Salespersons must not advise any buyer that new homes do not need inspection. Material facts about the property must be disclosed by sellers. The salesperson also must not force any client to hire a particular lawyer, home inspector or any other professional. The client should be given the choice to select himself.

23. C. It is incorrect to say that cultural values rarely affect buying decisions or the buyers do not give importance to location.

Purchasing a home from a particular builder only is an example of brand loyalty. Most buyers make buying decisions depending on their specific needs and wants during a particular stage of life. Market niche refers to a segment of market where most buyers have similar opinions, interests, backgrounds or cultural values.

24. A. PIPEDA permits real estate brokerages and other businesses to convert paper documents to electronic format provided they can be reproduced when required.

It is incorrect to say that salespersons cannot keep copies of trade related documents at home. Brokerages are not permitted to disclose personal, confidential or motivational information of clients to any third parties. Conversion of documents to electronic format is optional.

25. B. This statement gives an incorrect example of ‘product’ in marketing terminology. This in fact refers to ‘price’.

Other statements are correct regarding methods of promoting services and products by real estate brokerages.

26. B. 238,138; 237,200; 235,000

►Mean: Add All Values and Divide by Number of Values, which is 13.

= 3,095,800 ÷ 13 = 238,138

►Median: Arrange Values in Ascending Order and Select the Middle Value

233,600; 234,500; 235,000; 235,000;235,600; 236,800; 237,200; 238,300;240,000; 242,900; 243,100

Out of 13 Values the 7th Value 237,200 is in the Middle.

MiniCram Notes 99


Median = 237,200►Mode: The Most Repeated Value. 235,000

27. D. Mini - $15,758.82; Skinny - $18,910.58; Brokerage - $7,354.12Sale Price = 795,900 X 96% = $764,064Total Commission = 764,064 X 5.5% = $42,023.52Listing and Selling Portions Are Even = 42,023.52 ÷ 2 = $21,011.76Listing Salesperson SplitCommission to Mini = 21,011.76 X 75% = $15,758.82Commission to Brokerage = 21,011.76 X 25% = $5,252.94Selling Salesperson SplitCommission to Skinny = 21,011.76 X 90% = $18,910.58Commission to Brokerage = 21,011.76 X 10% = $2,101.18Net Commission to Brokerage = 5,252.94 + 2,101.18 = $7,354.12

28. A. Mini - $8,851.50; Kim - $13,136.75; Cram - $3,793.50; Power - $2,318.25Total Commission = 562,000 X 5% = $28,100Listing PortionGross to Cram Realty Inc. = 28,100 X 45% = $12,645Commission SplitCommission to Mini = 12,645 X 70% = $8,851.50Commission to Cram Realty = 12,645 X 30% = $3,793.50Selling PortionGross to Power Realty Inc. = 28,100 X 55% = $15,455Commission SplitCommission to Kim = 15,455 X 85% = $13,136.75Commission to Power Realty = 15,455 X 15% = $2,318.25

29. A. $550,000Since the brokerage kept 15% of its gross commission, the split is 85/15.Even distribution means 50/50 allocation for listing and selling parts.Sale Price = 11,687.50 ÷ 85% ÷ 50% ÷ 5% = $550,000►Tip: Keep dividing with given percentages in order.

30. B. $350,000Mortgage Loan is 8/10th of Value or 80% of value.

MiniCram Notes 100


This means the Down Payment (Equity) is 20%.The 20% Equity is $70,000.Value of House = 70,000 ÷ 20% = $350,000

31. C. 23,141 Square Feet2.5 Acres = 2.5 X 43,560 = 108,900 Square FeetLess 15% = 108,900 – 15% = 92,565 Square FeetEach Parcel of Land = 92,565 ÷ 4 = 23,141 Square Feet

32. D. Property C, Property A, Property BSale to List Price RatioProperty A = 805,000 ÷ 824,900 X 100 = 97.59%Property B = 788,500 ÷ 799,900 X 100 = 98.57%Property C = 776,200 ÷ 809,900 X 100 = 95.84%Ascending Order: Property C, Property A, Property B►Tip: Ascending Order – From lowest to highest

Descending Order – From Highest to Lowest

33. B. 10%; 9.09%; $4,500Annual Rent Last Year = $12.50Annual Rent This Year = (12.50 + 1.25) = $13.75Annual Rent Next Year = (13.75 + 1.25) = $15.00Percentage Change from Last Year to This Year

= (13.75 -12.50) ÷ 12.50 X 100 = 10%Percentage Change from This Year to Next Year

= (15.00 - 13.75) ÷ 13.75 X 100 = 9.09%Monthly Rent Next Year = 3,600 X 15.00 ÷ 12 = $4,500

34. A. 2,196 Square MetreArea of the Right Angled Triangle = 197 X 240 ÷ 2 = 23,640 Square FeetConvert to Square Metre = 23,640 X 0.0929 = 2,196 Square Metre

35. A. 210.12 Square MetreArea of Full Rectangle = 16.6 X 14.8 = 245.68 Square MetreArea of Upper Rectangle = (16.6 ― 4.6 ― 4.6) X 1.8

= 7.2 X 1.8 = 12.96 Square MetreArea of Left Rectangle = (14.8 ― 7.2) X 1.5

MiniCram Notes 101


= 7.6 X 1.5 = 11.4 Square MetreArea of Bottom Rectangle = 5.6 X 2 = 11.2 Square MetreArea of Shaded Portion = 245.68 – 12.96 – 11.4 – 11.2 = 210.12 Square Metre

36. B. $1,356Volume of Driveway = 45.5 X 24.75 X (4 ÷ 12) = 375.38 Cubic FeetCost = 375.38 X 97.50 ÷ 27 = $1,356►Tip: If Depth is in Inches, divide it by 12.

If Cost is ‘Per Cubic Yard’, divide it by 27.

37. A. $109,000Wall Height = (2.89 X 3.281) + (7.5 ÷ 2) + 0.5

= 9.48 + 3.75 + 0.5 = 13.73 FeetVolume = 1,460 X 13.73 = 20,045.80 Cubic FeetCost = 20,045.80 X 146.80 ÷ 27

= $108,989.75. Rounded to $109,000.

38. D. 2,672 Square FeetArea of the First Floor = 46.8 X 34 = 1,591.20 Square FeetArea of Second Floor = 46.8 X 22 = 1,029.60 Square FeetArea of Dormer 1 = 4.25 X 5.30 = 22.53 Square FeetArea of Dormer 2 = 4.70 X 6.10 = 28.67 Square FeetTotal Area = 1,591.20 + 1,029.60 + 22.53 + 28.67

= 2,672 Square Feet

39. C. $87,300Annual PI Payments = 1,683.46 X 12 = $20,201.52Annual Loan Payment = 515.30 X 12 = $6,183.60Annual Income = (20,201.52 + 6,800 + 6,183.60) ÷ 38%

= $87,329.26. Rounded to $87,300.

40. A. $1,809.16Annual PI Payment = (78,000 X 32%) ― 3,250 = $21,710Monthly PI Payment = 21,710 ÷ 12 = $1,809.17

41. B. $227,456Step 1: Calculate Monthly P & I Payment

Annual Tax = 321.68 X 12 = $3,860.16

MiniCram Notes 102


Annual Loan = 340 X 12 = $4,080Annual PI Payment = (62,500 X 40%) – 3,860.16 – 4,080 = $17,059.84 Monthly PI Payment = 17,059.84 ÷ 12 = $1,421.65

Step 2: Locate Monthly Mortgage Payment Factor from the ChartsPayment Factor for 5.75% Interest Rate, 25 Year Amortization = 6.250221 Maximum Loan = 1,421.65 ÷ 6.250221 X 1000 = $227,456►Note: Mortgage Payment Factors are provided in exam. Read the question carefully toselect the correct chart.

42. D. $790,740Total Closing Costs = 15,280 + 1,560 + 4,800 + 1,600 + 3,500 = $26,740Liquid Assets = 764,000 + 26,740 = $790,740►Tip: The buyer is not assuming seller’s mortgage but paying all cash. ‘All Cash’ means that the buyer does not need a mortgage loan. Ignore the amount of seller’s existing mortgage which is $456,500.

43. C. $2,101.21

Amount Owed After the Term, A = P X (1 + i)n

Where ‘i’ is Interest Rate per month = 18 ÷ 12 ÷ 100 = 0.015(1 + i) = 1 + 0.015 = 1.015‘n’ is the number of compounding periods = 3Amount Owed After the Term = 46,000 X (1.015)3 = $48,101.21Interest Owed = 48,101.21 – 46,000 = $2,101.21►Tip: To calculate power with a simple calculator, just multiply the number by itself 2 times.

For 3 months: (1.015)3 = 1.015 X 1.015 X 1.015

For 4 months: (1.015)4 = 1.015 X 1.015 X 1.015 X 1.015

44. D. $11,755There is a residential structure on the property. Breakup the total amount to calculate tax:First 55,000 X 0.5% = 275Next 195,000 X 1.0% = 1,950Next 150,000 X 1.5% = 2,250Balance (764,000 – 400,000) X 2% = 7,280Land Transfer Tax = 275 + 1,950 + 2,250 + 7,280 = $11,755►Note: Land Transfer Tax rate chart is provided in exam.

MiniCram Notes 103


45. B. $806.52Annual Property Tax = 1,200,000 ÷ 92,000,000 X 742,000 = $9,678.26Monthly Property Tax = 9,678.26 ÷ 12 = $806.52

46. D. Buyer - $372.58Since rent is collected in advance, count the buyer’s days of ownership out of 31 days August.Buyer’s days are from August 25th to August 31st = 7Adjustment = 1,650 ÷ 31 X 7 = $372.58 Credit to Buyer.

47. B. Seller - $750Since the buyer gets full tank of oil, ignore the amount of oil required to fill it. Adjustment = 600 X 1.25 = $750 Credit to Seller.

48. C. $110.98; $1,194.14Net Operating Income = 484,200 – 4% – 322,500 = $142,332Value = 142,332 ÷ 11.25% = $1,265,173.33Value per Square Foot = 1,265,173.33 ÷ 11,400 = $110.98Value per Square Metre = 110.98 X 10.76 = $1,194.14

49. B. $753,300Net Operating Income = 180,000 – 105,800 = $74,200Value = 74,200 ÷ 9.85% = $753,300

50. A. 19.54 ft X 28.26 ftSince the room dimensions are in square feet, the given area is converted.Current Area = 248 X 10.76 = 2,668.48 Square FeetExtension = 2,668.48 X 22% = 587.06 Square Feet

Option A Area = 19.54 ft X 28.26 ft = 552.20 Square feetOption B Area = 21.35 ft X 31.20 ft = 666.12 Square feetOption C Area = 22.50 ft X 32.15 ft = 723.38 Square feetOption D Area = 24.80 ft X 26.42 ft = 655.22 Square feet

Out of the given dimensions, only option A, i.e. 552.20 square feet is within the permitted limits.

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Back to Sample Exam 1 Back to Table of Contents

MiniCram Notes 104


DETAILED ANSWERS

SAMPLE EXAM 2

1. C. Unit refers to a defined space in a condominium building. Common elements are all areas in the building except units.

Unit owners usually do not participate in the registration process. Unit owners are not only responsible for their own unit but also for liabilities of the corporation. Declaration and Description are the two documents required for registration of a condominium corporation. An Article of Incorporation is for a business corporation in general.

2. A. It is very important to have knowledge of local regulations in order to trade in rural properties because many provincial federal or local by-laws may restrict the use of property.

The transactions in rural properties are not similar to transactions urban areas. It is not required that a salesperson joins a rural brokerage to trade in those properties.

3. C. Subjective value is in the minds of buyers or sellers. It is a perception of value. Owner bright ‘thinks’ that painting the house will increase its value by $8,000.

All other options are describing the cost, which is an objective value.

4. B. Consumers consider various factors when deciding to buy a property.

The decision is not just based on what friends and relatives are doing. Cultural values are not ignored. People of different mind sets or age groups typically have different choices for real estate.

5. A. Real estate is immobile (fixed location) and local economy affects values.

The real estate market is slow in adjusting to overall economic conditions. Data about transactions is not public but private matters. Real estate business cycles are different than typical business cycle.

6. B. The Multiple Nuclei Theory of urban development considers several central business district zones instead of just one.

Other theories of urban development consider one central business district.

7. D. A copy of consumer report (credit report) is not attached to the application for registration. Only disclosure has to be made.

Other options are incorrect because all these documents are required with the application.

8. C. The reason for declining values is the increase in listings. In other words, the supply of real estate has gone up while demand may not have increased.

This explanation makes all other options incorrect.

MiniCram Notes 105


9. B. REBBA 2002 makes no difference between an employee and an independent contractor status for the trading purposes. Both are treated as employees.

The brokerage is responsible for the activities of both employees and independent contractors. The employee does not work according to his own judgment or methods but it the independent contractor who does so.

10. A. Being a permanent resident is not definitely a reason for refusal of registration. Both permanent residents and citizens are residents of Canada.

A proposal for settlement of debt, giving false information in application and any pending criminal charges may be a reason for refusal.

11. D. In an agency relationship with a seller, the brokerage is the agent and the seller is a client.

Salesperson Kim is only an employee of the brokerage Cram Realty Inc. A third party is a party who is not connected with this transaction for now.

12. A. If a person himself sells an owned property, he is not required to be registered.

A solicitor is exempted when the trade is made in the course of his regular activities of providing legal services. An employee of the builder is exempted from registration when he is working as a full time employee not as an independent contractor. Also, he must be on salary (not on commission) and sells only new homes of that builder.

13. B. It is the salesperson’s agreement with the brokerage which decides what happens to representation and customer service agreements in case the employee changes a brokerage. Additionally, the party to the agreement must also give their consent.

The representation agreements procured by the salesperson do not automatically get terminated and do not always stay with the brokerage.

14. C. Suspension of registration or imposition of a fine is not immediate. The action taken by registrar depends on the nature of the complaint.

The other options are incorrect because these are valid options for the registrar to resolve a complaint against a registrant.

15. A. This option correctly explains the Principle of Change. Social, political and economic forces keep changing the supply and demand of real estate and, hence, affect real estate values.

Principle of External Factors is related to things outside properties that affect values and is not related to uniqueness of properties. Principle of Balance is related to balance of services and amenities in a neighbourhood but is not related to price stability. Principle of Conformity is not related to specific properties but to conformity of entire zone or neighbourhood.

MiniCram Notes 106


16. B. The given scenario clearly suggests deteriorating condition of the neighbourhood which is an external factor. Even though the property is well maintained it may not sell for its highest value because of poor conditions of the neighbourhood.

The principle of regression is not applicable in this case because it is related to a large property located in a neighbourhood of smaller properties. The principle of conformity is related to similar standards of structures in an area. The principle of substitution is related to comparison of properties by buyers and is an incorrect option in this case.

17. C. The given scenario points to the thoughts in the minds of buyers when inspecting a property. Currently, the buyers are giving more importance to the sunroom and walkout to deck because of summer time. The fireplace in family room is not being noticed. This is principle of anticipation due to the fact that buyers are looking at future benefits of these features.

Other principles of values do not specifically apply here because these are related to other aspects of the property.

18. B. Ego needs are related to a person’s social or financial status and the property he wants to own must also reflect his status.

Social needs are based on a person’s desire to belong to the society; physiological needs are needs for basic survival, and security needs are based on a person’s physical and financial security.

19. D. REBBA 2002 Code of Ethics requires registrants to disclose the nature of agency relationships at the earliest practical opportunity but before an offer is presented.

The salesperson does not have to disclose his experience. The motivation of a client is personal information and must not be disclosed. The commission split of salesperson with his brokerage is not required to be disclosed.

20. B. This statement incorrectly describes the use of personal information by a registrant. The registrant must obtain informed written consent of the client before forwarding the personal information to a third party.

Other options are incorrect because these statements are correct regarding personal information.

21. C. All activities mentioned in the scenario are pointing to an open house held by a registrant.

The AIDA rule is related to advertising, prospecting is related to activities in search of business.

22. B. The Consumer Protection Act is applicable to real estate registrants when making representations (statements) during the process of obtaining agreements with buyers or sellers.

MiniCram Notes 107


When advertising a property for sale, the consumer is protected by REBBA 2002 and other regulations such as the Competition Act. When a commercial brokerage is preparing financial statements of projected income the consumers are protected by REBBA 2002. Similarly, REBBA 2002 as protects consumers regarding disclosure of material facts related to the transaction.

23. A. When a registrant is advertising his services in general, it is a form of institutional advertising.

Specific advertising refers to a specific product or service. Targeted advertising refers to targeting a particular segment of the market. Motivational advertising is not a standard term.

24. C. The provisions of the Competition Act apply to all types of businesses and a real estate brokerage is also a business.

Although consumers are protected under REBBA 2002 for trading activities, there are other laws as well for consumer protection. For collection and use of personal information, the applicable provincial law is the Consumer Reporting Act. The last statement regarding representations is related to the Consumer Protection Act.

25. D. It is incorrect to say that sellers always get multiple offers in an open house. It all depends on the property as well as market conditions.

Other statements correctly describe the benefits of arranging open houses.

26. A. $228,627; $230,800Mean or Average: Add all values and divide by number of valuesMean or Average = 2,514,900 ÷ 11 = $228,627 (Rounded)Median: Arrange the given values in ascending order (from lowest to highest) and pick the 6th value which is in the middle218,450 219,600 222,350 227,240228,460 230,800 233,000 233,000233,000 234,200 234,800Since there are 11 values, the 6th value is in the middle.Median = $230,800

27. C. Cram $1,236; Power $2,059; Kim $7,002; Jim $6,178Total Commission = 329,500 x 5% = $16,475Listing (Cram Realty) and Selling (Power Realty) Portion= 16,475 x 50% = $8,237.50Cram Realty Inc. = 8,237 x 15% = $1,236Kim = 8,237 x 85% = $7002Power Realty Inc. = 8,237.5 x 25% = $2,059

MiniCram Notes 108


Jim = 8,237.5 x 75% = $6,178►Tip: Commission is calculated on Sale Price. Ignore the List Price.

28. B. Kim $5,744; Jim $5,361; Brokerage $4,212Total Commission = 278,500 x 5.5% = $15,317.50Listing and Selling Portions = 15,217 x 50% = $7,658.75Salesperson Kim = 7,658.75 x 75% = $5,744.06Salesperson Jim = 7,658.75 x 70% = $5,361.13Brokerage = 7,658.75 x 25% = $1,914.69Brokerage = 7,658.75 x 30% = $2,297.63Net to Brokerage = 1,914.69 + 2,297.63 = $4,212.32►Tip: Since the brokerage is same, add the commission to Brokerage from both listing

and selling portions.

29. C. $400,0009,350 ÷ 85% ÷ 55% ÷ 5% = $400,000►Tip: Keep dividing salesperson’s commission with the given percentages.

30. A. $212,500Convert 6/10th into Percentage: 6 ÷ 10 x 100 = 60%Mortgage Loan is 60%. This means that the Down Payment is 40%.Down Payment of $85,000 (Part) is 40% (Rate) of Purchase Price or Value (Whole). Purchase Price = 85,000 ÷ 40% = $212,500►Tip: Use the formula: Whole = Part ÷ Rate

31. D. 15,972 Square FeetReduce the land size by 15% and then divide by 3 to get area of each parcel of land. Total Land Area = 1.25 x 43,560 = 54,450 Square Feet.Area of Each Parcel of Land = (54,540 – 12%) ÷ 3 = 15,972 Square Feet.

32. A. 6.38%; 6.00%; $2,826.67Current Rent = $12.50Rent Last Year = 12.50 – 0.75 = $11.75Rent Next Year = 12.50 + 0.75 = $13.25Percentage Change from Last Year to Current Year = 0.75 ÷ 11.75 = 6.38% Percentage Change from Current Year to Next Year = 0.75 ÷ 12.50 = 6.00% Monthly Rent Next Year = 2,560 x 13.25 ÷ 12 = $2,826.67

MiniCram Notes 109


33. B. Yes. Albert’s property meets requirements and he can build 312 SquareMetres.

Total Area = 85 X 165 = 14,025 Square FeetConvert to Square Metres = 14,165.77 X 0.929 = 1,302.92 Square Metres► Yes, he meets minimum requirements.Permitted Area = 1,302.92 X 24% = 312.07 Square Metres.

34. D. 6,391 Square FeetThis is a right angled triangle shape.Multiply the two perpendicular sides and divide by 2.Area = 27 x 44 ÷ 2 = 594 Square MetresConvert to Square Feet = 594 x 10.76 = 6,391 Square Feet (rounded)

35. C. 14,117 Square FeetThis is a trapezoid shape.To calculate area, add the parallel sides, multiply with perpendicular side and divide by 2. Ignore the other sides.Area = (37 + 45) x 32 ÷ 2 = 1,312 Square MetresConvert to Square Feet

1,312 X 10.76 = 14,117 Square Feet (rounded).► Tip: Ignore the left and right sides which are not perpendicular to each other.

36. B. $159,250Wall Height = 18 + 4 + 0.5 = 22.5 FeetVolume = 35 x 52 x 22.5 = 40,950 Cubic FeetCost = 40,950 x 105 ÷ 27 = $159,250.►Tip: Divide by 27 because cost is ‘per cubic yard’.

37. D. 130 Square MetresComplete all rectangular shapes by calculating the missing dimensions.Subtract the areas of small rectangles from the area of big rectangle.Big Rectangle = 18.4 x 8.4 = 154.56Upper Middle Rectangle = (18.4 – 1.8 – 4.2 – 4.2) x 1.2

= 8.2 x 1.2 = 9.84Upper Left Rectangle = (8.4 – 4.9) x 1.8

= 3.5 x 1.8 = 6.30Lower Right Rectangle = (8.4 – 5.3) x (18.4 – 5.3)

MiniCram Notes 110


= 3.1 x 2.7 = 8.37Area of Shaded Portion = 154.56 – 9.84 – 6.30 – 8.37 = 130.05 Square Metres

38. B. $1,531.20Annual Property Tax = 387.50 X 12 = $4,650Annual Car Loan Payment = 419.30 X 12 = $5,031.60Annual P & I Payment = (66,800 X 42%) – 4,650 – 5,031.60 = $18,374.40Monthly P & I Payment = 18,374.40 ÷ 12 = $1,531.20►Tip: Add all payments and divide by TDS ratio.

39. B. $62,287.80Annual P & I Payment = 1,240.70 x 12 = $14,888.40Annual Property Tax = 285.56 x 12 = $3,426.72Annual Loan Payment = 550 x 12 = $6,600Annual Income = (14,888.40 + 3,426.72 + 6,600) ÷ 40% = $62,287.80

40. B. 4.98%Total Loan = 250,000 + 40,000 = $290,000Multiply First Loan with its Interest Rate250,000 x 4.5% = 11,250Multiply Second Loan with its Interest Rate40,000 x 8% = 3,200Average Interest Rate = (11,250 + 3,200) ÷ 290,000 x 100 = 4.98%

41. B. $55,500Total Closing Costs = 3,950 + 1,250 + 1,300 + 800 + 3,200 = $10,500Liquid Assets = 365,000 + 10,500 – 320,000 = $55,500.

►Tip: Ignore the seller’s existing mortgage because the buyer is not assuming it.

42. D. $18,408.05Interest Rate per Month = 9 ÷ 100 ÷ 12 = 0.0075Add 1 to get (1+i) = 1.0075For 3 Months = 1.0075 x 1.0075 x 1.0075Multiply with Principal = 18,000 x 1.0075 x 1.0075 x 1.0075Amount payable after Term (Principal and Interest) = $18,408.05

43. A. $1,943,500Net Operating Income = 550,000 – 326,500 = $223,500

MiniCram Notes 111


Value = 223,500 ÷ 11.5% = 1,943,478.26.= $1,943,500 (Rounded to nearest $100).

44. C. $74.36Net Operating Income = 364,500 - 276,200 = $88,300Value = 88,300 ÷ 12.5% = $706,400Value per Square Foot = 706,400 ÷ 9,500 = $74.36

45. B. $1,293,947Net Operating Income = 485,000 – 3.5% – 345,100 = $122,925Value = 122,925 ÷ 9.5% = $1,293,947

46. C. $9,486Assessment Value of house = 387,500 x 85% = $329,375Tax Rate = 2,548,800 ÷ 88,500,000 x 100 = 2.88%Property Tax = 329,375 x 2.88% = $9,486

47. D. $745First House: Purchase Price is $389,000.This amount is over $250,000 but below $400,000. Break up the amount to calculate tax:

First 55,000 X 0.5% = $275Next 195,000 X 1% = $1,950Balance (389,000 – 250,000) X 1.5% = $2,085

Land Transfer Tax = 275 + 1,950 + 2,085 = $4,310Second House: Purchase Price is $429,000.This amount is over $400,000. Break up the amount to calculate tax:

First 55,000 X 0.5% = $275Next 195,000 X 1% = $1,950Next 150,000 X 1.5% = $2,250Balance (429,000 – 400,000) X 2% = $580

Land Transfer Tax = 275 + 1,950 + 2,250 + 580 = $5,055Difference = 5,055 – 4,310 = $745

48. B. Seller - $1,437.50Adjustment = 250 x 5.75 = $1,437.50 Credit to Seller.

►Tip: Note that the buyer is getting full tank of oil. Ignore the amount of fuel required to fill the tank.

MiniCram Notes 112


49. D. Seller - $612.49Count Buyer’s days of ownership from closing date till end of year.October 12th to December 31st.Buyer’s Days = 81Buyers Share of Tax = 2,760 ÷ 365 x 81 = $612.49►Credit to seller because the seller has already paid the tax.

50. C. Seller - $500.55Seller’s Days of Ownership from January 1st to May 19th = 139Seller’s Share of Tax = 4,200 ÷ 365 X 139 = $1,599.45The seller has paid half of the annual tax, i.e. $2,100.Adjustment = 2,100 – 1,599.45 = $500.55Seller paid this amount in excess of his share.Credit to Seller = $500.55►Tip: When the seller has paid partial tax, count only the seller’s days of ownership and calculate his share of property tax.

------------------Back to Sample Exam 2 Back to Table of Contents

MiniCram Notes 113


DETAILED ANSWERS

SAMPLE EXAM 3

1. B. The rules and regulations of the Multiple Listing Service® are enacted and enforced by the local real estate board.

Real estate brokerages and the Ontario Real Estate Association® (OREA®) do not establish the MLS® rules and regulations. These are also not mandatory under REBBA 2002 and RECO has no role in establishment or enforcement of these rules.

2. D. Payment of RECO insurance premiums is mandatory for every registered salesperson and broker. Non-payment of insurance premium results in immediate suspension of registration and the salesperson is not entitled to claim a commission.

Payment of other fees mentioned may not affect payment of commission.

3. C. It is not true that all salespersons selling new homes are exempted from registration under REBBA 2002. Other conditions for exemption must be met. These salespersons must be full time, salaried employees and must sell only new homes of that builder.

Other statements are correct and not the correct answer because the question requires selection of an incorrect statement.

4. A. REBBA 2002 does not require a registrant to become a member of organized real estate.

Registration with RECO permits the registrant to trade only in the province of Ontario. The MLS® and REALTOR® trademarks are owned and protected by the Canadian Real Estate Association. The CREA Code of Ethics is mandatory only for the members of organized real estate and not for every registrant.

5. D. REBBA 2002 regulations require an applicant to disclose any bankruptcies and any previous or pending criminal charges.

A copy of police clearance certificate is required with the application but a consumer report is not required. The applicant must disclose any criminal charges whether he was convicted or not. Similarly, current or previous bankruptcies must be disclosed, irrespective of the date of filing or the date of discharge.

6. B. Statistics Canada periodically collects, analyses and publishes reports on price fluctuations for most common consumer goods and services. This is known as Consumer Price Index (CPI), which provides indications of inflation or deflation.

The other terms do not relate to measurement of consumer prices and are not correct options.

7. A. Value in Exchange is also referred to as Market Value. Market value is an estimate of value based on certain assumptions made during the valuation process.

MiniCram Notes 114


Market price is the sale price of an individual property and is not the same as market value. Investment value is based on an individual’s expectations from a commercial property and is not the same as objective value. Although professional appraisers have the required education and skills to evaluate properties, it is incorrect to say that only they can establish property values.

8. C. The value of the property is negatively affected by external factors or something outside the property itself.

The Principle of contribution relates to contribution of certain feature to the value of the property. The principle of substitution is related to buying decision based on available alternatives. The principle of regression is related to negative effect on the value of property because it is located among smaller properties.

9. D. The Consumer Protection Act is for protection of consumers from illegal trading practices by businesses. It has provisions for stiff penalties, fines and even sentencing for anyone found in violation of the Act.

The Consumer Protection Act applies to representation agreements signed with buyers and sellers but is not applicable for representations made during trading activities. This Act is provincial and not a federal law. This Act does not apply to purchase, sale or lease of real estate (properties) because the consumer is protected under REBBA 2002.

10. C. If the property does not sell for a long time, the ‘For Sale’ sign generates a negative impression. It is incorrect to say that it is an advantage to the salesperson.

Other options are correct statements regarding advantages of a ‘For Sale’ sign.

11. D. The amount of commission has no effect on marketing or sale of property as soon as possible. Other activities such as conducting open houses, advertising the property through website, blogs and posting on MLS® are helpful in reducing the time taken for sale.

12. B. A brokerage may charge commission based on a flat fee, a percentage of sale price or several percentages in descending order.

Brokerages are not permitted to charge the difference between the list price and sale price. They can only charge a percentage of sale price but not a percentage of list price. Also, the commission cannot be the higher amount between percentage of sale price and a flat fee.

13. A. This statement is false regarding REBBA 2002 requirements for a brokerage as sole proprietorship. The brokerage cannot hire a broker of record because the owner himself/herself must be the broker of record.

A sole proprietorship brokerage must designate a broker of record and it must the owner himself. The brokerage can still hire a number of salespersons and brokers as employees.

14. C. REBBA 2002 requires an individual to make a disclosure of any previous or current bankruptcy or any criminal charges in the registration application.

MiniCram Notes 115


A brokerage cannot disclose the name of its salespersons or brokers because they are hired after the brokerage is registered. Also, a brokerage need not disclose the name of the lender which provides financial assistance for starting the brokerage business. A broker application does not require the salesperson to disclose the numbers of transactions that he/she has completed until the time of application.

15. D. Salesperson Mini may or may not be covered under RECO’s Errors and Omissions insurance. This coverage depends on the nature of negligent activity she is found to be involved in.

The Consumer Deposit Protection coverage is for the protection of deposits given by buyers. It is incorrect to say that salesperson Mini will not be covered at all because it depends on what negligent act has been committed.

16. B. An individual salesperson or broker may be taken to court by RECO. In this case, he/she may be tried under the Provincial Offences Act. This generally happens when the case is outside the jurisdiction of RECO.

The provision for a maximum penalty of $250,000 is for a brokerage corporation and not for an individual salesperson. The maximum amount of penalty for individuals is $50,000 under the Provincial Offences Act. It is incorrect to say that a salesperson or broker is always required to pay compensation to the client. After a registrant is convicted, RECO has an obligation to publish details of the offence in order to protect public interest.

17. A. All complaints are first scrutinized by the office of the Registrar of RECO. Depending on the nature of complaint, the Registrar has the option to make an attempt to resolve the complaint by mediation between the parties.

It is incorrect to say that the RCI process only considers consumer complaints because it also considers registrant to registrant complaints. Further, every complaint is not referred directly to the discipline committee. The process does not have any provision to immediately suspend registration without first considering the details of the complaint.

18. B. Real estate market analysts avoid monthly fluctuations in real estate market data by taking a three-month moving average.

Annual average of real estate values is not useful and is not considered during analysis. Market analysts typically consider the central tendency of values by considering mean and median values.

19. C. Consumer confidence pulls the demand for real estate up or down. This further affects the economy because the supply and demand forces must remain in balance for growth of economy.

Resource markets are comprised of labour, capital, land and entrepreneur skills and do not include consumers. Abundant supply of goods is not always a good factor for economy because the demand side cannot be ignored. The government of Canada plays a central role to maintain balance between the forces of supply and demand and intervenes when need arises.

MiniCram Notes 116


20. A. The given scenario indicates excessive listings in the local market because people may be moving out of the town. This value principle is known as the principle of supply and demand.

Principle of change refers to changes in real estate market due to social, political or economic influences. The principle of contribution is not applicable in this case as it is related to contribution of adding features in the value of a property. The principle of increasing/decreasing returns is also related to addition of multiple features or improvements in a property.

21. B. Availability of services and amenities in a neighbourhood affects the buying decisions. This is known as principle of external factors.

Principle of change is related to changes in market based on social, political or economic changes. Principle of conformity is related to reasonable similar standards of structures, mostly in terms of use. The principle of anticipation is specifically related to present worth of future benefits of ownership of a particular property under consideration by a buyer.

22. D. A salesperson must make a disclosure of any additional financial benefits to the clients. Further, no registrant can receive any remuneration except from the employing brokerage.

Other options are incorrect because of the above explanation.

23. C. The salesperson must include appropriate conditions for inspection of water well (both quantity and quality of water), the septic tank, the underground oil tank and any other thing that impacts the enjoyment of property by buyers. This protects the best interests of the buyers.

Just verbal assurance by sellers regarding fundamental issues related to the property is not sufficient to protect buyers’ interests. Verbal assurances have no legal merit in real estate trading. Although the buyers are eager for a quick closing, the salesperson must not rush and must protect buyers’ interests by including conditions for inspection by professionals.

24. A. A marketing mix is based on product (services), promotion (advertising), price (commission) and place (target market). These are known as 4 P’s of marketing. The given option is about price and place.

Core competencies refer to a competitive edge acquired by a brokerage or an individual salesperson based on specific skills, assets and selling techniques. Value added services refer to additional services provided by a brokerage at additional cost. Specific advertising refers to advertising a specific product such as advertising a single property or several properties.

25. C. Personal information cannot be used for a purpose other than it is collected for. Under the Consumer Reporting Act, a business must get informed written consent of a consumer before collecting personal information and it should be used for a specific purpose only. If the purpose changes, written consent of the consumer must be taken again.

MiniCram Notes 117


The definition of personal information under the Consumer Reporting Act does not include name, telephone number or business address of an employee of a business. Personal information includes both factual information as well as opinions. Businesses are not permitted to share personal information of a consumer to other businesses without prior written consent of the consumer.

26. C. 317,190; 317,800Mean: Add all values and divide by number of values, which is 10.3,171,900 ÷ 10 = 317,190Median: Arrange given values in ascending order and calculate average of the two in

middle.310,200; 313,000; 314,600; 316,000; 317,500;318,100; 319,300; 320,000; 320,700; 322,500317,500 and 318,100 are both in middle. Average of these two numbers is the Median Median = (317,500 + 318,100) ÷ 2 = 317,800

27. B. $9,707Total Commission = 456,800 X 5% = $22,840Selling Portion = 22,840 X 50% = $11,420Jim’s Commission = 11,420 X 85% = $9,707

28. C. Jim $4,366.75; Kim $8,565.45; Power Realty $2,351.33; Cram Realty $1,511.57Sale Price = 349,900 X 96% = $335,904Total Commission = 335,904 X 5% = $16,795.20Listing PortionGross to Power Realty = 16,795.20 X 40% = $6,718.08Jim’ Split = 6,718.08 X 65% = $4,366.75Net to Power Realty = 6,718.08 X 35% = $2,351.33Selling PortionGross to Cram Realty = 16,795.20 X 60% = $10,077.12Kim’s Split = 10,077.12 X 85% = $8,565.45Net to Cram Realty = 10,077.12 X 15% = $1,511.57

29. D. 172; 473; 215Studio Units = 860 X 20% = 172One Bedroom Units = 860 X 55% = 473Two bedroom Units = 860 – 172 – 473 = 215►Tip: The word ‘respectively’ means that the answer must be in the order it is asked.

MiniCram Notes 118


30. D. $290,000Remaining Amount for Down Payment = 70,000 – 12,000 = $58,000The down payment is 1/5th or 20% of value.Value = 58,000 ÷ 20% = $290,000

31. A. 12 Fishing Crescent; 32 River Crescent; 41 Banks RoadSale to List Price Ratios32 River Crescent = 275,000 ÷ 284,900 X 100 = 96.53%41 Banks Road = 286,400 ÷ 299,900 X 100 = 95.50%12 Fishing Crescent = 302,900 ÷ 309,000 X 100 = 98.03%Descending Order: Highest to Lowest

12 Fishing Crescent; 32 River Crescent; 41 Banks Road

32. C. 10.34%, 9.38%, $5,031.25Annual Rent Last Year = $14.50; This Year = $16.00; Next Year = 17.50 Percentage ChangeFrom Last Year to This Year = 1.50 ÷ 14.50 X 100 = 10.34%From This Year to Next Year = 1.50 ÷ 16.00 X 100 = 9.38%Monthly Rent Next Year = 3,450 X 17.50 ÷ 12 = $5,031.25

33. A. 1,650 Square FeetArea of Parallelogram = 50 X 33 = 1,650 Square Feet.►Tip: Use only the Base and the Perpendicular. Ignore all other given sides.

34. C. 2,714 Square FeetArea of Trapezoid = (68 + 50) X 46 ÷ 2 = 2,714 Square Feet.

35. A. 198.62 Square MetreArea of the big rectangle = 17.2 X 12.8 = 220.16 Square MetreArea of left rectangle = (12.8 – 3.6 – 1.8) X 1.5

= 7.4 X 1.5 = 11.10 Square MetreArea of right side top rectangle = (12.8 – 5.6 – 1.8) X 1.2

= 5.4 X 1.2 = 6.48 Square MetreArea of right side bottom rectangle = (17.2 – 15) X 1.8

= 2.2 X 1.8 = 3.96 Square MetreRemaining Area = 220.16 – 11.10 – 6.48 – 3.96 = 198.62 Square Metre

MiniCram Notes 119


36. D. $4,349Volume of 1 driveway = 38 X 18.25 X (4 ÷ 12) = 231.17 Cubic FeetVolume of 4 Driveways = 4 X 231.17 = 924.67 Cubic FeetCost = 924.67 X 127 ÷ 27 = $4,349.36►Tip: Divide by 27 because the cost is given ‘per cubic yard’ but the calculated volume is in cubic feet.

37. B. 1,787 sfArea A = 42.5 X 26 = 1,105 sfArea B = 42.5 X 15 = 637.50 sfArea of Dormer 1 = 4.85 X 5.65 = 27.40 sfArea of Dormer 2 = 3.75 X 4.5 = 16.88 sfTotal Area = 1,105 + 637.50 + 27.40 + 16.88 = 1,787 sf

38. B. $1,370Annual Tax Payment = 330 X 12 = $3,960Annual P & I Payment = (68,000 X 30%) – 3,960 = $16,440Monthly P & I Payment = 16,440 ÷ 12 = $1,370

39. C. $2,025Annual Property Tax = 250 X 12 = $3,000Annual Car Loan = 350 X 12 = $4,200Annual Mortgage Payment = (75,000 X 42%) – 3,000 – 4,200 = $24,300Monthly Mortgage Payment = 24,300 ÷ 12 = $2,025

40. D. $211.05Interest Rate is 6% per Annum, Compounded Monthly = 6 ÷ 100 ÷ 12 = 0.005Add 1 to get (1+i) = 1.005For 3 Months = 1.005 x 1.005 x 1.005Multiply with Principal = 14,000 x (1.005 x 1.005 x 1.005)Amount Owed After the Term (Principal and Interest) = $14,211.05Interest = 14,211.05 – 14,000 = $211.05

41. C. 5.38%Total Mortgage Loan = 235,000 + 38,000 = $273,000Overall Average Interest Rate= [(235,000 X 4.75%) + (38,000 X 9.25%)] ÷ 273,000 X 100

MiniCram Notes 120


= (11,162.50 + 3,515) ÷ 273,000 X 100= 5.38%

42. B. $384.79Amount of Loan = 420,000 X 90% = $378,000First Lender:► Monthly Payment Factors for 5.5%, 25 Year Amortization = 6.103915PI Payment = 378,000 X 6.103915 ÷ 1000 = $2,307.28Second Lender:► Monthly Payment Factor for 6%, 20 Year Amortization = 7.121884P&I Payment = 378,000 X 7.121884 ÷ 1000 = $2,692.07Difference = 2,692.07 – 2,307.28 = $384.79►Note: The Mortgage Payment Factors are provided in the exam. Be careful to look at the correct chart.

43. B. 11.21%Net Operating Income = 245,000 – 180,000 = $65,000Cap Rate = 65,000 ÷ 580,000 X 100 = 11.21%

44. D. $923.64Net Operating Income = 340,000 – 4.5% – 215,000 = $109,700Value = 109,700 ÷ 12% = $914,166.67Value per Square Foot = 914,166.67 ÷ 10,650 = $85.84Value per Square Metre = 85.84 X 10.76 = $923.64

45. B. $3,231,000Net Operating Income = 895,300 – 58.5% = $371,549.50Value = 371,549.50 ÷ 11.5% = $3,230,865.22Rounded = $3,231,000

46. A. Seller - $1,662.50►Since the seller is giving a full tank of oil, he gets credit for the entire cost of oil. Adjustment = 250 X 6.65 = $1,662.50, Credit to Seller.

47. C. Buyer - $1,206.45Since the rent is paid in advance, count buyer’s days of ownership.Buyer’s days from July 10th to July 31st = 22Adjustment = 1,700 ÷ 31 X 22 = $1,206.45, Credit to Buyer.

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48. D. Seller - $532.60Since the seller has paid the tax, he gets credit.Count the buyer’s days of ownership in the year.Buyer’s Days from September 15th to December 31st = 108Adjustment = 1,800 ÷ 365 X 108 = $532.60, Credit to Seller.

49. C. $11,150Break up the purchase price as follows:First 55,000 X 0.5% = $275Next 195,000 X 1% = $1,950Balance (845,000 – 250,000) X 1.5% = $8,925Land Transfer Tax = 275 + 1,950 + 8,925 = $11,150

50. A. $616.24Annual Property Tax = 1,860,000 ÷ 82,500,000 X 328,000 = $7,394.91Monthly Property Tax = 7,394.91 ÷ 12 = $616.24

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DETAILED ANSWERS

SAMPLE EXAM 4

1. A. The primary function of the Real Estate Council of Ontario (RECO) is to protect public interest, trust and confidence in real estate trading. RECO is an administrative authority, which enforces the Real Estate and Business Brokers Act 2002 (REBBA 2002).

The Multiple Listing Service® is maintained by the local real estate board. The CREA Code of Ethics is for members of organized real estate and outside the jurisdiction of RECO. Standards of education are set by RECO but delivery of courses is currently undertaken by the Ontario Real Estate Education (OREA).

2. B. The Broker of Record is a designated employee of the brokerage. He/she is responsible to ensure that the activities of the brokerage and its employee salespersons and brokers are in compliance with REBBA 2002 and other related statues that affect real estate trading.

The designations given in other options are not valid and incorrect options.

3. D. According to the Common Law of Agency, an agent is someone who is authorized by a party to represent that party in a business transaction with a third party.

Under REBBA 2002, the term representative is an equivalent to agent. An Independent Contractor is a person who is not considered an employee of a company for taxation purposes. His/her job is not regulated under Employment Standards Act. A Person of Interest is someone who has an interest in the operation of the brokerage business.

4. C. RECO has established a Registrar’s Complaints and Inquiries (RCI) process so that consumers may make complaints against registrants. This is an example of how RECO fulfills its mandate to protect consumer confidence in real estate trading.

Mandatory continuing educational courses are mandatory for registrants and not for applicants. RECO insurance is for salespersons and brokerages and not for brokerages. The CREA® Code of Ethics is for members of organized real estate, not for all registrants.

5. B. The Real Estate and Business Brokers Act 2002 (REBBA 2002) authorizes registered real estate brokerages to delegate the agency duties to its employee salespersons and brokers.

This authority is not granted by any local real estate board, by the Agency Law or by any buyer or seller client.

6. A. A Condominium corporation is created after registration of two documents – Declaration and Description.

The corporation does not hold title to all units in the building. After the condominium corporation is registered, individual units are sold and can be registered separately in the names of buyers. Since buyers of units have proportionate share of common elements, they are personally liable for the debts of the corporation.

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7. D. In a typical buyers’ market, the supply of real estate is high while the demand is low. Buyers have plenty of choice when making a buying decision. The prices usually tend to fall in a buyers’ market.

8. C. Subjective value is based on individual perceptions and future benefits of ownership. It exists in the minds of buyers and sellers. It differs from person to person because each one may estimate value differently.

Objective value, on the other hand, is the cost of reproducing or replacing the property, i.e. the cost of land plus the cost of improvements.

9. C. The Consumer Price Index (CPI) is a valid measure of purchasing power of Canadian dollar and to see if inflation is occurring or not. CPI measures periodic changes in goods and services that a common consumer utilizes.

10. B. Statistical analysis of real estate market is not a method to exercise control on real estate market. This analysis is used to keep track of market activities.

Zoning by-laws, taxation policies and monetary policies set by the Bank of Canada are some of the methods that the government exercises to control the real estate market.

11. D. Canadian economy is a mixed economy, which involves activities by individuals, families, business corporations and the government.

Canadian economy is not a completely free economy based only on supply and demand forces because other economic factors play a vital role. It is not a capital economy and it is also not controlled only by the government decisions.

12. C. It is incorrect to say that specific advertising is targeted to a particular community. Specific advertising refers to advertising a specific product, which is a particular property in real estate.

Other statements with respect to market segment, marketing mix and brokerage advertising policies are correct.

13. A. An employee salesperson or broker does not typically pay operating expenses or desk fees to the brokerage.

Hiring salespersons and brokers as employees does not increase responsibility of the brokerage because it remains same for both independent contractors as well as employees. It is incorrect to say that hiring more independent contractors will in any way reduce the responsibility of the brokerage for their trading activities.

14. B. RECO insurance is mandatory for both members and non-members of organized real estate.

The question is to find an incorrect statement. Other options are correct regarding membership in organized real estate.

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15. D. Independent contractor salespersons are similar to self-employed persons who pay for their own trading activities, such as advertising expenses, etc. They are typically paid commission based on their sales.

The employee salespersons typically get salary (or salary plus commission) and their trading expenses are borne by the brokerage. Independent contractors are not paid salary and they are not paid directly by buyer or seller clients. The payment to any salesperson is only through the brokerage. Merely paying a desk fee does not qualify a salesperson to be considered an independent contractor.

16. B. The statement that mandatory continuing education is for salespersons only and not for brokers is false.

Every salesperson and broker must complete mandatory continuing education after the initial 2 years of articling period. If these courses are not completed the registrar may refuse renewal of registration. Completion of additional articling courses is not a substitute for mandatory continuing educational courses.

17. C. An overheated market with aggressive activities of its key players is not always a good sign as it may lead to development of a market bubble.

When real estate supply goes up (increase in properties available for sale), demand (buyers) cannot be increased only by lowering interest rates. Real estate boards and associations are not responsible to keep the real estate market balanced. It is true that a market correction is indicated by decrease in employment but that does not always result in high consumer confidence.

18. A. The Real Estate Council of Ontario (RECO) is a regulatory body which regulates the Real Estate and Business Brokers Act 2002 (REBBA 2002). RECO is not usually involved in collection or analysis of real estate market data.

Other options provide correct sources of real estate market data.

19. B. A property manager or anyone who is leasing residential properties under the provisions of Residential Tenancies Act is exempted from registration under REBBA 2002.

An employee of a shopping centre who is involved in leasing commercial units is not exempted from registration under REBBA 2002. Salespeople who have their own business corporations involved in real estate trading are not exempted.

20. A. The requirement of completing articling courses is only for newly registered salespersons. It is not for brokers because an individual who is registered as a broker has already completed these courses.

All newly registered salespersons must complete one articling course within the first two years of registration (Articling Period). Articling courses comprise of examination and minimum 75% passing score is required. Successful completion of articling program does not make the salesperson eligible for registration as a broker. Successful completion of additional courses are required to obtain a broker designation.

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21. C. The home inspector generally inspects the general condition of the structure and its mechanical components.

This inspection is not according to the Ontario Building Code standards. Home inspectors typically include their limiting conditions in the report to ensure that client understands what structural components have been inspected or not inspected. Home inspectors are not regulated under REBBA 2002. Salespersons and appraisers are not qualified to conduct home inspections.

22. B. A buyers’ market typically means that there are more sellers and a few buyers. The real estate values tend to fall because the buyers have plenty of choice.

It is incorrect to say that properties sell for more than listed price or the average time to sell a property is reduced during buyer’s market. The buying decisions are mainly based on subjective value (benefits of ownership) and not just objective value (cost of reproduction) of property.

23. D. More is not necessarily better. The Principle of Increasing/Decreasing Returns may be used to dispute owner Smart’s estimate of value. This principle states that successive addition of features may not keep adding value to the property and the increase in value stops at some point of time.

24. A. Proper understanding of consumers’ needs and wants is very important for real estate salespersons. This can help them in providing better services to their clients.

Consumers do not make quick decisions and do not simply follow their salesperson when making a buying decision. The process involves several other internal and external factors, specific to a particular consumer.

25. C. The buyer is following his relatives and friends. Personality trait refers to tendency of people to live with others having similar backgrounds, opinions, interests and cultural values.

Brand loyalty refers to the fact that some buyers stick to a particular brand. In real estate, a buyer may buy a home from a certain builder only. A decision to buy a home near friends and relatives is not consumer vulnerability. Product appeal refers to certain aspects of a property that generates interest in a buyer. It is related to design, layout, colours or other visual aspects (appearance) of the property.

26. C. $1,980Total Commission = 352,000 X 5% = $17,600Listing Portion = 17,600 X 45% = $7,920Selling Portion = 17,600 X 55% = $9,680Salesperson Kim’s Commission = 7,920 X 85% = $6,732Salesperson Jim’s Commission = 9,680 X 90% = $8,712Difference = 8712 – 6,732 = $1,980

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27. A. $508,00011,658.60 ÷ 85% ÷ 60% ÷ 4.5% = $508,000►Tip: Keep dividing the salesperson’s commission with the given percentages.

28. D. Salesperson C gets more referrals than both A and B.Salesperson A gets referrals from 20% clients.Salesperson B gets referrals from 1 out of every 6 clients. This is 1 ÷ 6 X 100 = 16.67% Salesperson C gets referrals from 3 out of every 8 clients. This is 3 ÷ 8 X 100 = 37.5%

29. C. 45%.Smart’s current ownership share is 1/5th

= 1 ÷ 5 X 100 = 20%Smart’s ownership share after acquisition = 20% + 25% = 45%

30. D. 216, 576 and 1,008Two Storey Homes = 1,800 X 56% = 1,008Bungalows = 1,800 X 32% = 576One and Half Storey Homes = 1,800 -1,008 – 576 = 216Number of one and half storey houses, bungalows and two-storey houses respectively: 216, 576 and 1,008.►Tip: The word ‘Respectively’ means that the answer should be in the order it is asked.

31. B. House B, House A and House CHouse A = 337,000 ÷ 349,000 x 100 = 96.56%House B = 305,800 ÷ 324,500 x 100 = 94.24%House C = 336,000 ÷ 339,900 x 100 = 98.85%Ascending Order (lowest to highest) is House B, House A and House C.

32. C. Yes, the lot meets requirements and Binny can build 647.48 Square Metres.Total Lot Area = 2 X 43,560 = 87,120 Square feetConvert to Square Metres= 87,120 X 0.0929 = 8,093.45 Square MetresYES, Binny’s Lot Meets Requirements.Extension Permitted = 8,093.58 X 8% = 647.48 Square Metres

33. C. 5,305.53 Square FeetConvert the Height to Feet = 15.7 X 3.281 = 51.51 FeetArea of the Trapezoid = (86 + 120) X 51.51 ÷ 2

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= 5,305.53 Square Feet

34. B. $6,643Volume of 1 Driveway = 24 x 14.75 x 4 ÷12 = 118 Cubic FeetCost of 8 Driveways = 118 x 8 x 190 ÷ 27 = $6,643.►Tip: Divide by 27 because the given cost is ‘per cubic yard’.

35. C. 8,929.80 Square FeetTotal Land Area = 1.5 X 43,560 = 65,340 Square Feet.Remaining Area after Expropriation = 65,340 – 18% = 53,578.80 Square FeetArea of Each Parcel = 53,578.80 ÷ 6 = 8,929.80 Square Feet

36. D. 918 Square MetresArea of Right Angled Triangle = 54 X 34 ÷ 2 = 918 Square Metres.►Tip: Leave the longest side of the triangle. Multiply the other two sides and divide by 2.

37. A. $217,400Height = (6.2 X 3.281) + (12 ÷ 2) + 0.5 = 26.84 FeetVolume = 1,200 X 26.84 = 32,208 Cubic FeetCost = 32,211 X 6.75 = $217,404Rounded = $217,400

38. A. 2,281 Square FeetAll areas are rectangular. Just multiply length and width of each and then add all areas. Area A = 46 x 32 = 1,472 Square FeetArea B = 46 x 16.5 = 759 Square FeetDormer 1 = 4.25 x 5.5 = 23.38 Square FeetDormer 2 = 4.75 x 5.5 = 26.13 Square FeetTotal Area = 1,472 + 759 + 23.38 + 26.13= 2,280.51 Square Feet= 2,281 Square Feet (rounded).

39. B. $1,543,872Height of Building = 21.5 FeetVolume = 136 X 64 X 21.5 = 187,136 Cubic FeetCost = 187,136 X 8.25 = $1,543,872►Tip: The height is measured ‘from six inches below surface’. Do not add 0.5 feet because it is already added.

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40. A. $1,820House: Break up the amount:

(55,000 X 0.5%) + (195,000 X 1%) + (150,000 X 1.5%) + (364,000 X 2%) Land Transfer Tax = 275 + 1,950 + 2,250 + 7,280 = $11,755

Vacant Land: Break up the amount:(55,000 X 0.5%) + (195,000 X 1%) + (514,000 X 1.5%)Land Transfer Tax = 275 + 1,950 + 7,710 = $9,935

Difference = 11,755 – 9,935 = $1,820

41. C. 6.35%Total Mortgage Loan = 475,000 + 240,000 = $715,000Overall Average Rate of Interest= (475,000 X 4.25%) + (240,000 X 10.50%) ÷ 715,000 X 100= (20,187.50 + 25,200) ÷ 715,000 X 100 = 6.35%

42. C. $49,886Annual P & I Payment = 1,150 X 12 = $13,800Annual Car Loan Payment = 396 X 12 = $4,752Annual Tax = $2,400Annual Income = (13,800 + 4,752 + 2,400) ÷ 42% = $49,886

43. C. $372,460Total Closing Costs = 2,700 + 1,360 + 1,100 + 2,300 = $7,460Liquid Assets = 365,000 + 7,460 = $372,460.►Tip: Ignore the seller’s existing mortgage because the buyer is not assuming it and is ‘paying all cash’. This means that the buyer does not need a mortgage loan.

44. A. $1,565.50Annual Car Loan Payment = 334.50 x 12 = $4,014Amount for P&I and Tax = 64,000 x 40% = $25,600Remaining Annual Amount for P&I Payment = 25,600 – 2,800 – 4,014 = $18,786 Monthly P&I Payment = 18,786 ÷ 12 = $1,565.50

45. D. $281,786Annual Loan Payment = 420 x 12 = $5,040Amount for PI, Tax and Loan = 76,000 x 38% = $28,880Annual amount for P & I Payment = 28,880 – 3,200 – 5,040 = $20,640

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Monthly P & I Payment = 20,640 ÷ 12 = $1,720►Monthly Mortgage Payment Factor for 5.5% and 25 year Amortization = 6.103915 Maximum Mortgage Loan = 1,720 ÷ 6.103915 x 1000 = $281,786.36

46. B. $5,293.63Tax Rate = 1,080,000 ÷ 87,320,000 X 100 = 1.2368%Property Tax = 428,000 X 1.2368% = $5,293.63

47. A. $134.69Effective Gross Income = 460,000 – 4% = $441,600Net Operating Income = 441,600 – 58% = $185,472Value = 185,472 ÷ 12.75% = $1,454,682Value per Square Foot = 1,454,682 ÷ 10,800 = $134.69

48. B. $2,558Residential Property:

First 55,000 X 0.5% = $275Balance (245,800 – 55,000) X 1% = $1,908Land Transfer Tax = 275 + 1,908 = $2,183

Vacant Land:First 55,000 X 0.5% = $275Balance (65,000 – 55,000) X 1% = $100Land Transfer Tax = 275 + 100 = $375

Total or Combined Land Transfer Tax = 2,183 + 375 = $2,558►Tip: DO NOT add up the total purchase price to calculate Land Transfer Tax. If you do, the wrong amount may also be there as an option.

49. A. Buyer - $1,252.38Seller’s Days of Ownership: Count from January 1st to 1 Day before Closing Number of Days from January 1st to August 24th = 236Seller’s Share of Tax = 9,670 ÷ 365 X 236 = $6,252.38Seller Paid (6,252.38 – 5,000) = $1,252.38 Less.The buyer will have to pay this amount.Adjustment = $1,252.38 - Credit to Buyer.

50. A. Buyer - $863.33Days in September = 30

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Seller’s days = 16; and Buyer’s days = 14Adjustment = 1,850 ÷ 30 x 14 = $863.33 Credit to Buyer.

►Credit to buyer because the seller has already taken the rent from the tenant in advance. ►Note: Sellers days of ownership are up to 1 day before closing.

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