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MiniCram Real Estate Exam Course 1

MiniCram Real Estate Exam Course 1 Study Notes & Practice Questions

Updated: February 2017 All rights reserved. No part of this publication may be reproduced, transmitted or stored in any material form (including photocopying or storing it in any medium by electronic means and, whether or not transiently or incidentally, to some other use of this publication) without the prior written consent of the publisher. No patent liability is assumed with respect to the use of information contained in this publication. Warning and Disclaimer The 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 the publisher 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 paper format 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 or liable 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 the Real Estate Council of Ontario (RECO), the Ontario Real Estate Association® or any Real Estate Board. Acknowledgements The 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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TABLE OF CONTENTS Copyright Table of Contents Introduction and Exam Format Changes to Educational Requirements 10 Tips for the Exam Summary of Math Formulas PART I – SUMMARY NOTES 1. The Real Estate Career 2. Regulatory Requirements 3. Economic Principles and Real Estate 4. Profiles, Trends and Real Estate Values 5. Consumer Behaviour and Protection 6. Marketing and Advertising 7. Basic Math and Measurements 8. Mortgage Math 9. Capitalization, Taxation and Closing Adjustments PART II – PRACTICE QUESTIONS Sample Exam 1 Quick Answer Key Sample Exam 2 Quick Answer Key Sample Exam 3 Quick Answer Key Sample Exam 4 Quick Answer Key Detailed Answers Sample Exam 1 Sample Exam 2 Sample Exam 3 Sample Exam 4

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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 MiniCram You 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 You This 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. -----------------Bac k to Table of Contents

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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. Principles of Appraisal Principles of Mortgage Financing Principles of Property Management Real Estate Investment Analysis

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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  

The Residential Real Estate Transaction, or 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    

Principles of Appraisal Principles of Mortgage Financing Principles of Property Management Real Estate Investment Analysis

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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. -----------------Bac k to Table of Contents

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SUMMARY OF MATH FORMULAS Percentages Part = Whole X Rate% Whole = Part ÷ Rate% Rate = Part ÷ Whole X 100 Percentage Change = (New Value – Old Value) ÷ Old Value X 100

Mean, Median and Mode Mean (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 Width Area of Triangle = ½ X Base X Height Parallelogram = Length X Perpendicular Height Trapezoid = ½ X Sum of Parallel Sides X Perpendicular Height

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

Mortgage Math Liquid Assets = (Purchase Price + Closing Costs) ― Mortgage Loan GDS Ratio = (PI+ T) ÷ Annual Income X 100 TDS Ratio = (PI + T + Other Debt) ÷ Annual Income X 100

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

Capitalization 1. Potential Gross Income 2. Less: Vacancy and Bad Debt 3. Effective Gross Income = Potential Income – Vacancy Loss 4. Net Operating Income (NOI) = Effective Income – Operating Expenses 5. Value (V) = Net Operating Income ÷ Cap Rate ► V=I÷R

► I=VXR

► R=I÷V

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

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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 the brokerage 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 proprietorship business. 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 be a 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 registration is 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 a personal 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.

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1.2 Working with a Brokerage Employee vs. Independent Contractor Salespersons and brokers must be employed by a brokerage either as an Employee or as an Independent Contractor. The difference between an employee and independent contractor is only for tax purposes (Canada Revenue Agency). For real estate trading purposes, both the Employees and Independent Contractors are treated as Employees. In both cases, the brokerage is responsible for the trading activities of the salespersons and brokers. The Canada Revenue Agency (CRA) uses Common Law tests to determine whether a salesperson is an Employee or an Independent Contractor. Employee: The job is regulated under Employment Standards Act (ESA).  The employee salesperson does not pay any Desk Fee.  The brokerage bears operating expenses.  Paid a salary or salary plus commission and may be getting certain benefits such as Employment Insurance, Health Insurance, etc.  Taxes are deducted by the brokerage from salary. Independent Contractor: The job is regulated under Real Estate and Business Brokers Act 2002 (REBBA 2002).  The salesperson works using his/her own judgment and method  The independent contractor salesperson typically pays a desk fee and/or other administration fees.  These salespersons are responsible for their own expenses such as advertising, car insurance, etc.  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.  Commission Distribution: Division of commission between listing and selling portions for different brokerages.  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.

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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 of the 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 before entering 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 the Listing 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 –

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Development and delivery of education, Lobbying with provincial government, Arbitration among real estate boards, and 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 to practitioners 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. Mo...