Wisconsin Real Estate License FREE Wisconsin Real Estate License Property Valuation and Financing Questions and Answers 2 — Questions and Answers
Question 1: In Wisconsin, which appraisal approach estimates value by calculating the cost to rebuild a structure minus depreciation plus land value?
- Cost approach (Correct answer)
- Sales comparison approach
- Income capitalization approach
- Gross rent multiplier approach
Correct answer: Cost approach
The cost approach estimates value by determining current replacement or reproduction cost, subtracting depreciation, and adding the land value.
Question 2: A Wisconsin property generates $48,000 in annual net operating income and the capitalization rate is 8%. What is the estimated property value using the income approach?
- $600,000 (Correct answer)
- $384,000
- $480,000
- $576,000
Correct answer: $600,000
Dividing the net operating income of $48,000 by the cap rate of 0.08 yields an estimated value of $600,000.
Question 3: Under Wisconsin law, which type of mortgage clause allows the lender to demand full repayment if the property is sold without lender approval?
- Due-on-sale clause (Correct answer)
- Prepayment penalty clause
- Subordination clause
- Defeasance clause
Correct answer: Due-on-sale clause
A due-on-sale clause, also called an alienation clause, lets the lender accelerate the loan balance upon transfer of the property.
Question 4: What does the loan-to-value (LTV) ratio represent in a Wisconsin real estate financing transaction?
- The percentage of the property's appraised value that is financed by the mortgage (Correct answer)
- The borrower's annual income divided by the loan amount
- The ratio of closing costs to the purchase price
- The percentage of equity the buyer holds after closing
Correct answer: The percentage of the property's appraised value that is financed by the mortgage
The LTV ratio compares the mortgage loan amount to the appraised value or purchase price of the property, whichever is lower.
Question 5: Which form of property depreciation in an appraisal refers to loss of value caused by factors outside the property boundaries?
- External obsolescence (Correct answer)
- Functional obsolescence
- Physical deterioration
- Deferred maintenance
Correct answer: External obsolescence
External or economic obsolescence is caused by factors outside the property, such as nearby environmental hazards or zoning changes.
Question 6: In Wisconsin, a buyer obtains an FHA loan requiring a 3.5% down payment on a $200,000 home. What is the minimum down payment amount?
- $7,000 (Correct answer)
- $6,000
- $10,000
- $3,500
Correct answer: $7,000
Multiplying the purchase price of $200,000 by 3.5% yields a minimum down payment of $7,000.
Wisconsin Real Estate License FREE Wisconsin Real Estate License Property Valuation and Financing Questions and Answers 2
In Wisconsin, which appraisal approach estimates value by calculating the cost to rebuild a structure minus depreciation plus land value?