Modern Real Estate Practice in Texas, 16th Edition

Chapter 4 Answer Key

1. d Insurance, mortgage interest, and maintenance and repairs are all expenses associated with the ownership of real estate. Personal property is not real estate.

2. d The newly married homeowner will be allowed only the $250,000 maximum exclusion for a single person because the spouse has previously used the exclusion.

3. b Equity is the current market value of the property minus any loans.

4. d Street signage is typically not a major factor influencing the choice of location for residential properties.

5. d A homeowners policy covers water damage associated with sudden and accidental discharge (such as from a plumbing system) or damage to a hot water heating system. It does not cover rising water associated with runoff of surface waters or overflow of inland or tidal waters.

6. a Converted-use properties are non-residential structures that have been converted to residential use.

7. b Underinsuring property may result in the owner’s being responsible for a portion of any loss; thus, a coinsurance clause is a common provision under which the insured agrees to maintain insurance on the property in an amount equal to at least 80 percent of the replacement cost.

8. a Federal law requires that owners of properties in a floodplain area obtain flood insurance on properties financed by loans involving federal programs.

9. c All homeowners policies cover the insured’s legal liability for losses or damages to another’s property or injuries suffered while on the owner’s property.

10. d Both town houses and single-family houses are constructed on lots that are owned by the homeowner.

11. a The total of mortgage principal plus interest on the remaining balance plus one-twelfth of annual taxes and insurance should not exceed 25 to 28 percent of a borrower’s gross monthly income.

12. c The first $500,000 of capital gains ($250,000 for single homeowners) is excluded from tax as long as it was owned and occupied as a principal residence for at least two of the five years prior to the sale or exchange.

13. b Capital gains are the profits realized from the sale of real property. Therefore the gain is: $127,000 (Sales Price) – $75,000 (original purchase price) = $52,500.

14. d None, because the gain realized on the sale was less than the $250,000 exclusion.

15. a Even if the couple did not share the principal residence for the previous two years, an exclusion of $250,000 is still available on a qualifying sale or exchange of one of the spouses.

16. b Mixed-use developments are self-contained complexes which frequently combine office and retail space along with entertainment and restaurant facilities and apartments.

©2014 Kaplan, Inc.