Determine your answer, then click the arrow to see the correct response.
What Is "Tenant Improvement Allowance" in Commercial Real Estate?
A) A fixed amount tenants must pay for property improvements
B) A budget provided by the landlord to customize leased space to the tenant’s needs
C) A rebate given to tenants for property taxes
D) An insurance policy covering tenant renovations
Correct Answer: B) A budget provided by the landlord to customize leased space to the tenant’s needs
Explanation: Tenant improvement allowance is a sum of money provided by the landlord to the tenant to customize or improve the leased commercial space to meet the tenant’s specific needs.
What Does "Covenant" Refer to in Real Estate?
A) A formal agreement or promise between parties in a legal document, such as a deed or lease
B) A type of mortgage loan
C) A market analysis report
D) An appraisal of property value
Correct Answer: A) A formal agreement or promise between parties in a legal document, such as a deed or lease
Explanation: A covenant in real estate is a binding agreement or promise written into deeds and other instruments that obligates or restricts the parties’ actions concerning the property.
What Is "Due-on-Sale Clause" in a Mortgage Agreement?
A) A clause that allows the borrower to sell the property without notifying the lender
B) A clause that requires the borrower to repay the remaining loan balance upon the sale of the property
C) A clause that gives the lender the right to increase interest rates
D) A clause that allows the borrower to defer payments temporarily
Correct Answer: B) A clause that requires the borrower to repay the remaining loan balance upon the sale of the property
Explanation: A due-on-sale clause is a provision in a mortgage agreement that requires the borrower to pay off the loan in full if the property is sold or transferred.
What Is a "Triple Net Lease"?
A) A lease agreement where the tenant pays rent only
B) A lease agreement where the tenant pays rent plus property taxes, insurance, and maintenance costs
C) A lease agreement where the landlord covers all expenses
D) A lease agreement with variable rent based on the tenant’s revenue
Correct Answer: B) A lease agreement where the tenant pays rent plus property taxes, insurance, and maintenance costs
Explanation: A triple net lease (NNN lease) is a lease agreement in which the tenant agrees to pay all ongoing expenses of the property, including property taxes, building insurance, and maintenance, in addition to the rent.
Emma, a Licensed Real Estate Agent in South Dakota, Fails To Provide a Property Condition Disclosure Statement to a Buyer Before Accepting a Written Offer. What Are the Potential Consequences for Emma Under South Dakota Law?
A) No consequences as long as the sale proceeds
B) The buyer can terminate the offer
C) Emma will be fined but can proceed with the sale
D) The sale is automatically nullified
Correct Answer: B) The buyer can terminate the offer
Explanation: Under South Dakota Codified Laws §43-4-38, the buyer must be furnished with a completed property condition disclosure statement prior to a written offer. Failure to provide this disclosure allows the buyer to terminate the offer.
An Investor Buys a Duplex in South Dakota for $450,000. The Property Generates a Monthly Rental Income of $3,600 and Has Annual Expenses of $10,800. What Is the Gross Rental Yield?
A) 7.7%
B) 8.2%
C) 9.6%
D) 9.9%
Correct Answer: D) 9.6%
Explanation: The annual rental income is $3,600 × 12 = $43,200. The gross rental yield is calculated by dividing the annual rental income by the property value and multiplying by 100. Gross rental yield = ($43,200 / $450,000) × 100 ≈ 9.6%.
What Is Required for a Valid Conveyance of Real Property in South Dakota?
A) A verbal agreement between the buyer and seller
B) A written instrument signed by the grantor
C) A handshake witnessed by a third party
D) A formal court proceeding
Correct Answer: B) A written instrument signed by the grantor
Explanation: According to South Dakota Codified Laws, a valid conveyance of real property must be in writing and signed by the grantor to be legally binding.
Which of the Following Transfers Is Exempt From the Real Estate Transfer Fee in South Dakota?
A) Transfers involving a significant amount of consideration
B) Transfers between unrelated parties
C) Transfers of cemetery lots and grave sites
D) Transfers pursuant to a settlement agreement approved by a decree of divorce
Correct Answer: C) Transfers of cemetery lots and grave sites
Explanation: According to South Dakota Codified Laws §43-4-22, certain transfers, such as those involving cemetery lots and grave sites, are exempt from the real estate transfer fee.
A Property in South Dakota Is Purchased for $300,000. The Buyer Makes a Down Payment of 25% and Finances the Rest With a Mortgage at an Annual Interest Rate of 4.25%, Amortized Over 30 Years. What Is the Total Amount of Interest Paid Over the Life of the Loan?
A) $175,367.80
B) $183,214.60
C) $190,432.10
D) $198,324.50
Correct Answer: C) $190,432.10
Explanation: The loan principal (P) is $225,000 (75% of $300,000). The monthly interest rate (r) is 0.0425 / 12 = 0.00354167. The number of payments (n) is 3012 = 360. Using the formula for a fixed-rate mortgage, M = P[r(1+r)^n] / [(1+r)^n – 1], we find the monthly mortgage payment. Then, the total amount paid over the life of the loan is the monthly payment multiplied by the number of payments. Subtracting the principal gives the total interest paid.
A Commercial Property in South Dakota Is Valued at $1,500,000 and Has an Annual Net Operating Income (NOI) of $120,000. If the Capitalization Rate Is Increased to 9%, What Will Be the New Value of the Property?
A) $1,200,000
B) $1,333,333
C) $1,500,000
D) $1,600,000
Correct Answer: B) $1,333,333
Explanation: The value of the property is calculated by dividing the annual net operating income by the capitalization rate. New property value = $120,000 / 0.09 = $1,333,333.