OREA Real Estate College

10 TIPS FOR THE EXAM1. RELAX! Too much anxiety, panic, stress and fear are big distractions. Focus on thequestion and choose the best answer.2. GAME OF WORDS. All multiple choice exams are merely variation of words. If youknow 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 andstraightforward 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 andD to make sure they are incorrect.

Exam Tips

5. MANAGE YOUR TIME WISELY. Divide it according to marks for each question. Donot 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 includeswords such as MAYBE, LIKELY, OFTEN, ALMOST, USUALLY, GENERALLY, TYPICALLY, SOMETIMES, etc. Do not pick any answer that does not leave any room for exception.

Exam Tips

8. ALWAYS read the question twice. You must know what information is given andexactly 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 whenchanging 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 filledin. 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.

Exam Tips

TerminologyReal Estate Trading: Any activity which is related to sale, purchase, acquisition, disposition, exchange, leasing, or any other

transaction of real estate is called real estatetrading.

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.

Employee vs. Independent ContractorSalespersons 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 Standar

The Real Estate Industry in OntarioIndustry 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 TerritorialOntario Real Estate Association (OREA)® is at provincial level.

Its main functions include –Development and delivery of education,

Lobbying with provincial government,Arbitration among real estate boards, andStandardization of forms.

Local BoardsLocal 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.

Rules• Select a representative from each group.

• Groups will face the front of the class hand flat on the desk beside buzzer.

• First to buzz gets to answer. ( no help from groups)

• Correct answer stay in the game and challenged by the next group

• Incorrect answer other team can steal with help from group.

• Last remaining team wins free

Opportunities in Real Estate Market• Residential Resale• New Home Sales• Condominiums• Rural, Recreational and Agricultural Sales• Commercial Real Estate• Property Management• Mortgage Financing• Appraisal

• Real Estate Council of Ontario

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

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

• RECO has a Board of Directors with 12 members – 9 are elected from the industry and• 3 are appointed by the ministry.

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

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

•Real Estate Council of Ontario• 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 –

• Enforcing standards of education and setting up educational requirements for• registration.

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

• 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 member• complaint).

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

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

ECONOMIC PRINCIPLES AND REAL ESTATE 3.1 Canadian EconomyEconomic 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).Consumer Price Index (CPI)

CPI measures prices of 600 goods and services.

• Mean, Median and Mode

• The measure of Central Tendency of real estate values.

• Assume the following range of values ($):

• 234,200 230,800 218,450 233,000 228,460 222,350

• 233,000 219,600 233,000 227,240 234,800

• Mean (Average)

• ►Add all Values and Divide by Number of Values.

• Mean or Average = 2,514,900 ÷ 11

• Mean = $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

218,450 219,600 222,350 227,240 228,460 230,800233,000 233,000 233,000 234,200 234,800Since there are 11 values, the 6th value is in the middle.Median = $230,800Mode►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

• 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).

Principles of ValueAnticipationBalance

CompetitionConformityChange

SubstitutionConsistent Use

Highest and Best UseSupply and Demand

• External Factors

• Progression

• Regression.

• Contribution

• Increasing/Decreasing Returns

• Surplus Productivity

• 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.

Marketing• Products and Services• Tangible and Intangible: A property is a tangible (physical) product and

marketing it is• intangible 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 action• based 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 features

• such 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.

Advertising

• The AIDA Rule

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

• Marketing Seller’s Property

• The FOR SALE Sign

• Open House

• The Multiple Listing Service®

Sample Questions

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.

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

• A. Errors and Omissions

• B. Commission Protection

• C. Negligent Misrepresentation

• D. Consumer Deposit Protection

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.

• D When many builders start new subdivisions resulting in excessive inventory of new houses, the prices may fall.

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.

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.

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 Change

• B. Principle of Consistent use

• C. Principle of Supply and demand

• D. Principle of External factors

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 - $337.50

• B. Seller - $750.00

• C. Buyer - $412.50

• D. Seller - $337.50

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. $4,068

• B. $1,356

• C. $16,272

• D. $36,599

Thank you!Lorne Andrewslorne@expertfinancial.ca