Exam 3

Question 1

A hospital is being built in an area that is zoned residential. The hospital will be a benefit to the public. The exception to the zoning is called a:

A. Discrepancy
B. Conditional use
C. Variance
D. Nonconforming use

Answer 1

Conditional use

A conditional use permit allows the city to consider uses which may be essential or desirable, but which are not allowed as a matter of right within a zoning district, through a public hearing process. A conditional use permit can provide flexibility within a zoning ordinance.

Question 2

What is a license to use land?

A. An estate in land
B. A personal privilege given to someone to use land
C. A type of lease
D. Limited to 500 acres

Answer 2

A personal privilege given to someone to use land

A license to use land is a personal privilege given to someone to use land. It is not ownership in land. An example of a license to use land could be a ticket to a sporting event or a movie theater.

Question 3

Jim leased an apartment in Austin. The lease began on March 1 and ended on September 30. The lease did not automatically renew for another 6 months. The lease is a/an:

A. Periodic tenancy
B. Month-to-month lease
C. Estate for years
D. Estate at sufferance

Answer 3

Estate for years

An estate for years is a lease with a definite beginning date and end date.

Question 4

In the deed, the clause which sets forth the extent of the title being conveyed is:

A. The hereditament
B. The demising clause
C. The indenture clause
D. The habendum clause

Answer 4

c. The habendum clause

The habendum clause often follows the granting clause and states the interest being conveyed, Fee Simple, Life Estate, or Defeasible Fee. The habendum clause begins with the words “to have and hold.”

Question 5

The clause that gives the lender the right to call in the note if the mortgaged property is sold or otherwise conveyed by the borrower, is known as the:

A. Due-on-sale clause
B. Alienation clause
C. Both A and B
D. Neither A nor B

Answer 5

C. Both A and B

If an owner defaults, it‘s called acceleration. If the owner sells and the note is called due at the time of the sale, it is called alienation or due-on-sale.

Question 6

What lien is superior to all other liens?

A. Mortgage lien
B. Mechanic’s lien
C. Tax lien
D. Variable lien

Answer 6

C. Tax lien

A property tax lien is placed on all properties at the beginning of each year. It is superior to any other lien. If property tax is not paid, the government can foreclose the property. It is an involuntary, specific lien.

Question 7

Adjustments for differences between the subject property and the comparable property are made to:

A. The subject property
B. The comparable property
C. Either property as indicated by the appraiser’s findings
D. The appraiser’s final estimate of the value of the subject property

Answer 7

B. The comparable property

The adjustments the appraiser makes are on the comparable properties so the appraisal can make the comparable homes as close to the subject home as possible.

Question 8

Which of the following leases would be unenforceable in court, unless it was in writing?

A. A two-week lease of a cottage
B. A month-to-month lease
C. A three-year commercial lease
D. A six-month lease on an apartment

Answer 8

C. A three-year commercial lease

The Texas Statute of Frauds requires all leases for over one year to be in writing to be enforceable.

Question 9

If a property has a “Sale of Other Property” contingency contract on it, the seller:

A. Cannot accept another offer
B. Must take the property off the market
C. Can ask the original buyer to remove the contingency if the Seller has accepted another offer as a back-up
D. None of the above

Answer 9

C. Can ask the original buyer to remove the contingency if the Seller has accepted another offer as a back-up

The Sale of Other Property addendum allows the Seller to seek other offers, and if the Seller accepts one of the offers and signs it as a back-up, the Seller can ask the first buyer to either remove the contingency or to terminate their contract.

Question 10

The owner of a single-family house in which he lives wants to sell. If he does not use discriminatory language in advertising, has not sold any other house within the past two years, and does not employ an agent, may he discriminate on the basis of race in selecting a purchaser?

A. Yes, because the fair housing laws permit discrimination under these conditions.
B. Yes, because the law applies only to sales made by licensed agents.
C. No, because this would be prohibited by the Civil Rights Act of 1866.
D. No, because this would be prohibited by the Fair Housing Act of 1978.

Answer 10

C. No, because this would be prohibited by the Civil Rights Act of 1866.

Question 11

When working with the buyer as a customer, the broker may:

A. Show property to the buyer
B. Fill out an offer for the buyer
C. Collect a commission for the transaction
D. All of the above

Answer 11

D. All of the above

Question 12

The Americans with Disabilities Act deals primarily with:

A. Single family residences
B. Multifamily residences
C. Commercial property
D. All real estate

Answer 12

C. Commercial property

The ADA deals primarily with commercial property. Businesses have to have handicap parking, a larger handicap bathroom with railing, ramps, etc.

Question 13

In what year did the first of the laws regarding fair housing pass and what was the protected class?

A. 1866 – Race
B. 1968 – Handicapped
C. 1912 – Race
D. 1974 – Handicapped

Answer 13

A. 1866 – Race

While the Civil Rights Act of 1866 had arguably required fair housing practices, it contained no provisions for federal enforcement. In 1968, Title Eight of the Civil Rights Act was passed. This law covered race, color, national origin, and religion. The law was amended in 1974 and sex was added as a protected class. The law was amended again in 1988 when handicapped and familial status were added.

Question 14

If a property was acquired after 1895 and abuts a river or a stream, the property is subject to:

A. The doctrine of appropriation
B. Littoral rights
C. Groundwater rights
D. Erosion

Answer 14

The doctrine of appropriation

Land that was acquired before 1895 carries riparian rights. Land acquired after 1895 is subject to the Doctrine of Appropriation which means the state has the right to control the use of the water, except for certain domestic purposes.

Question 15

What protects an owner against financial loss if the title to the property has defects?

A. The title insurance policy
B. The deed of trust
C. The deed
D. An abstract prepared by an attorney

Answer 15

The title insurance policy

Question 16

When a grantor warrants that he/she is the owner of the property and has the right to convey title to it best describes:

A. Reciprocity
B. Covenant of seisin
C. Deed of trust
D. Tenancy in common

Answer 16

B. Covenant of seisin

A covenant that the grantor has an estate (or the right to convey an estate) of the quality and size that the grantor purports to convey (i.e., the grantor has both title to and possession of the property at the time of conveyance to the grantee).

Question 17

The ____________________ explains the basic information about the terms of a mortgage loan for which the consumer applied.

A. HUD-1
B. Deed of Trust
C. Closing Statement
D. Loan Estimate

Answer 17

D. Loan Estimate

Question 18

You borrow $25,000 and repay $30,500 in 24 months. What rate of interest are you being charged?

A. 11%
B. 8.75%
C. 16%
D. 6.25%

Answer 18

A. 11%

Remember the formula. P = R x B where the loan is the base and the part is the annual interest ($30,500 - $25,000 = $5500 interest for 24 months or 2 years). Divide by 2 = $2,750 interest per year. Part goes into calculator first ($2,750) ÷ $25,000 (loan) = .11 =11% (interest rate).

Question 19

The assessed value of a home is $575,000. The market value is $625,000. The tax rate is $.86 for city, $.75 for county, and $.80 for school taxes per $100 of assessed value. What are the annual taxes?

A. $15,550
B. $13,857.50
C. $14,920.75
D. $13,050.50

Answer 19

B. $13,857.50

Taxes are figured on the assessed value of the property. Add the tax rates (. 86 + .75 + .80= 2.41). $575,000 ÷ 100 = 5750 × 2.41 = $13,857.50.

Question 20

Susan earns $128,000 per year. She has located a lender that will quality her using a 28% ratio. What is Susan’s maximum affordable payment? (Round up to the nearest dollar.)

A. $1,914
B. $3,025
C. $2,987
D. $1,850

Answer 20

C. $2,987

$128,000 ÷ 12 = 10,666.66 (monthly income) × .28 = $2,986.666 = $2,987.

Question 21

The closing is set for April 10, 2018. 2017 taxes have been paid. Total taxes for the year are $17,500. Using a calendar year, how much would the seller owe the purchaser at closing?

A. $4,794.52
B. $4,315.07
C. $3,856.90
D. $4,612.20

Answer 21

A. $4,794.52

$17,500 ÷ 365 (You are using a calendar year so divide by 365 vs 360) = $47.9452 (daily tax). Jan 31 days, Feb 28 days, March 31 days, April 10 days = 100 days total. $47.9452 × 100 days = $4,794.52.

Question 22

A property for sale at $650,000 has a first-year cash flow of $32,000 and an initial investment of $150,000 is required on the property. What is the cash-on-cash return?

A. 40%
B. 32.16%
C. 21.33%
D. 23.95%

Answer 22

C. 21.33%

Rationale: C is the correct answer. $32,000 (cash flow) ÷ $150,000 = .213333 = 21.33%.

Question 23

The Texas Real Estate Commission, which was created in 1949, includes all the following responsibilities EXCEPT:

A. Granting licenses to applicants
B. Regulating brokerage fees
C. Protecting the public interest
D. Regulation of the activities of licensees

Answer 23

B. Regulating brokerage fees

TREC was created to protect the public (consumers) of the state of Texas against the unscrupulous acts of licensees. TREC does not regulate or mediate brokerage fee disputes. They leave that up to the brokers and the Board of Realtors®.

Question 24

How long must a broker keep accounting records for an established trust account?

A. Six months
B. Four years
C. Ten years
D. Brokers are not allowed by law to have trust accounts

Answer 24

B. Four years

Question 25

There are four duties owed by the client to the agent. They are indemnification, cooperation, compensation, and _______.

A. Loyalty
B. Exclusivity
C. Privacy
D. Information that is correct.

Answer 25

D. Information that is correct.

Question 26

Standard forms of TREC must be used unless:

A. A broker or salesperson wishes to use a different form.
B. A principal in the transaction requests a different form to be used.
C. The listing broker disagrees with certain language in the contract.
D. A lender requires a different form to be used.

Answer 26

B. A principal in the transaction requests a different form to be used.

Question 27

The Simons have defaulted on their loan payments and are behind in paying the rest of their bills, so their home is being sold in a foreclosure auction. Of the many liens against it, which will have first claim on the proceeds of the sale?

A. The first mortgage recorded
B. Unpaid real estate taxes
C. Mechanics lien
D. Home equity loan

Answer 27

B. Unpaid real estate taxes

Question 28

John owns a track of land. He divides the land into 2 lots. The lot at the back of the property does not have access to the street. John must give the owner of the back lot an ____________ across the front lot.
A. Easement by prescription
B. Easement in gross
C. Easement by necessity
D. Acceleration

Answer 28

C. Easement by necessity

In Texas, property cannot be landlocked, and the owner of the property must give access to another. This is called easement by necessity.

Question 29

An encumbrance affecting the title of a property such as a mortgage on the property is a:
A. Cloud on title
B. Contract
C. Personal rights
D. Bill of sale

Answer 29

A. Cloud on title

Question 30

In the deed, the clause which sets forth the extent of the title being conveyed is:
A. The hereditament
B. The demising clause
C. The indenture clause
D. The habendum clause

Answer 30

D. The habendum clause
The habendum clause often follows the granting clause and states the interest being conveyed, Fee Simple, Life Estate, or Defeasible Fee. The habendum clause begins with the words “to have and hold.”

Question 31

A title insurance policy to protect the lender is called the:
A. Mortgagee’s policy
B. Owner’s policy
C. Quiet title policy
D. Attorney’s policy

Answer 31

A. Mortgagee’s policy

Question 32

The clause that gives the lender the right to call in the note if the mortgaged property is sold or otherwise conveyed by the borrower, is known as the:
A. Due-on-sale clause
B. Alienation clause
C. Both A and B
D. Neither A nor B

Answer 32

C. Both A and B

If an owner defaults, it‘s called acceleration. If the owner sells and the note is called due at the time of the sale, it is called alienation or due-on-sale.

Question 33

A license holder who gives advice or opinion as to the legal effect of a contract or gives opinions concerning the status or validity of title to real estate:
A. Is allowed to do this if they are a broker
B. Is practicing law
C. May give legal opinions to a client but not to a customer
D. May give legal opinions if they have been a broker for four years

Answer 33

B. Is practicing law

You cannot give legal advice — period. If you do give legal advice to a buyer or seller, you could have your license revoked.

Question 34

What would NOT be considered a property lien?
A. Special assessments
B. Property taxes
C. Leased land
D. Mechanic’s lien

Answer 34

C. Leased land

The legal claim on someone’s property as security for a debt. Examples of liens are mortgage liens, property tax liens, mechanics liens, and judgment liens.

Question 35

Adjustments for differences between the subject property and the comparable property are made to:
A. The subject property
B. The comparable property
C. Either property as indicated by the appraiser’s findings
D. The appraiser’s final estimate of the value of the subject property

Answer 35

B. The comparable property

The adjustments the appraiser makes are on the comparable properties so the appraisal can make the comparable homes as close to the subject home as possible.

Question 36

A property owner wants to add a pool to his home. He lives in a deteriorating area. He could use the principle of _______________ to determine whether the pool would add value to his property.
A. Supply and demand
B. Contribution
C. Anticipation
D. Plottage

Answer 36

B. Contribution

Question 37

The loss of value of a property for any reason is:
A. Spot zoning
B. Setbacks
C. Economic life
D. Depreciation

Answer 37

D. Depreciation

(1) In appraisal, a loss of value in property due to any cause, including physical deterioration, functional obsolescence and external obsolescence. Remember that depreciation can only be for the improvements on the land, not on the land itself. Land cannot be depreciated. (2) In real estate investment, an expense deduction for tax purposes taken over the period of ownership of income property.

Question 38

The house was built in 1970 and has 4 bedrooms and 1 bathroom. The house is in very good condition, but it suffers from:
A. Functional obsolescence
B. Economic obsolescence
C. Age obsolescence
D. Plot obsolescence

Answer 38

A. Functional obsolescence

Question 39

Substitution of a new contract and a new party for a previous one is known as:
A. Innovation
B. Assignment
C. Novation
D. Subrogation

Answer 39

C. Novation

A novation is the substitution of a new contract for an existing agreement with the intent of getting rid of the old contract. It can also be substitution of a new party to an existing contract or document.

Question 40

An example of gratuitous agency is:
A. Working for both the buyer and seller
B. Working for free
C. Setting your commission rate to high
D. Giving advice and opinions to a customer

Answer 40

B. Working for free

Question 41

If a buyer makes an offer on a property and the seller counters the offer (makes changes), the counter is considered:
A. A reflection
B. A rescission
C. A rejection
D. A resentment

Answer 41

C. A rejection

Question 42

If a property has a “Sale of Other Property” contingency contract on it, the seller:
A. Cannot accept another offer
B. Must take the property off the market
C. Can ask the original buyer to remove the contingency if the Seller has accepted another offer as a back-up
D. None of the above

Answer 42

C. Can ask the original buyer to remove the contingency if the Seller has accepted another offer as a back-up

The Sale of Other Property addendum allows the Seller to seek other offers, and if the Seller accepts one of the offers and signs it as a back-up, the Seller can ask the first buyer to either remove the contingency or to terminate their contract.

Question 43

The broker working with a buyer customer and representing the seller through the seller’s broker is a:
A. Buyer
B. Seller
C. Subagent
D. Intermediary

Answer 43

C. Subagent

For subagency to exist there must be two sponsoring brokers. One of the brokers has a seller client and the other broker must have a buyer customer.

Question 44

The owner of a single-family house in which he lives wants to sell. If he does not use discriminatory language in advertising, has not sold any other house within the past two years, and does not employ an agent, may he discriminate on the basis of race in selecting a purchaser?
A. Yes, because the fair housing laws permit discrimination under these conditions.
B. Yes, because the law applies only to sales made by licensed agents.
C. No, because this would be prohibited by the Civil Rights Act of 1866.
D. No, because this would be prohibited by the Fair Housing Act of 1978.

Answer 44

C. No, because this would be prohibited by the Civil Rights Act of 1866.

All owners of property fall under the Civil rights Act of 1866 which prohibits discrimination against race. There are NO exemptions for race discrimination.

Question 45

A broker may delegate another license holder to be responsible for administering compliance in the office.

With the TREC rule, however, the broker:

A. May not relinquish overall responsibility for the supervision of license holders sponsored by the broker
B. Delegation must be in writing.
C. Must submit a form to the Commission on any delegation that is anticipated to last more than six months.
D. All of the above

Answer 45

D. All of the above

In layman terms, the broker is allowed to delegate his authority to another person to help manage the office, the salespeople, and the operation as long as he complies with the above TREC rules.

Question 46

The Americans with Disabilities Act deals primarily with:
A. Single family residences
B. Multifamily residences
C. Commercial property
D. All real estate

Answer 46

C. Commercial property

Question 47

If an agent inserts a provision into the contract that may materially affect the legal rights or duties of the parties, the provision:
A. May render the contract voidable
B. Is grounds for civil penalties
C. Could result in a foreclosure
D. May be considered the unauthorized practice of law

Answer 47

D. May be considered the unauthorized practice of law

Agents are not allowed to insert provisions into contracts. This constitutes the unauthorized practice of law. An agent’s job is to fill in the blanks of an offer form

Question 48

Tom owns a property that has a small stream running thru it. What type of rights does Tom have to the use of the water?
A. Lake water
B. Groundwater
C. Littoral
D. Riparian

Answer 48

D. Riparian

Question 49

An abandoned parcel of land that was used for industrial or commercial purposes that may or may not be contaminated due to hazardous waste is called a:
A. Brownfield
B. Blight
C. Contaminant
D. Wetland

Answer 49

A. Brownfield

Question 50

If a property was acquired after 1895 and abuts a river or a stream, the property is subject to:
A. The doctrine of appropriation
B. Littoral rights
C. Groundwater rights
D. Erosion

Answer 50

A. The doctrine of appropriation

Question 51

When the holder of a mortgage agrees to accept a position of lower lien priority and to allow another mortgage to advance in priority, the process is known as:
A. Subrogation
B. Substitution
C. Subordination
D. Subterfuge

Answer 51

C. Subordination

Question 52

The regulations that implement the enforcement of the Truth in Lending Act are known as:
A. Regulation Y
B. Regulation T
C. Regulation Z
D. Regulation L

Answer 52

C. Regulation Z

Question 53

Which is NOT a purpose of the CFPB?
A. The CFPB helps the consumer make an informed decision about loan choices.
B. The CFPB helps the consumer choose the right real estate inspector.
C. The CFPB helps the consumer understand the real cost of the loan.
D. The CFPB helps the consumer compare loan offers.

Answer 53

B. The CFPB helps the consumer choose the right real estate inspector.

Question 54

Which is NOT a purpose of the CFPB?
A. The CFPB helps the consumer make an informed decision about loan choices.
B. The CFPB helps the consumer choose the right real estate inspector.
C. The CFPB helps the consumer understand the real cost of the loan.
D. The CFPB helps the consumer compare loan offers.

Answer 54

B. The CFPB helps the consumer choose the right real estate inspector.

The Dodd-Frank Act granted rulemaking authority under the TILA to the Consumer Financial Protection Bureau who is charged with overseeing the Federal financial laws that specifically protect consumers. The CFPB is charged with enforcing clear, consistent rules that allow banks and other consumer financial services providers to compete on a level playing field and that let consumers see clearly the costs and features of products and services.

Question 55

You borrow $25,000 and repay $30,500 in 24 months. What rate of interest are you being charged?
A. 11%
B. 8.75%
C. 16%
D. 6.25%

Answer 55

A. 11%

Remember the formula. P = R x B where the loan is the base and the part is the annual interest ($30,500 - $25,000 = $5500 interest for 24 months or 2 years). Divide by 2 = $2,750 interest per year. Part goes into calculator first ($2,750) ÷ $25,000 (loan) = .11 =11% (interest rate).

Question 56

A property for sale at $650,000 has a first-year cash flow of $32,000 and an initial investment of $150,000 is required on the property. What is the cash-on-cash return?
A. 40%
B. 32.16%
C. 21.33%
D. 23.95%

Answer 56

C. 21.33%

$32,000 (cash flow) ÷ $150,000 = .213333 = 21.33%.

Question 57

Which of the following tasks is prohibited by a licensee who is working with an investor?
A. Preparing an offer
B. Estimating the return on the investment for the investor
C. Recommending a specific investment
D. Advising the investor to obtain a title policy

Answer 57

C. Recommending a specific investment

Question 58

Which of the following is the correct process for preparing to take the state licensing exam (as stated in the Candidate Information Brochure)?
A. The potential licensee must have the TREC ID number issued by the TREC in the eligibility letter and make a reservation 24 hours in advance to have fingerprinting accomplished by Morpho Test.
B. Once the pre-licensing courses are completed and the application filled out, the potential licensee may make an appointment to take the state licensing exam.
C. TREC will conduct a background check prior to the potential licensing submitting an application. This is the first step in the process of obtaining a real estate license.
D. The students provides a driver’s license with TREC and an application and the rest of the steps can be completed at any time.

Answer 58

A. The potential licensee must have the TREC ID number issued by the TREC in the eligibility letter and make a reservation 24 hours in advance to have fingerprinting accomplished by Morpho Test.

Question 59

What are the TREC Canons of Professional Ethics and Conduct for brokers and salesmen?

A. Competency, integrity, fidelity
B. Trust, honesty, faith
C. Reverence, business, friendly
D. Fiduciary, principal, knowledge

Answer 59

A. Competency, integrity, fidelity

Question 60

Which of the following is required in initial texts or on social media sites?

A. The license holder’s name or team name and the broker’s name.
B. The links to an IABS and Consumer Protection Notice must be readily accessible on the homepage.
C. If no space for links, a direct link to compliant website on the homepage is required.
D. All of the above

Answer 60

D. All of the above

Question 61

The term “fiduciary” is also called:
A. Faith
B. Loyalty
C. Trust
D. Amiable

Answer 61

C. Trust

Question 62

There are four duties owed by the client to the agent. They are indemnification, cooperation, compensation, and _______.

A. Loyalty
B. Exclusivity
C. Privacy
D. Information that is correct.

Answer 62

D. Information that is correct.6586