Exam Questions 2

Question 1

The city builds a park on a strip of land between a residential neighborhood and a shopping center. The park would be a(n):

A. Easement
B. Commercial zone
C. Residential zone
D. Buffer zone

Answer 1

Buffer zone

A buffer zone is a transitional area of land between two distinct land use areas. Apartments between residential and commercial areas are examples of a buffer zone.

Question 2

Encumbrances include:

A. Easements
B. Encroachments
C. Deed restrictions
D. All of the above

Answer 2

All of the above

An encumbrance is a claim or liability against real estate held by someone other than the fee owner of the property that affects the title to the property, and therefore its value. It is a burden, obstruction, or impediment on property that lessens its value or makes it less marketable. Encumbrance is a broad term used to describe any claim on another person’s property.

Question 3

Jeff has leased a commercial building from Tom, the owner. Jeff has agreed to pay Tom a small amount of rent and also to pay the property taxes, the insurance on the building and for repairs to the building. Jeff has a:

A. Periodic estate
B. Net lease
C. Percentage lease
D. Gross lease

Answer 3

Net lease

Often also called a “triple-net lease,” the tenant pays monthly rent but is also responsible for maintenance, repairs, and taxes on the property.

Question 4

Who must approve a short sale?

A. The seller’s lender
B. The seller only
C. The lender only
D. No one has to approve a short sale. It is automatic when the seller owes more on the property than it is worth.

Answer 4

The seller’s lender

Question 5

Jane agreed to purchase real estate from Grant and gave her earnest money deposit at the time the agreement was made. Which of the following constituted the consideration in this contract?

A. The earnest money deposit
B. The promise for a promise
C. Earnest money if over $1000
D. Contract sales price

Answer 5

The promise for a promise

Earnest money does not represent consideration. There is no requirement for earnest money to be given to create a valid contract. Seller can accept or not accept an offer that does not include earnest money. Earnest money is merely an enticement to the seller to accept the offer, and a gesture of good faith. The consideration is the signed and agreed to contract (a bilateral contract which is a promise for a promise).

Question 6

Removing the original borrower’s name from the note and substituting the new buyers name is called:

A. Novation
B. Substitution
C. Covenants
D. Subdividing

Answer 6

Novation

Novation is substituting a new obligation for an old one or substituting new parties to an existing obligation, as when the parties to an agreement accept a new debtor in place of an old one. Another definition of novation is substituting a new, readable contract for an old, unreadable one. All obligations remain in place, just clean paperwork is drawn up.

Question 7

A broker has shown a property to a customer. The customer assumes from the broker’s actions and words that the agent represents the customer. This is:

A. Implied Agency
B. Express agency
C. Agency by ratification
D. Gratuitous agency

Answer 7

Implied Agency

Implied agency is agency based on the acts of the agent. If the agent acts like he is representing the person, then it can be considered the agent is representing that person. In other words, the actions of the agent imply that they are representing the person.

Question 8

What is the relationship created called when a written agreement spells out the responsibilities of the principal and the agent?

A. A limited partnership
B. An expressed agency
C. An ostensible agency
D. An implied agency

Answer 8

An expressed agency

Expressed agency occurs when the buyer and agent state the exact terms of their relationship and the buyer expresses his or her intention to be represented by an agent. It can be oral or in writing.

Question 9

The property manager acts as a ____________ to the owner of the property.

A. Special agent
B. General agent
C. Universal agent
D. Grand agent

Answer 9

General agent

A property manager is considered a general agent because he has a broad scope of ongoing duties. A broker is a special agent for the seller or buyer. Universal agency is not often used in real estate.

Question 10

A broker can indemnify herself against legal actions by those with whom she deals by purchasing:

A. Errors and omissions insurance
B. Middleman insurance
C. Property insurance
D. Employee insurance

Answer 10

Errors and omissions insurance

Errors and Omissions Insurance is malpractice insurance for real estate agents. It is taken out at the broker level and covers all salespeople in the company. Several insurance companies in Texas offer this type of insurance. The salesperson may be charged for the insurance or the broker may pay for it. Often the salesperson pays a fee for E & O with each of his transactions.

Question 11

If a licensee violates the Texas Real Estate License Act, for example if the licensee is convicted of a felony, TREC is permitted to:

A. Suspend the person’s license
B. Place the person’s license on probation
C. Revoke the person’s license
D. All of the above

Answer 11

All of the above

The Texas Real Estate Commission has the authority to suspend or revoke a person’s license, or to place a licensee on probation. Through rules and regulations, TREC has full force and effect of law.

Question 12

Why is it important to have ethical behavior in real estate?

A. Ethics are the laws that govern us.
B. Ethics are enforced by statutes.
C. Ethics make people richer.
D. Ethics uphold the profession of real estate.

Answer 12

Ethics uphold the profession of real estate.

Ethical behavior in real estate best serves the public, preserves the licensee’s reputation, and upholds the reputation of the real estate profession.

Question 13

A real estate sales agent is considered to be what type of agent?

A. Special agent
B. General agent
C. Universal Agent
D. Authoritative agent

Answer 13

Special agent

The “special” agent has limited authority. In other words, the agent cannot sign documents for the client and does not have the authority to put a lock box or sign on a property without the owner’s permission. A general agent (for example a property manager) has a broader scope of authority and can sign leases, deposit checks, and make decision on repair and maintenance without the consent of the owner in many cases.

Question 14

A broker is responsible for all the following EXCEPT:

A. Notifying the salesperson in writing of the scope of their authorized activities
B. Providing a policy and procedures manual
C. Supervising the salesperson directly
D. The proper handling of trust funds placed with the broker

Answer 14

Supervising the salesperson directly

The majority of salespeople are independent contractors. It is a fine line of coaching and assisting salespeople to be successful vs “directly” supervising them, which puts them in the employee category.

Question 15

When electing to use the option paragraph of the contract, the buyer may, within the time specified in the paragraph, do any of the following EXCEPT:

A. Complete the repairs himself before the end of the option period
B. Terminate the contract
C. Do nothing and proceed to closing
D. Amend the contract waiving the right to terminate

Answer 15

Complete the repairs himself before the end of the option period

The option money and time period give the buyer the right to terminate, to do nothing and proceed to closing, or to amend the contract.

Question 16

If a contract is not in writing, it is:

A. Void
B. Voidable
C. Unenforceable
D. Invalid

Answer 16

Unenforceable

If a contract is not in writing to satisfy the Statute of Frauds, it becomes unenforceable in a court of law.

Question 17

A person dies leaving no will or heirs. What happens to the property?

A. It goes to an administrator.
B. It goes to a receiver.
C. It escheats back to the state.
D. It reverts to an heir.

Answer 17

It escheats back to the state.

All property in the state of Texas originally belonged to the state and was given into private ownership by land patents. When a property becomes ownerless, it goes back to the state.

Question 18

What is a legal description that uses longitude, latitude, townships and sections called?
A. Metes and bounds
B. A rectangular government survey
C. A recorded subdivision plat
D. Lot and block

Answer 18

B. A rectangular government survey

Question 19

The cost approach uses which of the following formulas to estimate value?
A. Replacement cost plus reproduction cost plus land
B. Reproduction or replacement cost plus depreciation plus land
C. Reproduction or replacement cost less depreciation plus land
D. Cost of replacement minus land plus depreciation

Answer 19

C. Reproduction or replacement cost less depreciation plus land

Question 20

Broker Sam met the owners of the property at 123 Lake Avenue to list their home for sale. Sam explained to the owners that he had done extensive market research on the property and his appraisal of the property shows the home to be worth $475,000. Sam used three very similar comparables in the immediate neighborhood that had the same number of bedrooms, baths and living areas. He used comparables that had sold in the past six months. Did Sam do anything wrong during his presentation?
A. No
B. Yes, he only used three comparables.
C. Yes, he called his CMA an appraisal.
D. Yes, he used six-month-old comparables.

Answer 20

C. Yes, he called his CMA an appraisal.

Question 21

A contract that is binding on one party but not on the other party is:
A. Void
B. Voidable
C. Unenforceable
D. Valid

Answer 21

B. Voidable

When a contract is void, it is not valid. It can never be enforced under state or federal laws. A void contract is null from the moment it was created and neither party is bound by the terms. A voidable contract is binding on one party but not the other. (Unilateral contracts are voidable by the unbound party). A voidable contract is valid and may be enforceable in certain situations only if both parties agree to move forward. One party is bound to the terms of the contract, whereas the other party can oppose the contract for legal reasons if they so choose.

Question 22

Under handicapped laws a physical or mental disability includes:
A. Hearing, mobility, and visual impairment
B. Chronic mental illness
C. AIDS
D. All of the above

Answer 22

D. All of the above

Question 23

When would be the only time that a licensee can contact the seller who is under an exclusive right-to-sell listing agreement with another broker?
A. When the property has been listed for 30 days
B. To set up an appointment to show the property
C. To offer the seller relocation services that the listing broker does not offer
D. To offer to do an open house for the seller because the listing agent is too busy

Answer 23

B. To set up an appointment to show the property

Question 24

An FHA loan is a loan that is ____________ by the Federal Housing Administration.
A. Insured
B. Guaranteed
C. Bonded
D. Not allowed

Answer 24

A. Insured

Question 25

Sam Smith is purchasing a home. The selling price is $107,000. He is acquiring a new conventional loan and decides to make a 10% down payment. The interest rate is 8%. He is closing September 10. Using a 30-day month, how much interest will this buyer pay at closing?
A. $214.00
B. $449.40
C. $475.50
D. $234.52

Answer 25

B. $449.40

$107,000 × .90 = $96,300 (loan amount). Loan × interest rate = annual interest. $96,300 × .08 = $7,704 interest annually. $7,704 ÷ 360 = $21,40 interest per day. Closing on September 10 = 30 – 10 = 20 + 1 = 21. You must count the day of closing as the buyer will be charged interest for that day. $21.40 × 21 days = $449.40.

Question 26

A home is currently appraised for $378,000. After having appreciated 6% per year for five years, what was the original price?
A. $325,000
B. $189,500
C. $290,770
D. $236,800

Answer 26

C. $290,770

Take 100% plus or minus the rate of appreciation. 5 years × 6% = 30% + 100% = 130%. So, the current value of $378,000 ÷ 130% = $290,769.23 (or rounded off $290,770).

Question 27

Agent Jane is showing Buyer Bob a property. Agent Jane wants to make sure Buyer Bob will like the neighborhood. She has selected the location of the property based on the national origin of the people living in the neighborhood. Agent Jane is:
A. Blockbusting
B. Redlining
C. Steering
D. Going to make a lot of money

Answer 27

C. Steering

Steering is sometimes called channeling. Blockbusting, which is telling homeowners to move because one of the protected classes are moving in is also called panic peddling or panic selling.

Question 28

Agency after the fact is:
A. Agency by ratification
B. Gratuitous agency
C. Implied authority
D. Universal agency

Answer 28

A. Agency by ratification

Question 29

The Seller contracts to furnish the buyer an existing survey but neglects to furnish an “affidavit” within the time specified. The lender requests a new survey be furnished. Who pays for the new survey?
A. If the existing survey is rejected, then whoever is stated in the contract pays.
B. The title company can approve the existing survey and override the lender.
C. The buyer
D. The seller

Answer 29

D. The seller

Question 30

A husband and wife own a warehouse as joint tenants. The husband dies. His will leaves all of his possessions and property to an adult child by a former marriage. Which of the following is true in regard to the warehouse?
A. The adult child will become a tenant in common with the wife.
B. The wife will receive nothing, and the adult child will receive everything.
C. The adult child will become a joint tenant with the wife.
D. The wife will take ownership of the warehouse in severalty.

Answer 30

D. The wife will take ownership of the warehouse in severalty

Question 31

A tract of land has been purchased containing 2.5 acres. 2/5 of the tract is too steep to be useful, ¼ is taken up by a stream, and 15% is reserved for an easement. How many square feet of land remain available for use?
A. 23,800 sq. feet
B. 21,650 sq. feet
C. 21,780 sq. feet
D. 78,100 sq. feet

Answer 31

C. 21,780 sq. feet

First, figure the total amount of square footage in the tract. You must know that there is 43,560 square feet in an acre. 43,560 x 2.5 = 108,900 total square feet in the tract. Then, you want to convert the fractions to decimals. 2÷ 5 = .4, 1÷ 4 = .25 and 15% = .15. Add the three numbers: = .80 = 80% (that is the amount of land used. The question asks, what is left for use? That would be 20% (100%-80%= 20%). 108,900 x .20 = 21,780 square feet that is available for use.

Question 32

Which Act is designed to reduce fraud by encouraging states to adapt minimum standards for loan originators?
A. CFPB
B. SAFE Act
C. ECOA
D. Dodd-Frank Act

Answer 32

B. SAFE Act