Oregon Real Estate Exam #1

Question 1

Many states determine the order of water rights according to which users of the water hold a recorded beneficial use permit. This allocation of water rights is determined by:

A. accretion

B. riparian theory

C. littoral theory

D. the doctrine of prior appropriation

Answer 1

D. The Doctrine of Prior Appropriation

• All terms related to water rights, the “riparian” – the right to use water adjacent to one’s property – being the most common in sections of the U.S. where water is abundant. However, in states where water is more scarce, a form of “prior appropriation” applies. Also known as “first in time is first in right,” it grants water rights to divert a specific amount of water from a specific source to irrigate a specific piece of property. Those rights are then assigned a priority based on when the right was first used or applied for. In periods of peak demand, they give those whose claim is the oldest the right to get their water first.

Question 2

The right to control one’s property includes all of the following EXCEPT:

A. the right to invite people on the property for a political fund-raiser

B. the right to exclude the utilities meter reader

C. the right to erect “no trespassing” sign

D. the right to enjoy pride of ownership

Answer 2

B. The right to exclude the utilities meter reader.

• This right to enter and work on a property is granted to utility companies (water, sewer, gas and electric) as well as telephone and cable companies. Essentially, if a company provides a service and owns the equipment (e.g., phone and cables lines), they are usually granted an easement.

Question 3

Which of following types of ownership CANNOT be created by operation of law, but must be created by the parties’ expressed intent?

A. community property

B. tenancy in common

C. condominium ownership

D. tenancy by the entireties

Answer 3

D. Tenancy by the entireties -

Tenancy by the entireties is a form of ownership that husbands and wives can choose or create by deciding to do so and declaring it as such in contracts and deeds. Tenancy in common is put in motion by the state law. Community Property is a law of ownership that exists in Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and some other states. Tenancy by the Entireties is an estate that is recognized in some states between husband and wife, who have equal right of possession and enjoyment during their joint lives and with the right survivorship – that is when one dies, the property goes to the surviving tenant. (In many states, if couples do not specify “Joint Tenancy,” this form of ownership will be automatically assumed.) Tenancy in Common is a type of joint ownership by parties NOT married, that allows a person to sell his share or leave it in a will without the consent of the other owners. If a person dies without a will his share goes to his heirs, not to the other owners.

Question 4

Which of the following is/are considered to be personal property? A. wood-burning fireplace

B. furnace

C. bathtubs

D. patio furniture

Answer 4

D. Patio Furniture

• The concept of personal property typically comes into the play at the time of sale. Things that are part of the house–bathroom fixtures, fireplaces, carpeting and such– go with the sale. (Unless specifically excluded, as can happen in the case of a dining room chandelier or one of two other objects with which the owners have an emotional attachment.) Furniture, rugs, lamps and other portable items that are not “nailed down” constitute personal property and are not included in the sale.

Question 5

The word “improvement” would refer to all of the following EXCEPT:

A. streets

B. a sanitary sewer system

C. trade fixtures

D. the foundation

Answer 5

C. Trade Fixtures

• The term “trade fixture” refers to an item installed by a tenant in a rented commercial property that he or she removes at the end of the occupancy. More on this topic follows.

Question 6

All of the following are physical characteristics or land EXCEPT: A. indestructibility B. uniqueness C. immobility D. scarcity

Answer 6

D. Scarcity - Scarcity is a fundamental economic concept that holds that the rarer and more desirable something is, the more valuable it will be. For example, professional athletes are highly paid because only the smallest percentage of people have the ability to perform at that level. Land is “scarce” because there is a finite amount available and , as Will Rogers once said, “They ain’t making any more of it.”

Question 7

Certain items on the premises that are installed by the tenant and are related to the tenant’s business are called.

A. fixtures

B. emblements

C. trade fixtures

D. easements

Answer 7

C. Trade Fixtures

• The term is usually applied to a commercial tenant and refers to items installed in connection with his or her business, such as stoves and refrigerators in a restaurant or display cases in a retail shop.

Question 8

Personal property includes all of the following EXCEPT:

A. chattels

B. fructus industriales

C. emblements

D. fixtures

Answer 8

D. Fixtures

• “Chattel” is a legal term that means personal property. Emblements and fructus industriales refer to profit from crops that are grown as a result of a person’s labor, such as corn, as opposed to those that occur naturally, such as grass or minerals. By the custom of English common, law, they are considered personal property. By contrast, a fixture is considered attached to a property and thus part of the structure.

Question 9

A person who has complete control over a parcel of real estate is said to own a:

A. leasehold estate

B. fee simple estate

C. life estate

D. defeasible fee estate.

Answer 9

B. Fee Simple Estate

• All the other options have conditions attached. A leasehold estate is, as the name implies, leased property. Similarly, a life estate gives a person ownership or control of a property only for the duration of his or her natural life. “Defeasible estates” give a person or entity control over a property only so long as certain conditions are met or avoided. For example, a community might be deeded a property on the condition that it be used only for building a school, or land willed to a child on the condition that it be used only for commercial development. If the community tries to use the property for a recreation complex or the heir tries to sell to a retail developer, control would automatically revert to another party and the deed would become void.

Question 10

A portion of Wendell’s building was inadvertently built on Ginny’s land. This is called an:

A. accretion

B. avulsion

C. encroachment

D. easement

Answer 10

C. Encroachment

• The principal attributes of an encroachment are: 1) It is accidental and 2) it involves only part of a structure. Typically, the issue would be resolved by selling Wendell an easement or a lease or, if practical, actually moving the structure.

Question 11

The purchase of a ticket for a professional sporting event gives the bearer what?

A. an easement right to park his car

B. a license to enter and claim a seat fir the duration of the game

C. an easement in gross interest in the professional sporting team

D. a license to sell food and beverages at the sporting event

Answer 11

B. A license to enter and claim a seat for the duration of the game.

• Easements grant access, not use. Commercial licenses, such as those required to sell beverages, souvenirs or services, cover extended periods. Although tickets to sporting events, concerts, shows and the like are technically licenses, they differ from most in their degree of restriction. For example, a concert ticket does not give the bearer the right to sit anywhere he or she chooses or wander backstage to meet the performers.

Question 12

If the owner of the dominant tenement becomes the owner of the servient tenement and merges the two properties, what happens?

A. the easement becomes dormant

B. the easement is unaffected

C. the easement is terminated

D. the properties retain their former status

Answer 12

C. The easement is terminated.

-“Dominant” and “servient” tenements involve two adjacent properties in which an easement is involved. For example, let’s say Bridle Creek Farms and Barnstable Farms are separate parcels divided by a country lane that provides access to the country road system. The lane is owned by Bridle Creek, but the deeds of both properties stipulate that Barnstable Farms shall have unrestricted access for the purpose of accessing county roads. That access is a easement. Thus, if the owner of Barnstable Farms buys Bridle Creek Farms, the need for the easement disappears.

Question 13

Homeowner Ginny acquired the ownership of land that was deposited by a river running through her property by:

A. reliction

B. succession

C. avulsion

D. accretion

Answer 13

D. Accretion

• Accretion means the addition to a parcel of land by sand or soil deposits due to the action of a river or other body of water over time. Avulsion refers to the loss of land as a result of its being washed away by sudden or unexpected action of nature, such as flash flood that re-routes a river.

Question 14

The rights of the owner of property located along the banks of a river are called:

A. littoral rights

B. prior appropriation rights

C. riparian rights

D. hereditament

Answer 14

C. Riparian Rights

• “Littoral” and “prior appropriation” are different kinds of water rights: in the first case, navigation rights to an ocean or other large body of water; in the second, the right to use a water source for irrigation. A hereditament is an inheritable property.

Question 15

The local utility company dug up Frank’s garden to install a natural gas line. The company claimed it had a valid easement and proved it through the county records. Frank claimed the easement was not valid because be did not know about it. The easement:

A. Was valid even though the owner did not know about it.

B Was an appurtenant easement owned by the utility company.

C. Was not valid because it had not been used during the entire time that Frank owned the property.

D. Was not valid because Frank was not informed of it existence when he purchased the property.

Answer 15

A. Was valid even though the owner did not know about it.

• Easements grant only access, not ownership, use or occupancy rights. Further, that access is generally for the benefit of the property owner, such as maintaining utilities or sidewalks. As such, they Attach” to a deed or lease and remain in effect, until specifically lifted.

Question 16

Jim and Sandy are next-door neighbors. Sandy tells Jim that he can store his camper in her yard for a few weeks until she needs the space. Sandy did not charge Jim rent for the use of her yard. Sandy has given Jim a(n) what?

A. easement appurtenant

B. easement by necessity

C. estate in land license

D. License

Answer 16

D. License

• Granting the use of property for a defined period for a specific purpose is almost always a form or licensing. Easements grant only access, not ownership, use or occupancy rights. Further, that access is generally for the benefit of the property owner, such as maintaining utilities or sidewalks.

Question 17

Your neighbors use your driveway to reach their garage on their property. Your attorney explains that the ownership of the neighbors’ real estate includes an easement appurtenant giving them the driveway right. Your property is the:

A. leasehold interest

B. dominant tenement

C. servient tenement

D. license property

Answer 17

C. Servient Tenement

• An “easement appurtenant” allows the holder of one property to benefit from another’s. In this case, your property is “servient” because it is the one burdened by the easement while your neighbor’s is “Dominant” since it is the one that benefits.

Question 18

Quintin owned two acres of land. He sold one acre to Frank and reserved for himself an appurtenant easement over Frank’s land for ingress and egress. Frank’s land:

A. Is the dominant tenement

B. Is the servient tenement

C. Can be cleared of the easement when Quintin sells the withheld acre to a third party

D. Is subject to an easement in gross

Answer 18

B. Is the servient tenement

• Frank’s land interest is the one burdened by the easement; therefore it is the servient property.

Question 19

Ginny owns 50 acres of land with 500 feet of frontage on a desirable recreational lake. She wishes to subdivide the parcel into salable lots, but she wants to retain control over the lake frontage while allowing lot owners to have access to the lake. Which of the following types of access rights would provide the greatest protection for a prospective purchaser?

A. an easement in gross

B. an appurtenant easement

C. an easement by necessity

D. a license

Answer 19

B. An Appurtenant Easement

• Appurtneant easements afford the most protection since they are generally a permanent feature of the property. Thus, in the case of sale, the lake access passes to any new owners. By contrast, an “easement in gross” is between two individuals, which would severely limit the attractiveness and value of the property if the original owner wished to sell.

Question 20

Sam and Nancy bought a store building and took title as joint tenants. Nancy died estate. Same now owns the store.

A. as a joint tenant with rights of survivorship

B. in severalty

C. as a tenant in common with Nancy’s heirs

D. in trust

Answer 20

B. In Severlty

• Joint tenancy means that two parties have an undivided interest in a particular property and, upon the death of one party, full ownership automatically goes to the survivor. Despite the way it sounds, “in severalty” means as sole owner.

Question 21

When real estate under an estate for years is sold, what happens to the lease?

A. It expires with the conveyance.

B. It binds the new owner.

C. It is subject to termination with proper notice.

D. It is valid but unenforceable.

Answer 21

B. It binds the new owner

-Tenancy for years is the common form of rental agreements and binds all future owners for the term of the lease.

Question 22

Evan lives in an apartment building. The land and structures are owned by a corporation, with one mortgage loan covering the entire property. Like the other residents, Evan owns stock in the corporation and has a lease on his apartment. This type of ownership is called a(n):

A. condominium

B. planned unit development

C. time-share

D. cooperative

Answer 22

D. Cooperative

• This is the distinguishing characteristic that differentiates cooperative from condominium ownership. Although often confused, a condominium owner holds title to his individual unit. A co-op owner, on the other hand, is technically a renter. It’s his stock in the corporation holding title to the property that gives him the right to lease the unit as well as sell that right to another.

Question 23

Tom leases store space to Kim for a restaurant, and Kim installs her ovens, booths, counters, and other equipment. When do these items become real property?

A. when they are installed

B. when Kim defaults on her rental payments

C. when the lease takes effect

D. when the lease expires, if the items are not taken by the tenant

Answer 23

D. When the lease expires, if the items are not taken by the tenant

• Kim is free to move these fixtures at the end of her lease. However, if she chooses to leave them behind, they are considered a permanent part of the structure (just like a dining room chandelier in a home) and to revert to Tom.

Question 24

Jim, Manny and Harry are joint tenants owning a parcel of land. harry conveys his interest to his long-time friend Wendell. After the conveyance, Jim and Manny:

A. become tenants in common

B. continue to be joint tenants with Harry

C. become joint tenants with Wendell

D. remain joint tenants owning a two-thirds interest

Answer 24

D. Remain joint tenants owning a two-thirds interest.

• Because joint tenancy must be declared, Jim and Manny remain joint tenant with a two-thirds interest while Wendell, because of his passive acquisition of his share of the property, becomes a tenant in common with Jim and Manny. The difference between the two forms is that Jim and Manny’s share retains the right of survivorship provisions but Wendell’s does not.

Question 25

In a gift of a parcel of real estate, one of the two owners was given an undivided 60 percent interest and the other received an undivided 40 percent interest. The two owners hold their interest as what?

A. cooperative owners

B. joint tenants

C. community property owners

D. tenants in common

Answer 25

D. Tenants in Common

• In order to create joint tenancy, some form of relationship must exist between the parties involved, whether business, spousal or other. Because their interest were acquired as a gift, the parties in this instance become tenants in common, with all the ownership benefits of joint tenancy, but not the survivorship rights.

Question 26

To create a joint tenancy relationship in the ownership of real estate, there must be unities of:

A. grantees, ownership, claim of right, and possession

B. title, interest, encumbrance, and survivorship

C. possession, time, interest, and title

D. ownership, possession, heirs, and title

Answer 26

C. Possession, Time, Interest, and Title

• This essentially means that all parties to the agreements share equally in all aspects of the property, including the length of time its been held. That means if one party sells or transfers interest in a joint tenancy relationship, his or her place is taken by another in the same capacity.

Question 27

What is a Schedule of Exceptions on a title policy?

A. encumbrances

B. tax liens

C. list of things not insured in the policy

D. defects

Answer 27

C. List of Things Not Insured in the Policy

• Almost no title insurance policy protects against all conceivable events. As the name suggests, the Schedule of Exceptions is a specific list of items not covered and can include things such as unrecorded mechanic’s liens, assessments, water rights and mining claims.

Question 28

When a company furnishes materials for the construction of a house and is subsequently not paid, it may file a(n):

A. deficiency judgment

B. lis pendens

C. estoppel certificate

D. mechanic’s lien

Answer 28

D. Mechanic’s Lien

• A mechanic’s lien is the first, and usually most cost-effective, step for a person providing labor and/or materials to a homeowner to recover monies owed – in large part because of the pressure it puts on the homeowner to settle quickly and without costly court involvement.

Question 29

Which of the following liens does not need to be recorded to be valid?

A. materialman’s lien

B. real estate tax lien

C. judgement lien

D. mechanic’s lien

Answer 29

B. Real Estate Tax Lien

• The requirement for individuals to record liens is due in part to the necessity of correctly identifying the complainant. For example, not just “Jones Contracting,” but the specific Jones Contracting that performed the work and is owed the money. Because they bear the authority of government and are easily identified, liens by taxing authorities do not need to recorded.

Question 30

The system of ownership of real property in the United States is what?

A. incorporeal

B. allodial

C. inchoate

D. feudal

Answer 30

B. Allodial

• “Allodial” is the modern form of ownership and is often contrasted with “feudal” in which land is held on the condition of rent or service due the government. For example, a medieval knight held property subject to coming to his baron’s service when called. Similarly, the baron’s land holdings were conditional on his raising an army and fighting for the kind in times of conflict. Failure of any party to “perform as promised” was cause for holdings to be confiscated, often as a preliminary step to more extreme actions.

Question 31

A mechanic’s lien would be properly classified as a(n):

A. equitable lien

B. voluntary lien

C. general lien

D. statutory lien

Answer 31

D. Statutory Lien

• A “statutory lien” is one that arises out of specific law (otherwise known as statutes). By contrast, an “equitable lien” has its roots in common law or custom. A “voluntary lien” is one entered with the property owner’s knowledge and consent, such as a mortgage. A “general lien” grants a creditor the right to file a claim against all of a debtor’s assets, not just a particular property.

Question 32

Under which of the following types of liens can both the real property and the personal property of the debtor be sold to pay the debt?

A. real estate tax lien

B. mechanic’s lien

C. judgment lien

D. assessment

Answer 32

C. Judgement Lien

• Most liens are against a specific property, such as a primary residence. Thus, a contractor seeking payment for a new deck cannot have a homeowner’s car attached in settlement. A judgment lien, however, is a decision directed by the courts and can apply to whatever assets it deems appropriate.

Question 33

A homeowner owned a house on a lot. The front ten feet of the lot were taken by eminent domain for a sidewalk. Would the homeowner be entitled to compensation?

A. Yes - The land was taken for public use by eminent domain

B. Yes - He must be paid for the use of the sidewalk

C. No - He still had use of the house and lot

D. No - Compensation is not given on land taken for public use

Answer 33

A. Yes - The land was taken for public use by eminent domain

-Governments and municipalities can only seize property (other than in criminal cases) for the public good and through eminent domain, which is a process, not an arbitrary action. Part of that process involves determining fair compensation to the owner.

Question 34

The covenant in a deed which states that the grantor is the owner and has the right to convey the title is called:

A. covenant of further assurance

B. covenant of warranty forever

C. covenant of seisin

D. covenant against encumbrances

Answer 34

C. Covenant of Seisin

• Another outgrowth of the feudal system “seisen” derives from the French meaning to “sit upon or own” and gives owners the right to sell or transfer property at will.

Question 35

The recording of a deed:

A. Is all that is required to transfer the title to real estate.

B. Gives constructive notice of the ownership of real property.

C. Insures the interest in a parcel of real estate.

D. Warrants the title to real property.

Answer 35

B. Gives constructive notice of the ownership of real property.

• Recording a deed does not convey, insure or warrant ownership. However, it does protect the owner’s interest in a property by serving notice that the recorded owner is the only recognized holder of title. This places a larger burden of proof and process on someone trying to assert a prior ownership interest and/or claiming a deedholder’s title is clouded.

Question 36

Which of the following provided a buyer with the best assurance of clear, marketable title?

A. certificate of title

B. title insurance

C. abstract of title

D. general warranty deed

Answer 36

B. Title Insurance

• Title Insurance provides the best assurance of marketable title.

Question 37

What do liens and easements have in common?

A. Both are encumbrances

B. Both must be on public record to be valid

C. Neither can be done without the consent of the owner

D. Both are money claims against the property

Answer 37

A. Both are encumbrances

• Liens are, of course, serious in that they indicate the owner has failed to pay a debt secured directly or indirectly by the property. Easements, on the other hand, are generally a practical necessity for most residential properties.

Question 38

The title to real estate passes when a valid deed is:

A. signed and recorded

B. delivered and accepted

C. filed and microfilmed

D. executed and mailed

Answer 38

B. Delivered and Accepted

• Fundamentally, real estate transactions only involved two parties–the buyer and the seller. All that’s necessary to create a legal sale is for one party to make an offer the other accepts. Recording, escrow, real estate licenses, mortgage companies and the like facilities and support the transaction process but are not requirements of a legal sale.

Question 39

The primary purpose of a deed is to:

A. Prove Ownership

B. Transfer Title Rights

C. Give constructive notice.

D. Prevent adverse possession

Answer 39

B. Transfer Title Rights

• A deed is the instrument by which ownership of a property is transferred from one person to another, while a title is evidence of that ownership.

Question 40

A special warranty deed differs from a general warranty deed in that the grantor’s covenant in the special warranty deed:

A. Applies only to a definite limited time.

B. Covers the time back to the original title.

C. Is implied and is not written in full.

D. Protects all subsequent owners of the property.

Answer 40

A. Applies only to a definite limited time

-The more common deed in most states is the general warranty, because it establishes the ownership trail and validity of title going back to the original recorded ownership (for example, the purchase of Manhattan Island and all subsequent divisions, subdivisions and resales). Under a special warranty deed, an owner transfer property guaranteeing the quality of title only during the period of his or her ownership, leaving subsequent buyers vulnerable to prior claims.

Question 41

Which of the following deeds contains no expressed or implied warranties?

A. a bargain and sale deed

B. a quitclaim deed

C. a warranty deed

D. a grant deed

Answer 41

B. A Quitclaim Deed

• A “quit claim” deed means what it implies: The seller gives up any claims he or she may have to the property but makes no warranties whatsoever about the possibility of other claims.

Question 42

When the grantor does not wish to convey certain property rights, he or she:

A. must note the exceptions in a separate document

B. may not do so, since the deed conveys the entire premises

C. may note the exceptions in the deed of conveyance

D. must convey the entire premises and have the grantee reconvey the rights to be retained by the grantor.

Answer 42

C. May note the exceptions in the deed of conveyance

• Most commonly known as “restrictive covenants,” such deed restrictions are often used to maintain the consistency of a neighborhood by, for example, stipulating that only traditional home styles of a particular size and painted in traditional colors may be constructed and occupied within the subdivision. These are encumbrances of the property since they limit current and future owners in how they use the property.

Question 43

A partition suit is used for which of the following?

A. determination of party fences

B. to allow construction of party walls

C. to force a division of property without all the owners’ consents

D. to change a tenancy by entireties to some other form of ownership

Answer 43

C. to force a division of property without all the owner’s consents

• Partition suits are typically pursued when a co-owner of a property wants to sell his or her share and the other owners are opposed. Since it is a legal action involving the courts, it is an expense with often unsatisfactory results.

Question 44

The condemnation of private property for public use is exercised under which government right?

A. taxation

B. escheat

C. manifest destiny

D. eminent domain

Answer 44

D. Eminent Domain

• As noted previously, eminent domain actions are generally reserved for “public good” projects such as highway expansion. However, there have been recent instances of municipalities using this power to condemn well-kept neighborhoods or middle-class housing to make way for high-end properties that will provide a higher tax base.

Question 45

When a claim is settled by a title insurance company, the company acquires all rights and claims of the insured against any other person who is responsible for the loss. This is known as what?

A. caveat emptor

B. surety bonding

C. subordination

D. subrogation

Answer 45

D. Subrogation

• For example, let’s say Amanda Livingstone buys a property and the seller provided a general warranty deed stipulating clear title. However, that turns out not to be the case and a third party provides a valid claim to a share of the property. Since Amanda took out title insurance, the title insurance company negotiates and pays a settlement with the claimant on Amanda’s behalf. Amanda’s right to sue the seller when transfers to the title insurance company, which will take action to recover the amount they paid on Amanda’s behalf

Question 46

Which of the following would be used to clear a defect from the title records?

A. a lis pendens

B. an estoppel certificate

C. a suit to quiet title

D. a writ of attachment

Answer 46

C. A suit to quiet title

• A owner might bring a “quiet title” action to correct a minor mistake in the property description or to remove an easement that’s been unused for years. Additionally, they are used when a third party tries to asset some right to the property through a dubious claim. The suit “ quiets the mouth” of that person and established a clear title.

Question 47

A bill of sale is used to transfer the ownership of what?

A. real property

B. fixtures

C. personal property

D. appurtenances

Answer 47

C. Personal Property

• Personal property differs from “real property” in a number of respects, most importantly ist portability. Cars, furniture, clothing, paintings, jewelry, appliances and just about any other non-food item one buys are examples of personal property.

Question 48

A written summary of the history of all conveyances and legal proceedings affecting a specific parcel of real estate is called a(n):

A. affidavit of title

B. certificate of title

C. abstract of title

D. title insurance policy

Answer 48

C. abstract of title

• An “Abstract of title” is a written summary that traces every change of ownership and claim against a property (such as mortgages, liens, and easements). In some cases, the abstract goes back to the last change of title, in others to the first recorded owner. It is part of the title report required by virtually all lenders.

Question 49

When the preliminary title report reveals the existence of an easement on the property, it indicates that the easement is a(n):

A. lien

B. encumbrance

C. encroachment

D. tenement

Answer 49

B. Encumbrance

• Anything that limits a person’s use of a property is an encumbrance. Easements limit use in that they generally prohibit any kind of permanent structure on the area in question. For example, if a homeowner wanted to build a swimming pool in an area of his back yard and the local sewer company had an easement for pipes running under that area, he would have to find another location for his pool, even if it was not as desirable.

Question 50

The list of previous owners of conveyance from whom the present real estate owner derives his or her title is known as the:

A. chain of title

B. certificate of title

C. title insurance policy

D. abstract of title

Answer 50

A. Chain of Title

• The “Chain” links together the successive owners of a property from the most recent to the original recorded title holder. In addition, it notes other relevant information such as mortgages, judgments, liens, death of title holders, inheritors, and so forth.

Question 51

A person agrees to sell a property for $500,000. The buyer gives the seller $150 as a valuable consideration for a six-month option. Which of the following statements is true?

A. The $150 is valuable consideration if the seller accepted it.

B. The buyer must have at least 5% down as valuable consideration

C. The buyer must have at least 20% down

D. The seller cannot accept money for the option

Answer 51

A. The $150 is valuable consideration if the seller accepted it.

• “Valuable Consideration” is a necessary component of all contracts. It is the benefit one party receives in exchange for granting benefit to the other. Generally, it is money in any amount both parties agree to, though it can take other forms such as personal property, work or refraining from an act.

Question 52

Which of the following activities is a violation of the Federal Fair Housing Act?

A. a nonprofit church that denies access to its retirement home to any person because of race

B. a nonprofit private club that gives preference in renting units to its member at lower rates

C. the owner of a single-family residence selling his/her own home who gives preference to a buyer based on his/her sex

D. discrimination in the sale of a warehouse based on the prospective purchaser’s gender

Answer 52

A. a nonprofit church that denies access to its retirement home to any person because of race

• The private club is exempt because its preferential treatment is based on its membership; the home owner is exempt, so long as he is selling his home without a broker; the warehouse is exempt because it’s not a housing unit.

Question 53

A Savings & Loan institution would be violating the Federal Fair Housing Act by denying a loan to Mr. and Mrs. Happy Borrower for which of the following reasons?

A. low earnings

B. too old

C. too many loans

D. minority background

Answer 53

D. Minority Background

• Fair Housing and other anti-discrimination legislation doesn’t force lenders of others to abandon sound business practices ( such as denying loans to unqualified borrowers), merely to be fair and equally accessible to all people.

Question 54

The Civil Rights Act of 1866 prohibits discrimination in housing based on which of the following reasons?

A. race

B. religion

C. sex

D. marital status

Answer 54

A. Race

• Although surprising to many, the original civil rights legislation was passed in 1866 – by one vote over the veto of President Andrew Johnson.

Question 55

An agent working as a subagent of the seller would suggest that the buyer hire an inspector from an outside service in all of the following cases EXCEPT:

A. when they smell gas in the basement

B. when there is a slow drain in the toilet

C. when a hinge is off the door

D. when there is sawdust in the kitchen cabinets

Answer 55

C. When a hinge is off the door

• Home inspectors are hired to find significant and often hidden property defects, such as signs of a leaking roof, termites, foundation cracking, and so forth. Hinges and other “wear and tear” items are obvious and not among the reasons for hiring an inspector.

Question 56

The federal anti-discriminatory laws apply to which of the following?

A. a broker selling a single-family home

B. a private club not open to the general public

C. office building sales

D. the rental of industrial property

Answer 56

A. A Broker selling a single-family home

• Civil rights laws apply to owners of residential property, rental units, hotels, and virtually any other building offering housing or accommodations to the general public.

Question 57

A tenant complained to HUD about his landlord’s discriminatory practices in his/her building. A week later the landlord gave the tenant an eviction notice. Under which of the following situations would the Federal Fair Housing Act be violated?

A. when the tenant is two months behind in his/her rent

B. when the landlord evicts the tenant for reporting him to HUD

C. when the tenant has damaged the premises

D. when the tenant is conducting an illegal use on the premises

Answer 57

B. When the landlord evicts the tenant for reporting him to HUD

• Anti-Discrimination laws do not apply to situations that are in violation of generally accepted policies such as paying rent on time, maintaining the premises and abiding by use agreements.

Question 58

The Federal Fair Housing Act states that a prima facie ( at first view ) case against a broker for discrimination be established after a complaint has been received because the broker has failed to do which of the following?

A. The broker has failed to display a HUD Equal Opportunity poster.

B. The broker has failed to join an affirmative marketing program.

C. The broker has failed to join the HUD anti-discriminatory task force.

D. The broker has failed to attend mandatory classes on fair housing.

Answer 58

A. The broker has failed to display a HUD Equal Opportunity poster.

• Included among Fair Housing regulations is the requirement that the HUD Equal Opportunity signage be prominently displayed.

Question 59

A broker is discussing a new listing with a prospective Mexican American buyer. The buyer wants to inspect the property immediately, but the owner of said property has instructed the broker, in writing, not to show the house during the owner’s three-week absence. The buyer insists on viewing the property. The broker should:

A. Show the property to avoid a violation of the Federal Fair Housing Act.

B. Request the Real Estate Commission to arbitrate the problem.

C. Inform the buyer of the seller’s instructions.

D. Notify the nearest HUD office.

Answer 59

C. Inform the buyer of the seller’s instruction.

• Following an owner’s lawful instructions is not only allowable but a responsibility of the licensee. However, if the owner instructed the broker to tell minority buyers that he was out of town when he was not in order to avoid selling to a minority, the broker would be in violation of the law if he acted as the owner requested.

Question 60

A three-story apartment complex built in 1965 does not meet with the handicapped access provisions for the 1988 Fair Housing Act. The owner must:

A. Make the ground floor handicapped accessible.

B. Make the 1st and 2nd floors accessible.

C. Make the entire building accessible.

D. The owner doesn’t have to comply since it’s less than 4 stories.

Answer 60

A. Make the ground floor handicapped accessible

• Because the building was constructed before the 1991 standards went into effect, only the first floor needs to be modified.

Question 61

What type of a listing agreement allows the owner to appoint an exclusive agent to sell his property, but retains the right to sell the property himself?

A. open

B. exclusive right to sell

C. multiple listing

D. exclusive agency

Answer 61

D. Exclusive Agency

• Open listings mean that if the owner or any other broker or Broker produces the buyer, the broker will lose his or her commission. Exclusive Right to Sell gives the broker his or her commission regardless of who actually sells the property, even if it is the owner. Exclusive Agency allows the seller to appoint an exclusive agent, but retain the right to sell the property himself.

Question 62

Under an Exclusive Right to Sell Listing agreement, if the seller produces a ready, willing and able buyer he:

A. will not have to pay a commission since he produced the buyer.

B. will only have to pay the broker half the commission since he produced the buyer.

C. owes the listing broker a full commission

D. will not be able to turn the buyer over to the listing agent since the agent has the exclusive right to sell the property.

Answer 62

C. Owes the listing broker a full commission

• In contrast to exclusive agency, the exclusive right to sell entitles the broker to his or her commission regardless of who actually sells the property.

Question 63

Which of the following would not terminate an agency relationship?

A. abandonment by the agent

B. revocation by the principal

C. submission by the agent of two offers at the same time

D. Fulfillment of the agency purpose

Answer 63

C. Submission by the agent of two offers at the same time

• Submitting offers doesn’t end the relationship–only the owner’s acceptance of one and ultimately closing on the transaction.

Question 64

The buyer of an apartment complex is told that the refrigerator in one of the apartments goes with the sale. After taking title, he discovered that the refrigerator belonged to the tenant. Which is true about the situation?

A. Since the refrigerator was in the apartment, it automatically belongs to the new owner.

B. The refrigerator is the personal property of the tenant. The seller had no right to offer it to the buyer.

C. The refrigerator was plugged into the wall and that makes it real property.

D. The tenant will have to get permission from the new owner to remove the refrigerator.

Answer 64

B. The refrigerator is the personal property of the tenant. The seller had no right to offer it to the buyer.

• Plugging in an appliance does not constitute installation. Thus it is personal property that belongs to the tenant.

Question 65

The illegal process of a banker refusing to approve loans for a neighborhood based on the racial composition of the area is:

A. blockbusting

B. steering

C. redlining

D. panic peddling

Answer 65

C. Redlining

• Loans may only be approved or denied on the basis of whether a specific individual and property meet established standards. Thus lenders are well within their rights to deny a loan to a particular person because he or she lacks sufficient income or has poor credit. Additionally, a loan for a partially completed home or one that doesn’t meet code can also be denied. However, “macro” issues such as race or neighborhood cannot be considered.

Question 66

The illegal practice of directing minorities to areas populated by the same race or religion is called:

A. steering

B. blockbusting

C. redlining

D. panic peddling

Answer 66

A. Steering

• Steering is driving people towards particular neighborhoods and is the correct answer to this question. On the other hand, Blockbusting is the opposite side of the same coin. Synonymous with “panic peddling,” it refers to trying to generate panic selling in a neighborhood dominated by one race or ethnic group by representing that another group is about to state moving in.

Question 67

Carl Chauvinist, the owner of an apartment complex, lives in one unit of a triplex and routinely refuses to rent either of the other two units to a female. Can he do this?

A. Yes. He may do this if he does not use a broker or discriminate in advertising.

B. Yes. He may do this if he doesn’t ask the tenant’s age.

C. No. Carl can never discriminate on sex.

D. No. Carl must live in a single-family home to discriminate.

Answer 67

A. Yes. He may do this if he does not use a broker or discriminate in advertising.

• Although laws vary by state as to number of units that fall under this type of provision, if a person owns and lives in a unit, he or she is entitled to practice a certain measure of discrimination. The view is that a person’s dwelling (which includes units such as duplexes and triplexes) enjoys a degree of “sanctity” and the person may choose whom he or she brings into their “home.”

Question 68

An aggrieved party with a Fair Housing violation claim has how long to file a complaint with the Department of Housing and Urban Development?

A. 1 month

B. 1 week

C. 1 year

D. 7 years

Answer 68

C. 1 year

• If the complaint is not filed within one year, a person may still file a civil suit in a Federal Court.

Question 69

Jim Jones, the landlord, rents a property to Tom Smith, a handicapped person. Mr. Smith, with Mr. Jones’ permission, modifies the house to suit his needs. When the lease expires, which of the following requirements would not have to be met by Mr. Smith?

A. Mr. Smith must remove the “grab rails” in the bathroom that were installed for his use.

B. Mr. Smith must raise the kitchen cabinets that were lowered for his use.

C. Mr. Smith must repair the walls where the “grab rails” in the bathroom were removed.

D. Mr. Smith must restore the wide doorways, that were installed for him, to the original size.

Answer 69

D. Mr. Smith must restore the wide doorways, that were installed for him, to the original size.

• Since the width of the door will not in any way be detrimental to future tenants, there is not a requirement for the original width of the doors to be replaced by the handicapped tenant. All of the other issues must be restored to original status.

Question 70

All of the following are duties of the property manager EXCEPT:

A. reporting to the owner all notices of building violations.

B. providing upkeep and maintenance on the property.

C. maintaining financial records and accounts.

D. securing tenants of a particular ethnic origin in accordance with the owner’s wishes.

Answer 70

D. Securing tenants of a particular ethnic origin in accordance with the owner’s wishes.

• Except in certain circumstances regarding the rental of space within one’s personal residence or unit, owners, landlords and their agents are not permitted to discriminate against people based on race, gender, creed, handicap and other personal characteristics.

Question 71

A mobility impaired person was renting a unit in an apartment complex. Half the units had been assigned parking spaces near the door; the other half had not. The owner:

A. May charge extra money to the handicapped person for providing the parking space near the door.

B. Must take a vote of all tenants to see if they want to allow the handicapped person a parking space.

C. Must give a parking space near the door to the handicapped person, if one is available and a need is demonstrated.

D. Must allow the handicapped person to live there for a month and if a space becomes available during that time, give the parking space to the handicapped person.

Answer 71

C. Must give a parking space near the door to the handicapped person, if one is available and a need is demonstrated.

• The “equal access” aspects of fair housing legislation do not necessarily mean equal treatment. “Reasonable accommodation” must also be made to meet the needs of handicapped people, including exceptions to standards policies such as convenient parking and guide dogs.

Question 72

A Broker is involved in a transaction where an individual wishes a six month lease with an option to buy. What is true about this situation?

A. The individual must go to an attorney since it is too complicated a transaction for a Broker.

B. This transaction is too complicated for a Broker. Only a person with a broker’s license should handle this transaction.

C. A Broker could use two standard forms, fill in the blanks and request that his or her broker review the forms before signing.

D. The Broker should write the purchase offer. A lease for 6 months does not need to be in writing.

Answer 72

C. A Broker could use two standard forms, fill in the blanks and request that his or her broker review the forms before signing.

• Generally speaking, Brokers may complete standard forms so long as they are reviewed by and with the approval of their broker.

Question 73

A void contract is one that is:

A. not in writing

B. not legally enforceable

C. rescindable by agreement

D. voidable by only one of the parties

Answer 73

B. Not legally enforceable

• In order to be enforceable, real estate contracts must meet the legal requirements for contracts in general. For example, a contract signed by a minor or a “seller” who doesn’t own the property in question was never legal, to begin with, and is thus “void.”

Question 74

The essential elements of a contract include all of the following EXCEPT:

A. offer and acceptance

B. notarized signatures

C. competent parties

D. consideration

Answer 74

B. Notarized Signatures

• A contract sets forth the terms and conditions of a real estate transaction but does not itself transfer ownership. Thus it does not need to be notarized.

Question 75

If, upon the receipt of an offer to purchase his property under certain conditions, the seller makes a counteroffer, the prospective buyer is:

A. bound by his original offer.

B. bound to accept the counteroffer.

C. bound by whichever offer is lower.

D. relieved of his original offer.

Answer 75

D. relieved of his original offer

• Offers are “one-time-only” events that must be accepted or rejected. Once the seller made a counter-proposal, he rejected the buyer’s offer and no contract exists. The buyer is under no obligation to continue and is entitled to have any earnest money that accompanied the offer returned immediately.

Question 76

The amount of earnest money deposit is determined by:

A. the real estate licensing statutes.

B. an agreement between the parties.

C. the broker’s office policy on such matters.

D. the acceptable minimum of 5 percent of the purchase price.

Answer 76

B. An agreement between the parties.

-Earnest money is a demonstration of sincerity on the part of the purchaser and provides preliminary evidence that he or she is financially capable of completing the transaction. While it should be substantial enough to meet these two criteria, there is no set or customary amount or percentage.

Question 77

If the buyer defaulted some time ago on a written contract to purchase a seller’s real estate, the seller can still sue for damages, if he is not prohibited form doing so by the:

A. statute of frauds

B. law of agency

C. statute of limitations.

D. broker-attorney accord

Answer 77

C. Statute of limitations

• Statutes of limitations exist to keep the legal system from getting bogged down in old disputes and allow for evidence and recollections to remain reasonably fresh. Civil limitations typically range from one to six years, though in some cases up to twenty-five years.

Question 78

A competent and disinterested person who is authorized by another person to act in his or her place and sign a contract of sale is called:

A. an attorney in fact

B. a substitute grantor

C. a vendor

D. an agent

Answer 78

A. An attorney in fact

• “Disinterested” means being able to act in an objective manner without any hidden motivation or prospect of gain. For example, a person who made a secret deal to sign a contract to his client’s best interests in exchange for an under-the-table payment would not be disinterested.

Question 79

An option:

A. requires the optionor to complete the transaction.

B. Gives the optionee an easement on the property.

C. does not keep the offer open for a specified time.

D. makes the seller liable for a commission.

Answer 79

A. Requires the optionor to complete the transaction.

• It is up to the optionor (seller) to finish the transaction. The optioned (buyer) does not have to complete (close) on the property but would lose whatever option monies that have been deposited.

Question 80

When a prospective buyer makes a written purchase offer that the seller accepts, then the:

A. Buyer may take possession of the real estate.

B. Seller grants the buyer ownership rights.

C. Buyer receives legal title to the property.

D. Buyer receives equitable title to the property.

Answer 80

D. Buyer receives equitable title to the property

• “Equitable title” means that the prospective buyer has obtained the right to acquire ownership of a property currently owned and occupied by another.

Question 81

H agrees to purchase V’s real estate for $230,000 and deposits $6,900 earnest money with Broker L. However, V is unable to clear the title to the property, and H demands the return of his earnest money as provided in the purchase contract. Broker L should:

A. Deduct his commission and return the balance to H.

B. Deduct his commission and give the balance to V.

C. Return the entire amount to H.

D. Give the entire amount to V to dispose of as he decides.

Answer 81

C. Return the entire amount to H.

• Principal Brokers and Brokers only earn their commission when a transaction closes. Since the transaction was never completed, no commission is owed. Additionally, H is entitled to have all his earnest money returned since it was the seller, not he, who defaulted on the contract.

Question 82

A buyer makes an earnest money deposit of $1,500 on q $15,000 property and then withdraws her offer before the seller can accept it. The broker is responsible for disposing of the earnest money by:

A. turning it over to the seller.

B. deducting the commission and giving the balance to the seller.

C. returning it to the buyer.

D. returning it to the buyer.

Answer 82

C. Returning it to the buyer.

• A contract only exists when it is both offered by the buyer and accepted by the seller. Since the second part of this requirement was never fulfilled, the buyer is entitled to have his earnest money refunded.

Question 83

Broker K arrives to present a purchase offer to Mrs. D, an 80 year old invalid who is not always of sound mind, and finds her son and her daughter-in-law present. In the presence of Broker K, both individuals persistently urge D to accept the offer, even though it is much lower that the price she has been asking for her home. If D accepts the offer, she may later claim that:

A. Broker K should not have brought her such a low offer for her property.

B. She was under undue duress from her son and daughter-in-law to see the purchase offer he brought to her.

C. Broker K defrauded her by allowing her son and daughter-in-law to see the purchase offer he brought to her.

D. Her consumer protection rights have been usurped by her son and daughter-in-law.

Answer 83

B. She was under undue duress from her son and daughter-in-law, and, therefore, the contract is voidable.

• “Duress” is the application of coercion or pressure to influence a person to act in a way contrary to his/her best interests. Further, since voluntary participation is key condition of any contract, Mrs. D could well be successful in such an action. A voidable contract is one that is able to be voided because Mrs. D was under duress or undue influence.

Question 84

The law that requires real estate contracts to be in writing to be enforceable is the:

A. law of descent and distribution

B. statute of frauds

C. parole evidence rule

D. statute of limitations

Answer 84

B. Statute of Frauds

-Contrary to popular belief, the statute of frauds is not about specific actions defined as fraud, but the requirement in every state that certain documents be in writing, especially those pertaining to real estate. It’s called the statute of fraud because it was first enacted in England in 1677 to prevent fraudulent claims of title.

Question 85

A(n) _______ is when an owner takes his property off the market for a definite period of time in exchange for some consideration, but he grants the right to purchase the property within that period for a stated price.

A. option

B. contract of sale

C. right of first refusal

D. installment agreement

Answer 85

A. Option

• It’s important to note that options generally give flexibility to only one side of the transaction. For example, let’s say Barney is expecting a big promotion in six months and wants to buy Fred’s house for $300,000 if it comes through. In exchange for keeping his home off the market for six months and agressing to sell it to Barney for $300,000 at Barney’s option, Barney gives Fred $3,000. The $3,000 is Fred’s to keep no matter what. However, Barney is not obligated to buy Fred’s house; it’s his choice. Further, if he does get the promotion and wants to exercise his option, Fred must sell Barney his home for $300,000, been if markey conditions have now made it worth more.

Question 86

A breach of contract is a refusal or a failure to comply with the terms of the contract. If the seller breaches the purchase contract, the buyer may do all of the following EXCEPT:

A. Sue the seller for specific performance.
B. Rescind the contract and recover the earnest money.

C. Sue the seller for damages.

D. Sue the broker for non-performance.

Answer 86

D. Sue the broker for non-performance.

• While principal brokers and Brokers are responsible for bringing people together, they cannot be expected to know every detail of their circumstances or intent. Thus, if a buyer cannot get clear title or a seller is unexpectedly transferred, it is not the broker’s faut the transaction failed and he or she bears no responsibility.