Practice 1 Flashcards
A borrower wants to secure a loan with a very low down payment. Paying a low down payment provides
A) a lower loan-to-value ratio.
B) no requirement for private mortgage insurance.
C) a higher loan-to-value ratio.
D) lower risk for the lender.
C) a higher loan-to-value ratio.
the lower the down payment by the buyer.
The higher the ratio of debt to value,
A lower down payment means a less secure loan for the lender and may require the borrower to purchase private mortgage insurance in order to secure a loan.
The remedy for parties in default that is available to both the buyer and the seller in a purchase contract is
specific performance.
If the purchase contract gives both parties the remedy of suing if the other party defaults, the contract is
specific performance
A ( ? ) allows the seller to keep the earnest money if the buyer defaults and gives the buyer specific performance remedies if the seller defaults.
liquidated damages contract
A house for sale was advertised, ‘‘Fine executive home in an exclusive neighborhood, suitable for an older couple; near St. Mary’s Church.’’ All of the following are true EXCEPT
A) an exclusive neighborhood could be interpreted to mean that minorities are not welcome.
B) the neighborhood could appear to be undesirable for people who do not follow the same religion as those at St. Mary’s Church.
C) this is descriptive of the property for sale and a good ad.
D) the ad could appear to imply that younger families with children are not welcome.
C) this is descriptive of the property for sale and a good ad.
The ad could be construed as discriminatory as it may indicate a preference for younger families with no children and possibly those of a certain faith. The term “exclusive” could be considered to indicate the neighborhood is not appropriate for minorities.
A salesperson representing a seller suggests to a buyer that the seller might accept less than the listing price. The salesperson in this situation
A) is simply performing a ministerial act for the buyer.
B) is fulfilling his fiduciary responsibilities to the seller by encouraging a buyer to purchase the property.
C) no longer represents the seller since he has given advice to the buyer.
D) may have unintentionally created an undisclosed dual agency by suggesting that the buyer offer less than the listing price
D) may have unintentionally created an undisclosed dual agency by suggesting that the buyer offer less than the listing price
All of the following events terminate an agency relationship EXCEPT
A) bankruptcy of the principal.
B) an appraisal with a value less than the selling price.
C) destruction of the property.
D) completion of the purpose of the agency.
B) an appraisal with a value less than the selling price.
If an appraisal reveals a market value less than the stated selling price in a contract,
the parties will have to renegotiate their contract if both parties are still interested in the sale
Completion of the agency’s purpose, destruction of the property, and bankruptcy of the principal .
terminate an agency relationship
The main difference between a purchase money mortgage and a contract for deed is
A) how title is held.
B) the type of payment being made.
C) when the buyer takes possession.
D) the type of deed used to convey title.
A) how title is held.
The buyer takes possession in both loan types and the deed type makes no difference.
In a purchase money mortgage the seller conveys title to the buyer at closing, then
the seller is the lender on the mortgage.
In a contract for deed the seller does not convey title until
the final payment
To secure a $100,000 loan, the buyer paid $3,000 in discount points, and the seller paid $2,000 in discount points. How many points were charged?
5
A broker sold a property and received a 6.5% commission. The broker gave the listing salesperson $3,575, which was 30% of the firm’s commission. What was the selling price of the property?
The answer is $183,333. The answer requires two steps: (1) find the firm’s full commission, and (2) find the selling price using the full commission and the rate.
$3,575 (the listing salesperson’s commission) = 30% × Full commission
(1) To find the full commission, divide the listing salesperson’s commission by the salesperson’s share of 30%: Full commission = $3,575 ÷ 30% (.30) = $11,916.67.
(2) To find the sales price, divide the full commission by the brokerage commission rate: Full commission ($11,916.67) ÷ Brokerage rate (6.5%) = Sales price ($183,333).
A buyer makes an offer on a seller’s house and the seller accepts. Both parties sign the sales contract. At this point, the buyer has what type of title to the property?
Equitable
A property owner deeds a parcel of his property to a town “for recreational purposes only.” The deed conveys to the town a
fee simple defeasible estate.
The deed conveys a fee simple defeasible estate which includes a specific condition on the use of the parcel.
Holder of a leasehold estate has no ownership only
possession
has no restrictions on the use of the property.
A fee simple absolute estate
is limited in duration to the life of the owner of the estate or to the life of some other designated person.
A life estate
A property owner wants to give his property to his sister. The BEST way to transfer title to her would be
A) to execute and deliver a deed to the sister.
B) taking title as joint tenants with the owner keeping a revisionary interest.
C) using quitclaim deed as it does not need to be recorded to transfer title.
D) making and signing a will with a bequest to the sister.
A) to execute and deliver a deed to the sister.
If the amount realized at a sheriff’s sale as part of a mortgage foreclosure is more than the amount of the indebtedness and expenses, then the excess belongs to the
mortgagor.
A first-time buyer paid $135,500 for her property. Taxes in her community are assessed at 80% of the market value. If the tax rate is 700 mills per $100, how much will be escrowed for taxes for her monthly PITI payment?
$63.23
Tax rate = 700 mills ÷ 1,000 = 0.7 ÷ 100 = .007
Assessed value $135,500 × 80% (.80) = $108,400
$108,400 × .007 = $758.80 Annual taxes
$758.80 ÷ 12 = $63.23 Monthly tax
Last year, an apartment building had an effective gross income of $55,575 and expenses of $5,500. If the cap rate is 10%, what is the value?
The answer is $500,750.
$55,575 - 5,500 = $50,075
$50,075 ÷ 10% (.10) = $500,750
A contract that secures a brokerage firm to assist a buyer in finding a suitable property to buy is a(n)
buyer representation contract.
All of the following are variances EXCEPT
A) a retail store in a residential neighborhood.
B) a building that exceeds height limits.
C) an owner given permission to build into a setback.
D) a fence built to a height of 15 feet.
A) a retail store in a residential neighborhood.
A retail store in a residential neighborhood is nonconforming use.
A bilateral contract is one in which
the promise of one party is given in exchange for the promise of the other party.
A homeowner negotiates a home equity loan of $20,000 to pay for a basement renovation. The balance on the original mortgage for the home is $165,000. The home equity loan creates
A) no additional lien on the property.
B) a new balance of $185,000 for the homeowner’s original mortgage.
C) a junior lien to the original mortgage lien.
D) a senior lien to the original mortgage lien.
C) a junior lien to the original mortgage lien.
A fixed-rate home loan that is fully amortized according to the original payment schedule
A) requires a monthly payment amount that fluctuates each month.
B) cannot be sold in the secondary market.
C) permits the borrower to pay the same amount each payment period.
D) has an interest rate that fluctuates based on an economic index.
C) permits the borrower to pay the same amount each payment period.
The legal proceeding or legal action brought by either the buyer or the seller under a purchase contract to enforce the terms of the contract is known as
suit for specific performance.
The practice of channeling families with children away from other buildings into an apartment building where other families with children reside is
A) redlining.
B) most practical.
C) illegal discrimination.
D) blockbusting.
C) illegal discrimination.
Earnest money
A) is considered to be consideration and is required in a purchase offer.
B) may become the seller’s if the buyer defaults.
C) will be a credit to the seller and a debit to the buyer at closing.
D) is required as part of all purchase agreements.
B) may become the seller’s if the buyer defaults.
it is a show of good faith on the part of the buyer and liquidated damages for the seller, if the buyer defaults.
A new contract that transfers all rights and liabilities is a(n)
novation
In a novation a new contract is used to replace the original contract.
the transfer of contract duties but not liabilities
An assignment
a contract that exchanges a promise for performance.
An option
The seller has accepted monetary consideration and has agreed to sell his property for an agreed upon amount within a specified timeframe, if the buyer then chooses to purchase. This contract is called a(n)
A) sales contract.
B) land contract.
C) listing contract.
D) option contract.
D) option contract.
In (?) the seller accepts option money and agrees to sell his property for a specified amount within a specified timeframe, if the buyer chooses to purchase in the future.
an option contract
An appraiser is assigned to appraise a house in an area with very few sales over the past year. One of the comparable properties she chooses is a home similar to the subject property. The house recently sold as a foreclosure property. When writing her appraisal report, what action will the appraiser take as a result of the foreclosed sale?
A)Make a positive adjustment to the sales price of the foreclosed home
B) Make a negative adjustment to the value of the subject property
C) Make a positive adjustment to the value of the subject property
D) Make a negative adjustment to the sales price of the foreclosed home
A)Make a positive adjustment to the sales price of the foreclosed home
Under an assignment of a lease, who is primarily responsible for rental payments to the landlord?
A) The new tenant
B) The original tenant
C) Both the original tenant and the new tenant
D) The owner and the new tenant
B) The original tenant
An ownership interest that is based on occupancy during a specified period of time, is a
time-share.
The remedy available only to the seller as compensation if a buyer is in default is known as
liquidated damages.
All of the following are protected under federal fair housing laws EXCEPT
A) sexual orientation.
B) Muslims.
C) Baptists.
D) children.
A) sexual orientation.
For land to be taken by the government under its right of eminent domain, which of the following MUST apply?
A) The state takes the property through adverse possession.
B) The taking must be for a public purpose.
C) There must be a statutory dedication.
D) There must be constructive notice.
B) The taking must be for a public purpose.
A property owner conveys the ownership of his house to his mother and stipulates that on her death ownership will revert to him. The interest the owner has in the property is a
reversionary interest
The rent collected in a 12-unit building is as follows: three apartments, $550; three apartments, $600; and three apartments, $650. There is a vacancy rate of 4%, additional annual income of $2,400, and annual expenses of $5,000. With a cap rate of 9%, how much should the buyer pay for this property?
The answer is $661,244.
$59,512 (NOI) ÷ .09% (Cap Rate) = $661,244 Value
$550 × 12 × 3 = $19,800
$600 × 12 × 3 = $21,600
$650 × 12 × 3 = $23,400
$64,800 Annual Gross income from units
64,800 + 2,400 = $67,200 Potential Gross Income
67,200 - 2,688 (potential vacancy) =64,512 Effective income
64512 - 5,000 = 59,512 Net operating income
An owner held fee simple title to a vacant lot adjacent to a hospital. She decided to make the lot available to the hospital. Her attorney prepared a deed that conveyed ownership of the lot to the hospital “so long as it is used for medical purposes.’’ After the completion of the gift, the hospital will own a
fee simple defeasible estate.
a freehold estate that lasts as long as the life of the tenant.
A life estate
creates a limited use by a deed condition
A fee simple defeasible estate
a leasehold estate that continues for a definite period of time, for years, months, even days.
A tenancy for years
a less-than-freehold estate that creates the right of possession of a property from year to year.
A periodic tenancy
A listing contract is BEST described as a(n)
A) escrow contract.
B) sales contract.
C) property management contract.
D) personal service contract.
D) personal service contract.
an agreement between a buyer, seller, and escrow holder (such as a broker) defining the responsibilities of each.
An escrow contract
The effective gross annual income from a property is $112,000. Total expenses for this year are $53,700. What capitalization rate was used to obtain a valuation of $542,325?
10.75%
The capitalization rate may be found by dividing the net operating income (NOI) by the value of the property (Rate = NOI ÷ Value). In this case, the annual net operating income is found by subtracting the yearly expenses from the gross annual income: $112,000 (annual income) - $53,700 (total expenses) = $58,300 (the NOI).
$58,300 ÷ $542,325 (the value) = 10.75% (.1075).
The type of easement granting a right-of-way for a utility company’s power lines is a(n)
easement in gross.
A broker who is the agent of the buyer should do which of the following?
A) Disclose to the seller that the buyer is a minority person
B) Advise the buyer if the listing price of the seller’s house is unrealistic
C) Disclose to the seller the maximum price the buyer is willing to pay
D) Present to the seller only offers that are acceptable
B) Advise the buyer if the listing price of the seller’s house is unrealistic
A participant in the secondary market is a(n)
A) institutional investor who supplies money for FHA and VA loans.
B) institutional investor that buys and sells loans.
C) lender of residential mortgages and deeds of trust.
D) lender who deals exclusively in second mortgages.
B) institutional investor that buys and sells loans.
A life estate conveys to the life tenant
ownership for life.
Consideration could be all of the following EXCEPT
A) something of value.
B) a promise.
C) money.
D) earnest money.
D) earnest money.
A buyer and a seller have entered into a binding contract for the sale of real estate. During this phase and until closing, the buyer has which type of title?
A) Equitable
B) Executory
C) Legal
D) Escalating
A) Equitable
An (?) is created by a court when an owner sells a parcel of land that has no access to a public way except over the seller’s remaining land.
easement by necessity
An (?) is acquired when a person makes continuous and visible use of another’s land for a certain period of time without the owner’s permission.
easement by prescription
An (?) has two parties an example would be a right to drive across a neighbors land.
appurtenant easement
In a joint tenancy, all of the following are true EXCEPT
A) each partner has a divided share of the property.
B) a couple who is not married may hold title as joint tenants.
C) unities of possession, interest, time, and title must be present.
D) joint tenants have a right of survivorship upon the death of a tenant.
A) each partner has a divided share of the property.
Each partner has an undivided share in the property, which gives all owners equal rights of possession. Upon the death of one joint tenant, that interest in the property is extinguished, and the other tenants hold title as the remaining joint tenants
A salesperson’s written contract with her broker specifies that she is not an employee. In the last year, just less than half of the salesperson’s income from real estate activity came from sales commissions. The remainder was based on an hourly wage paid by the broker. Using these facts, it is MOST likely that the Internal Revenue Service (IRS) would classify the salesperson as which of the following for federal income tax purposes?
A) Self-employed
B) Employee
C) Independent contractor
D) Part-time real estate salesperson
B) Employee
A new salesperson lists a unit in a condominium building for sale. In this transaction, the sales person
A) has a direct agency relationship with the owners of the unit.
B) acts on behalf of the brokerage firm.
C) acts on behalf of the condominium association as well as the seller.
D) must personally find a buyer for the unit to obtain a share of the commission.
B) acts on behalf of the brokerage firm.
Three years ago, the owner paid $165,000 for her investment property. During her period of ownership, she added a family room valued at $16,500 and $10,000 worth of other improvements. If she sells the property for $240,000 and pays a 7% commission, what capital gains may she exclude?
$31,700
$240,000 - $16,800 (7%) = $223,200
$165,000 + $16,500 + $10,000 = $191,500
$223,200 - $191,500 = $31,700
The principal to whom an agent gives professional opinions and counsel is a
Client
A salesperson works at a branch office managed by an associate broker of the firm. The salesperson makes a change in the listing price of a listing contract without the knowledge or consent of the seller. The ultimate responsibility for the salesperson’s actions rests with the
A) salesperson.
B) associate broker managing the office.
C) associate broker and the salesperson.
D) firm’s principal broker.
D) firm’s principal broker.
Whose signature is necessary for a signed offer to purchase real estate to become a contract?
A) Seller’s only
B) Seller’s and seller’s broker
C) Buyer’s and seller’s
D) Buyer’s only
C) Buyer’s and seller’s
The relationship between a broker and a seller is generally what type of agency?
Special agency
A woman applies to the municipality for permission to open an adult day-care facility in her neighborhood. Many elderly persons live in the neighborhood. The municipality may grant her a(n)
A) amendment to the zoning ordinance.
B) special use permit.
C) variance.
D) nonconforming use permit.
B) special use permit.
Which of the following does NOT create an agency relationship?
A) A listing contract
B) A property management contract
C) The payment of money or commissions
D) A buyer agency contract
C) The payment of money or commissions
A purchaser is qualified to obtain an FHA loan for his new home. Which of the following would he apply to?
A) The FHA
B) Freddie Mac
C) An FHA lender
D) Fannie Mae
C) An FHA lender
The following ad appeared in the newspaper: “For sale: 4 BR brick home; Redwood School District; excellent Elm Street location; short walk to St. John’s Church and right on the bus line. Move-in condition; priced to sell.” Which statement is TRUE?
A) The fair housing laws do not apply to newspaper advertising.
B) The ad describes the property for sale and is very appropriate.
C) The ad should state that the property is available to families with children.
D) The ad should not mention St. John’s Church.
D) The ad should not mention St. John’s Church.
A broker who is the agent of the buyer should do which of the following?
A) Advise the buyer if the listing price of the seller’s house is unrealistic
B) Present to the seller only offers that are acceptable
C) Disclose to the seller the maximum price the buyer is willing to pay
D) Disclose to the seller that the buyer is a minority person
A) Advise the buyer if the listing price of the seller’s house is unrealistic
The multiple listing service clause in a listing contract provides that
A) the seller grants permission for the broker to make the listing available through an MLS (multiple listing service).
B) the seller enter the listing into the MLS.
C) a buyer broker may not represent a purchaser in the transaction.
D) the broker agrees to the standard commission rate set by the MLS.
A) the seller grants permission for the broker to make the listing available through an MLS (multiple listing service).
A real estate broker’s responsibility to keep the principal informed of all of the facts that could affect a transaction is the duty of
disclosure.
Eminent domain and escheat are two examples of
A) involuntary alienation.
B) transfers of title by descent.
C) voluntary alienation.
D) adverse possession.
A) involuntary alienation.
When estimating the value of property using the cost approach, all of the following are considered by an appraiser EXCEPT
A) loss of value due to uncollected delinquent rent.
B) estimated loss attributable to an outdated heating system.
C) excessive amount of traffic noise outside the property.
D) quality of materials and workmanship in the original structure.
A) loss of value due to uncollected delinquent rent.
The buyer and seller are under contract when the title work is delivered. The buyer discovers the seller does not have clear title to the property. The buyer sends the seller notice to clear the title. The best way for the seller to clear the defective or clouded title is
A) to have both an owner’s and mortgagee’s title policy.
B) having title conveyed with a quitclaim deed.
C) by paying cash for the property at the closing.
D) through a quiet title suit.
D) through a quiet title suit.
When an eligible veteran is negotiating to purchase a home with a VA-guaranteed loan, as part of the loan process the VA will issue a
certificate of reasonable value (CRV).
A buyer in a fast selling market has written a number of offers in hopes of getting at least two accepted. The buyer then plans to terminate those the buyer does not want during the inspection period. The buyer can buy only one property and the broker representing him as an agent knows this and is helping with the process. In this case, the
A) buyer is acting in good faith but the broker is acting in bad faith.
B) broker will be sure to get paid which is second to helping the buyer.
C) buyer and broker are acting in bad faith.
D) buyer has a good business plan which is standard in seller’s markets.
C) buyer and broker are acting in bad faith.
A document that protects against hidden risks such as forgeries and loss due to defects in the title, subject to specific exclusions, is called a(n)
title insurance policy.
If a seller needs to net $50,000 after the sale, how much must he sell his home for if the selling costs include a 7% commission and $1,200 in other expenses?
$55,054
$50,000 (net) + $1,200 (costs) = $51,200
$51,200 ÷ .93 [100% - 7% (0.07) commission] = $55,053.763 round to $55,054 (sales price rounded up)
With a tenancy for years
A) a 30-day notice is required to terminate the lease.
B) no notice is required to terminate the lease.
C) the term of the lease must be for at least one year.
D) the lessee has a freehold estate.
B) no notice is required to terminate the lease.
A lease agreement is signed by a lessee who is 16 years of age. Which of the following is TRUE?
A) The lease agreement is voidable by the minor.
B) The lease agreement is valid provided the security deposit is increased.
C) The lease agreement is void.
D) A 16-year-old person cannot sign a lease.
A) The lease agreement is voidable by the minor.
The appraised value of a property is $52,350. It is assessed at 38% of the appraised value, and the tax rate is 95 mills. What are the quarterly property taxes?
$472.45
Tax Rate = 95 ÷ 1,000 = .095
Assessed value = $52,350 × 38% (.38) = $19,893
$19,893 × .095 = $1,889.83 Annual taxes
$1,889.83 ÷ 4 = $472.45 Quarterly taxes
A property is appraised for $125,000. If the assessment rate is 100% and the tax rate is $1 per $100, what are the annual property taxes?
$1,250.
$1 ÷ 100 = .01 Tax rate
$125,000 × .01= $1,250
Many states permit mortgagors to redeem their property after default but before a foreclosure sale. This right is called a(n)
A) mortgagee’s right of redemption.
B) owner’s right of redemption.
C) statutory right of redemption.
D) equitable right of redemption.
D) equitable right of redemption.
A principal broker authorizes one agent in her firm to represent the seller and another to represent the buyer in the same real estate transaction. Each agent is a
A) universal agent.
B) designated agent.
C) dual agent.
D) single agent.
B) designated agent.
A charge of three discount points on a $120,000 loan equals
$3,600.
A discount point is 1% of the amount borrowed (the loan amount). Three points would be 3% of the loan amount of $120,000. 3% (.03) × $120,000 = $3,600
All of the following are variances EXCEPT
A) a fence built to a height of 15 feet.
B) a retail store in a residential neighborhood.
C) a building that exceeds height limits.
D) an owner given permission to build into a setback.
B) a retail store in a residential neighborhood.
A retail store in a residential neighborhood is nonconforming use.
What is the rate of interest if the mortgagor makes quarterly interest payments of $1,340.63 on a $65,000 loan?
8.3%
Step 1, find the total interest paid annually $1,340.63 × 4= $5,362.52. Step 2, divide the interest by the principal to determine the rate $5,362.52 ÷ $65,000 = 8.3% (.083).
All of the following are examples of seller financing EXCEPT
A) An installment land contract.
B) A land lease contract.
C) A contract for deed.
D) A land contract.
B) A land lease contract.
A contract for deed form of seller financing is also known as a land contract, installment contract and installment land contract. A land lease allows a tenant to lease land.