Practice 1

Question 1

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.

Answer 1

C) a higher loan-to-value ratio.

Question 2

the lower the down payment by the buyer.

Answer 2

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.

Question 3

The remedy for parties in default that is available to both the buyer and the seller in a purchase contract is

Answer 3

specific performance.

Question 4

If the purchase contract gives both parties the remedy of suing if the other party defaults, the contract is

Answer 4

specific performance

Question 5

A ( ? ) allows the seller to keep the earnest money if the buyer defaults and gives the buyer specific performance remedies if the seller defaults.

Answer 5

liquidated damages contract

Question 6

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.

Answer 6

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.

Question 7

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C) no longer represents the seller since he has given advice to the buyer.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

Answer 7

D) may have unintentionally created an undisclosed dual agency by suggesting that the buyer offer less than the listing price

Question 8

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.

Answer 8

B) an appraisal with a value less than the selling price.

Question 9

If an appraisal reveals a market value less than the stated selling price in a contract,

Answer 9

the parties will have to renegotiate their contract if both parties are still interested in the sale

Question 10

Completion of the agency’s purpose, destruction of the property, and bankruptcy of the principal .

Answer 10

terminate an agency relationship

Question 11

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.

Answer 11

A) how title is held.

The buyer takes possession in both loan types and the deed type makes no difference.

Question 12

In a purchase money mortgage the seller conveys title to the buyer at closing, then

Answer 12

the seller is the lender on the mortgage.

Question 13

In a contract for deed the seller does not convey title until

Answer 13

the final payment

Question 14

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?

Answer 14

5

Question 15

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?

Answer 15

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).

Question 16

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?

Answer 16

Equitable

Question 17

A property owner deeds a parcel of his property to a town “for recreational purposes only.” The deed conveys to the town a

Answer 17

fee simple defeasible estate.

The deed conveys a fee simple defeasible estate which includes a specific condition on the use of the parcel.

Question 18

Holder of a leasehold estate has no ownership only

Answer 18

possession

Question 19

has no restrictions on the use of the property.

Answer 19

A fee simple absolute estate

Question 20

is limited in duration to the life of the owner of the estate or to the life of some other designated person.

Answer 20

A life estate

Question 21

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.

Answer 21

A) to execute and deliver a deed to the sister.

Question 22

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

Answer 22

mortgagor.

Question 23

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?

Answer 23

$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

Question 24

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?

Answer 24

The answer is $500,750.

$55,575 - 5,500 = $50,075
$50,075 ÷ 10% (.10) = $500,750

Question 25

A contract that secures a brokerage firm to assist a buyer in finding a suitable property to buy is a(n)

Answer 25

buyer representation contract.

Question 26

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.

Answer 26

A) a retail store in a residential neighborhood.

A retail store in a residential neighborhood is nonconforming use.

Question 27

A bilateral contract is one in which

Answer 27

the promise of one party is given in exchange for the promise of the other party.

Question 28

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.

Answer 28

C) a junior lien to the original mortgage lien.

Question 29

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.

Answer 29

C) permits the borrower to pay the same amount each payment period.

Question 30

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

Answer 30

suit for specific performance.

Question 31

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.

Answer 31

C) illegal discrimination.

Question 32

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.

Answer 32

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.

Question 33

A new contract that transfers all rights and liabilities is a(n)

Answer 33

novation

In a novation a new contract is used to replace the original contract.

Question 34

the transfer of contract duties but not liabilities

Answer 34

An assignment

Question 35

a contract that exchanges a promise for performance.

Answer 35

An option

Question 36

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.

Answer 36

D) option contract.

Question 37

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.

Answer 37

an option contract

Question 38

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

Answer 38

A)Make a positive adjustment to the sales price of the foreclosed home

Question 39

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

Answer 39

B) The original tenant

Question 40

An ownership interest that is based on occupancy during a specified period of time, is a

Answer 40

time-share.

Question 41

The remedy available only to the seller as compensation if a buyer is in default is known as

Answer 41

liquidated damages.

Question 42

All of the following are protected under federal fair housing laws EXCEPT

A) sexual orientation.

B) Muslims.

C) Baptists.

D) children.

Answer 42

A) sexual orientation.

Question 43

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.

Answer 43

B) The taking must be for a public purpose.

Question 44

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

Answer 44

reversionary interest

Question 45

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?

Answer 45

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

Question 46

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

Answer 46

fee simple defeasible estate.

Question 47

a freehold estate that lasts as long as the life of the tenant.

Answer 47

A life estate

Question 48

creates a limited use by a deed condition

Answer 48

A fee simple defeasible estate

Question 49

a leasehold estate that continues for a definite period of time, for years, months, even days.

Answer 49

A tenancy for years

Question 50

a less-than-freehold estate that creates the right of possession of a property from year to year.

Answer 50

A periodic tenancy

Question 51

A listing contract is BEST described as a(n)

A) escrow contract.

B) sales contract.

C) property management contract.

D) personal service contract.

Answer 51

D) personal service contract.

Question 52

an agreement between a buyer, seller, and escrow holder (such as a broker) defining the responsibilities of each.

Answer 52

An escrow contract

Question 53

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?

Answer 53

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).

Question 54

The type of easement granting a right-of-way for a utility company’s power lines is a(n)

Answer 54

easement in gross.

Question 55

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

Answer 55

B) Advise the buyer if the listing price of the seller’s house is unrealistic

Question 56

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.

Answer 56

B) institutional investor that buys and sells loans.

Question 57

A life estate conveys to the life tenant

Answer 57

ownership for life.

Question 58

Consideration could be all of the following EXCEPT

A) something of value.

B) a promise.

C) money.

D) earnest money.

Answer 58

D) earnest money.

Question 59

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

Answer 59

A) Equitable

Question 60

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.

Answer 60

easement by necessity

Question 61

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.

Answer 61

easement by prescription

Question 62

An (?) has two parties an example would be a right to drive across a neighbors land.

Answer 62

appurtenant easement

Question 63

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.

Answer 63

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

Question 64

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

Answer 64

B) Employee

Question 65

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.

Answer 65

B) acts on behalf of the brokerage firm.

Question 66

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?

Answer 66

$31,700

$240,000 - $16,800 (7%) = $223,200
$165,000 + $16,500 + $10,000 = $191,500
$223,200 - $191,500 = $31,700

Question 67

The principal to whom an agent gives professional opinions and counsel is a

Answer 67

Client

Question 68

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.

Answer 68

D) firm’s principal broker.

Question 69

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

Answer 69

C) Buyer’s and seller’s

Question 70

The relationship between a broker and a seller is generally what type of agency?

Answer 70

Special agency

Question 71

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.

Answer 71

B) special use permit.

Question 72

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

Answer 72

C) The payment of money or commissions

Question 73

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

Answer 73

C) An FHA lender

Question 74

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.

Answer 74

D) The ad should not mention St. John’s Church.

Question 75

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

Answer 75

A) Advise the buyer if the listing price of the seller’s house is unrealistic

Question 76

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.

Answer 76

A) the seller grants permission for the broker to make the listing available through an MLS (multiple listing service).

Question 77

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

Answer 77

disclosure.

Question 78

Eminent domain and escheat are two examples of
A) involuntary alienation.
B) transfers of title by descent.
C) voluntary alienation.
D) adverse possession.

Answer 78

A) involuntary alienation.

Question 79

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.

Answer 79

A) loss of value due to uncollected delinquent rent.

Question 80

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.

Answer 80

D) through a quiet title suit.

Question 81

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

Answer 81

certificate of reasonable value (CRV).

Question 82

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.

Answer 82

C) buyer and broker are acting in bad faith.

Question 83

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)

Answer 83

title insurance policy.

Question 84

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?

Answer 84

$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)

Question 85

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.

Answer 85

B) no notice is required to terminate the lease.

Question 86

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.

Answer 86

A) The lease agreement is voidable by the minor.

Question 87

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?

Answer 87

$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

Question 88

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?

Answer 88

$1,250.

$1 ÷ 100 = .01 Tax rate
$125,000 × .01= $1,250

Question 89

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.

Answer 89

D) equitable right of redemption.

Question 90

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.

Answer 90

B) designated agent.

Question 91

A charge of three discount points on a $120,000 loan equals

Answer 91

$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

Question 92

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.

Answer 92

B) a retail store in a residential neighborhood.

A retail store in a residential neighborhood is nonconforming use.

Question 93

What is the rate of interest if the mortgagor makes quarterly interest payments of $1,340.63 on a $65,000 loan?

Answer 93

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).

Question 94

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.

Answer 94

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.

Question 95

A buyer signed a purchase agreement, but then the seller decided not to sell. The buyer sued the seller successfully and was able to purchase the house. What was the contract remedy if the seller was in default?

A) Unilateral rescission
B) Liquidated damages
C) Mutual agreement
D) Specific performance

Answer 95

D) Specific performance

Question 96

A contract entered into while someone is under duress is considered to be

A) voidable.
B) void.
C) executory.
D) fully valid and enforceable.

Answer 96

A) voidable.

Question 97

A brokerage firm has an exclusive right-to-sell listing and represents the owner in the sale of the owner’s property. Which of the following events will terminate that agency relationship?

A) The broker engages other brokers to help sell the property.
B) The owner declares personal bankruptcy.
C) The owner abandons the property.
D) The broker discovers that she will not make an adequate commission due to the low market value of the property.
Explanation

Answer 97

B) The owner declares personal bankruptcy.

Question 98

A house with outmoded plumbing is suffering from

A) functional obsolescence.
B) incurable physical deterioration.
C) external depreciation.
D) curable physical deterioration.

Answer 98

A) functional obsolescence.

Question 99

To determine the kinds of land uses and the amounts of land for each use in a subdivision, a developer must consider

A) which buildings will provide the most profit for the developer.
B) what the developer considers an ideal development.
C) the customs of the area and what other developers have already constructed.
D) the master plan of the local government.

Answer 99

D) the master plan of the local government.

Question 100

The market value of a property is $65,000 and is assessed for 45% of its value. If the owner’s semiannual tax bill was $511.88, what was the tax rate per $100?

A) 350 mills
B) 175 mills
C) $1.75
D) $3.50

Answer 100

D) $3.50

$65,000 × 45% (.45) = $29,250 Assessed value
$511.88 × 2= $1,023.75 Annual taxes
$1,023.75 ÷ $29,250 = .035
.035 × 100= $3.50

Question 101

The buyer has made an offer that the seller has accepted and proper notice has been given to the buyer of the seller’s acceptance. The offer is now considered an

A) executed contract.
B) unilateral contract.
C) executory contract.
D) assignment.

Answer 101

C) executory contract.

Question 102

Four units are renting for $450 each per month. There is a 5% vacancy factor and annual expenses are $3,547. The owner wants an 8% return on his investment, and the property has additional monthly income of $464. What is the effective gross income of the property?

Answer 102

$25,810.

4 × $450 × 12 = $21,600
$464 × 12 = $5,568 AI
$21,600 + 5,568 = $27,168 PGI
$27,168 - $1,358.40 (5% VR) = $25,809.60 round to $25,810

Question 103

An appraiser has been employed to estimate the market value of a parcel of vacant land. The resulting appraisal report would NOT include reference to the

A) physical dimensions of the parcel.
B) most probable price the parcel will bring.
C) listed price of the parcel.
D) highest and best use of the parcel.

Answer 103

C) listed price of the parcel.

Question 104

Which of the following would be classified as a general lien?

A) Mechanic’s lien
B) Real estate property tax lien
C) Property tax lien
D) Judgment

Answer 104

D) Judgment

Question 105

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) the neighborhood could appear to be undesirable for people who do not follow the same religion as those at St. Mary’s Church.
B) this is descriptive of the property for sale and a good ad.
C) the ad could appear to imply that younger families with children are not welcome.
D) an exclusive neighborhood could be interpreted to mean that minorities are not welcome.

Answer 105

B) this is descriptive of the property for sale and a good ad.

Question 106

A homeowner conveys property to her nephew with a deed. The nephew then recorded the deed. When did title to the property actually transfer or pass to the nephew?

A) Upon recording of the deed
B) Upon the delivery of consideration
C) Upon delivery and acceptance of the deed
D) Upon delivery and acceptance of the contract

Answer 106

C) Upon delivery and acceptance of the deed

Question 107

Which of the following BEST expresses the concept of equity?

A) Current market value minus property debt
B) Current market value minus capital gain
C) Replacement cost minus depreciation
D) Current market value minus cost of land

Answer 107

A) Current market value minus property debt

Question 108

The primary activity of Fannie Mae is to

A) act in tandem with Ginnie Mae to provide special assistance in times of tight money.
B) buy and pool blocks of conventional mortgages and sell bonds that use them as security.
C) guarantee mortgages with the full faith and credit of the federal government.
D) buy and sell only VA and FHA mortgages.

Answer 108

B) buy and pool blocks of conventional mortgages and sell bonds that use them as security.

Question 109

The length and terms of home warranties are determined by the

A) city and local laws.
B) warranty contract.
C) state laws.
D) federal laws.

Answer 109

B) warranty contract.

Question 110

All of the following documents would create an agency relationship EXCEPT
A) a sales contract.
B) a listing contract.
C) a property management contract.
D) a buyer agency contract.

Answer 110

A) a sales contract.

Question 111

A broker received a 6% commission from the sale of a property. The broker gave the salesperson $3,500, which was 30% of the firm’s commission. What was the selling price of the property?

Answer 111

$194,450

To find the broker’s total commission, divide the salesperson’s commission by the percentage of the salesperson’s commission: $3500 ÷ .30 (30%) = $11,667. The broker’s commission is 6% of the sales price. To find the sales price, divide the broker’s commission by the percentage of the broker’s commission: $11,667 ÷ .06 (6%) = $194,450.

Question 112

A step used in the income approach to determine value is to

A) calculate the replacement cost.
B) apply the capitalization rate.
C) estimate reproduction cost.
D) apply a depreciation schedule.

Answer 112

B) apply the capitalization rate.

Question 113

In the income approach to value, the (__?__) is applied to the property’s annual net operating income to arrive at the estimate of the property’s value.

Answer 113

capitalization rate

Question 114

Calculating reproduction costs, replacement costs, and depreciation are procedures used in the__ approach to value.

Answer 114

cost approach to value.

Question 115

In an executory purchase contract, the buyer’s interest is described as

A) free and clear title.
B) possessionary interest.
C) legal title.
D) ownership in equity.

Answer 115

D) ownership in equity.

Question 116

The sales contract says the buyer will purchase the property only if an attorney approves the sale by the following Saturday. The attorney’s approval is a

A) warranty.
B) lis pendens.
C) consideration.
D) contingency.

Answer 116

D) contingency.

Question 117

A salesperson has received an offer with a $5,000 earnest money check. The next step is to

A) deposit it immediately into the firm’s trust account.
B) open a trust account for this check only.
C) give the check to the broker to put into the operations account until it is moved to the trust account.
D) hold the funds in a safe place until the offer becomes a contract.

Answer 117

D) hold the funds in a safe place until the offer becomes a contract.

Question 118

If a lender agrees to make a loan based on an 80% LTV, what is the amount of the loan if the property appraises for $114,500 and the sales price is $116,900?

Answer 118

$91,600.

The loan-to-value ratio (LTV) will be based on the relationship of the loan to either the appraisal or the purchase price, whichever is less. In this case, the appraisal is less. Therefore, the loan will be 80% of $114,500, which equals $91,600. $114,500 × 80% (.80) = $91,600

Question 119

An owner sold his condo and paid 6% commission to the selling broker. If his net was $200,000, what was the sale price?

Answer 119

$212,765.95.

100% - 6% = 94% Seller’s percent
$200,000 ÷ 94% (.94) = $212,765.95

Question 120

A commercial brokerage firm has hired a local advertising firm to send our email blasts about new listings. In this case all of the following statements are true about the emails EXCEPT

A) the receiver must be able to opt-out for at least 30 days after the message is sent.
B) the method to opt-out from receiving future emails must be prominent in the email message.
C) requests to opt-out must be honored within 10 business days.
D) no opt-out method is required for emails sent by a third party.

Answer 120

D) no opt-out method is required for emails sent by a third party.

Question 121

To find the value of a property, if the net operating income and the capitalization rate are known, an appraiser using the income approach to value would

A) multiply the effective gross income by the capitalization rate.
B) multiply the net operating income by the capitalization rate.
C) divide the net operating income by the capitalization rate.
D) divide the capitalization rate by the net operating income.

Answer 121

C) divide the net operating income by the capitalization rate.

Question 122

An appraiser using the GRM (gross rent multiplier) would consider which of following?

A) Market price of comparables and adjustments to the subject
B) Rental income and market price
C) Capitalization and net operating income
D) Market value and potential rent income

Answer 122

B) Rental income and market price

Question 123

The GRM (gross rent multiplier) times the rental income will determine the properties

Answer 123

market value or anticipated sales price

Question 124

All of the following are typically prorated at closing EXCEPT

A) water.
B) security deposits.
C) property taxes
D) rent.

Answer 124

B) security deposits.

Question 125

A store owner has operated a neighborhood grocery store for the last 30 years. Her store is the only retail property in the area which is zoned residential. The store is an example of a(n)

A) variance of the zoning laws.
B) illegal enterprise.
C) violation of the zoning laws.
D) nonconforming use.

Answer 125

D) nonconforming use.

Question 126

A salesperson working with a commercial client for the first time follows the client’s orders and drafts a contract for the purchase of a small strip center. Which of the following is TRUE?

A) The salesperson is illegally practicing law and is most likely not competent.
B) The salesperson is legally practicing law since the client ordered him.
C) Commercial brokers are allowed to draft contracts under the direction of clients.
D) The salesperson is in violation of truth-in-lending laws.

Answer 126

A) The salesperson is illegally practicing law and is most likely not competent.

Question 127

A couple offers to purchase a house for $120,000, including its draperies, with the offer to expire on Saturday at noon. The sellers reply in writing on Thursday accepting the $120,000 offer but excluding the draperies. On Friday, while the buyers consider this counteroffer, the sellers decide to accept the original offer; draperies included, and state that in writing. At this point, the buyers

A) must buy the house but may deduct the value of the draperies from the $120,000.
B) are legally bound to buy the house, although they have the right to insist that the draperies be included.
C) must buy the house and are not entitled to the draperies.
D) are not bound to buy.

Answer 127

D) are not bound to buy.

Question 128

Unless some other written agreement has been made, the brokerage will usually receive his brokerage commission when

A) the seller lists the property with the broker.
B) the purchaser takes possession of the property.
C) the transaction is closed.
D) an offer, procured from a ready, willing, and able buyer, has been accepted by the seller.

Answer 128

C) the transaction is closed.

Question 129

A broker has an exclusive right-to-sell listing on a building. The owner is out of town when the broker gets an offer from a buyer to purchase the building. The buyer must have an answer from the seller before the seller is scheduled to return to the city. Under these circumstances, the

A) broker may collect a commission even if the transaction falls through because of the seller’s absence from the city.
B) broker may enter into a binding agreement on behalf of the seller.
C) broker must obtain the signature of the seller to effect a contract.
D) buyer is obligated to keep the offer open until the seller returns.
Explanation

Answer 129

C) broker must obtain the signature of the seller to effect a contract.

Question 130

Under the federal Lead-Based Paint Hazard Reduction Act, which statement is TRUE?
A) A disclosure statement must be included with all sales contracts and leases involving residential properties built prior to 1978.
B) All residential housing built prior to 1978 must be tested for the presence of lead-based paint before being listed for sale or rent.
C) A lead hazard pamphlet must be distributed to all prospective buyers but not to tenants.
D) Purchasers of housing built before 1978 must be given five days to test the property for the presence of lead-based paint.

Answer 130

A) A disclosure statement must be included with all sales contracts and leases involving residential properties built prior to 1978.

Question 131

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?

Answer 131

$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

Annual Income from units $64,800

+2400

Potential Gross Income $67,200

(4% vacancy) -2688

Effective Income $64,512

-5000

Net Operating Income (NOI) $59,512

Question 132

The CFPB (Consumer Financial Protection Bureau) requires that

A) lenders provide the borrower with a new loan estimate at the time of application or no more than three days after application.
B) lenders provide a closing statement to all purchasers of residential or commercial properties.
C) real estate brokers and lenders must include the APR and all charges in all real estate advertisements.
D) brokers are responsible for verifying the new loan disclosure matches the new loan estimate.

Answer 132

A) lenders provide the borrower with a new loan estimate at the time of application or no more than three days after application.

Question 133

The seller’s property disclosure form yields which of the following benefits for the transaction?

A) It gives the buyer full knowledge of all issues with the property.
B) The form allows the buyer to make an informed decision as to buying the property.
C) The disclosure form provides a basis for further investigation by the buyer.
D) The disclosure form informs the buyer as to which defects exist.

Answer 133

A) It gives the buyer full knowledge of all issues with the property.

Question 134

A tenant has signed a two-year lease on a beach property. One year after the start of the lease the landlord dies and the ownership is transferred to his heirs who decide to sell the property. The tenant is sent notice of the intent to sell. In this case, what will be the status of the tenant’s lease upon closing of the sale?

A) The tenant will still have one year left on the lease but should be notified of who has the security deposit.
B) The lease is terminated and the tenant will need to move out by closing and will have the deposit returned within 30 days.
C) The tenant will need to negotiate a new lease rate with the new owner.
D) The lease was terminated upon the death of the owner.

Answer 134

A) The tenant will still have one year left on the lease but should be notified of who has the security deposit.

Question 135

All of the following are valid reasons for terminating a listing contract EXCEPT
A) destruction of the premises.
B) sale of the property.
C) death of the salesperson.
D) agreement of the parties.

Answer 135

C) death of the salesperson.

Question 136

According to federal do-not-call legislation, when a consumer makes an inquiry or submits an application, a real estate licensee may call the consumer for up to

Answer 136

3 months

Question 137

An owner conveys a life estate to her grandson and stipulates that on her death the estate will pass to her son-in-law. The son-in-law has a(n)

Answer 137

remainder interest.

Question 138

A state certified appraiser is conducting an appraisal of a library building surrounded by several acres of land belonging to the property. In determining the value of the land itself, the appraiser will most likely use the

A) cost approach.
B) sales comparison approach.
C) reproduction cost.
D) income approach.

Answer 138

B) sales comparison approach.

An appraiser will most likely use the sales comparison approach to determine the value of the land. They may use the cost approach to arrive at an opinion of value for the library building itself. The reproduction cost and the replacement cost are incorporated within the cost approach to value. An appraiser uses the income approach to value for income-producing properties, such as a multi-unit apartment building.

Question 139

An appraiser will most likely use the (??) to determine the value of the land

Answer 139

sales comparison approach

Question 140

Due diligence is best defined as

A) the requirement to have an inspection on a property.
B) a seller’s obligation to complete a property disclosure.
C) all the acts required of all parties to a transaction.
D) using a good faith effort to carry out the terms of a contract.

Answer 140

D) using a good faith effort to carry out the terms of a contract.

Question 141

A principal broker hires a salesperson as an employee of the brokerage firm. The employment contract between the broker and the salesperson will most likely include all of the following EXCEPT

A) the broker will withhold federal income taxes and Social Security taxes from the salesperson’s paycheck.
B) the salesperson is entitled to the firm’s health insurance plan.
C) the salesperson attend weekly sales meeting.
D) the salesperson is responsible for direct payment of all income taxes and Social Security payments from each paycheck.

Answer 141

D) the salesperson is responsible for direct payment of all income taxes and Social Security payments from each paycheck.

Question 142

A homeowner may be allowed certain protection from the judgments of creditors as a result of a state’s

A) littoral rights.
B) fee simple rights.
C) homestead rights.
D) prior appropriation rights.

Answer 142

C) homestead rights.

Question 143

The buyer assumed a loan of $50,000 at 8.25% interest. Payments are due on the first of the month. The last payment was made on April 1, and the closing took place on April 20 with the seller having the day of closing and using a 360 day year. Which of the following is TRUE?

A) $229.17 DS, CB
B) $229.20 CS, DB
C) $119.60 CS, DB
D) $119.60 DB, CS

Answer 143

C) $119.60 CS, DB

Step 1, determine the amount of interest owed $50,000 × 8.25% (.0825) = $4,125. Step 2, determine what days the buyer owes April 1 to April20 = 20 days. Step 3, determine the amount owed. Total amount due ÷ Total days × Days owed, $4,125 ÷ 360 × 20= $229.17.

Question 144

A company agreed to lease a space for 10 years. Five years later, the company’s owners sold the company to another organization. In this instance, what will occur with the lease?
A) The new tenant will be forced to negotiate a new lease with the landlord.
B) The current tenant will not be allowed to assign the leasehold interest to another company under any circumstances.
C) The current tenant may not assign the leasehold interest, but they may sublease the space to the other organization.
D) If allowed, the current tenant may assign the leasehold interest to the new organization.

Answer 144

D) If allowed, the current tenant may assign the leasehold interest to the new organization.

Unless the original tenant’s lease contract forbids an assignment, the tenant may assign the lease to the new organization. An assignment is the total transfer of the lessee’s rights to the other party; however, the original tenant is still liable for the rent. The landlord may agree to do a novation or new lease with the new tenant, but this is not a requirement. Subleasing and assignment are the same thing.

Question 145

Which statement is TRUE of a listing contract?
A) It is an employment contract for the professional services of the brokerage.
B) It obligates the broker to work diligently for both the seller and the buyer.
C) It obligates the seller to convey the property if the broker procures a ready, willing, and able buyer.
D) It automatically binds the owner, broker, and MLS to its agreed-on provisions.

Answer 145

A) It is an employment contract for the professional services of the brokerage.

Question 146

With a VA-guaranteed mortgage

A) the funding fee amounts are negotiable.

B) the borrower may have a prepayment penalty clause in the loan.

C) the borrower must apply for a certificate of eligibility.

D) discount points must be paid by the seller.

Answer 146

C) the borrower must apply for a certificate of eligibility.

Question 147

A parcel of property was purchased by two friends. The deed they received from the seller at closing conveyed the property by name to each of the two friends without further explanation. The friends took title as which of the following?
A) Tenants by the entirety
B) Joint tenants
C) Community property owners
D) Tenants in common

Answer 147

D) Tenants in common

Question 148

The borrower with a construction loan receives the loaned amount in
A) stages, called draws, during the construction period.
B) two payments at the beginning and at the end of the construction period.
C) one sum at the beginning of the construction period.
D) one sum at the end of the construction period.

Answer 148

A) stages, called draws, during the construction period.

Question 149

A property manager is typically a(n)
A) designated agent.
B) special agent.
C) general agent.
D) universal agent.

Answer 149

C) general agent.

Question 150

On January 1, the seller paid the $2,345 in taxes for the current year. If he sold the property on June 23 of that same year with the seller having the day of closing, how much would he be credited at closing? (Use a 360-day year.)
A) $1,293.53
B) $1,218.10
C) $1,772.50
D) $1,158.78

Answer 150

$1,218.10.

Since the taxes were paid in advance, the buyer will owe the seller for the time the buyer owns the house—June 24 to December 30, since this is a 360 year. Total owed ÷ Total days × Days owed = Amount due. $2,345 ÷ 360 × 187 = 1,218.097 round to $1,218.10

Question 151

A small condo sold for $62,250, which was 75% of the list price. What was the list price?

Answer 151

$83,000

Question 152

A seller wants to net a 12% profit after paying the brokerage firm a 6.5% commission. If the original purchase price was $104,500, what is the minimum offer they can accept?

Answer 152

$125,176.

$104,500 + 12% = $117,040
100% - 6.5% = 93.5%
$117,040 ÷ 93.5% (.935) = $125,176.47 round to $125,176

Question 153

Which of the following is a specific, involuntary lien?
A) An estate tax lien
B) An income tax lien
C) A real estate property tax lien
D) A judgment lien

Answer 153

C) A real estate property tax lien

Question 154

The type of loan that will MOST likely have the lowest loan-to-value ratio is a(n)
A) FHA loan.
B) conventional loan.
C) VA loan.
D) PMI loan.

Answer 154

B) conventional loan

Question 155

A builder wants to purchase a parcel of land of 17,500 square feet at $60,000 per acre. What is the cost of the land?

Answer 155

$24,150.

To find the cost of the parcel, first convert the cost per acre into the cost per square foot: $60,000 per acre ÷ 43,560 square feet (square feet per acre) = $1.38 (rounded) per square foot. Then, multiply the square feet of the parcel by the cost per square foot: $1.38 × 17,500 = $24,150.

Question 156

A quiet title suit refers to
A) a title insurance company’s search of the title.
B) the deposit of a title with an escrow agent.
C) the removal of a cloud on a title by court action.
D) a mortgagor relinquishing title after foreclosure.

Answer 156

C) the removal of a cloud on a title by court action.

Question 157

A prospective buyer looking to build on a vacant lot asks his salesperson if a septic tank could be built on the lot. The salesperson may suggest that the buyer conduct a
A) percolation test.
B) topography test.
C) hydroponics test.
D) septic soil test.

Answer 157

A) percolation test.

Question 158

Good faith as applied to agency is BEST defined as
A) following all lawful instructions of a principal.
B) using professional skills to support all parties in a transaction.
C) using honest and sincere intentions.
D) putting the interest of a principal above those of an agent.

Answer 158

A) following all lawful instructions of a principal.

Question 159

In an executory contract, the
A) buyer may take possession of the real estate.
B) seller grants the buyer possessory rights.
C) buyer receives equitable title to the property.
D) buyer receives legal title to the property.

Answer 159

C) buyer receives equitable title to the property.

Question 160

A landowner constructed a building seven stories high. Several years later, the municipality changed the zoning ordinance, prohibiting buildings that exceed six stories in height. Which of the following is TRUE regarding the existing seven-story building?
A) The owner must obtain a variance.
B) It is a conditional use.
C) It is a nonconforming use.
D) The building must be demolished.

Answer 160

C) It is a nonconforming use.

Question 161

Real estate law governing advertising apply to all of the following EXCEPT
A) In house notes for showing
B) communications with consumers
C) Social media
D) MLS systems

Answer 161

A) In house notes for showing

Question 162

Which approach to value would require the value of the land to be calculated separately from the value of the improvements?
A) None of the approaches
B) Cost approach
C) Income approach
D) Sales comparison approach

Answer 162

B) Cost approach

Question 163

A title search for a property under contract has revealed several outstanding liens against the property. Which of the following liens has highest priority?
A) A judgment lien rendered and recorded last month
B) A property tax lien for the current year
C) An outstanding first mortgage lien dated and recorded one year ago
D) A special assessment for the current year

Answer 163

B) A property tax lien for the current year

Question 164

How long is allowed for parties to file a discrimination suit in federal court?
A) One year
B) Six months
C) Two years
D) Three years

Answer 164

C) Two years

Parties to discrimination have one year to file with HUD and two years to file in federal court.

Question 165

A joint tenancy with right of survivorship is created

A) automatically if the property is distributed to the surviving children.
B) automatically if a deed is signed by both spouses.
C) by presumption if another form of ownership is not described.
D) by a deed.

Answer 165

D) by a deed.

Question 166

The listing or asking price of a property in the marketplace is its
A) subjective value.
B) book value.
C) market value.
D) intrinsic value.

Answer 166

C) market value.

Question 167

A woman has a nine-year-old grandson living with her, and her application for an apartment has been rejected as the community does not allow anyone under the age of 18. Is this permissible?

A) Yes, if the policy is consistently applied to all tenants.
B) No, if less than 30% of the occupants are over the age of 55.
C) No, because familial status is always a protected class in all housing.
D) Yes, if the housing complies with regulations for senior housing.

Answer 167

D) Yes, if the housing complies with regulations for senior housing.

Question 168

The primary purpose of a deed is to
A) assign a lease.
B) give constructive notice.
C) prevent adverse possession.
D) transfer title rights.

Answer 168

D) transfer title rights.

Question 169

A salesperson sells a $150,000 home listed with another brokerage. The listing commission is 6.5% of the selling price, with 35% going to the listing broker, and 60% belonging to the cooperating broker. The salesperson and his broker agreed that she would receive 55% of any commission that she generated for the brokerage firm. For this transaction, the salesperson is entitled to receive

Answer 169

$3,217.50.

$150,000 (sales price) × 6.5% (.065) = $9,750 (listing commission)
$9,750 × 60% (.60) = $5,850 (cooperating broker’s commission)
$5,850 × 55% (.55) = $3,217.50 (the salesperson’s commission)

Question 170

All of the following are essential elements of a contract EXCEPT
A) words of conveyance.
B) lawful objective.
C) mutual agreement.
D) consideration.

Answer 170

A) words of conveyance.

Question 171

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) Executory
B) Escalating
C) Equitable
D) Legal

Answer 171

C) Equitable

Question 172

After signing a listing contract with a homeowner, the owner tells the listing agent that because his home is in such good condition he does not want the home sold to any buyers with small children. The agent takes the listing, and obeys the owner’s instructions by not showing the home to any buyers with small children. He discourages other agents from showing the home to families by telling them the home is not suitable for a family. Are the agent’s actions legal?

Answer 172

No, because refusing to show a property to buyers with families violates fair housing laws.

Question 173

Which of the following would automatically terminate a residential lease?
A) Total destruction of the property
B) Failure of the tenant to pay rent
C) Death of the tenant
D) Sale of the property

Answer 173

A) Total destruction of the property

Question 174

A borrower wants to secure a loan with a very low down payment. Paying a low down payment provides
A) a higher loan-to-value ratio.
B) no requirement for private mortgage insurance.
C) a lower loan-to-value ratio.
D) lower risk for the lender.

Answer 174

A) a higher loan-to-value ratio.

Question 175

In order for a purchase agreement to be binding on all parties it must contain certain essential elements. Of the following, which is essential for a purchase agreement to be valid?
A) Recordation
B) Lawful objective
C) Notarization
D) Competent grantor

Answer 175

B) Lawful objective

Question 176

An apartment building with a $90,000 net operating income and an 8% cap rate has a value of

Answer 176

$1,125,000.

$90,000 ÷ 8% (.08) = $1,125,000

Question 177

Which of the following conditions does NOT create a stigmatized property that may or may not be disclosed under the laws of some states?
A) The property was the site of gang-related activity.
B) A suicide occurred on the property.
C) A murder occurred on the property.
D) The owner of the property has AIDS.

Answer 177

D) The owner of the property has AIDS.

Question 178

A buyer purchased a property that is one mile square and another that measures 511.23’ × 511.23’. At a cost of $2,000 an acre, how much did she pay for the property?

Answer 178

$1,291,999.

Property 1, 5,280 × 5,280 = 27,878,400; 27,878,400 ÷ 43,560 = 640 acres.
Property 2, 511.23 × 511.23 = 261,356.1129; 261,356.1129 ÷ 43,560 = 5.9999 acres.
640 + 5.9999 = 645.9999 total acreage 645.9999 × $2,000 = $1,291,999

Question 179

A sales associate for XYZ Realty listed and sold a $175,000 home. The seller paid a 6% commission of which the sales associate received 2% for listing the property, and 1.5% for selling the property. How much was the brokerage’s share of the commission?

Answer 179

$4,375.

Total commission = $175,000 × 6% (.06) = $10,500.

Sales associate’s share = 3.5% (2% + 1.5%) $175,000 × 3.5% (.035) = $6,125. $10,500 - $6,125= $4,375 for the brokerage. Or 6% -3.5% = 2.5% for the brokerage times the sales price.

Question 180

General real estate property taxes levied for the operation of the government are called
A) special taxes.
B) improvement taxes.
C) special assessment taxes.
D) ad valorem taxes.

Answer 180

D) ad valorem taxes.

Question 181

The value of a swimming pool or other property amenities is determined by the principle of
A) Substitution
B) Conformity
C) Progression
D) Contribution

Answer 181

D) Contribution

Question 182

A buyer entered into a buyer agency agreement that gave him the right to purchase property on his own and not pay the buyer’s agent. This BEST describes a(n)

A) designated buyer agency contract.

B) Exclusive agency buyer agency contract.

C) Exclusive right-to-buy buyer agency contract.

D) open buyer agency contract.

Answer 182

B) Exclusive agency buyer agency contract.

Question 183

A real estate broker learns that her neighbor wishes to sell his house. The broker knows the property well and is able to persuade a buyer to make an offer for the property. The broker then asks the neighbor if she can present the offer, and the neighbor agrees. At this point, which statement is TRUE?
A) The neighbor is not obligated to pay the broker a commission.
B) The neighbor is obligated to pay the broker a commission for producing an offer to purchase.
C) The broker may not be considered the procuring cause without a written contract.
D) The buyer is obligated to pay the broker for locating the property.

Answer 183

A) The neighbor is not obligated to pay the broker a commission.

Question 184

The difference between a term loan and a partially amortized loan is the
A) term loan will have a smaller monthly payment with a larger balloon.
B) partially amortized loan will have a lower payment and balloon.
C) partially amortized loan payment will pay the loan in full with the final payment.
D) term loan will have a larger payment and a smaller balloon.

Answer 184

A) term loan will have a smaller monthly payment with a larger balloon.

Question 185

Which of the following is an example of private property controls?
A) All homes must be set back at least 30’ from the street
B) Only single family residences can be built in the area
C) Fences in the subdivision must all be white pickets
D) Fences may not exceed 6’ in height

Answer 185

C) Fences in the subdivision must all be white pickets

Question 186

Height of fences, setbacks and what type of property is allowed fall under

Answer 186

zoning or public controls.

Question 187

A buyer who owns the property in equity has a(n)
A) liquidated damages contract.
B) lease.
C) executory contract.
D) option contract.

Answer 187

C) executory contract.

Question 188

A buyer’s agent notices that the seller’s property disclosure form provided to him by the listing broker is NOT complete as some of the boxes indicating structural damage have NOT been checked. What should the buyer’s agent do?
A) File a complaint against the sellers with the state real estate commission.
B) Contact the sellers directly and question them about the form.
C) Contact the listing broker and request a properly completed disclosure form.
D) Advise the buyers that a property inspection will uncover any structural problems.

Answer 188

C) Contact the listing broker and request a properly completed disclosure form.

Question 189

The listing price of a property was $135,000. The buyer made an offer of 90% of the listing price, which was accepted by the sellers. The property appraised for the offer price and the buyers secured an 85% loan at 9% interest for 30 years. How much interest will be paid in the first payment?

Answer 189

$774.56.

$135,000 × 90% (.90) = $121,500 Sales price
$121,500 × 85% (.85) = $103,275 Loan amount
$103,275 × 9% (.09) = $9,294.75 Annual interest
$9,294.75 ÷ 12 = $774.56

Question 190

Upon acceptance and communication of acceptance, an offer is considered

Answer 190

a contract

Question 191

Under current regulations, a VA loan is assumable if the
A) VA approves the buyer only.
B) VA approves both the buyer and the assumption agreement.
C) VA approves the assumption agreement only.
D) veteran agrees not to request a release of liability for repayment.

Answer 191

B) VA approves both the buyer and the assumption agreement.

Question 192

A property owner conveys a life estate to his brother for the brother’s lifetime and designates his cousin as the person to whom the property will pass when the life estate ends. When the brother dies, what happens to the property?

Answer 192

The cousin automatically becomes the fee simple owner of the property.

Question 193

All of the following would require an appraisal EXCEPT
A) A VA loan
B) A seller carry loan
C) A new conventional loan
D) A FHA loan

Answer 193

B) A seller carry loan

Question 194

The buyer had a 20% down payment on a property she purchased for $89,500. She also must pay a 1% origination fee, $350 for title insurance, and one discount point. How much money will the buyer owe at the closing?

Answer 194

19,682.

Step 1, determine the loan amount $89,500 × 80% (.80) = $71,600. Step 2, determine the down payment $89,500 – 71,600 = $17,900. Determine the points and origination fee $71,600 × 1% (.01) = $716

$17,900 down payment

$716 Discount points

$716 Origination fee

$350 insurance

$19,682 Total due at closing

Question 195

A brokerage represents the owner in the sale of the owner’s property, which has a salesperson acting as the listing agent. Which of the following events will terminate that agency relationship?
A) During the listing, the salesperson dies.
B) The broker engages other brokers to help sell the property.
C) The owner abandons the property.
D) During the listing, the owner of the property dies.

Answer 195

D) During the listing, the owner of the property dies.

Question 196

An offer was made for 90% of the $120,900 list price of a property. The offer was accepted, and the lender agreed to negotiate an 80% loan at 8% interest for 30 years. The buyer had a $5,000 earnest money deposit, paid $350 for title expenses, $250 for attorney fees, and had other expenses of $749. How much money does the buyer need to close on the property?

Answer 196

$18,111.

$108,810 × 90% (.90) = $120,900

$87,048 × 80% (.80) = $108,810

Debits Credits

$108,810 $87,048

$350 $5,000

$250

$749

$110,159 $92,048

$110,159 -$92,048 = $18,111

Question 197

Typically trust accounts are the name of

Answer 197

the firm and principal broker.

Question 198

Three years ago a couple moved from the house they had owned for 20 years but did not sell it. They decided to travel and bought a mobile home as their residence. They now decide to sell the house. How much of their capital gain on the house will be taxable?
A) 15%, depending on their tax bracket.
B) All of it, if the capital gain is over $500,000.
C) 28%, depending on their tax bracket.
D) None of it, if the capital gain is less than $500,000.

Answer 198

D) None of it, if the capital gain is less than $500,000.

Question 199

All of the following are true about contingencies EXCEPT
A) they must be worded loosely to allow reasonable satisfaction.
B) they must be met within the time given in the contract.
C) they must identify who will pay for any costs involved.
D) common contingencies include finance and inspection contingencies.

Answer 199

A) they must be worded loosely to allow reasonable satisfaction.

Question 200

The seller told the buyer that the property had no roof leaks. But when the buyer had the property inspected, a roofing contractor found leaks and said they had been leaking for months. The contract between the seller and the buyer is probably

A) implied.
B) valid.
C) voidable.
D) void.

Answer 200

C) voidable.

Question 201

A broker has established the following office policy: “All listings taken by any salesperson associated with this real estate brokerage must include compensation based on a 10% commission. No lower commission rate is acceptable.” If the broker attempts to impose this uniform commission requirement, which statement is TRUE?
A) The salespeople associated with the brokerage will not be bound by the requirement and may negotiate any commission rate they choose.
B) The broker must present the uniform commission policy to the local professional association for approval.
C) A homeowner may sue the broker for violating the antitrust law’s prohibition against price-fixing.
D) The broker may, as a matter of office policy, legally set the minimum commission rate acceptable for the firm.

Answer 201

D) The broker may, as a matter of office policy, legally set the minimum commission rate acceptable for the firm.

Question 202

The clause in a contract that makes timely performance a condition of the contract is called the

Answer 202

time is of the essence clause.

Question 203

A landowner divided much of her land into smaller parcels and has recently sold a tract adjacent to a nature preserve. The preserve and the tract that was sold are landlocked and cannot be entered except through one of the other tracts still belonging to the landowner. The buyer of the tract will probably be granted what type of easement by a court action?

Answer 203

Easement by necessity

Question 204

All of the following clauses in a loan agreement enable the lender to demand that the entire remaining debt be paid immediately EXCEPT
A) an acceleration clause.
B) a due-on-sale clause.
C) an alienation clause.
D) a defeasance clause.

Answer 204

D) a defeasance clause.

Question 205

A pizza parlor rents space in a retail shopping center. Its owner bolts a large iron pizza oven to the floor to cook the pizzas. The oven is a(n)

Answer 205

trade fixture

Question 206

Which of the following is NOT considered by an appraiser using the income approach to value?
A) Annual net operating income
B) Depreciation
C) Capitalization rate
D) Annual gross income

Answer 206

B) Depreciation

Question 207

Depreciation is one of the calculations used in the

Answer 207

cost approach and not in the income approach

Question 208

Designated agency will MOST likely occur under what circumstance?
A) The buyer is a client of the firm and the seller is the customer of the firm.
B) The seller and the buyer are represented by different brokerage firms.
C) The buyer and the seller in the same transaction are both represented by the same brokerage firm.
D) Both the buyer and the seller are customers of the firm.

Answer 208

C) The buyer and the seller in the same transaction are both represented by the same brokerage firm.

Question 209

When appraising a commercial property, the appraiser is MOST concerned with the
A) sales prices of comparable properties.
B) accrued depreciation on the property.
C) total debt service on the property.
D) income generated by the property.

Answer 209

D) income generated by the property.

The appraiser is most concerned with the income generated by the property in estimating the value of the property.

Question 210

A buyer’s agent knows that a property has been on the market for a time longer than normal for the neighborhood and type of house. Her buyer decides to write an offer above the listed price of the home because the buyer is in a hurry to find a home and move in. The buyer’s agent does not mention to the buyer the length of time the home has been on the market. Has the buyer’s agent violated any duties to the buyer?
A) No, because the agent has served the buyer’s interest in finding a suitable home that the buyer wants to purchase.
B) Yes, because the license law requires agents to disclose the length of time on the market to all parties in a transaction.
C) Yes, the agent should disclose the time on the market as that fact creates a more favorable opportunity for the buyer to offer a lower price.
D) No, because the agent is not required to disclose that information to any party in the transaction.

Answer 210

C) Yes, the agent should disclose the time on the market as that fact creates a more favorable opportunity for the buyer to offer a lower price.

Question 211

When a married couple who file a joint tax return sell a principal residence, up to(__?__)in profit (sales price minus purchase price) can be excluded from capital gains tax.

Answer 211

$500,000

Question 212

All of the following are true about radon EXCEPT
A) radon levels will vary in certain weather conditions.
B) radon levels can be reduced by installing ventilation systems.
C) it is colorless, odorless, and tasteless.
D) modern home construction reduces the potential for radon gas accumulation.

Answer 212

D) modern home construction reduces the potential for radon gas accumulation.

Question 213

Which of the following would be considered a trigger item under Regulation Z?
A) “FHA financing available.”
B) “A steal at only $175,000!”
C) “Only $10,000 down.”
D) “Low monthly payments.”

Answer 213

C) “Only $10,000 down.”

Specific credit terms, such as a down payment, monthly payment, dollar amount of the finance charge, or term of the loan, are referred to as trigger items. If such items are included in any advertisement, the advertisement must include additional information required by the regulation.

Question 214

If a circular property has a diameter of 50’ and costs $120 per square foot, what is the cost of the property?
A)
$235,620
B)
$1,235,620
C)
$942,480
D)
$2,356,200

Answer 214

$235,620.
A = 3.1416 × 25’ × 25’ = 1,963.5 sq. ft.
A = 1,963.5 sq. ft. × $120 = $235,620

Question 215

Title insurance covers defects found after closing and not listed on the title commitment. Hidden defects found after closing are covered by title insurance. This would include all of the following EXCEPT
A) a recorded mortgage satisfaction document.
B) a claim to ownership by the spouse of a former owner.
C) an incorrect legal description.
D) a wrong name on a recorded deed.

Answer 215

A) a recorded mortgage satisfaction document.

Question 216

A salesperson representing a buyer is told that the buyer plans to operate a dog-grooming business out of any house he buys. The salesperson does tell the buyer to verify local zoning ordinances to determine in which parts of town such a business can be conducted. Which duty does the salesperson violate?
A) Loyalty
B) Care
C) Disclosure
D) Obedience

Answer 216

B) Care

Question 217

Rising mortgage rates are an example of
A) incurable depreciation.
B) external obsolescence.
C) curable depreciation.
D) functional obsolescence.

Answer 217

B) external obsolescence.

Question 218

When a landowner takes an easy route to his own property over a neighbor’s land without the neighbor’s knowledge for an extended period of time, the landowner may have acquired a(n)
A) easement by prescription.
B) easement by necessity.
C) license.
D) title by eminent domain.

Answer 218

A) easement by prescription.

Question 219

The provision in a mortgage or deed of trust that permits the lender upon the default of the borrower to proceed to a foreclosure sale without a court action is the

Answer 219

power-of-sale clause.

Question 220

A contract that conveys the right to quiet enjoyment and use of property but does NOT convey title is a

Answer 220

lease.

Question 221

A homeowner sold his property for $99,500. He paid a real estate commission of 6%, paid an attorney $250, paid a transfer tax of $99.50, paid his existing mortgage of $50,140, and agreed to a purchase money mortgage of $10,000. What were his net proceeds at the closing?

Answer 221

$33,040.50.

$99,500 × 6% (.06) = $5,970

Debits Credits

$5,970.00 $99.500

$250

$99.50

$50,140

$10,000

$66,459.50

$99.500 - $66,459.50 = $33,040.50

Question 222

A broker discovers the previous owner of a home she has listed died of AIDS. The broker
A) may disclose the fact if asked by a prospective buyer.
B) should consult an attorney to determine if the fact creates a stigmatized property.
C) must disclose the fact to prospective buyers.
D) may not disclose that the previous owner died of AIDS.

Answer 222

D) may not disclose that the previous owner died of AIDS

A disclosure that a property owner or occupant died of AIDS is illegal discrimination against the handicapped under the federal Fair Housing Act.

Question 223

A salesperson working with a customer knows that the neighborhood he is showing is very near an airport with low flying planes that create a lot of noise. The salesperson should disclose the level of airplane noise in the neighborhood because it is
A) material information.
B) a material defect.
C) a material breach.
D) a material fact.

Answer 223

D) a material fact.

Question 224

A deed of trust differs from a mortgage in the
A) time period permitted to cure a default.
B) obligation of the borrower to repay the funds.
C) redemption rights allowed after foreclosure.
D) number of parties involved in the loan.

Answer 224

D) number of parties involved in the loan.

Question 225

The buyer has been informed in the title work that there is an easement on the property he has under contract. At closing what will happen with the easement?
A)The easement will transfer with the deed but can be revoked once the buyer is in title.
B) The buyer needs to send the seller notice to terminate the easement before closing in order to have it removed.
C) If the buyer’s attorney sends a lis pendens with a notice of revocation, the easement will terminate upon transfer of the title.
D) The easement will transfer with the title with the buyer’s only choice being to terminate the purchase contract if the easement is an issue.

Answer 225

D) The easement will transfer with the title with the buyer’s only choice being to terminate the purchase contract if the easement is an issue.

Question 226

The seller has completed a property disclosure for an “as is” sale, which states all items are in working order. After closing the buyer finds out the sewer system has had long-term problems. The person or persons MOST likely to be held responsible for the misrepresentation is the
A) no one since it is an “as is” sale.
B) seller.
C) listing broker and seller.
D) buyer’s broker.

Answer 226

B) seller.

Question 227

A tire company has a manufacturing plant located in an area that has just been rezoned for residential use. The company is allowed to continue operating the plant under the new zoning classification as a nonconforming use. However, if the plant is destroyed by fire or other hazard, the tire company MOST likely
A) could rebuild the plant in that neighborhood by applying for a zoning variance.
B) would not be allowed to rebuild the plant in that location under any circumstances.
C) could construct another plant without the residents’ consent as long as the homeowners’ association approves it.
D) could construct another plant by obtaining the consent of the residents then living in the neighborhood.

Answer 227

B) would not be allowed to rebuild the plant in that location under any circumstances.

Question 228

Under an exclusive agency listing, the listing broker would be entitled to a commission EXCEPT
A) if a salesperson from a cooperating brokerage secures a qualified buyer for the property.
B) if the broker sells the property himself.
C) if the seller sells the property himself to a relative moving from out-of-town.
D) if another co-op broker secures a qualified buyer for the property.

Answer 228

C) if the seller sells the property himself to a relative moving from out-of-town.

Question 229

When a lien against a parcel of real estate may result from a lawsuit currently before the court, someone examining the public records would look for
A) a judgment lien.
B) the chain of title.
C) a lis pendens.
D) a suit to quiet title.

Answer 229

C) a lis pendens.

Question 230

In a real estate transaction, the term fiduciary typically refers to the

Answer 230

agent’s relationship to the principal.

Question 231

Federal law is silent on the size of housing, the state law states all residences must be at least 700 square feet. The city states the minimum allowed for residential property is 500 square feet and the subdivision covenants require at least 1,000 square feet. Which rule will apply to new building within the subdivision?
A) The city law
B) The federal law
C) The covenants
D) The state law

Answer 231

C) The covenants

Question 232

Real estate law governing advertising apply to all of the following EXCEPT
A) communications with consumers
B) Social media
C) MLS systems
D) In house notes for showing

Answer 232

D) In house notes for showing

Question 233

A landlord has discovered that the tenant who has applied for a unit has a history of alcoholism and violence. The landlord
A) must rent on a provisional basis as long as the tenant agrees to regular drug testing.
B) must rent to the violent tenant since alcoholism is covered under disability.
C) must rent to the tenant but can charge an additional damage deposit.
D) may refuse to rent to the tenant because of the tenant’s history of violence.

Answer 233

D) may refuse to rent to the tenant because of the tenant’s history of violence.

Question 234

A woman owns one of 20 town houses in a new development in fee simple, along with a 5% ownership share in the parking facilities, recreation center, and grounds. What type of property does he own?
A) Condominium
B) Cooperative
C) Land trust
D) Time-share

Answer 234

A) Condominium

Question 235

Change, contribution, and substitution are some of the basic principles that affect what aspect of real estate?

Answer 235

Value

Question 236

An option to purchase binds which of the following parties?
A) Seller only
B) Buyer only
C) Neither buyer nor seller
D) Both buyer and seller

Answer 236

A) Seller only