Practice Test

Question 1

Which of the following would be defined as real estate as opposed to real property?

• Wells, driveways, and signs on a parcel of land.
• Mobile homes temporarily parked on a parcel of land.
• Timber that has been cut and is lying on a parcel of land.
• Business equipment an owner or tenant has placed on a parcel of land.

Answer 1

Wells, driveways, and signs on a parcel of land.

Question 2

Which of the following would be considered an improvement?

An alteration to land to make it more useful.
An upgrading of a structure to enhance its value.
A chicken coop permanently attached to land.
A parcel of land that has passed a percolation test.

Answer 2

A chicken coop permanently attached to land.

Question 3

Which of the following best describes the physical boundaries of land?

• The surface of the earth and infinite space above the surface.
• The center of the earth and infinite space above the earth.
• The surface of the earth and all water and minerals on or below the surface to the center of the earth.
• The surface of the earth and the air rights above the surface to the point defined by local zoning.

Answer 3

The center of the earth and infinite space above the earth.

Question 4

The “bundle of rights” refers to a set of rights

• enjoyed by the owner of a property.
• that is synonymous with the Bill of Rights.
• guaranteed to citizens by the Statute of Rights.
• specified in a deed or land contract

Answer 4

enjoyed by the owner of a property.

Question 5

Which of the following best describes the legal concept of personal property?

• Any item which is acquired in a fee simple sale transaction.
• Any item of property that is not definable as real property.
• Any movable property owned by an individual, partnership, or corporation.
• Any item that is not a natural item affixed to the earth.

Answer 5

Any item of property that is not definable as real property.

Question 6

The right to encumber a property means that the owner can

sell the property to an encumbered party.
pledge the property as collateral for debt
lease the property.
assign the bundle of rights to another.

Answer 6

pledge the property as collateral for debt

Question 7

A property owner leases 60 acres of agricultural land for a renewable period of 5 years. In the context of real estate rights, this lease represents a(n)

• transfer of a portion of the bundle of rights.
• encroachment on the bundle of rights.
• conveyance of the complete bundle of rights.
• encumbrance of the tenant’s rights.

Answer 7

transfer of a portion of the bundle of rights.

Question 8

A homeowner is very upset over a drone that a neighbor flies over his house. He takes his case to court to end this possible violation of rights. Does he have a case, and on what basis?

• No. The neighbor is not physically on his property.
• No. The drone is in the air, so he cannot exercise any surface rights.
• Yes. The owner has the right to stop encroachments.
• Yes. The drones infringe on his air rights.

Answer 8

Yes. The drones infringe on his air rights.

Question 9

Littoral rights apply to which of the following?

• Boatable ponds entirely contained within the boundaries of an owner’s property.
• Streams and rivers.
• Navigable lakes, seas, and oceans.
• Navigable streams and rivers.

Answer 9

Navigable lakes, seas, and oceans.

Question 10

A retired couple has just bought a retirement home with a pier on a large lake. In this case the retirees’ water rights extend to

• the high water mark of the body of water at the shoreline.
• the low water mark of the body of water at the shoreline.
• the center of the lake.
• the end of the pier.

Answer 10

the high water mark of the body of water at the shoreline.

Question 11

A waterfront homeowner has just died. What will become of the water rights the owner enjoyed while living in the home?

• They revert to the state when the property is sold.
• They are inherited by the homeowner’s heirs.
• They are a personal right belonging to an individual owner, not attaching to the real property.
• They transfer with the property when the property is sold.

Answer 11

They transfer with the property when the property is sold.

Question 12

Riparian rights concern which of the following bodies of water?

Lakes.
Seas and oceans.
Streams and rivers.
Navigable lakes.

Answer 12

Streams and rivers.

Question 13

Which of the following best describes a “fixture?”

• Any item of personal property positioned within the boundaries of a parcel of real estate.
• An item of personal property that has been converted to real property.
• An item of real property temporarily placed on land for the purpose of conducting a business.
• An item of personal property that has been left in one location for a period of six months.

Answer 13

An item of personal property that has been converted to real property.

Question 14

An item may be considered personal property as opposed to real property provided that

• The owner intended to remove it after a period of time.
• It can be removed without altering the appearance of the structure
• It is unnecessary to the physical integrity of the structure
• The owner installed it at some time after acquiring the real property.

Answer 14

the owner intended to remove it after a period of time.

Question 15

Two people own a house, each having an undivided equal interest. Which of the following best describes what each party owns?

• Fifty percent of the physical house and the land it rests on.
• One hundred percent of the home and the land.
• Fifty percent of the estate consisting of the indivisible whole of the real property.
• Each owns one hundred percent of the estate represented by the real property and fifty percent of the physical house and the land it rests on.

Answer 15

Fifty percent of the estate consisting of the indivisible whole of the real property.

Question 16

A real property interest that includes the right to possess is considered

an estate in land.
a leasehold estate.
a fee simple estate.
the bundle of rights.

Answer 16

an estate in land.

Question 17

The right to control land usage by zoning and eminent domain is an example of

a public interest.
a police interest.
an encumbrance.
an estate in law.

Answer 17

a public interest.

Question 18

If the duration of an owner’s rights in an estate is not determinable, the owner has

a tenancy at sufferance
a leased fee simple estate
a freehold estate.
a leasehold estate.

Answer 18

a freehold estate.

Question 19

The distinguishing feature of a leasehold estate is

• ownership of an interest by a tenant
• temporary ownership of the full bundle of rights in a property
• unlimited ownership of one right in the bundle of rights in a property
• that the estate is limited by a lease term.

Answer 19

that the estate is limited by a lease term.

Question 20

A landowner conveys a parcel of property with the provision that the land cannot be developed for retail purposes. The new owner immediately begins to develop a retail shopping outlet, the grantor finds out and takes the property back. What kind of estate did this landowner convey?

Fee simple absolute.
Life estate with reversion.
Life estate with condition subsequent.
Fee simple defeasible

Answer 20

Fee simple defeasible

Question 21

Ned grants his sister Alice an estate for as long as she lives. Her descendants, however, cannot inherit the estate. What kind of estate is it?

An estate pur autre vie.
An estate for years.
An ordinary life estate.
A legal life estate.

Answer 21

An ordinary life estate.

Question 22

Homestead estates are examples of

• a conventional life estate.
• a legal life estate.
• an estate created by an owner’s agreement.
• a fee simple absolute.

Answer 22

a legal life estate.

Question 23

Louis owned a boat and a house before marrying Barbara. While she was single, Barbara owned a new car. The two got married and bought a second home. As a wedding present, Barbara’s father bought Louis a motorcycle. Under the law of community property, what property can Louis sell without his wife’s consent or signature?

The boat and house.
The boat, house, and motorcycle.
The second home and the motorcycle.
The boat and motorcycle

Answer 23

The boat, house, and motorcycle.

Question 24

Katelyn rents an apartment for one year. What rights has she acquired under the leasehold?

The right to exclude everyone from the premises.
The right to encumber the fee interest
The right to sell the premises.
The right to possess and use the premises

Answer 24

The right to possess and use the premises

Question 25

An estate from period-to-period will continue as long as

• the tenant makes, and landlord accepts, regular rent payments
• the term specified in the lease.
• the period is less than a year.
• the landlord has not sold the property.

Answer 25

the tenant makes, and landlord accepts, regular rent payments

Question 26

An estate at will

• Cannot be terminated.
• Is terminated only if so stated in the lessee’s last will and testament
• Terminates on the death of lessor or lessee.
• Terminates on the date specified in the lease agreement

Answer 26

terminates on the death of lessor or lessee.

Question 27

A tenant continues to occupy an apartment after lease expiration without the consent of the landlord. This type of estate is called

an estate at sufferance.
a holdover estate.
a canceled leasehold
a hostile leasehold

Answer 27

an estate at sufferance.

Question 28

A tenant without a lease has been sending the landlord monthly rent checks, and the landlord continues to accept the payments. What kind of leasehold estate exists?

Estate for years.
Estate from period to period
Estate at will.
Estate at sufferance

Answer 28

Estate from period to period

Question 29

A fee or life estate is held by an individual. This form of estate is referred to as a(an)

tenancy in severalty.
tenancy by the entireties.
absolute fee simple.
legal fee simple.

Answer 29

tenancy in severalty.

Question 30

Six people have identical rights in a property and enjoy an indivisible interest. However any of the owners may sell or transfer his/her interest without consent of the others. This form of ownership is a

joint tenancy.
homestead ownership.
tenancy in common
estate in severalty

Answer 30

tenancy in common

Question 31

The “four unities” required to create a joint tenancy include which of the following conditions?

• Parties must acquire respective interests at the same time
• Parties must be residents of the same state at the time of acquiring the interest
• Parties must be family members.
• Parties must have joint financial responsibility

Answer 31

Parties must acquire respective interests at the same time

Question 32

Unlike tenants in common, joint tenants

• own distinct portions of the physical property
• cannot sell their interest to a party outside the tenancy
• may own unequal shares of the property.
• cannot encumber their interest to outside parties.

Answer 32

cannot sell their interest to a party outside the tenancy

Question 33

Which of the following life estates is created by operation of law rather than by the owner?

Conventional life estate.
Ordinary life estate
Legal life estate.
Community property life estate.

Answer 33

Legal life estate.

Question 34

Which of the following is true of a homestead?

• A homestead interest cannot be conveyed by one spouse.
• A homestead interest cannot be passed to the children of the head of household.
• A homestead interest is a form of conventional life estate.
• A homestead is a primary or secondary residence occupied by a family.

Answer 34

A homestead interest cannot be conveyed by one spouse.

Question 35

A tenant in common can

• sell or transfer his interest without the consent of the other tenants in common.
• use his or her interest in the estate to encumber the entire estate.
• sell, encumber or transfer his or her interest only to the other tenants in common.
• sell, encumber or transfer his or her interest only with the consent of all the other tenants in common

Answer 35

sell or transfer his interest without the consent of the other tenants in common.

Question 36

If a co-owner in a joint tenancy or tenancy in common wants to dispose of his or her interest against the wishes of the other co-owners, the co-owner can

• sue to extinguish the tenancy and partition the property
• deed the property to himself or herself as a tenancy in severalty
• create a trust with himself or herself as sole beneficiary
• abandon the property.

Answer 36

sue to extinguish the tenancy and partition the property

Question 37

When real property is held in a land trust, who controls the property?

The trustor
The trustee
The beneficiary
The mortgagee

Answer 37

The trustor

Question 38

In a community property state, John marries Patricia. Prior to the marriage John owned an SUV. During the marriage, John bought a Buick, John and Patricia bought a second property with money earned from Patricia’s job, and each individual received a motorcycle from Patricia’s uncle as a gift. What property is community property in this marriage?

The SUV, the Buick, and the second property
The SUV, the Buick, the second property, and the motorcycles.
The Buick and the second property
The Buick, the second property, and the motorcycles.

Answer 38

The Buick and the second property

Question 39

Which of the following is true of a cooperative?

• A cooperative may hold an owner liable for the unpaid operating expenses of other tenants
• The owners have a fee simple interest in the airspace of their respective apartments.
• Owners may sublease their apartments even if they sell their stock in the cooperative.
• The proprietary lease is guaranteed to have a fixed rate of rent over the life of the lease term.

Answer 39

A cooperative may hold an owner liable for the unpaid operating expenses of other tenants

Question 40

Which of the following is true of a tenancy in common?

• The co-owners must be related.
• The owners enjoy an indivisible interest.
• The tenants must acquire their interests at the same time.
• The tenants must pay equal amounts for their interest in the estate.

Answer 40

The owners enjoy an indivisible interest.

Question 41

Carissa and Robert acquire a condominium as tenants in common. In this circumstance, Carissa can

• sell her interest to a third party without the consent of Robert
• use her interest in the estate to mortgage the entire estate.
• sell her interest only to Robert.
• sell encumber or transfer her interest only with the consent of Robert.

Answer 41

sell her interest to a third party without the consent of Robert

Question 42

When a tenant in common dies, what happens to the tenant’s interest in the estate?

• It is divided equally among the surviving tenants in common.
• The surviving tenants must buy the interest from the deceased tenant’s heirs or sell their interests to the heirs.
• It becomes a joint tenancy.
• It passes by probate to the deceased tenant’s heirs.

Answer 42

It passes by probate to the deceased tenant’s heirs.

Question 43

Which of the following is true of a joint tenancy?

• The tenants can determine the size of the share owned by each tenant.
• The size of the tenant’s shares is determined by the amount of equity each has invested in the property.
• The tenants have an equal and indivisible ownership interest.
• There can be no more than two co-owners, and each has a fifty percent interest.

Answer 43

The tenants have an equal and indivisible ownership interest.

Question 44

In contrast to a tenancy in common, in a joint tenancy

• There is a single title to the property.
• There are as many titles to the property as there are co-owners.
• Title is held by a trustee.
• Co-owners who are married hold separate titles

Answer 44

there is a single title to the property.

Question 45

If a joint tenant sells his or her interest to an outside party,

• The new owner becomes a tenant in common with the other owners, who continue to hold a joint tenancy with each other and a tenancy in common with the new owner.
• There is a single title to the property.
• The joint tenancy terminates and all owners become tenants in common
• The joint tenancy terminates and the owners must create a new joint tenancy to include the new owner.

Answer 45

the new owner becomes a tenant in common with the other owners, who continue to hold a joint tenancy with each other and a tenancy in common with the new owner.

Question 46

When a joint tenant dies, what happens to the tenant’s interest in the estate?

• It passes to the decedent’s heirs, who become joint tenants.
• It passes as a tenancy in common to the decedent’s heirs.
• The joint tenancy terminates and becomes a tenancy in common with the decedent’s heirs and the surviving tenants as co-owners.
• It passes to the surviving joint tenants.

Answer 46

It passes to the surviving joint tenants.

Question 47

Under what conditions can two individuals own a property as tenants by the entireties?

If they so elect at the time of acquiring title.
If they are blood relatives.
If they are married.
If they incorporate

Answer 47

If they are married.

Question 48

When an estate is held in a trust, which party holds legal title?

The beneficiary.
The trustor.
The trustee.
The grantor.

Answer 48

The trustee.

Question 49

Tanya buys a 4-bedroom condominium. As the new owner, she has the right to

• sell or mortgage the unit without impediment from individual owners of neighboring units
• sell the interest in the physical unit separately from the interest in the common elements.
• prevent non-owners from using the unit owner’s portion of the common elements.
• exclusively possess and use those portions of the common areas structurally or functionally necessary for the operation of the unit.

Answer 49

sell or mortgage the unit without impediment from individual owners of neighboring units

Question 50

A condominium owner’s share of maintenance and operations expenses are based on

the unit’s pro rata share of floor space.
the unit’s pro rata share of the property value as defined in the declaration
the number of shares the owner purchased in the condominium association
the assessed value of the condominium unit.

Answer 50

the unit’s pro rata share of the property value as defined in the declaration

Question 51

By contrast to a condominium, the owner of a cooperative owns

• shares in a corporation or association and a proprietary lease in a physical unit.
• a fee simple interest in a physical unit plus a tenancy in common in common elements.
• a tenancy in common in a physical unit and the common areas.
• a ground lease in the physical unit’s pro rata share of land and a proprietary lease in the unit.

Answer 51

shares in a corporation or association and a proprietary lease in a physical unit.

Question 52

In a cooperative, real property is owned only by

• the individual unit owners.
• the individual unit owners and the cooperative association.
• the cooperative developer.
• the corporate entity of the cooperative association

Answer 52

the corporate entity of the cooperative association

Question 53

In a time-share freehold, owners acquire

• undivided interests in the property as tenants in common.
• a renewable periodic tenancy from for a portion of a year.
• a pro rata share of a leased fee.
• a tenancy in severalty for a portion of a year.

Answer 53

undivided interests in the property as tenants in common.

Question 54

Which of the following is true of easements in general?

• They involve the property that contains the easement and a non-owning party
• They apply to a whole property, not to any specific portion of the property
• They only involve the legal owner of the property.
• They may require a specific use, but cannot prohibit one.

Answer 54

They involve the property that contains the easement and a non-owning party

Question 55

Mr. King wants to offer 100 acres of his property for sale. Since the property is landlocked, he will have to put in a driveway to the road that will run across his remaining property. What kind of easement will he have to grant?

• An easement in gross.
• A commercial easement.
• A personal easement
• An easement appurtenant

Answer 55

An easement appurtenant

Question 56

If property Alpha has a court-ordered easement across property Beta in order for Alpha to have access to a public road, the easement is a(n)

• easement by prescription.
• personal easement.
• easement by necessity.
• easement in gross.

Answer 56

easement by necessity.

Question 57

An encroachment is

• An easement that has not been recorded on the title of the burdened property.
• An unauthorized physical intrusion of one property into another.
• A right granted by a property owner to the owner of an adjoining property to build a structure that protrudes across the property boundary.
• A structure that does not comply with a zoning ordinance

Answer 57

an unauthorized physical intrusion of one property into another.

Question 58

A court might grant an easement by prescription if

• A town needs to dig a trench across an owner’s property to install a sewer line to a neighboring property, and the owner refuses permission.
• A property owner sells the front half of a lot and wants to continue using the driveway to access the rear of the lot.
• A trespasser has been using an owner’s property for a certain period with the owner’s knowledge but without permission.
• A property owner wants to prevent the owner of an adjoining property from building a an improvement that blocks her view.

Answer 58

a trespasser has been using an owner’s property for a certain period with the owner’s knowledge but without permission.

Question 59

The purpose of a deed restriction is to enable an owner to specify

• The form of ownership in which a property may be held.
• How long a property must be owned before it can be legally transferred.
• What groups of people are legally excluded from future ownership of a property.
• How a property may be used and what improvements may be built on it.

Answer 59

how a property may be used and what improvements may be built on it.

Question 60

Melinda purchases a house and finances it. The lender in turn places a lien on Melinda’s title. The lien in this mortgage transaction is

• evidence of debt incurred by a property owner.
• a promissory note granted by a property owner as security for a debt.
• the creditor’s claim against the property as collateral security for the loan.
• the document required to clear clouded title.

Answer 60

the creditor’s claim against the property as collateral security for the loan.

Question 61

In a lien-theory state, what kind of interest does a mortgage lender have in the liened property?

A possessory interest.
A tenancy-by-mortgagee interest.
A legal interest in a pro rata share of the property.
An equitable interest.

Answer 61

An equitable interest.

Question 62

How is a lien terminated?

• Payment of the debt that is the subject of the lien and recording of the satisfaction.
• Transfer of the property that has the lien.
• Recording of another lien that is superior
• Death of the lienor or lienee.

Answer 62

Payment of the debt that is the subject of the lien and recording of the satisfaction.

Question 63

A judge rules in favor of the creditor in a court proceeding and places a judgment lien against all the debtor’s assets, including his real property. This is an example of a(n).

voluntary junior lien.
involuntary superior lien.
involuntary specific lien.
involuntary general lien.

Answer 63

involuntary general lien.

Question 64

A real estate tax lien, a federal income tax lien, a judgment lien, and a mortgage lien are recorded against a property. Which lien will be paid first when the property is sold?

Real estate tax lien.
Federal income tax lien.
Judgment lien.
Mortgage lien.

Answer 64

Real estate tax lien.

Question 65

A lien holder can change the lien priority of a junior lien by agreeing to

change the date of recording
lower the amount of the claim.
cancel the lien.
subordinate the lien

Answer 65

subordinate the lien

Question 66

Which of the following accurately describes the act of foreclosure?

• A court-ordered acceleration of loan payments
• The final step in a bankruptcy filing.
• A proceeding to enforce a lien by forcing the sale or transfer of a secured property.
• A proceeding to take equitable title to a property that was liened as security for a mortgage loan.

Answer 66

A proceeding to enforce a lien by forcing the sale or transfer of a secured property.

Question 67

A property is secured by a mortgage that does not contain a “power of sale” clause. To foreclose, the lien holder will have to

file a deficiency suit.
file a foreclosure suit.
file a suit to quiet title.
obtain a quit claim deed.

Answer 67

file a foreclosure suit.

Question 68

A homeowner defaults on his mortgage loan. In the subsequent foreclosure action, the lender takes title to the liened property directly instead of initiating a court-ordered public sale. This is an example of

strict foreclosure
judicial foreclosure
non-judicial foreclosure.
deed in lieu of foreclosure

Answer 68

strict foreclosure

Question 69

A property owner gives Deanna permission to cross his property as a shortcut to her kindergarten school bus. One day the property owner dies. What right was Deanna granted originally, and will it survive the owner’s death?

• A personal easement in gross, which continues after the owner’s death
• An easement by prescription, which continues after the owner’s death
• A license, which continues after the owner’s death.
• A license, which terminates upon the owner’s death.

Answer 69

A license, which terminates upon the owner’s death.

Question 70

On two adjacent properties, there is an easement that allows property A to use the driveway that belongs to property B. Here, property A is said to be which of the following in relation to property B?

Subservient estate.
Servient tenement.
Senior tenant.
Dominant tenement.

Answer 70

Dominant tenement.

Question 71

A property owner who is selling her land wants to control how it is used in the future. She might accomplish her aim by means of

an injunction.
a deed restriction
an easement
a land trust

Answer 71

a deed restriction

Question 72

What distinguishes a lien from other types of encumbrance?

• It involves a monetary claim against the value of a property
• It lowers the value of a property.
• It is created voluntarily by the property owner.
• It attaches to the property rather than to the owner of the property

Answer 72

It involves a monetary claim against the value of a property

Question 73

Which of the following defines actual notice?

It is notice published in a newspaper
It is knowledge one could have or should have obtained
It is notice explicitly stated in a legal document.
It is knowledge received or imparted through direct experience

Answer 73

It is knowledge received or imparted through direct experience

Question 74

Which of the following defines constructive notice?

It is notice published in a newspaper.
It is knowledge one could have or should have obtained
It is notice explicitly stated in a legal document.
It is knowledge received or imparted through direct experience

Answer 74

It is knowledge one could have or should have obtained

Question 75

Ownership of real estate can be transferred voluntarily or involuntarily. The three ways title can be transferred voluntarily are by

grant, deed, and will
escheat, deed, and covenant
title certificate, will, and deed
sale contract, deed, and warrant of seizin

Answer 75

grant, deed, and will

Question 76

What is the function of recording a deed?

It makes the deed valid.
It causes title to pass.
It gives constructive notice of ownership
It removes all prior recorded encumbrances

Answer 76

It gives constructive notice of ownership

Question 77

The only clause that is actually required in a deed is the

habendum clause.
granting clause
reserving clause
tenendum clause

Answer 77

granting clause

Question 78

The type of deed that offers the grantee the fullest protection against claims to the title is the

general warranty deed
special warranty deed.
quitclaim deed.
bargain and defend deed

Answer 78

general warranty deed

Question 79

What is one of the purposes of a lawsuit to “quiet title”?

• To force the grantor to defend the title against a third party claim.
• To terminate a co-ownership estate when one co-owner is unwilling.
• To keep the owner’s name out of the title records.
• To have an encumbrance removed if the lienholder cannot prove its validity

Answer 79

To have an encumbrance removed if the lienholder cannot prove its validity

Question 80

Which of the following best describes the documentary stamp tax?

A transfer tax based on the price of the property being conveyed.
A tax a title company must pay in order to examine title records in the recorder’s office.
A tax collected by attorneys and paid to the state when transfer documents are prepared
A tax on stamps used to certify the authenticity of a conveyance

Answer 80

A transfer tax based on the price of the property being conveyed.

Question 81

The court proceeding that generally settles a decedent’s estate is called

testate.
probate.
escheat.
distribution.

Answer 81

probate.

Question 82

If an owner of real property dies intestate and has no legal heirs, what will happen to the property?

• It will escheat to the state or county
• It will transfer to the decedent’s executor
• It will be divided equally among adjoining property owners
• It will become a public easement.

Answer 82

It will escheat to the state or county

Question 83

A municipality wants to build a sewage treatment facility which will require the acquisition of several parcels of privately owned land. What legal power enables the municipality to buy the necessary properties, even against the owners’ wishes?

Estoppel.
Escheat.
Alienation.
Eminent domain.

Answer 83

Eminent domain.

Question 84

An adverse possessor must be able to successfully demonstrate that he or she has been

• openly possessing and claiming the property without the owner’s consent
• occupying the property without an occupancy permit
• using the property intermittently and without permission over a period of years
• building a permanent structure on the property

Answer 84

openly possessing and claiming the property without the owner’s consent

Question 85

A buyer has signed a contract to purchase a property, but is uncertain of the condition of the title. Which of the following parties is legally responsible for knowing the condition of the title?

The County Recorder.
The seller’s agent.
The buyer.
The mortgage lender.

Answer 85

The buyer.

Question 86

A break in the chain of title to a property results in

a clouded title.
a title plant.
a lien of indeterminate ownership
a duplicate title

Answer 86

a clouded title.

Question 87

Wayne and Leota obtain an insurance policy that protects them from liabilities and losses resulting from title defects. The kind of policy they bought is a

a homeowner’s insurance policy.
standard owner’s title insurance policy
lender’s title insurance policy
private mortgage insurance policy

Answer 87

standard owner’s title insurance policy

Question 88

An owner transfers title to a property to a buyer in exchange for a motorcycle. This is an example of

voluntary alienation.
involuntary liquidation.
hypothecation
1031 exchange

Answer 88

voluntary alienation.

Question 89

A person wishes to convey any and all interests in a property to another without assurance of the property’s marketability. This party would most likely use which of the following types of deed?

A sheriff’s deed.
A special warranty deed
A partition deed
A quitclaim deed.

Answer 89

A quitclaim deed.

Question 90

Jennifer owns a one-half interest in a condominium as a tenant in common with her business partner. If Jennifer has several heirs and dies without a will, the property will

• pass to the heirs by the laws of descent and distribution.
• escheat to the state.
• pass to the surviving spouse based on homestead law.
• pass to the surviving heirs according to the provisions of the will.

Answer 90

pass to the heirs by the laws of descent and distribution.

Question 91

A drifter secretly lives in an abandoned shack on a large ranch property. After twenty years, the person makes a claim of ownership to the shack and the land immediately surrounding it that he had cleared. This claim will likely be

upheld through adverse possession
upheld because of the length of possession
declined through the doctrine of prior appropriation
declined because possession was secretive

Answer 91

declined because possession was secretive

Question 92

To be marketable, title must be

insured.
free of undisclosed defects and encumbrances
abstracted by an attorney
guaranteed by a title certificate

Answer 92

free of undisclosed defects and encumbrances

Question 93

Which of the following types of leasehold estate lacks a specific term?

Estate for years.
Estate from period-to-period
Estate at will.
Estate by the entireties

Answer 93

Estate at will.

Question 94

A landlord generally has the right to enter the leased premises

• at any time without notice.
• for specified reasonable purposes
• provided the tenant gives prior permission
• only thirty days prior to lease expiration

Answer 94

for specified reasonable purposes

Question 95

When a tenant rents an apartment, he or she is usually responsible for

• compliance with the rules and regulations of the building
• payment for any alterations to the leased space.
• recording the lease in title records.
• occupying the premises throughout the lease term.

Answer 95

compliance with the rules and regulations of the building

Question 96

Under landlord-tenant laws, landlords must treat tenants fairly and honestly. In a residential leasehold, this requirement would include

• Insuring the tenant against loss of personal property.
• Providing required building support and services
• Guaranteeing that a fair rent is being charged.
• Insuring the property for the value of the leasehold.

Answer 96

providing required building support and services

Question 97

While a one-year lease is in effect, the tenant dies of a sudden illness. In this situation

• the lease automatically terminates.
• the tenant’s estate has the option of canceling the contract
• the landlord can record a lien against the leased fee interest.
• the tenant’s estate is still obligated under the lease.

Answer 97

the tenant’s estate is still obligated under the lease.

Question 98

Three students rent a house together, and all three sign a one-year lease. Six months later, two students move out. Which of the following is true of the remaining rent obligation?

• The remaining tenant is responsible for the full rent obligation
• The remaining tenant is responsible for one third of the rent obligation.
• The lease is cancelled due to abandonment. Therefore, the rent obligation is extinguished
• The departing tenants have no further rent obligation.

Answer 98

The remaining tenant is responsible for the full rent obligation

Question 99

A tenant transfers a portion of the leasehold interest to another party. The instrument that accomplishes this transfer is a(n)

deed.
novation.
sublease.
reconveyance

Answer 99

sublease.

Question 100

Vijay enters into a lease for his new store. The provisions of the lease require Vijay to pay the operating expenses of the premises such as janitorial and repair expenses. This is an example of a

gross lease.
percentage lease.
land lease.
net lease.

Answer 100

net lease.

Question 101

A tenant obtains a full-service lease where the landlord agrees to pay all operating expenses in exchange for an additional $5.00 rent per square foot. Another term for this lease is a(n)

gross lease.
proprietary lease.
exchange lease.
full service net lease.

Answer 101

gross lease.

Question 102

Which of the following circumstances is the most likely scenario for a ground lease?

• A developer wants to acquire a necessary parcel that separates two parcels she already owns.
• An owner-developer wants to retain ownership of the land portion of the improved real property
• A fast food company wants to place a restaurant in an existing building without buying either land or improvement
• A farmer wants to sell his property to a mining company

Answer 102

An owner-developer wants to retain ownership of the land portion of the improved real property

Question 103

A tenancy at will can usually be terminated by

either party giving proper notice.
either party without notice
a sublease, with the lessor’s approval
an assignment by the lessor

Answer 103

either party giving proper notice.

Question 104

Under the Uniform Residential Landlord and Tenant Act, if a lease does not state a clear expiration date, the lease is regarded as

invalid.
a tenancy from period-to-period
a tenancy at will
a tenancy for years

Answer 104

a tenancy from period-to-period

Question 105

The Uniform Residential Landlord and Tenant Act generally does not apply to

• a hotel.
• a single-family residence
• a unit in an apartment building that has fewer than ten units.
• a duplex in which the owner occupies one of the units.

Answer 105

a hotel.

Question 106

In executing a condominium lease, a tenant has acquired

• A temporary transfer of legal title
• A limited freehold interest in the air space of her unit
• A temporary possessory interest.
• A title conveyance in exchange for rent.

Answer 106

a temporary possessory interest.

Question 107

When a tenant acquires a leasehold estate through a lease, what does the property owner acquire?

A freehold estate for years
A reduced leasehold estate.
A defeasible estate.
A leased fee estate.

Answer 107

A leased fee estate.

Question 108

When an owner leases her property, she temporarily relinquishes the right to

transfer the property.
encumber the property
occupy the property.
maintain the property

Answer 108

occupy the property.

Question 109

Which of the following happens when a leased property is sold?

The buyer acquires title subject to the lease, which remains in effect.
The lease is cancelled.
The lease expires within thirty days unless renewed
A new lease is automatically executed.

Answer 109

The buyer acquires title subject to the lease, which remains in effect.

Question 110

If a lease does not state a specific ending date, when does it terminate?

Immediately, since it is an invalid lease.
After one year.
When either party gives proper notice.
Whenever the property is sold.

Answer 110

When either party gives proper notice.

Question 111

In accordance with the statute of frauds

• leases in excess of one year must be recorded to be enforceable
• oral leases are not enforceable
• a five-year lease must be in writing to be enforceable
• an unwritten lease is fraudulent

Answer 111

a five-year lease must be in writing to be enforceable

Question 112

Which of the following is true of a sublease?

• The subtenant takes over sole responsibility for performance of the original lease contract
• The original tenant retains primary responsibility for performance of the original lease contract
• It does not convey any of the leasehold interest
• It conveys the entire leasehold interest.

Answer 112

The original tenant retains primary responsibility for performance of the original lease contract

Question 113

Which of the following is true regarding master planning and zoning?

• The aggregate of zoning ordinances is the master plan.
• A master plan eliminates the need for zoning ordinances
• Master planning is a county-level function; zoning is limited to the city level.
• Zoning ordinances are a primary means of keeping land use in harmony with the master plan

Answer 113

Zoning ordinances are a primary means of keeping land use in harmony with the master plan

Question 114

The basic intent of zoning ordinances is to

• Establish the basis for public ownership of land for the common good
• Establish subdivision rules and regulations.
• Specify usage for every parcel within the zoning authority’s jurisdiction
• Restrict development in unincorporated areas.

Answer 114

specify usage for every parcel within the zoning authority’s jurisdiction

Question 115

Why do zoning authorities create different types of zones?

• To ensure that a variety of building structures are available in the community
• To separate land uses so that they do not interfere with each other.
• To preserve high density land uses.
• To discourage industrial and commercial users from relocating.

Answer 115

To separate land uses so that they do not interfere with each other.

Question 116

What is a buffer zone?

• A transitional zone between a residential zone and a commercial zone.
• An area zoned as a public park.
• A temporary zone created to allow users to come into compliance with a change in zoning
• A zone around the boundaries of a municipality.

Answer 116

A transitional zone between a residential zone and a commercial zone.

Question 117

The intensity of land usage generally refers to what?

The number of residential building lots per acre.
The number of people per square mile.
The number of building permits issued per year within a zoning jurisdiction.
The area of a commercial or industrial facility in relation to the size of the site

Answer 117

The area of a commercial or industrial facility in relation to the size of the site

Question 118

How does Planned Unit Development zoning vary from ordinary zoning?

• It applies only to office parks.
• It incorporates a number of different zones within a single property boundary.
• It requires that multiple tracts of land be developed according to a single design.
• It requires developers to obtain a separate building permit for every structure.

Answer 118

It requires that multiple tracts of land be developed according to a single design.

Question 119

Which of the following situations is most likely to represent an illegal nonconforming use?

• A homeowner in a residential zone converts her residence to a private school.
• A homeowner builds a toolshed in a neighborhood where there are no toolsheds.
• A storeowner remodels a storefront in accordance with regulations, and then the zoning is changed to residential.
• A new zoning ordinance outlaws two-story additions after a homeowner completes an addition

Answer 119

A homeowner in a residential zone converts her residence to a private school.

Question 120

What is the difference between a variance and a nonconforming use?

• A variance, once granted, is unconditional and permanent.
• A variance is granted by the zoning board if the owner has a justifiable reason.
• A nonconforming use is allowed if the owner requests it in advance of building
• A nonconforming use violates current zoning, but a variance does not.

Answer 120

A variance is granted by the zoning board if the owner has a justifiable reason.

Question 121

A document certifying that a structure complies with building codes and is ready for use is referred to as a(n)

inspection report.
satisfaction bond.
certificate of occupancy.
user permit.

Answer 121

certificate of occupancy.

Question 122

Which of the following is true of an eminent domain proceeding?

• It cancels the property owner’s mortgage loan balance.
• It leaves the property owner with equitable title in place of legal title.
• It conveys legal title to the acquiring entity.
• It clouds the chain of title by canceling the original grant.

Answer 122

It conveys legal title to the acquiring entity.

Question 123

Among other provisions, the Superfund Act (CERCLA) and Superfund Amendment and Reauthorization Act of 1986 provided that

large development projects undergo an environmental impact survey immediately after completion of construction.

industrial users of real estate comply with air quality standards.

the EPA would give financial help to homeowners to remedy any hazardous situation resulting from radon, asbestos, or lead-based paint.

parties responsible for improper disposal of hazardous waste could be charged for the cleanup costs.

Answer 123

parties responsible for improper disposal of hazardous waste could be charged for the cleanup costs.

Question 124

Public land use planning strives to balance which of the following potentially conflicting interests?

• Individual property rights and the public’s interest.
• Public policy makers and community business leaders.
• Tenant occupancy specifications and construction contractors
• Individual property owners and municipal planning agencies.

Answer 124

Individual property rights and the public’s interest.

Question 125

Zoning, building codes, and environmental restrictions are forms of local land use control known as

master planning
preemption.
police power.
concurrency.

Answer 125

police power.

Question 126

If a municipality exerts its power of eminent domain against a certain property owner, what happens?

• The owner must pay higher property taxes or give up the property.
• The owner must cede an easement without receiving any compensation.
• The municipality annexes the property
• The owner must sell the property in exchange for market-value compensation

Answer 126

The owner must sell the property in exchange for market-value compensation

Question 127

Why do communities require building permits?

• To promote development.
• To establish the basis for an inspection
• To promote certificates of occupancy
• To ensure that improvements comply with codes.

Answer 127

To ensure that improvements comply with codes.

Question 128

What is the purpose of residential zoning?

• To increase home values in a neighborhood.
• To regulate the density of dwellings in the residential zone.
• To prevent families from residing in commercial and industrial sites
• To maximize intensity of usage.

Answer 128

To regulate the density of dwellings in the residential zone.

Question 129

A non-profit organization wants to erect an urgent care facility in a residential zone. Given other favorable circumstances, the local authorities may grant permission by allowing

a special exception
an illegal nonconforming use.
an easement
a license.

Answer 129

a special exception

Question 130

A property that conformed with zoning ordinances when it was developed but does not conform to new ordinances is said to be

an illegal special exception
a variance.
a legal nonconforming use
unmarketable

Answer 130

a legal nonconforming use

Question 131

The approval process for development of multiple properties in an area includes submission of

a covenant of restriction
a plat of subdivision
a court order
a developer’s pro forma

Answer 131

a plat of subdivision

Question 132

A legal description of a property is one which

• Accurately identifies the boundaries of the property as distinct from all other properties
• Accurately describes the location and dimensions the lot and improvements on the property.
• Is accepted by a licensed surveyor as suitable for inclusion in a survey of the property.
• Is written by an attorney licensed to practice real estate law in the state in which the property is located.

Answer 132

accurately identifies the boundaries of the property as distinct from all other properties

Question 133

The essential elements of the metes and
bounds system are

• Parallels, base lines, and meridians.
• Boundaries, distances, and a base line.
• Reference points, angles, and distances.
• Lot numbers, sections, and ranges.

Answer 133

reference points, angles, and distances.

Question 134

In the Rectangular Survey System, a range is the area in between

• any row of sections in a township
• two consecutive meridians
• a principal meridian and a base line
• a parallel and a meridian.

Answer 134

two consecutive meridians

Question 135

In the Rectangular Survey System, a tier is defined by

six consecutive sections of a township.
two consecutive meridians.
two consecutive parallels.
a parallel and a meridian

Answer 135

two consecutive parallels.

Question 136

In the Rectangular Survey System, what are the dimensions of a township?

One mile square.
Six miles by six miles, or 6 miles square.
Thirty-six miles square
The north and south boundaries are one mile apart; the east and west boundaries are indeterminate

Answer 136

Six miles by six miles, or 6 miles square

Question 137

What portion of a section is ten acres?

1/8.
1/16.
1/32.
1/64.

Answer 137

1/64. or 100/640

Question 138

The lot and block system of legally describing property is used for

• farm properties.
• any property in an unincorporated area
• properties where metes and bounds is not acceptable
• properties in a subdivision

Answer 138

properties in a subdivision

Question 139

A certain legal description contains the phrase, “…northwesterly along Erie Road to the POB…”. What kind of description is this?

Plat survey.
Government grid.
Metes and bounds.
Rectangular survey.

Answer 139

Metes and bounds.

Question 140

How many sections are there in a township?

One.
Six
Twelve.
Thirty-six

Answer 140

Thirty-six

Question 141

In the Rectangular Survey System, a section contains how many acres?

640.
320.
160.
40.

Answer 141

640

Question 142

The valuable consideration necessary to make a contract valid must be

• Money.
• Something tangible.
• Something of value traded in exchange for something of value
• Something of equal value with whatever is received in exchange.

Answer 142

something of value traded in exchange for something of value

Question 143

A real estate sales contract, to be enforceable, must

• contain a legal description of the property.
• be written on a form approved by the state bar association.
• be acknowledged by three witnesses
• be recorded within three days to be enforceable.

Answer 143

contain a legal description of the property.

Question 144

How much time does a seller have to accept a buyer’s offer?

• Forty-eight hours from the time of the offeror’s signing of the offer
• Twenty-four hours from the time of the offer’s delivery to the seller.
• Within 24 hours following the stated expiration.
• A reasonable time, or until the expiration date on the offer.

Answer 144

A reasonable time, or until the expiration date on the offer.

Question 145

A buyer submits an offer to a seller and then dies in a car accident. Before learning of the buyer’s death, the seller accepts the offer.
Which of the following is true?

• The seller can force the buyer’s estate to go through with the purchase
• The buyer’s death terminated the offer
• The seller must make a new offer with the same terms to the buyer’s heirs
• The buyer’s heirs have the option of enforcing the contract

Answer 145

The buyer’s death terminated the offer

Question 146

Which of the following contracts can be assigned to another party?

An exclusive listing agreement.
A personal services agreement.
A contract for the sale of undeveloped land.
An employment contract between a broker and a salesperson

Answer 146

A contract for the sale of undeveloped land

Question 147

An implied agency relationship may be deemed to exist if

the parties do not disavow an express contract that has expired.
the parties act is if there is a contract
an offering party does not receive written notice that the offer has been rejected
the parties promise to perform their part of the agreement if the other party performs

Answer 147

the parties act is if there is a contract

Question 148

Which of the following is an executory contract?

An expired lease.
A sale contract before closing
A recorded sale contract
An option to buy after it is exercised

Answer 148

A sale contract before closing

Question 149

A bilateral contract is one in which.

both parties promise to do something in exchange for the other party’s performance.
both parties receive equal consideration
two parties agree to perform a service together.
both parties promise to do something if the other party performs first

Answer 149

both parties promise to do something in exchange for the other party’s performance.

Question 150

A homeseller signs a listing agreement with a broker then subsequently revokes the listing. Which of the following is true?

• The seller continues to have contractual obligations to the broker.
• The contract remains in full force until the expiration date
• The broker may have a claim for marketing expenses expended during the listing term.
• The seller cannot sign a listing agreement with another broker

Answer 150

The broker may have a claim for marketing expenses expended during the listing term.

Question 151

A breach of contract is

• A termination of the contract by the mutual consent of the parties.
• Financial damage suffered by a party because another party has nullified a contract provision.
• A lawsuit to force a party to discharge the contract.
• The failure of a party to perform according to the terms of the contract

Answer 151

the failure of a party to perform according to the terms of the contract

Question 152

What is rescission?

• The act of withdrawing an offer before it has been accepted
• The act of declaring that a contract is no longer in effect for a given party
• The act of declaring a contract unenforceable
• The act of modifying the terms of an offer.

Answer 152

The act of declaring that a contract is no longer in effect for a given party

Question 153

To be valid, a valid contract must

• reflect a mutual understanding or agreement
• use precise wording in a document
• not be executable.
• be created only by an attorney.

Answer 153

reflect a mutual understanding or agreement

Question 154

Two parties enter into a contract. The agreement fulfills all the requirements for a valid contract, with no disqualifying circumstances. Given this situation, it is still possible that the contract may be

void.
illegal.
unenforceable.
voidable.

Answer 154

unenforceable.

Question 155

The guardian for a mentally incompetent party enters into an oral contract with another party to buy a trade fixture on behalf of the incompetent party. This contract

• does not meet validity requirements.
• is possibly valid and enforceable
• must be in writing to be valid.
• is valid but unenforceable

Answer 155

is possibly valid and enforceable

Question 156

A prospective homebuyer submits a signed with the condition that the seller pay for the inspection at closing. The seller disagrees, crosses out the provision, then signs and returns the document to the buyer. At this point, assuming all other contract validity items are in order, the original offer is now

an accepted offer, therefore a valid contract.
an executable option
a counteroffer
an invalid offer.

Answer 156

a counteroffer

Question 157

A construction contractor executes a contract with a buyer. In the agreement, the contractor promises to complete construction by November 20. This promise can be construed as

an option.
mutual consent.
a meeting of the minds
valuable consideration.

Answer 157

valuable consideration.

Question 158

A seller contracts to sell a property that she does not own. The sale contract for this transaction

is executable.
must be in writing.
is void.
is illegal yet potentially enforceable.

Answer 158

is void.

Question 159

The statute of limitations requires that parties to a contract who have been damaged or who question the contract’s provisions

must act within a statutory period.
must select a specific, limited course of action for recouping their losses.
must arbitrate prior to taking court action.
must wait a statutory period before they may take legal action

Answer 159

must act within a statutory period.

Question 160

The purpose of the statute of frauds is to

• invalidate certain oral contracts
• require certain conveyance-related contracts to be in writing.
• nullify oral leases and listing agreements.
• eliminate fraud in real estate contracts

Answer 160

require certain conveyance-related contracts to be in writing.

Question 161

A seller immediately accepts a buyer’s offer but waits ten days before returning the accepted document to the buyer. Meanwhile, the offer has expired. Which of the following is true?

• The buyer is bound to the contract since it was accepted immediately.
• The buyer has no obligations to the seller whatsoever.
• The buyer may not rescind the expired offer.
• The seller may sue for specific performance

Answer 161

The buyer has no obligations to the seller whatsoever.

Question 162

The agency relationship is defined by

• The Realtor Code of Ethics.
• The laws of agency, or in some states, by statute
• The law of real estate contracts.
• The agreement between a principal and an agent.

Answer 162

the laws of agency, or in some states, by statute

Question 163

Which of the following is true of the connection between compensation and the agency relationship?

• An agreement to give and receive compensation creates an agency relationship
• If an agency relationship exists, the principal must provide valuable consideration to the agent.
• The relationship is independent of any compensation arrangement.
• If an agency relationship exists, the agent is entitled to compensation

Answer 163

The relationship is independent of any compensation arrangement.

Question 164

One of the parties to an agency relationship defaults, and the agreement terminates. Which of the following is true?

• All obligations are extinguished.
• Both parties must continue to perform all other obligations of the agreement
• The defaulting party may have a financial consequence.
• The damaged party has no claim against the defaulting party.

Answer 164

The defaulting party may have a financial consequence.

Question 165

Among the fiduciary duties imposed on a real estate agent is the requirement to

refuse offers the agent knows will be unacceptable to the principal.
present all offers to the principal regardless of their amount.
advise the principal against accepting an offer that is below full price.
advise a prospect that the principal will not accept the prospect’s offer in order to elicit a better offer.

Answer 165

present all offers to the principal regardless of their amount.

Question 166

One of the agent’s fiduciary duties that continues even after a listing agreement expires is

obedience
diligence.
confidentiality.
disclosure.

Answer 166

confidentiality.

Question 167

The standard of care and competence that a principal can expect from an agent is
generally that which is

• Specified in the agency agreement.
• Necessary to earn the promised compensation.
• Necessary to procure a customer.
• Comparable to that of other practitioners in the area

Answer 167

comparable to that of other practitioners in the area

Question 168

Agent Michael is showing his new listing to a buyer who informs him that he has just inherited five million dollars. Michael is now bound by fiduciary duty to

• keep the information in confidence
• disclose the information to the buyer’s agent.
• disclose the information to the seller.
• verify the buyer’s statements before disclosing them to the client.

Answer 168

disclose the information to the seller.

Question 169

Agent Gerry has executed an exclusive buyer broker agreement with the Andersons. The agent subsequently places an offer with Melinda, the exclusive selling agent for the Lincolns, to buy their lakefront property. The offer contains provisions for the Lincolns to pay the brokerage commission, which the Lincolns agree to. Given this set of circumstances, Gerry owes the full set of fiduciary duties to

the Andersons.
the Lincolns.
Gerry’s broker
Melinda’s broker

Answer 169

the Andersons.

Question 170

A subagent is the agent of

• The seller.
• The buyer.
• A broker who has an agency relationship with a client.
• The client’s and the customer’s agents.

Answer 170

a broker who has an agency relationship with a client.

Question 171

Which of the following is a dual agency situation?

• Two agents share the exclusive right to represent the same client on all transactions
• One agent represents both sides in a transaction
• A selling agent from one brokerage works with a listing agent from another brokerage to complete a transaction
• One agent represents two sellers at the same time.

Answer 171

One agent represents both sides in a transaction

Question 172

The duties of a transaction broker or facilitator include

• preserving the confidentiality of information received from either party.
• helping the two parties achieve their respective objectives.
• disclosing material facts that affect the value of the property to both parties
• choosing to obey the instructions of one party and informing the other party of the decision

Answer 172

disclosing material facts that affect the value of the property to both parties

Question 173

In which of the following contact situations would a seller’s agent be expected to disclose his agency relationships?

• The agent is showing the client’s property to a prospective buyer.
• The agent tells an acquaintance at a party about the client’s property.
• The agent answers questions about the client’s property for a telephone caller responding to a newspaper ad.
• The agent is showing a potential buyer houses in a certain price range in the multiple listing book.

Answer 173

The agent is showing the client’s property to a prospective buyer.

Question 174

The essential foundation of the agency relationship consists of

• Mutual respect, compensation, and confidentiality.
• Diligence, results, and compensation
• Service, marketing, and respect.
• Good faith, trust and confidence.

Answer 174

good faith, trust and confidence.

Question 175

Audrey wants to take a vacation. To do so, she authorizes an agent to conduct the operations of one of her business enterprises. The kind of agency she has established is

limited.
general.
universal.
special.

Answer 175

general.

Question 176

A property seller empowers an agent to market and sell a property on his behalf. The kind of agency represented is

general
special.
universal.
no agency.

Answer 176

special.

Question 177

Implied agency arises when

an agent accepts an oral listing.
a principal accepts an oral listing
a party creates an agency relationship outside of an express agreement.
a principal agrees to all terms of a written listing agreement, whether express or implied

Answer 177

a party creates an agency relationship outside of an express agreement.

Question 178

An agency relationship may be involuntarily terminated for which of the following reasons?

• Condemnation of the property
• Mutual consent.
• Full performance.
• Renewal of the agent’s license.

Answer 178

Condemnation of the property

Question 179

A principal discloses that she would sell a property for $500,000. During the listing period, the house is listed and marketed for $530,000. No offers come in, and the listing expires. Three weeks later, the agent confides to a customer that the seller would have sold for less than the listed price. Which of the following is true?

The agent has violated the duty of confidentiality.
The agent has fulfilled all fiduciary duties, since the listing has expired
The agent is violating the duties owed this customer
The agent has created a dual agency situation with the customer

Answer 179

The agent has violated the duty of confidentiality.

Question 180

A principal instructs an agent to market a property only to families on the west side of the university campus. The agent refuses to comply. In this case,

• the agent has violated fiduciary duty.
• the agent has not violated fiduciary duty
• the agent is liable for breaching the listing terms
• the agent should obey the instruction to salvage the listing

Answer 180

the agent has not violated fiduciary duty

Question 181

An owner’s agent is showing a buyer a residential property for sale. The buyer notices water stains on the foundation walls and floor, and informs the agent. The appropriate course of action for the agent is to

• immediately contract to paint the ceiling
• immediately contract to repair the roof
• suggest the buyer make a lower-price offer
• inform the seller

Answer 181

inform the seller

Question 182

The meaning and salient characteristics of the agency relationship should be disclosed to the client

• Prior to completing a listing agreement
• Prior to or upon completion of an offer
• Upon the initial contact with the person.
• Prior to showing properties.

Answer 182

prior to completing a listing agreement

Question 183

When must a listing agent disclose his or her agency relationship to prospective tenants or buyers?

• Immediately prior to the initial contact.
• Upon initial contact.
• Whenever substantive contact is made beyond casual conversation.
• Immediately following any offer executed by the customer.

Answer 183

Whenever substantive contact is made beyond casual conversation.

Question 184

A buyer agent or tenant representative should disclose his or her agency relationship to the owner’s agent

immediately prior to the initial contact
upon initial contact
immediately prior to substantive contact
immediately following any offer executed by the landlord

Answer 184

upon initial contact

Question 185

An agent is operating as a disclosed dual agent on a transaction. In this case, the agent

• may not represent one party’s interests to the detriment of the other.
• must operate without a listing agreement
• must be obedient and loyal to both parties.
• must require that the principals refrain from disclosing any material facts to him.

Answer 185

may not represent one party’s interests to the detriment of the other.

Question 186

An agent informs a buyer that a provision in a contract is very commonplace. After explaining the clause, the agent assures the buyer that the clause does not mean anything significant. If something goes wrong with the transaction, the agent could be liable for

violating duties owed a customer.
misinterpreting the clause
intentional misrepresentation
practicing law without a license

Answer 186

practicing law without a license

Question 187

When a broker enters into a listing agreement, the broker has agreed to accept which of the following?

• Fiduciary and contractual obligations with the client.
• Fiduciary relationships with client and customer
• Contractual obligations with cooperating brokers.
• Fiduciary obligations with the customer

Answer 187

Fiduciary and contractual obligations with the client.

Question 188

The degree of authority granted by a residential brokerage listing agreement generally allows the agent to

• Create contractual obligations for the client.
• Negotiate the selling price between client and customer
• Hire inspectors, and other individuals to prepare the property for marketing.
• Market, sell and show the property

Answer 188

market, sell and show the property

Question 189

A salesperson, without an oral or written listing agreement, brings potential buyers to the seller. The seller says, “You can bring me buyers if you want, but I’m not paying you a commission.” The salesperson then continues to direct buyers to the property. Which of the following is true about this situation?

There is no agency relationship, and therefore the seller will owe no commission if one of the salesperson’s buyers buys the property

An implied agency may have been created, with obligations to perform for both seller and agent.

The seller and agent have an illegal, undisclosed agency relationship

The agent has an open exclusive agency listing with no commission agreement, and therefore owes no fiduciary duties to the seller.

Answer 189

An implied agency may have been created, with obligations to perform for both seller and agent.

Question 190

An agent enters into a listing agreement with a homeseller, but then becomes too busy to professionally fulfill the terms of the agreement. To solve the dilemma, the agent assigns the agreement to another licensee in the office. Which of the following is true about this situation?

• The agent cannot assign the listing agreement.
• The new listing agent acquires the full set of fiduciary duties owed to the client.
• The new broker has to split any commission that results with the assigning broker.
• The original broker has to disclose the assignment to the seller.

Answer 190

The agent cannot assign the listing agreement.

Question 191

From an agent’s point of view, the most desirable form of listing agreement is a(n)

exclusive agency.
exclusive right to sell
open listing.
net listing.

Answer 191

exclusive right to sell

Question 192

What is a multiple listing?

• A listing shared by a listing agent and a selling agent.
• A listing that a listing agent delegates to a subagent
• A listing that is entered in a multiple listing service to enable cooperation with member brokers
• A listing that authorizes a listing agent to market more than one property for a seller.

Answer 192

A listing that is entered in a multiple listing service to enable cooperation with member brokers

Question 193

Which of the following conditions is necessary for a customer to qualify as “ready, willing, and able” in the context of a commissionable transaction?

• The customer’s offer must be accepted.
• The customer must be legally competent to undertake the transaction
• The customer must have a commitment from a lender
• The customer must have no business relationship with the agent.

Answer 193

The customer must be legally competent to undertake the transaction

Question 194

Although a listing broker may delegate listing tasks to an employed licensee, the broker may not delegate the authority to

• obtain and distribute compensation.
• provide cooperating brokers with information about the property
• advertise the property.
• inspect the property for hazardous substances

Answer 194

obtain and distribute compensation.

Question 195

Agent Peter has an open listing with Frank. Paul is Peter’s broker. Agent Perry’s customer buys Frank’s house. Patrick has a commission agreement with Frank. Who is most likely to be compensated in this scenario?

• Peter, since he has a written listing agreement.
• Paul, since he is Peter’s broker
• Perry, since he found the customer.
• Patrick, since he has a commission agreement.

Answer 195

Perry, since he found the customer.

Question 196

If an agent has an exclusive listing to sell a property, and the property is then taken by eminent domain, what is the status of the listing?

• The seller’s obligations under the listing are assigned to the agency that takes the property
• It becomes a voidable contract.
• The commission clause of the agreement is canceled.
• It may be terminated against the agent’s will.

Answer 196

It may be terminated against the agent’s will.

Question 197

A broker obtains an exclusive listing to sell a house, but after two months, he abandons the listing because the seller is too demanding and hot-tempered. What can the seller do in this situation?

• Have the licensee’s license revoked for negligence
• Sue the broker for money damages.
• Sign a listing agreement with another broker and force the first broker to pay the commission
• Force the broker to perform the contract without compensation

Answer 197

Sue the broker for money damages.

Question 198

An owner agrees to pay a broker for procuring a tenant unless it is the owner who finds the tenant. This is an example of a(n)

exclusive right-to sell agreement.
exclusive agency agreement
open listing.
net listing.

Answer 198

exclusive agency agreement

Question 199

A landlord promises to compensate a broker for procuring a tenant, provided the broker is the procuring cause. This is an example of a(n)

exclusive right-to rent agreement.
exclusive agency agreement.
open rental listing.
net lease listing.

Answer 199

open rental listing.

Question 200

A property owner agrees to pay a broker an open-ended commission as the difference between the sale price and a net amount, provided the owner receives a minimum amount of proceeds from the sale at closing. This is an example of a(n)

exclusive right-to sell agreement
exclusive agency agreement
open listing
net listing

Answer 200

net listing

Question 201

In the context of agency law, the legal difference between an owner representation agreement and a buyer representation agreement is

• the client.
• the commission amount
• fiduciary duties
• regulatory approvals

Answer 201

the client.

Question 202

A multiple listing authorization gives a broker what authority?

To list the owner’s property in a multiple listing service
To sell several properties for the owner at once.
To represent both seller and buyer, if necessary, in selling the property.
To delegate the listing responsibilities to other agents

Answer 202

To list the owner’s property in a multiple listing service

Question 203

Which of the following business entities is generally prohibited from brokering real estate?

Sole proprietorship.
Partnership
Corporation for profit.
Non-profit corporation.

Answer 203

Non-profit corporation.

Question 204

A joint venture may generally broker real estate if the co-venturers

form a business trust.
form a co-operative association
are properly licensed.
are limited partners.

Answer 204

are properly licensed.

Question 205

A licensed salesperson may work only for

• a client who has signed a listing agreement with a licensed broker.
• a single employing broker who has an active broker’s license.
• a client who has signed an authorization agreement with a licensed salesperson.
• an employer who has an active or inactive broker’s license.

Answer 205

a single employing broker who has an active broker’s license.

Question 206

Which of the following activities is a licensed salesperson allowed to engage in?

• Accept a listing that is in an associate’s name.
• Accept a commission directly from the MLS.
• Offer a property for lease on behalf of the employing broker
• Sign a contract with a management company on behalf of a client

Answer 206

Offer a property for lease on behalf of the employing broker

Question 207

If a salesperson has worked on a completed transaction that involved a listing agent, a selling agent, and several subagents for each of these, from whom will the salesperson receive any compensation that is due?

The listing agent
The selling agent.
The seller.
The employing broker.

Answer 207

The employing broker.

Question 208

A property has sold for $380,000. The listing agreement calls for a commission of 6.5%. The listing broker and selling broker agree to share the commission equally. What will the listing agent receive if the agent is scheduled to get a 40% share?

$4,445.
$3,556.
$2,667.
$4,940.

Answer 208

First calculate the total commission, then the co-brokerage splits, then the agent-broker split. Thus: $380,000 x 6.5% = $24,700 total commission. ($24,700 x 50%) = $12,350 total listing broker share. ($12,350 x 40% = $4,940 agent’s share.

Question 209

A real estate salesperson finds a buyer to a For Sale By Owner property. The home sells for $245,000, and the seller agrees to pay a commission of 3%. The salesperson is on a 65% commission schedule with her broker, who pays her 65% minus office expenses of $500. How much will the salesperson receive from this transaction?

$4,778.
$4,452.
$4,278.
$3,175.

Answer 209

The total commission is ($245,000 x 3%) = $7,350. The agent gets (65% x $7,350) - $500, which equals $4,278.

Question 210

A salesperson makes a listing presentation to a homeseller and obtains a signed listing agreement. The first thing the salesperson must now do is

make a final pricing determination for the property
sign the agreement.
submit the listing to the broker for approval and signing.
explain the agency relationship to the client

Answer 210

submit the listing to the broker for approval and signing.

Question 211

Juan shows a customer a property that is listed by another brokerage firm. He obtains an offer that is $5,000 less than the listing price. How should Juan deal with this offer?

• Advise the buyer that the offer will be rejected.
• Present the offer to the seller at the earliest possible moment
• Ask the listing broker to lower the listing price
• Counter the offer.

Answer 211

Present the offer to the seller at the earliest possible moment

Question 212

A broker receives an earnest money deposit from a buyer and signs the check over to the listing agent as a partial commission advance. What is wrong with this procedure?

• Nothing, provided the deposit clears the bank and doesn’t bounce
• The broker and the agent are guilty of price fixing.
• The broker has illegally converted security funds for business use.
• The agent may not be able to return the advance if the transaction falls through.

Answer 212

The broker has illegally converted security funds for business use.

Question 213

Under what circumstance may a property listed for sale with a brokerage be advertised without identifying the broker?

• When the salesperson is an out-of-state licensee
• When the ad is restricted to the brokerage’s website.
• When the advertisement is a silent ad.
• Never.

Answer 213

Never.

Question 214

Competing brokers in a county seat agree on a standard commission rate for principals within the county. The is a possible violation of

fair trade and anti-trust laws.
the Statute of Frauds.
contract law.
the Uniform Commercial Code

Answer 214

fair trade and anti-trust laws.

Question 215

What is co-brokerage?

• An owner agent and a buyer agent combine efforts to complete a sale.
• Outside brokers acting as subagents assist a listing agent in procuring a customer
• An owner or buyer lists with several brokers to complete a transaction
• Agents from a single agency cooperate to generate listings for the broker.

Answer 215

Outside brokers acting as subagents assist a listing agent in procuring a customer

Question 216

Which of the following may associate his or her name or title with the term “Realtor®”?

• Any active or inactive broker in the country
• Any duly licensed, active agent or broker
• Any member in good standing in a properly chartered real estate trade organization
• Only members of the National Association of Realtors®

Answer 216

Only members of the National Association of Realtors®

Question 217

Real estate sales agents are legally authorized to

• represent their employing broker in procuring clients and customers
• act directly on a client’s behalf to discharge the broker’s listing responsibilities.
• negotiate and execute contracts for sale on behalf of the client
• take on the listing responsibilities for other listings in MLS

Answer 217

represent their employing broker in procuring clients and customers

Question 218

How does the position of an independent contractor licensee (IC) differ from that of an employee licensee?

The IC is responsible for his or her own taxes; the broker does not withhold
The IC must obtain his or her own training; it is not provided by the broker
The employee is not entitled to company benefits
The IC must abide by all office meeting schedules

Answer 218

The IC is responsible for his or her own taxes; the broker does not withhold

Question 219

A salesperson’s commission rate and structure is established by

• state regulation.
• competitive conditions.
• agreement with other brokers in the market
• negotiations with the client.

Answer 219

competitive conditions.

Question 220

In obtaining offers from a buyer, an agent must be careful to

• Pursue only those offers which are at or near the listing price.
• Balance the owner’s price expectations with the buyer’s opinion of value
• Avoid disclosing what price the owner will accept.
• Avoid completing offers that are beneath market value

Answer 220

avoid disclosing what price the owner will accept.

Question 221

Commingling is the practice of

• blending escrow funds on a number of properties in one escrow account
• mixing socially with prospects at open houses or other marketing functions
• allocating commission funds from a transaction for use in the agency’s business
• mixing escrow funds with the broker’s operating funds

Answer 221

mixing escrow funds with the broker’s operating funds

Question 222

Three leading agencies charge identical commission rates for brokering office properties in Phoenix. Based on this information alone, which of the following is true?

• There is insufficient evidence of anything other than a normal business practice.
• The brokers have engaged in legal collusion.
• The brokers have allocated the Phoenix market.
• The brokers have illegally fixed prices.

Answer 222

There is insufficient evidence of anything other than a normal business practice.

Question 223

A real estate sale contract is an executory contract until

The completed sale transaction is recorded
The buyer and seller have agreed to all provisions and have signed the contract
All the obligations and promises are performed and the transaction is closed
The loan has been approved, the title insurance has been obtained, and the closing date is set

Answer 223

All the obligations and promises are performed and the transaction is closed

Question 224

In assisting a buyer or seller to complete an offer to purchase, what should an agent do to reduce the risk of committing an unauthorized practice of law?

• Use a standard contract promulgated by a state agency or a real estate board.
• Observe ethical standards promulgated by real estate trade organizations.
• Offer legal advice only on points of the contract that the agent is absolutely certain about
• Write contract terms that are fair to both buyer and seller

Answer 224

Use a standard contract promulgated by a state agency or a real estate board.

Question 225

To be enforceable, a contract for the conveyance of real estate must

be acknowledged by witnesses
be written.
be recorded.
have an expiration date

Answer 225

be written

Question 226

A buyer makes an offer to purchase a house, and the seller accepts the offer. Both parties sign the sales contract, but the buyer fails to provide an earnest money deposit as required in the sales contract. What are the seller’s obligations to the buyer?

• None. There is no valid contract.
• The seller must give the buyer an opportunity to make a new offer
• The seller must perform under the terms of the contract
• The seller must notify the buyer in writing that the buyer is in default

Answer 226

None. There is no valid contract.

Question 227

Which of the following is an essential element of a valid contract for the sale of real estate?

A valid blank form that the contract is written on.
A habitable property.
An offer and acceptance
A marketable title.

Answer 227

An offer and acceptance

Question 228

What kind of interest does the buyer acquire once a real estate sale contract is signed by the principal parties?

Legal title.
Lienholder interest.
Reversionary interest
Equitable title.

Answer 228

Equitable title.

Question 229

A contingency in a sale contract is

A promise by buyer or seller to perform a specific action
A condition that, if unmet, renders the contract unenforceable.
One of several alternative actions that buyer or seller may take to satisfy contract requirements
An optional, unilateral action that either party may take at the request of the other party.

Answer 229

a condition that, if unmet, renders the contract unenforceable.

Question 230

A clause in a sale contract stipulates that the seller must provide evidence that the property is free of active termite infestation. On the day of closing, the buyer learns that inspection service did not provide the required written documentation. The buyer then proceeds to declare that the sale is off. Which of the following is true of this situation?

• The seller can sue for specific performance
• The buyer will be in default, and liable for damages, if he does not complete the transaction
• The buyer may be able to have the contract canceled.
• The contract is automatically void.

Answer 230

The buyer may be able to have the contract canceled.

Question 231

A buyer signs an earnest money agreement and gives it to the broker who showed her the property she is buying. After leaving the broker’s office, she reconsiders and decides she prefers a different property. How long does she have to take back her offer?

Until the seller communicates acceptance of the offer.
Until the earnest money deposit check is cashed.
She can take it back at any time, but must forfeit the earnest money
She cannot take it back until after the expiration date of the offer

Answer 231

Until the seller communicates acceptance of the offer.

Question 232

On Wednesday, Fred offers to sell his property to Jack for $275,000, with the offer to remain open until 5 p.m. the next day. On Thursday morning, Sally offers Fred $280,000 for the property and Fred accepts. At 1 p.m. on Thursday afternoon, Jack accepts. Which of the following is true of this situation?

• The acceptance by Sally creates a contract and terminates Fred’s offer to Jack.
• Fred has entered into contracts with both Jack and Sally to sell the same property.
• Fred’s acceptance of Sally’s offer is invalidated by Jack’s acceptance, because Fred’s offer to Jack was made prior to Sally’s offer to Fred.
• No contract has been created because it is impossible to have two valid sale contracts for the same property

Answer 232

-Fred has entered into contracts with both Jack and Sally to sell the same property.

Question 233

Among the items that normally must be disclosed in a sale contract or its addenda is/are the

• Buyer’s financial capability
• Buyer’s source of funds for the down payment.
• Seller’s acceptable price range.
• Agency relationships and property condition.

Answer 233

agency relationships and property condition

Question 234

To create an enforceable option-to-buy contract, there must be an exchange of

• A promise to sell and a promise to buy.
• Valuable consideration and a right to buy.
• Valuable consideration and a promise to buy.
• A down payment and a post-dated contract for sale.

Answer 234

valuable consideration and a right to buy.

Question 235

Mary Carboy buys a house from Jim Schmidt and at the same time obtains an option to purchase the adjoining vacant lot for $10,000 within one year. A few months later, Carboy informs Schmidt that she is ready to exercise her option, but finds that Schmidt has received an offer of $12,000 from another party. Schmidt states that he will accept the offer unless Carboy is willing to match the $12,000 offer. Which of the following is true of this situation?

• Schmidt must sell to Carboy for $10,000.
• Carboy must pay $12,000 or lose the property
• Schmidt may sell to Carboy or the other party, but the price cannot exceed $10,000
• If the other party delivers payment before Carboy does, the option is canceled.

Answer 235

-Schmidt must sell to Carboy for $10,000.

Question 236

Which of the following is true regarding the assignability of an option?

It is assignable only if the contract specifically allows assignment
It is never assignable.
It is assignable only if the option is exercised.
It is always assignable unless the contract prohibits assignment.

Answer 236

It is always assignable unless the contract prohibits assignment.

Question 237

Which of the following is true of a contract for deed transaction?

• At the end of the contract period, the vendee receives equitable title, provided all required periodic payments have been made.
• The vendee has no right to possess or occupy the property during the contract period.
• At the end of the contract period, the vendor conveys legal title, provided the vendee has fulfilled all obligations.
• The vendor may cancel the contract at any time before the final payment has been received.

Answer 237

At the end of the contract period, the vendor conveys legal title, provided the vendee has fulfilled all obligations.

Question 238

Several buyers are competing for the last available home in a desirable new subdivision. One buyer calls the owner-developer directly on the phone and offers $20,000 over and above the listed price. The developer accepts the offer. At this point

The parties have a valid, enforceable sale contract on the home.
The parties have completed a verbal, executory contract.
The parties may not cancel their contract.
The developer could not entertain other offers on the property

Answer 238

The parties have completed a verbal, executory contract.

Question 239

An owner completes a sales contract on her property with a buyer. Before closing, the seller runs into financial trouble and assigns the contract to her principal creditor. The buyer cries foul, fearing the property will be lost. Which of the following is true?

• The buyer can sue the assignee to disallow the illegal assignment.
• The buyer can take legal action against the assignor.
• The assignor has completed a legal action.
• The sale contract is nullified.

Answer 239

The assignor has completed a legal action.

Question 240

A due-on-sale clause in a sale contract puts parties on notice that

• The full price of the property is due the seller at closing.
• Any loans surviving closing become immediately payable
• All of the seller’s debts must be retired before or upon closing
• Any conveyance may trigger an acceleration of any loans secured by the property.

Answer 240

Any conveyance may trigger an acceleration of any loans secured by the property.

Question 241

A tenant has an option-to-purchase agreement with the landlord that expires on June 30. On July 1, the tenant frantically calls the landlord to exercise the option, offering the apology that she was busy with a death in the family. Which of the following is true?

• Since options contain grace periods, the landlord must sell.
• The tenant loses the right to buy, but can claim the money paid for the option from the landlord
• The landlord does not have to sell, but must renew the option
• The option is expired, and the tenant has no rightful claim to money paid for the option

Answer 241

The option is expired, and the tenant has no rightful claim to money paid for the option

Question 242

Two parties enter into a contract for deed agreement. In this form of agreement

• Title is conveyed to the buyer, but the seller retains possession for a stipulated time period
• The buyer contracts to pay all cash at closing in exchange for the deed.
• The seller retains legal title while the buyer makes partial payments until the contract is fully executed.
• The buyer immediately acquires legal title and takes possession

Answer 242

The seller retains legal title while the buyer makes partial payments until the contract is fully executed.

Question 243

If the price of an item is increasing, one can usually assume that

• Demand for the item is decreasing in relation to supply of the item.
• Demand for the item is increasing in relation to supply of the item.
• Supply of the item is increasing
• Demand for the item and supply of the item are increasing

Answer 243

Demand for the item is increasing in relation to supply of the item.

Question 244

When the market for an item has achieved market equilibrium, which of the following statements is true?

New suppliers will enter the market and drive the price down
Demand will slowly taper off, driving the price down
Unmet demand for the item is directed toward demand for some other item
Supply and demand are equal, and price and value are equal

Answer 244

Supply and demand are equal, and price and value are equal

Question 245

As an economic product, real estate is distinguished by

its homogeneity.
its variety
the uniqueness of every parcel
its ability to appreciate in value

Answer 245

the uniqueness of every parcel

Question 246

The city of Stevensville has declared a moratorium on new construction. If demand is increasing, what will be the likely effect on real estate prices in the area?

Prices level off.
Prices continue to follow the trend that preceded the moratorium
Prices fall.
Prices rise

Answer 246

Prices rise

Question 247

If Okapi, Inc., a company that markets its sports clothing worldwide, moves into Stevensville and hires 100 employees, it is reasonable to expect that the town will experience

• An immediate rise in the demand for industrial real estate, but no other changes in the real estate market.
• An increase in demand for all types of real estate
• A housing boom, but no other changes in the real estate market
• An immediate increase in the prices for industrial and office real estate, but no impact on the residential market.

Answer 247

An increase in demand for all types of real estate

Question 248

What is “absorption?”

• The amount of new space that is added to available space over a period of time
• The number of houses that are built over a period of time
• The amount of space that is occupied at any given time.
• The number of available units that become occupied over a period of time

Answer 248

The number of available units that become occupied over a period of time

Question 249

When vacancies are declining in a real estate market, it is common for the market to experience

rising prices.
falling prices.
falling construction activity.
falling absorption

Answer 249

rising prices.

Question 250

The price for any product is a function of four fundamental determinants of value. These are

• Durability, feasibility, mobility, and location.
• Desire, utility, scarcity, and purchasing power
• Popularity, recognizability, promotion, and rebate
• Fungibility, costs, convenience, and uniqueness.

Answer 250

desire, utility, scarcity, and purchasing power

Question 251

A town is rapidly growing, but all the buildable vacant lots in the most desirable area have already been occupied. In this case, it is likely that the price of existing homes in that area

• Will stabilize, since the population must stabilize
• Will increase.
• Will decline, since no further building can take place
• Will not show any predictable movement.

Answer 251

will increase.

Question 252

If there is a significant undersupply of homes in a market, construction will tend to increase. This is an example of

• supply outstripping demand.
• demand outstripping value
• consumer optimism
• the market tending toward equilibrium.

Answer 252

the market tending toward equilibrium.

Question 253

If commercial real estate rental prices are falling in a market, it is likely that

demand has outstripped supply of space.
the market is in equilibrium.
the market is over-supplied
employment is increasing

Answer 253

the market is over-supplied

Question 254

A construction boom in a market is an indication that prices

have been increasing.
have been declining.
have been in equilibrium.
have exceeded supply

Answer 254

have been increasing.

Question 255

Why is real estate traditionally considered a relatively illiquid economic product?

Its physical form is fixed.
Real estate is defined as land, not water.
It is often difficult to convert to cash.
It cannot be moved

Answer 255

It is often difficult to convert to cash.

Question 256

What does “base employment” refer to in the context of real estate demand?

• The lowest category of employment in terms of wages and desirability
• The number of persons employed in base industries in an area
• The number of persons employed on military bases in an area
• The labor pool available for employment in all industries in an area

Answer 256

The number of persons employed in base industries in an area

Question 257

What is “vacancy” in real estate market economics?

• Property that has no owner-occupant
• The total number of properties of a certain type that are on the market at a given time
• The absence of certain types of users in a given market area
• The total existing space of a certain type that is unoccupied at a given time

Answer 257

The total existing space of a certain type that is unoccupied at a given time

Question 258

A moratorium on new construction is an example of

• Local government influencing the real estate market, regardless of demand.
• The natural result of demand exceeding supply in a local market.
• Government promotion of the free market concept in the local real estate market.
• A government policy that aims to restrain a trend of rising prices in the local real estate market.

Answer 258

Local government influencing the real estate market, regardless of demand.

Question 259

Of the following potential influences on a local real estate market, which one would be considered local, rather than regional, national, or global?

• Changes in money supply
• Federal Reserve interest rates
• In- and out-migrations of major employers
• Trade imbalances with foreign trading partners

Answer 259

In- and out-migrations of major employers

Question 260

There is a lot of new construction going on in the town of Florence. Which of the following would most likely be the immediate effect on the real estate market?

Demand increases and prices rise.
Vacancy rises and prices fall.
Absorption and vacancy decrease
Supply decreases relative to demand

Answer 260

Vacancy rises and prices fall.

Question 261

What kind of real estate users are most concerned with neighborhood quality, access to services, property amenities, and quality of life in their demand for real estate?

Retail
Office
Industrial
Residential

Answer 261

Residential

Question 262

One distinguishing feature of real estate as an economic product is

• Its easy convertibility to cash
• Its quick response to changes in supply-demand balance
• Its susceptibility to swings in the local economy.
• The easy substitutability of one item for another.

Answer 262

Its susceptibility to swings in the local economy.

Question 263

Bill Parsons paid $150,000 for a house to operate as a rental property, figuring that he could rent it out at a rate of $900 a month. In paying a price based on the property’s ability to generate a desired future income, Parsons was motivated by the economic principle known as

substitution.
anticipation.
supply and demand
utility.

Answer 263

anticipation.

Question 264

Which of the following situations illustrates the principle of contribution?

• A homebuyer makes a down payment of 20% instead of the 10% the lender requires
• A homeowner adds a third bathroom to a house and thereby increases the appraised value by $10,000
• The appraised value of a house goes up by $20,000 over a two-year period because of the prices recently paid for other houses in the neighborhood.
• Because of a decline in mortgage interest rates, a homeowner in a certain market is able to list her house at a higher price

Answer 264

A homeowner adds a third bathroom to a house and thereby increases the appraised value by $10,000

Question 265

When a property owner combines two adjacent properties to create a single property with a higher value than the sum of the values of the two separate properties, the applicable principle of value is called

assemblage.
accretion.
progression.
subdivision.

Answer 265

assemblage.

Question 266

What is the difference between market value and market price, if any?

• There is no difference.
• Market value is a broker’s estimate; market price is a precise number derived by a licensed appraiser.
• Market value is an average price derived from comparable sales; market price is a price based on the cost of creating the property
• Market value is an estimate; market price is the price at which a property sold

Answer 266

Market value is an estimate; market price is the price at which a property sold

Question 267

The first step in the appraisal process, regardless of the appraisal method, is to

Identify the highest and best use of the property to be appraised
Collect and analyze property data
Estimate the value of the land as if it were vacant.
Define the appraisal problem and the purpose of the appraisal.

Answer 267

Define the appraisal problem and the purpose of the appraisal.

Question 268

In the final step of an appraisal, the appraiser reconciles the value estimates derived by the various appraisal approaches by

Disregarding the high and low extreme results

Averaging the results of all three approaches.

Weighing the applicability of the approaches and considering the quality of data supporting each approach.

Choosing the result that is closest to the average for properties in the immediate neighborhood

Answer 268

Weighing the applicability of the approaches and considering the quality of data supporting each approach.

Question 269

Which of the following statements properly describes the central concept of the sales comparison approach?

Find the median price of recently sold comparable properties and add or subtract dollar amounts in the subject property to account for competitive differences.

Make dollar adjustments to the sale prices of comparable properties to account for competitive differences with the subject.

Find at least three comparable properties that are currently for sale and make dollar adjustments to the listing prices to account for competitive differences with the subject.

Apply an appreciation factor to the price at which the subject property most recently sold and make dollar adjustments to account for competitive differences with comparable properties currently for sale

Answer 269

Make dollar adjustments to the sale prices of comparable properties to account for competitive differences with the subject.

Question 270

One of the strengths of the sales comparison approach is that it

Takes into account the subject property’s investment value.
Reveals the profit margin of the builder or developer of the subject property
Discovers the underlying value of the subject property apart from the influence of competing properties.
Takes into account the competitive value of specific amenities of the subject property

Answer 270

Takes into account the competitive value of specific amenities of the subject property

Question 271

In making dollar adjustments in the sales comparison approach, the appraiser

Adds value to a comparable that is inferior to the subject property.
Adds value to the subject property if it is inferior to a comparable.
Subtracts value from a comparable that is inferior to the subject property
Subtracts value from the subject property if it is inferior to a comparable

Answer 271

Adds value to a comparable that is inferior to the subject property.

Question 272

The best comparable property for use in the sales comparison approach is the one that

• requires the most and largest adjustments.
• requires the fewest and smallest adjustments.
• sold most recently at the highest price
• is located closest to the subject property.

Answer 272

requires the fewest and smallest adjustments.

Question 273

A house is being appraised using the sales comparison approach. The house has three bedrooms, two bathrooms, and a patio. The appraiser selects a comparable house that has three bedrooms, 3 bathrooms, and no patio. The comparable house just sold for $200,000. A bath is valued at $7,000, and a patio at $2,000. Assuming all else is equal, what is the adjusted value of the comparable?

$202,000.
$207,000.
$195,000.
$205,000.

Answer 273

$200,000 minus $7,000 plus $2,000 equals $195,000.

Question 274

Which of the following statements properly describes the central methodology of the cost approach to appraisal?

• Apply a depreciation factor to the reported actual cost of acquiring and improving the subject property.
• Estimate the cost of building the improvements on the subject property
• Estimate the land value and add to this the actual cost of the improvements adjusted for competitive differences with similar properties
• Add the estimated land value and cost of improvements and subtract the accrued depreciation of the improvements

Answer 274

Add the estimated land value and cost of improvements and subtract the accrued depreciation of the improvements

Question 275

One of the strengths of the cost approach is that it

• Takes into account the amount of money required to develop a similar property.
• Is very accurate for a property with new improvements that represent the highest and best use.
• Results in an actual price in dollars instead of an estimated value
• Reveals the owner’s return on money invested in the cost of development

Answer 275

Is very accurate for a property with new improvements that represent the highest and best use.

Question 276

The principle underlying depreciation from physical deterioration is that

• Eventually, a property loses all of its value.
• A property loses a portion of its value each year because of economic obsolescence
• A property loses the same increment of value each year over the economic life of the property
• The value lost to depreciation is incurable

Answer 276

A property loses the same increment of value each year over the economic life of the property

Question 277

A property is being appraised by the cost approach. The appraiser estimates that the land is worth $30,000 and the replacement cost of the improvements is $95,000. Total depreciation from all causes is $10,000. What is the indicated value of the property?

$135,000.
$130,000.
$125,000.
$115,000.

Answer 277

To appraise value using the cost approach, add the land value to the value of the depreciated improvement. Thus you have $30,000 + ($95,000 - 10,000), or $115,000.

Question 278

Which of the following statements properly describes how to apply the income capitalization approach to appraisal?

• Apply a rate of return to the price paid for an income property
• Divide the income a property generates by a rate of return
• Estimate the amount of income a property must generate to return the capital amount invested in it.
• Estimate the rate of return a property owner receives from income generated by the property

Answer 278

NOI / Cap rate = Value.

Divide the income a property generates by a rate of return

Question 279

A strength of the income capitalization approach is that it

• Uses a rate of return that is required for all potential purchasers in a market.
• Yields an accurate projection of investment income.
• Uses a method that is also used by investors to determine how much they should pay for an investment property.
• Can be used with any type of property in any market.

Answer 279

Uses a method that is also used by investors to determine how much they should pay for an investment property.

Question 280

A property is being appraised using the income capitalization approach. Annually, it has an estimated gross income of $60,000, vacancy and credit losses of $3,000, and operating expenses of $20,000. Using a capitalization rate of ten percent, what is the indicated value (to the nearest $1,000)?

$370,000.
$400,000.
$570,000.
$600,000.

Answer 280

First, identify net income by subtracting out vacancy and expenses. Then divide by the capitalization rate. Thus, ($60,000 –3,000 – 20,000) ÷ 10% = $370,000.

Question 281

An apartment building that sold for $450,000 had monthly gross rent receipts of $3,000. What is its monthly gross rent multiplier?

12.5
.01
.08.
150.

Answer 281

The monthly gross rent multiplier for a property is equal to the price divided by the monthly rent. Thus, ($450,000 ÷ $3,000) = 150.

Question 282

A rental house has monthly gross income of $1,200. A suitable gross income multiplier derived from market data is 14.1. What estimated sale price (to the nearest $1,000) is indicated?

$169,000.
$102,000.
$203,000.
$173,000.

Answer 282

Multiply the monthly gross income times 12 to derive annual income. Multiply annual income times the gross income multiplier to derive the estimate of price. Thus, $1,200 times 12 equals $14,400. This times 14.1 equals $203,040, or $203,000 rounded.

Question 283

A certified appraiser is one who has received certification by

a licensed real estate school
the Appraisal Institute.
the state in which the appraiser operates.
the Appraisal Review Board.

Answer 283

the state in which the appraiser operates.

Question 284

The act that required federally-related appraisals to be conducted by a certified appraiser is known as

• The Financial Institutions Reform, Recovery and Enforcement Act (FIRREA).
• The Uniform Standards of Professional Appraisal Practice Act (USPAPA).
• The Appraisal Foundation Authorization and Reform Act (AFAR).
• The Federal Institution for Regulation and Enforcement of Appraisal Act (FIREAA).

Answer 284

The Financial Institutions Reform, Recovery and Enforcement Act (FIRREA).

Question 285

As a component of real estate value, the principle of substitution states that

if two similar properties are for sale, a buyer will purchase the cheaper of the two.
if one of two adjacent homes is more valuable, the price of the other home will tend to rise.
if too many properties are built in a market, the prices will tend to go down.
people will readily move to another home if it is of equal value.

Answer 285

if two similar properties are for sale, a buyer will purchase the cheaper of the two.

Question 286

Highest and best use of a property is that use which

• is physically and financially feasible, legal, and the most productive.
• is legal, feasible, and deemed the most appropriate by zoning authorities.
• entails the largest building that zoning ordinances will allow developers to erect
• conforms to other properties in the area.

Answer 286

is physically and financially feasible, legal, and the most productive.

Question 287

Lynne just bought a house. She paid $187,500, for it, even though it had been listed at $195,000. An adjoining property owner, Ken, had tried to buy the property for $185,000, but had been refused. He now offers Lynne $190,000 for the house. Lynne is interested, so she hires an appraiser. The appraiser returns an estimate of value of $200,000. Which of these numbers can be called the market value?

$187,500.
$190,000.
$195,000.
$200,000

Answer 287

$200,000

Question 288

A notable weakness of the sales comparison approach to value is that

• There may be no recent sale price data in the market
• The approach is not based on the principle of substitution
• The approach is only accurate with unique, special purpose properties
• Sale prices cannot be compared, since all real estate is different

Answer 288

There may be no recent sale price data in the market

Question 289

In the market data approach, an appraiser

• Chooses nearby comparables, adjusts the subject for differences, and estimates the value
• Gathers relevant price data, applies the data to the subject, and estimates the value
• Selects comparable properties, adjusts the comparables, and estimates the value.
• Identifies the price previously paid, applies an appreciation rate, and estimates the value

Answer 289

Selects comparable properties, adjusts the comparables, and estimates the value.

Question 290

In the sales comparison approach, an adjustment is warranted if

• the buyer obtains conventional financing for the property.
• the seller offers below-market seller financing.
• a comparable is located in another, albeit similar neighborhood.
• one property has a hip roof and the other has a gabled roof.

Answer 290

the seller offers below-market seller financing.

Question 291

To complete the sales comparison approach, the appraiser

• Averages the comparable values
• Weights the comparables.
• Identifies the subject’s value as that of the middle value of the comparables
• Identifies the subject’s value as that of the nearest comparable

Answer 291

Weights the comparables.

Question 292

One weakness of the cost approach for appraising market value is that

Builders may not pay market value for materials or labor.
Market value is not always the same as what the property cost.
Comparables used may not have similar quality of construction
New properties have inestimable costs and rates of depreciation

Answer 292

Market value is not always the same as what the property cost.

Question 293

The cost of constructing a functional equivalent of a subject property is known as

reproduction cost.
replacement cost.
restitution cost.
reconstruction cost.

Answer 293

replacement cost.

Question 294

An office building lacks fiber optic cabling to accommodate the latest communications equipment. This is an example of

physical deterioration.
economic obsolescence
incurable depreciation.
functional obsolescence.

Answer 294

functional obsolescence.

Question 295

A home is located in a neighborhood where homeowners on the block have failed to maintain their properties. This is an example of

• curable external obsolescence
• incurable economic obsolescence
• functional obsolescence
• physical deterioration

Answer 295

incurable economic obsolescence

Question 296

In appraisal, loss of value in a property from any cause is referred to as

deterioration
obsolescence.
depreciation.
deflation.

Answer 296

depreciation.

Question 297

In the cost approach, after estimating the value of the land and the cost of the improvements, the appraiser

• Estimates depreciation, subtracts depreciation from cost, and adds back the land value.
• Subtracts deterioration from cost, estimates land depreciation, and totals the two values
• Estimates depreciation of land and improvements and subtracts the total from original cost
• Estimates obsolescence and subtracts from the cost of land and improvements.

Answer 297

-Estimates depreciation, subtracts depreciation from cost, and adds back the land value.

Question 298

What is a lien-theory state?

• A state in which a mortgagee holds legal title to a secured property.
• A state in which a mortgagee has equitable title to a secured property.
• A state that allows a real estate owner’s creditors to record liens against the owner’s property.
• A state in which a lien is considered as a conveyance.

Answer 298

A state in which a mortgagee has equitable title to a secured property.

Question 299

What is the function of a note in a mortgage or trust deed financing arrangement?

It is the lender’s security instrument in the collateral property
It is evidence of ownership of the mortgage or trust deed.
It contains the borrower’s promise to maintain the value of the property given as collateral for a loan.
It is evidence of the borrower’s debt to the lender

Answer 299

It is evidence of the borrower’s debt to the lender

Question 300

When homebuyer Henry pledges his newly purchased home as collateral for a mortgage loan, the evidence of the pledge is the

trust deed or mortgage.
promissory note.
loan commitment.
loan receipt.

Answer 300

trust deed or mortgage.

Question 301

The borrower in a mortgage loan transaction is known as the

mortgagee.
mortgagor.
lienor.
trustee.

Answer 301

mortgagor.

Question 302

If a borrower obtains an interest-only loan of $200,000 at an annual interest rate of 6%, what is the monthly interest payment?

$1,200.
$600.
$500
$1,000.

Answer 302

Multiply the rate times the loan amount and divide by 12 to calculate monthly interest. Thus, ($200,000 x 6%) ÷ 12 = $1,000.

Question 303

If a borrower’s monthly interest payment on an interest-only loan at an annual interest rate of 6% is $500, how much was the loan amount?

$72,000.
$100,000.
$120,000.
$50,000.

Answer 303

The equation for the loan amount is (annual interest divided by the interest rate) = loan amount. Thus, ($500 x 12) ÷ .06 = $100,000.

Question 304

A borrower of a $50,000 interest-only loan makes annual interest payments of $3750. What interest rate is the borrower paying?

7.5%.
.75%.
3.75%
8.5%

Answer 304

The equation for the interest rate is (annual payment / loan amount) = interest rate. Thus ($3750 / $50,000) = 7.5%.

Question 305

Maria borrows $100,000 and pays two points for the loan. How much does she pay in points?

$200.
$2,000
$1,200.
It depends on the interest rate.

Answer 305

A discount point is one percent of the loan amount. Thus, one point on a $100,000 loan equals ($100,000 x 2%) or ($100,000 x .02), or $2,000.

Question 306

Which of the following is true of an amortizing loan?

• The amount of annual interest paid is the same for every year of the loan term.
• Part of each periodic payment is applied to repayment of the loan balance in advance and part is applied to payment of interest in arrears
• Except for any points that may be paid, the interest on the loan balance is usually paid in advance
• The interest rate is reduced each year to maintain equal payments even though the outstanding loan balance is smaller

Answer 306

-Part of each periodic payment is applied to repayment of the loan balance in advance and part is applied to payment of interest in arrears

Question 307

For a loan that is not backed by the Federal Housing Administration or Veterans Administration, and for which the borrower is making a down payment of less than 20%, the lender is likely to require the borrower to obtain

a subrogation agreement.
private mortgage insurance.
a letter of credit.
a co-signer on the note.

Answer 307

private mortgage insurance.

Question 308

What is a loan-to-value ratio?

• The percentage of a lender’s portfolio that is composed of mortgage loans.
• The ratio of borrowed principal plus total interest to the appraised value of the collateral property.
• The ratio of a lender’s return on a mortgage loan to the value of the collateral property.
• The fraction of the appraised value of the property offered as collateral which the lender is willing to lend.

Answer 308

-The fraction of the appraised value of the property offered as collateral which the lender is willing to lend.

Question 309

The difference between what a borrower has to pay to purchase a property and the amount a lender will lend on the property is the

• mortgage insurance coverage amount.
• lender’s profit margin
• buyer’s down payment
• origination fee.

Answer 309

buyer’s down payment

Question 310

The Equal Credit Opportunity Act prohibits a lender from

• Refusing a loan because the property is located in a certain area.
• Including income from self-employment in the borrower’s qualifying income
• Requiring both spouses to sign the loan application form.
• Refusing a loan because a borrower has a defective credit report

Answer 310

Refusing a loan because the property is located in a certain area.

Question 311

A loan applicant has an annual gross income of $72,000. How much will a lender allow the applicant to pay for monthly housing expense to qualify for a loan if the lender uses an income ratio of 28%?

$2,160.
$1,680.
$1,068.
$840.

Answer 311

Monthly income qualification is derived by multiplying monthly income by the income ratio. Thus (72,000 / 12) x .28 = $1680. Remember to first derive the monthly income.

Question 312

AMC Bank discovers, in considering buyer Bob’s application for a mortgage loan, that Bob has borrowed the down payment from an uncle and has to repay that loan. Bob should expect that AMC Bank will

• Refuse the application
• Adjust the applicant’s debt ratio calculation and lower the loan amount
• Increase the loan amount to enable the borrower to pay off the loan to the relative.
• Require the borrower to make payments to an escrow account for repayment of the relative’s loan.

Answer 312

Adjust the applicant’s debt ratio calculation and lower the loan amount

Question 313

The Federal Reserve’s Regulation Z applies to which loans?

All loans.
All loans secured by real estate.
All loans secured by a residence
All loans over $25,000.

Answer 313

All loans secured by a residence

Question 314

If a particular loan falls under Regulation Z’s right of rescission provision,

• The lender has the right to change the terms of the loan within a certain period.
• The lender has the right to accelerate repayment of the loan because of a change in the borrower’s credit status.
• The borrower has the right to pay off the loan ahead of schedule with no penalty
• The borrower has a limited right to cancel the transaction within a certain period

Answer 314

-The borrower has a limited right to cancel the transaction within a certain period

Question 315

Under the Equal Credit Opportunity Act, a lender, or a real estate agent who assists a seller in qualifying a potential buyer, may not

Tell a rejected loan applicant the reasons for the rejection.
Ask the buyer/borrower about his/her religion or national origin.
Ask the buyer/borrower to explain unconventional sources of income
Use a credit report that has not been provided to the borrower

Answer 315

Ask the buyer/borrower about his/her religion or national origin.

Question 316

A conventional mortgage loan is one that is

• Backed by the Federal National Mortgage Association.
• Insured under Section 203(b) of the Federal Housing Administration loan program.
• Guaranteed by the Government National Mortgage Association.
• Not FHA-insured or VA-guaranteed

Answer 316

not FHA-insured or VA-guaranteed

Question 317

The assumability of an FHA-insured loan is

• unrestricted.
• limited by when the loan was originated.
• limited to owner-occupied properties.
• prohibited on all existing loans under current regulations

Answer 317

limited by when the loan was originated.

Question 318

A VA certificate of eligibility determines

• How long an individual served in the military
• The maximum loan amount an approved lender can give to veterans.
• How much of a loan the VA will guarantee.
• Whether a lender is approved to issue VA-guaranteed loans.

Answer 318

How much of a loan the VA will guarantee.

Question 319

A borrower obtains a 30-year, fully amortizing mortgage loan of $50,000 at 8%. What is the principal balance at the end of the loan term?

$2,000.
$50,000.
$220
Zero.

Answer 319

Zero.

Question 320

Which of the following describes a purchase money mortgage financing arrangement?

• A bank gives a buyer a senior mortgage loan that fully covers the cost of purchasing the property
• The buyer gives the seller a mortgage and note as part of the purchase price of the property.
• A land trust holds title to the property while the buyer makes periodic installment payments to the seller.
• The seller uses the purchase money obtained from the buyer’s mortgage loan to repay the seller’s outstanding loan balance

Answer 320

The buyer gives the seller a mortgage and note as part of the purchase price of the property.

Question 321

A homeowner borrows money from a lender and gives the lender a mortgage on the property as collateral for the loan. The homeowner retains title to the property. This is an example of

intermediation.
forfeiture.
hypothecation.
subordination.

Answer 321

hypothecation.

Question 322

Which of the following correctly describes the flow of money and documents in a mortgage loan transaction?

• The borrower gives the lender a note and a mortgage in exchange for loan funds.
• The lender gives the borrower a mortgage and receives a note in exchange for loan funds
• The borrower receives a note in exchange for a mortgage from the lender.
• The lender gives the borrower a note, loan funds and a mortgage

Answer 322

The borrower gives the lender a note and a mortgage in exchange for loan funds.

Question 323

In a deed of trust transaction, which of the following occurs?

• The beneficiary conveys title to a trustee in exchange for loan funds.
• The trustee conveys title to a beneficiary in exchange for loan funds.
• The trustor conveys title to a trustee in exchange for loan funds from the beneficiary
• The trustee conveys title to a trustor in exchange for loan funds from the beneficiary

Answer 323

-The trustor conveys title to a trustee in exchange for loan funds from the beneficiary

Question 324

A lender lends money to a homeowner and takes legal title to the property as collateral during the payoff period. They are in a

title-theory state.
lien-theory state.
state allowing land trusts.
state where hypothecation is illegal.

Answer 324

title-theory state.

Question 325

A lender who charges a rate of interest in excess of legal limits is guilty of

• redlining.
• usury.
• profit-taking.
• nothing; there are no legal limits to interest rates.

Answer 325

usury.

Question 326

A lender is charging 2 points on a $60,000 loan. The borrower must therefore pay the lender an advance amount of

$120.
$300.
$1,200.
$3,000.

Answer 326

A point is one percentage point of a loan amount. Thus, 2 points on a $60,000 loan equal (.02 x $60,000), or $1,200.

Question 327

The difference between a balloon loan and an amortized loan is

An amortized loan is paid off over the loan period.
A balloon loan always has a shorter loan term.
An amortized loan requires interest-payments.
A balloon loan must be retired in five years.

Answer 327

An amortized loan is paid off over the loan period.

Question 328

A distinctive feature of a promissory note is that

it is not assignable.
it must be accompanied by a mortgage
it is a negotiable instrument
it may not be prepaid.

Answer 328

it is a negotiable instrument

Question 329

When the terms of the mortgage loan are satisfied, the mortgagee

• May retain any overage in the escrow account
• May inspect the property before returning legal title
• May be entitled to charge the borrower a small fee to close the loan
• May be required to execute a release of mortgage document.

Answer 329

May be required to execute a release of mortgage document.

Question 330

In addition to income, credit, and employment data, a mortgage lender requires additional documentation, usually including

an appraisal report.
a criminal record report.
a subordination agreement.
a default recourse waiver.

Answer 330

an appraisal report.

Question 331

The three overriding considerations of a lender’s mortgage loan decision are

• Points, interest rate, and loan term.
• The location of the mortgaged property, the borrower’s cash, and the amount of the borrower’s equity.
• The ability to re-pay, the value of the collateral, and the profitability of the loan.
• The amount of the loan, the borrower’s income, and the down payment.

Answer 331

-The ability to re-pay, the value of the collateral, and the profitability of the loan.

Question 332

The reason lenders consider the loan-to-value ratio important in underwriting is that

• They don’t want to lend borrowers any more money than necessary
• They want to ensure there is more than enough collateral to cover the loan amount
• Borrowers can only afford to borrow a portion of the entire purchase price
• The higher the loan-to-value ratio, the more profitable the loan

Answer 332

-They want to ensure there is more than enough collateral to cover the loan amount

Question 333

The Equal Credit Opportunity Act (ECOA) requires lenders to

• Extend equal credit to all prospective borrowers
• Consider the income of a spouse in evaluating a family’s creditworthiness.
• Discount the income of a person involved in child-rearing or child-bearing
• Specialize lending activity by geographical area for improved customer service

Answer 333

-Consider the income of a spouse in evaluating a family’s creditworthiness.

Question 334

Lenders use an income ratio in qualifying to

• Insure a borrower has the earning power to make the loan payments
• Compare a borrower’s earnings to the borrower’s short-term debt.
• Identify the highest possible interest rate that the borrower can afford.
• Quantify the borrower’s assets to the fullest extent

Answer 334

-Insure a borrower has the earning power to make the loan payments

Question 335

The debt ratio formula used to qualify borrowers is

total debt divided by debt payments.
gross income divided by assets.
gross income divided by debts.
debt payments divided by gross income

Answer 335

debt payments divided by gross income

Question 336

At the closing of a mortgage loan

• The borrower pays off the note and receives clear title
• The lender issues a firm loan commitment
• The parties complete all loan origination documents and the loan is funded
• The borrower’s loan application is complete and the file closed

Answer 336

-The parties complete all loan origination documents and the loan is funded

Question 337

Which laws or regulations require mortgage lenders to disclose financing costs and annual percentage rate to a borrower before funding a loan?

The Equal Credit Opportunity Act.
Truth-in-Lending laws and Regulation Z.
The Real Estate Settlement and Procedures Act.
Federal Fair Housing Laws.

Answer 337

Truth-in-Lending laws and Regulation Z.

Question 338

Which laws or regulations prevent mortgage lenders from discriminating in extending credit to potential borrowers?

The Equal Credit Opportunity Act
Truth-in-Lending laws
The Real Estate Settlement and Procedures Act.
Federal Fair Housing Laws.

Answer 338

The Equal Credit Opportunity Act

Question 339

Which laws or regulations require mortgage lenders to provide an estimate of closing costs to a borrower and forbid them to pay kickbacks for referrals?

• The Equal Credit Opportunity Act.
• Truth-in-Lending laws.
• The Real Estate Settlement and Procedures Act.
• Federal Fair Housing Laws

Answer 339

the Real Estate Settlement and Procedures Act.

Question 340

Which of the following are methods used by the Federal Reserve System to regulate the money supply?

• Selling securities, printing money, and controlling lending underwriting requirements
• Buying securities, changing the discount rate, and controlling banking reserves
• Printing money, changing interest rates, and selling T-bills
• Controlling the prime rate, trading securities, and purchasing loans

Answer 340

-Buying securities, changing the discount rate, and controlling banking reserves

Question 341

How does the secondary mortgage market aid borrowers seeking a mortgage loan?

• It cycles funds back to primary lenders so they can make more loans.
• It issues second mortgages and sells them in the home equity market.
• It lends funds to banks so they can make more loans
• It pays off defaulted loans made by primary mortgage lenders

Answer 341

-It cycles funds back to primary lenders so they can make more loans.

Question 342

The major organizations operating in the secondary mortgage market are

• Fannie Mae, Freddie Mac, and Ginnie Mae
• Fannie Mae, GMAC, and MGIC.
• Freddie Mac, FHA, and VA.
• Fannie Mae, Freddie Mac, and the Federal Reserve

Answer 342

Fannie Mae, Freddie Mac, and Ginnie Mae

Question 343

What is the role of Fannie Mae in the secondary mortgage market?

It guarantees FHA-backed and VA-backed loans.
It insures FHA-backed and VA-backed loans.
It purchases FHA-backed and VA-backed loans.
It originates FHA-backed and VA-backed loans.

Answer 343

It purchases FHA-backed and VA-backed loans.

Question 344

What is the role of the Federal Housing Authority in the mortgage lending market?

• It guarantees loans made by approved lenders
• It insures loans made by approved lenders.
• It purchases loans made by approved lenders.
• It originates loans made by approved lenders.

Answer 344

-It insures loans made by approved lenders.

Question 345

What is the role of the Veteran’s Administration in the mortgage lending market?

It guarantees loans made by approved lenders.
It insures loans made by approved lenders.
It purchases loans made by approved lenders.
It originates loans made by approved lenders.

Answer 345

It guarantees loans made by approved lenders.

Question 346

In a graduated payment mortgage loan,

• loan funds are disbursed to the borrower on a graduated basis.
• the interest rate periodically increases in graduated phases
• the loan payments gradually increase.
• the loan payments gradually increase and the loan term gradually decreases

Answer 346

-the loan payments gradually increase.

Question 347

In a buydown;

• the lender lowers the interest rate on a loan in exchange for a prepayment of principal
• the borrower pays additional interest at the onset in order to obtain a lower interest rate.
• the lender requires the borrower to buy down the price of the property by increasing the down payment.
• the borrower pays the lender additional funds to buy down the term of the loan.

Answer 347

-the borrower pays additional interest at the onset in order to obtain a lower interest rate.

Question 348

When an investor has to pay a lender more to finance the investment than the investment property generates in income, the investor suffers from

negative amortization
negative leverage
a reverse mortgage
a debt investment

Answer 348

negative leverage

Question 349

Cost recovery is allowed as a federal tax deduction on

• principal residences that do not have a home office.
• income properties.
• land.
• commercial properties owned by the federal government

Answer 349

-income properties.

Question 350

A homeowner paid $200,000 for a house three years ago. The house sells today for $239,000. How much has the property appreciated?

8. 4 %.
9. 5 %.
10. 5 %.
11. 3 %.

Answer 350

Appreciation amount is the current value of the property minus the original cost. The total appreciation rate is derived by dividing the appreciation amount by the original cost. Subtract the estimated current market value from the price originally paid (239,000 - 200,000 = 39,000) and then divide the result by the original price (39,000 / 200,000 = . 195 or 19.5%).

Question 351

The primary tax benefit in owning a non-income property such as a residence is

• depreciation of improvements.
• appreciation of land.
• a deduction for costs of operating the property.
• a deduction for mortgage interest.

Answer 351

-a deduction for mortgage interest.

Question 352

A house sold for $250,000. The seller paid a brokerage commission of six percent, legal fees of $600, and had other closing costs of $1,500. What are net proceeds from the sale?

$235,000.
$234,000.
$233,500.
$232,900.

Answer 352

The figure for net proceeds from sale is expressed by the formula: sale price - costs of sale = net proceeds. Thus $250,000 - (6% x 250,000) – 600 – 1,500 = $232,900.

Question 353

A homeowner bought a house five years ago for $150,000. Since then, the homeowner has spent $3,000 to pave the driveway and has added a central heating/airconditioning system at a cost of $4,000. What is the homeowner’s adjusted basis if the house is sold today?

$156,000.
$157,000
$144,000.
$145,000.

Answer 353

The beginning basis is the cost of acquiring a property. Basis is increased by capital improvements and decreased by depreciation. The basic formula for adjusted basis is Beginning basis ($150,000) + capital improvements ($3,000 + $4,000) - depreciation ($0) = adjusted basis ($157,000).

Question 354

A homeowner sold her house and realized a net proceeds amount of $210,000. Her adjusted basis in the home was $176,000. She immediately bought another house for $200,000. What was her capital gain?

$10,000.
$24,000.
$34,000.
None.

Answer 354

The gain on sale (capital gain) of a primary residence is represented by the basic formula: amount realized (net sales proceeds, $210,000) - adjusted basis ($176,000) = gain on sale ($34,000). Note the purchase price of the second house is irrelevant.

Question 355

After five years of owner-occupancy, Simon Wilson sells his principal residence for a gain of $150,000, and the next month buys another principal residence that costs more than the adjusted sale price of the old home. Which of the following is true of the treatment of the tax on gain?

• There is no taxable gain.
• It must be paid in the year of the sale
• The homeowner may choose to pay it or defer it.
• Tax is due on the difference between the cost of the new home and adjusted basis of the old one.

Answer 355

-There is no taxable gain.

Question 356

Ralph Roberts buys a small office building as an investment and participates actively in the management and operation of the building. This is an example of

syndication.
equity investment.
direct investment.
illiquidity

Answer 356

direct investment.

Question 357

Elmo Gilmore owns a small retail property that he inherited from his father. There are no mortgages or interest expenses connected with the property. Elmo takes an annual cost recovery expense of $5,000. The property has a monthly gross income of $1,500 and monthly operating expenses of $500. Elmo’s taxable income from this property will be taxed at a rate of 30%. What is the tax liability for the year?

$2,100.
$3,600
$3,900.
$7,000.

Answer 357

Annual gross operating income ($1,500 x 12 = $18,000) - annual operating expenses ($500 x 12 = $6,000) = annual net operating income ( $12,000); annual net operating income ($12,000) - cost recovery expense ($5,000) = taxable income ($7,000); taxable income ($7,000) x tax rate (30%) = tax liability ($2,100).

Question 358

All investors desire their investments to increase in value. However,

• the degree of return is inversely related to the degree of risk.
• the more the investor stands to gain, the greater the risk that the investor may lose.
• investments requiring intense management have lesser returns.
• the more liquid an investment is, the greater the chances are that the investment will not appreciate.

Answer 358

-the more the investor stands to gain, the greater the risk that the investor may lose.

Question 359

Two of the financial rewards that investments offer are

income and tax benefits.
negative leverage and appreciation.
appreciation and taxation.
positive leverage and prestige.

Answer 359

income and tax benefits.

Question 360

Because a real estate investment can take a long time to sell, real estate investments are considered to be

management intensive.
insensitive to marketing
vulnerable to seller’s markets
relatively illiquid.

Answer 360

relatively illiquid.

Question 361

Compared to a stock portfolio, a real estate investment would be considered

a riskier investment.
a more management-intensive investment
a shorter-term investment
a more leveraged investment

Answer 361

a more management-intensive investment

Question 362

Six investors purchase a shopping center. One investor manages the tenants and another handles the marketing and leasing. Two investors manage accounting and finance, and the remaining two run the management office. This is a possible example of

a general partnership.
a limited partnership.
a real estate investment trust.
an investment conduit.

Answer 362

a general partnership.

Question 363

The formula for determining taxable income produced by an income property is

• gross income minus expenses plus land and building depreciation
• gross income minus expenses minus land and building depreciation
• gross income minus building depreciation plus land depreciation
• gross income minus expenses minus building depreciation.

Answer 363

-gross income minus expenses minus building depreciation.

Question 364

In deriving taxable income on an investment property, it is generally legal to

• deduct principal and interest payments from income
• deduct principal payments from income.
• deduct interest payments from income.
• deduct principal and interest payments from income and capital gain

Answer 364

deduct interest payments from income.

Question 365

Jake does not use any part of his principal residence as a home office. Which of the following is true of the tax treatment of this property?

• The owner may deduct the property’s interest and principal from ordinary income
• The owner may depreciate the property and deduct depreciation expenses from ordinary income
• The owner can deduct any capital gain when the property is sold.
• The owner may be able to avoid capital gain tax when the property is sold.

Answer 365

-The owner may be able to avoid capital gain tax when the property is sold.

Question 366

An investment property seller pays $14,000 in closing costs. These costs

• may be deducted from personal income.
• may be deducted from the property’s income.
• may be deducted from the sale price for gains tax purposes.
• may be deducted from the adjusted basis for gains tax purposes.

Answer 366

-may be deducted from the sale price for gains tax purposes.

Question 367

The formula for calculating capital gain tax is the taxpayer’s tax bracket multiplied by

• the sum of the beginning basis plus gain.
• the difference between amount realized and adjusted basis
• the sum of net sale proceeds and capital gain
• the difference between net sale proceeds and capital gain.

Answer 367

-the difference between amount realized and adjusted basis

Question 368

Which of the following entities can legally levy annual real property taxes?

The Internal Revenue Service.
A utility company.
A tax district.
A court of law.

Answer 368

A tax district.

Question 369

Certain classes of property owner and types of property are exempted or immune from real property taxation in many areas. The protected categories usually include

• recreational properties.
• properties owned by a government agency.
• properties that comply with the Americans with Disabilities Act.
• properties occupied by single-parent families.

Answer 369

properties owned by a government agency.

Question 370

What is the purpose of an equalization factor in ad valorem taxation?

• It modifies a local tax rate to bring it into conformity with statutory tax rates.
• It changes the assessed value of an individual property to make it reflect the assessed values of other properties in the same neighborhood
• It adjusts assessments in a locality to make them more consistent with an average level for the state or other higher level jurisdiction.
• It adjusts the amount of the homestead exemption in a certain area to make it proportionally equivalent to the average homestead exemption in other areas

Answer 370

-It adjusts assessments in a locality to make them more consistent with an average level for the state or other higher level jurisdiction.

Question 371

A school district’s tax rate is 10 mills. The school district’s required revenue from real estate taxes is $20,000,000. What is the tax base of the area?

$20,000,000
$200,000,000.
$2,000,000,000.
$200,000,000,000.

Answer 371

The mill rate = (tax requirement / the tax base). A mill is one one-thousandth of a dollar ($.001). To solve for the tax base, reconfigure this formula to be: Base = Tax Requirement / Mill Rate. Thus the Base = $20,000,000 / .010, or $2,000,000,000.

Question 372

A homeowner receives a tax bill that includes an amount for the library district, taxed at $1.00 per $1,000, and the fire protection district, taxed at $2.00 per $1,000. How much does the taxpayer have to pay for these two items if the property’s taxable value is $147,000?

$1,567.
$157.
$1,410.
$441.

Answer 372

The library tax is ($1.00 x 147) and the fire district tax is ($2.00 x 147). Thus the tax is $441

Question 373

A town is replacing a sidewalk that serves five homes. The length of the sidewalk is 200 feet. Mary’s property has 38 feet of front footage. If the cost of the project to be paid by a special assessment is $30,000, what will Mary’s assessment be?

$6,000.
$5,700.
$789.
$1,579.

Answer 373

Special assessments are based on the cost of the improvement and apportioned on a pro rata basis among benefiting properties according to the value that each parcel will receive from the improvement. Here, Mary’s share is 38 / 200, or 19%. 19% x $30,000 = $5,700.

Question 374

What is a tax deed?

• A conveyance instrument for a property that is sold to enforce a tax lien.
• A document recorded in title records showing that property taxes have been paid
• A notice to a homeowner that a tax lien has been entered against the property
• A document that gives a municipal authority the power to collect an individual tax bill.

Answer 374

-A conveyance instrument for a property that is sold to enforce a tax lien.

Question 375

If a property owner has the right to redeem his or her property after a tax sale, the owner has

a legal right of rescission.
an equitable right to acquire title.
a right of homestead exclusion.
a statutory right of redemption.

Answer 375

a statutory right of redemption.

Question 376

The formula for deriving a municipal jurisdiction’s ad valorem tax base is

• the jurisdiction’s annual budget times the tax rate.
• the total of all assessed values of properties minus exemptions.
• the total amount of ad valorem taxes required by the budget.
• the municipality’s budget multiplied times the millage rate.

Answer 376

-the total of all assessed values of properties minus exemptions.

Question 377

A homeowner’s total tax bill is derived by

• dividing the tax requirement by the tax base.
• multiplying each district’s tax rate times the market value of the property.
• multiplying each district’s tax rate times the taxable value of the property.
• averaging the tax rate for each tax district, and multiplying the average tax rate times the assessed value.

Answer 377

-multiplying each district’s tax rate times the taxable value of the property.

Question 378

The fair housing law that first protected people against discrimination in housing based on race was the

Civil Rights Act of 1866.
Civil Rights Act of 1968.
Executive Order 11063 of 1962.
Title VIII amendment to the Fair Housing Act.

Answer 378

Civil Rights Act of 1866.

Question 379

The classes protected against discrimination by the Fair Housing Act of 1968 are

race only.
religion and gender only.
race, color, religion, and national origin.
age and gender only.

Answer 379

race, color, religion, and national origin.

Question 380

An agent is committing an act of discriminatory advertising by doing which of the following?

• Telling prospective buyers about the positive and negative aspects of a certain neighborhood.
• Telling a prospective seller that now would be a good time to put a property on the market.
• Advertising a property as available to individuals of a particular race.
• Telling a prospective buyer that the agent is too busy to show the buyer properties personally on a given day.

Answer 380

-Advertising a property as available to individuals of a particular race.

Question 381

Which of the following is an example of blockbusting?

• An agent shows a minority home buyer properties located in a neighborhood where there are no other minority home owners.
• An agent persuades a minority home buyer to avoid looking in a neighborhood where there are no minority home owners.
• An agent persuades a family to put their house on the market because ethnic minority families are beginning to move into the neighborhood.
• An agent persuades a minority home buyer to buy a property located in an area where most of the home owners belong to minority groups.

Answer 381

-An agent persuades a family to put their house on the market because ethnic minority families are beginning to move into the neighborhood.

Question 382

The practice of redlining is specifically prohibited by

The Home Mortgage Disclosure Act.
The Real Estate Settlement Procedures Act.
The Civil Rights Act of 1866.
The Americans with Disabilities Act.

Answer 382

The Home Mortgage Disclosure Act.

Question 383

Title VIII of the Civil Rights Act of 1968 applies to the sale of

• all single-family residences.
• all privately owned single-family residences.
• privately owned single-family residences listed with a broker.
• privately owned single-family residences for sale by owner.

Answer 383

privately owned single-family residences listed with a broker.

Question 384

A broker signs a listing agreement to sell a home for $200,000. An immigrant couple are interested in the house and ask the agent the price. The agent states the price as $210,000. According to the fair housing laws, such an action is

• illegal, because the agent changed the terms of the sale to discourage this particular couple.
• illegal, because the agent violated the listing agreement.
• legal, because the quoted price increase did not exceed 10% of the listing price.
• legal, because the increased price does not necessarily exclude the couple.

Answer 384

-illegal, because the agent changed the terms of the sale to discourage this particular couple.

Question 385

Which of the following actions is allowed under federal fair housing laws?

• A broker, following the instructions of the seller, advertises the property as for sale to Christian families only.
• A home seller, acting without a broker, places a “for sale– mature, single men only” sign in front of the house.
• The owner of four rental houses advertises one of the properties for rent to married couples, no children, no pets.
• The owner of a duplex who resides in one of the units refuses to rent the other unit to a non-Christian.

Answer 385

-The owner of a duplex who resides in one of the units refuses to rent the other unit to a non-Christian.

Question 386

Cecily Longstreet believes a real estate agent has kept her from seeing a certain property for rent because she is a woman. What actions should she take if she wants legal satisfaction for her complaint?

• File charges of illegal discrimination with the police department that has jurisdiction over the local area.
• File a complaint with HUD and/or file suit against the offending parties in a state or federal court within the prescribed time period.
• Wait two years and then file a civil suit in federal court.
• Sue HUD for damages under the Civil rights Act of 1866.

Answer 386

-File a complaint with HUD and/or file suit against the offending parties in a state or federal court within the prescribed time period.

Question 387

George Scott hires Shannon Lang to sell his house, with the condition that he will not be the first one in the neighborhood to sell to members of a certain ethnic group. What should Shannon do about this condition?

• Inform Scott that the condition is illegal and that she cannot comply with it.
• Note the condition on the listing agreement and have Scott initial it.
• Pretend that she did not hear the condition and proceed to market the property to all groups.
• Tell Scott that she will try to discourage members of that group from looking at the property, but that she cannot control cooperating brokers

Answer 387

-Inform Scott that the condition is illegal and that she cannot comply with it.

Question 388

Under federal fair housing laws, the owner of a ten-unit apartment building may legally

• advertise that the property is not available to anyone requiring wheelchair access.
• refuse to rent to aliens.
• require families without children to pay the same security deposit that families with children must pay.
• require tenants to move out when they become 62 years old.

Answer 388

-require families without children to pay the same security deposit that families with children must pay.

Question 389

Sam Gough wants to rent out his home, but wants to exclude families with children because of his belief that they cause damage. Under what conditions would federal fair housing laws allow Gough to rent on these terms?

• The owner has a consistent no-children policy in all his rental properties.
• The owner can prove that costs to repair damage caused by previous tenants with children exceeded the tenants’ security deposit.
• It is a single-family house that is part of a federally-designated planned unit development.
• It is a single-family house, and the owner owns only one other rental home in addition to his own residence.

Answer 389

-It is a single-family house, and the owner owns only one other rental home in addition to his own residence.

Question 390

Which of the following laws or rulings extended discrimination to include gender, handicapped status, and family status?

Executive Order 11063.
the Civil Rights Act of 1968.
the Fair Housing Amendments Act of 1988.
Jones v Mayer.

Answer 390

the Fair Housing Amendments Act of 1988.

Question 391

The Wallaces, a minority family, would like to buy a home in a certain price range. Agent Ambrose shows the family all available properties in a neighborhood of families with similar backgrounds. Ambrose does not mention a number of homes in the family’s price range in other neighborhoods. This agent could be liable for

blockbusting.
providing unequal services.
steering.
nothing; his services were legal and acceptable.

Answer 391

steering.

Question 392

An agent does not like a particular minority buyer, and is very short with the person, refusing to engage in lengthy conversation or show him any properties. A second minority party visits the office the next day. The agent is very forthcoming, and shows the person five prospective properties. This agent could be liable for

• providing unequal services.
• steering.
• misrepresentation.
• nothing; both parties were minorities, and therefore no discrimination occurred.

Answer 392

providing unequal services.

Question 393

Following the client’s recommendation, an agent conceals the availability of a property from an employed but pregnant and unmarried minority woman. This agent could be liable for

• discriminatory misrepresentation by omission.
• steering.
• violating fiduciary duty.
• nothing: an agent may show or not show any property at his or her discretion.

Answer 393

-discriminatory misrepresentation by omission.

Question 394

The conditions of an escrow agreement cannot be met and the related transaction cannot be completed. In such a case, the escrow agent

• Levies a fine against the defaulting party.
• Assigns his or her fiduciary responsibilities to the seller’s broker.
• Returns funds to the buyer.
• Cancels the sale contract and destroys the transaction documents.

Answer 394

-Returns funds to the buyer.

Question 395

To avoid violating the Real Estate Settlement Procedures Act, parties who are providing services to the buyer or seller in a transaction must

• Be paid before the closing date for any service they provide.
• Inform the closing agent of the cost of their services at least one week before the closing date.
• Receive payment only from the funds held in escrow, not directly from buyer or seller.
• Disclose in writing any business relationships they have with other parties involved in the transaction.

Answer 395

-Disclose in writing any business relationships they have with other parties involved in the transaction.

Question 396

A certain item is to be prorated between a buyer and seller. If no outside party is concerned, which of the following statements is true?

• The item must be prorated and recorded as a debit to one party and a credit to the other party for the same amount.
• The item must be prorated and recorded as a debit to one party; the remainder is recorded as a credit to the other party.
• The party who is owed money receives a credit for the entire item and a debit for the prorated amount.
• The party who owes money receives a debit for the portion owed and a credit for the portion that is not owed.

Answer 396

-The item must be prorated and recorded as a debit to one party and a credit to the other party for the same amount.

Question 397

An item is said to be paid in arrears if it is normally paid

• On a monthly or yearly basis.
• At some time after the expense is incurred.
• Only after it is billed.
• Whenever it is incurred.

Answer 397

-At some time after the expense is incurred.

Question 398

A seller received a rental payment of $900 in advance. At closing, the seller has earned only $320 of this rent. What should appear on the closing statement?

• A debit to the seller and credit to the buyer for $320.
• A debit to the seller for $580 and a credit to the buyer for $320.
• A debit to the seller for $320 and a credit to the buyer for $900.
• A debit to the seller and credit to the buyer for $580.

Answer 398

-A debit to the seller and credit to the buyer for $580.

Question 399

A buyer will receive a water bill for an estimated $100 at the end of the month. At closing, the seller has used an estimated $43 in water. What should appear on the closing statement?

• A debit to the seller and credit to the buyer for $57.
• A debit to the seller and credit to the buyer for $43.
• A debit to the buyer and credit to the seller for $57.
• A debit to the buyer and credit to the seller for $43.

Answer 399

-A debit to the seller and credit to the buyer for $43.

Question 400

A sale transaction closes on April 1, the ninety-first day of the tax year. The day of closing belongs to the seller. Real estate taxes for the year, not yet billed, are expected to be $2,190. According to the 365-day method, what is the seller’s share of the tax bill?

• $1,644.00.
• $546.00.
• $959.30
• $1,364.66.

Answer 400

The daily tax expense, first, is ($2,190 ÷ 365) or $6.00. Since the buyer will pay the taxes after closing, the seller will owe the buyer his or her portion of the tax bill, which is the 91 days from the beginning of the year through closing. Therefore, credit the buyer and debit the seller ($6.00 x 91), or $546.00.

Question 401

A sale transaction closes on July 4. The day of closing belongs to the seller. On January 1, the seller paid a hazard insurance premium of $375 for the calendar year. According to the 12-month/30-day method, what is the seller’s share of the insurance premium?

• $183.33.
• $187.50.
• $189.05.
• $191.67.

Answer 401

This method assumes all months are 30 days and the year is 360 days. The daily proration is therefore $375 ÷ 360, or $1.04. The closing occurs on the 184th day of the year. Thus, ($1.04 x 184) = $191.67. Note that if the day of closing is the buyer’s, there would be 183 day’s worth of prorated expense.

Question 402

Waldo is buying Marianne’s house. The closing date (day belongs to seller) of the sale transaction is September 1 (day 244 of the year). Current Year real estate taxes are $1,100 (will be billed to buyer next year). Use the 365-day method for prorating. What is Marianne’s share of the real estate taxes?

• $364.66.
• $367.67.
• $732.33.
• $735.34.

Answer 402

Assuming a 365 day year, the daily tax expense is ($1,100 ÷ 365), or $3.013. As taxes are paid in arrears, the buyer will be paying the annual bill. Thus, he will be owed a credit for the seller’s share of the bill, which is $3.29 x 244 days, or $735.34.

Question 403

Christie is buying John’s house. The closing date (day belongs to seller) of the sale transaction is September 1 (day 244 of the year). Existing hazard insurance of $350 has been paid by John through December 31. Use the 365-day method for prorating. What is Christie’s share of the existing hazard insurance already paid in full?

• $116.03.
• $117.99.
• $232.01.
• $233.97.

Answer 403

The buyer’s share is the unused portion, or (365 days – 244 days), or 121 days. The daily expense is ($350 ÷ 365), or $.9589. ($.9589 x 121) = $116.03. The seller receives this amount as a credit and the buyer a debit.

Question 404

Julie is buying Florence’s house. The closing date (day belongs to seller) of the sale transaction is September 1 (day 244 of the year). The buyer’s loan amount is $78,750 (90%; 30 years @ 8%). The monthly payment on this loan is $577.84, with $525 going to interest in the first month. At closing, Julie must pre-pay interest for the period of Sept. 2-Sept. 30. Use the 365-day method for prorating. What is Julie’s prepaid interest amount?

• $507.50.
• $525.00.
• $543.10.
• $558.58.

Answer 404

If the buyer pays $525 interest for 30 days, the daily expense is ($525 ÷ 30), or $17.50. If there are 29 days of pre-paid expense, the buyer’s charge is ($17.50 x 29), or $507.50.

Question 405

Melissa is buying Raymond’s house. Melissa’s loan amount is $88,750. She has agreed to pay 2 points at closing. How much will Melissa pay for points?

• $157.50.
• $177.50.
• $1,775.00.
• $887.50.

Answer 405

$88,750 x .02 = $1,775. Remember, one point = 1% of the loan amount.

Question 406

Tina is buying Terrell’s house for $187,500. The broker’s commission, to be paid by the seller, is 6%. How much will Terrell pay the broker?

• $31,250.
• $2,625.00.
• $4,725.
• $11,250.

Answer 406

$187,500 x 6% = $187,500 x .06 = $11,250.

Question 407

A sale contract stipulates that a buyer is to pay the seller’s title insurance expenses. This practice is not customary in the area. In this case,

• the buyer and seller must amend the contract before closing.
• the contract is voidable, since the seller must pay the expense.
• the buyer may pay or not pay the expense, at his or her option.
• the buyer must pay the expense.

Answer 407

-the buyer must pay the expense.

Question 408

What a buyer has to pay at closing is equal to

• the excess of the buyer’s debits over the buyer’s credits.
• the excess of the buyer’s credits over the buyer’s debits.
• the excess of the seller’s debits over the seller’s credits.
• the excess of the seller’s credits over the seller’s debits.

Answer 408

-the excess of the buyer’s debits over the buyer’s credits.

Question 409

The standard E & O policy covers damages resulting from

• failure to disclose an environmental condition.
• antitrust violations.
• mishandling of earnest money deposits.
• negligence, error or omission in carrying out professional services.

Answer 409

-negligence, error or omission in carrying out professional services.

Question 410

Which of the following is a common risk relating to the agency relationship?

• Failing to inform and disclose properly.
• Failing to take a personal interest in a transaction.
• Acting as an exclusive agent without an oral agency agreement.
• Forgetting to record the listing agreement.

Answer 410

-Failing to inform and disclose properly.

Question 411

Even after giving buyer and seller the required information about property condition disclosures, the licensee may still be subject to legal action for

• failing to detect customer misrepresentations.
• failing to disclose known adverse facts.
• relying on publicly available market information.
• advising the purchaser to exercise due diligence.

Answer 411

-failing to disclose known adverse facts.

Question 412

A licensee performing a comparative market analysis must be careful to

• use the term “market value” whenever possible in the report.
• show a low suggested selling price to avoid a complaint of misrepresenting the value.
• include the results of a certified appraisal in the analysis.
• avoid creating a false impression that the licensee is a certified appraiser.

Answer 412

-avoid creating a false impression that the licensee is a certified appraiser.

Question 413

One of the major risk areas in fulfilling a listing agreement is

• finding a buyer who turns out to be unqualified.
• exceeding the authority of the agreement.
• showing the property without the presence of the owner.
• cooperating with other licensees.

Answer 413

-exceeding the authority of the agreement

Question 414

To reduce the risk of committing an error or omission in the contracting process, it is a good idea to

• use a checklist of all items, contingencies, dates and responsibilities that must be met.
• delegate some of your responsibilities to the licensee who represents the other party in the contract.
• call the buyer and seller daily to check on progress.
• cut the list of necessary tasks down to a few essentials and concentrate on tracking those.

Answer 414

-use a checklist of all items, contingencies, dates and responsibilities that must be met.

Question 415

Regarding contracts and forms,

• once written and signed they cannot be changed except by a lawyer.
• real estate licensees may alter forms but not contracts.
• whoever originates them can make changes without the risk of unauthorized practice of law.
• the principals may make changes as long as they sign or initial each change.

Answer 415

-the principals may make changes as long as they sign or initial each change.

Question 416

Fair housing laws are easily violated. An effective way for agents to minimize the risk of doing so is to

• deal only with consumers who do not belong to a protected class.
• obtain education in the content and intent of the laws.
• make sure there is always a witness present at all meetings with consumers.
• stay away from transactions involving public housing.

Answer 416

-obtain education in the content and intent of the laws.

Question 417

A licensee risks violating antitrust law by

• being present at a conversation where the setting of commission rates is discussed.
• being present at a discussion of antitrust laws.
• charging a commission rate that happens to be the same as that charged by another firm.
• cooperating with another firm to do market research.

Answer 417

-being present at a conversation where the setting of commission rates is discussed.

Question 418

How is an intentional misrepresentation penalized?

• License discipline, fines, and possible incarceration.
• License discipline and fines, but no incarceration.
• License discipline only.
• Fines only.

Answer 418

-License discipline, fines, and possible incarceration.

Question 419

Of the following actions, the only one which avoids any risk of committing unintentional misrepresentation is

• measuring and reporting property dimensions.
• describing properties and amenities.
• stating that a client should seek legal counsel.
• making statements about the presence or absence of hazardous substances.

Answer 419

-stating that a client should seek legal counsel.

Question 420

To reduce risks inherent in reporting transaction progress to a client, the licensee should

• make reports orally only, never in writing.
• leave progress reporting to the inspectors and other experts.
• advise the client that it is company policy to make no progress reports until the contingency period is over.
• avoid statements of opinion and speculation in all reports.

Answer 420

-avoid statements of opinion and speculation in all reports.

Question 421

How does sharing the qualifying function with a lender protect a licensee?

• It guarantees that a buyer will have a loan.
• It reduces the chance of presenting an offer from an unqualified buyer.
• It relieves the licensee of his or her due diligence responsibilities.
• It allows the licensee to avoid asking embarrassing questions.

Answer 421

-It reduces the chance of presenting an offer from an unqualified buyer.

Question 422

The area of agent activity where there is the greatest risk of failing to maintain client confidentiality is

• trust fund handling.
• office management.
• the agency relationship.
• the closing process.

Answer 422

-the agency relationship.

Question 423

The area of agent activity where there is the greatest risk of creating a false impression that the licensee is a certified appraiser is

• performing a comparative market analysis.
• writing property advertisements.
• presenting written offers.
• researching ownership documents

Answer 423

-performing a comparative market analysis.

Question 424

One of the major risk areas in advertising a listed property is that an advertisement will

• describe the property in excessively glowing terms.
• fail to appear at the same time in all available media.
• omit any mention of the owner’s main selling points.
• make a substantial misrepresentation.

Answer 424

-make a substantial misrepresentation.

Question 425

Property managers have a ______ relationship with the property owner.

• non-binding
• partnership
• fiduciary
• subagency

Answer 425

-fiduciary

Question 426

One of the property manager’s fundamental responsibilities is

• obtaining construction loans for the principal.
• financial reporting to the principal.
• finding a buyer for the property.
• maintaining good standing in a managers’ professional association.

Answer 426

-financial reporting to the principal.

Question 427

Effective gross income is defined as

• the total of scheduled rents.
• the total of all rents and revenues generated by a property.
• potential gross income minus debt service and reserves.
• revenue from all sources minus losses from uncollected rents, vacancies, and evictions.

Answer 427

-revenue from all sources minus losses from uncollected rents, vacancies, and evictions

Question 428

The efficiency of marketing activities can be measured in terms of

• cost per tenant prospect generated per lease.
• number of ads produced per marketing dollar.
• dollars expended per square foot of vacant space.
• percentage of reserves expended on marketing.

Answer 428

-cost per tenant prospect generated per lease.

Question 429

If a property’s vacancy rate is significantly lower than market rates, it may be a sign that the manager needs to

• lower rental rates.
• raise rental rates.
• find better tenants.
• improve management quality.

Answer 429

-raise rental rates.

Question 430

What are the three kinds of maintenance a manager has to carry out for a managed property?

• Constructive, deconstructive, and reconstructive
• Routine, preventive, and corrective
• Scheduled, planned, and improvised
• Emergency, elective, and optional

Answer 430

-Routine, preventive, and corrective

Question 431

The Americans with Disabilities Act requires property managers to

• ensure that disabled employees have the same level of access to facilities that all employees have.
• hire the disabled whenever possible.
• remove all existing barriers to the free movement of disabled persons within the property, regardless of the cost.
• remodel the ground floor of the property in accordance with ADA standards if it was built before 1978.

Answer 431

-ensure that disabled employees have the same level of access to facilities that all employees have.

Question 432

Commercial fire and hazard insurance policies usually require coverage to equal at least 80 percent of the property’s

• replacement value.
• reproduction value.
• original cost.
• depreciated basis.

Answer 432

-replacement value.

Question 433

Trust funds to be handled by a property manager are likely to include all of the following except

• rents collected from tenants.
• cash for the management firm’s operating expenses.
• security deposits.
• capital contributions from the property owner.

Answer 433

-cash for the management firm’s operating expenses.

Question 434

What kind of agency is commonly created by a management agreement?

• Universal
• Specific
• General
• Vicarious

Answer 434

-General

Question 435

Which of the following describes a gross lease?

• The tenant pays a base rent plus some or all of the operating expenses.
• The tenant pays a fixed rent, and the landlord pays all operating expenses.
• The tenant pays a base rent plus an amount based on income generated in the leased space.
• The tenant pays a rent that increases at specified times over the lease term.

Answer 435

-The tenant pays a fixed rent, and the landlord pays all operating expenses.

Question 436

If an apartment contains a refrigerator that is not included in the lease,

• the lessee is required to buy it from the landlord.
• the landlord is required to remove it.
• the lease is invalidated because of an incomplete property description.
• the property manager does not have to maintain it.

Answer 436

-the property manager does not have to maintain it.

Question 437

A basic responsibility of a landlord is to

• provide leased space at market rental rates.
• deliver a habitable property.
• keep the rental space freshly painted.
• refrain from entering the leased space at any time during the lease term.

Answer 437

-deliver a habitable property.

Question 438

How does a constructive eviction occur?

• A landlord obtains a court order to force the tenant to vacate the leased premises.
• A court officer forcibly removes the tenant from the premises.
• A tenant declares a landlord in default and vacates the leased premises.
• A landlord declares a tenant in default and takes possession of the leased premises.

Answer 438

`-A tenant declares a landlord in default and vacates the leased premises.

Question 439

Among the essential elements of a management plan is consideration of

• the competitive market for the property.
• the property manager’s career goals.
• the property owner’s net worth.
• the management firm’s income goals.

Answer 439

-the competitive market for the property.