Alabama Real Estate Final Exam Study Guide - 60 Hour Course

A principal residence is bought for $180,000. A new porch is added, costing $7,000. Five years later the homes sells for $220,000 and the closing costs $18,000. What is the homeowner's capital gain tax? A. $15,000 B. $29,000 C. $33,000 D. $51,000

A. $15,000

Spenser, who works for selling broker Smith, sells a house listed by listing broker Adams. The house sells for $425,000. The co-brokerage split between Smith and Adams is 50-50. Spenser is on a 65% commission schedule with Smith. If the total commission rate is 7%, what is Spenser's commission? A. $9,669 B. $13,812 C. $14,875 D. $19,338

A. $9,669

A tenant obtains a low rental rate for a building, but agrees to pay all operating expenses. This is an example of a A. Net Lease B. Percentage Lease C. Gross Lease D. Proprietary Lease

A. Net Lease

A sale contract contains a one-month financing contingency to allow the buyer to procure a loan. Thirty-two days later, the buyer still has no loan commitment. At this point the seller may A. Put the property back on the market B. Sue for specific performance C. Retain the buyer's deposit D. Sue the lender to commit to a loan under fair financing laws

A. Put the property back on the market

Which of the following items are typically prorated between the buyer and the seller A. Real estate taxes B. Inspections C. Survey D. Mortgage origination fees

A. Real estate taxes

A property owner in a development is required to have a shake roof. This is a requirement is most likely to come from: A. a deed restriction B. a zoning ordinance C. a building code D. a condominium declaration

A. a deed restriction

A buyer representative locates a suitable property through an owner broker. The buyer buys the property; the seller pays a commission, and the two agents split the commission. In this instance, the owner broker is acting as A. a single agent for the owner B. a dual agent C. a subagent D. a co-operating agent

A. a single agent for the owner

A zoning board of adjustment might give favorable consideration to a land use variance if A. compliance would cause the owner undue and unjustified hardship B. the appeal is prepared by professional land use attorneys employing the correct procedures C. the owner can demonstrate a valid homestead exemption D. there is a grandfathering clause

A. compliance would cause the owner undue and unjustified hardship

During the executory period of a sale contract, the buyer enjoys which of the following interests? A. equitable title B. legal title C. executory title D. equity of redemption

A. equitable title

The Veteran's Administration assists numerous qualified mortgage loan applicants because it A. guarantees loans made by approved lenders B. insures loans made by approved lenders C. purchases loans made by approved lenders D. originates loans made by approved lenders

A. guarantees loans made by approved lenders

Which of the following items would affect a homeowner's adjusted basis? A. installing a new furnace B. replacing a washing machine C. stripping and staining hardwood floors D. replacing a broken picture window

A. installing a new furnace

Which of the following items are paid in arrears? A. interest and taxes B. rents and interest C. insurance and interest D. rents and taxes

A. interest and taxes

Which of the following statements is true regarding retaining your AL RE license? A. must be a US citizen B. must be trustworthy and competent C. must not have had his or her license suspended in any state prior D. must be an AL resident

A. must be a US citizen

A special assessment tax differs from other tax levies in that: A. properties that receive no benefit do not pay the tax B. The tax levy takes into account other ad valorem taxes paid C. Less valuable properties which stand to benefit will pray proportionately lower taxes D. It creates a voluntary junior lien on the property

A. properties that receive no benefit do not pay the tax

A seller accepts a buyer's counteroffer and mails the accepted contract to the buyer two days after receiving it. Because of confusion in the post office, it takes four days for the accepted contract to reach the buyer. In the meantime, the buyer's offer has expired. Which of the following is true? A. the buyer is bound to the contract B. the buyer has no obligations to the seller C. the buyer's counteroffer expired before it was accepted D. the seller is no longer bound to the agreement

A. the buyer is bound to the contract

Exceeding the limits of the authority granted is a major risk in A. the fulfilling of listing agreements B. the development of policy manuals C. complying with fair housing laws D. cooperating with brokers from other firms

A. the fulfilling of listing agreements

A miner openly lives and prospects on a 20,000 acre ranch. After twenty years, the owner notices the miner and kicks him off the property. The miner makes a claim of ownership to the property. This claim will likely be A. upheld because the possession was not concealed B. declined in favor of an easement by prescription C. declined, because the occupancy period was insufficient D. declined since the owner was not aware of the possession

A. upheld because the possession was not concealed

A property sells for $180,000 one year after it was purchased. If the annual appreciation rate is 10%, how much did the original buyer pay for it? A. $162,000 B. $163,636 C. $180.000 D. $198.000

B. $163,636

A tract of land is described as the W 1/2 of the N 1/2 of the NE 1/4 Section 16. What is its acreage? A. 20 acres B. 40 acres C. 80 acres D. 160 acres

B. 40 acres

Which of the following is included in the legal concept of land? A. A corn crop B. A lake C. A felled tree D. An abandoned vehicle

B. A lake

In which of the following situations would Fair Housing Laws allow discrimination? A. the developer of a subdivision containing fifty single-family homes refuses to sell to families with children B. A retirement community whose residents are all over 62 refuses to allow families with children to buy in the community C. a condominium community refuses to allow married couples or persons older than 40 to buy a unit D. a property owner who owns four small apartment buildings with 6 units each rents only to married couples

B. A retirement community whose residents are all over 62 refuses to allow families with children to buy in the community

How is a legal life estate created? A. By an owner's voluntary grant B. By operation of law C. Through the four unities D. Through a defeasible conveyance

B. By operation of law

In the past, borrowers were often surprised by unexpected financing costs and charges at closing. The situation has been largely corrected through disclosure requirements mandated by which of the following laws? A. Equal Credit Opportunity Act B. Truth in Lending Laws C. National Disclosure Procedures Act D. Federal Fair Housing Laws

B. Truth in Lending Laws

A property abuts a non-navigable stream. What does the property owner own? A. Land to the low-water mark B. Underlying land to the middle of the waterway C. Land to the high water mark D. All water to the middle of the waterway

B. Underlying land to the middle of the waterway

A business buyer wants to acquire a business in its totality including the business identity and all rights, obligations, liabilities, and assets. This type of transaction that would accomplish this aim is: A. an asset sale B. a stock sale C. a proprietary lease D. a rights lease

B. a stock sale

A critical determinant of commercial and residential property demand in a market is A. availability B. employment C. existing supply D. per capita income

B. employment

At the direction of a seller client a agent tells a pregnant working woman that the property is not in a good neighborhood for a single woman, particularly is she regularly works late hours. The neighborhood has an increasing crime rate, and people are moving out. What has the agent done wrong? A. practiced blockbusting B. engaged in steering C. committed negligent misrepresentation D. nothing

B. engaged in steering

An agent fails to discover crumbling wallboard on the basement ceiling beneath the bathroom. The agent sells the property, and the buyer later sues the agent for not discovering and disclosing a clearly visible and obvious problem. In this the case, the agent A. may be guilty of intentional misrepresentation B. has an exposure to negligent misrepresentation C. can countersue the buyer for not employing an inspector D. is not vulnerable since the problem is not expensive to correct

B. has an exposure to negligent misrepresentation

A tax rate is derived by A. dividing the tax requirement by the tax base B. multiplying the tax base times the tax requirement C. Subtracting other sources of revenue from the total budget of the taxing district D. dividing the tax base by the tax requirement

B. multiplying the tax base times the tax requirement

The nature and import of the agency relationship should be disclosed to the client A. prior to completing an offer B. prior to completing a listing agreement C. upon the initial contact with the person D. within 24 hours after completing a listing agreement

B. prior to completing a listing agreement

Money used for AREC expenses is held in A. recovery fund B. revenue fund C. proportionate fund D. research and education center fund

B. revenue fund

A principal instructs an agent to inform any minority buyer that the property was just put under contract an hour ago and is no longer available. The agent refuses. In this case, A. the agent should exercise caution until the listing expires then decline to renew it B. the agent has not violated fiduciary duty C. the agent is liable for breaching the listing terms D. the agent may sue the principal for discrimination and misrepresentation

B. the agent has not violated fiduciary duty

A strength of the sales comparison approach to value is that A. old as well as new sales date may be used B. the approach is based on the principles of substitution C. the approach is accurate with unique special purpose properties D. sale prices can be compared in a neighborhood since all enjoy the same approximate rate of appreciation

B. the approach is based on the principles of substitution

As an economic product, real estate is unique because A. It has appreciation value B. the demand must come to the supply C. It is quick to respond to the supply-demand imbalances D. Its appeal is predictable

B. the demand must come to the supply

In a lien-theory state: A. Liens are recorded in trusts as opposed to title records B. the lender records a lien while the borrower retains title C. liened properties are foreclosed by strict foreclosure D. trustees retain title during a mortgage period

B. the lender records a lien while the borrower retains title

Lenders use the loan-to-value ratio as a guideline in underwriting because A. the property's value serves to measure the profitability of the loan B. the loan amount needs to be less than the property's value C. borrowers tend to inflate the true value of the property D. a full-price loan over finances the borrower

B. the loan amount needs to be less than the property's value

What is meant by opportunity cost when speaking of real estate as an investment? A. the financing charges associated with borrowing money to invest in real estate B. the return an investor could reasonably expect to earn from competing investments C. The full cost of acquiring an investment property D. The financial risk of the investment

B. the return an investor could reasonably expect to earn from competing investments

The president of a local bank wants to sell her home. She instructs an agent to inform a buyer moving to town that her bank, along with others, is about to curtail mortgage lending for the rest of the year. Hearing this, the buyer hurries to make a full-price offer. The contract is: A. enforeceable B. voidable C. null D. void

B. voidable

A borrower grosses $4,000 per month and pays $600 monthly for debt obligations. What monthly payment for housing expenses (principal, interest, taxes, insurance) can this person afford based on an FHA debt ratio of 41%? A. $760 B. $1,394 C. $1.040 D. $1,404

C. $1.040

A certain investor wants an 11% return on investment from any real estate investment. A property priced at $360,000 has a gross income of $60,000 and expenses of $22,000. Approximately how much too high or too low is the price of this property for the investor to obtain her desired return exactly? A. $1,000 overpriced B. $8,000 underpriced C. $15,000 overpriced D. $16,000 underpriced

C. $15,000 overpriced

A lender determines that a homebuyer can afford to borrow $120,000 on a mortgage loan. The lender requires an 80% loan to value ratio. How much can the borrower pay for a property and still qualify for this loan amount? A. $96,000 B. $106,000 C. $150,000 D. $160,000

C. $150,000

A property has a net income of $50,000 interest payments of $35,000, principal payments of $3,000, and annual cost recovery of $7,000. The property's tax rate is 28%. What is the property's annual tax on income? A. $4,200 B. $3,360 C. $2,240 D. $1,400

C. $2,240

An apartment building has an effective income of $150,000. Its bills total $64,000, and depreciation is an additional $12,000. Interest payments on the loan total $40,000, and principal payments are $5,000. What is the property's pre-tax cash flow? A. $20,000 B. $34,000 C. $41,000 D. $46,000

C. $41,000

In accordance with the statute of frauds A. Leases in excess of one year must be be recorded to be enforceable B. Oral leases are not enforceable C. A five-year lease must be in writing to be enforceable D. An unwritten lease is fraudulent

C. A five-year lease must be in writing to be enforceable

Which of the following is true of a homestead? A. A homestead interest can be conveyed by one spouse B. A homestead interest cannot be exempt from creditors C. A homestead interest is a form of legal life estate D. A homestead is any privately owned single-family residence

C. A homestead interest is a form of legal life estate

Which of the following ways of specializing is common in the real estate brokerage business? A. By type of mortgage financing required B. By years of experience in the business C. By type of property D. By background of client

C. By type of property

A condominium estate is distinguished by: A. Ownership of a share in an association and a condominium lease on the owned unit B. Tenancy in common interest in airspace and common areas of the property C. Fee simple ownership of a unit and undivided share of the common areas D. Fee simple ownership of an equal share of the entire property

C. Fee simple ownership of a unit and undivided share of the common areas

While a property is under a contract for deed, the buyer, or vendee, take possession of the property and makes timely payments of principal and interest. At the end of the term, the vendee obtains a loan and uses the funds to pay off the vendor. Given the circumstances, what option does the seller have? A. He may cancel the agreement because of an improper financing arrangement B. He may extend the vendee's lease term since timely payments were made C. He may offer to repurchase the property after conveying title D. He may exercise the right to retain the deposit and liquidated damages

C. He may offer to repurchase the property after conveying title

If a person dies with legal heirs and has left no valid will, what happens to the real property owned by that person? A. It is taken by the state according to the process called escheat B. It is probated according to the terms agreed to by the heirs C. It is probated and passes to the heirs by laws of descent D. It is conveyed to the highest bidder at a public auction

C. It is probated and passes to the heirs by laws of descent

A retailer installs special display counters to exhibit her products. At the end of the lease term, the retailer moves to another state, leaving the counters in the store. At this point the counters are considered which of the following? A. Trade fixtures, and therefore real property B. Trade fixtures and therefore personal property C. Real property, since the trade fixtures were abandoned D. Personal property that must be returned to the retailer

C. Real property, since the trade fixtures were abandoned

Five liens have been recorded against a certain house in the following order: first mortgage, mechanic's lien, second mortgage, real estate tax lien, special assessment lien. Which lien will be the last one to be paid from the proceeds of the sale of the house? A. Special assessment lien B. Mechanic's lien C. Second mortgage lien D. Real estate tax lien

C. Second mortgage lien

If rents are declining in office properties in a market, it is likely that A. unemployment is decreasing B. the market is in equillibrium C. Supply exceeds demand for space D. Demand exceeds supply of space

C. Supply exceeds demand for space

A master plan can be best described as A. a forecast of existing land use patterns in a market B. a plat of a subdivision preceding the design of a land use development C. a fusion of land use laws and local land use objectives and strategies D. None of the above

C. a fusion of land use laws and local land use objectives and strategies.

A major employer relocates, leaving many homes in an area vacant and unmaintained. This is an example of A. physical deterioration B. functional obsolescence C. incurable economic obsolescence D. curable external obsolescence

C. incurable economic obsolescence

Highest and best use of a property is that use which: A. involves the highest permissible structure and yields best income B. is economically feasible and gives the developer the best return C. is legal, physically and financially feasible and most productive D. complies with the area's master plan

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

A landlord agrees to pay a broker for procuring a tenant unless someone else finds the tenant first. This is an example of a(n) A. exclusive right to sell agreement B. exclusive agency agreement C. open listing D. net listing

C. open listing

The risk management strategy that aims to decrease the probability or the severity of a potential loss is called: A. risk retention B. risk avoidance C. risk reduction D. risk transference

C. risk reduction

In evaluating a loan application, a mortgage lender is most concerned about A: the loan interest rate and loan term B. the property location and the amount of the borrowers downpayment C. the applicant's financial capability and the value of collateral D. the applicants credit history and background

C. the applicant's financial capability and the value of collateral

An easement by prescription requires that: A. the use be continuous, known, and permitted by the owner for a period of time B. the use by continuous, open, and hostile for a required period of time C. the owner of an adjoining property be landlocked D. the owner of the affected property be and adverse possessor

C. the owner of an adjoining property be landlocked

When a licensee is sued by the Federal Trade Commission, it is usually for A. acting without a license B. failing to follow correct renewal procedures C. violating anti-trust laws D. violating fair housing laws

C. violating anti-trust laws

The taxable income from an investment property is estimated by using which of the following formulas? A. cash flow minus depreciation B. Net income plus depreciation C. Net income minus debt service D. Net income minus interest and depreciation

D. Net income minus interest and depreciation

The Real Estate Settlements and Procedures Act prohibits A. a broker from having any business relationship with an insurance company that is involved in the broker's transaction B. a broker from pre-qualifying a buyer for a mortgage loan C. a lender from requiring a deposit from a borrower for a tax and insurance escrow account D. a lender from paying a fee to a broker for referring a borrower to the lender

D. a lender from paying a fee to a broker for referring a borrower to the lender

For a conveyance by deed between private parties to be valid, the deed must be A. warranted by the grantor B. recorded by the grantee C. signed by the grantee D. accepted by the grantee

D. accepted by the grantee

One investment advantage of owning a principal residence is that the owner may be able to A. deduct mortgage interest and principal B. defer depreciation expenses C. deduct capital gain when the property is sold D. defer capital gain tax

D. defer capital gain tax

Two important tasks in identifying value through the cost approach are A. estimating the cost of the land and its accrued depreciation B. estimating the value of the improvements and the obsolescence of the land C. estimating the cost and depreciation of the land and improvements D. estimating the cost of the land and the depreciation of the improvements

D. estimating the cost of the land and the depreciation of the improvements

Under a special agency agreement, a broker is not authorized to A. schedule open houses B. advertise the property using the name of the brokerage C. discuss price adjustments with the principal D. execute a contract for sale agreement

D. execute a contract for sale agreement

A broker and salesperson agree to a 40-60 commission split. This commission rate A. must be within guidelines set by state regulation B. must be approved by the listing client C. is probably the result of an agreement with other brokers D. is probably a reflection of competitive commission rates

D. is probably a reflection of competitive commission rates

Unintentional misrepresentation is generally considered A. an accident that requires no punishment B. the same as fraud C. more series than intentional misrepresentation because it demonstrates a lack of professional competence D. less serious than intentional fraud but still a violation to be punished

D. less serious than intentional fraud but still a violation to be punished

The function of a board of equalization is to A. equalize millage rates among taxing districts B. adjust ad valorem taxes in accordance with a household's income C. adjust assessed values so that most property owners have nearly equal tax bills D. minimize wide discrepancies of assessed values within the district

D. minimize wide discrepancies of assessed values within the district

Commingling is the practice of A. mixing deposits from multiple transactions in a single account B. mixing agents commissions with funds for operating expenses of the agency C. appropriating client or customer deposits for use in the agency's business D. mixing escrow funds with the broker's operating funds

D. mixing escrow funds with the broker's operating funds

An important function of the secondary mortgage market is to: A. borrow funds from banks so the banks can make more loans B. issue tax certificates and sell them to primary lenders C. purchase pools of defaulted loans from lenders to keep them solvent D. sell mortgage backed securities in order to buy pools of loans

D. sell mortgage backed securities in order to buy pools of loans

What are the dimensions of a township? A. one mile square B. Six miles by one mile C. one mile by one mile D. six miles by six miles

D. six miles by six miles

Three people have identical rights in a property, share an indivisible interest, but may sell or transfer their interest without consent of the others. This type of ownership is: A. joint tenancy B. tenancy by the entireties C. estate in severalty D. tenancy in common

D. tenancy in common

The primary jeopardy of overpricing a property is that A. the tax rate will be higher for the client B. buyers are put at an unfair disadvantage C. the agent stands to lose commission D. the client's expectations may not be achieved

D. the client's expectations may not be achieved

A buyer submits an offer to the seller. While the seller is considering the offer, the buyer calls and cancels. The seller protests claiming she was going to accept. Which is true? A. the buyer may not revoke the offer in such a short period B. the seller may accept the offer thus binding the buyer to the contract C. the seller can offer to lower the price binding the buyer D. the original offer is cancelled and the protest means nothing

D. the original offer is cancelled and the protest means nothing