National Exam
The N½ of the SW¼ of a section contains how many acres?
80 acres. A section has 640 acres. A section is divided into halves (320 acres) and quarters (160 acres). Each of those parts is further divided into halves and quarters. In this problem, a ½ of a ¼ of 640 equals 80 acres. 2 × 4 = 8 640 ÷ 8 = 80 acres Reference: Real Property Characteristics, Legal Descriptions, and Property Use > Legal DescriptionsThe process by which the government can acquire ownership of private land for public use is
Abatement
A reduction of real estate taxes to attract investment
In the cost approach, an appraiser uses which of the following?
an estimate of the building's replacement cost. The building's replacement cost is an essential component of the cost approach, along with depreciation and land value. The owner's original cost of construction is not considered in the cost approach. The sales prices of similar properties are considered in the sales comparison approach. The property's assessed value is not used to determine its fair market value.
Supply and Demand
S: amt goods offered for sale w/ in market - Government controls and financial policies - Labor force - Construction costs D: amt goods consumers are willing and able to buy - Employment and wage levels - Demographics - Population
Objective value
The actual value measured in dollars of an aspect of construction or location
Dennis is mentally incompetent and has a court-appointed guardian. Dennis enters into a contract to buy a house from Dorie, an adult. Which statement is TRUE?
The contract of sale is void. Since Dennis is mentally incompetent with a court-appointed guardian, any contract Dennis enters into is void. If Dennis was a mentally incompetent individual with no court appointed guardian, he could enter into the contract, but the contract could be voidable by Dennis.
Private mortgage insurance (PMI) is required for conventional loans when the following occurs
The loan-to-value amount is greater than 80% PMI is required for conventional loans when the loan-to-value amount is greater than 80%. This could mean the loan is either for more than 80% of the property's appraised value or more than 80% of the property's selling price, whichever one is lower. The higher the loan-to-value amount, the more PMI will cost.
All of the following would be considered when developing a marketing plan by the property manager EXCEPT location of the property and its amenities. availability of employees. local economic conditions. current rent trends in the property market.
availability of employees. The marketing plan does not consider the hiring or availability of employees. Reference: Real Estate Practice > Broker Agreements Between the Broker and Principal (Seller, Buyer, Landlord, or Tenant)
Requiring the seller to make certain disclosures about the property is an attempt to
avoid unpleasant surprises for the buyer. The use of seller disclosure statements is an attempt to reduce unpleasant surprises for the buyer. Seller disclosures are neither warranties nor guarantees; the seller can only disclose that of which the seller is aware. Buyers should rely on their own inspections.
The percentage used in the formula for calculating a buyer's payment on all debts, including the house payment, installment loans, and credit card debt, is called A) the loan expense ratio. B) the front-end ratio. C) the back-end ratio. D) the housing-expense ratio.
back-end ratio. The percentage used in the formula for calculating a buyer's payment on all debts is called the total-debt, or back-end, ratio. The percentage used to calculate the monthly house payment is the housing-expense, or front-end, ratio.
The amount of time transaction files must be kept is
based on state real estate law. Each state's real estate law sets the amount of time transaction files must be kept. Reference: Real Estate Practice > Risk Management
A tax lien on a property can hinder the sale of the property because it is
encumbrance. An encumbrance is a claim, charge, or liability that attaches to real estate. It is a right or interest held by someone other than the fee owner of the property and affects title to real estate. A tax lien is a specific lien attached to the real property when real estate property taxes are not paid by the owner. It is not an encroachment, which is an illegal extension of a building or structure onto another's property. A purchaser is not required to satisfy a tax lien unless agreed to by the purchaser in the purchase contract.
The seller's property disclosure form yields which of the following benefits for the transaction?
it gives the buyer full knowledge of all issues with the property. The seller's property disclosure does not act as an inspection and gives the buyer full knowledge of the seller's representation of the issues asked on the form. The seller's property disclosure form provides all of the benefits shown for the buyer. It may also provide a more concrete basis for litigation if the buyer can determine that a seller filled out the form incorrectly or failed to disclose a defect the seller knew was material to the transaction.
A promise, or something of value, made by one party to induce another party to enter into a contract
legal consideration. Legal consideration is a promise, or something of value, made by one party to induce another party to enter into a contract. In a purchase contract, it is the promise of the seller to sell and the buyer to buy. Words of conveyance are used in deeds to create the estate being transferred.
RESPA (Real Estate Settlement Procedures Act) applies to the activities of
lenders, title companies, and real estate brokers. RESPA requirements apply to lenders primarily. RESPA also requires real estate brokers and title companies that package services for consumers to inform consumers of the relationship between the companies and to inform consumers that they are free to choose other companies for services.
When asked about the condition of the building foundation, a wise agent will respond, "It looks fine to me." "I have a friend in engineering school who can give you an opinion." "You should discuss this with a qualified engineer." "The seller has lived here for more than 20 years, and she hasn't had a problem."
"you should discuss this with a qualified engineer." Real estate professionals should not discuss issues beyond their level of expertise and should always recommend the consumer consult an expert. Reference: Real Estate Practice > Responsibilities of Broker
The semiannual interest paid on a loan was $4,387.50. If the interest rate is 6.5%, what was the loan amount?
$135,000. $4,387.50 × 2 = $8,775 Annual interest $8,775 ÷ 6.5% (.065)= $135,000 Reference: Real Estate Math Calculations > Loan Financing Costs
A rectangular lot measures 200' × 300'. Property in the area is selling for $150,000 per acre. If the broker charges 8%, how much is she paid?
$16,529 200' × 300' = 60,000 sq. ft. ÷ 43,560 = 1.3774 acres 1.3774 × $150,000 = $206,610 $206,610 × 8% (.08) = $16,528.80 round to $16,529 Reference: Real Estate Math Calculations > Property Area Calculations
What did it cost to construct a building that is worth $155,200 today if it has depreciated at the rate of 2% per year (50 years useful life) for the past four years?
$168,695.65 Depreciation is 2% per year for 4 years = 8% depreciation. Original cost at 100% - depreciation at 8% = 92%. $155,200 (the current value) ÷ 92% (.92) = $168,695.65 (the original cost)
If the market value of a property is $169,000, it is assessed at 35%, and the tax rate is $4.25 per $100, what are the monthly property taxes?
$209.49. Tax rate = $4.25 ÷ 100 = .0425 Assessed value = $169,000 × 35% (.35) = $59,150 $59,150 × .0425 = $2,513.875 Annual taxes $2,513.875 ÷ 12 = $209.49 Monthly taxes Reference: Real Estate Math Calculations > Property Valuation
A seller is interviewing agents to list her property. She has the following quotes from two different companies: XYZ Realty, 7% commission; and LMN Realty, 5.5% commission. If her house sells for $225,000, how much will she save if she lists her property with LMN Realty?
$3,375. $225,000 × 7% (.07) = $15,750 $225,000 × 5.5% (.055) = $12,375 $15,750 - $12,375 = $3,375 savings Reference: Real Estate Math Calculations > Commission/Compensation
A couple is applying for a home loan. One spouse has an annual gross income of $102,000 and the other spouse makes $72,000 a year. They have monthly car payments of $875, monthly credit card payments of $620, and their monthly grocery expenses come to $1,200. If the lender uses debt ratios of 28% and 36% to qualify them, what is the maximum monthly housing expense they will qualify for?
$3,725. $102,000 + $72,000 = $174,000 ÷ 12 = $14,500 Monthly $14,500 × 28% (.28) = $4,060 $14,500 × 36% (.36) = $5,220 $5,220 − $1,495 ($875 + $620) = $3,725 other recurring debt Reference: Real Estate Math Calculations > Settlement and Closing Costs
A homeowner received $321,480 after 6% was deducted as the agreed upon brokerage commission. What was the selling price of the property?
$342,000. $321,480 (seller's net) ÷ 94% (.94) (100% - 6% commission) = $342,000 (the sales price) Reference: Real Estate Math Calculations > Commission/Compensation
The lease agreement for Julia's Fine Arts store was as follows: $1,200 fixed monthly rent plus 4% commission on all sales over $850,000. This year, her gross sales were $1,500,000. How much was paid in rent?
$40,400. Step 1: determine the base fixed rent, $1,200 × 12 = $14,400. Step 2: determine the percentage rent, $1,500,000 - $850,000 = $650,000 amount to be used for percentage charge. $650,000 × 4% (.04) = $26,000 $26,000 + $14,400 = $40,400
A vacant lot that measures 125' × 200' is listed at $325 per front foot. What is the listing price of the property?
$40,625. The front foot refers to the measurement along the frontage of a lot. The frontage is usually the street frontage, but it might be the water footage for lots bordering on water. When two dimensions are given for a tract of land and they are not labeled, the first dimension is the frontage. The word width also means frontage, as the length of a parcel is called the depth. To solve this problem, multiply 125 feet by the cost per front foot: $325. 125 × $325 = $40,625. Reference: Real Estate Math Calculations > Property Valuation
If the amount of a loan is $13,500 and the interest rate is 6%, what is the amount of the semiannual interest payment?
$405. A semiannual interest payment is paid twice a year. To find the amount of the payment, divide the annual interest amount by 2: $13,500 × 6% (.06) (the interest rate) = $810 (annual interest amount) $810 ÷ 2 = $405 (semiannual interest)
If a seller needs to net $50,000 after the sale, how much must he sell his home for if the selling costs include a 7% commission and $1,200 in other expenses?
$55,054. $50,000 (net) + $1,200 (costs) = $51,200 $51,200 ÷ .93 [100% - 7% (0.07) commission] = $55,053.763 round to $55,054 Reference: Real Estate Math Calculations > Settlement and Closing Costs
The listing price of a property was $135,000. The buyer made an offer of 90% of the listing price, which was accepted by the sellers. The property appraised for the offer price and the buyers secured an 85% loan at 9% interest for 30 years. How much interest will be paid in the first payment?
$774.56. $135,000 × 90% (.90) = $121,500 Sales price $121,500 × 85% (.85) = $103,275 Loan amount $103,275 × 9% (.09) = $9,294.75 Annual interest $9,294.75 ÷ 12 = $774.56 Reference: Real Estate Math Calculations > Loan Financing Costs
A commercial tract of land is 1.25 acres. The lot is 150 feet deep. What is the selling price of the lot at $26,500 per front foot?
$9,619,500. 1.25 acres × 43,560 (square feet per acre) = 54,450 (total square feet) ÷ 150 feet (the depth of the lot) = 363 front feet × $26,500 per front foot = $9,619,500 (the selling price). The term front foot refers to a unit on frontage of a lot, usually the street frontage or water frontage. When two dimensions are given for a tract and not labeled, the first dimension is the frontage. Each front foot extends the depth of the lot. Reference: Real Estate Math Calculations > Property Valuation
An earnest money deposit, if offered, is given to the broker at the time a sales contract is authorized by the seller and presented to the buyer. Absent any specific instructions in the sales contract, the broker has a legal responsibility to
Deposit the check in the broker's *special account* The broker must comply with all lawful instructions of his/her client. Absent specific instructions to the contrary, the broker must place all earnest money funds in the brokerage's special trust account as soon as possible.
The charge for the use of the lender's money in a loan is
Interest is the sum paid or accrued in return for the use of a lender's money. Interest on a promissory note is usually due in arrears at the end of each payment period. The rate of return is the return on the investment in a property. An owner's equity is the amount of money remaining once current liens, including the mortgage, are subtracted from the current value of the property. The principal is the balance owed on the original loan amount. Reference: Financing and Settlement > Financing Concepts and Components
Zoning or deed restrictions on physical development fall under which category of forces affecting real estate value?
Physical and environmental Physical and environmental forces include dimensions, shape, area, topography, drainage and soil conditions. They also include utilities, streets, curbs, gutters, sidewalks, landscaping and zoning or deed restrictions on physical development.
A listing contract in which payment of the commission is contingent on the broker's being able to produce a buyer before the property is sold by the owner or another broker is called
an open listing. In an open listing, the seller retains the right to employ any number of brokers to sell the property. The brokers can act simultaneously, and the seller is obligated to pay a commission only to that broker who successfully procures a ready, willing, and able buyer. A net listing clause would permit a broker to receive as commission all excess monies over and above the minimum sales price agreed to in the listing agreement. Net listings are not only discouraged, but illegal in many states. In an exclusive right-to-sell listing, if the property is sold while the listing is in effect, the seller must pay the broker a commission regardless of who sells the property. An exclusive agency listing provides that the brokerage firm and co-op broker will be paid unless the seller sells the property on her own.
The term reconciliation refers to which of the following?
analyzing/weighing the findings obtained by the different approaches to value to arrive at a final estimate of value. The three approaches to value typically produce three different values. An in-depth analysis of these values is required to determine the most valid, logical, and reliable approach to be used to provide the final value estimate. Determining depreciation—a loss of value due to any cause—is part of the process of the cost approach. The highest and best use of a property is the single most profitable use for that property. Determining highest and best use is only one of the factors considered in an appraisal prior to choosing an approach to value and reconciliation.
A step used in the income approach to determine value is to
apply the capitalization rate. In the income approach to value, the capitalization rate is applied to the property's annual net operating income to arrive at the estimate of the property's value. Calculating reproduction costs, replacement costs, and depreciation are procedures used in the cost approach to value. Reference: Property Value and Appraisal > Methods of Estimating Value and Broker Price Opinions (BPO)
What can brokers do to protect themselves from business-threatening lawsuits from unhappy buyers?
carry E&O insurance. The primary purpose of E&O insurance is protection against catastrophic, business-threatening lawsuits, not to supplement income or to help buyers pay for problems they encounter after closing. A surety company assumes liability for nonperformance when it issues a surety bond, which is not an issue in this situation.
The process by which the government can acquire ownership of private land for public use is
condemnation. Condemnation is the process through the courts or administrative action by which a government acquires ownership of private land for public use. Eminent domain is the right of the government to acquire ownership and condemnation is the process used to implement that right. Escheat is the taking of land by the government when the land is abandoned or when the owner dies without heirs capable of inheriting the land. The doctrine of prior appropriation is tied to how priority is set in water rights. Reference: Real Property Characteristics, Legal Descriptions, and Property Use > Public and Private Land-Use Controls—Encumbrances
Which of the following is NOT an example of governmental power? Eminent domain Police power Declaration Taxation
declaration. The four governmental powers that limit private rights on land are represented by the acronym PETE: police power, eminent domain, taxation, and escheat. Declaration is used to establish common interest property such as condominiums.
A lender offers to take over the title of a property that is in foreclosure without going through the foreclosure process. This is called
deed in lieu of foreclosure. A deed in lieu of foreclosure is an alternative to foreclosure and is carried out by mutual agreement between the lender and the borrower rather than by a lawsuit. A reconveyance deed is used by a trustee under a deed of trust to return title to the trustor. In an assumption, a buyer purchases a property by assuming the seller's debt and becoming personally obligated for the payment of the entire debt. A subordination agreement moves a first mortgage lien to a secondary position by mutual agreement of the two lenders.
All of the following clauses in a loan agreement enable the lender to demand that the entire remaining debt be paid immediately EXCEPT a due-on-sale clause. an alienation clause. an acceleration clause. a defeasance clause.
defeasance clause. A defeasance clause requires the lender to execute a satisfaction of the loan when the loan has been fully paid. A due-on-sale clause provides that when the property is sold, the lender may declare the entire debt due or permit the buyer to assume the loan. An alienation clause states that the lender may collect full payment on a loan if the property is conveyed to another party without the lender's consent. An acceleration clause permits the lender to declare the entire debt payable immediately if the borrower defaults on payments on the loan.
MOST states require that listing and buyer representation contracts contain
definite contract termination date. If brokers fail to specify a specific listing contract termination date in a listing, they may be subject to suspension or revocation of their real estate license in many states. In some states, automatic extension clauses that extend a listing past its expiration date are illegal. A listing may contain a broker protection clause which provides that within a specified period of time, a property owner will pay the listing broker a commission if the owner transfers the property to someone the broker originally introduced to the seller. Many listing and buyer representation contracts do contain a multiple listing clause permitting the broker to share the listing with other brokers through the MLS, but states do not usually require such a clause. These same requirements hold true for buyer representation contracts. Reference: Real Estate Practice > Broker Agreements Between the Broker and Principal (Seller, Buyer, Landlord, or Tenant)
Which is the right to sell or give property to someone else? A) Disposition B) Enjoyment C) Exclusion D) Possession
disposition. Disposition is one of the bundle of legal rights that a property owner has. An owner may choose to sell or give away any of the rights and retain the rest or sell or give away all the rights. An owner's other rights include the rights of possession, enjoyment, control, and exclusion.
Which of the following gives the BEST evidence of the buyer's intention to carry out the terms of the real estate purchase contract?
earnest money deposit. The earnest money deposit is customary in real estate transactions to provide evidence of a buyer's intention to carry out the terms of the contract in good faith. It is also the seller's only remedy in a liquidated damages contract. A buyer may pay cash and not require mortgage financing, so an earnest money deposit is the best evidence of the buyer's intention to purchase, even though earnest money is not consideration and not required to have a valid sales contract. The "subject to" clause and the "time is of the essence" clause do not relate to the buyer's intentions but are requirements of the contract. Reference: Real Estate Contracts and Agency > Sales Contract
What is the BEST approach to avoid risk? Help the seller prepare a seller's property disclosure form Make disclosures orally, not in writing, so as to avoid a paper trail Ignore environmental hazards that are on the property Encourage buyers to consult professional experts to determine the condition of the property
encourage buyers to consult professional experts to determine the condition of the property. Some risk-reduction recommendations include becoming familiar with local environmental hazards and what the law requires, conducting a careful visual inspection of the property, discussing any red flags with the seller and further investigating, having the seller complete a seller property disclosure form without the assistance of the licensee, and encouraging buyers to consult professional experts to determine the condition of the property.
A homeowner recently fenced his property. By mistake, the fence extends one foot over his own lot line onto a neighbor's property. The fence has created
encroachment. An encroachment occurs when a building or a structure illegally extends onto or over another's property. A license is a personal revocable right to use another's property with permission. An easement by necessity is created by a court when an owner sells a parcel of land that has no access to a street except over the seller's remaining land. An easement by prescription is created when a person openly, continuously, exclusively, actually, and notoriously (hostile) uses land of another without the owner's permission. REMEMBER: OCEAN. Reference: Real Property Characteristics, Legal Descriptions, and Property Use > Public and Private Land-Use Controls—Encumbrances
The difference between the current value and any liens on a property is the owner's
equity. An owner's equity is the amount of money remaining once current liens, including the mortgage, are subtracted from the current market value of the property. The current value of a property, minus any liens, will provide the owner's equity in a property. The term is the length of time the borrower has to repay the lender. The principal is the balance remaining on the original loan amount. Interest is the charge from the lending institution for the use of money. Reference: Financing and Settlement > Financing Concepts and Components
A seller has sold property to a neighbor without the services of a real estate broker. However, the seller still owes the broker a commission because the seller signed
exclusive right-to-sell listing. In an exclusive right-to-sell listing, a commission will be owed to a broker regardless of which party sells the house. In exclusive agency and open listings, the seller retains the right to sell without obligation to the broker. An option listing permits the broker to retain an option to purchase the property for the broker's own account. Reference: Real Estate Practice > Broker Agreements Between the Broker and Principal (Seller, Buyer, Landlord, or Tenant)
During the period of time after a real estate sales contract is signed, but before title actually passes, the status of the contract is
executory. A contract is in executory status when its terms of agreement have not yet been carried out. When it has been carried out, it is said to be executed. A unilateral contract binds only one party to act. A voidable contract is one that is able to be voided because of duress, fraud, misrepresentation, or because one party to the contract is a minor. Reference: Real Estate Contracts and Agency > Contract Performance
The sales comparison approach to value is MOST important when estimating the value of
existing residence. The sales comparison approach arrives at an estimate of value by comparing the existing residence with recently sold comparable properties. This approach is normally considered the most reliable in appraising single-family homes to the large number of current sales. To find an estimate of value for an apartment building, retail location, or hotel, an appraiser would normally rely on the income approach to value for each of these income-producing properties.
A lease for years would be terminated by which of the following?
expiration of the term. A tenancy (estate) for years is a leasehold estate that continues for a definite period of time with specific beginning and ending dates. The death of either party does not terminate the lease. If the tenant abandons the property, the tenant is still responsible for lease payments. If the property is sold, the new owner is subject to the terms of the lease. Reference: Forms of Ownership, Transfer, and Recording of Title > Ownership, Estates, Rights, and Interests
A house has outdated electric and plumbing. This is an example of
functional obsolescence. Outdated electrical or plumbing, or floor plans that no longer fit the norm, are considered to be functional obsolescence.
The main difference between a purchase money mortgage and a contract for deed is
how title is held. In a purchase money mortgage, the seller conveys title to the buyer at closing; then the seller is the lender on the mortgage. In a contract for deed, the seller does not convey title until the final payment. The buyer takes possession in both loan types and the deed type makes no difference.
A couple bought a store building and took title as joint tenants. One woman died testate. The other woman now owns the store
in severalty. Joint tenancy includes the right to survivorship to the property passing to the other owner(s) upon the death of one tenant. In this case, the women took title as joint tenants, meaning that upon one's death, there is only one owner who owns the property in severalty. In a tenancy in common, the owners own an undivided fractional interest in the property, and that interest is passed on according to the owner's will, to heirs, or to a trust. Reference: Forms of Ownership, Transfer, and Recording of Title > Ownership, Estates, Rights, and Interests
A couple bought a retail building and took title as joint tenants. One woman died testate. The other woman now owns the store
in severalty. Joint tenancy includes the right to survivorship; upon death of a joint tenant, the ownership of that joint tenant passes to the remaining co-owner(s). In this case, the women took title as joint tenants, meaning that upon one's death, there is only one owner who now owns the property in severalty. In a tenancy in common, the owners own an undivided fractional interest in the property and that interest is passed on according to the owner's will, to heirs, or to a trust. Reference: Forms of Ownership, Transfer, and Recording of Title > Ownership, Estates, Rights, and Interests
A smaller home is surrounded by larger, more expensive homes. The value of the smaller home will MOST likely
increase because of the larger, more expensive properties. The principle of conformity progression shows the value of a modest, less expensive home will increase if it is located among larger, fancier, more expensive properties. Under regression, a structure that is larger or more luxurious would tend to be valued in the same range of less lavish homes in a neighborhood of modest homes.
All of the following are typical duties and responsibilities of a property manager EXCEPT showing the property to prospective tenants. supervising the remodeling of the property. collecting the rent from current tenants. investing profits generated by the property for the owner.
investing profits generated by the property for the owner. The property manager does not invest the owner's profit. Supervising maintenance and remodels, showing and selecting tenants, and collecting rent are all property manager duties. Reference: Real Estate Practice > Broker Agreements Between the Broker and Principal (Seller, Buyer, Landlord, or Tenant)
When estimating the value of property using the cost approach, all of the following are considered by an appraiser EXCEPT loss of value due to uncollected delinquent rent. estimated loss attributable to an outdated heating system. excessive amount of traffic noise outside the property. quality of materials and workmanship in the original structure.
loss of value due to uncollected delinquent rent. Loss of value due to uncollected delinquent rent is a factor in determining a property's effective gross income in the income approach to value. An outdated heating system, the quality of original materials and workmanship, and traffic noise are considered in the cost approach in determining the depreciation of a property due to deterioration or obsolescence.
A property owner has a large parcel of land surveyed into lots and streets, and then files a subdivision plat. Each lot can legally be described by use of which of the following?
lot and block system. The lot and block system is often used to describe property in subdivisions. The rectangular government survey system divides land into rectangles and describes those rectangles with principal meridians and base lines. The metes-and-bounds system outlines the perimeter of a parcel by starting at one point and ending at the same point. A street address is not a legal property description.
The purpose of a building code is to
make sure buildings are structurally safe. Building codes are used to make sure buildings are structurally sound and safe. A restrictive covenant is a restriction established by a private entity, not a public government. Building codes do not affect a deed's restrictive covenant. Zoning ordinances regulate the types of new construction but are not enforced through building codes.
Which type of housing is delivered on a permanent chassis to a purchaser's homesite, where it is connected to gas, water, and electricity? A) Manufactured homes B) Converted-use properties C) Modular homes D) Planned unit developments (PUDs)
manufactured homes. Manufactured homes are built in manufacturing plants and transported on permanent chassis to manufactured home dealerships and then to purchasers' homesites, where they are connected to gas, water, and electricity. The homes are generally permanently attached to a foundation on land owned or leased by the manufactured home purchaser or semipermanently attached to a foundation in a "housing park."
Information that is important to buyers that could change their decision to purchase a property is known as
material fact. A material fact is any fact relevant to a person making a decision to buy a property. A latent defect is a hidden structural defect usually resulting from faulty construction known to a seller but not readily discoverable by inspection.
The lender who provides a real estate loan to a borrower is known as
mortgagee. The lender is the mortgagee. The borrower who receives a loan and in return gives a note and mortgage to the lender is the mortgagor. An optionor is an owner who gives an optionee—a prospective purchaser or lessee—the right to buy or lease the owner's property at a fixed price within a certain period of time. Reference: Financing and Settlement > Financing Concepts and Components
A seller has listed a property under an exclusive agency listing with a broker. If the seller sells the property personally during the term of the listing to someone who learns about the property through the seller, the seller will owe the broker
no commission. In an exclusive agency listing, if the property is sold by the seller, the brokerage will receive no commission. Only the exclusive right-to-sell listing earns the listing broker any commission if someone else sells the property during the term of the agreement.
A property owner of a 10-building apartment complex has told the property management company that he wants the building by the playground to be rented only to families, as well as the buildings by the parking lots to singles or couples without children, and that anyone over 50 should only be offered first-floor units. May the property manager follow the orders of the owner?
no, as the request is in violation of fair housing laws. Under fair housing law, the owner's request would be considered steering. Just as a real estate professional may not decide where someone should live and only show them property there, an owner may not segregate tenants within the complex. The Equal Credit Opportunity Act regulates lending, not housing.
A couple makes a written request that a real estate brokerage firm not contact the seller once the sale of their home is completed. Under this circumstance, the broker may
not contact the seller at any time. If a consumer asks a company not to call, even if the company has an established business relationship with the consumer, the company must abide by the consumer's request. The request stays in effect for five years. If a consumer does not make such a request, a broker may contact the consumer for up to 18 months after the consumer's last purchase, delivery, or payment. The broker may call a consumer for up to 3 months after the consumer makes an inquiry or submits an application. Reference: Real Estate Practice > Responsibilities of Broker
A tenant has an estate for years. According to the written one-year lease, the tenancy will expire on May 1. To obtain possession after May 1, the landlord
not required to give the tenant any notice. Notice is not required to terminate an estate for years because the lease agreement states a specific expiration date. When the date comes, the lease expires, and the tenant's rights are terminated.
Which of the following actions would be seen as unauthorized practice of law? Offering comment as to the correctness of a deed Filling in the blanks of a sales contract Showing properties that are for sale by owner Signing a lease as attorney-in-fact for the lessor
offering comment as to the correctness of a deed
If an owner takes his property off the market for a definite period of time in exchange for some consideration, but he grants an individual the right to purchase the property within that period for a stated price, the contract is called
option. An option is granted when an owner (optionor) gives the potential purchaser (optionee) the right to purchase the property at a fixed price within a certain period of time. A contract of sale occurs when a seller and a buyer come to an agreement on the sale of a property. A right of first refusal is an agreement in which the holder of the right has the first opportunity to either purchase or lease real property once the owner offers the property for sale or lease. An installment agreement, also known as a contract for deed, is an agreement in which the seller becomes the lender and the buyer takes possession of the property, retaining equitable title to the property until the final payment to the seller is made. Reference: Real Estate Contracts and Agency > Sales Contract
All of the following factors would be important in comparing properties under the sales comparison approach to value EXCEPT differences in size of the improvements and land. differences in in dates of sale. differences in appearance and condition. differences in original cost.
original cost. None of the approaches to appraisal considers the original (historical) cost of a property. The other three factors would be relevant to the sales comparison approach—sometimes called the market data approach. Reference: Property Value and Appraisal > Methods of Estimating Value and Broker Price Opinions (BPO)
The type of mortgage loan that uses both real and personal property as security is
package loan. A package loan includes not only the real estate, but also all personal property and appliances installed on the premises. A blanket loan covers more than one parcel or lot and permits the borrower to obtain a release of a parcel or lot from the mortgage lien when the lot is sold. A purchase money mortgage refers to the instrument given by a borrower to a seller who takes back a note for part of or the entire mortgage. A term/straight or interest-only loan secures only real property.
A prospective buyer looking to build on a vacant lot asks his salesperson if a septic tank could be built on the lot. The salesperson may suggest that the buyer conduct
percolation test. A percolation test determines how quickly the ground will absorb water and would be conducted to determine if a septic tank could be installed on the lot. A septic tank can be installed only if the soil has the ability to absorb and drain water. Hydroponic refers to a method of growing plants in water rather than in soil and is not related to septic tank installation.
A real estate professional is required to meet advertising rules, such as having the brokerage firm's name on all of the following EXCEPT pictures sent out via text or Twitter. personal sale of a vehicle to a third party. social media personal pages, giving notice of a current listing. marketing materials given out at an open house.
personal sale of a vehicle to a third party. Real estate professionals must meet all federal and state advertising rules in all advertisement, no matter the system used to communicate. This is not a requirement in situations that do not involve real estate and are not real estate related.
Defined as a loss in value from any cause, depreciation is generally divided into three categories. The loss of value due to the normal wear and tear on a property is called
physical deterioration. Physical deterioration is the loss of value based on the physical wear and tear on the property. It can be either curable or incurable deterioration. External and economic obsolescence are a reduction in a property's value caused by factors of the property itself. Functional obsolescence is a loss in value due to such factors as outmoded or unacceptable features of the property itself. Reference: Property Value and Appraisal > Methods of Estimating Value and Broker Price Opinions (BPO)
When the supply decreases while demand remains the same,
price tends to rise. Under the laws of supply and demand, if supply of a commodity decreases with demand remaining the same or increasing, the price of a commodity increases. Prices tend to drop if the demand for the commodity decreases while the supply remains the same or increases.
An appraiser using the gross rent multiplier (GRM) would consider which of following?
rental income and market price. The GRM times the rental income will determine the property's market value or anticipated sales price. Comparables and adjustments are used in the sales comparison approach. Market value is what the GRM is determining, not market price, which is the actual sale price. Capitalization and net operating income are used in the income approach. Reference: Property Value and Appraisal > Methods of Estimating Value and Broker Price Opinions (BPO)
A real estate broker was responsible for a chain of events that resulted in the sale of one of his client's properties. The broker's efforts are referred to as
procuring cause. The procuring cause in a real estate transaction is the effort and work that brings about the result stated in a brokerage agreement. A broker who starts a chain of events that results in a sale and does so without abandoning the transaction may be considered the procuring cause of sale. Pro forma is a term meaning "for form only" (i.e., not official). A private offering is the offering of a real estate security that is not required to be registered with any state or federal agency because it is not a public offering. The word proffer means the same as offer, although a proffered offer is a term used to describe an informal, oral offer made before the start of any formal negotiations. Reference: Real Estate Practice > Broker Agreements Between the Broker and Principal (Seller, Buyer, Landlord, or Tenant)
The primary purpose of errors and omissions (E&O) insurance is to
protect against catastrophic lawsuits. The primary purpose of E&O insurance is protection against catastrophic, business-threatening lawsuits, not to supplement income or to help buyers pay for problems they encounter after closing. Reference: Real Estate Practice > Risk Management
The purpose of a mortgage is to
provide security for a loan. A mortgage is a financing instrument by which real estate is used as security, or collateral, for a debt. A restrictive covenant may limit a borrower's use of a property. While a mortgage does create a lien on the property, the lien is removed when the lender records satisfaction of the mortgage in the public record. Reference: Financing and Settlement > Financing Concepts and Components
To minimize the possibility of liability in a real estate transaction, a broker would use all of the following tools and methods EXCEPT seller disclosure statements. purchasing errors and omissions (E&O) insurance. putting all representations in writing. requiring agents to question suspicious items.
purchasing E&O insurance. Purchasing any kind of insurance shifts the financial risk to the insurance company. Brokers can alleviate known potential problems by employing seller disclosure statements, requiring agents to question suspicious items, and putting all representation in writing. Reference: Real Estate Practice > Risk Management
Which of the following stages of the business cycle is characterized by a general economic decline? A) Revival B) Depression C) Expansion D) Recession
recession. The normal business cycle has a period of growth or expansion, followed by a peak and a slow down or recession, followed by a depression and trough (or low point), followed by a period of renewed growth or revival.
When the state or local government restricts the amount of rent a landlord can charge, it is called
rent control. Rent control is established by state or local governments to restrict the rent that can be charged.
The owner of a 20-unit apartment building sold the property to a new buyer. The closing is set for July 20. At the closing, what will happen with the rent for July and tenants' security deposits?
rent will be prorated and the deposits transferred to the new owner. When the property was sold, the rent for the month is prorated between the seller and buyer. All the leases remain the same and are not terminated, with the security deposits being transferred to the new owner. The tenants should be notified about the transfer of the security deposit. The new owner will return security deposits to the tenants according to the provisions of the tenants' leases. Reference: Real Estate Practice > Broker Agreements Between the Broker and Principal (Seller, Buyer, Landlord, or Tenant)
A couple purchased a home for cash over 25 years ago. Today they receive monthly checks from a lender that supplement their retirement income. The couple MOST likely have obtained
reverse mortgage. A reverse mortgage allows people 62 and older to borrow money against the equity they have built in their home. The borrower is charged a fixed rate of interest and no payments are due until the property is sold or the borrower defaults, moves, or dies. Adjustable-rate mortgages and interest-only loans require payments on the loans and do not provide any income to the borrower during the life of the loan. In a home equity loan, a borrower uses the equity built up in the home as a source of cash; the original mortgage remains in place, with the home equity loan being junior to the original lien.
Avoid, control, transfer, or retain are the four alternative techniques of
risk management. Risk management used these four techniques to help businesses determine how to handle various risk issues. Reference: Real Estate Practice > Risk Management
Which of the following BEST defines the law of agency? The selling of another's property by a properly licensed brokerage The rules of law that apply to the responsibilities of a person who acts as agent for another The principles that govern one's conduct in business and ethical obligations The rules and regulations of the state's licensing agency
rules of law that apply to the responsibilities of a person who acts as agent for another. The law of agency determines how an agent is authorized to act on behalf of another and the responsibilities of that agent. The selling of another's property by a licensed brokerage is determined by a listing or brokerage agreement. Principles that govern one's conduct in business are often stated in a business code of ethics. Rules and regulations of a state's licensing agency state the requirements for real estate licensing for persons and firms.
Buying errors and omissions insurance is an example of
shifting risk. The purchase of errors and omissions (E&O) insurance is an example of transferring the risk to a third party (i.e., the E&O insurance company); buying the insurance is only one technique for funding risks that cannot otherwise be retained, avoided, or transferred to others. Self-insurance is an example of retaining the risk. Reference: Real Estate Practice > Risk Management
A woman applies to the municipality for permission to open an adult daycare facility in her neighborhood. Many elderly persons live in the neighborhood. The municipality may grant her
special-use permit. A special-use permit usually is granted to a property owner to allow a special use of a property for the common good. A nonconforming-use permit allows an existing property to be used for a purpose that existed prior to current *zoning ordinances* and not permitted under those ordinances. A special-use permit would not require an amendment to zoning ordinances. A variance is permission to build a structure or conduct a use that is expressly prohibited by current zoning laws. Reference: Real Property Characteristics, Legal Descriptions, and Property Use > Public and Private Land-Use Controls—Encumbrances
When a buyer and a seller enter into a purchase agreement (contract of sale), the legal remedy that each has to force the other party to perform the terms of the agreement is
specific performance. Specific performance is defined as suing to perform. This is the remedy being used as the default when the suing party wants the other party to complete the terms of the transaction. In a purchase agreement, this is available to both the buyer and seller. Actual damages are a remedy in a lawsuit to receive money in return for a breach of contract, which does not necessarily require the performance of the contract. Liquidated damages occur when the buyer's earnest money is kept, and unilateral recession is a one-sided termination when one party feels the other party has failed to complete their side of the agreement. Reference: Real Estate Contracts and Agency > Sales Contract
The legal proceeding or legal action brought by either the buyer or the seller under a purchase contract to enforce the terms of the contract is known as
suit for specific performance. In a suit for specific performance, the court may force the buyer or seller to go through with the sale and convey the property as previously agreed. Lis pendens is a recorded legal document giving constructive notice of an action filed in court. An attachment is the legal process in which a defendant in a lawsuit seizes property by judicial order or levy, holding the property as security for satisfaction of a judgment. Liquidated damages, which is keeping the earnest money, is the seller's remedy if the buyer is in default. Reference: Real Estate Contracts and Agency > Sales Contract
A broker who has done a proper competitive market analysis (CMA) discusses the probable market value of the property with the seller, and the seller wants an unrealistic price on the property. The broker may do all of the following EXCEPT suggest the seller have a formal appraisal done. take the listing at the seller's proposed price while planning to reduce the price himself in the future when the seller is more realistic. decline to take the listing at the high price. take the listing with the understanding from the seller that price reductions may be needed to sell the property
take the listing at the seller's proposed price while planning to reduce the price himself in the future when the seller is more realistic. Whether a CMA or a formal appraisal is conducted, the value sought is the property's market value. While it is the property owner's privilege to set whatever listing price they choose, a broker should consider rejecting any listing that is severely out of line. If the broker chooses to accept the listing at the seller's proposed price, the broker should advise the seller that the price may have to be reduced in the future in order to sell the house.
For land to be taken by the government under its right of eminent domain, which of the following must apply?
taking must be for a public purpose. Under the right of eminent domain, the government can acquire privately owned real estate for public use, which is defined very broadly. A government exercises this right through the process of condemnation, not through the passing of a statute. Adverse possession involves a person, not a government, taking ownership of a property through open and continuous use of a property. Under eminent domain, a government must work to negotiate with a property owner for the fair value of a property. Constructive notice is the legal presumption that a person, through due diligence, may be informed of a property's ownership.
A woman has a one-year leasehold interest in a multi-family residence. The interest automatically renews at the end of each year. Her interest is referred to as
tenancy from period to period. When a lease renews itself periodically, the arrangement is known as a leasehold from period to period, or a periodic tenancy. A tenancy for years is a leasehold estate that continues for a definite period, whether that period is days, weeks, months, or years. A tenancy at will permits a tenant to possess property with the landlord's consent for an unspecified term. A tenancy at sufferance arises when a tenant continues to possess the property without the landlord's consent after the tenant's rights expire. Reference: Forms of Ownership, Transfer, and Recording of Title > Ownership, Estates, Rights, and Interests
An appraisal differs from a competitive market analysis conducted by a broker in that an appraisal is based on an analysis of properties
that have actually sold. An appraisal is based on the analysis of properties that have actually sold. A competitive market analysis (CMA) features properties similar to the subject property in location, size, and amenities. A CMA includes analysis of properties currently on the market; those properties currently listed that compete for buyers with the subject property; properties that have actually sold (recently closed properties); and properties whose listings have expired. Reference: Property Value and Appraisal > Appraisal Process
A broker has established the following office policy: "All listings taken by any salesperson associated with this real estate brokerage must include compensation based on a 10% commission. No lower commission rate is acceptable." If the broker attempts to impose this uniform commission requirement, which statement is TRUE?
the broker may, as a matter of office policy, legally set the minimum commission rate acceptable for the firm. Antitrust violations occur only if price-fixing exists among competing firms. Brokers have the right to set commissions within their own firm. The broker's policy is not an antitrust violation. Salespeople who wish to continue with that broker can be required to comply with the policy.
A property manager showed a prospective tenant with three children under five a two-bedroom apartment. All of the following could be a consideration in qualifying the potential tenant EXCEPT credit history and criminal background. past lease performance as reported by previous landlords. personal references. the number of children.
the number of children. Three children under five in a two-bedroom apartment would not be considered unless local zoning ordinances state differently. Typically under fair housing law, children less than two years of age are not counted as occupants. Standard leasing practice is to fully check the tenant's background, past lease history, and work and personal references. Reference: Real Estate Practice > Fair Housing
A principal broker hires a salesperson as an employee of the brokerage firm. The employment contract between the broker and the salesperson will most likely include all of the following EXCEPT the broker will withhold federal income taxes and Social Security taxes from the salesperson's paycheck. the salesperson is responsible for direct payment of all income taxes and Social Security payments from each paycheck. the salesperson is entitled to the firm's health insurance plan. the salesperson attend weekly sales meeting.
the salesperson is responsible for direct payment of all income taxes and Social Security payments from each paycheck. A broker is responsible for withholding federal income taxes and Social Security payments from an employee's paycheck. The broker may require that the employee attend sales meeting and may include the employee in the firm's benefits, including a health insurance plan. A salesperson employed as an independent contractor is responsible for direct payment of all federal taxes and any required state taxes.
A broker helps a buyer and a seller with paperwork but does not represent either party. This arrangement is
transaction brokerage. When a broker does not represent either party in a transaction and acts as a facilitator or nonagent, the arrangement is known as transaction brokerage and is legal in some states. Dual agency exists when an agent represents both the buyer and the seller in the same transaction. Designated agency exists when a broker acting as a dual agent for both parties in a transaction assigns an individual agent to represent the seller and another agent to represent the buyer in the same real estate transaction; each agent is known as a designated agent.
An agent forgot to get the buyer to sign the offer. What is the status of the offer?
void. The offer is missing an essential element and is void. Duress, fraud, misrepresentation, and minors always make contracts voidable. A contract that is binding and enforceable is valid. Reference: Real Estate Contracts and Agency > Contract Performance
A contract between two parties that legally binds one party to perform, but allows the other party to disaffirm it, is
voidable. Voidable contracts have one side obligated but the other party able to rescind the contract if they wish. A contract with a minor is always voidable; for example, if an adult agrees to buy a property a minor owns, the contract is voidable by the minor. Executed contracts are closed and completed. Void contracts lack an essential element and bilateral contracts exchange promises.
Contracts that transfer interests in real estate should be express
written contracts. Documents transferring an interest in real estate, per the statute of frauds, must be in an express written form. The contract could be unilateral or bilateral, but it cannot be implied or oral.