Study FLash Card

Grace is 40 years old and wants to buy a home for the first time with money from her IRA investment account. What is the maximum that she can withdraw from her IRA account without any penalty?

$10,000. The "Age 59 ½ Rule" in the Taxpayer Relief Act permits a first time homebuyer to take an IRA distribution of up to $10,000 to help fund the purchase, without the 10% penalty for taking an early distribution.

A salesperson sells another firm's listing of a commercial building for $560,000. The 6 percent commission is split 50/50 between the firms. The salesperson received 60 percent of her office's share. How much does she receive?

$10,800. $560,000 x .06= $33,600 / 2 = $16,800 x 60% agent = $10,080

A real estate listing provides a $12,000 commission to the buyer's agent. The sales price is $200,000. What is the commission rate?

$12,000 / $200,000 = .06 = 6%. You need to divide $12,000 by $200,000 and convert the answer to a percentage by moving the decimal two places to the right.

Jeanine is a commercial real estate agent. She enters into a commission agreement with Chuck that will pay her a 5% commission on the first $250,000, and 3% on the remaining amount over $250,000. Jeanine shows Chuck a building that he wants to purchase. The sale closes and he pays $750,000. How much commission is owed by Chuck?

$27,500. This is a structured commission agreement. $250,000 x .05 = $12,500 (commission on first $250,000) $750,000 - $250,000 = $500,000 (commission on amount over $250,000). $500,000 x .03 = $15,000. $12,500 (first part of commission) + $15,000 (second part of commission) = $27,500 (total commission).

Cindy owns an apartment complex that she purchased for $450,000. After 5 years of ownership, she decides to sell. She has taken total depreciation deductions of $125,000. She sells the property for $750,000. How much of the profit will be taxed at long term capital gains tax rate?

$300,000. The taxable basis of the home was reduced to $325,000 ($450,000 - $125,000) due to the depreciation deductions. The capital gains on the sale is $750,000 - $325,000 = $425,000. Of the $425,000 in capital gains, $125,000 is taxed at the standard federal tax rate, while $300,000 will be taxed at the long term capital gains rate. The $125,000 constitutes recaptured depreciation.

Redd's privately held corporation owns a commercial office building in a desirable downtown area. The property generates $5,000,000 of rental income per year. Redd pays $1,500,000 in operating expenses. The tax rate is 35%. How much income taxes are owed?

$5,000,000 (gross income) - $1,500,000 (expenses) = $3,500,000 (taxable income) x .35 (tax rate) = $1,225,000

Helene opens a real estate brokerage. Her annual expenses to operate the office are $50,000. If the average sales associate that she hires will each generate $10,000 for the brokerage, how many associates will be required to cover her expenses?

$50,000 (expenses) / $10,000 (revenue per associate) = 5 sales associates

Donaya owned a vacant lot near the city for 10 years. She purchased it for $50,000 and received $80,000 when she sold it. What is the amount and percentage of Donaya's profit?

$80,000 (sales price) - $50,000 (cost) = $30,000 profit. $30,000 (profit) / $50,000 (cost) = 60%

Fritz buys a $1,000,000 residential apartment building with a cash down payment of $500,000. He earns $20,000 per month in rental income. He spends $2,000 per month in expenses. What is his cash-on-cash return?

43.2%. Cash-on-cash return is the before tax income cash flow divided by the cash investment. $20,000 (monthly income) x 12 months = $240,000 in annual income. $240,000 (annual income) - $24,000 (annual expenses) = $216,000 (annual before tax cash flow). $216,000 (annual before tax cash flow) ÷ $500,000 (cash investment) = .432 = 43.2%.

Frieda looks at a property that is 60 feet by 120 feet. What is the square footage of the property?

60 x 120 = 7200 square feet. Square footage is the length x width of the lot.

According to IRS regulations, what percentage of a cooperative's gross revenue must be from its shareholders in order for a shareholder to qualify for the tax benefits available to other forms of property ownership?

80% of a cooperative's gross revenue must be from its shareholders in order for a shareholder to qualify for the tax benefits available to other forms of property ownership (e.g., deduction of property taxes).

Garett is looking at strip malls with Relia, a real estate agent. Garett wants to purchase a property in the name of a corporation. Relia suggests that he form a regular corporation. What type of corporation is Susan referring to?

A "C" corporation is a general corporation, which pays corporate income taxes. A subchapter "S" corporation is taxed like a partnership. The principal pays taxes at the personal level, as opposed to an LLC, which is a limited liability company. It is not a corporation. A Subchapter "S" has the benefits of corporations (limited liability) and is taxed like a partnership at the personal level.

Which term best describes a VA mortgage:

A Department of Veterans Affairs (VA) mortgage is a guaranteed loan program, which provides a guaranteed repayment of a percentage of the loan to the lender if the borrower defaults. A conventional loan is not guaranteed or insured by the government against default.

A group of people investing in real estate together is a(n):

A Joint venture is a temporary business organization that includes two or more people jointly participating in an investment into real estate (a/k/a syndicate). An S corporation is a special type of closely held corporation that is taxed like a partnership.

An area of cluster or housing grouped together that includes common areas is called

A Planned Unit Development (PUD) is an area of cluster or housing grouped together that includes common areas. PUD's sometimes have supporting businesses. PUDS can include areas of housing, recreational areas, commercial zones, and industrial parks within one specific development or subdivision.

For what type of properties should a licensee use a TREC unimproved property contract (Form SCF No. 9-12)?

A TREC unimproved property contract (Form SCF No. 9-12) is used for unimproved property that will be used for 1-4 family dwellings.

When does a Texas broker have to place money received for a deposit into a trust account?

A Texas broker has to place money received for a deposit into a trust account by the end of the second working day following the date that the funds were received. For example, if the check was received on a Wednesday, it must be deposited by the end of the day on Friday.

Which of the following is true about Texas intermediary brokers?

A Texas intermediary broker does not represent either party. An intermediary is a neutral party who assists both parties to complete the transaction. They cannot provide representation to both the buyer and seller in the same transaction, or to a buyer or a seller only, since an intermediary must be impartial (unbiased) and treat each party fairly and honestly. Thus, they cannot disclose one party's confidential information to the other party. Written consent from both parties is required to form an intermediary relationship, which can be accomplished with a provision in the listing agreement that states the duties of the agent. Any intermediary agreement or provision must specify how the agent will be compensated and by whom and the intermediaries duties. Dual agency is legal in Texas and occurs when there is an intermediary broker relationship.

Which is not true about Texas military spouses seeking a real estate license?

A Texas military spouse is not exempt from all of the Texas licensing requirements, but the application will be expedited if the spouse is licensed in another state that has similar licensing requirements. Also, an alternate competency test may be provided aside from basing licensure on the standard licensing exam, experience and education, and the applicant may be re-licensed if they have an expired Texas license.

Which of the following duties is a Texas unlicensed assistant not permitted to perform?

A Texas unlicensed assistant is not permitted to review contracts. They are permitted to distribute flyers, schedule appointments, provide or confirm specifically requested information, answer phones and other adminsitrative office related tasks, host open houses and register the vistors without performing any licensee activities at the open house.

Which type of loan guarantees that the lender will receive 25% of the home loan amount up to a certain amount in the event of a default by the borrower?

A VA (Department of Veterans Affairs) loan guarantees that the lender will receive 25% of the home loan amount up to a certain amount as determined by FHA, in the event of a default by the borrower. The limit is higher for high cost counties. Conventional loans do not involve an agency of the federal government. A sales lease back occurs when the owner sells the property to another party, who immediately leases it back to the seller. A blanket mortgage is a commercial mortgage often used by real estate developers to finance a project. At least two parcels of property are pledged as collateral. The release clause allows the lien to be lifted on particular parcels when a certain amount of the loan balance is paid, such as when a new home is sold and the developer uses the proceeds from the sale to pay off a portion of the blanket mortgage.

A preliminary written agreement for the sale of a property that contains the basic terms of the transaction, is not as detailed as a contract of sale, but can be used as the only contract is:

A binder is a written agreement for the sale of a property that contains the basic terms of the transaction and is not as detailed as the contract of sale. A deed is a written instrument that transfers title to real property. It is executed by the seller and delivered to the buyer. The statute of frauds is a state law requiring contracts involving the transfer/sale or creation of real property must be in writing in order to be enforceable. A certificate of occupancy (CO) is the municipal document verifying that the premises and parts thereof are approved and safe for occupancy. A building inspector performs an inspection before the CO is issued.

Halley owns 25 acres of land in a residential area and wants to develop a real estate complex containing 50 single family homes. What type of mortgage can she obtain that will permit her to pay it off as she sells each home?

A blanket mortgage is a commercial mortgage often used by real estate developers to finance a project. At least two parcels of property are pledged as collateral. The release clause allows the lien to be lifted on particular parcels when a certain amount of the loan balance is paid, such as when a new home is sold and the developer uses the proceeds from the sale to pay off a portion of the Blanket mortgage. PMI is private mortgage insurance, which is not a type of mortgage. It is used when the down payment is less than 20% to insure the top portion of the loan in case of default. An insurance premium is typically added to the monthly mortgage payment. A Pledged Account involves the purchaser placing money in a savings account and using the earned interest to supplement the mortgage payment. With an Open-End mortgage, the mortgagor (purchaser/borrower) is entitled to demand additional loan funds without the need to undergo a new underwriting process.

Which IRS form must brokers provide to their licensed sales representatives?

A broker must provide a 1099 misc. form to a sales representative. The independent contractor form documents the licensee's annual earnings for tax filing purposes.

Aimee, a licensed broker, holds Kim's salesperson's license. Aimee is Kim's:

A broker who holds a salesperson's license is the sponsor. A principal is the employer of an agent or a broker's employer, or a broker's or agent's client. A fiduciary is someone who transacts business or handles the money or property for another person and for the other person's benefit. A fiduciary relationship requires a significant degree of confidence and trust.

The Millenium, a residential apartment building, added a new exit door after residents complained that there were not enough exit points. What document does The Millenium need to obtain in order for the new exit point to be open for use?

A building department issues building permits, inspects properties for compliance with building regulations and issues a certificate of occupancy once the inspector confirms that the building was completed in compliance with the building code. Bylaws contain the rights and obligations of the unit owners or shareholders. An offering plan amendment is a change of the offering plan. A certificate of insurance is a document evidencing that insurance has been purchased for real or personal property. The offering plan is issued by a developer that converts or constructs a co-op or condominium building and contains all pertinent information.

A business arrangement that permits a brokerage to use the name of a parent company is called a:

A business arrangement that permits a brokerage to use the name of a parent company is called a franchise.

What type of mortgage is generally not assumable by a buyer?

A buyer generally cannot assume a seller's existing conventional fixed rate mortgage. FHA and VA mortgages can be assumable. A subject to mortgage occurs when a property is sold with an unsatisfied mortgage, though the lender can still foreclose and recover against the original borrower. The purchaser of such a mortgage is not liable for paying it, since the purchaser never signed the note.

Sheena hires Bonnie to act as a buyer's agent for Sheena's search for a commercial property. Which is false about Bonnie's role?

A buyer's agent can obtain an upfront fee. A buyer's agent can show Sheena properties that are for sale by owner, the buyer may pay the buyer's agent, rather than the seller paying the agent, and a buyer's agent can show the buyer properties where the seller has a seller's agent. The buyer's agent can also accept the fee offered to cooperating agents pursuant to the listing.

In a buyer/agency relationship, the broker owes the seller:

A buyer's agent is required to deal honestly, fairly and in good faith. Since the broker is not a fiduciary of the seller, an accounting, obedience or care is not required.

Once a building permit is issued for a new construction project, the owner will subsequently need:

A certificate of occupancy is a permit issued to a builder or owner after all building department inspections are completed and the property is fit for occupancy. A variance is a permissible deviation from a zoning law. A building department issues building permits, inspects properties for compliance with building regulations and issues a certificate of occupancy once the inspector confirms that the building was completed in compliance with the building code. An architectural review board protects a neighborhood's historic building designs. The board typically seeks to maintain an area's beauty and unique characteristics. The review board is comprised of people possessing significant experience in architecture or art. A use variance allows a property owner to use land for a use that is not allowed by the zoning law, such as converting a one family home to a three family home.

A broker could be entitled to a commission if a sale does not close if the issue was caused by the:

A commission is usually considered earned when a broker brings a ready, willing, and able buyer to the seller, or the seller should accept an offer from the buyer.

What document is signed by parties to settle a Fair Housing Act violation?

A conciliation agreement is signed by parties to settle a Fair Housing Act violation as a result of a mediation. It is not required. A nonsolicitation order is issued by the government to protect against blockbusting. Blockbusting is the practice of pressuring a homeowner to sell or lease the property by telling the owner that a certain protected class is moving into the area. Steering involves a licensee directing buyers towards or away from certain areas, based upon race (e.g., A broker showing a white couple homes in an area with a high white population or directing them away from a certain area; A broker showing a Russian buyer homes in an area populated mostly by Russians or directing them away from a non-Russian area). Redlining occurs when a lender chooses not to make loans in specific geographical area because a protected class is situated there (e.g., race, religion, national origin, color, sex, handicap, religion or family status).

A purchaser of which type of property receives an undivided interest in the common areas?

A condominium owner receives an undivided interest in the common areas. A shareholder in a cooperative owns shares in the cooperative corporation and the use of common areas (e.g., outside grounds, laundry facilities, parking areas, lobby) is governed by the proprietary lease.

Frankie has saved enough money to purchase a condominium in his favorite building. What form of ownership will Frankie obtain?

A condominium provides fee simple ownership (straight ownership) of the unit and an undivided interest in the common areas. A shareholder in a cooperative owns shares of stock in the cooperative corporation and the use of common areas (e.g., outside grounds, laundry facilities, parking areas, lobby). For cooperatives, a cooperative corporation owns the entire property, including the building and land. It is governed by the proprietary lease. A purchaser becomes a shareholder in the corporation and is a tenant pursuant to the corporation's proprietary lease. The shareholder pays a monthly maintenance charge to the corporation, which is similar to paying rent, and is usually based upon the number of shares owned. The number of shares owned could be proportional based on the size of the individual unit. No deed is issued, since it is not fee simple ownership. The deed is in the name of the corporation.

Which of the following serves as an advisory board for protecting a town's natural resources?

A conservation advisory council serves as an advisory board for protecting, managing and developing a town's natural resources. An architectural review board protects a neighborhood's historic building designs. The board typically seeks to maintain an area's beauty and unique characteristics. The review board is comprised of people possessing significant experience in architecture or art. A landmark commission or historical preservation commission is the municipal department would place special protective status on a building that has significant historical value. A building department issues building permits, inspects properties for compliance with building regulations and issues certificates of occupancy.

Bassick lives in a leased apartment. During the winter months, his landlord refuses to provide heat. Bassick is frustrated because he is bound by the lease and cannot move. What principle can Bassick rely upon to terminate the lease?

A constructive eviction occurs when a tenant is not provided with quiet enjoyment. If the tenant did not create the issue, the tenant can vacate the premises and no longer be required to pay rent pursuant to the lease. Eviction is the legal proceeding used by a landlord to remove a tenant and the tenant's personal property, usually for non-payment of rent. An actual eviction is a prohibited self-help measure outside of the court system, when the landlord removes the tenant. Abandonment occurs when a tenant abandons the leased premises and the landlord reenters and repossesses the premises, though the landlord does not need to accept the return. The landlord can pursue the tenant for damages.

A contract formed through acts, conduct or representations is a(n) _____________ contract?

A contract formed through acts, conduct or representations is an implied contract. An implied contract has not been reduced to writing. An express contract is a written contract.

What is the name for a legally enforceable agreement between two competent parties in which each party is entitled to a right?

A contract is an agreement between two competent legal parties to do or refrain from doing some legal act in exchange for consideration.

Which is not true about cooperating agents showing a property listed for sale?

A cooperating agent must disclose their role immediately upon arranging to show the property. A cooperating agent is a sales agent who helps facilitate a real estate transaction with the broker who listed the property. It is usually an agent who represents the buyer and deals with the seller's agent.

Mickey is looking at a cooperative apartment for sale. He asks his sales agent to explain what a cooperative is. What best describes a cooperative?

A cooperative corporation owns the entire property, including the building, and land. A purchaser becomes a shareholder in the corporation and is a tenant pursuant to the corporation's proprietary lease. The shareholder pays a monthly maintenance charge to the corporation, which is similar to paying rent, and is usually based upon the number of shares owned. The number of shares owned could be proportional based on the size of the individual unit. No deed is issued, since it is not fee simple ownership. The deed is in the name of the corporation. A condominium is a different type of property ownership structure involving ownership of the actual property, rather than shares. A condominium owner receives an undivided interest in the common areas. A shareholder in a cooperative owns shares in the cooperative corporation and the use of common areas (e.g., outside grounds, laundry facilities, parking areas, lobby) is governed by the proprietary lease.

Which type of property ownership structure involves multiple persons joined together and each have some control over the property through shares?

A cooperative is a property ownership structure where multiple persons are joined together and each have some control over the property and related structures and areas. A cooperative corporation owns the entire property, including the building, and land. A purchaser becomes a shareholder in the corporation and is a tenant pursuant to the corporation's proprietary lease. The shareholder pays a monthly maintenance charge to the corporation, which is similar to paying rent, and is usually based upon the number of shares owned. The number of shares owned could be proportional based on the size of the individual unit. No deed is issued, since it is not fee simple ownership. The deed is in the name of the corporation. A shareholder in a cooperative owns shares in the cooperative corporation and the use of common areas (e.g., outside grounds, laundry facilities, parking areas, lobby) is governed by the proprietary lease. A condominium is a different type of property ownership structure involving ownership of the actual property, rather than shares. A condominium owner receives an undivided interest in the common areas. A condop includes characteristics of both cooperative and condominium ownership. A condop is typically a mixed-used condominium building where at least one of the units is owned by a cooperative corporation and sub-divided into many "co-op" apartments. For example, if a building has residential apartments along with a supermarket that occupies the street level space, the building could be divided into 2 separate condominiums parts with the commercial space as a condominium and the residential portion the second. The residential condominium space is then divided and shares are issued to the buyers. The cooperative within the condominium is a condop. Fee simple is outright ownership of land, while a leasehold is leased land.

What is a deed in lieu of disclosure also known as?

A deed in lieu of disclosure also known as a friendly foreclosure. Deed in lieu of foreclosure refers to the situation where a borrower transfers the deed to the bank to avoid a record of foreclosure. A deficiency judgement can be obtained against a defaulting borrower. It represents the difference between the mortgage balance and sales price obtained via the foreclosure sale. The exculpatory clause in a mortgage permits a borrower to surrender their property without any further liability. The lender cannot take any further action. That is called a non-recourse loan. Most loans are recourse loans and permit the lender to recover against the borrower's personal assets. A reverse mortgage is usually an option for older homeowners as a first mortgage. It uses a home's equity to pay the borrower for a certain agreed upon period. The lender obtains its money (recapturing of equity) once the borrower dies or the home is sold.

Joe and Silda purchase a home from Andrew. What is the document signed by Andrew to transfer his interest in the home called?

A deed is a written instrument that transfers title to real property. It is executed by the seller and delivered to the buyer. A bargain and sale deed is a type of deed. A public grant is a grant of power, license or real estate given by a government entity to a private individual. Accretion is the natural addition of land, such as through the build-up of sand by water or wind.

An instrument of conveyance is also called:

A deed is an instrument of conveyance, which is a document used to transfer real property. The grantor (seller) is the person transferring title by deed, while the grantee (purchaser) is the person receiving title. Consideration is something of value (e.g., money) exchanged for the property.

A deed is valid when it is:

A deed must be signed by the grantor and must be delivered to the grantee (purchaser) for it to be valid and possess legal effect.

The person who operates a Texas real estate broker's office is called:

A designated broker is the person who operates a Texas real estate broker's office, as required by Texas licensing regulations. The designated broker must be an active Texas broker who is in good standing and must be a managing officer of the brokerage entity. A Texas brokerage cannot engage in real estate brokerage activities without a designated broker.

Real estate licensee Trudee uses a comparative market analysis to figure out a sales price. What evaluation approach is Trudee using?

A direct sales comparison is a comparative market analysis (CMA), which is also used by property appraisers. A CMA (comparative market analysis) is a method to derive the market value range of a property offered for sale. A CMA considers properties on the market and those that have recently sold, along with withdrawn or expired listing. The mortgage value is the amount that that lender believes that a property is worth. An appraisal is an objective estimate of the value of a property on a certain date based upon factual information.

When a seller agrees to a dual agency relationship, which part of the fiduciary duty is the seller giving up?

A dual agent is an agent, who acts as a buyer's agent and a seller's agent, or a tenant's agent and a landlord's agent, within the same transaction. By representing both sides, the seller cannot receive the undivided loyalty of the agent, since the interests of a buyer and a seller conflict, as the buyer wants to pay the least possible while the seller wants to obtain the highest possible price. In Texas, if the broker chooses to represent both sides of the transaction, which is a dual agency, the broker must act as an intermediary, so a Texas intermediary broker does not represent either party. An intermediary is a neutral party who assists both parties to complete the transaction. They cannot provide representation to both the buyer and seller in the same transaction, or to a buyer or a seller only, since an intermediary must be impartial (unbiased) and treat each party fairly and honestly. Thus, they cannot disclose one party's confidential information to the other party. Written consent from both parties is required to form an intermediary relationship, which can be accomplished with a provision in the listing agreement that states the duties of the agent. Any intermediary agreement or provision must specify how the agent will be compensated and by whom and the intermediaries duties.

Which term refers to a person who is in a position of trust and must be loyal to the principal?

A fiduciary is a person placed in a position of trust and must be loyal to the principal, such as a real estate agent's loyalty to a buyer or seller principals. The customer is owed the fiduciary duty by the agent. Obedience to the principal (client) is one of the several requirements of a fiduciary. A special agent is one type of agent that owes a fiduciary duty to the principal. Others include a buyer or seller's agent.

Ownership of real property for an undetermined length of time is called:

A freehold estate is ownership of real property for an undetermined length of time. A nonfreehold or leasehold estate has a determinable end. An estate is simply an interest in property that provides the right to possess the land.

What types of warranties does a full covenant and warranty deed contains include?

A full covenant and warranty deed contains legal promises with six covenants: Covenant of seisin- grantor warrants they own the property and has legal right to convey it; Covenant against encumbrances- grantor warrants that the property is free from liens or encumbrances, unless otherwise specifically stated in the deed; Covenant of quiet enjoyment- grantee will have quiet possession of the property and will not be disturbed if the grantor had defective title; Covenant of further assurance- grantor promises to deliver any document that may be required to render title valid.

An agent who has the authority to represent the principal in specific matters is a(n):

A general agent has authority to handle the affairs of a principal in connection with a particular matter and is provided with limited power to perform one or more acts (e.g., agree to accept the highest offer on a property and sign a contract). A special agent is a licensee, such as a listing agent, who has limited authorization to act on the principal's behalf and does not have the authority to bind the principal.

Which is not true about the grantee in a transfer of real property?

A grantee, the person receiving title to the real property, does not need to be mentally competent. A minor can be a grantee, but cannot convey the property and a grantee must be living at time of transfer. In Texas, a seller of real estate must be at least 18 years old.

Ned leases a storefront to open a music store. His landlord sends him a gross lease. What building expenses is the landlord supposed to pay?

A gross lease requires the landlord to pay all of the expenses, such as maintenance, taxes and insurance. A net lease requires the tenant to pay a part of or all of the expenses.

Which type of lease requires the landlord to pay all of the operating expenses?

A gross lease requires the landlord to pay all of the expenses, such as maintenance, taxes and insurance. A square footage lease is not a standard type of commercial lease. A percentage lease requires a base rent plus a percentage of gross sales. Such leases are standard for commercial properties. A triple net lease requires the tenant to pay all of the expenses required to operate a property, excluding the landlord's debt service (interest) payments.

A long term rental agreement for undeveloped land is called:

A ground lease is long term rental agreement for undeveloped land. Ground leases are typically for a very long term. The ground lease permits the lessee to build upon the land and own the improvements, but the property owner retains ownership of the land. A proprietary lease is a cooperative corporation's lease with the cooperative shareholders. Fee simple is outright ownership of land, while a leasehold is leased land. An option to buy is a provision in a contract permitting the option holder to purchase a property pursuant to the terms outlined in the contract.

Hassan, a 40 year old businessman, owns a home worth $750,000. He pays his mortgage on time and owes $250,000 on his mortgage. His family is growing and he needs to expand his home. Which type of loan makes the best sense for Hassan?

A home equity loan is a loan that is against the property's equity. It is often a second mortgage that is subordinate to the first mortgage. Since Hassan has $500,000 of equity, he can obtain a home equity loan. A reverse mortgage is usually an option for older homeowners as a first mortgage. It uses a home's equity to pay the borrower for a certain agreed upon period. The lender obtains its money (recapturing of equity) once the borrower dies or the home is sold. It is not the best option for a 40 year old like Hassan, who can make his payments and would be subject to high closing costs for a reverse mortgage. He would also need to pay off the existing mortgage, since the reverse mortgage has to be the first mortgage. Shared equity is a loan used for commercial mortgages. The lender receives a portion of the profits generated by the commercial property that is the subject of the mortgage. A sales lease back occurs when the owner sells it to a party, who immediately leases it back to the seller.

Which does a homeowner's insurance policy not cover against?

A homeowner's policy does not typically cover automobile loss or damage. A separate automobile policy covers against loss or damage. The homeowner's policy does protect against the dwelling and other structures, loss of use of the home, medical payments, personal property and personal liability.

Which of the following is false about a landlord's right to enter a leased premises?

A landlord can enter a premises in non-emergency situations with the consent of a tenant to inspect, make repairs or improvements, to show the premises to future tenants or buyers or provide agreed upon services. A tenant cannot unreasonably withhold consent to a landlord to enter a leased premises.

What municipal department would place special protective status on a building that has significant historical value?

A landmark commission or historical preservation commission is the municipal department would place special protective status on a building that has significant historical value. A building department issues building permits, inspects properties for compliance with building regulations and issues certificates of occupancy. HUD (Department of Housing and Urban Development) is a federal agency that oversees home mortgage lending practices. An architectural review board protects a neighborhood's historic building designs. The board typically seeks to maintain an area's beauty and unique characteristics. The review board is comprised of people possessing significant experience in architecture or art. An assessor and a receiver are involved in assessing and receiving taxes, respectively.

Which of the following is not an example of a latent defect in connection with real property?

A leak in a pipe under a sink is not a latent defect. A latent defect is a defect that is not easily observable or discovered by a purchaser, such a structural defect or a defect pertaining to a building system (e.g., HVAC, electrical, plumbing). Known latent defects must be disclosed to a purchaser. Liability could result for the failure to disclose known latent defects. A crack in the building's foundation, a sink hole covered by a wooden cover and an illegal wire box inside a wall are all examples of latent defects, since they cannot be easily seen or discovered.

Grassley rents an apartment in a townhouse development. If the property is sold to a new owner, what is the effect on Grassley's lease?

A lease agreement does not generally terminate when an owner sells the property and the new owner is bound by the lease terms.

Franz, a lessee, transfers the entire remaining interest of his lease to Jimbo, a third party is now required to pay the monthly rent to the property owner. What is the process that was used?

A lease assignment is the transfer of the lease agreement from the present tenant to the assignee (a third person). A sublease permits the tenant to lease a portion or all of the leased property to another tenant, which may require the landlord's permission. A novation occurs when a new party assumes another party's obligation to pay what the original party agreed to pay in the contract.

A clause in a lease that requires increased costs to be paid by a lessee at certain points in time, such as if operating costs increase, is called:

A lease escalation clause calls for increased costs to be paid by a lessee at certain points in time, such as if operating or other costs increase. Such a clause is for the property owner's protection in the event the costs rise than expected. A graduated lease is a type of lease that calls for gradual increases in rent, typically after each year or other term of years. A proportionate share of occupancy lease is a type of lease where increases in fees are proportionally based relative to the particular tenant's proportionate share of occupied space.

A contract which transfers the right to possess land for a fixed period is a:

A lease is a contract that requires payment (consideration) to a property owner in order for the interest in the property to transferred to the lessee for a fixed time period. A general lien is placed against all assets of a person or legal entity in order to recover a payment made to the debtor. Lis pendants is the Latin term for pending litigation, which is a filing that provides legal notice to the public (e.g., a prospective purchaser) that there is litigation (legal action) pending against a property.

Which of the following is true about the right to quiet enjoyment?

A lease typically provides a tenant (lessee) with the right of quiet enjoyment of a property, which prohibits the landlord (lessor) or any other person from interrupting the tenancy or entering the premises without consent.

What type of property interest is held by a lessee holding a temporary, but exclusive, possessory interest?

A leasehold estate provides a party with a temporary, but exclusive, possessory interest without the actual title to the property. A freehold estate is ownership of real property for an undetermined length of time. A nonfreehold or leasehold estate has a determinable end. An estate is simply an interest in property that provides the right to possess the land. A reversionary estate is the interest that a person has in a property when a prior estate ceases to exist.

A legal document that pledges a piece of a specific property as collateral pursuant to a loan agreement is called a(n):

A legal document that pledges a piece of specific property as collateral pursuant to a loan agreement is a mortgage. A mortgage is a type of lien filed against a building or other property improvement. An installment contract is the payment of a loan over a specified period of time, like the loan/note taken out on property.

Which of the following is not a violation of Real Estate License Law?

A licensee does not need to place their name on an open house directional sign (a sign placed near an open house that directs people to the location). Not disclosing a real estate salesperson's personal interest in a property a client is purchasing, negotiating a sale of a property with a property owner that the salesperson knows is listed with another real estate broker and offering a property for sale without the property's owner's permission are all violations of the law.

Real estate salesperson Gene represents Heshey for the sale of Heshey's home. Heshey has filed for bankruptcy and must sell the home pursuant to a court order. Can Gene disclose the bankruptcy to Helen, a prospective buyer?

A licensee has a fiduciary duty to the seller, which includes a duty not to disclose confidential information without the permission of the seller. Herein, the disclosure of the information could result in the buyer's presumption that Heshey is desperate to sell, which could result in lower offers to buy the property. In order to protect himself, the licensee should get the permission in writing to defend against any later claim that the licensee did not have permission to disclose the information. Whether the matter is public information does not matter. Also, it does not matter if the information is true or not. The licensee cannot disclose the information without permission.

A licensee is required to tell a buyer to examine title at what stage of the transaction?

A licensee is required to tell a buyer to examine title (through use of an attorney or by purchasing a title insurance poliicy) when a buyer signs an offer.

An agency relationship between a principal and agent for the listing of a property is what type of agency?

A listing agreement is an express agency. An express agency is formed through an oral or written agreement. An implied agency is formed based on the words or actions of the agent and principal that evidences an intent to form the agency. A dual agency is created when an agent acts as a buyer's agent and a seller's agent, or a tenant's agent and a landlord's agent, within the same transaction. In Texas, if the broker chooses to represent both sides of the transaction, which is a dual agency, the broker must act as an intermediary. A Texas intermediary broker does not represent either party. An intermediary is a neutral party who assists both parties to complete the transaction. They cannot provide representation to both the buyer and seller in the same transaction, or to a buyer or a seller only, since an intermediary must be impartial (unbiased) and treat each party fairly and honestly. Thus, they cannot disclose one party's confidential information to the other party. Written consent from both parties is required to form an intermediary relationship, which can be accomplished with a provision in the listing agreement that states the duties of the agent. Any intermediary agreement or provision must specify how the agent will be compensated and by whom and the intermediaries duties.

Chris has signed a contract to purchase a condominium. He applies for a mortgage. The application is received by the lender. What document containing all of the anticipated settlement costs must Chris receive within 3 business days?

A loan estimate containing all of the borrower's anticipated settlement costs must be provided to the purchaser/borrower within 3 business days of the date loan application is received by the lender. HUD Form No. 1 was a standard form provided on or near the closing date that contains all costs of buyers and sellers. RESPA (Real Estate Settlement Procedures Act) is a federal law governing home mortgage lenders, which requires the loan estimate. The HUD booklet is called Shopping for Your Home Loan HUD's Settlement Cost Booklet, discusses a borrower's rights and the various people (real estate agent, attorney, mortgage lender) involved in a typical transaction.

Mary hires Steve to install a fence around her property. Steve buys the materials, installs the fence, and then sends Mary a bill for $5,000, which Mary does not pay. What type of lien is appropriate for Steve to file against Mary's property?

A mechanic's lien is filed against a building or other property improvement, based upon materials and labor furnished for the improvement, such as a fence. Lis pendens is the Latin term for pending litigation, which is a filing that provides legal notice to the public (e.g., a prospective purchaser) that there is litigation (legal action) pending against a property. A materialman's lien is filed by a supplier of products used in the construction or improvement of a building or structure.

Which type of office building is typically the highest structure?

A mid-rise building is generally 1 to 15 stories high. Low-rise (1-3 stories) and R&D (research and development) buildings are 1 to 5 stories high, while a garden office building is 1 to 5 stories. All are lower in height than a mid-rise building.

When a Town places a hold on development in a certain area, it is called a(n):

A moratorium is a delay or temporary stoppage of property development within a community. A sunshine law, which is also known as an open meeting law requires that government zoning boards make their meetings open to the general public. A variance is municipal permission to depart from requirements of a zoning law.

Another name for a written legal instrument that acts as security for a debt pledged to a lender with respect to a specific piece of real property is called a:

A mortgage a written legal instrument that acts as security for a debt pledged to a lender with respect to a specific piece of real property.

Eric is a first time homebuyer. A real estate agent finds him a home that interests him, but he is nervous that if his offer is accepted that he will not be able to obtain financing. Which clause in the contract permits the buyer to cancel the contract in the event financing cannot be obtained due to Eric's financial situation?

A mortgage contingency clause permits the buyer to cancel the contract in the event financing cannot be obtained or is denied a mortgage. It provides a buyer with the right to void the contract (make it voidable). FHA (Federal Housing Administration) are a type of loan where the mortgage lender is insured against default by the federal government.

What type of lien is a mortgage?

A mortgage is a type of specific lien, which is a lien against a specific piece of property. A mechanic's lien is a lien resulting from labor provided to a property and is also a type of specific lien. An involuntary lien is obtained through a legal proceeding. A general lien is placed against all assets of a person or legal entity.

A mortgage loan that fails to meet the standards of the Federal Reserve Bank is called a(n):

A mortgage loan that fails to meet the standards of the Federal Reserve Bank is called a nonconforming loan. Examples are certain mortgage backed securities, loans above the limit of the conforming loan, loans on a substandard property and loans given to buyers without sufficient financial strength. A conforming loan is the opposite of a nonconforming loan and meets the Federal Reserve Bank or a lender's standards. ARM is an adjustable rate mortgage/loan. MLO is the abbreviation for mortgage loan originator, which is a licensed person that takes mortgage loan applications or is involved in the offering or negotiation of a loan.

Orly lives in the hills with a beautiful view of the river valley. Her neighbor Pablo wants to build a security wall around his property, but it will block Orly's view. Orly meets with Pablo and offers him $100,000 for an easement that prohibits any fence or wall around his property. Pablo accepts the offer. What type of easement was created?

A negative easement provides the holder with the right to restrict or prohibit an activity of another. The party receiving the benefit of the easement is the dominant estate, while the property that is providing the benefit or suffering is the servient estate. An affirmative easement gives the right to enter a property. No easement provides an ownership or possessory interest in the property It is just a right to use or to restrict the use of property. A restrictive covenant is a deed restriction or condition (e.g., prohibits an activity on the land).

Fred's house was built in 1900, when barns were permitted on residential property in his County. In 2005, the County passed a law prohibiting barns on residential property. What exemption may be available for Fred, so he can keep his barn?

A nonconforming use is a zoning variance where a parcel of land does not need to be in compliance with current zoning requirements because the use was present before the zoning regulation went into effect. It is also known as being "grandfathered in". Police power is the right possessed by a political authority/government allowing for the enactment and enforcement of laws, in order to preserve order, safety, health, morals and the general welfare of the public. An outlot is land that is not located within a town or developed area.

What type of order is issued by the government to protect against blockbusting?

A nonsolicitation order is issued by the government to protect against blockbusting. Blockbusting is the practice of pressuring a homeowner to sell or lease the property by telling the owner that a certain protected class is moving into the area. Steering involves a licensee directing buyers towards or away from certain areas, based upon race (e.g., A broker showing a white couple homes in an area with a high white population or directing them away from a certain area; A broker showing a Russian buyer homes in an area populated mostly by Russians or directing them away from a non-Russian area).

The substitution of a new party for an old party in a contract is a(n):

A novation is the substitution of a new party for an old party in a contract. A novation occurs when a new party assumes another party's obligation to pay what the original party agreed to pay in the contract.

Fran is selling her home on her own without the use of a real estate agent. Brianna, a real estate agent, wants to show Fran's home to Peter. What could Brianna use to obtain a commission?

A one-time show agreement is entered into by a seller and an agent that permits a one-time showing to a specifically identified buyer. The agent receives a commission if the named buyer purchases the property. A listing agreement would not be used for a "for sale by owner" transaction in this situation. No fiduciary pledge is warranted, since the agent does not owe the seller a fiduciary duty. A designated agent is assigned to represent one party to the transaction, when another agent who works for the same broker represents the other party.

A person associated with a licensed real estate broker who lists real estate for sale is a(n):

A person associated with a licensed real estate broker who lists real estate for sale is a Real Estate Salesperson. A licensor is a government agency (such as the Department of State in some states) that issues professional licenses. An "associate real estate broker" is a licensed real estate broker who chooses to work under the name and supervision of another individual broker. An associate broker is governed by the regulations for real estate salespersons.

A person or corporation that negotiates the terms of a real estate transaction and oversees others is a(n):

A person or corporation that negotiates the terms of a real estate transaction and oversees other agents is a broker. An "associate real estate broker" is a licensed real estate broker who chooses to work under the name and supervision of another individual broker. An associate broker is governed by the regulations for real estate salespersons. A person associated with a licensed real estate broker who lists real estate for sale is a Real Estate Salesperson. MLO is the abbreviation for mortgage loan originator, who is a licensed person that takes mortgage loan applications or is involved in the offering or negotiation of a loan.

Which of the following is not exempt from Texas licensure requirements?

A person outside of Texas who uses the internet to engage in real property transactions is not exempt from Texas licensing requirements. A Texas licensed attorney, an on-site apartment complex manager and an attorney-in-fact with power of attorney are all exempt from licensing requirements.

Trey signs a contract to purchase a horse property. His mortgage broker charges 3 points. How much will Trey pay if the loan amount is $150,000?

A point is one percent (1%) of the total amount of the mortgage loan. 3% (same as .03) x $150,000 = $4,500

Helga has a New Year's Eve party in her backyard. Gerry, one of her guests, gets intoxicated and dives into the shallow end of her pool. He punctures the liner and also becomes paralyzed. Which coverage will protect Helga for the damage to the pool liner?

A pool is covered under the other structures coverage, though the policy should be consulted to see if coverage has been afforded. Some insurance policies do not cover pool damage. Dwelling coverage covers the main structure. Liability coverage provides protection for injuries to others occurring on the property like Gerry's injury. Personal property coverage covers personal property (furniture, jewelry, etc.) on and/or off the premises.

Perry sells his home to Anne. If the property taxes are raised after the sale, what has occurred?

A post-sale reassessment (a/k/a reassessment upon sale) occurs when a property is sold and the assessed value is changed to the fair market value, which is typically the sales price. However, when a property is sold, it is not usually reassessed, since other similar homes in the area will need to be reassessed to reflect the market value. A special assessment is used by a municipality to raise money for improvement to areas in the vicinity of the property or next to it, such as sidewalks, roadways, sewers or a new firehouse. An equalization program is used by a municipality to assess property values in two separate areas that use different valuation percentages in order to ensure both areas are taxed fairly. One area may assess property at a lower percentage of value than the other, so to ensure that the County acts equitably, it equalizes the varying rates.

A prequalification letter is obtained from:

A prequalification letter, which indicates that a buyer is preapproved for a specific loan amount, is obtained from a mortgage loan officer.

A management agreement is a:

A property management agreement is a legally binding contract between the property manager and property owner. It is a formal understanding of the relationship. It dictates the duties of the manager and provides for a fee to the manager. A binder is a written agreement for the sale of a property that contains the basic terms of the transaction and is not as detailed as the contract of sale. Lis pendens is the Latin term for pending litigation, which is a filing that provides legal notice to the public (e.g., a prospective purchaser) that there is litigation (legal action) pending against a property.

A property management agreement is between:

A property management agreement is between the property manager and property owner and is a formal understanding of the relationship. It dictates the duties of the manager and provides for a fee to the manager.

A written summary of all money spent and received by a property manager over a particular period of time that is provided to the property owner is called a:

A property management report is a written summary of all money spent and received by a property manager over a particular period of time that is provided to the property owner. A balance sheet is a statement of the assets, liabilities, and capital of a business at a specific point in time that covers the preceding period. A variable expense is an unpredictable expense that is usually based upon the property's own requirements. A fiduciary is someone who transacts business or handles the money or property for another person and for the other person's benefit. A fiduciary relationship requires a significant degree of confidence and trust.

A property manager is typically required to protect the interests of whom?

A property manager is typically required to protect the interests of and obtain the optimum financial return for the property owner who employs the manager.

Which of the following transactions do you not need a real estate license to do?

A property owner does not need to have a real estate license to sell his own home. A license is required for all of the other activities.

Helga is looking at various properties for investment purposes. She is looking at the factors necessary to determine the fair market value of each. When looking at the sales prices of comparable properties in the area, which of the following factors are not considered to determine fair market value of the properties she is considering?

A property sold to cover funeral costs of the owner is a sale involving distress, which does not provide an accurate market value, since the sale was likely at below market value due to presumed desperation to sell. The other choices involve factors in an average transaction with parties that had equal negotiating leverage. Market value is the most likely sales price of a property between similarly situated buyers and sellers in a competitive market

Which of the following does not need to be disclosed by an agent to a seller client?

A purchaser's detailed personal financial records are not required to be disclosed. Reasonable care, skill and diligence, along with full disclosure of pertinent information, obedience and loyalty are also all a part of a licensee's fiduciary duty to the principal. All purchase offers regardless of when they are received and all information relevant to a transaction must be disclosed.

Stan has owned a prized piece of real estate in horse country. His cousin Shirley wants to acquire the land. Stan is adamant that the land be used for horse training, so he agrees to sell it to her and the deed states that the land is conveyed to Shirley for long as she uses the land to train horses. What type of estate has Stan created?

A qualified fee simple is a defeasible estate that permits the grantor to automatically terminate the grantee's interest in the property upon the occurrence of a certain event (e.g., the land is not used to train horses), at which time ownership reverts back to the original grantor. Title is held for an unlimited period, unless the triggering event occurs. Fee simple on condition is similar to a qualified fee simple, but involves a prohibition against a specified use. The term but if is typically used to create the condition (e.g., grantor conveys Hills Farms to grantee, but if grantee kills the corn crop, grantee's interest in the property ceases). A life estate provides a right of possession, ownership or control over a person's lifetime (e.g., Shady Acres to Judy for life, then to Trescott). A fee simple absolute is unrestricted ownership and is the most common type of ownership. It provides the owner with a bundle of rights related to the property.

Julie is looking to buy her first home. She locates one and her offer is accepted. Julie applies for a mortgage. She is told that she can deduct her mortgage interest from her income because she has bought a(n) _____________ home.

A qualified home is a primary or main home for mortgage interest deduction purposes.

A real estate agent works on behalf of the:

A real estate agent works on behalf of the principal or client. The agent is the fiduciary. A fiduciary is someone who transacts business or handles the money or property for another person and for the other person's benefit. A fiduciary relationship requires a significant degree of confidence and trust. A customer is a buyer, seller or tenant, who an agent brings to the agent's principal.

Chuck's home is sold through a foreclosure proceeding. Which type of deed is used to convey title to Chuck's property?

A referee's deed could be used to transfer title of a foreclosed property. It is a deed that results from a court order. Other examples include a guardian's deed, tax deed, and administrator or executor's deed.

A condominium has a bank account, which has $50,000 at the end of the year to be used for building improvements. What is the bank account called?

A reserve fund is a cash account used for building improvements and maintenance.

Which of the following is not a like-kind exchange for tax deferment purposes?

A residential home is not business or investment property. A like kind exchange is a tax deferred exchange that applies to business or investment property and only permits the seller to defer his capital gains taxes into the future. A like-kind property exchange is an exchange of the same type of property (e.g., real property for real property or personal property for personal property).

Bart owns a large parcel of land that borders a fish filled stream. What right is associated with the stream?

A riparian owner is someone who owns land next to a flowing body of water (e.g., a river or stream). The owner could have riparian water rights for water bordering the property. Littoral rights refer to a stationary body of water (e.g., lake, ocean, sea). Chattel is personal property. A fixture is personal property that is attached to land or improvements to land that become part of the property.

Which of the following do not need to comply with the Residential Lead-Based Paint Hazard Reduction Act?

A salesperson acting on behalf of and receiving full payment from a lessee does not need to comply with the Residential Lead-Based Paint Hazard Reduction Act. Moreover, where a seller does not tell a real estate licensee about the presence of lead, the licensee is not liable for failing to disclose of the presence of the lead. A selling agent retained by the buyer, a property seller and a lessor's real estate agent are all required to comply with the Act.

Which is true about a licensee's ability to change a TREC fill in the blank form?

A salesperson is allowed to add any factual information to the form, as requested by the principal. A licensee is also allowed to strike out any words, so the principal's intent and the contract are consistent. Licensees cannot attempt to define the principal's legal right to the property, add additional blanks to TREC forms or merge material from one form to another (they must use separate forms when needed).

A salesperson working with a buyer is the client's salesperson only if the salesperson:

A salesperson working with a buyer is the salesperson's client only if the salesperson has an agency contract with the buyer. The obligations of a buyer's agent are also subject to any specific provisions set forth in an agreement between the agent and the buyer.

A second violation of the Fair Housing Act of 1968 within five years of the first offense calls for a civil penalty of up to:

A second violation of the Fair Housing Act of 1968 within five years of the first offense calls for a civil penalty of up to $25,000. The penalty for a first offense is $10,000 and it is $50,000 if there are three of more violations within seven years. Additional violations can result in fines of $25,000 or $50,000.

Which of the following does not hold the initial contract down payment?

A seller does not hold the down payment, because it must be held in an escrow account that contains money held for another party. The seller's attorney, listing agent and the selling broker can all hold the down payment in an escrow account.

A brokerage that represents only sellers is:

A seller's agency is a brokerage that represents only sellers. There are brokerages that represent only one side to a transaction. It is not necessarily a bad business practice, because the seller knows that the broker will always be representing the seller's best interests and will not have to give up all aspects of the fiduciary duty.

A single agent:

A single agent represents the buyer or seller, but not both parties, and owes undivided loyalty to the client.

A licensee, such as a listing agent, who has limited authorization to act on the principal's behalf is?

A special agent is a licensee, such as a listing agent, who has limited authorization to act on the principal's behalf and does not have the authority to bind the principal. A general agent has authority to handle the affairs of a principal in connection with a particular matter and is provided with limited power to perform one or more acts (e.g., agree to accept the highest offer on a property and sign a contract). An attorney in fact, a person with a power of attorney over someone else's affairs, may be a general or special agent.

A volunteer ambulance company may obtain tax revenue through a(n):

A special assessment district is used by a municipality to raise money for a volunteer ambulance company or other services that benefit a community, such as a new firehouse. An equalization program is used by a municipality to assess property values in two separate areas that use different valuation percentages in order to ensure both areas are taxed fairly. One town may assess property at a lower percentage of value than the other, so to ensure that the taxes are equitable, it equalizes the varying rates.

The Town of Ghent needs to replace all of its sidewalks due to degradation. What mechanism could they use to raise the money?

A special assessment is used by a municipality to raise money for improvement to areas in the vicinity of the property or next to it, such as sidewalks, roadways, sewers or a new firehouse. A post-sale reassessment/reassessment upon sale occurs when a property is sold and the assessed value is changed to the fair market value, which is typically the sales price. However, when a property is sold, it is not usually reassessed, since other similar homes in the area will need to be reassessed to reflect the market value. An equalization program is used by a municipality to assess property values in two separate towns that use different valuation percentages in order to ensure both towns are taxed fairly. One town may assess property at a lower percentage of value than the other, so to ensure that the municipality acts equitably, it equalizes the varying rates.

Which of the following is not a standard type of commercial lease?

A square footage lease is not a standard type of commercial lease. A percentage lease requires a base rent plus a percentage of gross sales. Such leases are standard in the commercial area. A triple net lease requires the tenant to pay all of the expenses required to operate a property, excluding the landlord's debt service (interest) payments. A gross lease requires the landlord to pay all of the expenses, such as maintenance, taxes and insurance.

Vera contacts Sally, who is a real estate agent, and asks Sally to list her home. Sally and Vera enter into a listing agreement, wherein it is agreed that the other agents who show the home will work for Vera. What type of agency was created?

A subagency is created when the agent and seller agree that the other agents who show the home will also work for Vera. A dual agency is created when an agent acts as a buyer's agent and a seller's agent, or a tenant's agent and a landlord's agent, within the same transaction. In Texas, if the broker chooses to represent both sides of the transaction, which is a dual agency, the broker must act as an intermediary. A Texas intermediary broker does not represent either party. An intermediary is a neutral party who assists both parties to complete the transaction. They cannot provide representation to both the buyer and seller in the same transaction, or to a buyer or a seller only, since an intermediary must be impartial (unbiased) and treat each party fairly and honestly. Thus, they cannot disclose one party's confidential information to the other party. Written consent from both parties is required to form an intermediary relationship, which can be accomplished with a provision in the listing agreement that states the duties of the agent. Any intermediary agreement or provision must specify how the agent will be compensated and by whom and the intermediaries duties.Consensual dual agency could be permitted if properly disclosed in circumstances when it is allowed. An express dual agency is formed through an oral or written agreement. An implied agency is formed based on the words or actions of the agent and principal that evidences an intent to form the agency.

Gary is looking at investment properties with Susan, a real estate agent. Gary wants to purchase a property in the name of a corporation. Susan suggests that he form a business legal entity that is like a corporation, but taxed like a partnership. What type of registered entity is Susan referring to?

A subchapter "S" corporation is taxed like a partnership. The principal pays taxes at the personal level, as opposed to a "C" corporation, which pays corporate income taxes. A corporation is a legal entity subject to taxation. It is a fictitious creation that exists only by law. An LLC is a limited liability company. It is not a corporation.

Harry leases a store to open a coffee shop. He signs a 10 year lease. After 2 years of hemorrhaging cash, he decides to partition the coffee shop to create a second smaller space, which Carol rents from Harry to sell cupcakes. What is the term that describes the arrangement between Harry and Carol?

A sublease permits the tenant to lease a portion or all of the leased property to another tenant, which may require the landlord's permission. An assignment clause governs the transfer of the lease to different lessee, who takes over occupancy of the property. Subdivision is dividing land into pieces that are easier to sell or develop.

Henderson wants to purchase a home for the first time, but he has poor credit. What type of loan can be suggested for Henderson and others with less than perfect credit?

A subprime mortgage is an option for a person with questionable credit. Interest rates are higher than a typical mortgage due to the increased risk of default. A reverse mortgage uses a home's equity to pay the borrower for a certain agreed upon period. The lender obtains its money (recapturing of equity) once the borrower dies or the home is sold. It is not an option when purchasing a home. A home equity loan is a loan that is against the property's equity. It is often a second mortgage that is subordinate to the first mortgage. High risk loan is not a recognized mortgage term.

What document is used to see if there are any encroachments onto another property?

A survey is used to see if there are any encroachments or easements onto another property. An encroachment occurs when one person's property intrudes onto another person's territory. An easement (also called a right of way) is a nonpossessory interest in someone else's land. An easement in gross provides the right to use property for a certain public related purpose. An easement in gross is also known as a commercial easement in gross and is typically possessed by governments and utilities for providing services to the public, such as electrical lines across another's property. No ownership results from such an easement. The dominant tenement refers to easements appurtenant, such as where one homeowner gives a neighboring homeowner the right to use a driveway. The party receiving the benefit of the easement is the dominant estate, while the property that is providing the benefit or suffering is the servient estate. A building plan contains the layout and dimensions of the rooms of a building. Building specifications are written description of the building plans (e.g., Description of the HVAC system used).

Campbell enters into a contract for the purchase of a 2 family home. He obtains a mortgage and a closing is scheduled. Which of the following is not generally associated with or present at the actual closing of title?

A surveyor performs a survey of a property in advance of any closing. The survey is a sketch showing measurements of and borders of a property. A title insurer insures the property owner against bad title or title issues and must clear or sufficiently address any issues before agreeing to permit the closing to proceed. A title company representative (e.g., a title closer) typically attends the closing and facilitates the deed transfer. The lending institution will not agree to close unless the buyer meets the lender's criteria. The loan documents are typically signed at the closing and a representative of the bank (e.g., bank attorney) could attend the closing. A deed is a written instrument that transfers title to real property. It is executed by the seller and delivered to the buyer.

A person who poses as a buyer of real estate to determine whether race plays a role in connection with the search is called?

A tester is a person, who is usually associated with a civil rights organization, a state or federal government program or is just a volunteer. The tester poses as a buyer of real estate to determine whether race plays a role in connection with the search, such as with respect to financing, pricing, attitudes, and the neighborhoods visited. Steering involves a licensee directing buyers towards or away from certain areas, based upon race (e.g., A broker showing a white couple homes in an area with a high white population or directing them away from a certain area; A broker showing a Chinese buyer homes in an area populated mostly by Chinese or directing them away from a non-Chinese area). An appraiser is a person who performs an objective estimate of the value of a property on a certain date based upon factual information.

A title to real property that is considered to be free of defects and encumbrances is called:

A title to real property that is considered to be free of defects and encumbrances is a marketable title. An insurable title is one that a title company will insure. There is no such thing as an abstract title (an abstract of title is a concise history of the chain title) or a constructive title.

A new storefront is leased by Jacques to open a dry cleaning store. The lease is a triple net lease. What building expenses will Jacques be required to pay?

A triple net lease requires the tenant to pay all of the expenses, excluding the landlord's debt service (interest) payments. A gross lease requires the landlord to pay all of the expenses, such as maintenance, taxes and insurance.

A clause in an industrial lease that dictates how the tenant can use the property is called:

A use clause in a lease dictates how the tenant can use the property, such as using the property for a certain business type or restricting certain uses (e.g., prohibiting the sale of pornographic materials). A management clause generally governs who will manage the property (e.g., a management company). A subordination clause states that the lease is subordinate (lower priority) to any lien or mortgage on the property. An assignment clause governs the transfer of the lease to different lessee, who takes over occupancy of the property.

Which of the following requires a use variance in an area zoned for one family homes?

A use variance allows a property owner to use land for a use that is not allowed by the zoning law, such as converting a one family home to a three family home. A building department issues building permits, inspects properties for compliance with building regulations and issues certificates of occupancy (C.O). Spot zoning is the rezoning of a property to allow it to be used differently from the zoning requirements for the zoned area, such as changing the zoning from residential to commercial use. A site plan and review is the process by which a local zoning board reviews site plans for a property.

What type of water is utilized by a well and could be contaminated by toxic soil?

A well utilizes groundwater, which is water that comes from underground. Well water could be contaminated by toxic soil. A cesspool is an underground tank or container that holds liquid waste and sewage, which is not drinkable water.

Which of the following terms can be used when advertising a property?

ADA compliant signifies that the property is compliant with the American with Disabilities Act. It does not attempt to limit the potential buyers. Singles preferred, adult building and great for young professionals all appear to discriminate against families or people of a certain age.

What organization sets rules for appraisers related to generating real estate appraisals?

ASB (Appraisals Standards Board) sets rules related to generating the actual appraisals and publishes, promotes and interprets the USPAP (Uniform Standards of Professional Appraisal Practice), which are guidelines for performing appraisals. FIRREA (The Financial Institutions Reform, Recovery, and Enforcement Act of 1989) brought appraisers within federal oversight.

Redd is a real estate agent. He is showing Clara homes. She finds one that she likes and makes an offer, which is accepted. Clara needs to find a federally backed mortgage. Redd has a cousin, Mac, who is a mortgage broker. Mac gives Redd a referral fee for any business referred to Mac by Redd. Redd recommends Mac to Clara so that she can obtain a mortgage. Is this permitted?

According to RESPA, Realtors are not allowed to accept commissions from insurance brokers, loan officers, title companies or any other third party, related or otherwise, for federally related mortgage loans.

Which fiduciary duty requires the agent to act with care with respect to handling funds received on behalf of the principal?

Accountability means financial accountability and is the fiduciary duty that requires the agent to act with care and properly handle funds received on behalf of the principal. Reasonable care, skill and diligence, along with honesty, full disclosure of pertinent information, obedience and loyalty are also all a part of a licensee's fiduciary duty to the principal.

Edna, a residential landlord , is fed up with tenant Tonya for having loud parties. Edna wants to evict Tonya. Which is a prohibited form of self-help?

Actual eviction, when a landlord unilaterally removes a tenant without the use of the courts, such as by locking a tenant out of the property, is a prohibited form of self-help. Eviction is the permitted legal proceeding used by a landlord to remove a tenant and the tenant's personal property, usually for non-payment of rent. Certain requirements must be met to successfully evict a tenant. Abandonment occurs when a tenant abandons the leased premises and the landlord reenters and repossesses the premises, though the landlord does not need to accept the return. The landlord can pursue the tenant for damages. A constructive eviction occurs when a tenant is not provided with quiet enjoyment. If the tenant did not create the issue, the tenant can vacate the premises and no longer be required to pay rent pursuant to the lease.

Corrine hires Al's Contracting to renovate her home. When he is finished, he sends Corrine the bill, but she fails to pay it. He sues Corrine and obtains a judgment for $50,000 and records a lien against Corrine's home. What type of lien does Al have?

Al has a mechanic's lien (resulting from labor provided to a property), which is a type of specific (against a specific piece of property) and involuntary (obtained through a legal proceeding) lien. A general lien is placed against all assets of a person or legal entity.

In order for a licensee to become a partner in a real estate brokerage the licensee is required to have a(n):

All officers of any real estate corporation or a member of a partnership must hold a broker's license.

Which is not true about brokers, fair housing laws, and offering an equal opportunity to all buyers and sellers?

All real estate licensees are required to report fellow agents who engage in discriminatory practices. Brokers can discuss the quality of area schools, property details, pricing and location, though they should keep records to document their dealings to protect against a fair housing potential claim and brokers should be familiar with fair housing laws.

What is amortization?

Amortization is payment of a debt with installment payments. ARM is an adjustable rate mortgage/loan. PMI is private mortgage insurance, which is used when a borrower makes less than a 20% down payment. Amortization is payment of a debt with installment payments. The difference between amortization and depreciation is that amortization charges off the cost of an intangible asset, while depreciation charges off the cost of a tangible asset.

A mortgage loan with an interest rate that could go up or down at defined amounts and are related to an economic indicator is a(n)?

An ARM (adjustable rate mortgage) lets the lender adjust the interest rate periodically pursuant to an economic indicator such as LIBOR. A pledged account involves the purchaser placing money in a savings account and using the earned interest to supplement the mortgage payment. Shared equity is a loan used for commercial mortgages. The lender receives a portion of the profits generated by the commercial property that is the subject of the mortgage.

Gwynn is purchasing an investment property. He wants a form of ownership that provides him with no personal liability, but taxed like a partnership. What type of legal entity does Gwynn want to form?

An LLC is a limited liability company. It is not a corporation. It has the benefits of corporations (limited liability) and is taxed like a partnership at the personal level. A "C" corporation is a general corporation, which pays corporate income taxes. An LLP is a limited liability partnership that is an entity type used by professionals, such as attorneys or physicians.

Louder builds a new home in a rural part of the state and the home is not connected to a municipal sewer and a septic system is required. Which of the following is part of the septic system?

An absorption pit or trench is a part of a septic system. An aquifer is an underground water source. A well is an excavation in the ground that utilizes groundwater. A cesspool is an underground tank or container that holds liquid waste and sewage.

A summary of the history of title to a piece of real property is:

An abstract of title is a shortened or concise history of the chain title. A title to real property that is considered to be free of defects and encumbrances is a marketable title. An insurable title is one that a title company will insure. A certificate of title is issued by an attorney and contains an opinion about the title, such as any title defects and what is necessary to clear the title.

Which clause in a mortgage permits the bank to require that the remaining balance immediately be paid if the buyer defaults on the loan?

An acceleration clause permits the bank to require that the remaining balance immediately be paid if the buyer defaults on the loan. An alienation clause (a/k/a due on sale clause) requires the seller to pay off the mortgage balance upon sale of the property. A prepayment clause permits the borrower to pay off the mortgage without any financial penalty.

Which of the following is a blind ad?

An ad that omits the broker's name and phone number is a blind ad. Blind ads are not permitted.

Which of the following is true about the termination of an agency?

An agency automatically ends upon the expiration of a listing agreement. The agency is terminated upon the death of the principal or agent and if the agent's license is revoked.

Lev owns a home. Francois is a real estate agent who has visited Lev to try to list Lev's home for sale, but Lev refuses. Lev nonetheless permits Francois to show 3 prospective purchasers his home. Has an agency been created?

An agency by estoppel, which is an implied agency, was created since Lev, the principal, did not stop Francois, the agent, from representing Lev's interests. An implied agency is formed based on the words or actions of the agent and principal that evidences an intent to form the agency. An express agency is formed through an oral or written agreement. An agency does not necessarily need to be created through a written agreement. A listing agreement is an example of an express agency.

Lori has agreed to transact real estate business on behalf of Alex with Alex's authority. Lori is:

An agent is someone who transacts business or manages the tasks of another person (principal), pursuant to the principal's authority. A principal is the party that the agent represents and acts on behalf of, such as Alex. Lori is not necessarily a salesperson. She can be an agent and hold another position, such as a broker, that requires an agency relationship.

When must an agent provide an agency disclosure form to a potential buyer client?

An agent must provide an agency disclosure form to a potential buyer client upon the first substantive dialogue.

Which provision requires the seller to pay off the mortgage balance upon sale of the property?

An alienation clause (a/k/a due on sale clause) requires the seller to pay off the mortgage balance upon sale of the property. A prepayment penalty clause prohibits any financial penalty for paying the loan off early. An acceleration clause permits the bank to require that the remaining balance immediately be paid if the buyer defaults on the loan.

Blondina builds an apartment within her home for her mother. What type of use is the apartment characterized as?

An apartment for a family member within a home is an accessory apartment. An accessory use is one that is subordinate and incidental to the principal use of the property, such as an apartment or a storage shed on the property. A home occupation exists when the home used by one of its residents to conduct business inside. The business use must be secondary and incidental to the use of the home and there should be no evidence from outside the home that business is being conducted inside to the extent zoning regulations permit the use.

An objective estimate of value of a property on a certain date based upon factual information is:

An appraisal is an objective estimate of the value of a property on a certain date based upon factual information. A CMA (comparative market analysis) is a method to derive the market value range of a property offered for sale. A CMA considers properties on the market and those that have recently sold, along with withdrawn or expired listing. The mortgage value is the amount that that lender believes that a property is worth.

Which of the following is least likely to be a type of commercial property?

An approved residential tract is the best answer, since a strip center, self-storage facility and a nursing home are all types of commercial properties that generate income. An approved residential tract is most likely not a commercial property. It is usually intended as land for homes.

Lara rents a luxurious 1 bedroom apartment. When she loses her job, she can no longer afford her rent. Lara's friend Titus wants to take over Lara's lease. What is the term for transferring the lease from Lara to Titus?

An assignment occurs when a right or contract is transferred from one party to a different party. An assumption typically involves a property buyer assuming the liability of the seller's existing loan or liabilities. Lessor transfer and security transfer are not recognized terms.

An associate broker may:

An associate broker is a licensed broker, but chooses to work under the supervision of another broker.

If Deidre obtains a nonpossessory interest in someone else's land, what has she obtained?

An easement (also called a right of way) is a nonpossessory interest in someone else's land. Fee simple is outright ownership of land, while a leasehold is leased land. A life estate provides a right of possession, ownership or control over a person's lifetime before it terminates and reverts to another (e.g., Shady Acres to Judy for life, then to Trescott).

What type of easement by is created by law when land is divided, with the presence of a long-standing apparent use that is reasonably necessary for the enjoyment of the land?

An easement by implication is formed when a plot of land originally held by one owner is divided into two or more lots and the owner retains the right to ingress and egress. An easement by necessity permits an owner of a landlocked parcel to cross over another's land to access a public road. Easements by necessity are known as appurtenant, which means that they benefit a particular piece of land, rather than an individual person. Because the easement benefits the land, it runs with the land. Running with the land means that the easement passes with the title to the land. An easement by necessity is created when land held by a single owner is divided into two or more parcels. If any of the newly created parcels is physically unable to reach a public road, an easement by necessity may be created. An easements by necessity is created by granted it to the buyer of a landlocked parcel or if it is reserved by a seller of land who retains a landlocked parcel after the severance and sale. The easiest way of creating an easement is by express grant. This occurs when the owner of the servient tenement actually gives the easement to the owner of the dominant tenement.

What type of easement is created when someone possesses property openly and notoriously, the use is hostile and adverse to the true owner and it lasts for a period of time mandated by statute?

An easement by prescription is created when someone possesses property openly and notoriously, the use is hostile and adverse to the true owner (e.g., without the owner's permission) and is continuous and uninterrupted for a period of time period mandated by statute. Eminent domain is the government power that can be used to obtain private land. Eminent domain is the government power permitting it to obtain private property for public use. A fee simple absolute is unrestricted ownership and is the most common type of ownership. It provides the owner with a bundle of rights related to the property.

Electrix LLC, a municipal utility company, needs to expand the power transmission network, so they look to acquire a small strip of land running through a neighborhood of privately owned homes. What does Electrix need from the homeowners?

An easement in gross provides the right to use property for a certain public related purpose. An easement in gross is also known as a commercial easement in gross and are typically possessed by governments and utilities for providing services to the public, such as electrical lines across another's property. No ownership results from such an easement. Electrix, the dominant estate, would have the right to install and maintain its power infrastructure (e.g., poles, lines). The dominant tenement refers to easements appurtenant, such as where one homeowner gives a neighboring homeowner the right to use a driveway. The party receiving the benefit of the easement is the dominant estate, while the property that is providing the benefit or suffering is the servient estate.

Another name for an easement is:

An easement, which is a nonpossessory interest in someone else's land, is also known as a right of way.

Giuseppe works for a municipal agency and is responsible for overseeing the water delivery system and roadway projects. Giuseppe is a(n):

An engineer oversees a municipality's water delivery and sewage system and roadway and other public works projects. A health department inspector typically oversees the safety of the drinking water. A building inspector performs an inspection before the CO is issued and also checks properties for violations. The zoning board of appeals enforces zoning regulations and provides permission and exemptions for certain projects. It often seeks to maintain the character of a neighborhood and can place restrictions or impose reasonable conditions on use of land.

What type of program is used by a County to assess property values in two separate areas that use different valuation percentages in order to ensure both areas are taxed fairly?

An equalization program is used by a municipality to assess property values in two separate towns that use different valuation percentages in order to ensure both towns are taxed fairly. One town may assess property at a lower percentage of value than the other, so to ensure that the municipality acts equitably it equalizes the varying rates. A special assessment is used by a municipality to raise money for improvement to areas in the vicinity of the property or next to it, such as sidewalks, roadways, sewers or a new firehouse.

What type of lease has an expense stop that passes expenses that exceed an agreed upon amount to the tenant?

An escalator lease has an expense stop that passes expenses that exceed an agreed upon amount to the tenant. Such a lease is for the property owner's protection in the event the costs are more or rise more than expected. A graduated lease is a type of lease that calls for gradual increases in rent, typically after each year or other term of years. A proportionate share of occupancy lease is a type of lease where increases in fees are proportionally based relative to the particular tenant's proportionate share of occupied space.

Which type of tenancy is created when a party in possession of someone else's property refuses to leave when the right to occupy terminates?

An estate at sufferance is created when someone in possession of someone else's property refuses to leave when the right to occupy terminates. The person who refuses to leave is a tenant at sufferance. Tenancy for years has a fixed termination date and does not renew. It can be created for any period of time (e.g., 1 day, 1 week or 1 year). An estate at will has an unknown ending date when it is created. Either party has the right to terminate the estate by providing notice to the other party. In Texas, month to month tenancies require a month's notice to terminate the tenancy per Texas law. For a daily or weekly tenancy, advance notice that is equal to the rental period is required to terminate a tenancy. A periodic estate is a tenancy for a fixed period (e.g., 1 year, 1 month).

An agreement to rent real estate for an unknown time period is a(n):

An estate at will is created through an agreement to rent real estate for an unknown time period, such as until either party terminates the leasehold. A leasehold estate is land leased for a limited period of time. A proprietary lease is a cooperative corporation's lease with the cooperative shareholders. Fee simple is outright ownership of land, while a leasehold is leased land. An option to buy is a provision in a contract permitting the option holder to purchase a property pursuant to the terms outlined in the contract.

Kunnunu wants to refinance the small office building that he owns. Big Bank wants proof from Kunnunu's tenants about the length of the lease period and amount of security deposit. What type of document should Kunnunu get from his tenants?

An estoppel certificate is provided by a tenant to confirm details concerning the tenancy, such as the length of the lease period and amount of security deposit. A sublease permits the tenant to lease a portion or all of the leased property to another tenant, which may require the landlord's permission. Common area maintenance (CAM) is the charge in a lease attributable to maintaining and/or operating the common areas of a property, such as parking lot, outdoor space, laundry and utilities. An assignment is the transfer of the lease to different lessee, who takes over occupancy of the property.

Frieda calls her longtime friend Agnes, who is a licensed real estate agent, to list her home for sale. They sign a listing agreement in which Agnes is the only listing broker. What type of listing was created?

An exclusive agency listing requires that only one broker list the property. An open listing allows a property to be shown by one or more brokers. The broker who makes the sale gets the commission. No commission is due if the seller finds the buyer on his own.

An agreement where only one broker is permitted to list a property for sale is called:

An exclusive listing agreement (a/k/a exclusive right to sell) is an agreement where only one broker is permitted to list a property for sale. It is an agreement that requires a fiduciary duty by the broker to the seller (principal). A single agency agreement requires the broker to represent either the purchaser or seller, but the broker cannot represent both parties. A disclosure is provided to a customer to explain an agent's relationship to the transaction (e.g., that the agent represents the seller).

Sid and Rae completed a real estate transaction. What is a contract called that has been fully performed?

An executed contract is a contract that has been fully performed. An executory contract is a contract that has not yet been fully performed. An express contract can be in writing or oral and contains terms definitely agreed upon. Real estate contracts are written express contracts. A bilateral contract is a contract containing two parties with a performance promise to one another. The term execute also means to sign.

A contract that has been fully performed is called a(n) _______________ contract.

An executed contract is one that has been fully performed (e.g., the closing has occurred). An executory contract is not yet fully performed (e.g., while awaiting the closing date). A voidable contract may or may not be enforceable and could result when one party violates a provision of the contract and gives the non-violating party the right to void it, though the non-violating party could seek to complete the performance required by the contract. An implied contract is formed based upon the actions of the parties that evidence an intent to enter into a contract, such as where a seller permits a broker to show a property before any formal agreement is entered into.

In order to purchase a home, Darla needs to take out a mortgage. A mortgage is an example of a(n):

An executory contract is a contract that has terms to be completed at a later date. It is not fully performed until all acts required are completed, such as a mortgage. An executed contract is a fully performed contract. A unilateral contract involves a promise to induce the other party to do some act, such as an open listing contract, where the property owner can cancel the listing at any time prior to an agreed upon deal. An implied contract is formed based upon the actions of the parties that evidence an intent to enter into a contract, such as where a seller permits a broker to show a property before any formal agreement is entered into.

An express contract:

An express contract can be in writing or oral and contains terms definitely agreed upon. Real estate contracts are written express contracts.

Kent's friend Howie is a real estate agent. Howie has been bugging Kent to let him list his home for sale, since Kent lives alone in a 5 bedroom home and has expressed a desire to downsize. After Howie's latest request, Kent declines because he does not want to deal with the stress of packing up his house and moving, even though Howie offers to help. Despite Kent's rebuff, Howie puts a for sale sign on Kent's lawn. Kent sees the sign and gets upset. However, when Howie brings a potential buyer to the home, Kent allows the home to be shown and the buyer offers Kent much more than the house is worth based on comparable sales in the area, so he accepts the offer. Howie seeks to get paid a commission, though Kent claims they never made an agreement. Is Kent correct?

An implied agency by estoppel was created, since Kent did not prevent Howie from representing his interests, such as telling the buyer that Howie was not his representative. Thus, there was an implied agreement. No fiduciary duty was breached, since Howie did not violate any of the factors, such as reasonable care, skill and diligence, along with honesty, accountability, loyalty, full disclosure, obedience and confidentiality. Rather, Howie was acting in Kent's best interests in selling the home for much more than what it is worth. Obedience involves following the principal's reasonable instructions.

What results when a principal and real estate agent act as though an agency relationship exists without signing an agreement?

An implied agency is formed based on the words or actions of the agent and principal that evidences an intent to form the agency. A listing agreement is an express agency. An express agency is formed through an oral or written agreement. A dual agency is created when an agent acts as a buyer's agent and a seller's agent, or a tenant's agent and a landlord's agent, within the same transaction.

Sven has entered into a contract for the purchase of a home. He is told by his mortgage bank to purchase a homeowner's policy and Sven contacts an insurance broker. Who does the insurance broker represent?

An insurance broker represents the property buyer/owner. An independent agent represents the insurance company.

Annette has been researching cooperative apartments available in her town. She finds one that interests her and wants to find out important details such as information about the underlying land, construction materials used and the floor plans of the apartments. What should she review?

An offering plan is issued by a developer that converts or constructs a co-op or condominium building and contains all pertinent information, such as information about the underlying land, construction materials used and the floor plans of the apartments. House rules govern all of the rules of a cooperative, such as the use of common areas and prohibited behavior (e.g., loud music, pets). A proprietary lease is a cooperative corporation's lease with the cooperative shareholders. A purchaser becomes a shareholder in the corporation and is a tenant pursuant to the corporation's proprietary lease. A shareholder's use of common areas (e.g., outside grounds, laundry facilities, parking areas, lobby) is governed by the proprietary lease. A reserve fund is a cash account used for building improvements and maintenance.

Which of the following is an example of a unilateral contract?

An open listing agreement is an example of a unilateral contract. An open listing allows a property to be shown by one or more brokers. The broker who makes the sale gets the commission. An exclusive agency listing requires that only one broker list the property. An exclusive listing agreement (a/k/a exclusive right to sell) is an agreement where only one broker is permitted to list a property for sale. It is an agreement that requires a fiduciary duty by the broker to the seller (principal). A buyer broker agreement sets forth the duties and responsibilities of the parties and what services the broker will provide.

Which type of listing allows a property to be shown by one or more brokers?

An open listing allows a property to be shown by one or more brokers. The broker who makes the sale gets the commission. No commission is due if the seller finds the buyer on his own.

An organization that includes several people jointly participating in an investment into real estate is a(n):

An organization that includes several people jointly participating in an investment into real estate is a syndicate. An S corporation is a special type of closely held corporation that is taxed like a partnership.

Max and Felix are two brokers who work together who have never filed Partnership documents with Texas' Secretary of State, but their conduct, including splitting of commissions, makes it appear that they are in fact partners. If Henrietta was defrauded by Max and she sues both Max and Felix together, what type of partnership will Henrietta argue existed?

An ostensible partnership exists where no formal partnership was filed with the Texas Secretary of State, but the conduct of the partners make it appear that they have a partnership and a court could deem it an ostensible partnership. An unincorporated association are groups of people that are joined together for a noncommercial purpose. A limited partnership is a formal partnership where at least one partner is a general partner and at least one limited partner. The limited partner invests property, funds or services and has limited liability for the debts of the partnership. There is no liability to creditors, unless the limited partner engages in control of the business. They are liable for any unpaid part of their required contribution, assets of the partnership in their hands any distributions made while the partnership is insolvent.

Which of the following is not a mixed-use property?

An outlet center with clothing and furniture stores are similar commercial uses, so no mixed use exists. A building with a steakhouse on the first floor and offices on the second floor combine two separate uses, restaurant and office space. A shipping warehouse adjoining an office suite center combine a warehouse and office space. A religious prayer facility with residential housing above it combines a religious use with a residential use.

Simone lists Angie's country estate for sale. Trevor contacts Simone and tells her that he is interested in the estate. Simone agrees to negotiate for Trevor with Angie. What type of agency resulted?

An undisclosed dual agency is created when a subagent or seller's agent agrees to act on behalf of the buyer, as opposed to acting in the seller's best interests. Undisclosed dual agencies are a violation of the law and penalties and damages could result. A dual agency is created when an agent acts as a buyer's agent and a seller's agent, or a tenant's agent and a landlord's agent, within the same transaction. In Texas, if the broker chooses to represent both sides of the transaction, which is a dual agency, the broker must act as an intermediary. A Texas intermediary broker does not represent either party. An intermediary is a neutral party who assists both parties to complete the transaction. They cannot provide representation to both the buyer and seller in the same transaction, or to a buyer or a seller only, since an intermediary must be impartial (unbiased) and treat each party fairly and honestly. Thus, they cannot disclose one party's confidential information to the other party. Written consent from both parties is required to form an intermediary relationship, which can be accomplished with a provision in the listing agreement that states the duties of the agent. Any intermediary agreement or provision must specify how the agent will be compensated and by whom and the intermediaries duties.Consensual dual agency could be permitted if properly disclosed. An express dual agency is formed through an oral or written agreement in jurisdictions where it is legal. An implied agency is formed based on the words or actions of the agent and principal that evidences an intent to form the agency. There was neither an express nor implied dual agency formed here.

Valerie is selling her home. She knows that the entire structure of the home is infested with wood destroying insects that are causing the wood beams to disappear. Alice lists Valerie's home for sale and Valerie tells Alice that the home does not have termites. Larry, a prospective buyer, asks Alice if the foundation is in good condition. She recalls what Valerie told her and tells Larry that it is in good condition. Larry later learns about the problem and sues Alice. Can he recover?

An unintentional misrepresentation was committed. Alice can still be liable for her statement, even though she believed it to be true based upon Valerie's statement. A positive misrepresentation is when a licensee conceals a defect from a buyer, misrepresents the presence of a defect or even omitting facts about a property.

Another name for a blueprint is:

Another name for a blueprint is a building plan, which contains the layout and dimensions of the rooms of a building. A building envelope is a part of a building's interior that permits the flow of air into and out of the building. Building specifications are written description of the building plans (e.g., Description of the HVAC system used).

Another name for a mortgage note is a(n):

Another name for a mortgage note is a bond. A mortgagee is the purchaser/borrower. While an IOU is promise to pay, it is not the note. A habendum is a provision in a deed that describes the property and must be consistent with the granting clause.

Another name for a client is:

Another name for client is principal, which is a buyer or seller.

Another name for the written description of the building plans is a:

Another name for the written description of the building plans are building specifications (e.g., description of the HVAC system used). A blueprint is a building plan, which contains the layout and dimensions of the rooms of a building. A building envelope is a part of a building's interior that permits the flow of air into and out of the building.

The increase in value of real property is called:

Appreciation is the increase in value of real property. The adjusted basis is the price of the real estate plus costs associated with the transaction and the costs of any improvements, less any depreciation. The capitalization rate is the annual expected dollar return that an investor can expect to receive and is the main method to compute the present value of an income producing property. Depreciation is the loss of value due to a building or property due to any cause, such as deterioration, damage and normal wear and tear.

Which of the following is not true if Yellen is a licensee under an independent contractor agreement with Buttle's Realty

As an independent contractor, Yellen's compensation can only be based on output regardless of the number of hours that she works. Yellen has to be paid a commission based on her sales, she cannot be directed or controlled by her broker and she can be charged for office space or supplies provided by the broker.

Jess finds a home for sale that he likes, so he hires an inspector who finds a toxic fibrous material around the pipes used for insulation. What is the substance?

Asbestos is a natural mineral that was previously widely used for heat resistance and fireproofing homes. Prolonged inhalation of asbestos fibers can cause serious and fatal illnesses including lung cancer, mesothelioma, and asbestosis. Mesothelioma is a cancer that develops on the protective lining that covers many of the body's internal organs and most commonly effects the lungs. Asbestosis is a chronic lung disease resulting from inhaling asbestos fibers. Lead is a toxic metallic element that may be present in paint or drinking water. Carbon monoxide (CO) is a colorless and odorless gas that can be deadly if inhaled. CO is found in fuel fumes from fireplaces, gas oven ranges, furnaces and vehicle engines. Urea formaldehyde is a type of insulation containing significant levels of formaldehyde, which is a gas without any color that is present in small levels inside buildings and outside them.

Kermit has a chronic lung disease that resulted from inhaling asbestos fibers. What disease does Kermit suffer from?

Asbestosis is a chronic lung disease resulting from inhaling asbestos fibers. Asbestos is a natural mineral that was previously widely used for heat resistance and fireproofing homes. Prolonged inhalation of asbestos fibers can cause serious and fatal illnesses including lung cancer, mesothelioma, and asbestosis. Mesothelioma is a cancer that develops on the protective lining that covers many of the body's internal organs and most commonly effects the lungs. Lupus is a diseases or conditions involving inflammation of the skin.

Ted owns a small apartment building with 10 units. His annual expenses are as follows: Utilities: $5,000Maintenance: $4,000Mortgage principal payment: $6,000Mortgage interest payment: $10,000Income tax: $5,000 If his annual rental income is $150,000, what is the before tax cash flow?

Before tax cash flow (BTCF) is computed by subtracting expenses and debt payments from the annual income. $150,000 - ($5,000 + $4,000 + $6,000 + $10,000) = $125,000. Taxes are not deducted, since it is a before tax computation.

Which is false about blockbusting?

Blockbusting is the practice of pressuring a homeowner to sell or lease the property by telling the owner that a certain protected class (race, religion, national origin, color, sex, handicap, religion or family status) is moving into the area. A business type is not a protected class.

What did the Supreme Court decision of Brown v. Board of Education state?

Brown v. Board of Education prohibits separate facilities (e.g., housing) based upon race. Buchanan v. Warley determined that block by block segregation is illegal. Plessy v. Ferguson, which was overruled by Brown, permitted separate but equal housing.

Hines owns a 50 unit apartment building and advertises a rental apartment on an online message board. Brutus, an elderly and physically disabled man, contacts Hines and asks to see the apartment. Brutus tours the apartment and asks to rent it. Due to his disability, Brutus asks Hines if he can install a wheelchair ramp so he can get into the front door and that Brutus will pay to have it installed. Which of the following is true?

Brutus may be entitled to build the ramp, though Hines can require Brutus to remove the ramp at the end of the tenancy if it would be reasonable to do so (e.g., the ramp is not permanently attached to the structure). Hines cannot reject Brutus from becoming a tenant due to his disability. The 1988 Amendment to the Fair Housing act added protected classes to the law. It added families and persons with mental and physical disabilities to the law. The amendment also prohibits a property owner from preventing a disabled person to make reasonable modifications, so that the disabled person can live at the property, such as a ramp that will not unreasonably affect the structure. Hines is not required to pay for the installation of the ramp. The 1988 Amendment also prevents a property owner from refusing to make any reasonable changes to policies, rules services or procedures at the complex to accommodate a disabled person.

In the case of Buchanan v. Warley, the Supreme Court decided?

Buchanan v. Warley determined that block by block segregation is illegal. Plessy v. Ferguson permitted separate but equal housing, but it was overruled by Brown v. Board of Education, which prohibits separate facilities (e.g., housing) based upon race.

To avoid possible liability for the actions of cooperating members of a multiple-listing system, the owner who lists property for sale may decline to offer:

By accepting a sub-agency, the owner could be vicariously liable for the acts of the sub-agents, so declining a sub-agency protects the owner against the acts of sub-will have no vicarious liability for the acts of cooperating agents.

To avoid possible liability for the actions of cooperating members of a multiple-listing system, the owner who lists property for sale may decline to offer:

By accepting a sub-agency, the owner could be vicariously liable for the acts of the subagents, so declining a sub-agency protects the owner against the acts of subagents.

Which contain the rights and obligations of the unit owners or shareholders in a cooperative or condominium?

Bylaws contain the rights and obligations of the unit owners or shareholders. An offering plan amendment is a change of the offering plan. The offering plan is issued by a developer that converts or constructs a co-op or condominium building and contains the pertinent information. A certificate of insurance is a document evidencing that insurance has been purchased for a building or object. A building department issues building permits, inspects properties for compliance with building regulations and issues a certificate of occupancy once the inspector confirms that it is in compliance with the building code.

What does "CO" mean?

CO is an abbreviation for certificate of occupancy, which is the municipal document verifying that the premises and parts thereof are approved and safe for occupancy. Building additions usually require a CO. A building inspector performs an inspection before the CO is issued and also checks properties for violations.

Caleb owns a home that is landlocked. He needs to use his neighbor Franz's driveway to access his property. If Caleb wants to get access to his property, which is true?

Caleb's property would be the dominant estate of an easement appurtenant. The property receiving the benefit of the easement is the dominant estate, while the property that is providing the benefit or suffering is the servient estate. An easement in gross is also known as a commercial easement in gross and is typically possessed by governments and utilities for providing services to the public such as electrical lines across another's property. No easement provides an ownership or possessory interest in the property. It is just a right to use or to restrict use.

Rafaldi purchases a home. After owning it for exactly 1 year, he sells it after losing his job, since he cannot afford the mortgage payments. What will any profit be classified as?

Capital gains are the profits on a capital investment, such as real estate. Short term capital gains are profits on assets that are owned for 12 months or less. Long term capital gains are profits on assets that are owned for more than 12 months. Profit on long term capital gains is subject to a reduced tax rate and is not taxed as ordinary gross income, but profit on short term capital gains is taxed as ordinary gross income.

Ida sells her home. She makes a profit of $300,000. What are any gains classified as?

Capital gains represent the profits on a capital investment, such as real estate. Long term capital gains are profits on assets that are owned for more than 12 months. Short term capital gains are profits on assets that are owned for 12 months or less. Since the length of time that Ida owned the real estate for is not mentioned, it is not known if she has long or short term capital gains. Profit on long term capital gains is subject to a reduced tax rate and is not taxed as ordinary gross income, but profit on short term capital gains is taxed as ordinary gross income.

The profit realized from the sale of real estate held for 3 years is:

Capital gains represent the profits on a capital investment, such as real estate. The profit realized from the sale of real estate held for 3 years is long term capital gains. Long term capital gains are profits on assets that are owned for more than 12 months. Short term capital gains are profits on assets that are owned for 12 months or less. Profit on long term capital gains is subject to a reduced tax rate and is not taxed as ordinary gross income, but profit on short term capital gains is taxed as ordinary gross income.

Which of the following is not one of the significant disadvantages of an investor using a cash-on-cash return formula to evaluate a potential investment property?

Cash-on-cash return is not measured with after tax cash flow. It is measured with before tax cash flow. The formula to compute cash-on-cash return is the before tax income cash flow divided by the cash investment. Disadvantages to using this method are that it does not consider the investor's own tax position, since it is a before tax calculation, and it does not reflect appreciation or depreciation.

Dolores purchased a 50 year old home and learns that her underground drainage system pipes are corroding and leaking. Which type of pipe will she need in her underground drainage system?

Cast iron is strong and durable. It is typically used for underground drainage. PVC is a type of plastic pipe and is not as durable as cast iron, which is better for underground use. Steel pipes are no longer used for water supply or drainage and are not for underground use. Copper piping is typically used to deliver hot and cold water to various parts of a building, and is not as durable for underground use as cast iron pipes.

Which of the following refers to the law regarding a seller's real estate agent's duty to disclose that a sex offender lives nearby?

Caveat emptor is a Latin phrase that means "buyer beware". The presence of a sex offender does not necessarily need to be disclosed. It is up to the buyer to investigate the issue.

A home furnishing is an example of:

Chattel is personal property. A riparian owner is someone who owns land next to water. The owner could have riparian water rights for water bordering the property. A fixture is personal property that is attached to land or improvements to land that become part of the property.

Buyprops LLC has purchased a 100 acre farm and wants to develop it into a housing development featuring single family homes, multilevel apartment buildings and three family condominiums. What type of zoning is required in order to gain approval for construction?

Cluster zoning is a type of multiuse zoning permitting different residential uses in the same zone. Industrial zoning is related to light and heavy manufacturing buildings. Incentive zoning provides developers with incentives to provide amenities to the community. A subdivision is the division of a property into separate development lots.

The improper mixing of a broker's personal and business funds is called:

Commingling is the improper mixing of a broker's personal and business funds. It is not permitted. TREC may suspend or revoke a licensee's license if it occurs. An earnest money deposit is the deposit that accompanies the buyer's offer to purchase and is part of the contract. An escrow account contains money held for another party. Earnest money deposits are usually held in an escrow account.

What is the term for the amount of money that a tenant pays for maintaining areas of a building's parking lot?

Common area maintenance (CAM) is the charge in a lease attributable to maintaining and/or operating the common areas of a property, such as parking lot, outdoor space, laundry and utilities.

Reimer owns a 50 acre commercial parcel that he seeks to develop into a warehouse park. The County tells him that he must first install basic infrastructure. What is the name for that requirement?

Concurrency is the requirement that minimum infrastructure is required before development can occur. Concurrency was put in place by local growth management laws related to the Growth Management Act. Spot zoning, which is the rezoning of a property to allow it to be used differently from the zoning requirements for the zones area. Eminent domain is the government power that can be used to obtain private land for public use. A variance is a permissible deviation from a zoning law. A site plan and review is the process by which a local zoning board reviews site plans.

Sheila owns an old home next to a popular amusement park. The County needs her property to complete a road construction project that will greatly improve road safety in the area. What is the actual taking of the property called?

Condemnation refers to the actual taking of the property and is not the power to take itself. Eminent domain is the government power permitting it to take private property for public use. A taking is unconstitutional if it does not permit the building of habitable or productively improve the land and it eliminates any economic benefit of the land. Private forfeiture is not a formally recognized term.

What is the term for the thing of value that must be recited in an instrument of conveyance?

Consideration is something of value (e.g., money) exchanged for the property that must be recited in an instrument of conveyance. A deed is another name for an instrument of conveyance, which is a document used to transfer real property. The grantor (seller) is the person transferring title by deed, while the grantee (purchaser) is the person receiving title.

Which laws govern promises made between two or more parties?

Contract law governs promises made between two or more parties and determines if a valid contract exists or if a breach of contract has occurred. The party that suffers the breach may be entitled to a remedy, such as damages. Real property law governs the sale, purchase and possession of real property. Agency law involves the law affecting the relationship between an agent and a principal. An agent acts on the principal's behalf. Administrative law deals with the rules and regulations created and enforced by a government agency.

An agency of the federal government does not partake in a(n) _____________ mortgage:

Conventional loans do not involve an agency of the federal government. FHA (Federal Housing Administration) is a type of loan where the mortgage lender is insured against default by the federal government. Amortization is paying off a debt with periodic installments. The installment payment is first applied to the interest due and the remainder goes towards the principal balance. A purchase money mortgage is given to a buyer by the seller to cover a portion of the sales price.

Odile owns an investment home that she leases to tenants. Upon an inspection, she notices that the metal hot and cold water supply lines are cracking. What type of pipe does she most likely need to buy to repair the water supply pipes?

Copper piping is metal piping that is typically used to deliver hot and cold water to various parts of a building. Cast iron is strong and durable. It is typically used for underground drainage. PVC is a type of plastic pipe, which it is a cheaper alternative to copper piping. Steel pipes are no longer used for water supply or drainage.

Barbali manages a commercial office building. One of the tenants contacts her to complain about a broken door lock. What type of maintenance is necessary to repair the lock?

Corrective maintenance is repairing something that is already malfunctioning (e.g., fixing a broken door lock). Preventative maintenance refers to inspecting equipment pursuant to a schedule and making repairs to it when necessary. Property maintenance refers to the overall maintenance of a property.

Dane owns a luxury apartment building with a $10,000,000 mortgage balance. Due to an economic downturn, the vacancy rate in the building soars. Dane is unable to pay the mortgage for six months, so Dane's lender sends a letter demanding all outstanding payments be made within 30 days or the lender may foreclose. Dane fails to make the payments, so the bank starts foreclosure proceedings. Dane does not want to deal with the stress and expense of fighting the foreclosure, so he voluntarily transfers the deed to the bank. What is the name for the mechanism used by Dane?

Deed in lieu of foreclosure refers to the situation where a borrower transfers the deed to the bank to avoid a record of foreclosure. A deficiency judgement can be obtained against a defaulting borrower. It represents the difference between the mortgage balance and sales price obtained via the foreclosure sale. Equity of Redemption is a property owner's right to reclaim property before it gets sold through foreclosure proceedings. The owner pays the outstanding debt, interest and costs. An assumed mortgage is where a buyer assumes the seller's current mortgage debt.

Deed restrictions apply to the future chain of title and____________?

Deed restrictions apply to the future chain of title and the current owner.

Which of the following is the only one allowed to create restrictions on a deed?

Deed restrictions are covenants or conditions contained in the deed that are inserted by the grantor/seller and they "run with the land".

Deed restrictions apply to current property owners and they:

Deed restrictions are in the form of covenants or conditions inserted into a deed by a grantor and the restrictions "run with the land".

Trevor owns an apartment building that is 75 years old. He has not performed much maintenance on the building, so the foundation and structural integrity are starting to crumble. As a result, the building's value has been decreasing. What does that reduction in value refer to?

Depreciation is the loss of value due to a building or property due to any cause, such as deterioration, damage and normal wear and tear. Functional obsolescence means that the property has become inferior to surrounding properties due to technological changes, such as obsolete equipment (e.g., heating system), outdated electrical system or outdated design. External obsolescence refers to changes occurring to land-use in the surrounding area, such as increased traffic, pollution, and zoning changes that affect the permitted use of the property.

Which of the following is permitted to be used in an advertisement of a property for sale?

Disabled friendly lighting controls is allowed to be used in an advertisement of a property, since it does not seek to limit buyers of a protected class. The others are discriminatory.

Sven pays cash at closing in order to lower his mortgage interest rate. Sven has paid:

Discount points is money paid at closing so the buyer can lower the interest rate on a mortgage. The money paid is automatically deductible in the year they are paid. Amortization is paying off a debt with periodic installments. The installment payment is first applied to the interest due and the remainder goes towards the principal balance. A kickback is an illicit payment made to someone who has assisted in a transaction or appointment. Equity of Redemption is a property owner's right to reclaim property before it gets sold through foreclosure proceedings.

A real estate broker should not:

Discussing commission rates with another broker can be viewed as price fixing, which occurs when a group of competitors agree (conspire) to charge the same or similar amount for their services rendered.

What is the name of the policy of insurance that covers direct and indirect losses to physical property and losses caused by the inability to use the property after the damage is sustained?

Dwelling coverage provides insurance for direct and indirect losses to physical property and losses caused by the inability to use the property after the damage is sustained, but does not cover theft of property or general liability (e.g., accidents).

Which economic principle means that there will be less demand for real estate as it gets more expensive, assuming all other aspects remain the same?

Economic demand is the economic principle that means that there will be less demand for an item, such as real estate, as it gets more expensive if everything else remains the same. Location is the most important factor on the value of real estate.

The City of Glass wants to expand a public park. It needs to obtain the necessary land from private landowners. What government power can be used to obtain the land needed to expand the park?

Eminent domain is the government power permitting it to obtain private property for public use. Condemnation is the actual taking of the property pursuant to the eminent domain power. Municipal forfeiture and public seizure are not formal terms.

Examples of private land use controls would not include:

Eminent domain is the power possessed by a government and/or its agencies, rather than a private entity, to acquire private property for public use. A restrictive covenant is a deed restriction or condition (e.g., prohibits an activity on the land).

Boonie's property is foreclosed on. He wants to keep the property, so he pays the outstanding principal, all interest owed and all of the lenders costs. What is the name of that process he is using to keep his property?

Equity of redemption is a property owner's right to reclaim property before it gets sold through foreclosure proceedings. The owner pays the outstanding debt, interest and costs. A deficiency judgement can be obtained against a defaulting borrower. It represents the difference between the mortgage balance and sales price obtained via the foreclosure sale. Amortization is paying off a debt with periodic installments. The installment payment is first applied to the interest due and the remainder goes towards the principal balance. Deed in lieu of foreclosure refers to the situation where a borrower transfers the deed to the bank to avoid a record of foreclosure.

Which of the following is false about violating fair housing laws?

Error and omissions liability insurance policies may not cover fair housing law violations. Coverage may be very expensive. Violating fair housing laws could result in court proceedings, fines and damage to a broker's reputation. In Texas, if a designated agent owns less than 10% of the business, error and omissions liability insurance is required.

Gretchen hires Huey, a licensed real estate agent, to list her property for sale. Two months into the listing, Gretchen passes away, but leaves no heirs. The state contacts Huey and tells him that the State will be taking title to the property. What term describes the states acquisition of the property?

Escheat refers to the state's acquisition of property when a person dies with no heirs. A taking is when land is restricted or taken by the government. A taking is unconstitutional if it does not permit the building of habitable structures or productively improve the land and it eliminates any economic benefit of the land. Eminent domain is the government power permitting it to obtain private property for public use. The police power of a government allows it to provide for the welfare, health and safety of residents.

Juan dies without a will and heirs, but with a sizable property worth millions of dollars. What is the process that governs the transfer of his estate to the state?

Escheat refers to the transfer of a person's estate to the state, when the person dies without a will or heirs. Adverse possession permits a person to claim ownership of another's property if certain conditions are met. Administration is the court process required to appoint an administrator when no will is left or certain property is not disposed of by a will. Probate is the court process to appoint the executor, when a person died with a will.

What does the term execute mean relative to a deed?

Execute means to sign. A deed is typically executed by the grantor (seller) only. Acknowledging the deed via an oath of a subscribing witness permits it to be recorded. An executed contract also refers to a contract that has been fully performed.

Killel owns a warehouse that is 90 years old. The property value has been negatively impacted by increased traffic, pollution, and zoning changes that affect the permitted use of the property. Residential luxury apartment buildings now surround the area. When the warehouse was built, there were other warehouses around it, which made it more valuable. What does that reduction in value refer to?

External obsolescence refers to changes occurring to land-use in the surrounding area, such as increased traffic, pollution, and zoning changes, that affect the permitted use of the property. Depreciation is the loss of value due to a building or property due to any cause, such as deterioration, damage and normal wear and tear. Functional obsolescence means that the property has become inferior to surrounding properties due to technological changes, such as obsolete equipment (e.g., heating system), outdated electrical system or outdated design.

Cliff and Bobby Hewitt applied for An FHA loan. The mortgage will be:

FHA loans are insured to protect the lender against financial loss. PMI is private mortgage insurance, which is not a type of mortgage. It is used when the down payment is less than 20% to ensure the top portion of the loan in case of default. The U.S. government does not fully guarantee mortgages against default. PMI is an insurance premium added to the monthly mortgage payment.

While there are exceptions for property owners in housing discrimination laws, which is true about a real estate licensee in a transaction where the owner is entitled to an exception to a discrimination law?

Fair Housing laws do not exempt real estate licensees from the provisions of the laws, so if there is an exception available to an owner, the licensee is not permitted to participate in the transaction under any circumstances.

Which agency is the USA's largest investor in residential mortgages?

Fannie Mae a/k/a the Federal National Mortgage Association is the USA's largest investor in residential mortgages. Ginnie Mae is the Government National Mortgage Association. It was established to promote home ownership. The Federal Home Loan Mortgage Corporation (FHLMC), known as Freddie Mac, is a public government-sponsored enterprise (GSE) created to expand the secondary market for mortgages in the US. Along with Fannie Mae, Freddie Mac buys mortgages on the secondary market, pools them, and sells them as a mortgage-backed security to investors on the open market.

Ulysses passes away and leaves his children all the real property that he owned. What tax may be due?

Federal taxes may be owed, pursuant to requirements and exemptions in the tax laws. AMT is the individual alternative minimum tax and operates with the regular income tax. It was originally intended to ensure that a small amount of the very wealthy pay sufficient income taxes, but now affects millions of filers. The tax bill may be satisfied by selling inherited property.

The most complete type of ownership in real estate is:

Fee Simple provides absolute title to a property and affords the owner with the most complete form of ownership and bundle of rights in real property.

If Hazel owns her home free and clear of encumbrances and she has the right to devise it to her grandson, she has a(n):

Fee simple absolute ownership provides an owner with the most complete form of ownership and bundle of rights in real property, including the right to transfer it upon death.

Sid lives in an area where significant acid rain falls. He wants to do everything that he can to prevent the acid rainwater from entering his structure and weakening the floor beams. He considers using flashing. What is the purpose of flashing?

Flashing prevents water from entering a building. It is installed on corners of a roof, such as the eave and at the base of a chimney where there are seams present that could permit water entry.

Edgar buys a condominium unit on February 1, 2015. He immediately sells the property on February 2, 2015 for a $10,000 profit. What is that real estate maneuver called?

Flipping is the real estate practice of buying a property and immediately selling it for a higher price.

Kylie is an investor looking for buildings that can be expanded. There are municipal restrictions that restrict the floor to area ratio to 40%. If he finds a building on a 10,000 square foot lot that has a gross floor area of 3,000 square feet. Will he be permitted to expand the floor area?

Floor to area ratio (FAR) is determined by dividing the gross floor area of the building by the total area of the property. 3,000 ÷ 10,000 = .30 = 30%. Since the maximum ratio permitted is 40%, Kylie will be able to add 1,000 square feet of gross floor area. 4,000 ÷ 10,000 = .40 = 40%

When a house purchase is financed by a federally related mortgage loan, RESPA requires that loan closing information be prepared on the:

Following October 3, 2015, RESPA requires the use of a Closing Disclosure for a federally related mortgage loan. A HUD-1 settlement statement was used on and prior to said date, but is currently used for reverse mortgages.

For an agency relationship to be formed, which is necessary:

For an agency relationship to be formed, the parties must act as principal and agent. A writing is not necessary, since an implied agency could be created. A person who selects the agent to act on his or her behalf is the principal or client.

Freddi is inspecting a home and examines the asbestos insulation. As Freddi touches the insulation, the asbestos starts to crumble when pressure is applied. What is the term for crumbling asbestos?

Friable is the term that describes the crumbling texture of asbestos when pressure is applied by hand. Asbestosis is a chronic lung disease resulting from inhaling asbestos fibers. Mesothelioma is a cancer that develops on the protective lining that covers many of the body's internal organs and most commonly effects the lungs. Remediation refers to the process for removing the asbestos and cleaning the affected area.

How are funds provided to the TREC real estate recovery trust account?

Funds are provided to the TREC real estate recovery trust account by fees paid by licensees.

Compared to other investments, a short term investment in real estate has a ____________?

Generally, a short term investment in real estate has a high level of risk compared to other investments, due in part because it is an illiquid investment. However, in the event that the property value is reduced to zero, the owner still owns the property, which is the worst case scenario, unlike a share of stock that drops to zero, which provides no benefit.

The greater the risk in a real property investment, the greater the _______________?

Generally, the greater the risk of a real property investment, the greater the return that can be expected.

Ken purchases a strip mall. He soon learns that septic tanks must be stored 30 feet away from the property, but he does not have enough space to comply with the regulation. What can Ken demonstrate to the zoning board?

Hardship would result if Ken has to strictly comply with the zoning requirement and Ken did not cause the hardship. Hardship is not used in the sense of an economic or personal hardship. It must relate to the use of the land itself. A variance is a permissible deviation from a zoning law, which is what Ken needs to obtain, but he has to demonstrate hardship. It allows a property owner to use land for a use that is not allowed by the zoning law, such as subdividing a building into three stories, when only one story buildings are allowed. Spot zoning is the rezoning of a property to allow it to be used differently from the zoning requirements for the zoned area, such as changing the zoning from residential to commercial use. Functional obsolescence means that the property has become inferior to surrounding properties due to technological changes, such as obsolete equipment (e.g., heating system), outdated electrical system or outdated design.

Shuli lives in a cooperative apartment building. He plans to have a big party in his unit and play loud music. His neighbor Trudy warns him that he could violate the cooperative's rules. What are the rules that govern a shareholder's use of the cooperative unit, such as playing music, called?

House rules govern all of the rules of a cooperative, such as the related to the use of said common areas and prohibited behavior (e.g., loud music, pets). A proprietary lease is a cooperative corporation's lease with the cooperative shareholders. A purchaser becomes a shareholder in the corporation and is a tenant pursuant to the corporation's proprietary lease. A shareholder's use of common areas (e.g., outside grounds, laundry facilities, parking areas, lobby) is governed by the proprietary lease. A reserve fund is a cash account used for building improvements and maintenance. An offering plan is issued by a developer that converts or constructs a co-op or condominium building and contains the pertinent information.

If a Texas sales agent is provided with deposit funds, what must the agent do?

If a Texas sales agent is provided with deposit funds, the sales agent MUST give it to the agent's sponsoring broker, since sales agents are not permitted to maintain trust accounts, according to Texas law. The money should be given to the broker as soon as possible, since Texas requires that the funds be deposited into the sponsoring broker's trust acccount by the second working day following the date that the funds were received. For example, if the funds were received on a Wednesday, they must be deposited by the end of the day on Friday.

If a sales agent becomes an employee of a broker, what must the broker do?

If a sales agent becomes an employee of a broker, the broker must pay federal and state taxes on behalf of the agent.

If a seller demands that a sales agent violate fair housing laws, the broker:

If a seller demands that a sales agent violate fair housing laws, the broker is required to withdraw from the agency relationship.

If a real estate agent is suspicious of a new client who requests to see a vacant property late at night and the agent decides to show the property, the agent should not:

If suspicions arise from a new client who requests to see a vacant property late at night and the agent decides to show the property, the agent should not allow the client to follow the agent while showing the property. The agent should follow the client to avoid any surprise attacks. An agent should leave their valuables locked in a vehicle to avoid them being taken inside the house in case of a robbery attempt and leave the doors of the home unlocked during the showing and make sure that there is at least one open door in the event that a quick escape from any attack is necessary.

If Ben, a real estate investor, has an after tax cash flow loss, what can he use the loss for?

If the after tax cash flow is negative, it represents a paper loss, which can be used as a tax shelter. The after tax loss is achieved due to the deductions that are permitted to reduce income, such as depreciation. The loss could be applied toward other types of income and future income. The capitalization rate is the annual expected dollar return that an investor can expect to receive and is the main method to compute the present value of an income producing property.

Tory wants to sell her home, but learns that her home has an asbestos problem inside an air tight walled area of her home. How should it best be treated?

If the asbestos is in an inaccessible and protected area, it should not be disturbed if it will not result in exposure to the asbestos by leaving it alone.

Which of the following constitutes an estate at will?

In an estate at will, there is no lease with a specific end termination. It is an open-ended estate. A cooperative corporation owns the entire property, including the building, and land. A purchaser becomes a shareholder in the corporation and is a tenant pursuant to the corporation's proprietary lease. The shareholder pays a monthly maintenance charge to the corporation, which is similar to paying rent, and is usually based upon the number of shares owned. The number of shares owned could be proportional based on the size of the individual unit. No deed is issued, since it is not fee simple ownership. The deed is in the name of the corporation. A shareholder in a cooperative owns shares in the cooperative corporation and the use of common areas (e.g., outside grounds, laundry facilities, parking areas, lobby) is governed by the proprietary lease. A life estate provides a right of possession, ownership or control over a person's lifetime (e.g., Shady Acres to Judy for life, then to Trescott).

One method to control the use of land is through:

Individual owners are afforded the legal right to place restrictions on their own property, which could also affect a home or subdivision. Market conditions are external economic factors, such as the health of the economy, supply and demand numbers and seasonal factors (e.g., a home with a pool may be valued higher in the summer).

Which of the following is not considered an advertisement under Texas law?

Information on a publicly accessible password-protected website is not an advertisement, according to Texas Real Estate Regulations. Radio, texts and signs are all considered advertisements under Texas law, which makes it a licensee activity and requires compliance with licensee advertising requirements and restrictions.

Betty is looking to buy a commercial property. Veronica, the listing agent, shows Betty a 50,000 square foot strip mall. Betty asks Veronica if there are any competing strip malls in the area. Veronica tells Betty there are none for 20 miles even though Veronica knows that there is a large strip mall a few miles away. Betty decides not to buy the property. Has Veronica violated an obligation to Betty?

It does not matter if Betty purchased the property or not, since Veronica committed a positive misrepresentation, and perhaps Veronica's misstatement affected Veronica's decision. No self-dealing was involved, since Betty did not have an interest in the property. Puffery is a marketing statement or claim expressing personal opinion that a "reasonable person" would not reasonably believe. The elements to bring a legal action for misrepresentation are: false representation of a material fact by a person who knows or should know that it is false, the statement was made to induce the other party to rely upon it and there is reliance upon the statement and the other party sustains damages as a result of the reliance. While Betty may or may not have suffered damages and it is questionable if a lawsuit for damages would be successful, a general misrepresentation of fact was nonetheless committed.

Cammie Jenkins is a real estate broker, who does business under the name Beautified Homes Real Estate Agency. What type of business name does she have?

It is a trade name business, which is where a sole proprietor uses a name different from her personal name to conduct business. A certificate of assumed name or a doing business as (d/b/a) name has to be filed with the county clerk in the county where the business operates to provide notice to the public.

Agent Samyra is contacted by Liz, a client who lives across the street from a Church. Liz wants to sell her home and thinks the church is a selling point to churchgoers. She asks Samyra to mention it in the listing. Should Samyra do it?

It is not permitted, since it is discriminatory. An ad cannot refer to a religious landmark, since it attempts to limit potential buyers to a certain protected group.

Which of the following co-ownership choices requires unities of possession, interest, time and title?

Joint tenancy requires the unities of possession, interest, time and title. With a tenancy in common, each tenant has an undivided interest and can take title at different times. A freehold estate is ownership for an indefinite period. A tenancy by the entirety has the unities of possession, interest, time and title and the right of survivorship and is usually between married parties.

Sandra, a real estate broker, represents Edward in the sale of his home, and has found a buyer. Katie, who works for Sandra, is appointed to represent the buyer. What is Katie's role?

Katie is an appointed Intermediary, which is a licensee, who is appointed by a broker acting as an intermediary and must follow the broker's instructions. An intermediary must obtain the written consent of all parties and act in an honest, fair and impartial manner. A dual agent is an agent that acts as a buyer's agent and a seller's agent, or a tenant's agent and a landlord's agent within the same transaction. In Texas, a dual agent is required to act as an intermediary. A customer is a buyer, seller or tenant who an agent brings to the agent's principal. Substitute salesperson is not a formally recognized term.

Katie wants to obtain a mortgage from Fannie Mae. Her husband's income can only be included in the computation of the total household income as long as:

Katie's husband's income can only be included in the computation of the total household income only if he is a co-borrower on the mortgage loan.

Craig is searching for a property with tangible rights. Which of the following will provide him with a tangible right?

Land is a tangible right. Tangible means something that can be touched or is of substance. Rights to gold and minerals in the soil, water and the air above the property are intangible assets associated with a piece of real property.

Unimproved land is also known as?

Land that has not been developed and contains no structures is vacant or unimproved land. Agricultural land is land used for farming of crops or animal grazing. Open space is government owned/public or private land upon that has been developed and/or where development is prohibited (e.g., parks, waterways, beaches). Impoverished land is disadvantaged land or land in a poor area.

Kassan is about to purchase a home. He wants a test done to determine if a certain toxic metallic element is present in the paint or drinking water. What element is he concerned with?

Lead is a toxic metallic element that may be present in paint or drinking water. Urea formaldehyde is a type of insulation containing significant levels of formaldehyde, which is a gas without any color that is present in small levels inside buildings and outside them. Carbon monoxide (CO) is a colorless and odorless gas that can be deadly if inhaled. CO is found in fuel fumes from fireplaces, gas oven ranges, furnaces and vehicle engines. Asbestos is a natural mineral that was previously widely used for heat resistance and fireproofing homes. Prolonged inhalation of asbestos fibers can cause serious and fatal illnesses including lung cancer, mesothelioma, and asbestosis. Mesothelioma is a cancer that develops on the protective lining that covers many of the body's internal organs and most commonly effects the lungs. Asbestosis is a chronic lung disease resulting from inhaling asbestos fibers.

Krista wants to open a crafts store in a strip mall shopping center. She receives the proposed lease. What will the store's leased space be classified as?

Leases are typically valued based on rentable square footage, which could contain space that the tenant cannot use. Usable square footage represents the actual space that a tenant occupies, though leases are not generally based upon the actual usable square footage. Common area square footage refers to the size of shared areas of a property.

Which of the following is an example of extreme lending?

Lending to a borrower with a very high debt to income ratio is an example of extreme lending, since a borrower with significant debt is a credit risk.

Which of the following is not a financially sound reason to invest in real estate?

Liquidity is the ability to easily convert an asset into cash (e.g., gold, stock shares). Real estate cannot be easily converted into cash, since the sale process could take some time. Real estate can protect against inflation, since the investment amount (purchase price) is locked in, when real estate prices rise. Real estate could appreciate over time and is typically a low risk investment, because you own something tangible even if the value drops to zero. Depreciation of a commercial or income property can be deducted from the revenue and result in income tax savings.

Which of the following terms means the same as lis pendens?

Lis pendens is the Latin term for pending litigation, which is a filing that provides legal notice to the public (e.g., a prospective purchaser) that there is litigation (legal action) pending against a property.

Geraldo hires Renee, a real estate agent to help him find farmland. He finds a lovely farm directly next to a large stationary lake. Renee tells him that he has certain rights related to the use of the lake. What rights are Renee referring to?

Littoral rights refer to a property owner's rights to a bordering stationary body of water (e.g., ocean or lake). Subsurface rights refer to the real property owner's rights to the area below the ground surface. A riparian owner is someone who owns land next to a flowing water source (e.g., stream, river). The owner could have riparian rights to the water bordering the property. Air rights refer to the real property owner's rights to the area above the ground surface.

In the event that a real estate investor has a financial loss on a rental property she owns, what can the loss be applied against for tax purposes?

Losses derived from investments in passive activities, such as rental property income, can only be deducted from income from other passive activities. The losses cannot be deducted from active income (e.g., from the investor's restaurant) or ordinary income, which is usually income other than (long-term) capital gain, such as wages or salaries and other types of income. It also cannot be deducted from portfolio income, which is any income generated from an investment portfolio.

What is the principle requiring the agent to work for the best interests of the principal, as opposed to the agent's personal interests?

Loyalty is the fiduciary duty requiring the agent to work for the best interests of the principal and in a diligent manner, as opposed to the agent's personal interests or anyone else's. A licensee has a fiduciary duty to the seller, which includes a duty not to disclose confidential information without the permission of the seller. Reasonable care, skill and diligence, along with honesty, accountability, full disclosure, obedience and are also all a part of a licensee's fiduciary duty to the principal.

Freud plans to sell his esteemed home in a landmark district. Bo, Feud's real estate agent, must decide on a proper listing price. The economy has been stalling, so it is difficult to value the home. What is the term for examining the health of the economy in establishing the price of Freud's home?

Market conditions are external economic factors, such as the health of the economy, supply and demand numbers and seasonal factors (e.g., a home with a pool may be valued higher in the summer). Market position is the term describing the act of looking at the number similar available properties comparable in price in order to compute an appropriate listing price. The market position can be used as one of the factors used in reaching an appraisal. An appraisal is an objective estimate of the value of a property on a certain date based upon factual information.

Jeter is looking to sell his mansion. His real estate agent considers properties similar to Jeter's in order to figure out the listing price. The act of looking at the number similar available properties comparable in price to Jeter's mansion is the:

Market position is the term describing the act of looking at the number similar available properties comparable in price in order to compute an appropriate listing price. The market position can be used as one of the factors used in reaching an appraisal. An appraisal is an objective estimate of the value of a property on a certain date based upon factual information. Market conditions are external economic factors, such as the health of the economy, supply and demand numbers and seasonal factors (e.g., a home with a pool may be valued higher in the summer).

The definition of market value includes:

Market value is the most likely price that a property should be sold for, and reflects a buyer and seller who are acting reasonably with neither under undue duress.

Mortgage principal and interest that is paid on a loan is called:

Mortgage principal and interest that is paid on a loan is called debt service. Net operating income is gross income minus operating expenses. Leverage is using borrowed money to finance real estate purchases. Debt to equity ratio is the percentage of the capital invested in a property.

Which are the two primary real estate security instruments?

Mortgages and deeds of trust are primary security instruments. Security instruments evidences the pledging of an asset or property as security.

The name of the nationwide licensing organization for mortgage loan originators is:

NMLS (Nationwide Mortgage Licensing System) is the nationwide licensing organization for mortgage loan originators. SAFE Mortgage Licensing Act is the name of the law regulating mortgage loan originators (MLO).

What is the name for the money left over after deducting operating expenses from gross income?

Net income is the money left over after deducting operating expenses from gross income.

Which characteristic of real property refers to the fact that every parcel of land is different?

Non-homogeneity describes the uniqueness of land.

Dev's ten unit apartment building would not be permitted if it had been built during the present zoning laws, so Dev's building is a(n):

Nonconforming uses occur when a property's current use legally conflicts with an enacted zoning regulation, but is permitted since the property was present before the new zoning law was enacted. The property is "grandfathered in" and permitted to not adhere to the new zoning law. An apartment for a family member within a home is an accessory apartment. An accessory use is one that is subordinate and incidental to the principal use of the property, such as an apartment or a storage shed on the property. A use variance allows a property owner to use land for a use that is not allowed by the zoning law, such as converting a one family home to a three family home.

What does OPM stand for in connection with leveraging a property purchase?

OPM stands for other people's money (OPM), which is a leverage strategy that provides a purchaser with increased buying power, and permits the buyer to purchase a property even though sufficient capital is not available. A loan is an example of OPM.

Rao is a broker who hired Sefrin as an agent. Sefrin secretly engages in a campaign of blockbusting. TREC receives a Complaint and starts an investigation against her. What is not true about Rao?

Once TREC receives a Complaint against a salesperson, it will also deemed to be against the sponsoring broker, so TREC will investigate Rao, and the Complaint cannot be withdrawn without the consent of TREC. Additional unrelated violations will also be investigated if any are found during the investigation.

Which of the following represents a buyer's interest in a property once the contract of sale is fully signed?

Once the contract of sale is fully signed, the buyer has equitable title to the property. The buyer obtains legal title at closing. A binder deposit is paid by the buyer, to show a home seller that the buyer is serious and acting in good faith. It is the deposit that accompanies the buyer's offer to purchase and is part of the contract and is usually held in an escrow account. It is also known as an earnest money deposit. An insured title is a title that is insured by title insurance.

Landvelop LLC is a property developer converting a rental building to a condominium. Which of the following will Landvelop not be responsible for?

Once the developer sells a unit, the owner generally has the right to lease/rent out the unit. The sponsor is required to appoint the initial board of directors, limit sponsor control of the board of directors and appointing the managing agent.

Which of the following must sign the deed?

Only the grantor (seller) is required to sign a deed transferring the property to the buyer. The other parties do not need to sign it.

Ownership in severalty is also considered ownership by:

Ownership in severalty is also considered ownership by one person or a legal entity (e.g., organization or corporation).

The movement of water through soil that could cause contamination to a property is called:

Percolation is the movement of water through soil. The movement of water may bring contaminants with it. A septic system is an absorption pit or trench and serves as a property's sewage discharge system. Groundwater is water that comes from underground and can be obtained with a well.

Cindy purchases a co-op apartment. She has a pet rattlesnake. Where can Cindy find pet rules for her co-op?

Pet and other rules for a co-op are in the house rules.

What was the result of the Supreme Court decision of Plessy v. Ferguson of Education?

Plessy v. Ferguson permitted separate but equal housing, but it was overruled by Brown v. Board of Education, which prohibits separate facilities (e.g., housing) based upon race. Buchanan v. Warley determined that block by block segregation is illegal.

Which real estate principle means combining separate parcels of land to create a larger development?

Plottage refers to the combining of separate parcels of land to create a larger development. A CMA (comparative market analysis) is a method to derive the market value range of a property offered for sale. A CMA considers properties on the market and those that have recently sold, along with withdrawn or expired listing. Highest and best use examines a property's maximum income production value and considers if the highest and best use is legal, possible and justifiable financially.

Which of the following is false about mortgage points paid to a lender?

Points are not automatically deductible in the year they are paid. While in certain instances they can be, there are IRS tests that determine if they are deductible in the year paid, such as if the home was used as the principal residence. Points may result in a discounted interest rate, they are considered origination fees and the seller may pay them to the lender to assist a buyer in obtaining financing.

Isaac is the superintendent of a building. He examines and decides to change a 50 year old iron pipe in the water system due to its age to avoid a possible leak. What type of maintenance is Isaac performing?

Preventative maintenance refers to inspecting equipment pursuant to a schedule and making repairs to it when necessary to avoid breakdowns and larger problems down the road. Corrective maintenance is repairing something that is already malfunctioning (e.g., fixing a broken door lock). Property maintenance refers to the overall maintenance of a property.

What is the amount of money that a purchaser agrees to pay and a seller agrees to accept called?

Price is the amount money that a purchaser agrees to pay and a seller agrees to accept. Market value is the most likely sales price of a property between similarly situated buyers and sellers in a competitive market. Cost basis is the original cost of property, adjusted for factors such as capital improvements and depreciation. When property is sold, the seller pays taxes on a capital gain or loss that equals the sale amount minus the cost basis.

When figuring out the housing expense ratio for FHA requirements, which expenses are considered in the analysis?

Principal, interest, taxes and insurance are considered in the FHA analysis as part of the housing expense ratio for FHA requirements.

Property taxes are based on which of the following?

Property taxes are assessed on an ad valorem basis, which is based on the value of the property.

Janelle is a real estate salesperson with an online presence. Which is the least important issue that she should be concerned with regarding the security of her online business activities?

Protection of online personal and electronic information, protection of client information and identity theft are more important to her security than her online marketing activities, since the financial consequences from the first three could be dire if her online security is breached.

Under RESPA, which payment is strictly prohibited?

RESPA prohibits kickbacks for services not performed.

What is the purpose of RESPA?

RESPA was passed to help consumers search for settlement services and to prevent kickbacks and referral fees that cause closing costs to increase unnecessarily. It applies to one to four family residential properties. The lender is required to follow RESPA guidelines.

Radon can be detected by:

Radon can only be detected by testing for its presence. Radon cannot be detected by smell and there is no smoky appearance to observe. Filter systems are used to reduce or remove radon.

How are real estate agents classified under IRS guidelines?

Real estate agents are classified as Independent contractors under IRS guidelines. As an independent contractor, the agent's earnings cannot be based upon the number of hours worked. Rather, all earnings must be related to sales or another output based measurement.

Which is true about real estate commission rates?

Real estate commission rates are always negotiable. Two unaffiliated brokers cannot agree to charge sellers a set commission percentage, since it is illegal price fixing that violates antitrust laws. It is illegal for a real estate association, such as NAR, to set a standard selling fee or rate.

Reasonable care, skill and diligence are examples of:

Reasonable care, skill and diligence, along with honesty, accountability, loyalty, full disclosure, obedience and confidentiality are part of a licensee's fiduciary duty to the principal.

Texas has reciprocity agreements with:

Reciprocity is an arrangement among two states permitting a licensee one state to obtain real estate licensure in another without the need to take pre-licensing course work and/or an examination. Texas does not have any reciprocity agreements with any other states, however, a person licensed as a broker or sales agent in another state may be entitled to have certain experience and educational requirements waived. Also, Texas law permits a broker to share a commission with a foreign license holder if the foreign license holder does not engage in an activity requiring a license in Texas.

The arrangement among two states permitting a licensee in one state to obtain real estate licensure in another without the need to take an examination is called:

Reciprocity is an arrangement among two states permitting a licensee one state to obtain real estate licensure in another without the need to take pre-licensing course work and/or an examination. Texas does not have any reciprocity agreements with any other states, however, a person licensed as a broker or sales agent in another state may be entitled to have certain experience and educational requirements waived. Also, Texas law permits a broker to share a commission with a foreign license holder if the foreign license holder does not engage in an activity requiring a license in Texas.

Jessica purchases a home. The deed is recorded. Which type of notice to the world of her ownership of the home results through recordation of the deed?

Recording a deed results in constructive notice to the world of a party's ownership of real property and, in Texas, it makes the transfer legally binding on sellers and their heirs. The records of ownership information can be obtained through a land record search. Actual notice is when information is provided directly to a person. Texas law requires that all deeds be recorded in the county clerk where the property is located. Otherwise, a transaction is not legally valid to a creditor or the next purchaser. Marketable title refers to the title of a property that is reasonably free and clear of encumbrances.

Venturous Bank wants to increase its profits. In an effort to reduce its losses, the bank manager highlights certain neighborhoods on a map that he does not believe will be good credit risks. Venturous Bank has committed:

Redlining occurs when a lender chooses not to make loans in a specific geographical area because a protected class is situated there (e.g., race, religion, national origin, color, sex, handicap, religion or family status). Blockbusting is the practice of pressuring a homeowner to sell or lease the property by telling the owner that a certain protected class is moving into the area. Steering involves a licensee directing buyers towards or away from certain areas, based upon race (e.g., A broker showing a white couple homes in an area with a high white population or directing them away from a certain area; A broker showing a Russian buyer homes in an area populated mostly by Russians or directing them away from a non-Russian area).

Which of the following is not an acceptable method in order to manage an agent's risk and liability exposure?

Refusal to show a client homes in certain areas may constitute steering and is not an acceptable method to manage an agent's risk and liability exposure and it may be a violation of fair housing laws. Steering occurs when a licensee guides a prospective home buyer to or away from specific neighborhoods based on race. Steering occurs regardless of whether the buyer makes the request. It is one of the most frequent violations of housing laws, since it is a form of housing discrimination.

Which of the following would be least the least desirable anchor tenant at a regional mall?

Regional malls have at least one large anchor tenant to attract consumer traffic. A discount department store, a luxury department store and wholesale shopping club are all large retail establishments that attract high volumes of consumer traffic. A convenience store is typically small in size relative to the other choices, so it would be the least desirable anchor tenant for a regional mall.

Jules has worked in the home construction industry for 45 years removing asbestos. What is the process that he performs?

Remediation refers to the process for removing the asbestos and cleaning the affected area. Friable is the term relative to the crumbling texture of asbestos when pressure is applied by hand. Asbestosis is a chronic lung disease resulting from inhaling asbestos fibers. Mesothelioma is a cancer that develops on the protective lining that covers many of the body's internal organs and most commonly effects the lungs. Asbestos is a natural mineral that was previously widely used for heat resistance and fireproofing homes. Prolonged inhalation of asbestos fibers can cause serious and fatal illnesses including lung cancer, mesothelioma, and asbestosis.

A broker is permitted to pay all or part of a sales commission to a:

Salesperson can accept compensation only from their sponsoring broker.

Which tax form is used for the deduction of taxes paid on non-investment property?

Schedule E is the tax form used for the deduction of taxes paid on non-investment property. Schedule A is the form used for itemized deductions.

Ned and Heddi want to purchase a home together. Which is not an example of a type of co-ownership?

Severalty tenancy means the property is in the name of one party only. Tenancy in common, Tenancy by the entirety and Joint tenancy are examples of co-ownership situations.

Shawn is a broker who knows a construction contractor, Julosio. Juliosio does work on a foreclosed home that will be sold soon. Julioso tells Shawn about the potential listing. Shawn obtains the listing. The property is eventually sold. Shawn earns a $10,000 commission and gives Julioso 25%. Shawn has paid:

Shawn has paid an illegal kickback, which is an illicit payment made to someone who has assisted in a transaction or appointment, since Julioso is not a licensed real estate professional. It is not a permitted referral fee or a shared commission. Equity of Redemption is a property owner's right to reclaim property before it gets sold through foreclosure proceedings.

Toni is a salesperson, who is working with Bobbi Buyer. Under which situation is Bobbi Buyer Toni's client?

Since Toni is working with Bobbi, then Bobbi is Toni's client. A written agreement is required when a salesperson works with a buyer client.

Joaquin loses his job and can no longer make his mortgage payment. The mortgage balance is $275,000. The bank forecloses and sells the home, but only gets $250,000 for the house due to a housing recession. What is the amount that Joaquin owes the bank called?

Since the bank could not sell the house for the amount of the mortgage balance, Joaquin could be personally liable for the $25,000 difference, which represents the deficiency judgment. Equity of redemption refers to the buyer's equitable right to redeem the property before it is sold at a foreclosure sale by paying all monies due, including principal, interest and transactional costs and fees. The foreclosure penalty and underwater fee answer choices are not formal real estate terms, though a penalty on a foreclosure and a fee if the value of the home is less than the mortgage balance upon a sale may be possible.

Haley, a real estate agent, is contacted by Robley, who has a basement apartment that he wants to rent out, but it does not have a certificate of occupancy. Should Haley take the listing?

Since there is no certificate of occupancy, it is an illegal apartment. Agents and brokers could be subject to fines and other discipline for listing or showing illegal apartments.

Tripp is purchasing investment properties without basements to avoid any damage resulting from flooding. He seeks a building foundation constructed by pouring concrete directly on the ground to create the structure's foundation. What type of foundation is Tripp seeking?

Slab on grade foundation is the type of building construction that involves pouring concrete directly on the ground to create the structure's foundation. The slab serves as the floor and the support for all walls. Crawl space foundation and full basement foundations are created with foundation walls, the bottoms of which are situated below the ground. Full basement foundations are the most popular type of foundation in New York. Slab grade is the second most popular, while crawl space is third. A sill plate is not part of the foundation. It is the bottom wooden horizontal member of a wall or building. Vertical wooden members are attached to the sill plate. The floor surface is attached to the sill plate.

Which of the following remedies permits a court to force a seller to honor a real estate contract, when the seller does not want to close?

Specific performance is the legal proceeding whereby a party to a real estate contract sues the other party to force the transfer of the property. Reformation is the legal tool that permits a court to rewrite a contract.

Janez owns real property that is zoned for residential use. Real estate agent Hooper convinces Trescott to petition the local zoning board to change the zoning from residential to commercial use. What type of zoning is Trescott seeking?

Spot zoning is the rezoning of a property to allow it to be used differently from the zoning requirements for the zoned area, such as changing the zoning from residential to commercial use. It is illegal in Texas. A use variance allows a property owner to use land for a use that is not allowed by the zoning law, such as subdividing a building into three stories, when only one story buildings are allowed. Cluster zoning is a type of multiuse zoning permitting different residential uses (1, 2 and multi-family) in the same zone. Industrial zoning is related to light and heavy manufacturing buildings.

Reese's land is zoned for residential use, as is all of the real property located within 5 square miles. He wants to rezone his land to permit use as a pig farm, which is not a permissible use and will reduce his neighbor's property values. If his land is rezoned, what is the name that best describes the practice?

Spot zoning, which is the rezoning of a property to allow it to be used differently from the zoning requirements for the zoned area. It is generally illegal in Texas. Eminent domain is the government power that can be used to obtain private land for public use. A variance is a permissible deviation from a zoning law. A site plan and review is the process by which a local zoning board reviews site plans.

Greta is contacted by an Eskimo couple looking for a new home. They want to move to a neighborhood with other Eskimos. Greta searches long and hard and locates a neighborhood called Iceville, where a number of Eskimos reside. Her clients are ecstatic, but Greta's co-worker questions whether Greta has done something wrong. Does Greta's co-worker have any basis to question Greta's actions?

Steering occurs when a licensee guides a prospective home buyer to or away from specific neighborhoods based on race. Steering occurs regardless of whether the buyer makes the request. It is one of the most frequent violations of housing laws, since it is a form of housing discrimination.

Sally recently started showing homes to an African-American couple. She focused on showing them homes in a certain area on the east side of town, because that was a predominantly African-American neighborhood. What practice has Sally engaged in?

Steering occurs when an agent directs buyers to or away from specific areas. Redlining occurs when a lender refused to make loans to purchase, construct or repair a dwelling due to discrimination. Redlining is discrimination. Blockbusting is an attempt to scare sellers about the potential for a sudden change in the demographics of the neighborhood in order to obtain listings. Racial profiling is the use of race or ethnicity as grounds for suspecting someone has committed an offense or crime.

Stella has completed 150 hours of a Texas sales agent pre-licensing course. What will she need to do next in order to take the licensing examination?

Stella must complete an additional 30 hours of pre-licensure education. Texas licensing law requires 180 hours of classroom education (60 hours of principles of real estate and 120 hours (four 30 hour courses) on agency, real estate finance, contract forms and contract law). When she is ready to take the exam, Stella must schedule an appointment to take the examination. She cannot just show up at a test center on a test date unannounced. Since she has not yet passed the exam, buying business cards is premature.

Which Depreciation method is based upon the useful life of the asset?

Straight-line depreciation is based upon the useful life of the asset and depreciates a building in equal amounts over the building's useful life, which is a 27 ½ year period. It is also known as the age-life method of depreciation. Land is not depreciable, only the buildings thereon. Interest due is first applied to the installment payment and the remainder goes towards the principal balance. Recaptured depreciation is the process of paying income taxes on the prior depreciation deductions upon sale or disposal of the property. Income taxes on recaptured depreciation are generally taxed at the ordinary tax rate, as opposed to the lower capital gains rate. Amortization is paying off a debt with periodic installments.

Nell's accountant tells her that Nell's apartment building investment must be depreciated in equal amounts over the building's useful life. What depreciation method is the accountant referring to?

Straight-line depreciation is the method of depreciating a building in equal amounts over the building's useful life, which is a 27 ½ year period. Land is not depreciable, only the buildings thereon. Interest due is first applied to the installment payment and the remainder goes towards the principal balance. Appreciation is the increase in property value. Recaptured depreciation is the process of paying income taxes on the prior depreciation deductions upon sale or disposal of the property. Income taxes on recaptured depreciation are generally taxed at the ordinary tax rate, as opposed to the lower capital gains rate. Amortization is paying off a debt with periodic installments.

Ina, an investor, needs to analyze a potential property investment. If she subtracts the expenses for operating the property from the revenue received, Ina is computing?

Subtracting the expenses from the revenue received by deducting operating expenses equals the net operating income.

Which of the following should be one of the first to examine when preparing to construct a new building?

Sufficient thought should be given to drainage considerations before construction begins, because it is important to control water run-off and divert water from the foundation of the building. When the property is graded, the drainage points should be properly placed to ensure effective drainage. Roof type, landscaping and walkways are not as important during the initial stages of property development.

How many different recovery funds are administered by TREC that are used to satisfy judgments against licensees?

TREC administers two recovery funds that are used to satisfy judgments against Texas licensees. A notice indicating the availability of the recovery funds must be prominently displayed by licensees.

TREC contract forms must be used:

TREC approved contract forms must always be used by licensees, unless an exception exists, such as where the licensee is the principal (seller), the federal government requires a special form or where the principal's attorney drafts the form. When there is no form for the type of contract required, any other form used must get the approval of the Texas Real Estate Broker-Lawyer Committee and get consent from TREC.

Which of the following is not a power provided to TREC?

TREC does not have the power to Issue criminal sentences, such as sentencing criminal violators to prison or even convicting someone of a crime. TREC can suspend or revoke licenses and formulate rules for locator advertising. Locators assist tenants in locating rental properties or they can represent the property owner in locating tenants. TREC also creates standards of conduct and ethics for licensees, regulates licensee business activities and disciplines licensees.

What is the standard of proof used to determine if TREC will investigate a complaint against a broker?

TREC will determine if the complaint provides reasonable cause to investigate, when deciding whether it will investigate a complaint against any licensee.

Yule claims that Packard did not pay him a commission that was owed to him. He contacts TREC to ask them to mediate the dispute. Will TREC assist Yule?

TREC will not agree to help Yule, since TREC does not mediate disputes among licensees, including any compensation related disputes.

Katt, an agent with Real Lotta Properties, meets with Sly about Sly's desire to purchase a farm. Katt provides an agent disclosure form to Sly and asks Sly to sign it, but he is not comfortable doing so and refuses. Which of the following is not an appropriate response from Katt?

Telling Sly that if he doesn't sign it, Katt cannot show him properties is not appropriate because it is not correct. A buyer or seller is not required to sign it. Appropriate responses are to explain the form again, telling Sly that the form is not a binding contract and that its purpose is to protect consumers and asking Sly the reason for his refusal so it can be documented.

What type of insurance must certain designated brokers maintain?

Texas law requires that designated brokers, who own less than 10% of the business, maintain an errors and omissions insurance policy.

When is a Texas salesperson or broker supposed to renew their license?

Texas licensed salespersons and brokers are required to renew their licenses every 2 years, according to Texas law. The renewal notice is sent by the Commission 3 months befor the expiration date. Licensees must also provide other information, including proof of compliance with the continuing education requirement, disclose any guilty pleas or felony convictions and provide proof of completion of a criminal background check. Salespersons who are renewing for the first time must also provide proof that the 90 hour post-license requirement was completed at least 10 days prior to the license expiration date. The 8 hour non elective Legal Update must also be completed prior to renewal.

Can a Texas broker complete a promulgated contract?

Texas licensees can complete promulgated (pre-printed) form contracts that have been created and approved by TREC, as long as the specific form used and the contract's purpose are the same.

Real estate agent Tizzy lists Yuler's cottage for sale. The cottage was the site of a murder 9 years before, but that crime does not affect the condition of the cottage. Does Tizzy still need to inquire about or disclose the crime to a potential buyer?

Texas licensees do not need to inquire about it with the principal or anyone else or disclose whether a crime has been committed to a potential buyer, unless it somehow impacts the condition of the property. Moreover, neither AIDS nor any HIV-related illness needs to be disclosed.

Where can you go to find out if a Texas property deed was recorded?

Texas property deeds are recorded in the office of the county clerk in the county in which the property is located.

Which of the following is not true about the 1988 Amendment to the Fair Housing act adding protected classes to the law?

The 1988 Amendment to the Fair Housing act added protected classes to the law. It added families and persons with mental and physical disabilities to the law. Elderly persons were not added to law.

What type of buildings ready for occupancy after March 13, 1991 require doors and hallways that are wide enough for wheelchairs to use?

The American with Disabilities Act requires buildings with elevators and at least four units, which are ready for occupancy after March 13, 1991, require doors and hallways that are wide enough for wheelchairs to use. Also, common and other public areas must be accessible for disabled people and the individual units must be accessible to the disabled, including kitchens and bathrooms (bathrooms built to accommodate grab bars, etc.) and accessible switches.

Which law protects people with physical or mental impairments affecting their life activities and prohibits denying access to public accommodations?

The Americans with Disabilities Act protects people with physical or mental impairments affecting their life activities and prohibits denying access to public or commercial accommodations and public transportation. The Civil Rights Act of 1866 prohibits restrictions on the purchase or sale of real estate or personal property due to a person's race and provides that all citizens have the same rights regarding the inheritance, sale, purchase or lease of real and personal property. The Civil Rights Act of 1964 prohibits discrimination related to obtaining FHA and VA loans and in any program that gets federal funding, but the law does not pertain to private financing.

Which of the following statements is correct about the Civil Rights Act of 1866?

The Civil Rights Act of 1866 is an equal housing law that prohibits any type of discrimination based on race. It contains no exceptions. It does not permit discrimination in federally funded housing; there is no exception for an owner/occupied multiple family house; and it applies to a non-licensee property owner selling their own home.

Which was the first law to prohibit restrictions on the purchase or sale of real estate due to a person's race?

The Civil Rights Act of 1866 prohibits restrictions on the purchase or sale of real estate or personal property due to a person's race and provides that all citizens have the same rights regarding the inheritance, sale, purchase or lease of real and personal property. The Federal Fair Housing Act was part of the Civil Rights Act of 1968 and prohibits discrimination in housing transactions based on race, religion or national origin. The Civil Rights Act of 1964 prohibits discrimination related to obtaining FHA and VA loans and in any program that gets federal funding, but the law does not pertain to private financing. HUD (Department of Housing and Urban Development) is a federal agency that oversees home mortgage lending practices.

Which law prohibits discrimination related to obtaining FHA and VA loans and in any program that gets federal funding?

The Civil Rights Act of 1964 prohibits discrimination related to obtaining FHA and VA loans and in any program that gets federal funding, but the law does not pertain to private financing. The Federal Fair Housing Act of 1968 was part of the Civil Rights Act of 1968 and prohibits discrimination in housing transactions based on religion, national origin, race or color. HUD (Department of Housing and Urban Development) is a federal agency that oversees home mortgage lending practices. The Civil Rights Act of 1866 prohibits restrictions on the purchase or sale of real estate or personal property due to a person's race and provides that all citizens have the same rights regarding the inheritance, sale, purchase or lease of real and personal property.

What is the name of the law that promotes states' management of coastal areas, such as beaches, barrier islands, reefs, dunes and wetlands?

The Coastal Zone Management Act (CZMA) promotes states' management of coastal areas, such as beaches, barrier islands, reefs, dunes and wetlands. The National Oceanic and Atmospheric Administration (NOAA) administers CZMA. ILSA is the Interstate Land Sales Full Disclosure Act. It regulates marketing of land sales to buyers in another state and is intended to prevent fraudulent marketing. It requires complete disclosure of full and accurate information about the land. The Coastal Construction Control Line Program (CCCL) is also known as a control line and is the name of the line established to define the fluctuation of beach dunes according to 100 year storm surges and related weather conditions that can be predicted.

Which is false about the FHA?

The FHA does not make loans. Only FHA-approved lenders make loans to borrowers. FHA approved lenders can charge discount points. Housing expense and total obligation ratios are used for FHA loan qualification and FHA loans are made in $50 increments only.

Which government agency regulates and investigates telemarketing practices?

The FTC (Federal Trade Commission) is the federal government administrative agency that regulates and investigates telemarketing practices. A telemarketing list of permissible numbers that can be called can be obtained from the FTC. Calling anyone on a do not call list is illegal. The Department of Justice (DOJ) has a division that enforces antitrust activities. The IRS regulates income taxes.

Which of the following is a type of circuit breaker that can detect a small leakage of electrical current?

The GFCI (ground fault circuit interrupter) can detect a small leakage of electrical current. NEC refers to the National Electric Code.

What can a prospective purchaser of a condominium that is part of a Homeowner's Association review to ascertain important information related to the building's finances, mortgage and frequency of assessments?

The Homeowner's Association's (HOA) board of directors' meeting minutes, which reflect all condominium operative business discussed at board meetings, including important information related to the building's finances, mortgage and frequency of assessments. An offering plan is issued by a developer that converts or constructs a co-op or condominium building and contains the pertinent information. It does not contain up to date information concerning the building's finances, mortgage and frequency of assessments. A proprietary lease is a cooperative corporation's lease with the cooperative shareholders. A purchaser becomes a shareholder in the corporation and is a tenant pursuant to the corporation's proprietary lease. The use of common areas (e.g., outside grounds, laundry facilities, parking areas, lobby) is governed by the proprietary lease. House rules govern the use of said common areas and prohibited behavior (e.g., loud music, pets).

Hogan purchases a home with borrowed funds. The mortgage document requires that Hogan obtain homeowners insurance to cover all of the standard risks. Which type of the required policy is most popular?

The Homeowners 3 Special Form Policy is the most popular insurance policy used for homeowners insurance. It covers against all risks of loss, except for the listed excluded risks. It also covers most of the contents of the home. However, additional insurance for expensive jewelry and other valuables should be obtained, since this policy typically has coverage limits. Homeowners 1 Basic Policy covers the home and its contents against listed risks. Homeowners 5 Comprehensive Policy is similar to the Special Form Policy, and all of the contents are covered unless specifically excluded. Homeowners 8 Market Value Policy provides coverage for the actual replacement cost of the structure. It is used when the replacement value exceeds the market value, which may be the case with a historical home.

The IRS classifies real estate agents as:

The IRS classifies real estate agents as independent contractors. The most important factor to consider in determining whether an agent is an independent contractor of a principal is to examine the principal's ability to control the agent's performance of the work. Payment of work expenses and setting the required work hours are other elements, but not as important. The manner of payment is determined based on whether the person is an independent contractor or an employee. Certain taxes must be withheld if the person is an employee. A principal is the party that the agent represents and acts on behalf of, such as the property owner.

How frequently should properties be field inspected to update building records, pursuant to IAAO guidelines?

The International Association of Assessing Officers (IAAO) guidelines dictate that properties be field inspected for tax assessment purposes every 6 years.

Keating is an avid real estate investor. He plans to construct a building and needs to find out the uniform national standard used for electrical installations. Which one is the uniform standard?

The National Electric Code is the uniform national standard used for electrical installations and service. National Fire Protection Association created the National Electric Code. Greenfield conductors are a flexible metal conduit that does not contain wires. The wires are installed inside the conductors.

Which of the following is correct about the Residential Lead-based Paint Hazard Reduction Act?

The Residential Lead-based Paint Hazard Reduction Act requires disclosure of known lead paint hazards by sellers and landlords to disclose in certain residences that were built prior to 1978.

Tyler's home was destroyed in a fire. His homeowner's insurance policy provides actual cash value coverage. It would cost $500,000 to replace the home. The destroyed home had depreciated by 10%. How much will he receive from the insurance proceeds to replace the structure?

The actual cash value (ACV) is the replacement value (what it would cost to replace the structure) minus any depreciation. $500,000 - $50,000 = $450,000.

Rothmann purchased a strip mall in 1980 for $3,500,000. He renovated it in 1990 for the cost of $1,000,000. He sells the strip mall in 1995 for $6,000,000. He took $1,000,000 in depreciation. There were no other costs to consider. To compute his profit, he subtracts $3,500,000 from the $6,000,000 in sale proceeds. What does the $3,500,000 figure represent?

The adjusted basis is the price of the real estate plus costs associated with the transaction and the costs of any improvements, less any depreciation: $3,500,000 cost + $1,000,000 in renovations = $4,500,000. Then subtract the depreciation amount- $4,500,000 - $1,000,000 = $3,500,000 (adjusted basis). Depreciation is the loss of value due to a building or property due to any cause, such as deterioration, damage and normal wear and tear. Appreciation is the increase in value of real property. The capitalization rate is the annual expected dollar return that an investor can expect to receive and is the main method to compute the present value of an income producing property.

Gerri calls his friend Rosalyn, who is a real estate sales agent, to list his home for sale. Gerri is not sure how much the listing price should be. What factor should Rosalyn not examine when deciding on the listing price?

The age of the residents in the area is not a factor, since it does not provide information related to the histories of similar homes for sale.

Which of the following is the least likely to be used to support a protest the tax assessment given to a property in order to get the taxes due lowered?

The appraised value, comparable sales in the area and the sales price of recently sold home are common ways to compute values. The size of the home may affect the value, but size alone does not dictate the value.

What is the name of the area where property owners in a certain geographic area have to pay for the infrastructure costs of specific projects in that area?

The area that requires property owners in a certain geographic area to pay for infrastructure costs of specific projects in that area are special assessment districts.

The value used to compute property taxes and is typically a percentage of the market value is?

The assessed value is used to compute property taxes and is typically a percentage of the market value. The mortgage value represents the amount that could be obtained from a foreclosure sale.

When is the best time for a buyer to hire a home inspector to check out a home?

The best time for a buyer to hire a home inspector to check out a home is once the buyer is interested in purchasing the home prior to the signing of the contract, since once the contract is signed, the buyer's ability to get the seller to agree to repairs or additions to the contract is limited.

Chet needs a detailed architectural rendering of the building he is purchasing. What is the document called?

The blueprint (building plan) is a comprehensive architectural rendering of the building that usually includes the plans for the building's mechanical systems. A site plan is an architectural plan, landscape architecture document, and a detailed engineering drawing of proposed improvements to a given lot. A certificate of occupancy is a permit issued to a builder or owner after all building department inspections are completed and the property is fit for occupancy. A feasibility study is an assessment of the practicality of a proposed project.

Who is responsible for managing a Home Owners Association's finances and maintenance procedures?

The board of directors is responsible for managing a Home Owners Association's finances and maintenance procedures. A condominium is a type of property ownership structure involving ownership of the actual property, rather than shares. A condominium owner receives an undivided interest in the common areas. A shareholder in a cooperative owns shares in the cooperative corporation and the use of common areas (e.g., outside grounds, laundry facilities, parking areas, lobby) is governed by the proprietary lease.

Which is true about a cooperating broker who procures a buyer in a home transaction?

The broker can be a sub-agent, unless the broker has a contract with the buyer.

In a real estate transaction, a broker had a written representation agreement with the buyer, but was paid 6 percent of the selling price at the closing by the seller. Under these facts, whose agent was this broker?

The broker was the buyer's agent. A permissible form of compensation is through the multiple listing service when the listing broker offers cooperating compensation to the buyer's broker. The buyer's broker will then be paid by the seller.

At what point in a real estate transaction is the broker's commission paid?

The broker's commission is paid at closing.

The commission to be paid in a written listing agreement is the?

The broker's fee is indicated in the listing or other agreement with the principal and is always negotiable.

Heyward is considering the purchase of an apartment building. The annual rental income is $250,000. If Heyward wants a 25% return, what should he offer for the building based on the capitalization rate?

The capitalization rate is the annual expected dollar return percentage that an investor can expect to receive on a yearly basis and is the main method to compute the present value of an income producing property. To compute the present value of an income producing property, divide the annual net income by the capitalization rate. $250,000 ÷ .25 = $1,000,000

The annual expected dollar return that an investor can expect to receive and is the main method to compute the present value of an income producing property is called the?

The capitalization rate is the annual expected dollar return that an investor can expect to receive and is the main method to compute the present value of an income producing property. Rate of return is the percentage that is earned on the investment. Positive cash flow is when the inflow of cash is greater than the outflow of cash.

Electrical systems are routed through a:

The circuit box (panel) contains circuit breakers, which trip (shuts off the electrical power) when the electrical current increases beyond the capacity of the circuit. A Stringer is the structural member in a stairway that supports the treads and risers. The soffit is part of the structure on the underside of the roof overhang and is one of the three parts of the eaves. A muntin is a bar or rigid supporting strip between adjacent panes of glass.

Which of the following is true about the common areas of a condominium?

The common areas of a condominium are collectively owned by the unit owners. Cooperative shareholders own shares in a cooperative corporation, which is a different form of ownership than a condominium.

Herbie has not paid his property taxes in years. The city has began to take steps towards selling Herbie's home in a tax sale. The name of the process in which a Texas homeowner can prevent the sale is:

The equitable right of redemption refers to the process in which a Texas homeowner can prevent a tax sale. Herbie will have to pay all delinquent taxes and fees to exercise his right of redemption and keep the property. The statutory right of redemption refers to the right of redemption period following the tax sale for a homestead or mineral interest, which is done by paying all taxes, fees and other charges. The deadline to redeem non-homestead real estate is 180 days following the recording of the deed. Homesteads have a two year deadline.

What is the name of the clause in a mortgage that permits a borrower to surrender their property without any further liability?

The exculpatory clause in a mortgage permits a borrower to surrender their property without any further liability. The lender cannot take any further action. That is called a non-recourse loan. Most loans are recourse loans and permit the lender to recover against the borrower's personal assets.

The formula to determine net taxable income of a real estate investment is:

The formula to determine net taxable income of a real estate investment is net operating income minus interest minus depreciation. If the net operating income is $100,000 and the depreciation amount is $33,000, then the net taxable income of a the investment is $67,000.

How many members does the governor of Texas appoint to the Texas Real Estate Commission?

The governor of Texas appoints nine members to the Texas Real Estate Commission with the advice and consent of the senate. Six have to be licensed real estate brokers and three have to be members of the general public. The Commissioners serve six year staggered terms.

The clause in a deed that shows the seller's intent to transfer the real estate is the:

The granting clause is the clause with the names and addresses of the grantor and grantee that contains the words of conveyance and intent to transfer the real estate. The habendum clause is the clause in a deed that defines the type of interest and rights received by the grantee or lessee and states to have and to hold. A grantee is the person receiving title to the real property. Consideration is something of value (e.g., money) exchanged for the property.

The clause in a deed that states to have and to hold is called:

The habendum clause is the clause in a deed that states to have and to hold and defines the type of interest and rights being provided to the grantee or lessee. A grantee is the person receiving title to the real property. The granting clause is the clause with the names and addresses of the grantor and grantee that contains the words of conveyance.

The law of supply and demand refers to what economic principle?

The law of supply and demand refers to the economic principle of scarcity, which is a short supply or shortage of something, such as real estate. When something becomes more scarce, the price usually rises.

Which is not part of the TREC file that is opened when a complaint is received against a licensee concerning unethical conduct?

The licensee's misconduct history is not part of the TREC file that is opened when a complaint is received against a licensee concerning unethical conduct. The parties' names, nature of the complaint, results of the investigation and disposition information are all included in the file.

The main reason for the creation of a historic preservation board is to:

The main reason for the creation of a historic preservation board is to protect historically important buildings in a community.

The money lent to a borrower is called the:

The money lent to a borrower is called the principal. Interest is a percentage paid on the principal as a cost of borrowing the money. PMI is private mortgage insurance, which is required for conventional loans when there is a high loan-to-value ratio.

A loan that is a lien against real property is a:

The mortgage is the document representing the loan, which forms a lien against the property. The promissory note contains the borrower's promise to repay the debt and the manner and frequency of payment (e.g., monthly via check). The note also contains the principal balance owned and the interest rate. The borrower, who consents to the mortgage lien, is the mortgagor, while the lender obtaining the mortgage lien is the mortgagee.

The value of a property that a lender believes a property is worth is called:

The mortgage value is the amount that that lender believes that a property is worth. A CMA (comparative market analysis) is a method to derive the market value range of a property offered for sale. A CMA considers properties on the market and those that have recently sold, along with withdrawn or expired listing. An appraisal is an objective estimate of the value of a property on a certain date based upon factual information.

Capital B Bank wants to foreclose on Mr. Sue's commercial farm, since he has not made any mortgage payments in a year. It checks on the mortgage value of the property. What does the mortgage value represent?

The mortgage value represents the amount that could be obtained from a foreclosure sale. Assessed value is used to compute property taxes and is typically a percentage of the market value.

In a mortgage, the mortgagor is which party?

The mortgagor is the borrower who obtains the loan. The mortgagee lends the money, receives payments on the note and holds the mortgage.

What is the most common form of commission?

The most common form of real estate commission is a percentage of the final sales price.

What is the most important factor to consider in determining whether an agent is an independent contractor of a principal as opposed to an employee?

The most important factor to consider in determining whether an agent is an independent contractor of a principal is to examine the principal's ability to control the agent's performance of the work. Payment of work expenses and setting the required work hours are other elements, but not as important. The manner of payment is determined based on whether the person is an independent contractor or an employee. Certain taxes must be withheld if the person is an employee.

The most important part of the transfer of the deed is:

The most important part of the transfer of the deed is the delivery of the deed by the grantor and the acceptance of it by the grantee. Without delivery and acceptance, the transfer of the deed is not effectuated. Acknowledging the deed via an oath of a subscribing witness permits it to be recorded. Metes and bounds (distances and directions) and lot and block (numbering system assigned to parcels) are types of legal descriptions of real property.

The most important purpose of a title search is to:

The most important purpose of a title search is to ensure that a property has a marketable (transferrable) title. An insurable title is one that a title company will insure. Title insurance protects against a defect in title existing at time of closing only and not to any defects that may arise in the future. It does not protect against property damage or liability. Abstract of title is a concise history of the chain title or a constructive title.

Which is the most widely used insulation material?

The most widely used insulation material is fiberglass.

Which of the following is not considered to determine if a person is an independent contractor?

The number of hours worked is not a consideration to determine if a person is an independent contractor. The worker's choice of hours worked, whether the worker may have outside employment, and if either party is permitted to end the relationship at any time are factors to consider when analyzing whether a person is an independent contractor or an employee. The most important factor to consider in determining whether agent is an independent contractor of a principal is to examine the principal's ability to control the agent's performance of the work. Payment of work expenses and setting the required work hours are other elements, but not as important. The manner of payment is determined based on whether the person is an independent contractor or an employee. Certain taxes must be withheld if the person is an employee.

What document related to real estate investing contains income, vacancy rates and management and maintenance expenses?

The operating statement contains income, vacancy rates and expenses, such as management, maintenance and legal expenses. A pro forma statement is drafted to reflect potential changes in income and expenses to analyze the true potential of an investment property, such as when the purchaser possesses specialized knowledge of a property's potential. Before tax cash flow (BTCF) is computed by subtracting expenses and debt payments from the annual income. Taxes are not deducted, since it is a before tax computation. A balance sheet is a statement of the assets, liabilities, and capital of a business at a specific point in time that covers the preceding period.

Which of the following represents the order of a real estate transaction?

The order is: 1) listing (marketing the property on a listing service), 2) contract of sale (the agreement between the seller and purchaser relative to the transaction), 3) financing (buyer obtaining a mortgage), and 4) closing (finalizing the sale).

Ursula Vanderkamp gave Bay Way Realty an exclusive agency listing on her property. If she sells the property herself without Bay Way's participation, what will she owe Bay Way?

The owner owes no commission when there is an exclusive agency and the listing agency does not sell the property.

Which general government function helps provide for the health and safety of residents?

The police power of a government allows it to provide for the welfare, health and safety of residents. A C.O. (certificate of occupancy) is issued by a Building Department once a building is completed and inspected. A restrictive covenant is a deed restriction or condition (e.g., prohibits an activity on the land). Eminent domain is the government power that can be used to obtain private land for public use.

Gurley enters into a contract to purchase a multifamily apartment building. He requires a large mortgage and finds a lender willing to finance the purchase. At closing, the loan documents are presented. Which document contains the borrower's promise to repay the debt and the manner and frequency of payment?

The promissory note contains the borrowers promise to repay the debt and the manner and frequency of payment (e.g., monthly via check). The note also contains the principal balance owned and the interest rate. An alienation clause (a/k/a due on sale clause) requires the seller to pay off the mortgage balance upon sale of the property. The mortgage is the document representing the loan, which forms a lien against the property. Defeasance clause is the provision in the mortgage that affords the borrower the right to remove the mortgage lien by paying the loan balance in full.

Juerez sells his house to Balboni and are scheduled for closing on September 1st. Juerez paid yearly property taxes in April that cover the entire year from January through December. At the closing, Balboni will reimburse Juerez for which?

The property taxes were paid by Juerez in advance, so Balboni will reimburse Juerez from September 1st through the end of the year.

Elliot and Dale come to an agreement for the sale of Elliot's mansion. Which party should sign the contract first?

The purchaser typically signs first, so the seller can ensure that the purchaser is serious about buying and can provide a down payment, which is usually sent to the seller or an escrow agent with the partially signed contract. There is no law requiring one party to sign first.

Which of the following does not need to be disclosed to a buyer?

The quality of schools in the area does not need to be disclosed. It is up to the buyer to investigate.

A buyer should not tell the highest possible price that they are willing to pay to a(n):

The seller's agent, because seller's agent is a fiduciary of and must tell the seller. Principal broker is a vague term, so it is not the best answer.

The entity or person who develops a condominium building is called the?

The sponsor is the entity or person that develops a condominium building. The sponsor is required to appoint the initial board of directors, which will limit sponsor control of the building, and appointing the managing agent. The managing agent is the person who sells or leases out the units on behalf of the sponsor or owner.

What is the name of the law that requires contracts involving the transfer/sale or creation of real property to be in writing in order to be enforceable?

The statute of frauds is a Texas state law requiring contracts involving the transfer/sale or creation of real property to be in writing in order to be enforceable. The statute of limitations is the deadline by which legal or other actions must be started. It is measured from the date of the incident. A binder is a written agreement for the sale of a property that contains the basic terms of the transaction and is not as detailed as the contract of sale. A deed is a written instrument that transfers title to real property. It is executed by the seller and delivered to the buyer.

What is the strategy used to purchase real estate with a loan when the purchaser does not have sufficient funds available to make the purchase?

The strategy is called using leverage, which involves the use of other people's money (OPM). Leverage provides a purchaser with increased buying power, and permits the buyer to purchase a property even though sufficient capital is not available. While mortgaging a property is an example of a way in which to use leverage, it is not the name of the financial strategy. Return on equity is the amount of net income returned as a percentage of shareholders equity. Debt to equity ratio is the percentage of the capital invested in a property.

At what point is a structural inspection supposed to be performed on a home?

The structural inspection should be performed prior to signing the contract, in order to ascertain if there are any material defects before moving ahead, especially since most contracts have an "as is" provision. An alternative is to sign the contract, but place a structural contingency clause in the contract that would enable the buyer to cancel the deal if material structural defects are found.

Pete owns a home in a subdivision that prohibits the storage of boats on a person's property. Pete buys a boat and stores it on his driveway. His neighbor Virginia is aware of the boat, but waits 10 years before bringing a lawsuit seeking to enjoin Pete from storing the boat on his property. What defense is available to Pete?

The subdivision has a deed restriction that prohibits the storage of boats, which is an enforceable restrictive covenant. A restrictive covenant is a deed restriction or condition (e.g., prohibits an activity on the land). However, Pete can use the doctrine of laches as a defense, and argue that Virginia was not diligent in or she unreasonably delayed seeking enforcement of her right. Laches is based upon the legal concept that a property owner can lose certain rights if he does not take protective action for them. The statute of frauds is a state law requiring contracts involving the transfer/sale or creation of real property to be in writing in order to be enforceable. A deed is a written instrument that transfers title to real property.

The document that is a sketch of the property showing its measurements and borders is the:

The survey is a sketch showing the measurements and borders of a property. It would show any encroachments onto neighboring properties. A surveyor performs a survey. A title insurance policy insures the property owner against bad title or title issues and is issued once any title issues are cleared or sufficiently addressed by the closing date. A deed is a written instrument (of conveyance) that transfers title to real property. It is executed by the seller and delivered to the buyer.

Kara is responsible for estimating property values in order to determine the specific tax levy of the Town. Kara is a:

The tax assessor is responsible for estimating property values in order to determine the specific tax levy. A building department issues building permits, inspects properties for compliance with building regulations and issues certificates of occupancy. A receiver of taxes receives the taxes for the Town. The zoning board of appeals enforces zoning regulations and provides permission and exemptions for certain projects. It often seeks to maintain the character of a neighborhood and can place restrictions or impose reasonable conditions on use of land.

One of the primary roles of a tax assessor is to?

The tax assessor primarily maintains the tax maps and property tax records, estimates values in order to determine the specific tax levy and manages any available tax exemption programs. The tax assessor does not collect sales tax from businesses, ensure capital gains taxes are paid upon the sale or transfer of real estate or file tax claims against the public.

The title of a person who is appointed as a legal representative for a debtor estate in a bankruptcy proceeding and may be exempt from licensing requirements is a(n):

The trustee is the person who is appointed as a legal representative for a debtor estate in a bankruptcy proceeding and they may be exempt from licensing requirements. An administrator is appointed to oversee the estate of a person who dies without a will. Property taxes are assessed on an ad valorem basis, which is the value of the property. An equalization program is used by a municipality to assess property values in two separate towns that use different valuation percentages in order to ensure both towns are taxed fairly. One town may assess property at a lower percentage of value than the other, so to ensure that the municipality acts equitably, it equalizes the varying rates.

What are the two classes of agents?

The two classes of agents are general and special. A general agent has authority to handle the affairs of a principal in connection with a particular matter and is provided with limited power to perform one or more acts (e.g., agree to accept the highest offer on a property and sign a contract). A special agent is a licensee, such as a listing agent, who has limited authorization to act on the principal's behalf and does not have the authority to bind the principal.

What type of contract is a typical listing agreement between a seller and a licensee?

The typical listing agreement between a seller and a licensee is an express contract. In an express contract the parties therein have agreed to the definitive terms contained in the contract.

The value of an asset based on its past, current or future value is called:

The value of an asset based on its past, current or future value is called the time value of money. The theory behind the time value of money is that money presently available is worth more than the same amount in the future due to the potential earning capacity of the currently possessed money. Assuming that money will earn interest, any amount of money is worth more as soon as it is received. Capital gains are the amount profits earned on a short or long term investment. Rate of return is the percentage that is earned on the investment.

Haney owns a piece of property that is zoned for residential use. He wants to add a 12 foot fence, but needs permission of the zoning board. His neighbor was recently given permission and states as much to the zoning board during his hearing. Does the zoning board have to consider the finding in favor of the neighbor in making the zoning determination?

The zoning board must consider the prior finding and treat Haney fairly by using the same criteria that it used in granting a variance to the neighbor. Moreover, the US Constitution requires that Haney receive due process if he is being deprived of a property right.

Trescott owns a piece of property that is zoned for residential use. He wants to add a 12 foot fence, but needs permission of the zoning board. His neighbor was recently given permission and states as much to the zoning board during his hearing. Does the zoning board have to consider the finding in favor of the neighbor in making the zoning determination?

The zoning board must consider the prior finding and treat Trescott fairly by using the same criteria that it used in granting a variance to the neighbor. Moreover, the US Constitution requires that Trescott receive due process if he is being deprived of a property right.

Which department issues variances and special use permits?

The zoning board of appeals issues variances and they also interpret zoning regulations. An architectural review board protects a neighborhood's historic building designs. The board typically seeks to maintain an area's beauty and unique characteristics. The review board is comprised of people possessing significant experience in architecture or art. Planning Commission is a recognized agency that hears zoning appeals related to challenging a denial of a requested exception to a zoning law. A building department issues building permits, inspects properties for compliance with building regulations and issues a certificate of occupancy once the inspector confirms that the building was completed in compliance with the building code.

John Poe, an attorney, represents a seller in a real estate transaction. John has to draft a deed in order to complete the transaction. Which is not required for a deed of conveyance?

There is no photo requirement for a deed to be valid. A deed needs to be in writing and it requires consideration, a legal description, a habendum clause, a grantor and grantee with their addresses and words of conveyance (granting clause). Consideration is something of value (e.g., money) exchanged for the property.

Which is false about MLS?

There is no requirement that licensees be members of MLS (multiple listing service). MLS can publish expired, sold, withdrawn and pending listing information. The MLS can only charge fees in a total amount to cover its costs.

Harry and Sally have been married for 45 years and purchased their home for $50,000 30 years ago and used it as their primary residence. It is now worth $700,000. They decide to move to a state with a warmer climate and the house is listed with a sales agent, who closes the sale of the home. Harry and Sally ask the agent if they will be required to pay taxes on all of their profit. Will there be a taxable event upon the sale?

They owe long terms capital gains taxes on $150,000 of the profit. The remaining $500,000 in profit is subject to an IRS exclusion that allows single persons to exclude up to $250,000 in capital gains (profit) and married couples to exclude up to $500,000 in capital gains. Real estate used as a principal residence is not generally tax exempt. To qualify for the tax exclusion, the seller(s) must have owned and lived in the home for at least 2 of the 5 years prior to the sale. Long term capital gains are profits on assets owned for more than 12 months. Short term capital gains are profits on assets held 12 months or less.

Kern is a broker who lists Senrad's home for sale. Murkel calls up Kern and asks to see Senrad's home. Kern shows Murkel Senrad's home with Senrad's full consent. What type of relationship was created?

This is an example of a dual agency. A dual agency occurs when one sales agent or broker represents the buyer and seller in the same transaction. In situations where a dual agency to be allowed, all parties must consent and be told that the undivided loyalty fiduciary duty will be lost. The consent creates an intended dual agency. However, in Texas, if the broker chooses to represent both sides of the transaction, which is a dual agency, the broker must act as an intermediary. A Texas intermediary broker does not represent either party. An intermediary is a neutral party who assists both parties to complete the transaction. They cannot provide representation to both the buyer and seller in the same transaction, or to a buyer or a seller only, since an intermediary must be impartial (unbiased) and treat each party fairly and honestly. Thus, they cannot disclose one party's confidential information to the other party. Written consent from both parties is required to form an intermediary relationship, which can be accomplished with a provision in the listing agreement that states the duties of the agent. Any intermediary agreement or provision must specify how the agent will be compensated and by whom and the intermediaries duties.

Angie is purchasing a home in the country. She has never purchased a home before and is told that she needs a title insurance policy. Which is true about title insurance?

Title insurance protects against a defect in title existing at time of closing only and not to any defects that may arise in the future. It does not protect against property damage or liability. The title insurance company also typically prepares title abstracts for buyers.

Which of the following is not a requirement to form a valid real estate sales contract?

To be valid, a real estate sales contract must be in writing, but it does not need to be signed by all parties at the same time. A valid contact must be based upon a meeting of the minds (mutual agreement), it must contain consideration and the subject matter of the contact must be legal. Additionally, the parties must possess the mental capacity to contract.

What is the minimum age to get a real estate broker's license in Texas?

To become a licensed real estate salesperson or broker in Texas, the applicant must be at least 18 years of age.

Frenchie's mountain cottage gets sold for $175,000. Brad the broker received $10,000. What rate of commission did this broker charge:

To compute the commission rate, commission is divided by sale price. $10,000 / $175,000 = 5.7% (rounded).

Hozier owns a stationery store that is worth $350,000. His mortgage is $50,000 and he owes $125,000 to his creditors. What is Hozier's store's debt to equity ratio?

To compute the debt to equity ratio, divide the total debt by the asset value. Here the total debt is $50,000 (mortgage) + $125,000 (owed to creditors) = $175,000 (total debt). $175,000 / $350,000 = 50%

Lulu owns a home in the mountains. If the home's appraised market value is $540,000 and the loan balance is $135,000, what is the loan to value ratio?

To compute the loan to value ratio, which is the ratio of the loan balance to the property value, you divide the loan balance by the market value. $135,000 / $540,000 = .25, so the loan to value ratio is 25%.

Polly is looking at investment properties to generate rental income. She seeks a 20% rate of return. Polly finds a multifamily home that she is interested in. The home can generate $20,000 per year. How much would she need to pay for the property to meet her goal of a 20% rate of return?

To find the amount required to be paid to obtain a desired rate of return, divide the annual income generated by the percentage of return desired. $20,000 / 20% = $100,000 [20% in the form of a whole number is .2].

Grecioso has a listing for Frieda's contemporary colonial. A buyer is very interested, but wants Frieda to expand the kitchen. What does Frieda have to obtain, and from where, to get the expansion started?

To get the work started, Frieda will have to go to the Building Department to first get permits for the work. Once the work is completed and inspected, a certificate of occupancy may be issued. A building department issues building permits, inspects properties for compliance with building regulations and issues certificates of occupancy. The tax assessor is responsible for estimating property values in order to determine the specific tax levy. The zoning board of appeals enforces zoning regulations and provides permission and exemptions for certain projects. It often seeks to maintain the character of a neighborhood and can place restrictions or impose reasonable conditions on use of land.

Which of the following does not need to be disclosed to a borrower purchasing a home, according to the truth in lending act?

Truth in lending act does not require that the cost of property taxes be disclosed. The four primary items requiring disclosure are amount financed, finance charge, annual percentage rate and total to be paid in principal and interest.

Sheena purchases a home with an FHA mortgage. What is the name of the one-time fee that she paid at closing?

UFMIP (up-front mortgage insurance premium) is the one-time fee that she paid at closing. MIP (mortgage insurance premium) is paid as an annual charge that is divided into monthly payments, in addition to UFMIP. FHA (Federal Housing Administration) and VA (Veterans Administration) loans are types of loans where the mortgage lender is insured against default by the federal government. VA loans are available to military veterans. FHA and VA loans offer low down payment options (VA loans also offer a no down payment option).

Which is not true about a flat fee listing arrangement?

Under a flat fee listing agreement, the broker can typically advertise the property, but does not show the property or negotiate the sale. The fee is usually paid upfront and is not conditioned upon a sale.

In a dual agency, what duty do the represented parties give up?

Undivided loyalty is given up by the parties in a dual agency, which is the same loss as when the broker acts as an intermediary. In Texas, if the broker chooses to represent both sides of the transaction, which is a dual agency, the broker must act as an intermediary. A Texas intermediary broker does not represent either party. An intermediary is a neutral party who assists both parties to complete the transaction. They cannot provide representation to both the buyer and seller in the same transaction, or to a buyer or a seller only, since an intermediary must be impartial (unbiased) and treat each party fairly and honestly. Thus, they cannot disclose one party's confidential information to the other party. Written consent from both parties is required to form an intermediary relationship, which can be accomplished with a provision in the listing agreement that states the duties of the agent. Any intermediary agreement or provision must specify how the agent will be compensated and by whom and the intermediaries duties.

Which is true about unimproved real property?

Unimproved (undeveloped) real property is a riskier investment than developed land, since the owner may need to hold it for a long period in order for the value to increase. It cannot be depreciated for tax purposes and it is more difficult to get financing for than an improved property, since there is more risk. No structures are on an unimproved property.

Frieda is close to leasing a storefront in a shopping center to open a dog grooming business. She receives the proposed lease. What is the space that she will actually occupy called?

Usable square footage represents the actual space that a tenant occupies, though leases are not generally based upon the actual usable square footage. Leases are typically valued based on rentable square footage, which could contain space that the tenant cannot use. Common area square footage refers to the size of shared areas of a property.

What is the term that refers to charging interest beyond what is legally permitted?

Usury laws prohibit charging interest beyond a maximum rate. Underwriting is the process during which a borrower's financial data is reviewed to determine if the borrower is qualified to be approved for the loan. A balloon mortgage requires installment payments and then one large payment at the end of the mortgage term.

Latimer loans money to home buyers. He finds an unsuspecting home buyer and charges the buyer an amount above the legal interest rate. What is Redd guilty of?

Usury laws provide the maximum allowable interest rate. Charging more than the legal rate results in usury.

Which is an example of a variable expense?

Utilities are a variable expense. A variable expense is an unpredictable expense that is usually based upon the property's own requirements. A roof replacement, replacing the brick façade of a building and renovating the building lobby are examples of capital expenses, which are the costs associated with maintaining the property, and are usually costs to maintain it over the long term.

Which of the following category is least likely to provide someone with a property tax exemption?

Veterans, senior citizens and disability are all typical classifications of people providing a property tax exemption. There is usually no married person's exemption in connection with real estate property taxes.

What is the legal principle that describes a broker's responsibility for the acts of an agent?

Vicarious liability is the legal principle with regard to a broker's responsibility for the acts of an agent. A sponsoring broker is vicariously liable for their salesperson's actions when the broker has actual knowledge of the agent's violation or the broker keeps the benefits from the transaction after learning about the wrongful act.

What is another name for swamps, marshes and bogs?

Wetlands are protected areas that include swamps, marshes, wet meadows and bogs. They may serve as protection for storm and flood water and help control erosion and pollution. They also serve as sanctuaries for wildlife and the natural landscape.

When an internediary relationship is agreed to, how many different transactions does it pertain to?

When a client provides advanced informed consent of an intermediary relationship, the consent pertains to one transaction only. In Texas, if the broker chooses to represent both sides of the transaction, which is a dual agency, the broker must act as an intermediary, so a Texas intermediary broker does not represent either party. An intermediary is a neutral party who assists both parties to complete the transaction. They cannot provide representation to both the buyer and seller in the same transaction, or to a buyer or a seller only, since an intermediary must be impartial (unbiased) and treat each party fairly and honestly. Thus, they cannot disclose one party's confidential information to the other party. Written consent from both parties is required to form an intermediary relationship, which can be accomplished with a provision in the listing agreement that states the duties of the agent. Any intermediary agreement or provision must specify how the agent will be compensated and by whom and the intermediaries duties.

Which of the following constitutes informed consent related to a dual agency?

When a dual agency is used, all parties must be told about the implications, such as a loss of the undivided loyalty aspect of the fiduciary duty, since the agent cannot favor one party over the other party. Telling the principal that the property has been listed for sale is not informed consent. Consenting to the acceptance of a listing contract has nothing to do with informed consent. In addition, there is no increased fiduciary duty. The duty is actually lessened, as discussed above. A dual agency is created when an agent acts as a buyer's agent and a seller's agent, or a tenant's agent and a landlord's agent, within the same transaction. However, in Texas, if the broker chooses to represent both sides of the transaction, which is a dual agency, the broker must act as an intermediary. A Texas intermediary broker does not represent either party. An intermediary is a neutral party who assists both parties to complete the transaction. They cannot provide representation to both the buyer and seller in the same transaction, or to a buyer or a seller only, since an intermediary must be impartial (unbiased) and treat each party fairly and honestly. Thus, they cannot disclose one party's confidential information to the other party. Written consent from both parties is required to form an intermediary relationship, which can be accomplished with a provision in the listing agreement that states the duties of the agent. Any intermediary agreement or provision must specify how the agent will be compensated and by whom and the intermediaries duties.

When salesperson Hanz Franz left Arnuld Realty and changed offices to work with Maria Realty, his listings:

When a licensee terminates with a broker, the listings remain with the broker and the licensee must turn over all information.

What type of relationship is formed when a licensee works for another party?

When a licensee works for a particular party, it is a fiduciary relationship. A trustee is an individual person or member of a board that possesses control or powers of administration of property in trust with a legal obligation to administer it solely for the purposes specified, such as a bankruptcy trustee.

When an agency relationship is formed, who does the agent owe a fiduciary duty to?

When an agency relationship is formed, the agent owes a fiduciary duty to the client/principal.

Greta is a licensed agent. Trudy contacts her to list Trudy's home for sale. Fritz looks at the home and likes it very much. To get a deal done quickly, Trudy and Fritz ask Greta to negotiate the sale between them. What type of agency would result?

When permitted, a single licensee (consensual) dual agency is created when an agent acts as a buyer's agent and a seller's agent, or a tenant's agent and a landlord's agent, within the same transaction and is allowed if properly disclosed. An implied agency is formed based on the words or actions of the agent and principal that evidences an intent to form the agency. An undisclosed dual agency results when a subagent or seller's agent agrees to act on behalf of the buyer, as opposed to acting in the seller's best interests. Undisclosed dual agencies are a violation of the law and penalties and damages could result. A dual agent is an agent, who acts as a buyer's agent and a seller's agent, or a tenant's agent and a landlord's agent, within the same transaction. By representing both sides, the seller cannot receive the undivided loyalty of the agent, since the interests of a buyer and a seller conflict, as the buyer wants to pay the least possible while the seller wants to obtain the highest possible price. In Texas, if the broker chooses to represent both sides of the transaction, which is a dual agency, the broker must act as an intermediary, so a Texas intermediary broker does not represent either party. An intermediary is a neutral party who assists both parties to complete the transaction. They cannot provide representation to both the buyer and seller in the same transaction, or to a buyer or a seller only, since an intermediary must be impartial (unbiased) and treat each party fairly and honestly. Thus, they cannot disclose one party's confidential information to the other party. Written consent from both parties is required to form an intermediary relationship, which can be accomplished with a provision in the listing agreement that states the duties of the agent. Any intermediary agreement or provision must specify how the agent will be compensated and by whom and the intermediaries duties.

Edna has owned a home in the country for 50 years. In order to pay for improvements, she has mortgaged the property several times. Ever since property values recently dropped unexpectedly, the house is now worth less than the total of the mortgage balances. If Edna wants to sell the home, what mechanism can she use?

When the property is worth less than the total of the amount owed in debt against the property (e.g., a mortgage loan), a short sale could be performed, which involves the lender taking a loss. The bank imposes certain restrictions on the sale (e.g., the seller cannot walk away with any money). A foreclosure is a sale of the property by the mortgage lender, rather than the owner, when the owner falls behind on the mortgage payments. Foreclosure sales are commonly done by auction.

If it is required that a licensee present the disclosure form with a prospective buyer or sellers at the first substantive contact, which of the following is an example of a first substantive contact?

Where a prospective buyer or seller walks into a Texas real estate office to discuss a listing or wants to purchase a property, a disclosure must be made upon the first substantive dialogue.

Kate is a salesperson working under broker Brad. Kate lists Greg's house for sale for $300,000. Kate tells prospective buyer Bonnie that there is no flooding history at the home, even though Greg told her that the basement floods whenever it rains. Brad does not know that Kate made the incorrect statement. The house is worth $50,000 less based on the flooding problem. Bonnie had been looking for a home that has never flooded, so she offers to pay $285,000, which is accepted. At closing, everything goes smoothly, Kate and Brad receive commission checks and Kate tells Brad about her false statement. After moving into the home, a rain storm completely floods the basement. During a legal proceeding it is learned that Kate lied about the flood issue. Who can Bonnie recover damages from?

While Kate is liable for her misrepresentation, the sponsoring broker is also vicariously liable for the salesperson's actions when the broker has actual knowledge of the agent's violation or the broker keeps the benefits from the transaction after learning about the wrongful act, which is the case here. The elements of misrepresentation are: false representation of a material fact by a person who knows or should know that it is false, the statement was made to induce the other party to rely upon it and there is reliance upon the statement and the other party sustains damages as a result of the reliance. Greg (seller) is not liable since he told Kate the truth about the flood and Kate did not have authority to misrepresent the flooding risk.

What type of mortgage allows the mortgagee to demand additional funds without having to undergo a new underwriting process?

With an open-end mortgage, the mortgagor (purchaser/borrower) is entitled to demand additional loan funds without the need to undergo a new underwriting process. A pledged account involves the purchaser placing money in a savings account and using the earned interest to supplement the mortgage payment. A blanket mortgage is a commercial mortgage often used by real estate developers to finance a project. At least two parcels of property are pledged as collateral. The release clause allows the lien to be lifted on particular parcels when a certain amount of the loan balance is paid, such as when a new home is sold and the developer uses the proceeds from the sale to pay off a portion of the blanket mortgage. PMI is private mortgage insurance, which is not a type of mortgage. It is used when the down payment is less than 20% to insure the top portion of the loan in case of default. An insurance premium is typically added to the monthly mortgage payment.

Which of the following is the online resource for Texas real estate professionals?

trec.texas.gov is Texas' online licensing system, which is the site used to apply for a license and maintain a license.