Test 2

What is a TIF district?

Explanation The answer is a tax incremental financing district. TIFs help finance the cost of redeveloping or encouraging infill development in an area of a city or a county that would otherwise not attract sufficient private investment in the reasonably foreseeable future.

What is a loan discount point?

A discount point is an up-front amount paid to the lender that has the effect of lowering a monthly payment.

What should sales agents understand about the resort industry?

he answer is thorough knowledge of time-share sales rules and consumer protection. A license is not necessarily required to sell time-shares, but anyone involved in that business must understand time-share sales, interest transfers, and other issues. An important educational group for resort property is the American Resort Development Association.

A low-income Texas resident who is purchasing his first home and needs down payment and closing cost assistance could apply to which program?

The My First Texas Home Program The My First Texas Home Program channels below-market interest rate mortgage money through participating Texas lending institutions to very-low-income to moderate-income Texas residents who are purchasing their first home or who have not owned a home in the past three years. Loans may be made only on a homebuyer's principal residence. The program also is authorized to offer down payment and closing cost assistance. The Texas Bootstrap Loan Program is a self-help construction program, which requires borrowers to provide at least 65% of the labor that is necessary to construct or rehabilitate the home being purchased.

The annual interest on a $15,000 loan at an interest rate of 8% is

The answer is $1,200. Remember, the formulas for percentage calculations also are used for interest computations on a one-year loan: $15,000 (total) × 0.08 (rate) = $1,200 interest (part). Remember: MULTIPLY when PART is the UNKNOWN.

A room measures 12 feet by 17 feet. At a cost of $55 per square yard, how much would it cost to install wall-to-wall carpeting?

The answer is $1,246. The area of the room (12 feet × 17 feet) is 204 square feet, which is divided by 9 (the number of square feet in a yard), totaling 22.66 square yards. 22.66 square yards times $55 per square yard is $1,246.

What was the price per front foot for a 100-foot-by-125-foot lot that sold for $125,000?

The answer is $1,250. If two dimensions are given for a tract of land, the first dimension is the frontage if they are not labeled. The second dimension is the measurement for the depth of the lot. To find the sales price per front foot, divide the sales price by the front footage: $125,000 ÷ 100' = $1,250.

If a lender agrees to an $80,000 loan at 9% for 15 years with 2 loan discount points, what amount will be charged at closing for the points?

The answer is $1,600. If a lender agrees to an $80,000 loan at 9% for 15 years with 2 loan discount points, the discount points charged at closing will be $80,000 × 0.02 (2 points equal 2%) = $1,600. The actual net loan made will be $78,400. An $80,000 loan amount - $1,600 loan discount points = a $78,400 net loan. Loan discount points increase the lender's yield on a loan without increasing the interest rate.

With an outstanding loan balance of $12,000 at an interest rate of 9% and a monthly payment of $100, the amount of the second payment that goes toward the principal is

The answer is $10.07. For the first payment, annual interest is $12,000 × 0.09 = $1,080. Divide the annual interest by 12 (months) to compute monthly interest: $1,080 ÷ 12 = $90. From the $100 payment, $90 goes toward interest and $10 goes toward the principal. For subsequent payments, previous principal payments are deducted from the starting principal before the next payment is figured: ($12,000 - $10) × 0.09 = $1,079.10. Divide this annual interest by 12 (months) to compute the monthly interest: $1,079.10 ÷ 12 = $89.925 (round up to $89.93). From the second $100 payment, $89.93 goes toward interest and $10.07 goes toward the principal.

Investors can use the first $25,000 of losses from rental property to offset income from any source provided the investor actively participates in the management of the property and has taxable income before the deduction of no more than

The answer is $100,000. The deduction is reduced by $0.50 for every dollar of income over $100,000 and is thus eliminated completely when income reaches $150,000.

The seller and the listing agent agree to put the home on the market for $275,000, and at the same time agree to a 5.25% commission. The buyer and the buyer agent negotiate the home price to $260,000. How much commission is paid?

The answer is $13,650. The commission is paid on the negotiated sales price, not the listing price. 260,000 x 0.0525= 13,650

A home is listed at $525,000 but is only appraised at $490,000. How much are annual property taxes, based on $3.00 per $100 valuation?

The answer is $14,700 (based on the appraised value of the property). Taxes are based on the value placed on the property by an appraiser. Over time, the appraisal may move up or down depending on value.

The comparable house has one bedroom and sold for $150,000. The subject property has two bedrooms. It is estimated that this feature adds $20,000 to the value of the property. What should be done to the sales price of the comparable property?

The answer is $20,000 should be added. Add $20,000 to the sales price of the comparable property, making it $170,000. We add to the sales price because the feature (i.e., second bedroom) is not present in the comparable property.

The seller offers to take back a second mortgage of $25,000 at a simple interest rate of 4.5%. The loan is amortized over 10 years. How much is the buyer paying on the second?

The answer is $217.70 per month. The $25,000 second mortgage is divided into 120 monthly payments spread over a 10-year period ($208.33 per month). A simple interest charge of 4.5% is added to each payment, bringing the total monthly payment to $217.70.

Under the Texas Veterans Home Improvement Loan Program, veterans are permitted to borrow up to what amount for 20 years for an FHA-insured loan?

The answer is $25,000. In addition to loans through the Texas Veteran Land Program and the Texas Veterans Housing Assistance Program, a veteran is permitted to borrow up to $25,000 for 20 years on a home improvement loan. A veteran may participate in all loan programs simultaneously but may have only one loan in each of the three programs at one time.

A house appraised for tax purposes at $125,000 is taxed at an annual rate of $3 per each $100 of appraised value. The yearly tax is

The answer is $3,750. The formula for computing the tax is the basic percentage formula: total (appraised value) × (rate per $100 ÷ $100) = annual tax (part). $125,000 × ($3 ÷ $100) = $3,750.

If a property is worth $320,000 and has loans of $10,000 against it, the owner's equity is

The answer is $310,000. Equity is the property's value minus any debt. ($320,000 value - $10,000 debt = $310,000 equity).

Brad is selling his home to Sally with a closing date of January 30. Brad's taxes for the last year were $3,756.75. How much is Brad's share of the taxes, using a 360-day-year statutory proration?

The answer is $313.06. Using the 360-day year, divide $3,756.75 by 360, then multiply by 30 for $313.0625, rounded up to $313.06.

Brad is selling his home to Sally with a closing date of January 31. Brad's taxes for the last year were $3,756.75. How much is Brad's share of the taxes, using a 365-day-year proration?

The answer is $319.07. Using the 365-day year, divide $3,756.75 by 365, then multiply by 31 for $319.07.

The interest for 4 months on a $12,000 loan at an interest rate of 8% is

The answer is $320. On loans for less than one full year, a monthly interest amount must be determined, then multiplied by the number of months: $12,000 × 0.08 = $960 in interest; $960 ÷ 12 months = $80 per month; $80 × 4 months = $320. Or use the formula principal (total) × rate × time (in months) = interest (part): $12,000 × 0.08 × 4/12 = $320.

If the bank gave John a 90% loan on a house valued at $88,500, how much additional cash must he produce as a down payment if he already paid $4,500 in earnest money?

The answer is $4,350. A 10% down payment would be $8,850 ($88,500 × 0.90). With $4,500 previously paid, the balance due at closing toward the down payment would be $4,350 ($8,850 - $4,500).

If investor A exchanges a building worth $200,000 for investor B's building worth $150,000, a car worth $20,000, and $30,000 in cash, investor A has a taxable boot of

The answer is $50,000. To qualify as a tax-deferred exchange, the properties involved must be of like kind. Any additional capital or personal property included with the transaction to even out the exchange is considered boot, and the party receiving it is taxed at the time of the exchange. In this example, the taxable boot is $50,000 ($20,000 car + $30,000 cash).

Eight years ago the homeowner purchased the property for $500,000. The market in that price range has basically been stagnant since then, and the owner now tells his sales agent (working on a 5.5% commission) he wants to sell the property and at least break even. How much should he list it for?

The answer is $527,500, the original cost plus commission. The seller is assuming a buyer would pay the asking price. A more accurate number would include the original down payment, interest paid on eight years of payments, factoring in the value of any improvements and subtracting the mortgage interest deduction. "Breaking even" may be more difficult than the seller realizes.

Jennifer is an investor who purchased a single-family property for $200,000 for use as a rental property. She is now selling the property for $300,000. Jennifer remodeled the kitchen at a cost of $8,000 and replaced the roof for $10,000 before selling it. The improvements have depreciated by $20,000 while Jennifer owned the property. Jennifer will pay a commission of 7% and closing costs of $500. What is Jennifer's total capital gain?

The answer is $80,500. The total capital gains is the sales price minus selling expenses (net sales price) minus adjusted basis. $300,000 ‒ $21,500 = $278,500. The net sales prices is $278,500. The adjusted basis is equal to the original cost plus improvements minus depreciation. In this case, $200,0000 + $18,000 ‒ $20,000 = $198,000. $278,500 - 198,000 = $80,500.

A house sells for $180,000 and the broker is to receive a 5% commission. The broker's commission is

The answer is $9,000. $180,000 × 0.05 = $9,000 using the formula: total × rate = part (T × % = Pt). Remember: MULTIPLY when PART is the UNKNOWN.

With an outstanding loan balance of $12,000 at an interest rate of 9% and a monthly payment of $100, the amount of the first payment that goes toward interest is

The answer is $90. Annual interest: $12,000 × 0. 09 = $1,080. Divide the annual interest by 12 (months) to compute monthly interest: $1080 ÷ 12 = $90. From the $100 payment, $90 goes toward interest and $10 goes toward the principal. For subsequent payments, previous principal payments are deducted from the starting principal before the next payment is figured: ($12,000 - $10) × 0.09 = $1,079.10. Divide this annual interest by 12 (months) to compute the monthly interest: $1,079.10 ÷ 12 = $89.925 (round up to $89.93). From the second $100 payment, $89.93 goes toward interest and $10.07 goes toward the principal.

The seller owes $2,400 in taxes for the current year. With a May 28 closing date and using a calendar year, the seller will be debited how much? (Assume it is NOT a leap year.)

The answer is $973.10. First, divide $2,400 by 365 to get the daily tax owed ($6.575). Then calculate the time to be debited from the seller (Jan. = 31 + Feb. = 28 + Mar. = 31 + Apr. = 30 + May = 28. Total = 148 days). Multiply the daily rate by the number of days: $6.575 × 148 = $973.10. The seller will be debited (charged) $973.10 and the buyer will be credited $973.10 at closing; that is, the buyer will "get the credit," or receive, the money on the closing statement.

In 2016, taxes on Don Mark's home were paid in full and amounted to $1,468. He sold the home to Chuck Harris and closed the sale on August 29, 2017. What was the prorated tax amount, using a statutory year and prorating through the day of closing?

The answer is $974.40. Step 1: Calculate the charge per day: $1,468 taxes/year ÷ 360 days in a statutory year = $4.077 taxes/day. Step 2: Calculate the period: January + February + March + April + May + June + July = 7 months × 30 days in a statutory month = 210 days + 29 days in August = 239 days in the proration period. Step 3: Multiply the charge per day by the time period: $4.077/day × 239 days = $974.40 tax proration.

A monthly mortgage insurance premium (MIP), with an annual rate of what percentage, is paid on the base loan amount as part of the borrower's monthly payment on a 30-year Federal Housing Administration (FHA) loan?

The answer is 0.85. In addition to paying interest, a borrower is charged a one-time up-front mortgage insurance premium (UFMIP) and a monthly mortgage insurance premium (MIP) for the FHA insurance. The rate for the UFMIP is 1.75% of the loan amount; the MIP rate of 0.85 of the base loan amount is collected on a monthly basis (annual premium divided by 12). Because mortgage insurance rates are subject to change, check for changes online or with a local lender.

If a lot was purchased for $20,000 and sold for $18,000, the percentage of loss is

The answer is 10%.Percentage of profit or loss is calculated by subtracting the previous value from the current value, then dividing the difference (profit or loss) by the previous (old) value: $18,000 - $20,000 = -$2,000 ÷ $20,000 (old value) = -0.10 = -10%.

A warehouse is 80 feet wide and 120 feet long with ceilings 14 feet high. If 1,200 square feet of floor surface has been partitioned off, floor to ceiling, for an office, how many cubic feet of space will be left in the warehouse?

The answer is 117,600. The formula for volume is as follows: length × width × height. First, find the total square footage in the building: 80' × 120' = 9,600 sq. ft. in the building. Then, subtract the square footage in the office: 9,600 sq. ft. - 1,200 sq. ft. = 8,400 sq. ft. left in the warehouse. Then, multiply by the height of the building: 8,400 sq. ft. × 14 ft = 117,600 cu. ft. left in the warehouse.

If a lender makes a loan available to a homebuyer, a prepayment penalty may NOT be charged on any note having an interest rate of what percentage or more?

The answer is 12. Some mortgage notes require the borrower to pay a prepayment penalty, generally only during the first three to five years. A prepayment penalty is prohibited on any loan on residential homestead property if the note has an interest rate of at least 12% or if the loan is federally related, such as a Federal Housing Administration (FHA) or Department of Veterans Affairs (VA) loan. In addition, under the provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, subprime and adjustable-rate loans cannot include prepayment penalties.

Quick percentages: An eighth of something equals

The answer is 12.5%. The whole is 100%. Divide the whole (100) into eighths and you have eight sets of 12½ - or 12.5%. Two-eighths equals 25%, three-eighths equals 37.5%.

How many square feet are in a right triangle property that is 600 feet at the base and 400 feet on the right side?

The answer is 120,000 square feet. If the property was a rectangle (600 × 400), it would be 240,000 square feet. Since this right triangle is half of that (240,000 divided by 2) the total area is 120,000 square feet.

Clarice purchased raw land for $1,000 per acre. She pays $80 per acre for annual real estate taxes and has various expenses of about 8% per year. By how much per year must the land appreciate in order for Clarice to break even?

The answer is 16%. 8% × 1,000 = $80 + $80 = $160 divided by $1,000 = 16%.

How much experience is required to become a state-licensed real estate appraiser?

The answer is 2,000 hours of experience spread over 12 months. For a certified appraiser, the requirement goes to 2,500 hours, and for a certified general appraiser, the experience prerequisite is 3,000 hours.

If a foreclosure is against a debtor's residence, by state law, the debtor must be given at LEAST how many days to cure the default before notice of sale is given?

The answer is 20. If the default has not been cured within the 20-day period, the trustee gives written notice of the proposed sale 21 days in advance of the sale by (1) filing it in the office of the county clerk, (2) sending it by certified mail to each debtor obligated to pay the debt, and (3) posting it at the door of the courthouse in the county in which the property is located and the sale is to be conducted or posting it on an electronic display or the county's internet site. Some deed of trust forms require a 30-day period for the debtor to cure the default before notice of sale is given. Foreclosure sales occur on the first Tuesday of each month between the hours of 10 a.m. and 4 p.m. at a designated door at the county courthouse or at another area within reasonable proximity that has been designated by the county commissioners.

Under the TREC-promulgated residential contract, the seller has how many days from the date the title company receives the contract to deliver a "commitment for title insurance" to the buyer?

The answer is 20. If the commitment is not delivered within 20 days, the time for delivery is automatically extended up to 15 days or 3 days before closing, whichever is earlier.

Written notice of a proposed foreclosure sale must be given at LEAST how many days before the date of the sale?

The answer is 21. Upon notification from the lender (the beneficiary) that the mortgagor (the borrower) has defaulted, the trustee gives written notice of the proposed sale 21 days in advance of the sale by (1) posting it at the door of the courthouse in the county in which the property is located and the sale is to be conducted, (2) filing it in the office of the county clerk, and (3) sending it by certified mail to each debtor obligated to pay the debt. If the real property is the debtor's residence, both the Fannie Mae/Freddie Mac note and deed of trust allow the defaulting property owner 30 days to cure the default before notice of sale is given; state law requires at least 20 days to cure the default in all other cases. Foreclosure sales occur on the first Tuesday of each month between the hours of 10 a.m. and 4 p.m. at a designated door at the county courthouse or at another area within reasonable proximity that has been designated by the county commissioners.

In 2016, taxes on Don Mark's home were paid in full and amounted to $1,468. He sold the home to Chuck Harris and closed the sale on August 29, 2017. What was the period for which the proration was calculated, using a statutory year and prorating through the day of closing?

The answer is 239 days. The seller owes the buyer for taxes from January 1 through August 29. Using a statutory year, each month has 30 days plus the actual number of days used in the month of closing: January + February + March + April + May + June + July = 7 months × 30 days = 210 days + 29 days in August = 239 days in the proration period.

Quick percentages: A "fourth" or a "quarter" of something equals

The answer is 25%. The whole is 100%. Divide the whole (100) into fourths and you have four sets of 25 each - or 25%. Two quarters is 50%, three quarters is 75%.

Private mortgage insurance (PMI) on a conventional loan usually insures the top what percentage of the loan?

The answer is 25-30. Private mortgage insurance insures the lender against borrower default and limits the lender's exposure to only 70-75% of the loan amount. The PMI may be paid in cash at closing or added to the note. Because only the top portion of the loan is covered, once the loan-to-value ratio reaches 77-78% of the original property value, the lender must terminate the coverage.

A title insurance search to discover claims for adverse possession would go back how many years?

The answer is 25. A search for title insurance purposes may be traced backward just to the ownership interest that could document a claim through the 25-year period.

The decimal 0.25 = what percentage?

The answer is 25. To convert a decimal to a percentage, move the decimal point two places to the right and add the percent sign. Or, multiply the number by 100, because percent means "per hundred." 1.25 = 125%; .125 = 12.5%.

A 100-acre farm is divided into lots for homes. The streets require one-eighth of the whole farm. If there are 140 lots, how many square feet are in each lot?

The answer is 27,225. First, calculate the part that is reserved for streets: ? = 0.125 for streets; 100 acres × 0.125 = 12.5 acres for streets. Then, determine the number of acres for lots: 100 total acres minus 12.5 acres for streets equals 87.5 acres for lots. The square footage of the acreage available for lots would be as follows: 87.5 acres for lots × 43,560 sq. ft. in an acre = 3,811,500 sq. ft. With 140 lots, the square feet per lot would be as follows: 3,811,500 sq. ft. ÷ 140 lots = 27,225 sq. ft. per lot.

How much continuing education is required for appraisers?

The answer is 28 classroom hours, including 7 hours of the USPAP update course. The CE training is for all appraisal levels.

Using the calendar-year method for calculating a closing-cost proration, February would have how many days if the year is not a leap year?

The answer is 28. Using the calendar-year method of proration, the prorated time period is calculated using the actual number of months or days in the period. COMMON YEAR= 28 CALENDAR HAS 365 DAYS LEAP YEAR= 29 CALENDAR HAS 366 DAYS Feb 29th is Leap Day

Closing costs on equity loans may NOT exceed

The answer is 3%. Some of the key features of Texas equity loans include: a maximum 80% loan-to-value ratio, less any existing liens on the subject property; a requirement for judicial foreclosure; closing costs not exceeding 3%; no loan acceleration because of a decrease in market value; a maximum of one equity loan at a time and only one equity loan in a given year; no negative amortization; a 12-day waiting period after application; and a three-day right of rescission.

If a borrower is in default, either for failure to make payments or even failure to remove debris from a property, how long does Fannie Mae give him to cure the default and maintain ownership?

The answer is 30 days. Fannie Mae‒backed mortgages give the borrower 30 days to come back into compliance with terms of the note. The most typical reason for a loan going into default is nonpayment.

What is a typical amount a borrower may pay under a mortgage modification?

The answer is 31% of gross monthly income. The lender will examine a borrower's new income level and attempt to work out a modification that will keep the borrower from defaulting.

The statutory year has how many days for the purpose of calculating prorated expenses?

The answer is 360 days in a year and 30 days in a month. Prorations may be based on a statutory year (360 days in a year and 30 days in a month) or a calendar year (365 days in a year and actual days in each month), depending on local custom and government regulations. Most tax and interest prorations in Texas are based on the calendar year.

How far out will many lenders extend loan payments in order to help borrowers avoid foreclosure?

The answer is 40 years. The 100-year loan is not currently available in the United States, but other countries sometimes do dramatically extend loan terms.

Using the total-debt ratio, the PITI (principal, interest, taxes, and insurance) + the MIP (mortgage insurance premium) + recurring expenses (installment accounts of 10 or more months remaining, all revolving accounts, and child support payments) usually may NOT exceed what percentage of monthly gross income on an FHA loan?

The answer is 43. The total-debt ratio is one of the qualifying ratios set by HUD for FHA loans. In the other qualifying ratio set by HUD, the housing-expense ratio, the PITI (principal, interest, taxes, and insurance) + the MIP (mortgage insurance premium) + homeowners association dues and assessments (if any) cannot exceed 31% of monthly effective gross income.

What is the area of a triangle that is 24 feet by 36 feet?

The answer is 432 square feet. The formula for the area of a triangle is ½ (base × height): ½ (24' × 36') = 864 ÷ 2 = 432 sq. ft.

According to the National Association of REALTORS®, what percentage of real estate agents specialized in property management in 2016?

The answer is 6%. Most real estate agents engage in real estate sales. In 2016, 66% of Texas real estate agents engaged in residential sales.

All security devices operated by a key, card, or combination must be rekeyed by the landlord at the landlord's expense not later than how many days after a new tenant moves in?

The answer is 7. Residential dwellings must be equipped with specified security devices at the expense of the landlord. Security devices include window latches, doorknob locks, sliding door handle latches, sliding door pinlocks, keyless deadbolts, and door viewers on each exterior door. The specific devices required on a particular property are based on the year the property was built.

5% of 1,500 =

The answer is 75. To determine a part of a whole, multiply the rate by the total. For example, 5% of 1,500 = 75 (0.05 × 1,500 = 75). This formula is used in calculating mortgage loan interest, brokers' commissions, loan origination fees, discount points, and income on investment property. Remember: MULTIPLY when PART is the UNKNOWN.

What is the minimum amount of course work needed to become an appraiser trainee?

The answer is 79 hours of qualifying education. Upon completion of the hours, the trainee may work under the supervision of licensed appraiser.

The loan-to-value ratio on a home with a sales price of $100,000 and a conventional loan of $90,000 is

The answer is 90%. The loan-to-value ratio is calculated as follows: loan ÷ value = LTV; $90,000 ÷ $100,000 = 90%. Private mortgage insurance would be required because the LTV is above 80%.

A fence is being built to enclose a lot 125 feet by 350 feet. How many running feet of fence will it take to enclose the lot?

The answer is 950. If two dimensions are given for a tract of land, the first dimension is the frontage if they are not labeled. The second dimension is the measurement for the depth of the lot. To calculate the number of running feet, add all sides of the lot: 125 ft (front) + 350 ft (side 1) + 125 ft (back) + 350 ft (side 2) = 950 running/linear ft.

Which of the following designations is NOT relevant to property management?

The answer is ABR. The Institute of Real Estate Management awards designations of Certified Property Manager (CPM) and Accredited Residential Manager (ARM). The Building Owners and Managers Association International, a federation of local associations of owners and managers, offers training courses leading to a Real Property Administrator (RPA) designation. ABR is the designation of Accredited Buyers Representative.

The true yearly rate of interest describes

The answer is APR. The Truth in Lending Act, Regulation Z, states that the true rate of interest, adjusting the nominal rate by adding the loan costs, is the APR. The APR must include the costs that are incurred in a transaction solely because there is a loan involved, such as the nominal interest rate, loan origination fees, finders' fees, service charges, loan insurance or guaranty fees, and points. In the case of a mortgage loan made to finance a dwelling, the lender must disclose the APR but does not have to disclose the total interest payable during the term of the loan.

Alice is the property manager at an apartment complex. Her late-rent collection policy should include all contingencies EXCEPT

The answer is Alice should consider the personal situation of each renter when deciding whether to send late-payment notices. The terms of rent payment should be spelled out in the lease agreement, including time and place of payment, provisions and penalties for late payment, and provisions for cancellation and damages in case of nonpayment. A firm and consistent collection plan with a sufficient system of notices and records should be established by the property manager. A property manager who accepts a late payment without charging late fees specified in the contract or reminding the tenant making a late payment that the payment must always be paid on time risks losing (through waiver or lease modification) the right to later enforce the charge of late fees or to evict for late payment.

Gloria has a sales agent license. She wants to get a certification to do apartment management. What type of designation indicates competency in apartment management?

The answer is CAM. The National Apartment Association has designations of Certified Apartment Manager (CAM) and Certified Apartment Property Supervisor (CAPS). Also degrees in residential property management are available at a few Texas colleges and universities.

Dolores Bannon is a sales agent with experience in residential sales and leasing. She would like to become competent in property management. Which of the following designations would be an indication that she has gained competency to do property management?

The answer is CPM. The Institute of Real Estate Management is one of the affiliates of the National Association of REALTORS®. It awards the designations of Certified Property Manager (CPM) and Accredited Residential Manager (ARM) to persons who have met certain requirements.

Gloria Simms is a sales agent sponsored by Diamond Homes Realty, Inc., a licensed real estate broker. The designated broker for Diamond Homes is John Doe. Gloria procured a listing with the Simpsons to sell their home on the lake in Austin. Gloria also found a buyer for the house, the Williamsons, who live in Seattle. The home is not the Simpsons' homestead; it's a vacation home that they use during the summers. The listing agreement is a contract between which of the parties?

The answer is Diamond Homes and the Simpsons. Simms is sponsored by Diamond Homes. When a sales agent gets a listing, the listing contract is a contract between the seller and the broker. In this case, the listing agreement is between Diamond Homes and the Simpsons.

Janet wants to make several energy-efficient changes to a home constructed in 1975 that she wishes to purchase, including installing solar panels, new insulation, and an energy-efficient air conditioner. She can seek which of the following to finance the improvements?

The answer is EIM. Energy-improvement mortgages (EIMs) allow borrowers to include in the mortgage the cost of energy-efficiency improvements to an existing home without increasing the down payment. EEMs and EIMs are offered on conventional, FHA, or VA loans purchased by Fannie Mae or Freddie Mac.

Which is the MOST popular of the green home-energy rating systems among homebuilders?

The answer is ENERGY STAR. ENERGY STAR seems to have become the most popular new-home energy rating system among homebuilders looking to differentiate themselves from the competition. ENERGY STAR provides a way for consumers to compare one home against another.

While Elaine is preparing a listing presentation for a property zoned for single-family use, she notices that the building on the lot behind the home she wants to list has the appearance of an old gas station. What are Elaine's obligations related to the disclosure and discovery of potential environmental hazards?

The answer is Elaine has a duty to ensure that the seller has given all required disclosures to the purchaser before the execution of a contract. Real estate license holders are not expected to have the technical expertise necessary to discover the presence of environmental hazards. However, because they are presumed by the public to have special knowledge about real estate, license holders must be aware both of possible hazards and of sources for professional help. Property owners are required to disclose the presence of specific environmental hazards, as well as "any condition on the Property which materially affects the physical health or safety of an individual." The Seller's Disclosure of Property Condition, the lead-based paint disclosure form, and the conditions under the surface addenda from the Texas Real Estate Commission (TREC) are among those a seller might be required to use. If there is any question about the environmental condition of the property, the TREC environmental assessment addendum should be submitted by the buyer. Environmental auditors, generally hired by property buyers, are most frequently brought in as a condition of closing.

If a lender makes first-mortgage agricultural real estate loans, which secondary market would be a potential buyer of these loans?

The answer is Farmer Mac. Both Farmer Mac and Ginnie Mae would be potential buyers of U.S. Department of Agriculture (USDA) Rural Development mortgage loans. Fannie Mae purchases conventional, Federal Housing Administration (FHA), and Department of Veterans Affairs (VA) mortgage loans. Freddie Mac primarily buys conventional loans. Ginnie Mae provides a market for federally insured or guaranteed loans—mainly FHA, VA, and USDA Rural Development mortgage loans. Farmer Mac is a secondary market for agricultural real estate loans.

What government-sponsored enterprise (GSE) is available to help creditworthy farmers and ranchers maintain their businesses?

The answer is Farmer Mac. Like the other GSEs, Farmer Mac provides a secondary market for agricultural real estate loans. This assures the availability of credit for farmers, ranchers, and rural homeowners.

Which secondary market entity primarily provides a secondary market for conventional loans?

The answer is Freddie Mac. Freddie Mac is a private corporation that primarily provides a secondary market for conventional loans. It has the authority to purchase mortgages, pool them, and sell bonds in the open market with the mortgages as security. Fannie Mae is a privately owned corporation that issues its own common stock and provides a secondary market for conventional, FHA, and VA loans. It buys individual loans or pools of mortgages from a lender in exchange for mortgage-backed securities, which the lender may keep or sell. Ginnie Mae, is a wholly owned corporation within the Department of Housing and Urban Development (HUD). It guarantees investment securities issued by private institutions (such as banks and mortgage companies) and backed by pools of FHA, VA, and FSA mortgage loans. Farmer Mac is a stockholder-owned corporation within the Farm Credit System. It is the secondary market for first-mortgage agricultural real estate loans.

Which secondary market entity issues pass-through certificates that are guaranteed by that entity and backed by the full faith and credit of the United States?

The answer is Ginnie Mae. Ginnie Mae is a wholly owned corporation within the Department of Housing and Urban Development (HUD). It guarantees investment securities issued by private institutions (such as banks and mortgage companies) and backed by FHA, VA, and FSA loans. The Ginnie Mae pass-through certificate is a security interest in a pool of mortgages that provides for a monthly pass-through of principal and interest payments directly to the certificate holder. The certificates are guaranteed by Ginnie Mae and backed by the full faith and credit of the United States. Fannie Mae and Freddie Mac also sell securities that are backed by pools of mortgage loans, but they are not backed by the full faith and credit of the United States.

What happens to a tenant application deposit if the application is rejected?

The answer is It is refunded to the applicant. The application deposit serves the same function as an earnest money deposit in a sales contract. The applicant puts up enough money that he will not change his mind after the landlord has taken the rental unit off the market to review the application. If the applicant is accepted, the application deposit may be credited toward the security deposit or another fee that is due when the tenant signs a lease. If the applicant is rejected, the deposit must be refunded.

Jacob has invested in a real estate investment syndicate that purchased a shopping center. Which does NOT describe the advantages of his participating in the syndicate?

The answer is Jacob will be able to sell his interest in the syndicate upon the approval of the syndicate's management. Syndicate interests are generally more difficult to sell on the open market than real estate, which makes this a disadvantage rather than an advantage of participating in a syndicate. Approval by the syndicate's management may be required before an investor can sell his interest in the project. Some partnership agreements may require that such interest be sold only to another member of the syndicate.

Mary Ellen, a single mother of two children, is applying to lease an apartment. Which of the following would NOT be a legitimate reason for rejecting her application?

The answer is Mary Ellen's children are both under age five. Some of the legitimate reasons for rejecting prospective tenants include unsatisfactory references, evictions, frequent moves, bad credit report or too may debts, length of time at current employment too short, smokers, no verifiable source of income or insufficient income, too many vehicles for the available parking space, pets, current drug users, and conviction of a crime. All property owners and managers must comply with federal, state, and local fair housing laws in the selection of tenants. Mary Ellen's children are a protected class based on the Fair Housing Act.

A tenant with a physical disability wants to rent an apartment in an apartment complex. He wants to rent a penthouse unit with large floor-to-ceiling windows that normally rents for much more than a unit in one of the lower floors. He asks for an accommodation to pay lower rent, comparable to the non-penthouse units based on his physical disability. Must the landlord accommodate his request?

The answer is No, the accommodation must relate to the disability. There must be an identifiable relationship between the person's disability and the requested accommodation or modification.

A homebuyer is told he will be required to have private mortgage insurance (PMI). What does the PMI cover?

The answer is PMI insures the lender against borrower default on the loan and loss due to foreclosure. To insure a lender against borrower default and loss due to foreclosure, PMI is required on high loan-to-value (LTV) loans for which the borrower has invested less than 20%—that is, on loans with LTVs over 80%. PMI is purchased from a private mortgage insurance company when the loan is closed.

Doug Jones is a real estate sales agent. He has been licensed for three years and has focused his work entirely in residential sales and leasing. Doug would probably be MOST competent to do which of the following?

The answer is REO sales. Properties owned by lenders and government agencies under a process whereby they take possession of residential properties that fail to sell at a foreclosure auction for at least the amount owed by the borrower are called real estate owned or REOs. Because Doug is already experienced in residential sales, he should be most competent to do REO sales of all of the choices.

Which person may NOT conduct an appraisal for a residential property with an estimated value of $225,000 in a federally related transaction?

The answer is TREC-licensed real estate broker or sales agent. Unless also licensed or certified by the Texas Appraiser Licensing and Certification Board (TALCB), a TREC-licensed broker or sales agent cannot appraise property. A broker or sales agent may, however, provide a written analysis, opinion, or conclusion relating to the estimated price of real property if the analysis, opinion, or conclusion is not called an appraisal, is given in the ordinary course of the broker's or the sales agent's business, and is related to the actual or potential acquisition, disposition, encumbrance, or mortgage of an interest in real property. In other words, a broker or sales agent cannot appraise property but can prepare a comparative market analysis (CMA) or a broker price opinion.

Which governmental agency regulates escrow officers?

The answer is The Texas Department of Insurance. Title insurance escrow officers must be licensed by the Texas Department of Insurance.

What do the initials USPAP stand for?

The answer is Uniform Standards of Professional Appraisal Practices. USPAP is the single-most important recitation of appraisal standards that individuals must adhere to when in the appraisal profession.

Which applies to the funding fee and discount points on a VA loan?

The answer is VA discount points cannot be added to the loan amount. The funding fee, which is a percentage of the loan, is paid by the borrower and is based on the size of the down payment, regular or reserve military status, and whether it is a first or subsequent use of VA financing. It can be added to the loan amount. Either a veteran or a seller may pay any discount points, but the discount points may not be financed in the loan.

Donna Martinez is a licensed sales agent sponsored by Hill Country Realty, a licensed brokerage firm in San Marcos, Texas. Donna has been licensed for 12 years, primarily focusing on residential sales and leasing. Donna has decided to advertise on the company website that she is available to do property management, as well as residential sales and leasing. Jenna Lewis is the designated broker for Hill Country. Jenna has informed Donna that she can only do residential sales, although she is aware that Donna is advertising her property management services because Jenna monitors the company website very closely. Is Hill Country responsible for Donna's actions if one of her property management clients files a complaint against her with TREC?

The answer is Yes, because Jenna knows about Donna's property management advertising. Although not required to directly supervise a sales agent, the sponsoring broker is responsible for the authorized acts of the sponsored sales agent, unless the broker has limited or revoked such activities in writing. However, the rule states that if a broker permits a sponsored sales agent to engage in activities beyond the authorized scope, the broker will be responsible for those activities as well. In this case, Jenna knows that Donna is doing property management because she has seen Donna's advertising.

The Smiths are purchasing a home for $80,000 on which the monthly payments will be $792.24 each month up to the final payment of $56,340. Their loan has

The answer is a balloon payment. A fully amortized payment has payments in equal amounts from the first through the last. An interest-only payment has periodic payments of interest, with the entire principal to be paid in full with the final payment. A flexible payment has lower monthly payments for the first few years of the loan and higher payments for the remainder of the term.

Which is NOT true of a broker price opinion?

The answer is a broker price opinion is the same as a comparative market analysis (CMA). A broker price opinion (BPO) is more than a CMA but less than a full appraisal. In addition to the data collected for a CMA (both current listings and sold properties), the BPO includes a neighborhood analysis, an estimate of needed repairs, and a probable selling price for the property if sold "as is" or "as repaired." Because brokers' fees for preparing a BPO are generally considerably less than appraisal fees, BPOs are frequently used by lending institutions, attorneys, and loss mitigation companies to determine a value to weigh against the options of foreclosure, deed in lieu of foreclosure, short sale, or mortgage modification.

CD took title to property under the name BD. When she sold the property, she signed CD as grantor. The buyer has

The answer is a cloud on the title. A quitclaim deed from BD is needed—or recorded proof that BD and CD are the same person.

Some examples of public ownership of land include all of the following, EXCEPT

The answer is a commercial building. Public ownership may include federal, state, county, or municipal buildings, parks, and roadways, as well as military installations.

Jane is forced to move out of her apartment because it has no heat and the plumbing does NOT work. This is

The answer is a constructive eviction. Constructive eviction may occur when the premises become uninhabitable because of conscious neglect of the landlord. To claim constructive eviction, the tenant must move from the premises while the uninhabitable condition exists and may receive a pro rata refund of rent paid or seek a court order requiring repairs to be made and awarding damages to the tenant.

At closing, the buyer's earnest money is

The answer is a credit to the buyer. Because the buyer has already paid the earnest money to the title company when the contract is executed, it shows as a credit to the buyer at closing.

Earnest money is reflected on the Closing Disclosure as

The answer is a credit to the buyer. In almost all instances, a buyer pays an earnest money deposit at the time the purchase contract is negotiated. At closing, the buyer receives a credit for the money that she has paid.

At closing, the payoff on an existing mortgage is

The answer is a debit to the seller. The existing mortgage payoff is paid to the lienholder at closing by seller.

Bill conveys a lot to Jane by a deed that includes a provision forbidding the sale of intoxicating liquor on the lot and provides that in case of violation, the title returns to Bill. This provision is an example of

The answer is a deed condition. A grantor's deed of conveyance can be subject to certain stated conditions whereby the buyer's title may revert (go back) to the seller. If Jane operates a tavern on the lot, Bill can obtain title to the property. Under a fee simple determinable condition, the property would automatically revert to Bill. Under a fee simple subject to condition subsequent, Bill can obtain a right of reentry through the courts.

What is the difference between a "deed IN trust" and a "deed OF trust"?

The answer is a deed in trust conveys property into a trust, while a deed of trust is a financial instrument for a loan. The two terms should not be confused.

The foreclosure process is faster, less expensive, and less complex when the security instrument is

The answer is a deed of trust. With a deed of trust, also called a trust deed, if the borrower defaults, the lender instructs the trustee to file the required foreclosure notices and to sell the property at a trustee's sale. With a mortgage, if the borrower defaults, the lender must file a lawsuit and obtain a judgment ordering foreclosure of the lien. A public sale is then advertised and held.

Robert owns a large tract of land. After an adequate study of all the relevant facts, he legally divides the land into 30 lots suitable for the construction of residences; adds utilities, curbs, and gutters; and paves the streets. Robert is

The answer is a developer. A developer buys undeveloped acreage; subdivides it; puts in utilities, curbs, and gutters; paves the streets; and then either builds or sells homes on the land or sells the lots.

Under certain circumstances, appraisers may omit the step of going inside a property but may nevertheless submit an appraisal report. What is that appraisal called?

The answer is a drive-by appraisal. The appraiser may view the property from the outside and then use data from comparative market analyses to determine a value. However, if the appraiser sees possible issues while viewing the outside, an interior viewing may still be appropriate.

An investment syndicate is to be set up to allow all members to share equally in the managerial decisions, profits, and losses involved in the venture. Which of the following is the business structure BEST suited to these investors?

The answer is a general partnership. A general partnership is organized so that all members of the group share equally in the managerial decisions, profits, and losses involved with the investments. In a limited partnership, limited partners lose only as much as they invested, nothing more.

When a landowner leases land to a tenant who agrees to erect a building on it, the lease usually is called

The answer is a ground lease. A ground lease may be attractive to a business involved in a development project, because it reduces the amount of money the tenant must finance. It must be for a long-enough term to make the transaction desirable to the tenant making the investment in the building; they often run for terms of 50 years or longer. These leases are generally net leases that require the lessee to pay rent, as well as real estate taxes, insurance, upkeep, and repairs.

By directing funds to real estate investment trusts (REITS), real estate investors can take advantage of the same tax benefits as mutual fund investors. Which of the following does NOT represent a REIT?

The answer is a hybrid REIT invests in U.S. Treasury bonds. In a real estate investment trust (REIT), a trust is formed, which allows investors (called beneficiaries) to purchase real estate investment trust certificates issued by the REIT. The REIT then uses the funds to purchase real estate (an equity REIT) and mortgages (a mortgage REIT). A hybrid REIT invests shareholders' funds in both real estate assets and mortgage loans. For REITs that are publicly held, the investment certificates can be traded on major stock exchanges.

What is the USA PATRIOT Act?

The answer is a law that requires lenders to verify customer identity, check names against the government terrorists list, and monitor the consumer for money laundering activities. The PATRIOT Act is another effort to secure the United States from hostile interests.

Fraud for profit involves which illegal action?

The answer is a lender's obtaining a loan on fictitious properties. Fraud for profit involves illegal actions perpetrated by industry insiders. It may include equity skimming, property flipping, obtaining loans on fictitious properties, mortgage-related identity theft, and intentionally or knowingly making a materially false or misleading written statement in an appraisal of real property. Fraud for profit industry insiders are real estate agents, loan associates, appraisers, escrow officers, attorneys, straw buyers, and many others. Fraud for housing involves illegal actions perpetrated solely by the borrower—giving false information about incomes, expenses, or cash available for down payments in order to get a loan. Predatory lending practices on the part of lenders take advantage of people with lower incomes, senior citizens, and credit-challenged borrowers. For example, lenders charging high interest rates to borrowers based on their race or national origin is a predatory lending practice.

What is a short sale?

The answer is a lender-agreed sale in which the sales price is well below the balance of the mortgage, meaning the lender will take a substantial loss. Short sales frequently come at the bottom of a recession when borrowers are "upside down" on their mortgages and for some reason (such as loss of job) are unable to make payments.

Stan wants to invest in real property. Rather than be a sole owner, Stan would prefer to pool his resources with other people to own and develop a small office building. He would prefer not to take part in the day-to-day responsibilities of the organization. What type of business venture would best fit his goals?

The answer is a limited partnership real estate investment syndicate. A real estate investment syndicate is a business venture in which a group of people pools its resources to own or develop a particular piece of property, or both. Under a limited partnership syndicate agreement, the general partner organizes, operates, and is responsible for the entire syndicate. The limited partners are passive investors with no voice in the organization and direction of the operation.

An owner-manager agreement between Jeffrey, a property manager, and Pete, a property owner, should include all of the following EXCEPT

The answer is a listing of previous owners of the property. The management agreement should be in writing and should cover description of the property, time period the agreement will cover, definition of management's responsibilities, statement of owner's goals, extent of manager's authority, reporting, management fee, and allocation of costs. A list of previous owners is not relevant to the property manager's duties and responsibilities to the current owner.

A party other than the borrower pays interest in advance to the lender and the loan rate is reduced for the first couple of years in

The answer is a loan buydown. In exchange for receiving a portion of the mortgage loan interest in advance, the lender reduces the loan rate temporarily, usually for the first couple of years. For example, to help sales, a developer offers buyers a buydown of 2% the first year, and 1% the second year if they purchase a new home. If the market interest rate were 8%, the first year's interest rate would be 6%; the second year's, 7%; the third and subsequent years', 8%.

Which BEST defines the secondary mortgage market?

The answer is a market where loans are bought and sold after they have been originated. Loans are bought and sold in the secondary market after they have been closed and funded by a primary mortgage market lender. Lenders routinely sell loans to avoid interest-rate risks and to realize profits on the sales. Selling the loans they have originated enables lenders to recoup their capital to continue making mortgage loans. Loans are eligible for sale to the secondary market only when the collateral, borrower, and documentation meet specified requirements.

The person or institution that lends the money in a mortgage is

The answer is a mortgagee. The mortgagor (borrower) gives title to the property to the lender (mortgagee) who holds it until the debt is satisfied. The terms mortgagee and mortgagor come from Anglo-Saxon law.

For which of following rental units is it necessary to provide a lead-based paint disclosure to tenants in properties built before 1978?

The answer is a one-bedroom unit. A lead-based paint disclosure must be given to tenants in properties built before 1978. Houses exclusively for the elderly or handicapped (unless there are children living there); zero-bedroom units such as lofts, efficiencies, and studios; and properties that have been inspected and found free of lead-based paint are three of the few exemptions from the disclosure requirements.

A specialist in negotiating purchase or lease contracts with land or mineral interest owners is

The answer is a petroleum landman. A landman conducts business activities related to oil, gas, and mineral exploration.

What is a mortgage modification?

The answer is a procedure by which troubled borrowers may work with lenders to avoid foreclosure. Lenders have an assortment of programs available to help troubled borrowers so that foreclosure is the resolution of last resort.

Maintenance, rehabilitation, insuring the property, and addressing environmental requirements are

The answer is a property manager's physical management activities. Property managers also perform administration activities, such as preparing budgets and reporting to the owner, and marketing activities, such as finding and selecting tenants.

The Garcias have installed a solar panel system for their home. What kind of reimbursement can they get for the cost of the installation?

The answer is a property tax exemption for the portion of the appraised value that arises from its installation. Texas offers a property tax exemption for that portion of the appraised property value that arises from the installation or construction of a solar or wind-powered energy device that is primarily for the production and distribution of thermal, mechanical, or electrical energy for onsite use, or devices used to store that energy.

In a wraparound loan, the second lender not only provides funding to the borrower for a new loan but also agrees to assume payments for the original loan. The borrower pays the second lender a larger payment and the second lender agrees to pay the original lender. What agreement must the borrower have, however, to protect himself?

The answer is a protective clause that allows the borrower to make payments to the original lender. If the second lender were to default on the original loan, the borrower would be able to step in and make those payments.

Which kind of deed carries virtually no assurances or guarantees and provides the least protection of any deed?

The answer is a quitclaim deed. In transferring a quitclaim deed, the grantor is stating he is quitclaiming any interest he may have on the property. It carries no covenants or warranties, and it does not "grant, sell, and convey" the grantor's interest.

A professional estimate of a property's market value or opinion of value, based on established methods and using trained, professional judgment, is performed by

The answer is a real estate appraiser. Although lenders, counselors, and inspectors also look closely at a specific property, only an appraiser is qualified to produce a formal opinion of value—an appraisal.

Which of the following is a tax device that allows cash flows from an underlying block of commercial mortgages to be passed through to security holders without income taxes at the level of the trustee or agent?

The answer is a real estate mortgage investment conduit (REMIC). Securities classes issued by a REMIC can be for residual interests or regular interests. Holders of residual securities receive distributions when loans in the pool are paid. Holders of regular securities receive payments based on a fixed or variable rate.

The Truth in Lending Act, Regulation Z, always applies to all credit transactions secured by

The answer is a residence. Regulation Z requires that credit institutions inform borrowers of the true cost of obtaining credit. It applies when credit is extended to individuals for personal, family, or household uses and the amount of credit is $55,800 or less. Regardless of the amount, Regulation Z always applies when a credit transaction is secured by a residence.

A subdivision declaration reads, "No property within this subdivision may be further subdivided for sale or otherwise, and no property may be used for other than single-family housing." This is an example of

The answer is a restrictive covenant. A developer may establish restrictions on the right to use land through a restrictive covenant in a deed or by a separate recorded subdivision declaration filed in the public record. These restrictions are binding on all future grantees and typically include such controls as residential use, prohibition against reducing the size of the lots, and color of a property's exterior.

Which of the following is a means of diversification into a real estate security while continuing to hold a real estate investment?

The answer is a seller takes back a mortgage on a house he sells to a buyer. If the seller decides to sell the home and, using seller financing, carries back a mortgage on the property, the real estate investment has been converted from dirt to paper, but it is still considered a real estate investment.

A homeowner may apply for a federal residential renewal energy tax credit to get a credit toward installation of which of the following systems?

The answer is a solar water heater. The federal residential renewable energy tax credit is available upon the purchase of renewable energy systems, rather than simply energy-efficient materials and systems. It covers such systems as solar water heaters, wind turbines, fuel cells, and other solar electric technologies.

What type of tenancy occurs when a tenant in an estate for years fails to surrender possession of the property at the expiration of the lease?

The answer is a tenancy at sufferance. A tenancy at sufferance arises when a tenant who lawfully possessed real property continues in possession of the premises without the landlord's consent after the rights expire. In this situation, the landlord does not want the tenant in possession but "suffers" or permits the tenant to remain.

An interest-only loan is also called

The answer is a term loan. A straight-payment loan, also called an interest-only or term loan, requires periodic payments of interest only, with the principal paid in full at the end of the loan term.

Which of the following is a qualifying ratio for a conventional loan?

The answer is a variable total-debt ratio based on a borrower's credit score, cash reserves, and residual income. For a conventional loan, qualifying ratios are variable based on a borrower's credit score, cash reserves, and residual income. Generally, the housing-expense or front-end ratio will range between 25% and 28% of gross monthly income for the PITI (principal, interest, taxes, insurance) payment. The total-debt or back-end ratio will range between 33% and 36% of gross monthly income. The total-debt ratio or back-end ratio includes the house payment, all installment and revolving account payments, and child support.

What is the primary difference between a will and a deed?

The answer is a will only takes effect upon death of the decedent, while a deed represents a current interest by a grantor who is alive. Grantors cannot transfer properties via a will until death.

Current ad valorem property taxes owed by the seller that have NOT yet been billed at the time of closing are an example of

The answer is accrued items. Accrued items are owed by the seller but will eventually be paid by the buyer. The seller pays the buyer for these at the closing; the seller is "debited" and the buyer is "credited" for accrued items at the closing. Interest on an assumed loan is another accrued expense that requires prorating at closing. Prepaid items have been prepaid by the seller but not fully used up. The buyer owes the seller for these expenses.

Items for which the buyer is credited at the time of closing are known as

The answer is accrued items. Accrued items are owed by the seller but will eventually be paid by the buyer. The seller pays the buyer for these at the closing; the seller is "debited" and the buyer is "credited" for accrued items at the closing. Normal accrued expenses include interest on an assumed loan and real estate property taxes. Conversely, prepaid items have been prepaid by the seller but not fully used up. The buyer owes the seller for these expenses.

If buyers inspect the public records before purchasing property and see that the property has a lien against it, the buyers have

The answer is actual notice. An individual who has searched the public records and inspected the property has actual notice, or direct knowledge, of the information. Constructive notice refers to the legal presumption that information is available and that, by diligent inquiry, an individual can obtain it.

The value of a feature that is present in the subject, but NOT in the comparable property, is

The answer is added to the sales price of the comparable property. For example, the subject property has a two-car garage and the comparable property does not. By adding the value of the garage to the comparable property, you make the features of the comparable property closer to those of the subject property.

If an investor purchases a property for $200,000, makes $100,000 in improvements, and takes $50,000 in depreciation, the investor's

The answer is adjusted basis is now $250,000. An owner's basis is the investor's initial cost of the property. To derive the property's adjusted basis, the investor adds any improvements made and deducts depreciation expenses taken. ($200,000 initial cost + $100,000 improvements - $50,000 depreciation = $250,000 adjusted basis).

Which of the following is calculated by adding the initial cost of an investment property, plus the cost of subsequent improvements, minus the amount of any depreciation claimed as a tax deduction?

The answer is adjusted basis. The basis of the property is the investor's initial cost for the property. Adjusted basis is the original basis increased by any physical improvements subsequently made to the property, but reduced by the amount of depreciation claimed as an income tax deduction.

Ben bought acreage in a distant county, never went to see the acreage, and did not use the ground. Hilda moved her manufactured home onto the land, had a water well drilled, and lived there for 26 years. Hilda may become the owner of the land if she has complied with Texas law regarding

The answer is adverse possession. The possession of the claimant must be open, notorious, hostile, and uninterrupted for a period of 3, 5, 10, or 25 years as set by Texas law. Under the 3-year statute, the adverse possessor must have title or color of title. Title is established by a regular chain of transfers beginning with the original land grant from the government, which is called from the sovereignty. Color of title means a consecutive chain of transfers (which may not be regular) down to the adverse possessor. An irregular chain is one in which an instrument was not recorded or some other defect occurred that was not the result of dishonesty or unfairness. Adverse possessors must be able to produce a chain of documents that prove in all fairness that title should be in them. The 5-year statute requires that the claimant pay the taxes on the property; cultivate, use, or enjoy the property; and claim the property under a recorded deed—there is no requirement for a chain of title from the sovereignty. The 10-year statute is the general adverse possession provision. It requires adverse possession for a 10-year period by one who uses, cultivates, or enjoys the property. A deed or chain of title in support of the claim is not necessary and there is no requirement for payment of taxes by the adverse possessor. The 25-year statute requires that the adverse possessor have adverse possession of the property for 25 years, be in good faith, and have a recorded deed that purports to convey title to the claimant. The 25-year time period is the absolute bar against claims of others, and it runs against minors, the insane, or the imprisoned. Through the principle of tacking, successive periods of adverse possession may be combined; one person does not have to have possession for 25 years.

Which of the following expenses are typically NOT prorated?

The answer is agent's commission. Prorations of expenses between buyer and seller are necessary to ensure that expenses are divided fairly. Expenses that are most frequently prorated include interest on an assumed loan, taxes, rents, and utility bills.

Beyond the benefits derived from living or working in an environmentally sensitive building, does the government provide additional benefits?

The answer is all of these apply. Real estate sales agents should familiarize themselves with the many green incentives available at every level of government. They also can help clients by being aware of the many private incentives offered by utility companies that offer rebates and discounts for energy improvements.

An existing building in a location that has newly been rezoned for different purposes (meaning it is now nonconforming) may be grandfathered to continue its historic use until what happens?

The answer is all of these occur. Old industrial or warehouse areas sometimes become trendy targets for upscale residential lofts or upscale retail units. Allowing nonconforming-use permits viable industries or warehouses to continue functioning without fear of being forced out of business.

What are some reasons an appraisal might be sought on a property?

The answer is all of these. Before an appraiser can arrive at an accurate value, he must know what the appraisal is for. Different purposes could mean different values. A) potential buyer needs a professional opinion of the value of the property. B) A developer might need an opinion of what it would cost to purchase a property, raze it and redevelop the land. C) All of these. D) The owner needs a professional opinion of value for the purpose of securing a loan.

Jane Nieto is a relatively new sales agent sponsored by Triple A Realty. Jane is authorized to do residential and commercial sales and leasing. Jane's new client, Sonic Drive-Ins, is looking to purchase raw land to build a new restaurant. Triple A should ensure that Jane is competent in which of the following areas to properly represent her client?

The answer is all of these. Commercial brokers should have knowledge of real estate investment and financing principles because understanding the income-producing potential of commercial properties is key to representing clients in the commercial market. In addition, agents specializing in commercial real estate should have a proper understanding of local zoning laws and commercial property valuation principles.

How does groundwater contamination occur?

The answer is all of these. Groundwater contamination occurs from a number of sources, including waste disposal sites, underground storage tanks, pesticides, and herbicides.

Possible actions that may signal predatory lending include

The answer is all of these. In addition to the three activities previously listed, HUD has defined predatory lending as lenders, appraisers, mortgage brokers, and home improvement contractors who (1) charge high interest rates to borrowers based on their race or national origin rather than on their credit history, (2) use cash-out refinance offers to target vulnerable borrowers, (3) strip homeowners' equity from their homes, or (4) use high pressure sales tactics to sell home improvements and then finance them at high interest rates.

The purpose of a comprehensive plan is to develop a long-term (20-to-30-year) guide to how areas will grow—such as where housing will be located, retail spaces, sewer treatment plants, et cetera. What government institutions have comprehensive plans?

The answer is all of these. Many jurisdictions organize to produce the highest and best use of land, and real estate brokers are ideal candidates to serve on these commissions. Brokers tend to have a good idea of public trends, attitudes, and infrastructure needs, as well as ideas concerning what land use could help protect and propel the local economy.

In which situation does the mortgagor have no statutory redemption rights?

The answer is all of these. Statutory redemption rights refer to the owner's right to redeem the property after a foreclosure. When the deed is conveyed to the lender through the power-of-sale clause in a deed of trust or by the borrower out of court (deed in lieu of foreclosure), the borrower (the mortgagor) has no statutory redemption rights. There also are no statutory redemption rights after foreclosure of a home equity lien. However, if foreclosure is pursuant to a tax lien or a homeowners association lien, there are statutory redemption rights. In all situations, Texas recognizes the equitable right of redemption before a foreclosure sale.

A homeowner can recoup some of the cost of installing solar panels using which of the following methods?

The answer is all of these. To encourage customers to buy energy-efficient products, ENERGY STAR partners occasionally sponsor special offers, such as sales tax exemptions or credits or rebates, on qualified products. Partners also occasionally sponsor recycling incentives for the proper disposal of old products. Also, both state and federal governments have tax incentive programs to encourage homeowners to increase the energy efficiency of their residences and to purchase energy-efficient items.

How should expenses such as repairs be addressed in a property manager's operating budget?

The answer is allocation of a cash reserve fund. A property manager should establish a cash reserve fund for such variable expenses as repairs, decorating, and supplies. The amount allocated for the reserve funds can be computed from previous yearly costs of the variable expenses.

There are eight key component to an agreement between a professional property management company and a building owner, including "allocation of costs." What does that refer to?

The answer is allocation of costs is an internal agreement that sorts out whether the management company or building owner will pay things such as building employee taxes and Social Security benefits. It also details who will pay for things like building promotion and expenses, such as telephone, electricity and onsite office maintenance.

All of the following would properly be included in a list of deed restrictions EXCEPT

The answer is allowable ethnic origins of purchasers. Deed restrictions in violation of fair housing laws are void. Additionally, deed restrictions may restrict an owner's right to use land but may not restrict the owner's right to sell, mortgage, or convey it.

The federal Equal Credit Opportunity Act (ECOA) allows lenders to discriminate against potential borrowers on the basis of

The answer is amount of income. The ECOA prohibits lenders from discriminating against credit applicants on the basis of race, color, religion, national origin, sex, marital status, age (provided the applicant is of legal age), or dependence on public assistance.

What are the three factors that determine cash flow?

The answer is amount of rent received, operating expenses, and method of debt repayment. The cash flow produced by any given parcel of real estate is determined by at least three factors: (1) amount of rent received, (2) operating expenses, and (3) method of debt repayment.

What are accrued expense and prepaid expense items?

The answer is an accrued expense is something owed by the seller that eventually will be paid by the buyer, such as interest on an assumed loan; and a prepaid expense is something paid in advance by the seller but not yet used up, such as prepaid insurance. The calculation of accrued and prepaid expenses is an effort to keep the real estate transaction balanced, making sure those who benefit from a service pay only for the portion they use.

Which of the following is NOT a characteristic of an appraisal?

The answer is an appraisal determines the listing price of a property. A seller determines the listing price of a property, using an appraisal and/or a comparative market analysis (CMA) prepared by a real estate broker as the basis for the decision. An appraisal must not be considered absolute but should be used as a basis of negotiation between parties involved in the property, whatever their interests.

Which of the following is similar to a mutual fund?

The answer is an equity REIT. Much like mutual fund operations, equity REITs pool an assortment of large-scale income properties and sell shares to investors.

Which of the following is a leasehold that continues for a definite period?

The answer is an estate for years. A leasehold that continues for a definite period, whether for years, months, weeks, or even days, is an estate for years. An estate for years always has a specific starting and ending time and does not automatically renew at the end of the lease period.

An investor may defer federal income taxes on a portion of the gain on the sale of a property, provided all sales proceeds are not received during the year of the sale. This describes

The answer is an installment sale. Payments from the sale of a property must be received over two or more years to qualify for an installment sale. Income tax is paid each year based on the amount received during that year.

The value of a commercial property increases because it is believed a major highway interchange might be built close to it. This is an example of the principle of

The answer is anticipation. Construction of a major highway interchange is a future event that a purchaser believes will happen and will make the property more valuable for commercial property but probably less valuable if it were residential property.

A landowner wants to build a bed and breakfast in a neighborhood zoned single-family residential. Because a bed and breakfast is marginally acceptable under the local zoning ordinance, the landowner may

The answer is apply to the planning and zoning commission for a conditional-use permit. Conditional-use permits allow a property use that is marginally acceptable in a specific zone only if stipulated conditions are met; the stipulated conditions are for the benefit of a neighborhood, not an individual property. A variance permits an exception to a city ordinance if enforcement would result in undue hardship to the property owner; it is for the benefit of only one parcel. A nonconforming use predates the adoption of zoning ordinances for a particular district. It may be grandfathered in until stipulated events occur (such as the sale of the property), or it may be given a definite sunset period for the use to conform to the new zoning ordinances.

The initials AMC stand for what in real estate?

The answer is appraisal management company. AMCs are responsible for 60% of all appraisals. Such companies maintain independence of appraisers and demand professionalism.

A parcel of property that increases in value because of its location in the center of an affluent and rapidly growing neighborhood is an example of

The answer is appreciation through intrinsic value. Appreciation is the increase in property value over a period of time. Two main factors affect appreciation: inflation and intrinsic value.

In MOST Texas homeowners insurance policies, mold-related claims

The answer is are not covered. Unless the damage resulted from a covered water-related event (generally an appliance-related event) or the homeowner purchased separate mold coverage, most Texas homeowners insurance policies do not have coverage for mold-related claims. The CDC reports that, generally, mold can be removed from hard surfaces by a thorough cleaning with commercial products, soap and water, or a weak bleach solution. Absorbent or porous materials may have to be replaced.

Where does closing usually take place in Texas?

The answer is at the title company. Closings may be held at a number of locations, including a title company, the buyer's lending institution, an attorney's office, a real estate broker's office, or in front of a notary public. In Texas, the closing usually takes place at a title company.

An apartment complex property manager has concerns about the owners' liability for possible drownings in the pool. They talk to the owners, who ultimately decide to drain and backfill the pool. This is an example of which of the following ways of managing risk?

The answer is avoiding the risk. When considering the possibility of a loss, the property manager and the owner must decide whether it is better to avoid it, by removing the source of risk, such as a swimming pool. Controlling the risk would be done by setting pool hours or hiring lifeguards.

In order to be eligible for a loan under the Texas Veterans Housing Assistance Program, loan applicants must

The answer is be bona fide residents of Texas at the time of application and live in Texas with the intent to remain in Texas but may include serving on active military duty outside of Texas. To qualify as a Texas veteran, a loan applicant must have served no fewer than 90 days of active duty service or training or be discharged sooner due to a service-connected disability; not have been dishonorably discharged; be a bona fide resident of Texas at the time of application and live in Texas with the intent to remain in Texas (which may include serving on active military duty outside of Texas); have repaid a previous Veterans Land Board (VLB) loan in the specific loan program for which the veteran is applying; or under certain circumstances, be the unmarried, surviving spouse of a Texas veteran.

How is a lender's title insurance policy tied to risk?

The answer is because reimbursement is limited to the outstanding balance of the loan, regardless of whether values are up or down. The lender's coverage decreases as the balance decreases.

Which technique finances more than one property?

The answer is blanket loan. A blanket deed of trust pledges more than one parcel or lot. It is usually used to finance subdivision developments and contains a partial release clause that permits the borrower to obtain the release of any one lot or parcel from the lien by paying a specified amount of the loan.

State laws passed requiring registration of securities to protect the public from investing schemes are commonly called

The answer is blue-sky laws. These laws are called blue-sky laws because the investing schemes they were legislated to protect investors against speculative ventures that have "as much value as a patch of blue sky." These laws typically apply to limited partnerships and securities being offered within the state. In Texas, if offers to sell interests or shares are made to fewer than 35 people, it is a private offering and exempt from securities registration.

Two borrowers take out a loan for the same amount and at the same rate. If borrower A makes payments of $1,000 each month and borrower B makes payments of $500 every two weeks, which is TRUE?

The answer is borrower B will pay off more of the loan each year than borrower A. In a biweekly-payment mortgage, the borrower makes a payment every two weeks equal to half the normal monthly payment. Therefore, the borrower makes 26 half-month payments each year, which equal 13 full-month payments versus 12 full-month payments. For example, a borrower who takes out a 30-year fixed-rate loan for $100,000 at 7.25% and makes monthly payments will pay approximately $145,580 in interest. If the borrower made payments biweekly at the same rate, the borrower would pay $108,602 in interest ($36,987 less), and the loan would be paid off in approximately 23 years.

Buyer Betty is assuming seller Sal's existing mortgage. The unpaid principal balance of the assumed loan shows as

The answer is both a credit to the buyer and a debit to the seller. Because Betty will be assuming the existing mortgage, she will be paying that amount after closing. Also, it shows as a debit to the seller because the seller must pay it off at closing.

What type of multifamily units are subject to the Americans with Disabilities Act?

The answer is both of these. Multifamily properties of four or more ground-floor units or four or more units with elevators must comply with the ADA. The ADA requires that such properties either be free of architectural barriers or provide reasonable accommodations for people with disabilities.

Where homestead or community property is involved and both spouses have an interest in the property, who must sign the note and deed of trust?

The answer is both spouses must sign the note and deed of trust. Where homestead or community property is involved, both spouses must sign the note and deed of trust. An exception is nonhomestead community property where one spouse is designated as the manager of that particular piece of community property.

Police power allows regulation of all of the following EXCEPT

The answer is building ownership. Under the police powers granted by the 14th Amendment, government entities may adopt regulations necessary to protect the public health, safety, morals, and general welfare. This includes regulation through zoning, subdivision regulations, building codes, and environmental legislation. Deed restrictions are private controls and may not restrict an owner's right to transfer property.

Which is qualified through the loan application, the credit evaluation, and two qualifying ratios (the housing-expense ratio and the total-debt ratio)?

The answer is buyer. The property is qualified by doing an appraisal and applying the loan-to-value (LTV) ratio. The title is qualified by doing a title search.

When a loan is made using a deed of trust, the title is conditionally conveyed to the trustee by whom for whose benefit?

The answer is by the borrower for the lender's benefit. The title remains in trust until the loan is paid.

An investor decides to liquidate property previously acquired through a 1031 exchange. If she is not acquiring replacement property in this transaction, which statement regarding capital gains taxes would be TRUE?

The answer is capital gains taxes are due on the total capital gain accumulated since the purchase of the initial property. Capital gains taxes are deferred, not eliminated, in a 1031 exchange. An investor can keep exchanging upward in value, adding to assets for as long as she lives without ever personally having to pay any tax on the profits. Upon the liquidation of exchanged property (without another replacement), capital gains taxes are due on all gains accumulated since the purchase of the initial property.

Which of the following is NOT an appraisal license or certification level?

The answer is certified special real estate appraiser. There are three appraiser license or certification levels and one trainee level: certified general real estate appraiser, certified residential real estate appraiser, state-licensed real estate appraiser, and approved appraiser trainee.

What is an example of the types of damages covered by casualty insurance?

The answer is claims paid to cover costs of a burglary of a 7-11. Casualty insurance policies include coverage against theft, burglary, vandalism, and machinery damage. Casualty policies usually are written on specific risks, such as theft, rather than being all-inclusive.

A real estate license is NOT required for those who, for a fee, rent or lease or procure tenants for a property unless they

The answer is collect or deposit rent for a single-family residence. The Real Estate License Act states that a real estate license is required when a person, for a fee, rents or leases or procures tenants for a property, unless that person is an onsite apartment manager or an employee of the owner of the property. The TREC Enforcement Division issued the following statement: "Property managers who merely collect rent [unless collecting or depositing rent for a single-family residence], do billing statements, and make maintenance arrangements do not need to be licensed. If a property management company is also going to lease and list for lease real property belonging to others, then the people who do the leasing and listing of the properties must be properly licensed." A person who controls the acceptance or deposit of rent from a resident of a single-family residence must be licensed.

A real estate agent who is most interested in working with the owners of shopping centers or large office complexes might work in which specialization within the real estate industry?

The answer is commercial. Business property, including offices, shopping centers, stores, theaters, hotels, and parking facilities are classified as commercial real estate.

A real estate attorney employed by a large national clothing store evaluates sites across the United States, searching for ideal locations for new stores. Which type of property is the attorney surveying?

The answer is commercial. Shopping centers and retail stores are classified as commercial real estate.

A car dealership along a roadway is so successful that other dealerships begin opening along the same road. This is an example of which appraisal principle?

The answer is competition. A successful enterprise will often draw competitors who hope to siphon off profits from the leader. As is often the case with dealerships, restaurants, and other retailers, clusters of similar businesses may often draw a larger number of consumers to the area, thus enhancing profits for all.

In what kind of business does a landman engage?

The answer is conducting business activities related to oil exploration. A landman conducts business activities related to oil, gas, and mineral exploration. Landmen are not required to have a real estate license.

Loans that follow guidelines established by Fannie Mae and Freddie Mac in the secondary market are called

The answer is conforming loans. The secondary market standardizes loan requirements because loans must be packaged to be attractive to investors in the secondary market. Standard guidelines include limits on loan-to-value ratios (LTVs) and loan amounts. Standard forms to be used in making these loans include appraisal forms, closing statements, promissory notes, and deeds of trust. Nonconforming loans can be made by any lender to be held in its own portfolio or sold to a private mortgage packager.

In the sales comparison approach to value, the probable sales price of a building may be estimated by

The answer is considering sales of similar properties. By considering the sales of similar properties and making net adjustments, a price for the subject property can be reached.

Which of the following is NOT one of a property manager's responsibilities?

The answer is construction. Property management involves leasing, managing, marketing, and overall maintenance of real estate owned by others.

Which is NOT a provision of the Fair and Accurate Credit Transactions Act of 2003 (FACTA)?

The answer is consumers may lock up their credit reports to prevent a credit-reporting agency from releasing a credit report or a credit score. Security-freeze laws (not FACTA) allow consumers to lock up their credit reports to prevent a credit-reporting agency from releasing a credit report or a credit score.

Arnold has watched television commercials promoting the use of pyramiding as a real estate investment technique. If Arnold wants to try this approach, which action would he take?

The answer is contact his bank to arrange a refinance of one of his investment properties, thereby obtaining cash to buy another rental house. Pyramiding uses the equity in properties that an investor already owns to finance the purchase of additional property. The investor refinances existing property and uses the cash to buy more real estate.

A borrower who has a mortgage reduced on a second home through mortgage forgiveness will have his payments lowered but

The answer is could face tax consequences on the amount the mortgage was lowered. The government's view is that whatever amount is saved from the mortgage should be considered income, and therefore be taxable.

Which of the following gives financial information about the borrower, such as loan balances, payment histories, and personal bankruptcies?

The answer is credit report. A credit report gives a FICO score, which reflects the borrower's record for repaying past credit obligations (including collections and bankruptcies), the debt-to-available-credit ratio, the length of time the borrower has had established credit, the number of different types of credit the borrower has handled in the past, and the number of new credit applications or queries in the credit file. A credit evaluation verifies information on the loan application, such as employment history and assets.

An escrow agent is preparing a Closing Disclosure in preparation for a closing. How would the agent normally enter the broker's commission?

The answer is debit to the seller. The seller normally pays the commission, and this would show as a debit to the seller on the Closing Disclosure.

Operating expenses include all of the following EXCEPT

The answer is debt services. The cash flow produced by any given parcel of real estate is determined by at least three factors: (1) amount of rent received, (2) operating expenses, and (3) method of debt repayment. Operating expenses include general maintenance of the building, repairs, utilities, taxes, and tenant services (such as security systems).

According to the income approach, if the capitalization rate increases, the property value

The answer is decreases. If the rate increases, the value decreases. To achieve a higher rate of return on an investment, an investor must pay less for the property.

In which does the mortgagee (lender) take title subject to any other existing liens?

The answer is deed in lieu of foreclosure. In this method, sometimes called a "friendly foreclosure," the lender accepts title to the property to satisfy the debt. If the property is worth more than the debt, the lender must pay the difference in cash to the borrower. In a power-of-sale foreclosure, all junior liens are eliminated.

Which of the following serves as security on a loan in the event of nonpayment?

The answer is deed of trust. A deed of trust conditionally conveys the real estate as security for the loan to the trustee, who acquires a mortgage lien on the real estate. Both a note and a deed of trust are required; the note as a promise to pay, and the deed of trust as security in the event of nonpayment.

Which is a security instrument that involves three parties?

The answer is deed of trust. The parties to a deed of trust, also called a trust deed, are the borrower (the mortgagor or trustor), the lender (the mortgagee or beneficiary), and a neutral third party (the trustee, usually an employee of the lender). When a loan is made, the borrower conditionally conveys title to the real estate to the trustee, who acquires a mortgage lien on the real estate. The title remains in trust until the loan is paid. The borrower is considered the owner of the property and holds the title, because Texas is a title theory state.

Which of the following is also called a bargain and sale deed?

The answer is deed without warranty. A deed without warranty conveys whatever interest the grantor has in the property without warranty of any kind.

A homeowner is behind on his home loan payments. Which of the following is NOT a method by which he might avoid foreclosure on his home?

The answer is deficiency judgment. A deficiency judgment results when the foreclosure sale of real estate securing a deed of trust does not produce enough money to pay the loan balance in full, along with the expenses of sale. It is a personal judgment against the borrower for the unpaid balance. Foreclosure-avoidance options include mortgage modification (both forbearance and forgiveness), mortgage refinance, short sale, and deed in lieu of foreclosure.

To derive the property's adjusted basis, the basis is adjusted by adding any improvements made and deducting

The answer is depreciation expenses taken. For example, an investor purchases a property for $150,000. Improvements are added for $75,000 and depreciation of $25,000 is taken. The investor's adjusted basis is now $200,000. ($150,000 initial cost + $75,000 improvements - $25,000 depreciation = $200,000 adjusted basis).

Jeffrey, a property manager, and Pete, a property owner, negotiate a property management agreement. That agreement should include

The answer is description of the property to be managed. The description of the property could include one building or several. If any recreational facilities on the property also are to be managed, they should be specified.

If there are high vacancy rates in a managed retail or office property, the property manager should

The answer is determine if management has been ineffective or the property has deteriorated. Lowering the rental rate is not always the solution to a property's problem. Vacancies occur for many reasons, including financial soundness of individual lessees or a shift in local economics.

Because home loans are applied for at one point but may not actually close until weeks or months later, the fees for some items may change up or down in the interim. However, some fees have "zero tolerance" for change. Those fees include

The answer is discount points and origination fees. RESPA does not allow lenders to change many terms of a loan after agreement has been reached with the borrower. Borrowers are entitled to know as nearly as possible the cost of their loan before they go to close.

To continually replenish their supplies of funds for mortgage loans, lending institutions often will sell their loans to investors. However, the interest rate that a lender charges for a loan may be less than the yield an investor demands. To make up the difference, what does the lender charge the borrower?

The answer is discount points. Discount points represent the percentage by which the face amount of a mortgage loan is discounted, or reduced, when it is sold to an investor to make its interest-rate yield competitive in the current money market. Without this discount, an investor would not be interested in purchasing a lower-rate loan. As a rule of thumb, each point of discount raises the effective yield by 1/8 of 1%. For the borrower, one discount point equals 1% of the loan amount.

To determine rate when the amounts of the part and the total are known,

The answer is divide the part by the total (part ÷ total = rate). This formula may be used to determine the ad valorem property tax rate when the taxes and appraised value are known or to calculate the commission rate if the sales price and commission amount are known. When the part is known, always divide it by the other known factor.

A loan-to-value ratio is calculated by

The answer is dividing the loan amount by the lesser of sales price or appraisal. If a property has a sales price of $105,000 and an appraised value of $100,000, secured by an $80,000 loan, the LTV is 80%: $80,000 (loan) ÷ $100,000 (lesser of sales price or appraisal) = 80%.

When using a CLO system, a real estate license holder may

The answer is do all of these. A computerized loan origination (CLO) system is an electronic network for handling loan applications through remote computer terminals linked to several lenders' computers. The application process may be completed in the real estate broker's office. The license holder may assist the applicant in answering the on-screen questions and in understanding the services offered by the various lenders. However, consumers must be informed that other lenders are available, and the borrower, not the mortgage broker or lender, must pay any applicable CLO fees, which may be up to one-half percent of the loan amount. A) help a buyer select a lender and apply for a loan while in the real estate broker's office. B) do all of these. C) explain the services offered by the various lenders. D) assist an applicant in answering the on-screen questions.

Sue is frantic because she cannot find her deed and now wants to sell the property. She

The answer is does not need the deed to sell if the deed was recorded. The county clerk maintains a record.

What aspect of real estate involves giving courses or seminars to real estate professionals and the general public?

The answer is education. Real estate professionals assume other roles as well. Real estate counselors give advice on real estate investments. Real estate development subdivides parcels of land and constructs roads and utilities. Real estate managers run a property for the owner.

Which of the following is suspected of causing serious health issues, although to date there is no proof?

The answer is electromagnetic fields. EmFs are generated by the movement of electrical current through any electrical appliance. EmFs are suspected of causing cancer, hormonal changes, and behavioral abnormalities—although to date there is no proof.

What is the difference between an equity REIT and a real estate syndicate?

The answer is equity REITs pool properties and sell shares to investors, while real estate syndicates pool several investors' funds to purchase one property. Much like mutual fund operations, equity REITs pool an assortment of large-scale income properties and sell shares to investors. This is in contrast to a real estate syndicate, through which several investors pool their funds to purchase one particular property.

Sara is a real estate investor; she owns several homes in Galveston that she rents out on both short- and long-term leases. She has mortgages on the homes that she pays monthly. What is the portion of her mortgages that is applied to the principal for each loan considered?

The answer is equity buildup. The portion of an investor's mortgage payments applied to the principal represents equity buildup and increases the value of the investor's ownership interest in the asset with each remittance.

A nonrecourse note and mortgage may prohibit a lender from seeking a deficiency judgment against a borrower. Under what circumstances might a lender agree to a nonrecourse loan?

The answer is equity loans and reverse-annuity mortgages. These loans tend to be insulated from deficiency judgments because they are based on property value after the original mortgage.

Janet is a property manager for a large mixed-use space. She wishes to purchase insurance coverage for her negligence and innocent mistakes. What type of insurance should she purchase?

The answer is errors and omissions. Errors and omissions insurance is specialty coverage to protect against negligence and innocent mistakes and errors.

Step 1 in estimating property value using the income approach is to

The answer is estimate annual potential gross income. This step in the income approach includes an estimate of anticipated income from rent at market rental rates, as well as income from other sources, such as vending machines and laundry facilities. The steps for estimating property value using the income approach are (1) estimate annual potential gross income based on market rental rates, (2) estimate annual effective gross income, (3) estimate annual net operating income (NOI), (4) estimate the capitalization rate (cap rate), and (5) apply the cap rate to the property's NOI (NOI ÷ cap rate = value).

What are accrued items at closing?

The answer is expenses that are owed by the seller but will later be paid by the buyer. Accrued expenses include unpaid ad valorem property taxes, interest on an assumed mortgage, and some utility bills. The seller is debited (charged) for these items at closing, and the buyer gets the credit.

Depreciation that is due to outside forces is

The answer is external obsolescence. This also is called economic obsolescence and locational obsolescence. An example of external obsolescence is a house that is located near a chemical factory.

The Real Estate Settlement Procedures Act was first enacted as

The answer is federal law. The Real Estate Settlement Procedures Act was established by Congress in 1974. The purpose of the law was to make sure real estate professionals did not exert undue influence over homebuyers in decisions about lending and settlement services.

Darwin is a wealthy lobbyist in Austin. While he makes a six-figure salary, he is always looking at ways to save money. He recently learned that he can save heating and cooling costs by getting the attic of his home sprayed with foam insulation. Which of the following incentives might Darwin be eligible for?

The answer is federal residential energy-efficiency tax credit. Periodically, the federal government makes a residential energy-efficiency tax credit available to offset the cost of energy-efficient water heaters, furnaces, boilers, heat pumps, air conditioners, building insulation, windows, doors, roofs, and circulating fans used in qualifying furnaces. The other incentives either apply to persons with low or middle incomes or only apply to renewal energy systems.

Gloria is a sales agent who wishes to specialize in REOs. What should she have knowledge of in order to be considered competent to specialize in these types of real estate transactions?

The answer is financing and investment principles. Properties owned by lenders and government agencies under a process whereby they take possession of properties that fail to sell at a foreclosure auction for at least the amount owed by the borrower are called REOs. Agents who specialize in these kinds of lender-involved transactions must have a good grasp of financing, investment, tax, and valuation principles. In addition, they must know how to negotiate with lenders.

In the state's history, Texas land has been organized under how many systems?

The answer is four: the Spanish government, the Mexican government, the Republic of Texas, and the State of Texas. The General Land Office has now updated all land systems and attached an abstract number to each parcel in the state.

How is radon produced?

The answer is from the decay of other radioactive materials in rocks under the surface of the earth. Radon is an odorless, radioactive gas produced by the decay of other radioactive materials in rocks under the surface of the earth that generally enters a house through cracks in the foundation or through the floor drains. Long-term exposure to radon is said to cause lung cancer.

In what type of partnership do all members share equally in the managerial decisions, profits, and losses involved with the investment?

The answer is general partnership. A general partnership is organized so that all members of the group share equally in the managerial decisions, profits, and losses involved with the investment. In a limited partnership, limited partners lose only as much as they invested, nothing more.

Property inspection involves

The answer is giving an opinion as to the condition of the structural, electrical, mechanical, and plumbing systems and equipment for a parcel of real estate. An appraiser develops an opinion of value for a parcel of real estate. A property developer purchases raw land and improves it. A title and/or abstract company ensures good title to the buyer of real estate.

Which statement is NOT generally connected with green environmental initiatives?

The answer is green buildings utilize all new materials rather than old, recycled materials. Green building is defined by the Environmental Protection Agency (EPA) as "the practice of creating structures and using processes that are environmentally responsible and resource-efficient throughout a building's life cycle from site preparation to design, constructing, operating, maintenance, renovation, and deconstruction." Green buildings are designed to reduce the overall impact of buildings on human health and the natural environment. They may incorporate reused, recycled, or renewable materials in their construction; they create healthy indoor environments with minimal pollutants; and they may also feature native landscaping plants that survive without extra watering.

Julio signed a lease in which he will pay a fixed amount of rent each month and the landlord will pay all of the building's expenses. Which type of lease has Julio signed?

The answer is gross lease. Tenants generally pay for utilities, but other expenses are paid by the landlord. Most residential and commercial office leases are gross leases.

George owns several types of real estate investments. He owns two houses that he rents out, and he has sold one other that he carried back a mortgage on. What is the benefit of holding the mortgage as a security over the rental properties as assets?

The answer is he has an income stream from the security without having to manage the properties. While both types of investments produce income, he needs to manage the properties he owns. He has no equity buildup and does not benefit from appreciation in holding the mortgage but he gets the benefit of both in the rental properties that he owns. There are risks to holding both types of investments.

What are some of the unique characteristics of a home built under the guidance of the EPA's Green Building Program?

The answer is homes take advantage of recycled materials in construction and are wary of introducing contaminates such as glues, carpet chemicals, and toxic cleaners. The Green Building Program focuses on reuse of materials which, in turn, helps preserve natural resources. Green buildings attempt to use the environment to take maximum advantage of natural sunlight or shade.

Which of the following would a lender generally NOT require to be produced at or before the closing?

The answer is homestead declaration. The lender requires an appraisal before closing as verification that the property will be sufficient security for the loan. The lender's title insurance is necessary to assure the lender that it has a valid lien. The survey would be necessary to verify the boundaries and absence of encroachments. Declaration of the property as a homestead is not a condition of the loan, although it would allow an exemption resulting in lower taxes after the buyer occupies the property.

What is a major concern of MOST sellers that sales associates may be able to provide an estimate for?

The answer is how much they will net if they list and sell at a specific price. Sales agents can provide ballpark figures through a Seller's Net Return form that calculates sales price, commission, and closing costs.

Under what circumstances may a foreclosed property owner redeem his property?

The answer is if it was foreclosed because of a tax lien or a homeowners association lien. Texas has a two-year redemption on homestead property and 90 days for a homeowners association redemption.

Joan has two rental properties that are exactly the same size. One is a new duplex near downtown Austin, and the other is a duplex built in 1971 in Manor. What happens to the duplex in Manor if she can't rent it out?

The answer is if rent cannot cover expenses, there will be a negative cash flow. If the cash flow from rents is not enough to cover all expenses, a negative cash flow will result. To keep cash flow high, an investor should keep operating expenses reasonably low. Operating expenses include general maintenance of the building, repairs, utilities, taxes, and tenant services. As with inadequate rental income, poor or overly expensive management can result in negative cash flow.

Xavier, a bachelor, died owning real estate that he devised by his will to his niece, Annette. When will full title and possession pass to his niece?

The answer is immediately upon Xavier's death. Legally, title to real estate passes immediately to persons named in a will or to heirs by descent. However, a will must be probated if there is a dispute among the devisees.

If a lender forces the auction of a property in default, how long does the borrower (or tenant) have to leave the premises?

The answer is immediately upon sale. The borrower or the tenant who does not surrender the property immediately upon sale may be forcibly removed.

Most residential notes specify that interest is paid

The answer is in arrears. Most residential notes specify that interest is paid as it accrues (or in arrears). Whether interest is charged in arrears or in advance becomes important if the property is sold before the debt is repaid in full. Whether interest is charged in arrears or in advance is specified in the note.

When is asbestos presumed to be present?

The answer is in buildings constructed before 1981. Asbestos is presumed to be contained in most structures built before 1981.

A broker must advise a buyer in writing to have the abstract of title reviewed by an attorney or to get title insurance. Where is this advice located?

The answer is in the TREC-promulgated contract. The Texas Real Estate License Act requires that a broker advise a purchaser in writing, at or before closing, to have the abstract examined by an attorney or to obtain a title insurance policy. This "advice" is included in Texas-promulgated sales contract forms, and the buyer and the buyer's lender want assurance that the seller's title complies with the requirements of the contract.

Which of the following real-property objectives is also a real-property security objective?

The answer is income stream. Real-property objectives generally include positive cash flow, equity buildup, tax savings, and property appreciation. Real estate securities generate an income stream without the headaches of property management.

Adding more bathrooms to a three-bedroom house that has only one bathroom may be an example of

The answer is incurable functional obsolescence. This is a building redesign that may cost more to complete than the value it will add. Another example of incurable functional obsolescence is an old house with two bedrooms where one of the bedrooms is only accessible through the other bedroom.

What is the typical employment status for a residential rental locator?

The answer is independent contractor. A residential rental locator works as an independent contractor for apartment complexes.

When a warehousing company relocates to a new city, company executives would likely contact a real estate agent specializing in which classification of real estate to assist with finding a suitable building for the warehouse?

The answer is industrial. Warehouses, factories, and land in industrial districts are classified as industrial real estate.

One of the duties of the mortgagor in a deed-of-trust mortgage document is the mortgagor's promise to maintain an adequate amount of which of the following on the property?

The answer is insurance. The borrower also promises to pay the debt in accordance with the terms of the note, to pay all real estate taxes, to maintain the premises in good repair at all times, and not to introduce hazardous materials to the property.

When the Federal Reserve Board raises the discount rate, which of the following should happen?

The answer is interest rates will rise. In theory, when the Federal Reserve discount rate is high, bank interest rates are high, fewer loans will be made, and less money will circulate in the market place.

To be exempt from federal income tax, real estate investment trusts (REITS) must be structured to

The answer is invest at least 75% of its assets in real estate, other REITs, securities, or cash. A REIT does not have to pay corporate income tax as long as 90% of its income is distributed to its shareholders. To qualify as a REIT, there must be at least 100 investors (shareholders or beneficiaries) and 75% of the REIT's assets must be invested in real estate, other REITs, securities, or cash. There is no minimum number of transactions required. The three types of investment trusts are equity REITs (which purchase properties), mortgage REITs (which purchase mortgages), and hybrid REITs (which invest in both properties and mortgages).

Foreclosure because of delinquent real estate taxes is an example of title transfer by

The answer is involuntary alienation. In this case, the transfer of title occurs without the owner's control or consent. Foreclosure also can occur because of enforcement of mortgage liens, enforcement of mechanics' liens, and enforcement of judgment liens. Other ways in which involuntary alienation can occur include escheat, eminent domain, and erosion.

Eminent domain and escheat are two examples of

The answer is involuntary alienation. Transfer of title without the owner's consent is involuntary alienation. Such transfers are usually carried out by operation of law and include escheat, eminent domain, tax or mortgage foreclosure, erosion, and adverse possession.

To find the area, which of the following would you divide into identifiable parts, calculate the areas of those parts, and add them?

The answer is irregular figure. To compute the area of an irregular room, a house, or a parcel of land, divide the shape into regular rectangles, squares, or triangles. Then, compute the area of each of these regular figures and add them together to obtain the total area.

Which is a distinguishing characteristic of good and indefeasible title?

The answer is it cannot be defeated by a superior claim. Marketable title is free from any claim. Good and indefeasible title insures that, if there is a claim, the claim can be defeated.

What is the purpose of an acceleration clause in a mortgage?

The answer is it enables the lender to demand payment in full on a loan in default. Without the acceleration clause, the lender would have to sue for each payment as it comes due on a defaulted loan.

Which statement is TRUE about a syndicate?

The answer is it is a private or public business venture to own property. Syndicates usually are organized as general, limited, or limited liability partnerships. Some profit from the venture is from rents collected on the investment property, but the main return usually comes when the syndicate sells the property after sufficient appreciation. Blue-sky laws protect syndicate investors against securities fraud by requiring sellers of new issues to provide financial details and register their offerings with state officials and/or with the Securities and Exchange Commission (SEC).

Which is TRUE regarding an FHA loan?

The answer is it is insured up to a specific limit by the Federal Housing Administration. A borrower is required to pay at least 3.5% of acquisition cost (the lesser of the sales price or appraised value) in cash at closing toward the down payment.

Can Texas land be transferred as a result of a poker game or a bar bet?

The answer is it would probably end up in court. Despite the Texas legend that the famous 6666 Ranch was won in a poker game, which descendant owners say is not true, it is unlikely that a modern court would consider a bet enforceable. Deed transfers require precise, written information and disclosures that would not typically be present in a bar bet. However, Texas courts have been known to uphold verbal contracts.

Buyer Barbara is purchasing a home from seller Sandra. Barbara's lender offers discount points to buy down the interest rate. Who is always responsible for payment of the discount points?

The answer is it's negotiable. The lender may also charge discount points, the payment of which is negotiated between the buyer and the seller on the sales contract.

Joan is a sales agent who recently obtained her license. She is sponsored by Ace Realty. Ace should ensure that Joan has knowledge of which of the following in order to ensure that she is competent to do property management?

The answer is landlord-tenant laws. The property manager may be responsible for soliciting tenants, collecting rents, altering or constructing new space for tenants, monitoring insurance coverage, ordering repairs, and generally maintaining the property.

Which of the following environmental risks requires a specific disclosure on the lease or sale of properties build before 1978?

The answer is lead. A disclosure notice is required on the lease or sale of properties built before 1978. An elevated level of lead can cause serious damage to the brain, kidneys, nervous system, and red blood cells. Children younger than six are particularly vulnerable.

A purchaser of real estate is charged with knowledge of all recorded documents, as well as with the responsibility to

The answer is learn the rights of the parties in possession. The physical possession of a property gives constructive notice of an individual's rights or interest in real property—as does properly recording documents in the public record. Constructive notice by possession is given even if occupants failed to record their deed in the public record. Because the evidence of occupancy is readily available upon inspection, the buyer is burdened with discovering the interest of the current occupant.

A sales agent wishes to specialize in apartment locating. In what areas of real estate should the agent be competent?

The answer is leasing laws. An apartment locator matches landlords and tenants. Working as an independent contractor for several apartment complexes, the locator finds apartment units for prospective tenants, qualifies prospective tenants, and negotiates leases with the apartment complexes.

What are the two theories of mortgage law?

The answer is lien theory and title theory. The two theories, like much of U.S. mortgage law, are descended from English law and laws adopted by the original 13 colonies.

Under which theory of mortgage law does Texas operate?

The answer is lien theory. In some states, when a borrower defaults, a lender may foreclose, offer the property for sale, keep enough money to pay the outstanding debts, and return whatever is left to the borrowers.

The Real Estate Settlement Procedures Act is NOT a factor in

The answer is loans for business, commercial, or agricultural purposes. RESPA is specifically designed to protect consumers in the purchase of private homes. Most commercial, business, and ag loans involve attorneys and consultants who are obligated to protect their clients.

A sales agent wants to become competent in commercial leasing. Knowledge of which of the following is important?

The answer is local zoning laws. Because commercial leasing does not involve transfer of title for other than a lease, specialized knowledge of lending laws, title insurance, and deed transfers is not necessary, other than what the agent needs to be aware of to get a real estate license.

One of the chief purposes of the Dodd-Frank Act was to?

The answer is make sure appraisers were free of pressure from lenders and sales agents to arrive at the "right price" when valuing a property. Professional and accurate appraisals must be conducted without principals or surrogates putting pressure on the appraiser to make sure the "property appraises."

When Jeffrey, a property manager, and Pete, a property owner, negotiated a property management agreement, which provision of the agreement might have been based on a percentage of gross or net income, a commission on new rentals, a fixed fee, or a combination of methods?

The answer is management fee. The fee the manager receives also could have been affected by the size of the building and competitiveness in the local market.

What is an example of a situation in which one would need to obtain a conditional-use permit?

The answer is managing a bed and breakfast in a residential neighborhood. If a property use is only marginally acceptable in a specific type of zone, the owner would submit a request for approval to the planning and zoning commission for a conditional-use permit. The approval of a B&B in a residential zoning district would be as a conditional use, a use permitted in the appropriate zoning district only when all conditions set forth by the planning and zoning commission are met. The special conditions would be designed to minimize any adverse impact to the surrounding areas by enhancing existing regulations in the zoning ordinance. A conditional-use permit may be issued to either run with the land or run with the ownership.

To determine the applicable interest rate at the time of adjustment on an adjustable-rate mortgage, which of the following is added to the index rate?

The answer is margin. The margin represents the lender's operating costs and profit. For example, a borrower has an ARM tied to the LIBOR with a margin of 2.25. If the LIBOR is 6%, the loan rate will be 8.25% (6% LIBOR rate + 2.25 margin = 8.25% interest rate), which is subject to interest caps set in the promissory note.

Which of the following is NOT typically included in tenant eligibility criteria?

The answer is marital status. The printed or online notice must include the grounds for which an application may be denied, including the applicant's criminal history, previous rental history, current income, credit history, or failure to provide accurate or complete information on the application form.

An Information About Brokerage Services form must be given to prospective tenants at the first substantive dialogue on a residential lease for

The answer is more than one year. The form always is required when the purchase of the property is contemplated.

Which of the following service mortgage loans, even those loans they have sold to investors?

The answer is mortgage bankers. Mortgage bankers originate, package, and service loans. They earn a fee for continuing to service loans they have sold to investors. Mortgage brokers simply act as intermediaries bringing borrowers and lenders together. They earn a finder's fee and do not service loans.

Under the Consumer Finance Protection Bureau's ability-to-repay rule, what information must lenders consider before deciding how much to loan an individual?

The answer is mortgage-related obligations such as property taxes, insurance, and HOA fees. Lenders must consider a total of eight factors, which also include the borrower's alimony and child support, debt-to-income ratio, credit history, and other factors.

A planned unit development (PUD) is an example of

The answer is multiple-use zoning. A planned unit development (PUD) permits a mixed-use zone for properties that would normally not be compatible and creates a unified development in which one or more residence areas is combined with one or more commercial or office areas.

To find the area of a square or rectangle,

The answer is multiply (length × width). Area is a two-dimensional surface of an object; it is given in square units (such as feet, yards, or acres). To compute the area of a square or rectangular parcel, use this formula: area = length × width. A real estate agent would use this formula to compute the area of a parcel of land or to figure the square footage of living area in a house or commercial building.

Zoning powers are delegated to which of the following in Texas?

The answer is municipalities. Zoning powers are conferred by state enabling acts. Texas adopted its version of the Standard Zoning Enabling Act in 1927 and delegated zoning powers to municipalities but not to counties. There are no nationwide zoning regulations; and with the exception of Hawaii, no states have statewide zoning regulations. State and federal governments may, however, regulate land use through special legislation such as scenic easement and coastal management laws.

What is a basic requirement to legally participate in property auctions?

The answer is must be licensed as an auctioneer. A licensed auctioneer must call the auction, and a licensed sales agent may assist in filling out the sales contract associated with the auction.

If an applicant in a wheelchair wants to see an apartment on an upper floor in a building that has no elevator, the applicant

The answer is must be shown the apartment. A disabled rental applicant must be shown the same dwellings as an able-bodied applicant. The prohibition against discrimination toward people with disabilities applies to all rental properties. Disabled tenants must be permitted to make reasonable modifications to the structure to permit full enjoyment of the housing and related facilities. Reasonable modifications are usually made at the tenant's expense, and the owner may require that the premises be restored to their original condition at the end of the lease term. Additionally, landlords are required to make reasonable accommodations by changing or adjusting rules, policies, practices, or services for disabled tenants.

If a property has a yearly income of $100,000 and ownership expenses of $110,000, the property provides the investor $10,000 in

The answer is negative cash flow. Cash flow refers to the dollars remaining after all expenses of ownership have been paid. Cash flow may be positive (if the dollars remaining after all expenses of ownership have been paid are greater than $0) or negative (if the dollars remaining after all expenses of ownership have been paid are less than $0). In this case, it is negative ($100,000 income - $110,000 expenses = -$10,000 negative cash flow).

RESPA covers real estate transactions financed using

The answer is new residential first-mortgage loans. RESPA applies to all federally related mortgage loans except (1) a loan for business, commercial, or agricultural purposes; (2) a loan on property of 25 acres or more; (3) a temporary construction loan; (4) a loan on vacant land; (5) assumption without lender approval; (6) a conversion of a federally related mortgage loan to different terms, if a new note is not required; and (7) transfer of a loan in the secondary market.

What exam must be passed by a board member of an appraisal management company?

The answer is no examination is required. Individual appraiser applicants must take and pass the National Uniform State Appraiser Exam. The exam was developed by the Appraiser Qualifications Board. The fee for taking the exam is $61.

Which is NOT a characteristic of home loans through the Rural Development program?

The answer is no guaranty fees. Rural development housing loans are available in rural communities of 10,000 or less (up to 20,000 under some circumstances). The loans have no down payment, no monthly mortgage insurance, and no loan limits. The maximum loan amount is determined by the applicant's repayment ability, with qualifying ratios of 29%/41%. There is a guaranty fee payable at closing and an annual fee, based on the unpaid principal balance.

How much notice must lessees provide that they intend to vacate a property at the end of a "lease for years"?

The answer is no notice is required. The lease for years contract states a specific termination date and the lessee is expected to leave at that point. There cannot be an early termination date unless one party can demonstrate the contract has been breached.

In case of foreclosure, under Texas law, how long does a borrower have to redeem and repossess the forfeited property?

The answer is no provision under Texas law for redemption of owner-occupied property foreclosed under a deed of trust. Some other states do allow property owners to redeem foreclosed properties under certain circumstances.

Joan Riviera is a licensed sales agent sponsored by Coastal Realty, a licensed brokerage firm in Corpus Christi, Texas. Joan has been licensed for 20 years, primarily focusing on residential and commercial sales. She moved to Corpus Christi to live on the beach and to do property management for long-term vacation rentals. She has no experience doing property management, but that is what Coastal Realty specializes in, and she is willing to learn. David Corn is the designated broker for Coastal Realty. The firm advertises that its agents are experts in property management, specifically long-term vacation rentals, but it also does residential sales. David informed Joan in writing that she is only authorized to do residential sales, but promising to revisit the issue after six months if Joan takes some property management classes and shadows other agents doing property management. After taking a class two months after becoming sponsored by Coastal, Joan decides she is ready to do property management, but she makes a huge mistake in her first transaction and the client files a complaint against her with TREC. Is Coastal Realty responsible for Joan's actions?

The answer is no, David has limited her to residential sales. A sponsoring broker is required to advise a sales agent of the scope of that sales agent's authorized activities under the License Act. In this case, David has limited her to residential sales. It is irrelevant that she took the class.

Sylvia Gomez is a licensed sales agent sponsored by West Texas Realty, a licensed brokerage firm in Midland, Texas. Sylvia is a new licensee, but she knows she want to focus solely on commercial sales and leasing. Jeannette Thomas is the designated broker for West Texas Realty. The firm advertises that its agents are experts in residential and commercial sales. Jeanette informed Sylvia in writing that she is authorized to do residential sales only for the first year. Six months later, Sylvia takes a commercial sales class and decides that she is now competent to do commercial sales. Although she asks Jeanette to revisit her authorized activity, Jeanette has not yet made a decision. Is West Texas Realty responsible for Sylvia's actions if a commercial buyer files a complaint against her with TREC?

The answer is no, Jeanette has limited Sylvia to residential sales. Although not required to directly supervise a sales agent, the sponsoring broker is responsible for the authorized acts of the sponsored sales agent, unless the broker has limited or revoked such activities in writing. In this case, Jeanette has limited Sylvia to residential sales even though she has promised to revisit the authorization after one year. It is irrelevant that Sylvia has asked her to authorize it.

Brian Belson is a licensed sales agent sponsored by Gulf Realty, a licensed brokerage firm in Galveston. Brian has been licensed for six years. He has handled all kinds of real estate transactions, but for the last 3 years has only done residential sales. Jenna Lewis is the designated broker for Gulf. Jenna has informed Brian that he can only do residential sales. Brian has decided to advertise on his website that he is available to do property management for vacation rentals, as well as residential sales and leasing. Is Gulf responsible for Brian's actions if one of his property management clients files a complaint against him with TREC?

The answer is no, Jenna has limited his authorized activities to residential sales. Although not required to directly supervise a sales agent, the sponsoring broker is responsible for the authorized acts of the sponsored sales agent, unless the broker has limited or revoked such activities in writing.

Don Martin is a licensed sales agent sponsored by Border Realty, a licensed brokerage firm in El Paso, Texas. Don has been licensed for three years, primarily focusing on residential sales and leasing. He has no experience doing commercial sales, but he wants to do it because he thinks there is more money to be made. Don has informed some of his contacts that he is broadening his base and is available to do commercial brokerage. Dolores Green is the designated broker for Border Realty. The firm advertises that its agents are experts in residential and commercial sales. Dolores originally informed Don in writing that he is authorized to do residential and commercial sales. Six months later, she informs Don that he can no longer do commercial sales because he has found no commercial listings since it started sponsoring him. Is Border Realty responsible for Don's actions if someone files a complaint against him with TREC?

The answer is no, Jenna has revoked his authority to do commercial sales. Although not required to directly supervise a sales agent, the sponsoring broker is responsible for the authorized acts of the sponsored sales agent, unless the broker has limited or revoked such activities in writing. In this case, Jenna has revoked his authority to do commercial sales.

Does a landman need to have a real estate license?

The answer is no, a landman does not need to have a real estate license. A landman working for an oil and gas company negotiates and administers purchase or lease contracts with land or mineral interest owners and ensures compliance with governmental regulations. An independent landman researches courthouse records to determine ownership; locates mineral/land owners and negotiates oil and gas purchase contracts, leases, and other agreements with them; and obtains any necessary curative documents. Landmen are not required to have a real estate license.

Do real estate educators need to have a broker-level real estate license to teach in Texas?

The answer is no, a real estate license is not required to be a real estate educator. The majority of real estate educators either do have or have had real estate licenses. If they teach prelicensing or continuing education classes, however, the classes must be approved by the state.

Stan Smith is a licensed broker who is associated with Capital City Realty, a licensed brokerage firm in Austin. Stan has been licensed for 35 years—33 years as a sales agent and 2 years as a broker. He has handled all kinds of real estate transactions, but for the past 3 years has only done residential sales, since having a massive stroke. Jenna Lewis is the designated broker for Capital City. Capital City sells and leases both residential and commercial properties. Is Jenna required to tell Ralph what kind of transactions he is authorized to do?

The answer is no, because Stan is a broker, the License Act does not require the firm to advise him of his authorized activities. A sponsoring broker is required to advise a sales agent of the scope of that sales agent's authorized activities under the License Act. There is no such requirement for brokers affiliated with a brokerage firm.

Can a mortgage lien be enforced if only one document—a promissory note or a deed of trust—is signed?

The answer is no, both the promissory note and the deed of trust must be signed. Under Texas law, a mortgage has not been created until both documents are signed.

Tenant Teresa and landlord Lester enter into a written contract for Teresa to rent Lester's commercial property. Teresa starts out selling cigars and cigarettes but goes on a health kick and decides to change it into a cross-training studio without notifying Lester. Can Lester sue Terri for breach of contract?

The answer is no, if there is no limitation on use of the premises. While a lessor may restrict a lessee's use of the premises through provisions included in the lease, in the absence of such limitations, a lessee may use the premises for any lawful purpose.

Are covenants in a general warranty deed restricted to the period the grantor actually owned the property?

The answer is no, in a general warranty, the grantor is assuring the quality of the title all the way back to its origin. A seller should not, however, promise a better title than what they received as a buyer.

Must all mortgages be sold on the second market?

The answer is no, lenders can keep portfolio loans. Banks can loan to whomever they want to. Occasionally they will finance properties for various reasons they feel are good risks, but not good enough to meet government standards.

Once an attorney's opinion of title is provided, is the need for title insurance eliminated?

The answer is no, most lenders understand that despite the due diligence of the abstracter, mistakes do happen, so title insurance will be insisted upon. Not all defects can be discovered in the public records, and mistakes can even make their way into the written reports on title condition.

Are Fannie Mae, Freddie Mac, and Ginnie Mae the only entities that make real estate loans available for purchase on the secondary market?

The answer is no, private mortgage packagers exist outside the GSEs. Private packagers wrap jumbo loans (which exceed GSE loan limits) into financial securities that can be sold to investors.

Can a Seller's Net Return form be used by a seller as proof of how much the seller will be able to put down on his next home purchase?

The answer is no, the Seller's Net Return form is an early estimate of a seller's proceeds but cannot be guaranteed. The net return will vary as the home price changes, and other factors—such as necessary repairs—are subtracted. It should only be considered a ballpark figure.

When land is transferred, such as in a will, must the receiver (the grantee) accept it?

The answer is no, the grantee can refuse to accept property. One requirement for a deed to be transferred, is that it must be accepted. Inability to pay taxes on property is one reason a grantee might reject property, or if it has too many encumbrances.

If a forced sale fails to bring in enough money to pay off the mortgage, costs, and other fees, is the buyer still free of any additional action?

The answer is no, the lender may file for a deficiency judgment against the borrower to repay the loss. In many cases, the lender does not expect to collect from the borrower, but the judgment is needed to collect mortgage insurance or guarantees from federally backed loans.

Must real estate appraisers, at any level, have real estate sales licenses as a prerequisite?

The answer is no, there are no real estate sales prerequisites. Appraisers must undergo extensive appraisal training for even a minimal license, but a sales license is not a requirement.

Which person(s) would qualify for a VA loan?

The answer is non-remarried spouses of vets who died in the line of duty. Veterans and non-remarried spouses of veterans who died from a service-related disability or in the line of duty qualify for a VA loan, as well as the spouse of a serviceperson missing in action or a prisoner of war.

In Texas, what organization issues the license to become a landman?

The answer is none because no license is required. No real estate or other license is required for a landman.

The advertising section of Regulation Z covers all media EXCEPT

The answer is none of these because Regulation Z covers all form of advertising without exception. Sales agents advertising on the internet should be aware that Regulation Z standards apply, even though the standards were not written specifically with the internet in mind.

A lease usually is terminated if

The answer is none of these. In most cases, if the property is sold, the owner dies, or the tenant abandons the property, the lease remains in effect. The landlord of a deceased tenant or one who abandons the property has a duty to mitigate damages by exercising reasonable care to find another tenant. The deceased's estate or the vacating tenant remains responsible under the terms of the lease only until another tenant begins rent payments.

Expertise in which of the following disciplines is necessary to specialize in property development?

The answer is none of these. Property developers are involved in land acquisition, financing, zoning, community planning, building, architecture, and land-use variables. Being a developer can be a lucrative business, and while a sales agent need not be an expert in any of these disciplines or require any specific type of license to be involved in property development, the field is highly demanding and successful developers typically are those who can assemble a quality team of experts.

When a buyer purchases a property with an existing loan and agrees to be personally obligated for the payment of the debt, the property has been sold

The answer is on assumption. If a deed of trust is foreclosed and the sale does not bring enough money to pay the debt in full, a deficiency judgment may be obtained against the assumer. Unless a release of liability was given to the original borrower, the person assuming the loan also will be liable for any shortfall.

How often is a homeowner billed for title insurance?

The answer is once, when the home is purchased. Title insurance is paid one time when the title insured is satisfied the title is clear, except for exemptions.

Once payments begin after closing, the borrower cannot be required to pay more than

The answer is one-twelfth of the annual taxes and insurance premium in each month. Escrow is set up to pay one-twelfth of the annual taxes and homeowners' insurance each month so the lender can pay these expenses when they become due. Other recurring items, such as homeowners association dues and mortgage insurance premiums, also may be escrowed. With the exception of FHA mortgage insurance premiums (MIP), the lender also can maintain a cushion equal to two months' worth of each expense escrowed, as long as at least once each year, the escrow account total does not exceed two times the monthly escrow payment.

A builder can expect interest on his construction loan to be charged

The answer is only on the amount of money disbursed to date. Under a construction loan, the lender commits the full amount of the loan but disburses the funds, known as draws, throughout the construction period. Draws are made to the general contractor or the owner for that part of the construction work that has been completed since the previous payment—both for labor performed and materials delivered. Interest is charged only on the amount of money disbursed. Construction loans are generally short-term or interim financing. The ultimate buyer/borrower is expected to arrange for a permanent loan (known as a takeout loan) that will repay or "take out" the construction financing lender when the work is completed.

Landlords are permitted to deny rental applicants housing if the property clearly and conspicuously states the standards for acceptance. Which of the following is NOT a permissible standard on which to deny an applicant?

The answer is origin of the family (such as no one of Mideast or African descent). Fair housing laws prohibit landlords from rejecting applicants on the basis of national origin. In other cases, however, landlords may reject individuals for a variety of things, as long as those grounds are posted.

Which person would likely NOT be able to get a mortgage loan?

The answer is owner of a cooperative interest. The owner of a fee simple estate can mortgage the fee, and the owner of a leasehold or subleasehold can mortgage that leasehold interest. For example, a large retail corporation renting space in a shopping center may mortgage its leasehold interest to finance some remodeling work. The owner of a condominium unit can mortgage her fee simple interest in the condo unit. However, the owner of a cooperative interest holds a personal property interest. Although she has a leasehold interest, the nature of that leasehold is not generally acceptable to lenders as collateral.

Which loan arrangement provides not only for a loan on the real estate, but also the personal property—including furniture and kitchenware?

The answer is package loans. The loan is often used to finance fully furnished condos and luxury homes in which the furniture and appliances already are installed.

Which financing technique includes NOT only the real estate but also all personal property and appliances installed on the premises?

The answer is package mortgage. A blanket mortgage is generally used to finance subdivision developments, with more than one parcel or lot pledged as security for the loan. The home equity line of credit sets up an open-end account in which the borrower may request advances against the equity in his or her property. A purchase money mortgage is any note and deed of trust created at the time of purchase—whether from a third-party lender or from the seller.

Under forbearance, what happens to a borrower's payments?

The answer is payments may be reduced or even stopped for a period. At the end of the emergency period, however, the borrower is obligated to make up the monies lost in a timely fashion and resume the payment schedule.

Which of the following real estate‒related disciplines does NOT require licensing (of any type)?

The answer is petroleum landman. Although many landmen have or have had real estate licenses, the discipline itself focuses on mineral rights laws, ownership issues, and financing concerns. Landmen will often consult with licensees for real estate‒related issues associated with mineral rights.

A developer plans to combine two adjacent lots into one larger lot, for which her asking price will be more than she previously had been asking for the two lots. She believes the one larger lot is worth more than the two separate lots based on which economic principle of value?

The answer is plottage value. The increased utility and value resulting from the combining or consolidating of adjacent lots into one larger lot is the principle of plottage value. The principle of substitution states that the maximum value of a property tends to be set by the cost of purchasing an equally desirable and valuable substitute property. The principle of supply and demand states that the value of a property will increase if the supply decreases and the demand either increases or remains constant—and vice versa. Anticipation states that value can increase or decrease in anticipation of some future benefit or detriment affecting the property.

Income from interest, stock dividends, and royalties is

The answer is portfolio income. A passive real estate investor (one who contributes money but has no voice in management operations) generally can offset investment losses only against investment income. He cannot use a loss from a passive activity to shelter active income (such as wages), or portfolio income (such as stock dividends, bank interest, and capital gains). Using losses from rental property to offset income from any source is reserved for active real estate investors. If a person (1) materially participates in the activities, (2) spends at least 750 hours in real-property businesses, and (3) performs more than 50% of his personal services for the year in real-property businesses, then the person would be considered a real estate professional and would not be subject to the passive loss limitations. The requirements must be met on a yearly basis.

The Straders plan to purchase a home within the next two months. To strengthen their position when their offers are presented to sellers, they get which of the following from a lender?

The answer is preapproved, after the lender has verified income, debt, and savings and has run a thorough credit check. When an applicant is prequalified for a loan, the lender has estimated the maximum loan for which the applicant could qualify—using the borrower's account of earnings, outstanding debt, and savings. When an applicant is preapproved, however, the lender has verified income, debt, and savings and has run a thorough credit check, permitting the lender to quote a specific maximum loan amount and to assert that it would advance a loan under the terms and conditions existing at the time of loan application.

If a lender has made loans that exceed the conforming loan limit, which secondary market would provide the BEST opportunity for the lender to sell the loans?

The answer is private mortgage packagers. Conforming loans (those at or below $453,100) meet Fannie Mae and Freddie Mac guidelines so they can easily be sold in the secondary market. Nonconforming loans can be made by any lender to be held in its own portfolio or sold to a private mortgage packager.

Which of the following is NOT a type of lease?

The answer is profit/loss lease. The three types of lease are gross, which includes residential and commercial office leases that pay basic rent; net, which includes commercial/industrial building and ground leases that pay basic rent plus all or most property charges; and percentage lease, which includes large retail store leases, that pay basic rent plus a percentage of gross sales.

If a real estate license holder wants to assist a property owner by soliciting tenants, collecting rents, and being responsible for property maintenance, which specialization would the license holder likely choose?

The answer is property management. A property manager may be responsible for soliciting tenants, collecting rents, altering or constructing new space for tenants, monitoring insurance coverage, ordering repairs, and generally maintaining the property.

Do apartment managers need real estate licenses?

The answer is property owners and their onsite employees do not require licenses to lease units. Employees for professional management firms that operate at a number of different locations must have real estate licenses.

The stated purpose of the Texas Appraiser Licensing and Certification Board (TALCB) is to

The answer is protect consumers. The stated purpose of the TALCB is to protect consumers of real estate services by making sure appraisals are accurate. Consumers need accurate numbers to help them make quality decisions on purchases.

With which financing technique would the seller retain a lien right if she finances part of the selling price, yet permit the title to pass to the buyer?

The answer is purchase money mortgage. A purchase money mortgage (PMM) is a note and deed of trust created at the time of purchase. It can refer to any security instrument originating at the time of purchase. However, it usually refers to a seller's taking back a note for part or all of the purchase price. Seller-financed PMMs are usually short-term loans with a balloon payment; title passes to the buyer and the seller retains a vendor's lien.

Justin is a new sales agent with a general knowledge of real estate principles. Gulf Properties is his sponsoring broker. Gulf has authorized Justin to do residential sales and leasing. Justin wants to do commercial sales and leasing as well. Gulf should ensure that Justin has knowledge of which of the following to be competent to do commercial sales?

The answer is real estate financing principles. Commercial brokers should have knowledge of real estate investment and financing principles because understanding the income-producing potential of commercial properties is key to representing clients in the commercial market. In addition, agents specializing in commercial real estate should have a proper understanding of local zoning laws and commercial property valuation principles.

A devise is the disposition under a will of

The answer is real property. The person who receives real property by will is a devisee. Disposition of personal property is called a bequest or legacy; the person who receives personal property by will is a legatee.

George is a real estate investor; he has 100% ownership of several houses in the DFW area. What type of investments are the houses considered?

The answer is real-property assets. Real estate investments generally fall into one of two types: real-property assets (such as single-family homes, apartments, shopping centers, and office buildings) and real estate securities (such as first-lien mortgage notes, Fannie Mae stocks, Freddie Mac bonds, or Ginnie Mae certificates). A REIT is a real estate investment trust, a security that is invested in real estate directly, either through properties or mortgages.

Clara owns Ginnie Mae certificates as part of her real estate investments. What type of investments are the certificates considered?

The answer is real-property securities. Real estate investments generally fall into one of two types: real-property assets (such as single-family homes, apartments, shopping centers, and office buildings) and real estate securities (such as first-lien mortgage notes, Fannie Mae stocks, Freddie Mac bonds, or Ginnie Mae certificates). A REIT is a real estate investment trust, a security that is invested in real estate directly, either through properties or mortgages.

If the buyer's credits are greater than the buyer's debits on the Closing Disclosure, the buyer will

The answer is receive cash at closing. Usually, the buyer has a debit balance on the Closing Disclosure, which is the amount owed at closing. Under the good-funds rule, the title company must require that the buyer provide a bank cashier's check or certified personal check at closing if the amount due at closing is $1,500 or more.

Shareholders in a real estate investment trust (REIT) generally

The answer is receive most of the trust's income each year. Members of a REIT realize their profits through the income derived from the various properties owned by the REIT rather than from the sale of the properties. A REIT is required to distribute 90% of its income to shareholders annually to avoid paying corporate income taxes.

When appraisers evaluate the facts and form a final opinion of value for a property, they are

The answer is reconciling valuation approaches. The appraiser analyzes and weighs the findings from the three approaches to value, uses professional judgment to decide which approaches are the most valid for the type of appraisal being done, and then assigns different weights to the indicated value from each approach to arrive at a final opinion of value.

The requirements of a valid lease include all EXCEPT

The answer is recordation in the county clerk's office. The requirements for a valid lease also include legal objectives and a legal description. A lease may be recorded if signed and acknowledged before a notary public or other officer. Recording will take place in the county in which the property is located. Unless a lease is for three years or longer, it usually is not recorded. However, if a lessee intends to mortgage a leasehold interest, recordation is required.

Real estate sales agents and brokers need to be aware of Commission on Environmental Quality actions because the commission

The answer is regulates declaration of chemical contamination (Superfund) sites that could be located near housing and affect values. Environmental issues increasingly are playing a role in home prices—including discovery of water contamination and increases in air pollution. Likewise, successful remediation efforts also can play a role in home pricing.

A low-income homeowner has installed high-efficiency insulation in the attic of her home in Austin. She may be eligible to get which of the following incentive programs?

The answer is reimbursement from Austin Energy for the cost of installation. Austin Energy offers free home-energy improvements to customers with low-to-moderate incomes—including free attic insulation, sealing or replacing ductwork, and installing solar screens.

Which of the following real estate specializations matches landlords and tenants?

The answer is rental locator. A residential rental locator matches landlords and tenants. A rental locator is generally paid by the owner of the apartments and must be licensed by the Texas Real Estate Commission (TREC). Apartment locators have specific advertising rules of which they are required to comply. Not all property managers must be licensed by TREC. If the manager is not otherwise exempt from licensing requirements and engages in leasing activity or controls the acceptance or deposit of rent for single-family residential units, they must have a real estate sales or broker license.

The occupancy rate for the Mountain View Apartments has reached 98%. From the point of view of the property manager, what might this indicate?

The answer is rents should be raised. Although a high percentage of occupancy may appear to indicate an effective rental program, it also might mean that rental rates are too low. Anytime the occupancy level exceeds 95%, serious consideration should be given to raising the rents, but only after a survey of the competitive space available in the neighborhood.

In setting an operating budget, which of the following is not a fixed expense?

The answer is repairs. The operating budget is based on anticipated revenues and expenses and must reflect the long-term goals of the owner. In preparing a budget, a manager should begin by allocating money for such continuous, fixed expenses as employees' salaries, real estate taxes, property taxes, and insurance premiums. Repairs are considered a variable expense.

The deed restrictions on Vic and Beverly's home require all properties within their subdivision to be residential construction. When they notice that a convenience store is being built a block from their home, what can they do?

The answer is request an injunction from the justice of the peace court. Developers place restrictions on the use of all lots in a subdivision as a general plan for the benefit of all lot owners. The restrictions give each lot owner the right to apply to a justice of the peace court for an injunction to prevent a neighboring lot owner from violating the recorded restrictions. If granted, the court injunction directs the violator to stop or remove the violation. If adjoining lot owners stand idly by while a violation is being committed, they can lose the right to obtain a court's injunction by their inaction through the doctrine of laches.

The Texas Bootstrap Loan Program through the Texas Department of Housing and Community Affairs does all of the following EXCEPT

The answer is require all labor to be performed by members of the borrowers' immediate family. A portion of the 65% personal labor requirement can be contributed by nonpaid help from friends, family, or other volunteers.

Regulation Z applies when credit is extended for

The answer is residential loans. Regulation Z of the Truth in Lending Act requires that credit institutions inform borrowers of the true cost of obtaining credit. Its purpose is to permit borrowers to compare the costs of various lenders and avoid the uninformed use of credit. Regulation Z applies when credit is extended to individuals for personal, family, or household uses and the amount of credit is $54,600 or less in 2016. Regardless of the loan amount, however, when a residence secures a credit transaction, Regulation Z always applies. The regulation does not apply to business, commercial, or agricultural loans.

What was the primary specialty of Texas REALTORS® in 2016?

The answer is residential sales. According to a survey conducted by the National Association of REALTORS® in 2016, the primary specialty of 66% of REALTORS® in Texas was residential sales.

A real estate agent who wants to assist families in the purchase and sale of real estate might work in which specialization within the real estate industry?

The answer is residential. All property used for housing, from small city lots to acreage, both single-family and multifamily, and in urban, suburban, and rural areas, is classified as residential real estate.

There are two qualifying criteria set by the VA for loans: debt-to-income ratio and

The answer is residual income. The applicant for a VA loan must qualify under both criteria set by the VA. Under the debt-to-income ratio: PITI + homeowners association dues (if any) + all installment accounts, all revolving accounts, minimum payments on paid-out revolving accounts, child care, and child support cannot exceed 41% of monthly gross income. Under the residual income ratio: gross income - all debts listed above, income tax, Social Security tax, and maintenance and utilities = residual income. The residual income amount, the amount of monthly income remaining after expenses are paid, is based on family size and loan amounts and must meet regional standards set by the VA.

Under which financing technique would no payment be due until the property is sold, the borrowers move from the home for longer than 12 months, all borrowers have died, or the borrower defaults?

The answer is reverse mortgages. Reverse mortgages enable homeowners who are 62 years or older to borrow against the equity in their homes. The loan amount depends on the borrower's age, current interest rates, and the value of the home. Loan proceeds can be used for any purpose and can be taken out as a lump sum, fixed monthly payment, line of credit, or a combination. No payment will be due until the property is sold, the borrowers move from the home for longer than 12 months without prior approval from the lender, all borrowers have died, or the borrower defaults on the deed of trust, commits fraud in connection with the loan, or fails to maintain the priority of the lender's lien. Homeowners with reverse mortgages must still pay homeowners insurance premiums, real estate property taxes, homeowners association dues, and maintenance expenses.

Which of the following is a TRUE statement?

The answer is risks generally are directly proportional to leverage. A high degree of leverage presents the investor and lender with a high degree of risk; lower leverage results in a lower risk. An investor should be prudent in the use of leverage; when property values drop in an area or vacancy rates rise, the highly leveraged investor may be unable to pay even the financing costs of the property.

Vacuuming the hallways and washing the walls is an example of

The answer is routine maintenance. The most frequently occurring maintenance, including regular cleaning, painting, and minor repairs, is routine maintenance. Preventive maintenance helps avoid future problems and expenses. Corrective maintenance fixes problems after they have occurred.

If a VA loan is being assumed and the veteran wants full guaranty entitlement reinstated, the veteran must pay off a previous VA loan or

The answer is sell to a veteran who agrees to substitute her eligibility. The assumptor must be a qualified veteran who agrees to substitute her eligibility, regular or reserve military status, and whether it is a first or subsequent use of VA financing. It can be added to the loan amount. Either a veteran or a seller may pay any discount points, but the discount points may not be financed in the loan.

The money supply decreases and the economy slows if the Federal Reserve (the Fed)

The answer is sells government securities. The Fed's open-market operations encompass the movement into or out of the commercial banks through the buying or selling of government bonds. When the Fed sells bonds, the cash available for making loans decreases and fewer loans can be made, thus fighting inflation. In contrast, when the Fed buys bonds, the banks receive an influx of cash that can be used to make more loans, thus lifting the economy. In addition to its open-market operations, the Fed regulates the flow of money and interest rates in the marketplace indirectly by controlling reserve requirements and discount rates for member banks.

Agent Alice is a property manager at A-1 apartments. She is creating an operating budget for the following year and should do which of the following to deal with renovation or modernization of the units?

The answer is set a capital expenditures budget. If an owner and a property manager decide that modernization or renovation of the property will enhance its value, the manager should budget money to cover the costs of remodeling. In the case of large-scale construction, the expenses charged against the property's income should be spread over several years.

Which loan package, typically used in commercial lending, rewards both the lender and the borrower?

The answer is shared-appreciation mortgages. In exchange for a lower interest rate or some other beneficial treatment, the lender and the borrower agree to divide a property's appreciation when it is eventually resold.

Reba manages a commercial office building in downtown El Paso. The occupancy level is 98%. What should Reba consider in determining the rent for office space?

The answer is she should raise the rent. Anytime the occupancy level exceeds 95%, serious consideration should be given to raising the rents in an apartment house or office building—but only after conducting a survey of the competitive space available in the neighborhood.

Which of the following aspects of property management requires a real estate license?

The answer is showing property. If the duties include showing or leasing the property for the owner for which the manager gets paid, a license is required. A license is also required for any person who controls the acceptance or deposit of rent from a resident of a single-family residential real-property unit.

Which is NOT a requirement for a valid deed?

The answer is signature of the grantee. A valid deed must be in writing and signed by the grantor. Additionally, it must name the grantor and grantee (both of whom must be competent parties), state that consideration was given (which may be "$10 and other good and valuable consideration" or "love and affection"), contain a legal description, contain words of conveyance (a granting clause expressing an intent to convey property at this time and signifying the type of deed being given), and be delivered to the grantee and accepted. Title to real estate does not pass (transfer) until the deed is actually delivered to and accepted by the grantee. The grantor may deliver the deed to the grantee personally or through a third-party escrow agent. If a deed has been recorded by the county clerk, delivery and acceptance are generally presumed.

If two similar homes are for sale, the lower-priced house will usually be purchased first. This is an example of the principle of

The answer is substitution. The maximum value of a property tends to be set by the cost of buying or building another equally desirable and valuable property.

Taking advantage of which strategy reduces taxes to an investor in low-income housing?

The answer is tax credits. Tax credits are direct reductions of tax, rather than deductions against income. Tax credits are allowed for rehabilitation of older buildings, low-income housing projects, and historic property.

What local government option is available to communities experiencing a deterioration of their center cities?

The answer is tax increment reinvestment zones. TIRZs allow local governments to create specific areas where the government will help fund rehabilitation of retail centers, revive housing, remove obsolete buildings, and even build parks. Tax breaks are given to business as incentives to move into these areas and financially participate in the community renovation.

Joanne wishes to specialize in REO transactions. She is a new sales agent. Ballast Realty, her sponsoring broker, should ensure that she has knowledge of which of the following to be considered competent to do so?

The answer is tax principles. Properties owned by lenders and government agencies under a process where they take possession of properties that fail to sell at a foreclosure auction for at least the amount owed by the borrower are called real estate owned or REOs. Agents who specialize in these kinds of lender-involved transactions must have a good grasp of financing, investment, tax, and valuation principles. In addition, they must know how to negotiate with lenders.

Texas law suggests that occupancy standards for apartments be set at no more than three people per bedroom. Which of the following BEST describes how occupancy matters should be addressed?

The answer is tenants and landlords should work together, along with municipalities, concerning occupancy rates. Families of various ethnic backgrounds have varying traditions concerning home sharing, but municipal officials are accountable for community safety.

Agent Allen wants to ensure that the sale of seller Louise's house to buyer Bennie will close without a problem. Which of the following is NOT an issue for Louise?

The answer is that Bennie will lease the property at closing to tenants. Because the seller's main interest is in receiving payment for the property, the seller will want to be sure that the buyer has obtained the necessary financing and has sufficient funds to complete the sale. The seller will also want to be certain that he has complied with all the buyer's inspection and repair requirements so that the transaction can be completed. It is not relevant what Bennie will do with the property after closing.

When a sales agent prepares a brokers price opinion (BPO), what statement must be included?

The answer is that a BPO is not an appraisal. BPOs are calculations of how much a home may sell for, based on what similar homes have sold for. An appraisal takes in a number of other considerations, including changes taking place in the neighborhood and other community factors, such as zoning changes or construction.

What does a sales agent who specializes in REOs need to have knowledge of?

The answer is that an REO is a lender-owned property that failed to sell at foreclosure for at least the amount owed by the borrower. Properties owned by lenders and government agencies under this process are typically labeled as a foreclosure in an MLS listing when the lender markets the property to buyers through a real estate agent. Agents who specialize in these kinds of lender-involved transactions must have a good grasp of financing, investment, tax, and valuation principles. In addition, they must know how to negotiate with lenders.

The Alberts have lived on their ranch land for 30 years. If someone were to file an adverse possession suit against them, what would they be required to prove?

The answer is that they have a deed that is recorded in the county. The 25-year statute requires that the adverse possessor have adverse possession of the property for 25 years, be in good faith, and have a recorded deed that purports to convey title to the claimant. Although this provision is used infrequently, the 25-year period is the absolute bar against claims of others. The 25-year statute runs against minors, the insane, or the imprisoned. Through the principle of tacking, successive periods of adverse possession may be combined; one person does not have to have possession for 25 years.

Which amendment to the U.S. Constitution allows governments to enforce controls over the use of privately held land?

The answer is the 14th Amendment. The amendment provides local authorities the right to control private land through zoning, subdivision regulations, building codes, and environmental protections. (The 2nd Amendment refers to ownership of guns, the 21st Amendment repealed prohibition, the16th Amendment gives government the power to tax.)

As is true with other states, Texas has enacted a variety of natural resource preservation laws—so-called green laws—to protect the environment and the natural beauty of the state. What agency is responsible for enforcing those laws?

The answer is the Texas Commission on Environmental Quality. Most federal environmental laws are actually enforced by the state commission, which receives complaints, investigates, enforces, and monitors compliance.

For Texas residents who are purchasing their first home or who have not owned a home in the past three years, which agency channels below-market interest rate mortgage money through participating Texas lending institutions to very-low-income to moderate-income persons and families?

The answer is the Texas Department of Housing and Community Affairs. The Texas Department of Housing and Community Affairs (TDHCA) and regional or local housing authorities offer programs to finance the acquisition, construction, or rehabilitation of housing that meets the needs of very-low to moderate incomes. The TDHCA helps lower-income working families buy homes through programs such as the My First Texas Home Program (which channels below-market interest rate mortgage money through participating lenders) and the Texas Bootstrap Loan Program (which requires borrowers to provide at least 65% of the labor necessary to construct or rehab the home being purchased).

Texas land was first granted to individuals in the form of protocols and testimonios. Where are those documents housed today?

The answer is the Texas General Land Office. The founding documents are in the Texas General Land Office archives and are the foundation of how land was divided.

Who sets the rate for title insurance?

The answer is the Texas State Board of Insurance sets premiums at a standardized rate. Policies are billed when they are issued.

A qualified Texas veteran may participate in which loan program if she needs to make substantial improvements to her existing primary residence?

The answer is the Veterans Home Improvement Program. The Veterans Home Improvement Program (VHIP) will lend eligible Texas veterans up to $25,000 for up to 20 years to make substantial improvements to an existing primary residence. The veteran must occupy the home as a primary residence for at least three years from the date of completion of the home improvements. The loan is originated directly through the VLB and requires no down payment.

Which loan program provides funds to a qualified Texas veteran to purchase a primary residence in Texas?

The answer is the Veterans Housing Assistance Program. The veteran must occupy the property within 60 days of closing and must live in the home as a principal residence for a period of three years from the date of closing. There is no maximum or minimum sales price restriction with this program; however, the VLB can only loan a maximum of $424,100 toward the purchase of a home. The down payment, if any, will be based on the loan type; the down payment can be in the form of a gift or grant, subject to VLB guidelines. LO 15.2)

Which of the following is considered a benefit of real estate investment?

The answer is the availability of tax shelters. Tax shelters may allow real estate investors to reduce or defer payment of large portions of their federal and state income taxes. There is no investment guarantee or protection from bankruptcy. Also, it can be difficult to liquidate real estate holdings into cash.

The document that provides borrowers with general information about the application and closing process, and worksheets and checklists to aid the buyer is

The answer is the booklet Your Home Loan Toolkit: A Step-By-Step Guide. The guide contains general information about the application and closing process. The Loan Estimate is the TRID disclosure form given to borrowers at loan application to inform them of the expenses they may incur in the transaction. It is only an estimate and the actual charges may differ. The Closing Disclosure reflects actual closing costs.

What is the consumer rationale behind an adjustable-rate mortgage?

The answer is the borrower theoretically pays a low interest rate (meaning a lower payment) for the first few years, anticipating his income will have gone up by the time the higher rate kicks in. ARMs can be risky if incomes do not rise to the borrower's expectations.

Who customarily pays for the lender-required appraisal?

The answer is the buyer. When the buyer obtains a loan, it is customary for the buyer to pay for a lender-required appraisal. However, in most cases, either the buyer or the seller may pay the appraisal fees, as negotiated in the sales contract.

What are the two events that typically take place at a closing?

The answer is the closing of the sale and the consummation of the buyer's loan. Usually the loan is signed by the buyers and the lender disburses mortgage funds.

The disbursement of funds, including payment for the property to the seller, is performed in

The answer is the closing process. Providing evidence of good and indefeasible title by the seller, delivering the deed to the buyer, and preparing a closing (or settlement) statement with the net amounts owed by the buyer and due to the seller also are activities performed in the closing process.

Under what covenant does the lessor guarantee that the lessee may take possession of the leased premises and that the lessee will NOT be evicted from the premises by any person who successfully claims to have a title superior to that of the lessor?

The answer is the covenant of quiet possession. Quiet possession usually is implied by law even if it is not in the lease.

What are some items that might appear in an abstracter's report?

The answer is the date of the deed, the recording date, the names of the grantor and the grantee, a brief description of the property. It also would note the type of deed and any conditions or restrictions contained in the deed.

If a promissory note "creates debt," then what does the deed of trust do?

The answer is the deed of trust is the document used in Texas to guarantee payment of the debt. It is the document that posts the property as security.

If a property owner defaults on a mortgage loan, on what document has he defaulted?

The answer is the deed of trust. If a property owner fails to make payments on time, he is in default of the guarantee to make payments.

When interest rates are so high that most potential buyers cannot afford to get a loan and property values are declining, this refers to

The answer is the demand for the property. When demand is low, property values go down. When demand is high, property values go up. The four characteristics of value are effective demand, utility, scarcity, and transferability. An easy way to remember these is with the acronym DUST.

What is the definition of capital gain?

The answer is the difference between the adjusted basis of property and its net selling price. The tax law favors long-term investments by reducing the tax rate on the taxable gain on their sale or exchange. Capital gain is defined as the difference between the adjusted basis of property and its net selling price.

The person named in a will to oversee the will's provisions is

The answer is the executor/executrix. An administrator (male) or administratrix (female) is appointed by the court to oversee the disposition of the assets of someone who dies without a will. A testator (male) or testatrix (female) is a deceased person who has made a will. A legatee is someone who receives personal property under a will. A devisee receives real property under a will.

An estate for years is terminated by

The answer is the expiration of the lease. No notice is required, because the lease is for a definite, fixed period. The tenant must vacate the property when that period expires. The lease can be terminated before the expiration date by the mutual consent of both parties; but otherwise, neither party may terminate without showing that the lease agreement has been breached.

The stage of land development during which approval is sought from local officials, permanent financing is obtained, and the land is purchased is called

The answer is the final planning stage. During the initial planning stage, the developer seeks raw land and a preliminary subdivision plat is submitted to the city planning staff. During the final planning stage, final budgets are prepared and marketing programs are designed. During the disposition or start-up stage, utilities are installed, streets and gutters are created, parks and recreational areas are constructed, marketing programs are initiated, and title to individual parcels is transferred as lots are sold for construction.

When the Hackworths apply for a conventional home loan, they are told that they would be qualified by the lender on the basis of two ratios. Which statement describes the ratios to be used by the lender?

The answer is the housing-expense ratio is the total of the principal, interest, taxes, and insurance on the loan. The housing-expense ratio or front-end ratio is the PITI (principal, interest, taxes, insurance) payment, which is generally 25% to 28% of gross monthly income for a conventional loan. The total-debt ratio or back-end ratio includes the house payment, all installment and revolving account payments, and child support. Total debts generally cannot exceed 33% to 36% of gross monthly income. Installment and revolving accounts include car, furniture, appliance, jewelry, and similar monthly payments and credit card payments.

In an amortized loan, the initial payments are applied mainly to

The answer is the interest. An amortized loan requires periodic payment of both interest and principal. Although the amount of each principal and interest payment is the same, the initial payments are applied mostly to interest, with little applied toward the principal (loan amount). With each payment, the loan balance decreases, so less interest is due and more of the payment is applied to the principal.

How much are loan fees and when are they paid?

The answer is the lender generally charges the purchaser a loan origination fee of 1% payable at the time of close. If the buyer assumes the sellers' loan, an assumption fee is charged to the buyer.

How long after delivering the early disclosure form must a lender wait before closing on the loan?

The answer is the lender must wait seven days before closing on the loan. The waiting period is to assure that the borrower has had ample time to analyze the loan and possibly consider alternatives.

Under The TILA-RESPA Integrated Disclosure Rule, who must prepare the Closing Disclosure?

The answer is the lender or the closing agent. Under the TILA-RESPA Integrated Disclosure (TRID) Rule, either the lender or the closing agent may prepare the Closing Disclosure, but the lender is ultimately responsible for its proper delivery and accuracy.

A borrower has applied to the Texas Veterans Land Board (VLB) for a loan to buy land. Which should he NOT expect to be a requirement?

The answer is the loan must be repaid over a 15-year term. A Veterans Land Program loan is a 30-year loan. If the purchase price of the land is more than $150,000, the veteran must pay the difference at closing from the veteran's own funds. The VLB originates all land loans, not private lenders. The Veterans Housing Assistance Program (VHAP) makes loans up to $424,100 to purchase a principal residence, and up to $25,000 can be borrowed through the Veterans Home Improvement Loan Program (VHIP).

In a sublease agreement, primary obligation to make rent payments to the landlord falls on

The answer is the original tenant. There is no obligation between the subtenant and the landlord. The subtenant makes payments to the original tenant. Texas law prohibits assignment or subleasing unless the lease stipulates otherwise.

If a landowner discovers an adverse possessor using his property to grow crops, could he stop any adverse possession claim against the land by giving the adverse possessor permission to grow the crops?

The answer is the owner could grant permission to grow the crops and file that permission with the county clerk. Under Texas law, permission stops adverse possession.

At closing, a home purchaser was given an owner's title policy. Which of the following would NOT be a characteristic of the policy?

The answer is the owner's title policy guarantees continued ownership of the property. If title is insurable and a title insurance policy is written, a title insurance company agrees, subject to the terms of the policy, to indemnify (to compensate or reimburse) the insured (the owner, mortgagee, or other interest holder) against any losses sustained as a result of defects in the title other than those exceptions listed in the policy. Title insurance guarantees indemnification (reimbursement) for losses; it does not guarantee continued ownership.

What is the basic consumer rationale behind an interest-only loan?

The answer is the payment would be modestly lower and the borrower would depend on inflation to improve his equity position. Interest-only loans are based on the risky idea that real estate values will always go up.

Under Regulation Z, if a sales agent advertises a down payment of $50,000 with monthly payments of $2,000, what other information must be included?

The answer is the percentage the down payment represents and the annual percentage rate. The ad also must state repayment obligations over the full term of the loan.

Underground storage tanks are dangerous for which of the following reasons?

The answer is the possibility of exposure to leaking gasoline. From 3 million to 5 million underground storage tanks in the United States contain hazardous substances such as gasoline or home heating oil. When the containers become old and rusted and start to leak, the material can enter the groundwater and contaminate wells and pollute the soil.

An investor purchased a small building used as a coffee shop; before that, it was a day care center. During the due diligence process, the investor discovers that there are leaking underground storage tanks (USTs). She purchases the property anyway. What is the previous owners' liability for the cost of remediation?

The answer is the previous owners are liable if they had knowledge of the tanks. The Superfund Amendments and Reauthorization Act created an innocent landowner immunity, stipulating that a landowner in the chain of ownership who was completely innocent of all wrongdoing should not be held liable. However, an innocent landowner seeking to be exempted from liability must have no actual or constructive knowledge of the damage. In addition, the landowner must have exercised due care when the property was purchased, making a reasonable search to determine that the property was not environmentally damaged.

What are the two parts to the mortgage called?

The answer is the promissory note and the deed of trust. The promissory note is the agreement to repay the debt, and the deed of trust is the security for the debt.

Which of the following should NOT be a consideration in selecting a tenant?

The answer is the racial and ethnic background of the tenant. In selecting residential tenants, the property manager must comply with all federal and local fair housing laws.

Whose responsibility is it to make sure that all environmental issues (lead-based paint, asbestos, ground contaminants) are acknowledged by the property and the seller and disclosed to the potential buyer?

The answer is the real estate agent's responsibility. The sales agents—regarded as the professionals in the deal—must make every effort to make sure the property seller fills out the disclosure in a truthful manner, and that the property buyer is fully aware of any issues that could affect the decision to buy.

The provisions of the Truth in Lending Act (Regulation Z) require all of the following to be disclosed to a residential buyer EXCEPT

The answer is the real estate brokerage commission. Regulation Z mandates that the customer be fully informed of all finance charges and the true annual interest rate (the APR) before a transaction is consummated. The APR must include the nominal interest rate plus any costs that are incurred in a transaction solely because there is a loan involved, such as loan origination fees, finders' fees, servicing fees, mortgage insurance or guaranty fees, and points.

Jennifer Jones is a new sales agent sponsored by Capital City Realty, a licensed brokerage firm in Austin. Jenna Lewis is the designated broker for Capital City. Which of the following should Lewis advise Jones about when she starts working for Capital City?

The answer is the scope of Jones's authorized activities. A sponsoring broker is required to advise a sales agent of the scope of that sales agent's authorized activities under the License Act. The sponsoring broker is not required to directly supervise a sales agent, as the agent is typically an independent contractor. Requiring set hours, limiting geographical areas, and social media may affect the agent's independent contractor status.

A prospective buyer checked records at the county clerk's office and discovered that the seller was the grantee in the last recorded deed. There is no mortgage on record against the property. Therefore, the buyer may assume

The answer is the seller did not mortgage the property. A deed contains no proof of the kind and condition of title at the time of conveyance. Such proof comes in the form of title insurance or an attorney's opinion of title. Certain types of liens (for example, taxes and special assessments) are not recorded in the public record. Since Texas law provides that unrecorded mortgages are not effective as far as later purchasers are concerned, a purchaser should be able to rely on a search of the public records to reveal mortgages.

Who is responsible for payment of attorney's fees for preparation of the deed?

The answer is the seller. In most cases, attorney fees are charged to the seller for the preparation of the deed and a release of lien (if the seller's note is being paid off at closing or the buyer is assuming liability for the note).

A tenant in a wheelchair wants to install a ramp to get through the front door of a single-family unit. Which of the following statements is true regarding this matter, assuming that the landlord considers this to be a reasonable modification?

The answer is the tenant may install the ramp and pay all costs of installation. Allowing a person with a disability to install a ramp into a rental house might be a reasonable modification. Reasonable modifications are usually made at the tenant's expense. If the modifications would interfere with a future tenant's use, the owner may require that the premises be restored to their original condition at the end of the lease term. LO 19.1

Jackson leases a town home from Lew. He observed that the smoke alarm did not sound after he burned a piece of toast. Who is responsible for the maintenance of the smoke alarm?

The answer is the tenant, Jackson. Landlords are required to install smoke alarms in all residential rental property regardless of the term of the lease, unless it is a temporary residential tenancy created by a contract of sale. Owners of rental properties first occupied before September 1, 2011, must install at least one smoke alarm in each separate bedroom in a dwelling unit, as well as in a corridor if it serves multiple bedrooms. Smoke alarms must be in working order at the time the tenant takes possession. Replacement of batteries in a smoke alarm is the tenant's responsibility. If a rental property does not have smoke alarms, it is the tenant's responsibility to request compliance from the landlord. If requested by a tenant with a hearing-impairment disability, the smoke alarm provided by the landlord also must be capable of alerting a hearing-impaired person in the bedroom it serves.

If the landlord has an online application process, where must the landlord show the rental qualification criteria?

The answer is the website must clearly and conspicuously show the rental qualification criteria. The printed or online notice must include the grounds for which an application may be denied.

What group typically is assigned to hear applications for zoning variances?

The answer is the zoning board of adjustment. The board, typically composed of local citizens appointed by the mayor, will review requests. A person seeking zoning relief who is not satisfied with the decision has the option of taking the board to court.

Jonathan just moved into his new home. A neighbor told Jonathan that there are electromagnetic fields (EmFs) on his property. Which is NOT true of the EmFs on his property?

The answer is they are present only near high-tension wires or large electrical transformers. Although there is no empirical data proving health hazards, EmFs are suspected of causing assorted medical problems. EmFs are generated by the movement of electrical current through any electrical appliance, not just high-tension power lines.

When must the consumer receive the Closing Disclosure form, which replaced the HUD-1 and the Final Truth in Lending Disclosure?

The answer is three days before close. The rule attempts to put as much information in the hands of the consumer as possible before closing so that any misunderstandings can be worked out.

When must the Closing Disclosure be provided to the borrower-buyer?

The answer is three days before consummation of the loan. Three days before consummation occurs, the borrower must be given the Closing Disclosure, a standard form that shows all charges imposed on borrowers and sellers in connection with the closing.

Under Texas law, what is the maximum number of adults that a landlord may allow to occupy a dwelling in most instances?

The answer is three times the number of bedrooms. The Texas Property Code, Section 92.010, sets the maximum number of adults (18 years of age or older) that a landlord may allow to occupy a dwelling at three times the number of bedrooms in the dwelling, in most instances. Under the Texas law, bedroom means an area of a dwelling intended as sleeping quarters.

Which of the following is a FALSE statement?

The answer is time-share sellers do not need to be licensed as a sales agent or a broker if such interests are sold within the state for someone else for a fee. A time-share developer must register a time-share plan with TREC if the plan is located or an interest is offered within the state. Furthermore, because time-share interests are considered real estate, time-share sellers or resellers must be licensed salespersons or brokers if such interests are sold within the state for someone else for a fee. However, a real estate license is not required if the interests are sold directly by a developer.

If state law says that a mortgage conveys ownership to the mortgagee and the mortgagee may take possession of and rents from the property upon default by the mortgagor, this state follows the

The answer is title theory. In title theory states, a defeasance clause in the mortgage provides that title reverts to the mortgagor when the loan is paid. States that interpret a mortgage purely as a lien on real property are called lien theory states. In such states, if a mortgagor defaults, the lender is required to foreclose the lien, offer the property for sale, and apply the funds received from the sale to reduce or extinguish the obligation. The owner, not the lender, has a right to rental income while property is posted for foreclosure.

What is the purpose of a tax incremental district (TIF)?

The answer is to attract new businesses to an area. TIFs help finance the cost of redeveloping or encouraging infill development in an area of a city or a county that would otherwise not attract sufficient private investment in the reasonably foreseeable future. Taxes attributable to new improvements (the tax increment) are set aside in a fund to finance public improvements in a reinvestment zone—such as parks, street lighting, and building acquisition or rehabilitation costs.

ABC Builders has contracted with Pablo to build his new home. Before they can begin construction, however, they are required to obtain a building permit from city building officials. What is the purpose of a city's requiring a building permit?

The answer is to enable city officials to verify compliance with building codes and zoning ordinances. Building codes specify construction standards that must be met when repairing or erecting buildings. Most communities require the issuance of a building permit by a city official to ensure that officials are aware of new construction or alterations. By examining the plans and inspecting the work, city building officials verify compliance with building codes and zoning ordinances.

Why are appraisal management companies (AMCs) needed?

The answer is to make sure appraisers are independent of lenders, thus reducing fraud. Lenders need to be taken out of the appraiser selection process to end the practice of relying on specific "friendly" appraisers who will hit the number the lender wants.

What is the fundamental purpose of the secondary mortgage market?

The answer is to make sure lenders can replenish their supply of money to keep making loans. Before the GSEs, when banks ran low on cash reserves, they had to stop making loans. By being able to sell loans on the secondary market, lenders are able to recoup their capital and continue making loans.

Which of the following is NOT generally a reason for lenders to sell loans into the secondary market?

The answer is to meet minimum loan sales requirements set by the government-sponsored secondary markets. Loans are bought and sold in the secondary market after they have been closed and funded by a primary mortgage market lender. Lenders routinely sell loans to avoid interest-rate risks and to realize profits on the sales. Selling the loans they have originated enables lenders to recoup their capital to continue making mortgage loans. Loans are eligible for sale to the secondary market only when the collateral, borrower, and documentation meet specified requirements.

Which of the following best describes the purpose of RESPA?

The answer is to protect consumers from abusive lending practices. RESPA was enacted to protect consumers from abusive lending practices by providing them with accurate and timely information about the actual cost of closing a transaction.

Which of the following is an example of incentive zoning?

The answer is to require that a new building dedicate the street floors to retail establishments. Incentive zoning requires that street floors of office buildings be used for retail establishments.

Which of the following is an example of bulk zoning?

The answer is to require that a new building in an area not be taller than 10 stories. Bulk zoning controls density and prevents overcrowding through restrictions on setback, building height, and percentage of open areas.

Which of the following is an example of aesthetic zoning?

The answer is to require that a new building look like other buildings in the area. Aesthetic zoning requires that new buildings conform to specific types of architecture.

What is one of the purposes of a survey in a real estate transaction?

The answer is to show existing easements and improvements on the property. An improvement survey gives information about the exact location and dimensions of the land and any improvements on it. In addition, the survey should set out in full any existing easements and encroachments.

What are the main reasons for refinancing a mortgage?

The answer is to take advantage of lower interest rates or change from an adjustable-rate to a fixed-rate loan. Borrowers who have missed payments may have difficulty refinancing.

Which of the following is NOT a legitimate reason to reject someone as a tenant?

The answer is too many calls to police to defend against spousal abuse. Abused spouses and families will often move specifically to avoid an abusive spouse. The fact that police have been called to stop violence at a previous location is not grounds for rejection at a new residence.

A sales agent specializes in foreclosure sales. Knowledge of which of the following is NOT necessarily required to do foreclosure sales?

The answer is trade fixtures. Agents who specialize in foreclosures must have a good grasp of financing, investment, tax, and valuation principles. In addition, they must know how to negotiate with lenders.

Stephanie is a new sales agent. She has taken all her core classes but still wants to become competent to do farm and ranch sales. Which of the following is NOT important for her to have knowledge of to be competent in farm and ranch sales?

The answer is trade fixtures. Trade fixtures are applicable to commercial leasing. A competent farm and ranch sales agent should be aware of mineral rights, residential sales, and agricultural exemptions.

The four characteristics of value are demand, utility, scarcity, and

The answer is transferability. The title of the property must be able to be transferred to someone else. The four characteristics of value are demand, utility, scarcity, and transferability. An easy way to remember these is with the acronym DUST.

Faulty wiring causes a fire. The owner pays a $1,000 deductible, and the insurance company pays the rest. This is an example of

The answer is transferring or sharing the risk. By having a large deductible (the loss not covered by the insurance), the cost of insurance will be lower. In this way, the owner pays the deductible out-of-pocket; then, the insurance pays the remaining liability.

What is a growing trend among building owners and property managers (especially in the commercial and retail sections) to reduce liability and insurance costs?

The answer is transferring risk to tenants by requiring them to have their own insurance. By moving more risk to the tenants, building owners are putting tenants on notice that they share in the responsibility for their own safety. A balance must be struck, however, between safety and allowing customers access to a property.

Clarissa manages an apartment complex. She requires tenants to carry renters insurance. This is an example of what type of risk management?

The answer is transferring the risk. There is a growing trend for property owners or managers to require tenants to obtain renters insurance as a means for transferring the risk and sharing it with the renter.

A property manager taking out insurance is an example of which of the following ways of managing risk?

The answer is transferring the risk. When insurance is considered, a competent, reliable insurance agent who is well versed in all areas of insurance pertaining to property should be selected to survey the property and make recommendations.

The area of what shape is calculated as "base times height divided by two"?

The answer is triangle. The formula for area of a triangle = (base × height) ÷ 2.

A power-of-sale clause in a deed of trust usually gives the power of sale to whom?

The answer is trustee. A power-of-sale clause in a deed of trust gives the mortgagee (the lender) the right to sell the property at auction if the mortgagor (the borrower) defaults. Upon notification from the lender that the borrower has defaulted, the trustee gives written notice of the proposed sale 21 days in advance of the sale by (1) filing it in the office of the county clerk, (2) sending it by certified mail to each debtor obligated to pay the debt, and (3) posting it at the door of the courthouse in the county in which the property is located and the sale is to be conducted or posting it on an electronic display or the county's internet site. If the real property is the debtor's residence, both the Fannie Mae/Freddie Mac note and deed of trust allow the defaulting property owner 30 days to cure the default before notice of sale is given; state law requires at least 20 days to cure the default in all other cases. Foreclosure sales occur on the first Tuesday of each month between the hours of 10 a.m. and 4 p.m. at a designated door at the county courthouse or at another area within reasonable proximity that has been designated by the county commissioners.

How long does a lender have to file for a deficiency judgment?

The answer is two years after the sale of the property. The employment of the borrower is irrelevant to the collection of the loss, which more typically is recouped from mortgage insurers.

When collecting and analyzing data for an appraisal, the appraiser should verify the data by checking information from at LEAST how many different sources?

The answer is two. Some of the possible sources an appraiser can use include the tax assessor's office, attorneys, real estate brokers, builders, the Chamber of Commerce, cost manuals, newspapers, and the county clerk's office.

The Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) was passed to correct the environmental problems caused by

The answer is uncontrolled hazardous waste sites. CERCLA established a $9 billion Superfund to clean up uncontrolled hazardous waste sites and to respond to spills. It created a process for identifying potential responsible parties and ordering them to take responsibility for the cleanup action.

Under Texas law, who owns the property on the day of closing, and therefore is responsible for any expenses up to that day (or is owed any rents on a rental property up to that day)?

The answer is under Texas law, the seller owns the property on the day of closing and is responsible for expenses and/or may collect rents. The seller is charged expenses up to and including that day.

Which is NOT a provision of real estate finance laws and/or regulations?

The answer is under mortgage fraud laws, equity skimming and property flipping are two of the permissible practices for real estate industry professionals to engage in. Equity skimming and property flipping are illegal practices that represent fraud for profit schemes on the part of industry insiders.

In the sale of rental properties, how are staff wages prorated?

The answer is unpaid wages are prorated if the sale closes between payment dates. The seller owns the property until the close, and therefore is beholden to the employees, while the buyer assumes that responsibility the day following the close.

The 10-year adverse possession statute requires which of the following?

The answer is use of the property by the adverse possessor. The possession of the claimant must be open, notorious, hostile, and uninterrupted for a period of 3, 5, 10, or 25 years as set by Texas law. Under the 3-year statute, the adverse possessor must have title or color of title. Title is established by a regular chain of transfers beginning with the original land grant from the government, which is called from the sovereignty. Color of title means a consecutive chain of transfers (which may not be regular) down to the adverse possessor. An irregular chain is one in which an instrument was not recorded or some other defect occurred that was not the result of dishonesty or unfairness. Adverse possessors must be able to produce a chain of documents that prove in all fairness that title should be in them. The 5-year statute requires that the claimant pay the taxes on the property; cultivate, use, or enjoy the property; and claim the property under a recorded deed—there is no requirement for a chain of title from the sovereignty. The 10-year statute is the general adverse possession provision. It requires adverse possession for a 10-year period by one who uses, cultivates, or enjoys the property. A deed or chain of title in support of the claim is not necessary, and there is no requirement for payment of taxes by the adverse possessor. The 25-year statute requires that the adverse possessor have adverse possession of the property for 25 years, be in good faith, and have a recorded deed that purports to convey title to the claimant. The 25-year time period is the absolute bar against claims of others; and it runs against minors, the insane, or the imprisoned. Through the principle of tacking, successive periods of adverse possession may be combined; one person does not have to have possession for 25 years.

What is a good way to avoid having property go through probate?

The answer is use the transfer on death deed that transfers the deed to the beneficiaries while the owner is still alive, then transfers the title upon death. The TODD must be recorded in the county where the property is located.

What is leveraging?

The answer is using borrowed money to finance the bulk of an investment. Leverage is the use of borrowed money to finance the bulk of an investment. As a rule, an investor can receive a maximum return from an initial investment (the down payment) by making a small down payment, paying low interest rates, and spreading mortgage payments over as long a period as possible.

Which of the following is the BEST example of a green building program?

The answer is using native plants in landscaping that don't need extra watering for landscaping. Green building is the practice of being environmentally responsible and resource-efficient in the design, construction, operation, maintenance, renovation, and deconstruction of a building.

Who pays the appraisal fee on the property?

The answer is usually the buyer pays for the appraisal, but that payment can be the subject of negotiation between the buyer and the seller. Home buyers and sellers, and their respective agents, should be aware that payment of many ancillary fees in real estate transactions can be negotiated and it is not necessary to always rely on local custom.

If a homeowner hopes to borrow money to do substantial improvements, what kind of information might an appraiser collect?

The answer is values of other nearby homes with the same improvements as those being considered by the homeowner. Such values, however, are only one element of the information needed for an accurate appraisal.

While under Mexican rule, what was a key differentiator in deciding how much land settlers would receive?

The answer is whether you were married or single. A married colonist was entitled to 1 league (about four and half acres) and single men received half a league.

It is the obligation of the property manager to reach agreement with the property owner that the building

The answer is will be strategically marketed and maintained according to neighborhood quality, local demographics, need, and capacity to pay. The manager's chief job is to control revenue and expenses to secure the building owner's bottom line.

An investor sold a six-unit apartment building and purchased a 10-unit building with same market value. The investor gained $40,000 on the sale of the six-unit building, but did not utilize a 1031 exchange. Therefore, this gain

The answer is will be taxed. If an investor sold an apartment building but did not participate in a 1031 exchange, the gain on the sale of the apartment building will be taxed at the time of the sale.

If the title to a nonconforming property is transferred, the nonconforming use

The answer is will have to cease. A nonconforming use may be allowed to continue until (1) the current use is discontinued, (2) the improvements are destroyed or torn down, or (3) the ownership of the property is transferred.

Albert and Danielle purchased a ranch house near El Paso. To provide evidence of their ownership, they obtained a title insurance policy. The policy

The answer is will reimburse, up to the amount of the policy, losses that Albert and Danielle sustain as a result of incompetent grantors. Title insurance in Texas insures good and indefeasible title that, among other protections, guarantees against incompetent grantors. Upon sale of the property, the owner's policy is automatically converted to a warrantor's policy, which continues in perpetuity at no cost.

Marcus's tenant gave the appropriate move-out notice and vacated the home he was leasing from Marcus. What is the time frame within which Marcus is required to either refund the tenant's security deposit or provide him with an accounting of the damages deducted?

The answer is within 30 days of the tenant's surrender of the premises. Within 30 days of the tenant's surrender of residential premises, a security deposit must be refunded to the tenant, or the tenant must be provided with an explanation and accounting of damages and other charges being deducted from the deposit and for which the tenant is liable. However, the landlord is not obligated to return the security deposit until and unless the tenant has furnished the landlord with a written statement of the tenant's forwarding address. The security deposit accounting on a commercial lease is 60 days.

A seller has an assumable $80,000 loan and is selling a property for $125,000. If the seller makes a $125,000 loan to the purchaser but continues making the payments on the original loan himself, what type of loan did the seller make to the purchaser?

The answer is wraparound loan. A wraparound loan is a junior loan that is larger than the existing first loan. In a wraparound loan, the new lender (or the seller, if owner financed) makes the payments on the original loan, as well as providing additional funds to the borrower. The borrowers make one payment to the new lender. However, the buyers should require a protective clause in the loan documents granting them the right to make payments directly to the original lender in the event of a potential default on the original loan by the second lender. A due-on-sale clause (alienation clause) in the original deed of trust may prevent a sale with a wraparound loan.

Are real estate sales agents obligated to list properties at the level desired by the seller?

The answer is yes and no; sellers set the price of their property, but a real estate agent is under no obligation to accept a listing that is priced too high. As business people, real estate agents must decide for themselves how much time and effort they wish to expend to sell an overpriced property.

Devlin Davis is sponsored by Ready Realty. Devlin is a new licensee with no experience. Devlin, however, is confident in his ability to practice in all areas of real estate. He has convinced Everett Slade, Ready Realty's designated broker, to authorize him to have no limitations in his practice. Devlin, in his first month as a sales agent, fails to properly handle an option fee in his first transaction, which is a residential sale. Everett tells Devlin that he needs to take additional education and specifies what courses Devlin must take if he wants to keep his unfettered authorization. Can Everett do this?

The answer is yes, Everett can require Devlin to get more education. A broker is responsible for making sure that sponsored sales agents have sufficient education to competently perform their authorized activities. This means that a broker may require a sales agent to get additional education beyond what is required by law before the sales agent specializes in a practice area.

Richard Reagan is a new licensee with no experience. Richard is sponsored by Janet Jones, a licensed real estate broker. Janet has authorized Richard to engage in all areas of real estate, including property management. Janet's firm manages several residential properties owned by investors. Richard mishandles a security deposit in a residential leasing transaction. Janet is concerned about the security deposit matter and thereafter requires Richard to take a property management class before he does any property management for the firm. Can Janet do this?

The answer is yes, Janet can require Richard to get more education. A broker is responsible for making sure that sponsored sales agents have sufficient education to competently perform their authorized activities. This means that a broker may require a sales agent to get additional education beyond what is required by law before the sales agent specializes in a practice area.

Nancy Randolph, an individual broker, sponsors David Jones, a sales agent with six years of experience in residential leasing. Nancy authorizes David to do residential sales and leasing. David makes a series of unfortunate mistakes in his first sales transaction that cause the buyer to forfeit his earnest money when the sale falls through. Nancy pays the amount of the earnest money to the buyer. Is Nancy responsible for David's actions if a complaint is filed at TREC?

The answer is yes, Nancy is responsible because she authorized him to do real estate sales. Although not required to directly supervise a sales agent, the sponsoring broker is responsible for the authorized acts of the sponsored sales agent, unless the broker has limited or revoked such activities in writing.

Ralph Green is a sales agent who will be moving his license to be sponsored by Capital City Realty, a licensed brokerage firm in Austin. Ralph has been licensed for 20 years; he has been sponsored by a variety of other brokers and has handled all kinds of real estate transactions. He has been an apartment locator for the past 5 years. Jenna Lewis is the designated broker for Capital City. Capital City sells and leases both residential and commercial properties. Does Jenna need to tell Ralph what kind of transactions he is authorized to do?

The answer is yes, a broker is always required to tell sponsored agents of their authorized activities. A sponsoring broker is required to advise a sales agent of the scope of that sales agent's authorized activities under the License Act. While the agent's experience may be relevant to the kinds of transactions the broker authorizes him to engage in, the License Act still requires the broker to advise sponsored sales agents of the scope of their authorized activities.

Mary just got her sales license. She has no experience in Texas, but she does have some experience managing her own properties in New York that she owns as real estate investments. Can her sponsoring broker limit her ability to do property management for third parties?

The answer is yes, a sponsoring broker can limit Mary's authorized activities to certain areas. Although not required to directly supervise a sales agent, the sponsoring broker is responsible for the authorized acts of the sponsored sales agent, unless the broker has limited or revoked such activities in writing. It is irrelevant that she has experience in managing her own properties.

Historically, Social Security numbers have been included in property recording documents. Is it possible for an individual to have those numbers removed?

The answer is yes, an individual may submit a written request to a county or district clerk to have their Social Security numbers reduced to the last four digits. In modern times, clerks are no longer permitted to include Social Security numbers on documents.

Heather Galvez is a licensed sales agent sponsored by Gulf Coast Realty, a licensed brokerage firm in Houston, Texas. Heather is a new licensee, but she knows she want to focus solely on commercial sales and leasing. Justin Romer is the designated broker for Gulf Coast Realty. The firm advertises that its agents are experts in residential and commercial sales. Justin informed Heather in writing that she is authorized to do residential sales until she takes a class that focuses on commercial brokerage. Six months later, Heather takes a commercial sales class and asks Justin to authorize her to do commercial sales. Justin has not yet made a decision, but Heather signs on a new commercial listing with Greenlawn Industrial Development anyway. Justin reviews the listing contract through the normal course of business. Is Gulf Coast Realty responsible for Heather's actions if Greenlawn files a complaint against her with TREC?

The answer is yes, because Justin is aware of the commercial listing contract with Greenlawn. Although not required to directly supervise a sales agent, the sponsoring broker is responsible for the authorized acts of the sponsored sales agent, unless the broker has limited or revoked such activities in writing. However, the rule states that if a broker permits a sponsored sales agent to engage in activities beyond the authorized scope, the broker will be responsible for those activities as well. In this case, Justin knows that Heather is doing commercial sales because she has reviewed the listing contract and has knowledge of Heather's activities.

Tenant Terri and landlord Lettie enter into a written contract for Terri to rent Lettie's commercial property only for use as a retail gift shop. Terri's gift shop does poorly and she decides to turn it into a small yoga studio without notifying Lettie. Can Lettie sue Terri for breach of contract?

The answer is yes, because Terri is violating the terms of use in the contract. A lessor may restrict a lessee's use of the premises through provisions included in the lease. A lease may provide that the leased premises are to be used only for a specific purpose and for no other. In the absence of such limitations, a lessee may use the premises for any lawful purpose.

Landlord Leslie and tenants Toni and Terri enter into a lease wherein Toni and Terri will rent Leslie's house for an indefinite period. Toni and Terri are married, and Toni is 16 years old. Is the contract valid?

The answer is yes, because Toni and Terri are married. The parties must have the legal capacity to contract. That means that they must be 18 or older, or married. In this case, because they are married, the contract is valid.

Are there consumer advantages to a fixed-rate mortgage?

The answer is yes, because consumers know exactly how much they are going to pay through the duration of the loan and can budget accordingly. Fixed rates do not, however, guarantee future value of a property.

Joan Jettson is a residential rental locator in Houston. Joan works for several apartment complexes in the downtown area. Does Joan need a real estate license?

The answer is yes, because she negotiates leases for the complexes she does business with. Working as an independent contractor for several apartment complexes, the locator finds apartment units for prospective tenants, qualifies prospective tenants, and negotiates leases with the apartment complexes. A rental locator is generally paid by the owner of the apartments and must be licensed by the Texas Real Estate Commission (TREC).

A homeowner plants a garden that actually spreads onto a neighbor's land. The homeowner uses the garden for three years, then sells his home to another family, which continues with the garden. Five years later, that family sells the home to yet another family, who also continue with the garden. Three years after that, the latest family files a claim for adverse possession of the garden. Will they receive the land?

The answer is yes, if the garden has been in continuous use for more than 10 years, the claimant may receive the property. The process is called "tacking."

If a loan's principal is reduced under forbearance, can the lender make that money back?

The answer is yes, the amount the loan is reduced is added to the end of the mortgage term and usually is paid back in a balloon payment. Depending on terms of the agreement, the final payment may or may not include interest.

When transferring a deed, is it possible for a seller to continue to control how the property will be used by the buyer?

The answer is yes, the deed may restrict such things as the number of homes built per acre or state that a building will not, for instance, be used for "adult entertainment." Many of these deed restrictions, however, carry time limits.

Must an organization be legally organized under Texas law in order for it to accept property that has been willed to it?

The answer is yes, the grantee must be legally formed to accept title to real estate. Property transfer carries with it specific responsibilities and liabilities that only licensed businesses or incorporated organizations are capable of meeting.

May a lender maintain a property without evicting an owner who is in default (or who is even current in his mortgage)?

The answer is yes, to protect its interest in a property's value, a lender could order home repairs and other maintenance. The cost of the repairs would be added to the borrower's payments or default.

Mr. and Mrs. Johnson purchase a home together. Mr. Johnson dies several years later, and Mrs. Johnson meets and marries Mr. Kellogg, changing her last name to Kellogg. Will there be a problem when Mrs. Kellogg goes to sell her home?

The answer is yes, when the property first transferred the grantees were Mr. and Mrs. Johnson, but there would be a break in the chain of title if she used the name Mrs. Kellogg when she became a grantor. A suit to quiet title could resolve the issue.

How many parts are there to a mortgage loan?

The answer two, the debt itself and the security for the debt. When a mortgage is received, the buyer must sign two separate agreements.

Which of the following is NOT a requirement of the My First Texas Home Program?

The applicant must use the loan either for the purchase of a principal residence or a property to be used for rental purposes.

After a sales contract has been signed by all parties, TREC rules require the broker to have the earnest money deposited by the end of

When is the earliest that a home purchase transaction can close?