National Exam Practice #3

48. An apartment complex has 160 rental units and currently 8 of them are vacant. What is the occupancy rate in this case?

(b) 95% step 1 160 divided by 100 = 0.625 per unit step 2 160 - 8 = 152 current occupancy step 3 152 x 0.625 = 95%

18. Which of the following statements about the income approach to value is CORRECT?

(b) It determines an investment property's value based on its return.

34. John and Mary bought a house as tenants in common. If Mary dies, what happens to the ownership of the property?

(b) John retains ownership of his portion and the rest goes to Mary's heirs when her estate is probated.

12. A property is described as having the best views and best floorplan in the subdivision. This would be considered:

(b) Puffing

39. Mary, a new license holder, is very excited about using her social media skills to market property for her sellers. She has secured her first listing and intends to post a video of the home online. Which of the following statements about this is true?

(b) She can post the video with the written permission of her clients.

37. A sales license holder moves to a new broker while one of his listings is under contract and set to close in two weeks. What is true regarding a commission when this property sale goes to closing?

(b) The license holder must be paid from the original listing broker

19. When a buyer purchases a property subject to a seller's existing mortgage, which of the following statements is correct?

(b) The seller's obligations under the existing mortgage remain unchanged.

76. What is the primary reason that broker-client money commingling is illegal?

(b) a creditor of the broker could seize the account if it held broker funds

78. The right to use a neighbor's private road for entry and exit to your property, that would pass to a buyer upon the sale of your property, is best described as:

(b) an easement appurtenant

27. The presence of government-regulated wetlands on a building lot:

(a) is a material fact that must be disclosed

58. A designated agent is:

(a) one appointed by a broker in a dual agency situation

42. An oceanfront property is being advertised as having "the best view in the state". This is most likely an example of:

(a) puffing

15. Which of the following would be considered an operating expense when a property manager draws up the operating budget for the owner?

(a) repainting units for new occupants

31. Under which of the following circumstances can a license holder use a client's money for personal reasons?

(a) under no circumstance

77. Using the straight line method of depreciation, what would be the value of a $250,000 property at the end of 6 years if depreciation is calculated to be 4% per year?

(a) $190,000 Straight line depreciation is equal amounts every year. Therefore for 6 years at 4% it would be: 6 x 4% = 24% depreciation. $250,000 - 24% ($60,000) = $190,000.

49. A property is 4.3 miles long and 250 feet deep. How many acres is this?

(a) 130.3 know this 1 mile = 5280 feet 1 acre = 43560 step 1 4.3 miles x 5280 = 22,704 feet step 2 L 22,704 x W 250 = 5,676,000 sqft step 3 5,676,000 divided by 43560 = 130.3

50. An office building has potential gross rent of $24000 a month. The property has a vacancy rate of 12%. Operating expenses for the property are $110,000. The property has sold for $956,000. What is the rate of return based on this information? (a) 15% (b) 12% (c) 17% (d) 11%

(a) 15% Rationale: Income Approach to Appraisal: Net annual income = rate of return x market value.Looking for rate of return and given the market value we must calculate the net income. $24000 rent per month x 12 months = $288,000 potential gross rent. 12% vacancy indicates we must reduce the potential rent by 12%.$288,000 - 12% ($34,560) = $253,440 actual gross. $253,440 gross less expenses ($110,000) = $143,440 net annual income. Net Annual Income/Market Value = rate of return. $143,440/$956,000 = 15% rate of return.

63. The direct sales comparison (market data) approach would be MOST appropriate for establishing the value of a:

(a) 5-year-old single-family house

54. An apartment complex has 20 units. For three months last year occupancy was 100%. Three units were each empty for 5 months and three different units were each empty for 1 month. Based on this information, what was the vacancy rate for the complex last year? (a) 7.50% (b) 92.50% (c) 6.25% (d) It cannot be calculated from this information alone.

(a) 7.50% Rationale: Consider each unit has 12 months for occupancy/vacancy. 20 units x 12 months = 240 months total. 3 units vacant x 5 months = 15 vacant months 3 units vacant x 1 month = 3 vacant months. 15 + 3 = 18 vacant months out of 240 total. 18/240 = 7.5% vacancy

20. A listing salesperson must disclose what information to potential buyers?

(a) Any zoning changes that occurred after the property was listed.

28. Which of the following phrases would be considered discriminatory by HUD under the Federal Fair Housing Act?

(a) Exclusive Neighborhood

11. Which of the following transactions would not qualify for VA financing?

(a) Senior apartment complex

32. A portion of an advertisement reads: "New 4-bedroom, 2-bath home for sale in a family neighborhood. Yours for only $1100 per month." This advertisement violates:

(a) Truth in Lending and the Fair Housing Act Rationale: The mention of a family neighborhood violates Fair Housing Law and the mention of a monthly payment amount (Trigger Words) violates Truth in Lending.

24. What would have to be disclosed to prospective buyers by the listing broker?

(a) a material defect existing in the property being offered

67. A real estate office is located on a street corner in a neighborhood zoned for residential/professional use. The zoning committee changes the zoning to R-1. The office is now an example of:

(a) a non-conforming use

47. A title insurance policy has been provided to a buyer by the seller, along with a general warranty deed. The title insurance will protect the buyer from a financial loss caused by:

(a) an encumbrance to which the policy has not taken an exception Rationale: Title insurance covers encumbrances not excepted by the title policy.

69. What is the difference between replacement cost and market value?

(a) depreciation

75. A property owner has been notified by his lender of an impending foreclosure on the property. The foreclosure sale has been set for one week from now. Which of the following would be in the best interest of the lender?

(a) equitable redemption

21. In stating a seller's price and terms to a prospective buyer, the seller's broker is required by the law of agency to state only those terms that are:

(a) included in the listing agreement.

74. A buyer has a signed sales contract on a property and has not yet gone to closing. This is an example of:

(b) an equitable estate Rationale: This is an equitable estate - an interest in real property created by a legal agreement, that has not yet been consummated.

30. A license holder places earnest money deposits into an operating account. This is an example of:

(b) commingling

61. If property value is affected by negative forces outside the property which are beyond the control of the owner, this is referred to as:

(b) economic obsolescence

35. A buyer files a lawsuit against a listing broker because, after closing, termite damage was discovered on the property. The listing broker had no knowledge of any termite problems on the property, and the seller did not disclose any termite problems. What type of insurance will protect the broker in this situation?

(b) errors and omissions insurance

72. An individual feels he has been a victim of discrimination in housing. He has several choices for remedies and resolution of this situation. Which remedy should he choose if his goal is a quick end to the discriminatory treatment and the full restoration of his rights?

(b) go to HUD with a complaint because HUD will try mediation

70. A license holder in an agency relationship:

(b) must treat all parties with honesty and fairness

44. A property owner has a property tax exemption due to a physical disability. The result is a $1500 reduction in the annual property tax bill. The listing license holder has not disclosed this exemption. This failure to disclose a material fact about the property is an example of:

(b) negligent misrepresentation Rationale: It is negligent (careless) misrepresentation.

60. When a lease expires what right reverts to the landlord?

(b) right of possession

80. What is the most likely disadvantage to a lender in accepting Deed in Lieu of Foreclosure?

(b) the liability for existing liens on the property

53. In an amortized loan, which of the following describes the loan payment during the life of the loan?

(b) with every payment made, interest decreases and principal increases

66. An investment property has actual gross rent of $320,000 per year. The building currently has a 5% vacancy rate. The net annual income from the property is $212,000. The investor has an 11.5% capitalization rate on the property. What is the market value?

(c) $1,843,478 Rationale: This problem has an excess of information that is not useful to determine the answer. The income approach states: Net annual income = capitalization rate x market value. The question gives the net annual income as $212,000 and the capitalization rate of 11.5%. Market value = $212,000/11.5% = $1,843,478,

14. An investor owns a 10 unit duplex complex containing 20 apartments. Each apartment in the complex rents for $1500 per month. Last year all the apartments were occupied for 6 months. One apartment was vacant for 5 months and two apartments were each vacant for one month. What was the occupancy rate for the property last year? (a) 92% (b) 94% (c) 97% (d) 99%

(c) 97% The complex has 20 units available for 12 months each = 240 months for occupancy. 5 + 1 + 1 = 7 empty months. 240 - 7 = 233 occupied months. 233 = ? % of 240. 233/240 = 97% occupancy. (The monthly rent is not relevant).

64. A tenant signs a lease agreement that calls for periodic increases of rent at predetermined intervals. The is lease is referred to as:

(c) a graduated lease

40. A broker has a listing on a house that is vacant. The sellers have given permission for the broker to place a lockbox on the property. Which of the following best describes an appropriate combination for the lockbox?

(c) a random set of numbers unrelated to the property or brokerage

22. Under an exclusive right to sell listing, a license holder has the authority to take which of the following actions on behalf of a seller?

(c) advertise the property for sale

57. What do FHA, VA and USDA loans have in common?

(c) all require flood insurance if the property is in a flood zone Rationale: All require flood insurance if the property is in a flood zone.

25. A lessee pays a fixed amount of rent. She also pays all the operating expenses of the property. This lease is known as:

(c) net lease

33. A license holder has been sponsored by a broker under independent contractor status. What is true regarding employment taxes in this case?

(c) nothing will be withheld from any commission for tax reasons

52. What type of mortgage loan allows the borrower to obtain additional funds at a later date?

(c) open end loan

56. A buyer and seller have signed a purchase agreement and all contingencies have been met. The seller has changed his mind and no longer wants to sell. What legal remedy can the buyer use to force the seller to consummate the sale?

(c) sue for specific performance

68. A homeowner will be abroad for one year and wants to lease his home for that period. He hires a broker to lease the property and specifies that he will not sign a lease where the tenants have any children or pets. What must the broker do?

(c) the broker must tell the owner that although he can specify "no pets", he cannot specify "no children" in order to comply with Fair Housing laws

23. Buyers have made an offer to purchase a house for $250,000 including the dining room furniture. The offer will expire at 5:00 p.m. on Sunday. On Thursday, the sellers reply in writing that they will accept the offer of $250,000 but they will not include the dining room furniture. While the buyers are considering the counteroffer on Friday, the sellers change their minds and decide to accept the original offer, dining room furniture to be included, and they state so in writing. What is the current obligation of the buyers?

(c) the buyers are not legally obligated to purchase the house.

45. A visually-impaired individual with a service animal applies to lease an apartment. The apartment complex has a strictly enforced "no pets" policy. Compliance with Federal Fair Housing laws requires the landlord to allow the tenant to have the dog on the property. The dog damages the apartment. Who is required to pay for repairs in this instance?

(c) the dog owner

43. A new license holder has prepared a detailed listing presentation package to present to prospects and it always includes a CMA on the property. He has secured his first listing. After his presentation of this package and the CMA, including a range of values for the neighborhood, he has told the sellers they must list the property for $395,000. The seller's have accepted this price even though they do not agree with it. What is wrong with this scenario?

(c) the final decision in establishing the listing price is made by the seller, not the agent.

17. A salesperson who completes a written listing agreement with a seller is helping to create a contractual relationship between?

(c) the seller and the broker

36. Under what circumstances will a sales license holder be permitted to keep listings and sales contracts after the termination of sponsorship by a broker?

(c) under no circumstances

62. When a husband and wife purchase real property and take title as tenants in common, they have elected a form of ownership that allows for:

(c) unequal shares of ownership

65. A buyer purchases a home for $250,000. He secures a loan with an LTV of 100%. Which of the following types of loans did he most likely procure?

(d) VA guaranteed loan

73. A single family home has been leased. The tenants have found several problems with the property since they have moved in and the landlord has taken no steps to remedy any of the problems. Which of the issues would be the best example of constructive eviction if the landlord does not respond?

(d) a landlord has been notified that the heating system is not operating and outside temperatures are predicted to be below freezing

71. An agent is showing a property and notices several problems with the property which he feels are "red flag" issues. Which of the following would NOT be a "red flag"?

(d) doors and windows that will not close properly accompanied by cracks in the wall extending from the ceiling to some of the door and window frames

59. If a property is sold on a short sale, the party selling the property must:

(d) have the approval and cooperation of the mortgagee.

41. A buyer and seller have signed a Purchase and Sale Agreement for a commercial property. The agreement contains a Due Diligence Contingency Clause. The buyer has placed a $10,000 earnest money deposit on the property and has paid $500.00 for the due diligence contingency. The buyer has had the property evaluated by an investment advisor and an inspector. He has decided that he no longer wants to purchase the property. He is still within the Due Diligence Clause time period. Which of the following best describes his options at this point?

(d) he can terminate the offer and receive a refund of his earnest money only Rationale: He can terminate and will receive his earnest money back.

46. A property is being listed for sale by a broker. The property has a 35 foot easement across the front and zoning requires a 45 foot setback. Which of the following actions should be taken by the broker when listing this property?

(d) he must disclose both limitations on the property use

51. Who in a transaction would be the borrower? a) vendor (b) vendee (c) trustee (d) mortgagor

(d) mortgagor

26. When a prospective buyer asks about a property's location regarding flood zones, the license holder should direct the buyer to:

(d) obtain an up-to-date floodplain map from FEMA

79. What hazardous substance is colorless, odorless, and most likely to be found in colder climates?

(d) radon

29. During a real estate transaction, who determines the amount of the earnest money?

(d) the agreement of the buyer and seller

38. Who does title insurance protect?

(d) the buyer

55. A property is advertised for sale on the radio. What part of the advertisement involves a trigger term?

(d) the seller offers an interest rate of only 5% on purchase mortgages

A landlord rents a 6 unit apartment complex for $450/unit per month. The property manager receives a 10% management fee. The mortgage for the complex is $1800/month and repairs are $180/month. What is the landlord's net income per month? (a) $450 (b) $900 (c) $2,700 (d) $2,250

2,250 Rationale: Net income is gross income less operating expenses. Mortgage payments are not an operating expense and therefore not a factor in this question. $450 x 6 = $2700 gross rent. Management fee = $2700 x 10% = $270. Net income = $2700 gross rent - $270 management fee - $180 repairs = $2250. $450 x 6 = $2700 gross rent - 10% management fee ($270) - $180 for repairs = $2250.

A home has a current market value of $225,000. MLS data from the last five years shows that home values have appreciated 6% per year. Based on this information, what will be the value of the house 5 years from now assuming compound appreciation? (a) $301,101 (b) $284,057 (c) $267,979 (d) $252,810

Compound appreciation applies to the original value, and each year also to the appreciation from the previous year. The simplest way to do this problem is to simply do a chain of additions with a basic calculator: $225,000 + 6% +6% +6% +6% + 6% = $301,101. Another approach is to multiply the original value by 106% as each year the value is 106% of the year before: $225 x 106% x 106% x 106% x 106% x 106% = $301,101. Each year the property is worth 100% of the previous year + 6% appreciation: 106%. For five years the solution would be: $225,000 x 106% x 106% x 106% x 106% x 106% = $301,101.

13. A client is abandoned by the agent. What can the client do?

Find another Agent

16. Which of the following terms BEST describes personal property that, by its attachment to real property, is regarded as real estate?

Fixture

8. An appraiser reduces the value of a home due to 60amp service when the standard electrical service for the subdivision is 100amp. What is he citing?

Functional obsolescence

6. A builder has a blanket loan on a parcel of land and sells a lot from the parcel. How can he deliver a deed to to the buyer at closing?

He pays off the cost of the lot

5. Which of the following is a known cause of mold?

Humidity

9. A person selling a home wants to advertise they will not sell to a specific national origin. This act is:

Illegal

3. Which of the following expenses is prorated at closing?

Property taxes owed by the seller

4. A property is advertised as "For Sale by Owner." The seller owns 2 homes. The seller receives several offers and chooses the buyer based on the buyer's national origin. Neither party is represented by a broker. Which of the following is true about violation of the Fair Housing laws?

The seller is not in violation because his actions do not involve a broker. The seller meets the criteria to be exempt from the law and can discriminate in this way. Answer b is correct.

In a contract for deed, the seller is the:

VENDOR

7. A component of the Gross Income Multiplier (GIM) is:

Yearly rent