National Real Estate Exam | General Terminology

Which of these is excluded on a title insurance policy on Martha's property because of the schedule of exceptions? - A mechanic's lien recorded by A1 Siding and Windows - A verbal lease agreement Martha has with her neighbor who leases Martha's garage - Last year's unpaid property taxes - The current year's unpaid property taxes

A verbal lease agreement Martha has with her neighbor who leases Martha's garage. The title policy doesn't exclude property taxes (assuming they're properly recorded), though the taxes must be paid before the policy is issued. The verbal lease agreement is excluded since it's not shown in public records.

When Dashiell received the purchase offer for his bungalow, he was surprised to see a page added to the contract requesting that an attorney review the contract. What is Dashiell looking at?

Addendum

Jeffersontown has a zoning ordinance that requires all properties in a designated historic district to have brick or wood plank facades. No aluminum, cement board, or vinyl siding is allowed. What type of zoning is this?

Aesthetic zoning

Addendum

An addendum is a separate form that becomes part of the sales contract.

Deed of trust

An agreement between a home buyer and a lender at the closing of a property. The agreement states that the home buyer will repay the home loan and the mortgage lender will hold the property's legal title until the loan is paid in full.

Appreciation

An increase in property value

There are many advantages to holding property within a trust. One of the most important advantages is that some trusts ______.

Avoid probate

Jennifer, an experienced salesperson, hires an unlicensed assistant, Suzanne. Jennifer's on vacation, and in her absence, Suzanne discussed some contract terms with one of Jennifer's clients. Who's responsible for Suzanne's behavior?

Both Jennifer and her broker are responsible for supervising Suzanne, and both could be disciplined. Even though Jennifer hired and directly supervises Suzanne, the broker shares responsibility because he's charged with supervising all licensed and unlicensed brokerage firm staff.

A contract is rescinded when...

Both parties agree to cancel the agreement and return both parties to their pre-contract position.

Which of the following is an action borrowers take to temporarily lower the interest rate on their mortgage loan?

Buydown

Kelly is purchasing a property that has an assessed value of $160,000. If the tax rate is 2.5%, what will Kelly likely pay annually in property taxes?

$4,000 To find the tax amount, multiply the assessed value by the tax rate ($160,000 × 0.025).

Gary has an 80% LTVR on his new $318,000 townhome with an annual interest rate of 4.125%. What's his interest payment the first month?

$874.50 The loan amount is $254,400 ($318,000 x .8). The first month's interest is $874.50 ([$254,400 x .04125] ÷ 12).

Alistair bought a townhouse for $285,900. He got a 90% loan and the lender charged him 3-1/2 discount points. How much did Alistair pay in discount points?

$9,005.85 The sales price is $285,900, and 90% of that (aka our loan amount) is $257,310. The discount amount is 3-1/2 points, (.035) multiplied by $257,310 = $9,005.85.

1 section = _________ square mile(s)

1 square mile

1 square yard =

1,296 inches

1 square foot =

144 inches

1 hectare =

2.471 acres

A lot measuring 108,900 square feet is for sale. How many acres is this?

2.5

Over how many years are residential, income-producing properties depreciated?

27.5 years.

1 township =

36 sections

Over how many years is a commercial property depreciated?

39 years.

1 acre =

43,560 square feet

Net listing

A net listing is a type of listing in which an owner sets a certain amount of money that they want to receive from the sale of their home. The listing agent receives any amount of money that the property sells for that exceeds the set amount. A listing agent does not receive a commission for a net listing. Illegal in many states.

"Time is of the essence"

A phrase in a contract that requires the performance of a certain act within a stated period of time. Reasonable time is assumed if a specific performance date isn't mentioned.

Buyer agency agreement

A principal-agent relationship in which the broker is the agent for the buyer, with fiduciary responsibilities to the buyer. The broker represents the buyer under the law of agency.

Quiet title suit

A quiet title suit is a legal proceeding that asks the court to remove any claims, or "clouds," against the title so that it can be conveyed.

Moratorium

A temporary halt to any new development for a certain amount of time with the community's best interest in mind. (a suspension of activity; an authorized delay)

Reasonable time

A term used in contract law to describe a period of time by which an act should be performed. It is a vague term and depends on the circumstances surrounding the contract formation. Courts will look at the intent of the parties and the nature of the action to determine what is a reasonable time.

Bilateral contract

A type of contract that arises when a promise is given in exchange for a return promise.

Tenancy in common

Co-ownership of property in which each party owns an undivided interest that passes to his or her heirs at death.

Which economic principle pertains to how a change in a property affects its value as a whole?

Contribution

The Baxters are looking at a $425,000 home. They have $90,000 in savings to use as a down payment. What loan type(s) would likely be the best option for them?

Conventional A $90,000 down payment would be a little more than 20% down ($90,000 ÷ $425,000 = 0.212, or 21.2%). The Baxters should qualify for a conventional loan with that much to put down on the home, and will avoid having to buy mortgage insurance.

Which of the following is defined as what it would take to recreate a property if it disappeared off the face of the earth today? - Cost - Insurance - Price - Value

Cost Replacement cost is the entire term. The cost approach works with this idea: What would it cost to replace the building on the land as it is now?

HUD

Department of Housing and Urban Development

Principal of Anticipation

Property is valuable because of the future benefits, such as income, that it is expected (anticipated) to provide (earn).

Radon

Radon is a radioactive gas that has been found in homes all over the United States. It comes from the natural breakdown of uranium in soil, rock and water and gets into the air you breathe. Radon typically moves up through the ground to the air above and into your home through cracks and other holes in the foundation.

Do not call rules

Real estate licensees may make calls between 8:00 AM and 9:00 PM. Licensees must identify themselves before making the solicitation, must identify that the call is a solicitation, and disclose all material information related to the solicited service. Licensees may not use caller ID blocking. Telemarketers must scrub their contact lists against the national Do Not Call registry every month.

Tenancy in severalty

Real estate ownership by only one

What's the purpose of a quiet title suit?

Remove any claims against a property's title.

Rennie has consistently violated the Residential Lead-Based Paint Hazard Reduction Act by neglecting to provide prospective buyers with the pamphlet, "Protect Your Family From Lead in Your Home." In addition to a fine, what other penalty is Rennie most likely to incur?

Requirement to return to compliance with the law. The EPA most often requires violators to pay a fine and return to compliance with the law. Jail time is reserved for violators who refuse to cooperate and continue to violate the law.

What type of investment strategy is most similar to a 1031 tax-deferred exchange?

Rolling over funds from one IRA into another The 1031 exchange is similar to rolling over retirement funds the investor rolls over the capital gains from the sale of one property into the purchase price of the next property, deferring (but not avoiding) taxes on that gain.

Which of these tasks must a licensee perform for buyer clients? - Advise the buyer on how to get the seller to come down on the asking price. - Ensure that the buyer receives copies of all signed paperwork. - Explain to the buyer how to deposit the earnest money into the seller's personal checking account. - Explain to the buyer that there's really no need to review transaction documents because they're all standard.

Ensure that the buyer receives copies of all signed paperwork. Making sure your clients receive signed paperwork is your responsibility. Both parties should receive copies of signed paperwork.

Irene and Harold are buying a home. Which document will be used to formalize this transaction?

Sales contract

Tenancy by the entirety

The joint ownership, recognized in some states, of property acquired by husband and wife during marriage. Upon the death of one spouse, the survivor becomes the owner of the property.

Principal of substitution

The principle of substitution states that the upper limit of value tends to be set by the cost of acquiring an equally desirable substitute, assuming no untimely delays. A prudent investor would pay no more for an income-producing property than it would cost to build or purchase a similar property.

Discount points

Essentially mortgage interest that you pre-pay upfront at closing. Typically, one point costs 1% of the total mortgage, and permanently lowers the interest rate anywhere from 0.125% to 0.25%, depending on the type of mortgage.

Probate

The process of proving in court that the will of someone who has died is valid, and of administering the estate of a dead person. The process of probate can take up to a year or more before the property is disbursed to the heirs. Property held within a trust can avoid probate.

Georgina is an escrow agent who's holding funds for several transactions. Which of these statements about how she'll disburse these funds is true? - If the transaction closes, Georgina will disburse the earnest money to the listing broker as part of his commission. - If the transaction closes, she'll refund the earnest money to the buyer, since the buyer brings the full amount necessary for the down payment and loan costs to closing. - If the transaction doesn't close, Georgina will disburse the earnest money as instructed by the parties or according to state law. - If the transaction doesn't close, Georgina will refund the earnest money to the buyer.

If the transaction doesn't close, Georgina will disburse the earnest money as instructed by the parties or according to state law. If the transaction fails to close, she'll disburse the funds as instructed by the parties, or until the parties agree to a solution or a court does.

Lot and Block Realty received a cease-and-desist order from the FTC due to misleading ads the firm was running. When does the order become effective?

Immediately upon issuance. A cease-and-desist order is effective immediately.

Piggyback loan

In home mortgage lending, a second mortgage loan created simultaneously with creation of a first mortgage loan, the latter having a loan-to-value ratio of no more than 80 percent. The "piggyback" second mortgage enables a buyer to achieve greater than 80 percent financing without incurring mortgage insurance on the first mortgage.

What does a municipality do to verify that new construction meets building codes?

Issue building permits. The permit process helps localities verify that construction is meeting all building code requirements.

Unilateral contract

It is a real estate contract where one party promises to act in exchange for the other party's compliance.

Which of these actions is a violation of the Residential Lead-Based Paint Hazard Reduction Act when a property constructed before 1978 is being marketed by a licensee? - The seller's agent fails to provide the pamphlet, "Protect Your Family from Lead in Your Home," to prospective buyers. - The seller refuses to perform lead abatement work requested in buyer's offer. - The buyer's agent fails to complete the lead-based paint disclosure form. - The buyer is given more than 10 days to complete a lead inspection of the property.

The seller's agent fails to provide the pamphlet, "Protect Your Family from Lead in Your Home," to prospective buyers. Federal law doesn't require lead abatement work, and buyers may negotiate to have more than the requisite 10 days to perform lead inspections, but the EPA pamphlet must be provided to prospective buyers, and that's the listing agent's responsibility.

Novation

The substitution, by agreement, of a new contract for an old one, with the rights under the old one being terminated.

Assignment

The transfer of contractual rights to a third party

Two competing firms are found guilty of illegal market allocation. Which of the following scenarios must be true? - The two firms are located in different parts of the state. - The two firms are owned by the same umbrella company. - The two firms have agreed not to compete in one another's markets. - The two firms have agreed to set commission rates and/or co-op fees at a specific amount.

The two firms have agreed not to compete in one another's markets. Only an agreement to segment the market between competitors would be illegal market allocation.

Gail was supposed to close on her new home by the end of May, but she kept asking the sellers if they could push the closing date back. Soon the summer was over, and she still hadn't closed. Gail was guilty of not adhering to which aspect of the contract?

Time is of the essence

What's one of HUD's primary goals?

To ensure that everyone has access to fair and equal housing

Sam and Bridget are cousins who jointly own property. They are both named on the deed, they received title at the same time, they have the right of survivorship, and they each have equal interest and undivided rights of possession. What type of ownership do they have?

Joint tenancy

Which form of real property ownership (for owners other than married couples) means there's equal ownership shares with undivided possession rights?

Joint tenancy

Kirsten purchased her home with financing from HLM Mortgage Company. She signed a promissory note and a deed of trust with her lender. Until the mortgage loan is paid off, Kirsten holds equitable title in the property and the lender holds legal title. What does this mean?

Kirsten has right to use, occupy, and benefit from her property as well as gain full legal title to the property when her mortgage loan is paid off.

Your buyers love the 1891 Victorian they have under contract, but they want to get both the water and the paint tested as soon as possible. What are they testing for in both water and paint?

Lead Both pipes (and thus water) and paint can be a source of lead, as well as dust and soil surrounding the home.

Which of the following actions concerning tenant rights should real estate licensees take? - Advise landlords on their legal rights and responsibilities to tenants under the law. - Advise tenants on their legal rights and responsibilities under the law. - Ignore tenants' legal rights. - Learn and understand tenants' legal rights.

Learn and understand tenants' legal rights.

The ease with which the property can be conveyed to another describes which factor that influences value?

Transferability Transferability is how easily a property can be transferred to another.

Stacey's lengthy military service makes her uniquely eligible for a(n) ________.

VA loan

Buydown

When buyers voluntarily pay points to temporarily bring interest rates down. For example, a 3-2-1 buydown would reduce the interest rate by 3% the first year, 2% the second year, and 1% the third year.

Victor bought a property from Yolanda for $200,000. Under the terms of a land contract, Victor agreed to pay Yolanda in monthly installments of $4,000 over the course of 50 months. Until Victor pays Yolanda the $200,000, who retains the title?

Yolanda

Aesthetic zoning

Zoning ordinances that regulate the appearance of real property, such as exterior color, exterior construction material, required screening and fencing.

Mold

Mold exposure can cause many health issues in humans, especially if there is black mold. While not everyone is affected by mold exposure, those who are could have a severe reaction.

New Day Corporation's application to build a new mixed-income housing development was denied, because the town of Springfield has halted all new development until after city elections. What did Springfield enact?

Moratorium

Because there were no deadlines specified in the contract, a buyer delayed applying for a loan to help purchase the property. The seller ended up suing the buyer for breach of contract, stating that the delay was impacting the seller's ability to purchase a new home. What did the buyer fail to do?

Perform contractual obligations within a reasonable time.

When a contract doesn't provide specific dates for when the terms need to be met, what should the parties assume regarding performance of the contract?

Performance must take place within a "reasonable time."

Contribution

Pertains to how a change in a property impacts the value as a whole. Does converting a garage into a family room contribute to or detract from value? The answer to that would be in the eyes of the buyer.

Marcia Weinstein died, and her property wasn't held in a trust. Thus, her estate will go through ______ to ensure her property is distributed to her beneficiaries in accordance with her will.

Probate Because Marcia's property wasn't held in a trust, her estate will go through probate. Had Marcia placed all her assets in a living trust before she died, her estate would have avoided probate, a process that can take a year or more to complete.

In a triple net lease, the tenant pays for...

taxes, insurance, and maintenance. (TIM)

Deed of trust gives the borrower...

the right to occupy, use, and benefit from the property. The lender or trustee may not exercise those same benefits, but is the legal owner until the mortgage is paid.

OTHER MEASUREMENTS

!!!

Helen is purchasing a home for $150,000 and provides a $2,500 earnest money check to the seller, which will be applied to her down payment. She's financing the transaction, and her closing costs and down payment total $4,800. How much should Helen bring to the closing?

$2,300

VA loan

A mortgage loan on approved property made to a qualified veteran by an authorized lender and guaranteed by the Department of Veterans Affairs in order to limit the lender's possible loss.

Subprime loan

A mortgage with an interest rate higher than prime mortgages due to the higher risk associated with a less qualified borrower

Alexandra sells her house to Clark for $178,000. They negotiate to split the transfer tax, which has a rate of $0.33 per $100. What do they each pay to cover the transfer tax?

$293.70 The total transfer tax is $587.40 ($178,000 x .0033), so they each pay $293.70 ($587.40 ÷ 2).

1 section = _________ acres

640

Listing agreement

A contract between an owner (as Principal) and a real estate broker (as agent) by which the broker is employed as agent to find a buyer for the owner's real estate on the owner's terms, for which service the owner agrees to pay a commission

Sales contract

A contract for the purchase/sale, exchange, or other conveyance of real estate between parties. The contract must be in writing, contain the full names of the buyer(s) and seller(s), identify the property address or legal description, identify the sales price, and include signatures by the parties.

Executed contract

A contract that has been completely performed by both parties.

Voidable contract

A contract that may be legally avoided at the option of one or both of the parties.

Option contract

A contract under which the offeror cannot revoke the offer for a stipulated time period (because the offeree has given consideration for the offer to remain open).

What's the penalty for violating federal do not call rules?

A fine of more than $40,000 for each violation

Joint tenancy

A form of co-ownership that includes the right of survivorship. Equal ownership with unity of time, title, interest, and possession. Tenancy by the entirety (in states where it's used) also requires the same four unities, but requires that the owners be married.

Amendment

A formal alteration or modification made to an already signed contract.

FHA loan

A government-sponsored loan that carries mortgage insurance

Ezra's lease on his condo includes an option to purchase. He told his landlord, Sherm, that he's ready to purchase the condo, and they've negotiated a closing date. What kind of contract is the option?

Bilateral

Absestos

Fire-resistant mineral that was once use extensively as insulation and the strengthen other materials. Banned 1978. Highly friable. Causes respiratory diseases.

How should licensees approach landlords' and tenants' legal rights?

Licensees should know and understand landlords' and tenants' legal rights, but should be careful not to advise clients on their rights and responsibilities, as the latter crosses into the unauthorized practice of law.

Which of the following scenarios best describes a net listing? - Carmel is selling her condo for $280,000 and is offering 6% commission to the listing broker. - Jason is listing his duplex for $400,000 but reserves the right to find his own buyer and not have to pay a listing commission. - Maeve wants to get at least $350,000 when she sells her property and tells her listing agent, Stan, that he can keep anything above that amount. - Ralph is selling his townhome for $225,000 and is paying a brokerage fee of $25,000.

Maeve wants to get at least $350,000 when she sells her property and tells her listing agent, Stan, that he can keep anything above that amount. A net listing commission involves commission of an indeterminate amount and depends on the sales price. Net listings are illegal in several states.

Principal of Conformity

Maximum value is found when there is a reasonable degree of similarity or homogeneity.

Which of these is an example of a sub-agency relationship? - Aldrich accepts a designated agency appointment from his broker so his firm can represent both the buyer and the seller. - Blaine represents the buyer in a transaction with an unrepresented seller. - Greta refers a buyer client to a more experienced colleague, asking for a referral fee from the colleague. - Morris, who's licensed independently, finds a buyer customer for Greg's listing with Marvel Homes and is obligated to act in the best interest of Marvel Homes' client.

Morris, who's licensed independently, finds a buyer customer for Greg's listing with Marvel Homes and is obligated to act in the best interest of Marvel Homes' client. Sub-agency refers to a licensee from one firm who brings an unrepresented buyer for a property listed by another firm. The sub-agent represents the seller in this situation.

Which of these scenarios is an example of two parties rescinding a contract? - A sales transaction falls through when Nora, the buyer, doesn't qualify for financing. - Bobby, the buyer, makes an offer on a house that doesn't meet the appraisal contingency. He cancels the sale. - Sally, the seller, sells her property to two different buyers. Both buyers sue Sally for specific performance. - Sherman, the seller, decides not to sell his condo after all. Fortunately, his buyer, Alice, decided to join the Peace Corps. They mutually agree to cancel the sale with no penalty on either side, and each signs paperwork to this effect.

Sherman, the seller, decides not to sell his condo after all. Fortunately, his buyer, Alice, decided to join the Peace Corps. They mutually agree to cancel the sale with no penalty on either side, and each signs paperwork to this effect.

Transfer tax

Tax paid when title passes from one owner to another.

With a triple net lease, the tenant pays ______ separately from the base rent.

Taxes, insurance, and maintenance