Real Estate_9

The following legal description contains how many acres: the S½ of the SE¼ of the NW¼ of the NE¼ of Section 7? A) 5 acres B) 20 acres C) 10 acres D) 2.5 acres

The answer is 5 acres. To calculate acres in a survey system legal description, multiply all the denominators and divide that number into 640 acres. In this problem, multiply all denominators: 2 × 4 × 4 × 4 = 128. Then divide 640 by 128: 640 (acres in a section) ÷ 128 = 5 acres.

Antitrust laws prohibit all of these EXCEPT A) competing brokers allocating market shares based on the value of homes. B) competing property management companies agreeing to standardized management fees. C) a broker setting a company commission schedule. D) real estate companies agreeing not to cooperate with a broker because of that broker's fees.

The answer is a broker setting a company commission schedule. All the other actions are violations of antitrust laws. Real estate brokers must independently determine commission rates or fees for their firms only. Commission decisions must be based on a broker's business judgment and revenue requirements and without input from other competing brokers.

A loan fee charged by a lender to increase the lender's yield on a loan is A) the interest. B) a discount point. C) the yield. D) the principal.

The answer is a discount point. Discount points are used to increase the lender's yield on its investment. The yield is the profit the lender makes on a loan, the spread between the cost of acquiring the funds lent to the borrower, and the interest rate charged to the borrower. Interest is the sum paid or accrued in return for the use of a lender's money. The principal is the balanced owed on the original loan amount.

A purchaser negotiates a mortgage loan in which she will make equal monthly payments over a period of 30 years, with the balance of the loan being zero at the end of that term. The purchaser has negotiated A) a partially amortized loan. B) a straight mortgage. C) a balloon mortgage. D) a fully amortized loan.

The answer is a fully amortized loan. A loan with equal, constant payments that result in a zero balance at the end of the term is a fully amortized loan. A balloon mortgage is one type of partially amortized loan. In a partially amortized loan, the principal and interest payments do not pay off the entire loan; a balance remains and is due at the end of the term. A straight mortgage is a loan that requires periodic interest payments to the lender, but nothing is applied to the principal balance. A construction loan is a type of straight loan in which the borrower receives money in draws and makes periodic payments of interest on those draws.

A borrower wants to secure a loan with a very low down payment. Paying a low down payment provides A) a higher loan-to-value ratio. B) no requirement for private mortgage insurance. C) a lower loan-to-value (LTV) ratio. D) lower risk for the lender.

The answer is a higher loan-to-value ratio. The LTV ratio is the ratio of debt to the value of the property. The higher the ratio of debt to value, the lower the down payment by the buyer. A lower down payment means a less secure loan for the lender and may require the borrower to purchase private mortgage insurance in order to secure a loan.

When a company furnishes materials for the construction of a house and the company is NOT paid, it may file A) a lis pendens. B) a deficiency judgment. C) a mechanic's lien. D) a default judgment.

The answer is a mechanic's lien. A mechanic's lien gives security to persons or companies that perform labor or furnish material to improve real property and can be filed when the owner has not fully paid for the work. Lis pendens is a recorded notice of a suit that may affect title to real property. A default judgment is granted when a creditor files for unpaid bills and wins the right to place a general lien on all the debtors' property to collect payment. A deficiency judgment is a personal judgment a lender may file against a borrower for the unpaid balance on a mortgage loan when a foreclosure sale has not produced enough cash to pay the loan balance.

The type of mortgage loan that uses both real and personal property as security is A) a term loan. B) a purchase money mortgage. C) a blanket loan. D) a package loan.

The answer is a package loan. A package loan includes not only the real estate but also all personal property and appliances installed on the premises. A blanket loan covers more than one parcel or lot and permits the borrower to obtain a release of a parcel or lot from the mortgage lien when the lot is sold. A purchase money mortgage refers to the instrument given by a borrower to a seller who takes back a note for part or the entire mortgage. A term/straight or interest-only loan secures only real property.

A listing contract is BEST described as A) a personal service contract. B) an escrow contract. C) a sales contract. D) a property management contract.

The answer is a personal service contract. A listing is a personal employment contract between brokers and their clients setting forth the broker's responsibilities in finding for the seller a ready, willing, and able buyer. A property management contract establishes the responsibilities of a broker in managing a principal's property. A sales contract is a contract between a buyer and a seller for purchase of a property. An escrow contract is an agreement between a buyer, a seller, and an escrow holder (such as a broker) defining the responsibilities of each.

A couple purchased a residence for $195,000. They made a down payment of $25,000 and agreed to assume the seller's existing mortgage, which had a current balance of $123,000. The buyers financed the remaining $47,000 of the purchase price by executing a mortgage and note to the seller. The type of loan, in which the seller becomes the mortgagee, is called A) a package mortgage. B) a reverse mortgage. C) a balloon note. D) a purchase money mortgage.

The answer is a purchase money mortgage. A purchase money mortgage is created when a seller agrees to finance all or part of the purchase price. In this case, the seller agrees to finance $47,000 of the purchase price and takes back a mortgage and note from the buyer. The term purchase money mortgage can mean either owner financing or any mortgage used as acquisition debt in the purchase of a property. Here the owner-seller took back a mortgage for $47,000. An owner takeback is a purchase money mortgage. In a package mortgage, a borrower secures a loan with both real and personal property. A balloon note includes a final payment called a balloon payment that is larger than the periodic payments made on the note. A reverse mortgage is created when the bank makes payments to an older home owner who wants to stay in the home but take advantage of equity.

A formal estimate of a property's market value, based on established methods and using a licensed professional, is performed by A) a real estate broker. B) a real estate counselor. C) a home inspector. D) a real estate appraiser.

The answer is a real estate appraiser. Although brokers, counselors, and inspectors also look closely at a specific property, only a licensed appraiser is qualified to produce a formal opinion of value—an appraisal. State and federal laws require licensure and classification of real property appraisers based on their education and experience.

A married couple owns a farm together, with the right of survivorship. Their ownership is MOST likely A) community property. B) a tenancy in common. C) severalty ownership. D) a tenancy by the entirety.

The answer is a tenancy by the entirety. A married couple, in certain states, may use a special form of co-ownership called tenancy by the entirety. Each spouse has an equal, undivided interest in the property, with the right of survivorship. Severalty ownership occurs when real estate is owned by one person only. Tenancy in common and community property forms of ownership do not include the right of survivorship.

Three friends were concurrent owners of a parcel of real estate. One of the friends died, and his interest passed according to his will to become part of his estate. The deceased friend was A) a severalty owner. B) a joint tenant. C) a tenant in common. D) a tenant by the entirety.

The answer is a tenant in common. In a tenancy in common, the property of a deceased owner may pass to the heirs according to the will. If the deceased owner had been a joint tenant, the property would not have passed according to the will because in a joint tenancy, the property interests would have transferred directly to the other two friends (cotenants). The deceased owner was not a tenant by the entirety, a category reserved for married couples. Nor was the deceased owner a severalty owner because that form of ownership requires property to be held by only one person.

Under an existing zoning ordinance, no signs that extend more than 3 feet above the highest point of a roof may be placed on any building. An owner wants to erect a 9-foot-high revolving sign on the roof of his store. In order to do this legally, the owner must get A) a deed to the air rights. B) a special use permit. C) a nonconforming use permit. D) a variance.

The answer is a variance. A variance permits a landowner to use the property in a manner that is strictly prohibited by the existing zoning. A nonconforming use permit would only apply to a use that existed before the zoning ordinances. A variance does not require ownership of air rights. Special use permits are tied to how the property is used (e.g., as a school or a day care).

A new salesperson lists a unit in a condominium building for sale. In this transaction, the salesperson A) acts on behalf of the brokerage firm. B) has a direct agency relationship with the owners of the unit. C) must personally find a buyer for the unit to obtain a share of the commission. D) acts on behalf of the condominium association, as well as the seller.

The answer is acts on behalf of the brokerage firm. Salespersons or associate brokers act as agents of their brokers. Only the broker has a direct agency relationship with the owners of the unit but not with the condominium association. Under the terms of most listing agreements, the broker and, in turn, the salesperson are entitled to a share of the commission, even if the broker or the salesperson does not personally find a buyer for the unit.

When is a certificate of occupancy issued? A) When applying for a building permit B) After applying for a conditional use permit C) After a newly constructed building has been inspected and found satisfactory by the municipal inspector D) After applying for a variance

The answer is after a newly constructed building has been inspected and found satisfactory by the municipal inspector. The certificate of occupancy, granted by an inspector from the jurisdiction, is necessary before a newly constructed building can be used. The certificate can only be issued after construction has been completed. The certificate is not used in determining a variance or a conditional use permit.

The freehold estates of fee simple absolute, fee simple defeasible, and a life estate have all of the same attributes EXCEPT A) all owners are obligated to pay the property expenses and taxes. B) owners have the right of possession, which can be conveyed to a tenant via a lease. C) ownership of the estate is passed by a deed. D) all owners may convey title via a will to their heirs.

The answer is all owners may convey title via a will to their heirs. The owners of a life estate may not transfer their ownership after death because their ownership is limited to a lifetime. All freehold estates are created in the deed, and because the holders then own the property, they are obligated to pay the expenses and taxes. All owners may lease the property; a life tenant's lease would last only as long as the life estate lasts.

In an adjustable-rate mortgage, the interest rate is tied to an objective economic indicator called A) a mortgage factor. B) an index. C) a reserve requirement. D) a discount rate.

The answer is an index. The interest charged in an adjustable-rate mortgage varies with an outside economic indicator called an index. This index is beyond the control of either the borrower or the lender. The discount rate is the interest rate set by the Federal Reserve that member banks are charged when they borrow money. The mortgage factor is the number multiplied by the thousands of an amount borrowed to arrive at a monthly principal and interest payment. The Federal Reserve System requires that each member bank keep a certain number of assets on hand as reserve funds, which are unavailable for loans or any other use.

A contract in which one party purchases the right to buy at a fixed price within a specified period is A) a lease contract. B) a purchase contract. C) a listing contract. D) an option contract.

The answer is an option contract. An option is a unilateral contract binding on the seller with an obligation to sell for a set price if the buyer decides to buy. Typically, if the buyer does not buy, the seller will keep the option fee, the amount of which was set by the option contract. A listing, lease, and purchase contract are all bilateral contracts.

Which of these is an essential element of a contract? A) Signature of the grantee B) Competent parties C) Competent grantor D) Words of conveyance

The answer is competent parties. One of the five essential elements of a contract is competent parties. Words of conveyance and competent grantor are elements of a deed. The grantor, not grantee, signs the deed.

In the income approach, all of these are considered when calculating net operating income (NOI) EXCEPT A) management fees. B) utilities. C) real estate taxes. D) debt service.

The answer is debt service. Debt service (mortgage payments of principal and interest) is not included in calculating NOI. Management fees, real estate taxes, cost of utilities, insurance, and other costs to maintain the property are all considered in determining a property's operating expenses.

Which of these is NOT considered by an appraiser using the income approach to value? A) Annual gross income B) Annual net operating income (NOI) C) Capitalization rate D) Depreciation

The answer is depreciation. Depreciation is one of the calculations used in the cost approach and not in the income approach. The capitalization rate and the annual NOI are factors used in the income approach to determine a property's value (NOI ÷ rate = value). Estimating the annual gross income of a property is the first step in the income approach to value.

To find the value of a property, if the net operating income (NOI) and the capitalization rate are known, an appraiser using the income approach to value would A) multiply the effective gross income (EGI) by the capitalization rate. B) multiply the NOI by the capitalization rate. C) divide the capitalization rate by the NOI. D) divide the NOI by the capitalization rate.

The answer is divide the NOI by the capitalization rate. To find the value, the NOI is divided by the capitalization rate. Remember the IRV formula: income divided by rate or value. In the income approach, I (NOI) ÷ R (capitalization rate) = value. If an appraiser knows the NOI and the value of the property, the capitalization rate may be found: NOI ÷ value = capitalization rate. If the appraiser knows the capitalization rate and the value of the property, the NOI can be calculated: value × rate = NOI.

The electrical wiring in a house is defective. The broker who listed the house is aware of this and intentionally deceives a potential buyer about it. The buyer purchases the home and later suffers a financial loss due to the faulty wiring. This is an example of A) mistake of law. B) fraud. C) mistake of fact. D) novation.

The answer is fraud. Fraud is lying or covering up a known fact. Mistake of law or fact would be when a party does not have knowledge of a situation or material fact. Novations are new contracts.

In a preprinted sales contract, several words were crossed out or inserted by the parties. To eliminate future controversy as to whether the changes were made before or after the contract was signed, the usual procedure is to A) redraw the entire contract. B) have both parties initial or sign in the margin near each change. C) have each party write a letter to the other approving the changes. D) write a letter to each party listing the changes.

The answer is have both parties initial or sign in the margin near each change. If there are minor changes in a contract, the initialing or signature at the changes notes that the party saw and agreed to the change. The best course of action if there are many or major changes to a contract is to draft a new one with all the agreed changes.

A salesperson finally concluded some extremely difficult negotiations resulting in the sale of a listed parcel of land. For all her extra efforts, she can legally receive a performance bonus directly from A) the seller. B) no one. C) the buyer. D) her principal broker.

The answer is her principal broker. Bonuses and commissions are paid directly to the broker, who then pays the salesperson. The salesperson may not receive commissions or bonuses from anyone other than her principal broker.

Which of these warranties are LEAST likely to be used to insure against title defects? A) Title insurance B) Home warranty C) Abstract of title D) Warranty deed

The answer is home warranty. The home warranty provides coverage for mechanical defects of the property and is not associated with the coverage of title defects. Title insurance provides coverage against title defects.

A buyer and a seller agree on a purchase price of $200,000 for a house. The contract contains a clause stating that "time is of the essence." Which statement is TRUE? A) A "time is of the essence" clause is not binding on either party. B) The closing must take place within a reasonable period before the stated date. C) If the closing date passes and no closing takes place, the party who failed to close is considered to be in default. D) The closing date must be stated as a particular calendar date and not simply as a formula, such as "two weeks after loan approval."

The answer is if the closing date passes and no closing takes place, the party who failed to close is considered to in default. The nondefaulting party may have remedies to retain the earnest money (liquidated damages) or to sue the defaulting party to perform the contract terms (specific performance).

Under an exclusive agency listing, the listing broker would be entitled to a commission EXCEPT A) if the broker sells the property himself. B) if a salesperson from a cooperating brokerage secures a qualified buyer for the property. C) if the seller sells the property himself to a relative moving from out of town. D) if another co-op broker secures a qualified buyer for the property.

The answer is if the seller sells the property himself to a relative moving from out of town. An exclusive agency listing authorizes the listing brokerage or the co-op broker to sell and receive a commission, but the seller retains the right to sell the property without obligation to the broker. A seller who sells the property himself to a relative is not required under an exclusive agency listing to pay the listing broker a commission. The seller is obligated to pay a commission to the listing broker when that broker, another broker, or a salesperson from a cooperating brokerage firm sells the property.

Housing that qualifies for exemption from familial status under federal fair housing provisions A) is allowed if 55% of the occupants are over 80 years old. B) includes housing intended for people age 50 or older. C) is permitted for owner-occupied buildings with four or more units. D) includes a restriction that 80% of the units be occupied by people 55 or older.

The answer is includes a restriction that 80% of the units be occupied by people 55 or older. The Fair Housing Act allows for two exemptions to familial status protection in housing for seniors. One permissible exemption is if 80% of the units are occupied by people age 55 or older. The other exemption is for housing intended for persons over the age of 62. Owner-occupied buildings with four or more units are subject to the federal Fair Housing Act. All senior housing must be Department of Housing and Urban Development (HUD) certified.

Which statement is TRUE of a listing contract? A) It obligates the seller to convey the property if the broker procures a ready, willing, and able buyer. B) It obligates the broker to work diligently for both the seller and the buyer. C) It is an employment contract for the professional services of the brokerage. D) It automatically binds the owner, the broker, and the MLS to its agreed-on provisions.

The answer is it is an employment contract for the professional services of the brokerage. The listing is the brokerage firm's contract of employment with the seller. It is not a contract between the seller and any buyer and so cannot be enforced on the seller by a buyer, even though the buyer makes an offer that is the "mirror image" of the terms of the listing. However, in such an event, the seller may owe the brokerage a full commission for having produced the result the listing called for: an able buyer who is ready and willing to buy on the terms of the listing. The listing contract obligates the broker to work diligently only for the seller.

The four unities of possession, interest, time, and title are associated with which of these? A) Community property B) Joint tenancy C) Severalty ownership D) Tenants in common

The answer is joint tenancy. A joint tenancy can only be created by an intentional act and requires the four unities—equal possession, interest, and title which must all occur at the same time (PITT)—to be present. Severalty ownership is the sole possession of a property by one owner without a need for any unity of interests with other parties. Tenants in common have undivided fractional interests in a property and their fractional interests may be different. Community property is one of the ways married couples may own property together.

A property manager is responsible for the development of many documents for the owner. The creation of which of these documents is NOT a responsibility of the property manager? A) Lease agreement B) Operating budget C) Cash flow D) Profit and loss statement

The answer is lease agreement. The owner is responsible for the lease agreement, not the property manager. Property managers typically create operating budgets for the owner to approve and may be asked to supply cash flow analysis and profit and loss statements.

The National Flood Insurance Reform Act of 1994 imposes certain mandatory obligations on A) borrowers. B) licensees. C) lenders. D) sellers.

The answer is lenders. This means that if a lender discovers that a property is in a flood zone area, the lender must notify the borrower.

The purpose of a building code is to A) ensure compliance with a deed's restrictive covenant. B) make sure buildings are structurally safe. C) enforce zoning ordinances. D) maintain municipal control over the volume of new construction.

The answer is make sure buildings are structurally safe. Building codes are used to make sure buildings are structurally sound and safe. A restrictive covenant is a restriction established by a private entity, not a public government. Building codes do not affect a deed's restrictive covenant. Zoning ordinances regulate the types of new construction but are not enforced through building codes.

A broker tells a prospective buyer that a lake property has a spectacular view of the lake. In fact, the view from the property also includes several large trees that block the view of parts of the lake. In this case, the broker A) is guilty of negligent misrepresentation. B) is merely puffing, which is legal as long as there is no misrepresentation. C) is guilty of intentional misrepresentation. D) has committed fraud.

The answer is merely puffing, which is legal as long as there is no misrepresentation. The broker is exaggerating the benefits of the property, in this case, the view of the lake. In this situation the broker is not guilty of fraud or misrepresentation. Fraud is a deceitful practice or a misstatement of a material fact, known to be false.

A listing salesperson schedules an open house with the sellers. Before the open house, she advises the sellers to place valuable jewelry that is visible in the bedroom into a safe or another secure place. The sellers ignore the salesperson's advice. The morning after the open house, the sellers call the salesperson to inform her that some of their jewelry is missing from the bedroom. Will the salesperson likely be held accountable for the missing jewelry? A) No, because the sellers should have watched over their valuables during the open house. B) Yes, because the salesperson should have checked every visitor leaving the open house for any stolen valuables. C) No, because the salesperson advised the sellers to remove or hide all valuables before the open house. D) Yes, because the salesperson is accountable for the money or property of her clients.

The answer is no, because the salesperson advised the sellers to remove or hide all valuables before the open house. The salesperson has a duty to account for any money or possessions given to her by her clients and to exercise care in her actions on their behalf. Because she advised them to remove the jewelry, she has fulfilled her duty to them. In most cases, sellers will not be present during an open house. It is not reasonable and may not be lawful for the salesperson to search visitors leaving the open house.

Private land use controls are exercised by A) owners. B) attorneys. C) lenders. D) licensees.

The answer is owners. Private land use controls are imposed on owners of properties where these restrictions apply. Licensees, attorneys, or lenders are not affected by land-use controls.

A lender's interest in a mortgage loan with a high loan-to-value (LTV) ratio is protected by obtaining additional security from A) title insurance. B) private mortgage insurance (PMI). C) the borrower's note. D) impound accounts.

The answer is private mortgage insurance. Loans over an 80% LTV are more risky and will typically require PMI. With PMI, the borrower purchases an insurance policy that provides the lender with funds in the event that the borrower defaults on the loan. Title insurance protects a lender or a buyer from defects in the chain of title. The borrower's note is a promise to repay the loan. Impound accounts hold buyers' funds for property insurance and taxes that the lender pays on behalf of the buyer.

Which of these is MOST likely to apply to private restrictions? A) Private restrictions are exempt from governmental controls. B) Private restrictions supersede government restrictions. C) Government restrictions supersede private restrictions. D) All restrictions on the use of land are regulated by the government.

The answer is private restrictions supersede government restrictions. The rule is that the most restrictive will apply. Restrictions on the use of land can be imposed by private as well as governmental entities.

The Uniform Environmental Covenants Act (UECA) A) never restricts land use. B) provides for the cleanup of contaminated land. C) prevents the rebuilding of brownfields. D) provides for the rehabilitation of brownfields.

The answer is provides for the rehabilitation of brownfields. The UECA requires an environmental covenant that indicates the cleanup of hazardous material and restrict land use.

Under its police powers, a municipality may regulate all of these about housing in a development EXCEPT A) type of structure. B) restrictive covenants. C) lot sizes. D) building heights.

The answer is restrictive covenants. Restrictive covenants are private controls of land use, not public controls. Building heights, lot sizes, and types of structure may be regulated by a municipality under its police powers.

A broker listing an older home secures his own property inspection to discover any defects in the property. The inspection reveals that water has been seeping into the basement and the crawl space beneath the house for years. What should the broker advise the seller to do? A) Leave the discovery of the problem up to the buyers B) Hide the problem as much as possible to get the best price from a buyer C) Tell buyers that any drainage problems have been corrected D) Reveal the problem on the property disclosure form

The answer is reveal the problem on the property disclosure form. Reveal the problem on the property disclosure form and expect that the problem will affect how much buyers are willing to offer for the house. The seller has a duty to discover and disclose any known defects that threaten structural soundness or personal safety. A broker must disclose any known material fact to a buyer or a buyer's agent. A buyer's property inspection does not relieve the seller or the broker of the duty to disclose the problem to the buyer.

Legal action that may be taken to enforce the terms of the contract is A) suit for possession. B) suit to quiet the title. C) suit for specific performance. D) suit for money damages.

The answer is suit for specific performance. Legal action that may be taken to enforce the terms of the contract is a suit for specific performance. A suit to quiet title is used if there is cloud on title.

An appraisal differs from a comparative market analysis (CMA) conducted by a broker in that an appraisal is based on an analysis of properties A) within a broader geographic area. B) currently on the market. C) whose listings have expired. D) that have actually sold.

The answer is that have actually sold. An appraisal is based on the analysis of properties that have actually sold. A CMA features properties similar to the subject property in location, size, and amenities. A CMA includes analysis of properties currently on the market; those properties currently listed that compete for buyers with the subject property; properties that have actually sold (recently closed properties); and properties whose listings have expired.

All of these occupancy terms are negotiated between a property manager and a prospective tenant EXCEPT A) tenant alterations. B) expansion options. C) the amount of cash flow. D) length of the leasing period.

The answer is the amount of cash flow. Cash flow is the money left after a property pays for itself; a tenant would not be given this knowledge. Length of the lease, what alternations are allowed, and if there are expansion options would all be negotiated prior to signing a lease.

A broker has established the following office policy: "All listings taken by any salesperson associated with this real estate brokerage must include compensation based on a 10% commission. No lower commission rate is acceptable." If the broker attempts to impose this uniform commission requirement, which statement is TRUE? A) A homeowner may sue the broker for violating the antitrust law's prohibition against price-fixing. B) The broker may, as a matter of office policy, legally set the minimum commission rate acceptable for the firm. C) The broker must present the uniform commission policy to the local professional association for approval. D) The salespeople associated with the brokerage will not be bound by the requirement and may negotiate any commission rate they choose.

The answer is the broker may, as a matter of office policy, legally set the minimum commission rate acceptable for the firm. Antitrust violations occur only if price-fixing exists among competing firms. Brokers have the right to set commissions within their own firm. The broker's policy is not an antitrust violation. Salespeople who wish to continue with that broker can be required to comply with the policy.

Which of these is TRUE of condominium ownership? A) The association pays the unit real estate taxes. B) The ownership of a unit cannot be mortgaged. C) The ownership of a unit cannot be willed. D) The common elements cannot be sold separately.

The answer is the common elements cannot be sold separately. Although an individual unit owner owns an interest in the common elements as a tenant in common, the common elements may not be sold separately by a unit owner; unit owners do not have the same right to partition that other tenants in common have. Individual owners pay the real estate taxes for their units. Condominium owners may will or mortgage their fee simple ownership in a condominium.

Owners' equity in their residence is A) the difference between the current value of the property and any mortgage liens on the property. B) the purchase price of the residence minus current mortgage liens. C) the balance remaining on the mortgage loan. D) the amount paid each month for the use of the lender's money.

The answer is the difference between the current value of the property and any liens on the property. An owner's equity is the amount of money remaining once current liens, including the mortgage, are subtracted from the current market value of the property. The amount paid each month for the use of the lender's money is the interest paid for that month. The purchase price of the residence is the original amount paid for the property and may have changed. Equity = value today - debt today.

Four friends decide to purchase an investment property as co-owners and take title as joint tenants. All of these are true EXCEPT A) the four friends will each receive a separate deed for their share. B) all four will have equal interests in the property. C) all four will enjoy equal rights of possession of the property. D) all four will acquire their interests at the same time.

The answer is the four friends will each receive a separate deed for their share. All concurrent ownership is created by one deed, which will establish either joint tenancy or tenants in common. Additionally, joint tenancy requires that four unities must be present: possession, interest, title, and time (PITT).

When appraising a commercial property, the appraiser is MOST concerned with A) the sales prices of comparable properties. B) the accrued depreciation on the property. C) the income generated by the property. D) the total debt service on the property.

The answer is the income generated by the property. The appraiser is most concerned with the income generated by the property in estimating the value of the property. Accrued depreciation is a factor used in the cost approach. The sales prices of comparable properties are used in the sales comparison approach, but finding comparable properties for commercial properties is often difficult. Debt service (mortgage payments) is not considered an operating expense deducted from annual operating expenses to determine the net operating income (NOI) of a commercial property.

An apartment rule prohibits pets. A prospective tenant with a physical disability relies on a service animal to assist him. Which of these is TRUE? A) The landlord may not refuse to rent to a person with a service animal. B) The landlord can require proof of the tenant's disability and require a nonrefundable pet deposit. C) The landlord can waive the enforcement of the rule only if there is a suitable unit in the complex for an animal. D) The landlord must allow the animal but can charge an extra pet deposit.

The answer is the landlord may not refuse to rent to a person with a service animal. Service animals are not pets and must be allowed as a reasonable accommodation for a disabled person under the Fair Housing Act. The landlord may not charge any pet deposit for the animal.

The term depreciation refers to A) the value of real estate after the expiration of its useful life. B) the costs incurred to renovate or modernize a building. C) the capitalized value of lost rental income. D) the loss of value in real estate from any cause.

The answer is the loss of value in real estate from any cause. The term depreciation refers to the loss of value in real estate from any cause either on the property or off the property, or a combination of the two.

A brokerage firm has an exclusive right-to-sell listing and represents the owner in the sale of the owner's property. Which of these events will terminate that agency relationship? A) The broker engages other brokers to help sell the property. B) The broker discovers that she will not make an adequate commission due to the low market value of the property. C) The owner abandons the property. D) The owner declares personal bankruptcy.

The answer is the owner declares personal bankruptcy. The bankruptcy of a principal in an agency relationship terminates the agency contract because title to the property transfers to a court-appointed receiver. The agency relationship remains in effect with any of the other events.

A broker employs several salespeople, one of whom is a member of a protected group. The broker directs her to work only with members of her group and to solicit sales only in similar neighborhoods. Which of these is TRUE? A) The fair housing laws do not apply to the broker's practices. B) The broker is entitled to direct a salesperson's activities in this way. C) The practice could establish or continue the unlawful practice of steering. D) The salesperson should be satisfied with the broker's policy.

The answer is the practice could establish or continue the unlawful practice of steering. Fair housing laws prohibit steering and do apply to the effects of a broker's practices. The broker's actions could be considered to be designed to steer the salesperson's activities only to prospective clients or customers of her racial or ethnic group. The salesperson's acceptance of the broker's directive could result in the actual steering of minorities to specific neighborhoods.

The date and time a document was recorded in the public records helps to establish A) the alienation clause. B) the priority of mortgages and liens. C) the marketable title. D) the abstract of title.

The answer is the priority of mortgages and liens. The priority of mortgages and other liens normally is determined by the order in which they were recorded. Time of recordation is an important consideration in establishing the priority of claims in the event of a sale. An abstract of title is a document prepared to report the results of a title search. An alienation clause is used in a mortgage or deed of trust to allow the full amount due to be called if the buyer is in default. Marketable title is established with an abstract or title commitment.

When property is owned in severalty, A) the owner cannot be a corporation. B) the property may not be owned by spouses. C) the property owner may sell, will, or lease the property to another person. D) the property may be owned by more than one person.

The answer is the property owner may sell, will, or lease the property to another person. Property owned in severalty is owned by one person. The owner may be an individual or a corporation and has sole discretion to transfer the use or ownership of the property to another person. Spouses may own separate property in severalty.

A salesperson working with a commercial client for the first time follows the client's orders and drafts a contract for the purchase of a small strip center. Which of these is TRUE? A) The salesperson is in violation of truth-in-lending laws. B) The salesperson is legally practicing law because the client ordered him. C) The salesperson is illegally practicing law and is most likely not competent. D) Commercial brokers are allowed to draft contracts under the direction of clients.

The answer is the salesperson is illegally practicing law and is most likely not competent. Real estate professionals are not allowed to practice law and drafting contracts comes under that practice. This is not allowed even if the client directs or requests it or the sale is commercial.

After a particularly challenging transaction finally closes, a client gives the salesperson a check for $500 "for all your extra work." Which of these statements is TRUE? A) The salesperson may accept the check, but the salesperson's broker is entitled to 80% of the check. B) The salesperson may receive compensation only from her broker. C) The salesperson may accept the check if she deposits it immediately in a special escrow account. D) While such compensation is irregular, it is appropriate for the salesperson to accept the check.

The answer is the salesperson may receive compensation only from her broker. Most state statutes require that compensation for real estate brokerage activities be paid to licensed salespersons only by their own broker for work on any given transaction. The salesperson in this case may not receive a check directly from the client.

The seller has completed a property disclosure for an "as is" sale, which states that all items are in working order. After closing, the buyer finds out the sewer system has had long-term problems. The person or persons MOST likely to be held responsible for the misrepresentation is A) the listing broker and the seller. B) no one because it is an "as is" sale. C) the seller. D) the buyer's broker.

The answer is the seller. The seller must disclose all materials facts on all sales. "As is" simply means the seller is not repairing issues, not that the seller has no obligation to disclose them.

The law that requires real estate contracts to be in writing to be enforceable is A) the statute of frauds. B) the law of descent. C) the probate requirement. D) the statute of limitations.

The answer is the statute of frauds. The statute of frauds requires real estate contracts to be in writing to be enforceable. An oral contract, although unenforceable, is still valid between parties. The law of descent regulates the processes by which an heir acquires an intestate estate. Probate is used to distribute property in a will. The statute of limitations is law dictating a period of time within which actions regarding an alleged offense may be brought to court by an accuser.

How long do parties have to file a discrimination suit in federal court? A) Six months B) Two years C) Three years D) One year

The answer is two years. Parties to discrimination have one year to file with Department of Housing and Urban Development (HUD) and two years to file in federal court.

A person approaches an owner and says, "I'd like to buy your house." The owner says, "Sure," and they agree on a price. What kind of contract is this? A) Void B) No contract C) Implied D) Unenforceable

The answer is unenforceable. Until the parties put the agreement into writing, it is unenforceable, because under the statute of frauds, all transfers of real estate must be in writing.

A minor inherited a commercial real estate property and has entered into a sales contract with a buyer to purchase the property. In this situation, the sales contract is considered A) legal and binding because it was an inheritance. B) unenforceable by the buyer. C) voidable by the minor. D) voidable by the buyer.

The answer is voidable by the minor. A contract with a minor is always voidable, in this case by the minor.

All of these events would probably terminate a residential lease agreement EXCEPT A) when the lessee buys the land from the lessor. B) when the life tenant, who had leased the property dies. C) when the owner sells the property. D) the property being taken by eminent domain.

The answer is when the owner sells the property. When the owner sells the property, the new buyer must honor all existing leases.

Which of these types of insurance would protect the owner from liability when an employee has been injured? A) Automobile insurance B) Workers' compensation C) General liability insurance D) Loss of income insurance

The answer is workers' compensation. Workers' compensation would protect the owner from liability should an employee be injured. The other types of insurance may or may not cover an injured employee, depending on the situation. Workers' compensation is insurance specifically for that purpose and covers employees working in all situations.