The CE Shop National Exam (PSI) PART 1

$52,500

An owner purchased a rental property for $750,000. What annual cash flow would result in a return on investment (ROI) of 7%?

Their offer is rejected because the seller knows the neighbors don't like children. Rejection of an offer based on familial status is a fair housing violation.

Annie and George have been saving and are finally ready to purchase their first home for their family (including their two toddlers). They want to make an offer on a sweet little bungalow in a quiet neighborhood. If the sellers are represented by a real estate licensee, which situation would be a violation of fair housing laws?

Perform his contractual obligations within a reasonable time. When a contract doesn't provide specific dates for the terms of the contract that need to be met, performance must take place within a "reasonable time."

Because there were no deadlines specified in the contract, Myron didn't think there was a problem with his waiting to apply for a loan to help purchase the property. He was therefore a little surprised and not very happy when the seller sued him for breach of contract, stating that the delay was impacting the seller's ability to purchase a new home. What did Myron fail to do?

Avoid unauthorized practice of law Licensees must avoid unauthorized practice of law. Drafting contractual paperwork with uncertain terms would be a violation.

Belinda is a licensee whose client asked her to draft an addendum containing complicated terms that even Belinda doesn't fully understand. Belinda should ______.

1,425 Only finished above-ground space should be counted in Bonnie's MLS listing. That means the square footage of the upper floor plus the main floor (minus the unfinished laundry area). Bonnie should report 1,425 square feet (450 + 1,200 - 225).

Bonnie is calculating the square footage of a listing. The upper level of the home is 450 square feet. The main floor is 1,200 square feet, including an unfinished laundry area that's 225 square feet. The 1,200-square-foot basement is finished. Bonnie's MLS system disregards below-grade square footage. What square footage will Bonnie mention in her MLS listing and marketing materials?

Identify data needed. The first step is to state the problem so the appraiser can then identify the data that is needed.

Identifying the purpose of the appraisal leads the appraiser to do what next?

lower initial interest rate

What attracts borrowers to adjustable rate mortgages?

Place a lien on the property Unpaid taxes become a lien on real estate.

What might the government do if property owners fail to pay taxes on their property?

$367,687.80 To find the total amount paid back, multiply the monthly payment ($2,042.71) by the total number of payments (180 = 12 payments/year x 15 years). The total paid back is $367,687.80.

A buyer with a 15-year, $250,000 loan at a 5.5% interest rate has a monthly principal and interest payment totaling $2,042.71. What's the total amount the borrower will pay back over the life of the loan?

Ajit may be liable if he operates in a state that requires licensees to make a reasonable effort to discover adverse material facts. Licensees must follow state laws regarding disclosure of all material facts, but typically there's no distinction between disclosure of material facts or adverse material facts. Ajit may be liable even if the seller didn't disclose the fact, depending on state law.

A former client has filed a formal complaint against Ajit, claiming he failed to properly disclose a material fact that the seller didn't disclose. Which of these statements about Ajit's liability is true?

98,000 Minimum rent = Operating expenses + Owner expenses + ROI Margin. ROI margin is the owner's initial investment x ROI. In this example $32,000 ($400,000 x .08). The minimum rent to achieve the owner's goals is $98,000.

A rental property owner purchased a property for $400,000 and pays $36,000 in ownership expenses, plus $30,000 in operating expenses. The owner would like to achieve an ROI of 8%. What's the minimum annual rent that would accomplish this?

Unit owners Condominium ownership includes ownership of an individual unit as well as a share of the common areas.

Clay is interested in purchasing a condo about a mile from the city center. He went to the city records office to review everything that was filed by the condo developer. In the condominium declaration, he sees how ownership of the common areas is shared among the ________.

Inform Margaret about required property condition disclosures. Licensees aren't required to hire someone to market the property; earnest money isn't given directly to the seller; and licensees don't decide list prices—they recommend a range of prices to sellers.

Estelle is representing seller Margaret. Which of the following tasks is one that Estelle is required to perform as Margaret's agent?

$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).

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?

$345,103 The formula for finding net operating income is: gross income - operating expenses = net operating income. So, $674,232 - $329,129 = $345,103. Other expenses like loan interest and debt repayment aren't included in this calculation.

Giant Industries has a $674,232 gross operating income, operating expenses of $329,129, and other expenses totaling $38,719. What is the net operating income?

Voluntary A mortgage is a voluntary lien. With voluntary liens, people agree to have the lien placed against their real or personal property.

Hope's mortgage created a lien against the property she purchased with the mortgage. What kind of lien is this?

Until the borrower reaches a 22% equity position PMI is cancelled when a borrower reaches a 22% equity position. This is based on payments of principal made toward the original loan balance and not on current market value.

How long does the borrower have to pay private mortgage insurance?

File a claim for inverse condemnation. Because downzoning is a reduction in use and can impact property values even in adjacent properties, homeowners in the adjacent areas can file a claim for inverse condemnation.

If downzoning occurs in one area, reducing property values in adjacent areas, what can the homeowners in those adjacent areas do?

Group boycotting

Johnstone's Realty is a new discount, menu-based brokerage firm. Its approach usually results in a lower listing commission rate than other firms offer. Johnstone's also offers a lower cooperating brokerage split than most other firms. Business is booming for Johnstone's, and the remaining firms in town are concerned. These brokers agree to not show Johnstone's listings to their buyer clients. What is this an example of?

The property manager, as the landlord's general agent, is responsible for upholding all the laws and regulations required of the landlord. The landlord--and by extension, the property manager who's acting as a general agent--must adhere to all federal, state, and local regulations related to fair housing, civil rights, ADA, and landlord-tenant laws.

Landlords must abide by all fair housing, civil rights, and ADA regulations as well as comply with all state and federal landlord-tenant legislation. What responsibility does the property manager have related to this?

Reduced consumer confidence makes new buyers wary of purchasing and homeowners hesitant to trade up.

Many market conditions impact housing prices. Which of the following is a true statement?

Accounting The duty of accounting requires agents to account for any funds received on the clients' behalf. This means no commingling or conversion of the earnest money, among other requirements.

Newt's buyer client isn't happy with him. The buyer has accused Newt of breaching his duty of ______ by mishandling the earnest money.

The duty of reasonable skill and care The duty of reasonable skill and care requires licensees to operate within the scope of their expertise and advise all parties to seek expert advice on matters that are outside of their expertise.

Phoebe is careful to never act outside of her scope of expertise. She's a real estate professional and proud of it, so when asked for advice about legal matters, inspection results, flaws in construction, or shoddy building materials, she always refers them to a professional in that field. Which duty is Phoebe demonstrating?

1,152 The maximum house payment is the lesser of the amounts calculated using both ratios. DTI: $4,200 x .36 = $1,512. $1,512 - $360 = $1,152. Housing ratio: $4,200 x .28 = $1,176. Phoebe's maximum payment is $1,152.

Phoebe's gross monthly income is $4,200, and she has $360 in monthly non-housing debt payments. The lender's qualifying ratios are 28% for the housing ratio and 36% for the total DTI ratio. What's the maximum housing payment she can afford?

Defaults on the loan PMI protects the lender in case the borrower defaults on the loan. Should default occur, the insurance kicks in and covers the amount of the loan over 80% LTV ratio.

Private mortgage insurance protects the lender in case the borrower takes which of the following actions?

Arbitration

Ray purchased a new home and soon discovered an issue with one of the windows. He filed a claim with the warranty provider, but it was denied. After mediation, the issue still remains unresolved. What is the most common next step?

Indestructibility Indestructibility is the physical characteristic that states that while improvements may deteriorate, land can't be destroyed.

Sander and Ginny bought an old industrial site and plan to get grant money to put an environmental education center on the site. There are a few structures on the property, but they are in disrepair, and it will likely be less expensive to tear them down and build new than to rehabilitate them. However, the new owners are sure that they've made a great investment because the land is in great shape. This reflects which physical characteristic of real property?

Arbitration An arbitration clause in a contract specifies that any contract disputes will be settled through arbitration, rather than through the court system.

Saul was unhappy after he and Janelle liquidated their business. Janelle sold some items for less than he'd initially agreed to and he wanted the full price to be included in the profit split. He wanted to sue, but he was required to pursue other options. What contract clause kept Saul from being able to sue?

Refer the clients to an expert who can provide advice on permitted activities.

Serena is working with buyer clients interested in purchasing undeveloped land that includes wetlands. They ask Serena whether specific activities and development are permitted. What should Serena do?

"I highly recommend a home inspection contingency with your offer to protect yourself in the event there are major defects with the house." Licensees should always encourage buyers to have a home inspection performed and to include an inspection contingency with the offer. Inspections reveal material defects of a property, so buyers know exactly what they're buying.

Seth is a licensee working for a buyer, Britney. Britney wants to make sure the seller accepts her offer on a charming Cape Cod, so she tells Seth she wants to make a full-price, non-contingent offer right away. How should Seth respond?

Eminent domain Eminent domain is the power of the government to take private land for public use.

Smalltown is building a new interstate exchange to facilitate access to shopping and restaurants. In order to do so, it purchased two homes and tore them down so the ramps to and from the interstate could be constructed. What principal allowed Smalltown to do this?

Rescind When two parties agree to back out of a contract, they're agreeing to rescind the contract.

Stan decides to not sell his property to Crandall, even after they've signed a legal sales contract. Crandall found a property he likes better, so they mutually agree to ______ the contract.

$105,000 Gabi's home value has risen $30,000 in the eight years since she bought it ($200,000 x .15). That brings her home's market value to $230,000. She owes $125,000, which brings her equity amount to $105,000. ($230,000 - $125,000).

Stu's seller client, Gabi, wants to figure out how much equity she has in the home she's selling. Gabi paid $200,000 eight years ago and made several great renovations over the years. She still owes $125,000. Stu calculates that comparable home values in her area have risen about 15% since Gabi bought. Assuming Stu pulled appropriate comps, about how much equity does she have?

Maybe, but they'll have to petition their lender Cancellation of PMI happens once the borrower reaches a 22% equity position. This is determined by loan-to-value ratio at the time of the purchase. Unless loan-to-value ratio is now 78% or lower, the Bransons would have to petition to get PMI cancelled.

The Bransons have a conventional loan for which they were required to obtain private mortgage insurance. Their local real estate market has been going like gangbusters, and their house is now appraised at twice their loan balance! Will their PMI be cancelled?

Purchase money mortgage

The Hendersons don't have enough money to make the full 20% down payment their institutional lender requires. To close the sale, the seller is willing to finance a loan for the amount between the home's list price and what the institutional lender is willing to loan. What's this type of financing called?

Ratify the implied agreement by getting a signed agency agreement.

The buyer you're working with doesn't want to enter into an agency relationship. However, the buyer begins to rely more and more on your advice and, indeed, implied agency has begun! You could have avoided this issue by providing appropriate disclosures, but now that you've created implied agency, what should you do?

The Sherman Antitrust Act of 1890 The Sherman Antitrust Act of 1890 expressly prohibits collusive acts that result in an unreasonable restraint of trade or reduced competition.

The two real estate firms in one small town, Vineyard Realty and Homestead Homes, agree to charge the same commission rate to avoid the possibility of clients selecting a firm based simply on price. What specific federal legislation prohibits this?

The Fair Housing Amendment Act The Fair Housing Amendment Act added familial status and disability (both physical and mental) to the existing federally protected classes.

This act added familial status and disability (both physical and mental) to the existing federally protected classes.

Physical characteristics The elements considered in the sales comparison approach are applied in a specific order: financing terms and cash equivalency, conditions of sale, market conditions at the time of contract and closing, location, and physical characteristics.

To make valid computations of adjustments for the sales comparison approach to value, elements of comparison must be applied in a specific order. Which one of these elements listed is applied last?

Lenders issue the Loan Estimate within three days of receiving an application, and Closing Disclosure figures should be similar to the Loan Estimate. Lenders first issue the Loan Estimate; borrowers can compare the Closing Disclosure, issued before closing, to the estimate's figures.

What's the relationship between the Loan Estimate and the Closing Disclosure?

Addendum

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?

No, it still has to appraise. If an appraiser has difficulty coming up with comparables that will support the pricing, the seller could be at risk for a sale fail.

When market conditions indicate top-of-the-market pricing, is it always in your client's best interest to price it there?

Making an application for a loan This is all part of the application process.

When the lender gathers all kinds of information about the borrower's assets, debts, income, employment history, and pulls their credit report, the buyer is ___________________.

The duty of accounting The duty of accounting requires agents to account for any funds or paperwork received on the clients' behalf.

Which fiduciary duty requires agents to handle their clients' funds and paperwork properly?

Time is of the essence clause

Which of the following clauses directs the parties to a real estate sales contract to proceed in good faith, and not unduly delay the process?

Client data can be compromised if the brokerage's computer system is compromised. Brokerage and licensees are responsible for the safety and proper use of client information. Your clients' data can be compromised if the brokerage's computer system is compromised.

Which of the following is true about the security of your clients' information?

Uniform Electronic Transactions Act The UETA was brought about by the efforts of the National Conference of Commissioners on Uniform State Laws (NCCUSL) to harmonize state laws regarding the validity of these records and to set more comprehensive rules regarding their use.

Which of these was enacted to give electronic signatures, records, and contracts legal recognition equal to that of paper records and signatures?

$5,430

Whitney and Justin are about to close on their refinance, and their loan amount is $362,000. They are paying a 1.5% origination fee. How much will their origination fee be?

Develop, implement, and train firm members on policies and procedures. Having policies and procedures in place and training staff on them may be the best preventive measure.

You're a real estate broker supervising 24 licensees. What's the most effective way for you to protect your firm from lawsuits?

Yes, and since the purchase is financed with a VA-guaranteed loan, the appraiser must be VA certified. A VA-guaranteed loan requires an appraisal by a VA-certified appraiser, who must also be licensed or certified by the state.

Your client is purchasing a single-family home with a VA-guaranteed loan. The listing price is $150,000. Is an appraisal by a certified appraiser required?