National Real Estate Test

96. A person and his property that is encumbered by a first deed of trust are in Chapter 7 bankruptcy. The: A. Court can sell the property and use the proceeds there from to pay debts owed to unsecured creditors B. Holder of the first deed can foreclose C. Debtor need not make payment on the promissory note secured by the first deed of trust D. Debtor can sell the property

Answer: A. A Chapter 7 bankruptcy petition creates an Automatic Stay of a creditor's foreclosure against the debtor. Creditor must file a petition with the Bankruptcy Court seeking relief from the Automatic Stay and approval to institute foreclosure action. If the note is over-secured by collateral, the Bankruptcy Court trustee may sell the property, pay the secured creditor and use the excess proceeds to pay unsecured creditors. If the debtor does not make payments on the note during the Automatic Stay, the Bankruptcy trustee will pay interest to the secured creditor from the date of petition to the date of sale.

75. What document is issued when a judgment for sale of the property is made by the court: A. Writ of Execution B. Attachment C. Abstract of Judgment D. Sheriff's Deed

Answer: A. A judgment by the court ordering the sale of property is known as Writ of Execution. An attachment holds property for court judgment. An abstract of judgment is a written decision of the court, when recorded creates a lien. A sheriff's deed is issued to the holder of a certificate of sale after the one year redemption period has passed under the terms of the mortgage foreclosure proceeding.

43. If a man has a freehold estate, which of the following would result in his having a less than freehold estate: A. Sale and lease-back B. Selling the mineral rights to a third party C. Giving a leasehold interest for 5 years D. Granting a life estate

Answer: A. A less-than-freehold estate is a landlord/tenant arrangement. Of the choices offered, only a sale-leaseback would result in a less-than-freehold estate.

60. A subordination clause in a trust deed may: A. Give priority to liens subsequently recorded against the property B. Allow for periodic renegotiation and adjustment in the terms of the obligation C. Prohibit the trustor from making an additional loan against the property before the trust deed is paid off D. Permit the obligation to be paid off ahead of schedule

Answer: A. A subordination clause written into a loan gives a lower (secondary) position to that loan if another loan is recorded later.

54. A new well and pump were installed on a parcel of land. For property tax assessment purposes, the county assessor would consider these as: A. Improvements B. Additions C. Part of the land D. Personal property

Answer: A. A well and pump would be improvements to the real property.

77. A licensee who has several years of experience in the industry decided to retire from actively marketing properties. Now she helps clients choose among the various alternatives involved in purchasing, using, or investing in property. What is her profession? A. Real estate counselor B. Real estate appraiser C. Real estate educator D. Realtor

Answer: A. Advising and guiding investors and other buyers is counseling them. Many states require a person to have a real estate license to serve as a real estate advisor/counselor for a fee, since it involves skills and duties closely related to real estate brokerage.

42. An alienation clause provides that: A. The principal amount of the loan, plus accrued interest, is due in the event of the sale of the property B. The mortgage is security for a promissory note C. A lien can be placed on the property that takes precedence over a prior recorded trust deed D. None of the above

Answer: A. Also called Due on Sale. It states that the lender may demand the loan plus accrued interest be paid in full in the event the property is sold. The purpose of this clause is to prevent a buyer from assuming or taking title subject to an existing loan with

22. You sell a note with a face value of $12,000 for $10,000. You are: A. Discounting the note B. Amortizing the note C. Committing an act requiring a real estate license D. Committing fraud

Answer: A. Any time you sign a note or sell a note and the amount you receive is less than the account stated on the face of the note you are 'discounting the note'.

40. Should a person be discriminated against, what would best describe the actions available to them? A. Private action in a state or federal court B. Civil action in State Superior Court C. Criminal action in a state court D. Criminal action in a federal court

Answer: A. As discrimination is not a criminal act, we would eliminate answers "3" and "4". "2" is incorrect as the remedy available to the injured party is not limited to only action through a state court. It could take place through the federal courts.

58. Capitalization is an appraisal process used to: A. Convert net income into market value B. Establish book value C. Determine net income D. Establish a capitalization rate

Answer: A. Capitalization of income is a method of establishing the value of income type properties.

3. If the loan-to-value ratio is low: A. The equity in property is high B. The equity is not affected C. The equity in the property is low D. None of the above

Answer: A. Loan to value ratio is the ratio of the loan to the appraised value. The lower the loan, the higher the equity.

82. When a legal description uses only sections, townships and ranges, the lines relate to the: A. Government survey lines B. Contour lines C. Recorded tract map D. Metes and bounds descriptions

Answer: A. Sections, townships and ranges are used in government surveys in describing the location of land. Metes and bounds description outlines a certain area.

97. A loan that is secured on easy terms and with a low down payment usually results in: A. Increased financing costs B. Decreased financing costs C. No difference in financing costs D. Faster amortization

Answer: A. The lender is not going to be given easy terms or long term financing without securing something in return. This usually results in increase financing costs.

38. An offer to purchase real property was signed by a prospective buyer on October 2, 1977. The terms of the offer allowed five days for acceptance by the seller. Because of an illness in the seller's family, the seller did not accept the offer until October 10, 1977. Which of the following statements is correct? A. The buyer may demand the return of his deposit B. The buyer must continue with the purchase because he did not withdraw his offer prior to acceptance C. If the buyer does not complete the purchase, the seller is entitled to the deposit D. If the buyer does not complete the purchase, the seller and the broker will each be entitled to one-half of the deposit

Answer: A. This constitutes only an offer and one method of terminating an offer is the expiration of a specified or reasonable length of time for the acceptance to be communicated.

6. A subdivider and developer purchased considerable acreage and now plans to construct a tract of 40 homes. In arranging the financing for the new construction, the lender has agreed to advance part of the funds immediately and will release a set amount of additional money as each home is completed. The funds that will be forthcoming as construction progresses are known as: A. Obligatory advances B. Reconveyance funds C. Release monies D. Open and mortgage payments

Answer: A. This type of construction financing is referred to as obligatory advances or fixed disbursement schedule.

56. The one unity in a joint tenancy holding that is also present in tenancy-in-common holding is: A. Equal right of possession B. Right of survivorship C. Equal interest of all owners D. Tenant in possession can be charged rent for the use of the land

Answer: A. Under any type of ownership, each owner has an equal right of possession. This means that any owner can go anywhere on the property regardless of the percentage of their overall interest.

72. Of the following factors, which is the one that would not contribute to obsolescence? A. Wear and tear from use B. Out-of-date equipment C. Change of locational demand D. Misplacement of improvement

Answer: A. Wear and tear from use in physical deterioration. Out-of-date equipment is functional obsolescence. Change of locational demand and misplacement of improvement are both economic obsolescence.

73. Which of the following items would not be included in a bill of sale transferring a retail merchandising business: A. Inventory of stock B. Assignment of leasehold C. The trade name D. List of fixtures and equipment

Answer: B. A bill of sale should include an inventory of the stock, the trade name and a list of the fixtures and equipment. It would not include an assignment of the leasehold because that is personal property that should be transferred separately.

62. Able sold six unencumbered properties to Baker. Part of the purchase price is a loan made by Able that is secured by a deed of trust on the six properties. This document is a/an: A. Quitclaim deed B. Blanket encumbrance C. All-exclusive trust deed D. Reconveyance deed

Answer: B. A blanket encumbrance is created when more than one property is placed as security for a note and trust deed. Six properties are security for a single note and deed of trust, therefore it is a blanket encumbrance.

98. Insofar as a residential neighborhood is concerned, which of the following would offer the least protection against blighting influences on future development: A. Natural or artificial barriers B. Partially built-up neighborhood C. New neighborhood in the path of directional city growth D. All families with similar income

Answer: B. A partially built-up neighborhood would have a definite tendency for blighting, because it was not completed and there would be a potential for vandalism.

10. A prospective client calls you and asks you to take a listing on his property. In review his papers you discover he is purchasing the property on a contract of sale that has no acceleration clause, and that has no provision in the contract prohibiting a resale or an assignment. Which of the following is the most nearly correct statement? Your client could: A. Sell his interest in the property, but only if he pays off the contract first B. Sell or assign his rights but not his duties under the original contract unless the contract seller's approval was obtained C. Property give the purchaser a warranty deed to the property providing the deed recited "subject to the existing contract of sale" D. Properly give the purchaser a grant deed to the property, providing he took back a recorded purchase money second trust deed to cover the payments due on the original contract of sale

Answer: B. A party purchasing property under a land contract of sale may sell their interest without difficulty by assigning the contract, provided there is no prohibition on the agreement. The assignee would still be secondarily liable for some of the terms of the contract unless the seller's approval was obtained.

16. A licensed real estate broker working under a typical exclusive listing incurs several expenses. He is not entitled to be reimbursed for these expenditures, unless: A. The buyer has demanded that these expenses be incurred as a condition of continuing with the transaction B. Such expenditures were authorized by the principal C. It was necessary for him to incur the expenses in order to close the sale D. The broker was representing the best interests of the principal in consummating the sale

Answer: B. A seller is not obligated to reimburse the expenses of the broker unless those expenses are authorized by the seller.

4. Sellers are usually reluctant to cancel an existing transferable fire insurance policy in the event of a cash sale, due to the fact that: A. The buyer may not properly cover the property B. The higher short term cancellation rate will apply C. It could result in cancellation of other policies D. The elimination of a cash return in the proration

Answer: B. A seller on a cash sale would be reluctant to cancel an existing transferable fire insurance policy because the seller would receive a short term cancellation rate. Therefore, the seller would prefer to transfer the existing policy to the buyer.

66. Property management, appraisal, financing, and development are all examples of A. factors affecting demand. B. specializations within the real estate industry C. non-real estate professions. D. activities requiring broker management and supervision.

Answer: B. All are specializations in the field of real estate. Appraisal and financing do not require (real estate) broker supervision.

20. A second offer received on a property prior to the seller's decision on the first offer should be: A. Evaluate by the broker against the first offer B. Submitted immediately C. Held pending a decision on the first offer D. Turned back to the offeree if it doesn't provide better terms

Answer: B. All offers must be submitted immediately.

29. An owner of a 5 unit apartment building that is located within the city limits intends to covert the building into 5 condominium units and offers them for sale to the public. Under these circumstances, the developer: A. Must obtain a public report from the Real Estate Commissioner under the Subdivided Lands Act. B. Must file a map with the city under the provisions of the Subdivided Map Act C. Is exempt from the Subdivided Lands Act and the Subdivision Map Act D. Must comply with the Subdivided Lands Act and the Subdivision Map Act

Answer: B. Any type of subdivision located within the city limits is exempt under the Subdivided Lands Act but a condominium conversion of 5 units or more is covered under the Map Act and must be filed with the local authorities.

84. Fisk owns a lot. He also owns a right of way easement over the property of his neighbor, Smith. This easement is appurtenant to Fisk's lot. Fisk sells his lot to Jones without specific mention of the easement in the deed. The easement: A. Remains with Fish as an encumbered interest B. Passes to Jones C. Terminates unless it is a covenant running with the land D. Reverts to Smith

Answer: B. Appurtenant easements 'run with the land' and automatically pass to future grantees, whether mentioned in the deed or not.

9. Lender's use the term "debt-income ratio" to refer to a: A. Part of closing costs B. Loan qualifying tool C. Requirement of the Federal Government D. Formula used in appraising property

Answer: B. Debt income ratio indicates the fraction that your loan payment on the property is in relation to the net income from the property. This is used by lenders when qualifying a person for an income property loan and measuring their margin of safety.

94. Other than non-dischargeable debts of a bankrupt debtor are cut off (discharged) A. Publication of the notice of the petition in bankruptcy B. Discharge in bankruptcy C. The first meeting of creditors D. Filing the petition in bankruptcy

Answer: B. Debts are cut off (discharged) the date bankruptcy court issues a discharge.

85. Which of the following would normally install conduit? A. Plumbers B. Electricians C. Roofers D. Carpenters

Answer: B. Electrical wiring is placed inside a metal pipe called a conduit.

31. During Broker Shaw's preparation of the Exclusive Authorization and right to Sell on Seller Norman's property, Norman asked that a clause be included which would require the buyer to accept primary liability in connection with the existing loan is transferred to the buyer. Shaw should enter with of the following in Paragraph 2 of the Exclusive Authorization and Right to Sell from: A. Buyer to take the property "subject to" the loan B. Buyer to "assume" existing loan C. Buyer to pay all cash D. Buyer to make a large down payment to preclude possibility of a foreclosure

Answer: B. If a buyer assumes an existing loan, he accepts primary liability for that loan.

37. In general, when the supply of a certain commodity increases, A. price tends to rise. B. price tends to drop. C. demand for it tends to rise. D. demand for it tends to drop.

Answer: B. If demand is constant and supply increases, sellers compete with each other by lowering prices.

25. Broker Stiles took a listing from a seller using the standard listing form. One week before the listing expired, the broker informed the seller that he had a prospective buyer named Bennett. After the listing expired, the seller listed with Broker Johnson. Johnson showed the property to Mr. Bennett and obtained an offer that was accepted. Under these circumstances: A. Broker Stiles gets a 6% commission B. Broker Johnson gets a 6% commission C. Both brokers get a 6% commission D. Broker Stiles gets a 3% commission and broker Johnson gets a 3% commission

Answer: B. In the safety clause of the standard listing form, Broker Stiles would agree to relinquish his safety period if the property were listed with another broker.

27. Mr. and Mrs. Johnson who had been shopping for a new home found one that they liked very much but because they felt the property was overpriced, they decided not to buy it. Their reason for not buying was probably based upon the Principle of: A. Conformity B. Substitution C. Highest and best of use D. Anticipation

Answer: B. It must be assumed that our buyer has found another home that was equally desirable but at a much lower price. This is the idea behind the Principle of Substitution.

18. A salesman receives a deposit together with a written offer to purchase and delivers them to the employing broker who presents it to the seller. The seller signs and accepts the offer. Without the consent of the salesman and through no fault of his own, the buyer and seller instruct the salesman's employing broker to return the deposit. Which of the following is true? A. The salesman's employing broker may retain one-half of the deposit and must give one-half to the seller B. The broker may sue the seller but must return the deposit C. The broker may retain one-half of the deposit and must return only one-half to the buyer D. The broker may retain the deposit to compensate him for his efforts

Answer: B. Once the offer has been accepted, the deposit money belongs to the seller. If the seller instructs the broker to return the deposit, the broker must do so. The broker has probably earned a commission and may sue the seller for the amount but may not hold the deposit money.

90. How many acres are in the west ½ of the south ½ of the south ½ of the south ½ of section 27? A. 20 acres B. 40 acres C. 80 acres D. 160 acres

Answer: B. Section 27 = 640 acres. S ½ = 320 acres. S ½ = 160 acres. S ½ = 80 acres. W ½ = 40 acres

5. A minority purchaser enters your office and states they are looking for, and interested in purchasing, a particular property in a minority neighborhood. You could legally assume that: A. This person is testing you B. They are interested in that particular property C .They are interested in owning a home in an all minority neighborhood D. They cannot qualify to own property in a higher priced area

Answer: B. Should any prospective purchaser enter your office requesting to see a particular property, you would assume they were interested in that particular property.

87. A broker who is hired by an owner to sell his property must reveal all significant and material information to the principal. Which of the following would be considered material information and must be revealed? A. The new lender will require the buyer to maintain an impound account B. Agent's knowledge that a better offer to purchase is imminent C. The prospective buyer is of oriental descent D. None of the above

Answer: B. The existence of a better offer that is imminent could very well be a material fact to the seller. If would probably influence his decision on a present offer.

67. A major manufacturer of automobiles announces that it will relocate one of its factories, along with 2,000 employees, to Smallville. What effect will this announcement likely have on Smallville's housing market? A. Houses will be likely to become less expensive as a result of the announcement. B. Houses will likely become more expensive as a result of the announcement. C. Because the announcement involves an issue of demographics, not of supply and demand, housing prices will stay the same. D. The announcement involves an industrial property; residential housing will not be affected.

Answer: B. The expected arrival of 2,000 employees and their families in a small town will cause sellers to raise their prices in expectation of the greatly increased demand and the long time it takes to build new housing. It becomes a "sellers' market" and the many buyers will have to compete for the few houses available

35. Which of the following is the classic definition of the boundaries of real property? A. The surface area indicated on a map B. A reasonable use of airspace and extended to the center or the earth C. A reasonable distance down and unlimited airspace D. A practical or reasonable use of the earth and unlimited airspace

Answer: B. The surface of the earth and the material beneath the surface to the center of the earth is part of the real property. Since airways are now public domain, the ownership of airspace is 'use to an enjoyable and reasonable height'.

69. A lender of money on real property should be relatively certain that his mortgage is an enforceable lien. He can best accomplish this by: A. Recording the transaction B. A title insurance policy C. Providing for an acceleration clause D. A physical inspection of the property

Answer: B. The title policy would guarantee to the lender that there were no prior liens on the property. If any did arise at a later date, the title company would protect the lender at that time.

2. A valid escrow requires which of the following: A. Escrow instructions with no conditions B. A binding contract between the buyer and seller and the conditional delivery of transfer instruments to a third party C. The services of a licensed real estate broker D. None of the above

Answer: B. These are required for a valid escrow.

89. Real property includes the land, those things attached to the land, and thing called appurtenances. Appurtenances include all of the following except: A. A dwelling B. Trade fixtures C. Watercourses D. A fence

Answer: B. Trade fixtures are considered personal property.

48. Able buys Blackacre from Baker, taking title to the property subject to the existing loan. The person primarily responsible for the repayment of the loan would be: A. Able B. Baker C. Either Able or Baker D. Neither Able or Baker

Answer: B. When a buyer takes title 'subject to' the loan; the seller retains the responsibility for the repayment of the note. The buyer takes no responsibility for the note. The buyer can lose a property by foreclosure because a property was bought encumbered with loan, but after the foreclosure, if there is a deficiency in the process, the buyer is not liable for that note deficiency. Any suit would be against the seller for the deficiency judgment as the buyer's name does not appear on the note.

65. In the event the parties to a Bulk Sale do not comply with the provisions of the Bulk Sales Law as outlined in the Uniform Commercial code, the party that would probably be injured the most would be the: A. Seller B. Buyer C. Creditor D. Lender

Answer: B. When the parties to a Bulk Sale do not comply with the Bulk Sales Law, any outstanding creditor may step in and invalidate the sale and take the goods and have them sold to satisfy the debt. The only recourse the buyer has it to chase down the seller who has probably left the country.

26. A loan created with more than one borrower is usually added to the promissory note for the protection of the lender: A. Beneficially B. Jointly and severally C. Universally D. Unconditionally

Answer: B. When there is more than one borrower on the note, the promise and obligation to pay that balance is the responsibility jointly of all the co-borrowers, and also each individual is severally liable for the full debt. Severally, in law, means individually.

57. As a part of the purchase price, the seller of a parcel of land accepted a purchase money first trust deed which contained a subordinate clause. This clause would: A. Guarantee priority of the first trust deed B. Preclude the buyer from placing construction loans on the property C. Permit the buyer to place a future loan on the property that would have priority D. Permit additional liens to be placed against the property without the buyer's consent

Answer: C. A loan and a trust deed that contains a subordination clause supercedes the rule "the first to record is the first in right" - a subordination clause in a note and trust deed is evidence that the lender agrees that a future obtained trust deed may be prior to this loan even though the future loan is recorded later. Often times builders use this clause in a trust deed and note used to purchase raw land from the owner. They offer the owner the full price contingent upon him carrying back financing for the land. The trust deed that he is to receive from the builder must contain a subordination clause in which the owner of the land agrees to be junior in priority to a future recorded construction loan.

36. A buyer defaults on a loan, therefore the lender would be able to cause the promissory note to become due and payable. This clause is a/an: A. Subordination clause B. Escalator clause C. Acceleration clause D. Alienation clause

Answer: C. Acceleration clauses are several different types and reasons.

34. A buyer defaults in making payments on a loan, therefore the lender's action probably would result in: A. Subordination B. Escalation C. Acceleration D. Alienation

Answer: C. Acceleration indicates the right to declare the entire sum of a note to be due and payable immediately. Most trust deeds contain several acceleration clauses. Most common states: if you become delinquent in the payment on this note, the entire sum of the note becomes due and payable immediately. Other states: The entire sum of the note is due upon the sale or transfer of the property" triggered by the sale of the property and therefore is a specific acceleration clause. The rule is: alienation clauses are types of acceleration clauses but not all acceleration clauses are alienation clauses.

63. An employee of a corporate licensed as a real estate broker that is working as a member of the corporate's sales staff: A. Does not require a real estate salesperson's license B. Must be a licensed real estate broker C. Must be a licensed real estate salesperson or broker D. Does not require a real estate license provided that person is an officer of the corporation

Answer: C. All sales staff members employed by a licensed real estate corporation must have some form of a license, either a salesperson or a broker.

53. Daniels purchased 60 acres of land near a city. He intended to subdivide it for sale as single family residential lots and sell the lots for cash. Daniels needs maximum financing to put in streets, curbs, gutters, sidewalks, etc. He wants to pass the cost of these to the lot purchasers in such a way that when title policies are issued to future lot owners, the policies will contain no reference to assessment liens for the above stated purposes. Daniels best course for financing these needs will probably be: A. Real property sales contracts B. Improvement bonds C. Interim loans from institutional lenders D. Corporate stock

Answer: C. Answer 'b' would result in assessment liens; answers "a" and "d" are not specifically financing means for such improvements, by elimination, answer "c" is the best choice.

11. Many real estate contracts are in writing on forms. Parts of these contracts are written and parts are printed. In the interpretation of such contracts: A. Printed parts take preference over the written parts B. The written parts and the printed parts are given equal consideration C. The written parts take preference over the printed parts D. Any parts copied from the form take preference over those that are purely original

Answer: C. As regards to contracts, the written takes preference over the printed parts and oral agreements take preference only when the written contract is incomplete or ambiguous.

1. Which of the following items could not be used by the owner of a hardware store as security for a loan, under the provisions of the Uniform Commercial Code? A. A personal note endorsed by him B. Accounts receivable C. Stock for sale D. Equipment and fixtures

Answer: C. As the stock will be sold, it cannot be used to secure a loan.

68. Which of the following, when authorized by the broker, could make a withdrawal from the broker's trust account: A. No one can ever withdraw money from the broker's trust account except the broker B. Any employee, as long as the broker is incorporated C. Any unlicensed employee provided that the employee is covered by a surety bond protecting the broker D. Any of the broker's licensees

Answer: C. By law, anyone other than the broker, such as a clerical employee, must be bonded in order to be able to withdraw funds from the trust account.

71. Mutual mortgage insurance would be included in the issuance of: A. A conventional loan B. A Cal-vet loan C. An FHA loan assumption D. A VA backed loan

Answer: C. FHA insures loans with mutual mortgage insurance; it is used by FHA to pay lenders any loss, within the insurance limits resulting from foreclosure.

88. Generally, the most important determinant of a property's value is: A. Age B. Utility C. Location D. Income

Answer: C. Location is the most important factor influencing value, the other factors being utility, size, shape, thoroughfare conditions, exposure, character of the business climate, plottage or ssemblage, character of the soil, grades, obsolescence, building restrictions and zones.

14. Where a broker show a client's property to a prospective buyer that is listed with the broker under an open listing, the broker should: A. Make up an office memorandum B. Confirm the showing to the buyer C. Notify the seller as to the prospect's identity D. Notify the local real estate board

Answer: C. Notifying the seller establishes the broker's right to collect a commission as "procuring cause". Answer "3" provides the only effective way of establishing that right.

78. An advertisement for the sale of real property placed by a real estate broker is prima facie evidence of fraudulent and misleading information when: A. A misleading map is included in a newspaper advertisement offering a twenty year old single family residence for sale B. The selling price and financing terms are not as stated C. The interest rate on the note differs from its advertised yield D. The name of the development is misspelled

Answer: C. Prima facie means on its face without further evidence. Real Estate Law specifically states that no place an advertisement concerning a note with an effective yield that does not also state the rate on the face of the note is prima facie evidence of fraud

19. An attorney drew up a contract between a buyer and a seller for the purchase of a property. The agreement included a liquidated damages clause calling for the payment of $500 in the event the buyer should default. Prior to the close of escrow, the buyer decided that the home would not suit his family and canceled the purchase. If the seller were to sue for specific performance, he would most likely be: A. Successful because of the $500 is not adequate considering the value of the property B. Successful because the reason for canceling by the buyer was not strong C. Unsuccessful because the seller agreed to accept the $500 as liquidated damages in the contract D. Unsuccessful because an attorney drew the contract

Answer: C. Since both buyer and seller agreed to the liquidated damages, the seller has agreed that if the buyer defaults, his sole claim will be to the $500.

74. If an advertisement is placed in a newspaper advertising a home for sale and only the annual percentage rate is stated: A. The amount of the down payment must be included B. The number of payments must be included C. Additional disclosures are not required D. The amount for the payment must be included

Answer: C. Stating the ARP is sufficient disclosure for the ad. The disclosure statement issued at or before closing would include a breakdown of the costs of credit, but not the ad.

52. Of the following, the method which allows the most depreciation to be taken during the first year would be: A. Straight line method B. 150% declining balance method C. 200% declining balance method D. Sum-of-the-Years digits method

Answer: C. The 200% declining balance method of depreciation allows the most depreciation for the first year. The sum-of the-years digits method allows the most depreciation in the earlier years.

44. Broker Young, as an agent, showed a property to James. James signed a deposit receipt which contained the following words: Buyer to accept the property in an as-is condition. Broker Young knew that the plumbing in the property was in a major state of disrepair with parts missing, but he did not tell James. The problem with the plumbing would not be apparent to an ordinary, prudent person. If James sued the seller for damages for fraud, the court suit would probably be: A. Unsuccessful because the 'as is' provision in the deposit receipt shows that there is a mutual understanding of possible defects B. Unsuccessful because the deposit receipt specifically state 'Buyer to accept the property in an 'as is' condition' C. Successful because the duty to disclose a material fact cannot be avoided by an 'as is' provision under the stated circumstances D. Successful because 'as is' refers only to obvious defects

Answer: C. The Real Estate Commissioner and the courts are very protective of consumers. Therefore, they will not allow an 'as is' clause to be valid except for obvious defects, which any reasonable and prudent person could discover.

61. Prior to the sale of a subdivision, a subdivider must show proof to the Real Estate Commissioner that: A. Utilities, water, gas and lights will be on the property B. Fill on the lots will not exceed 24 inches in depth C. Parcels of land will be used for the purpose stated D. Assessment bonds will not be used for offsite improvements

Answer: C. The Real Estate Commissioner is very much concerned that parcels of land in a subdivision be capable of being used for the purposes stated in the final report. The parcels may be sold without utilities, as long as they were not included in the report filed by the subdivider. Assessment bonds would be for sewers, street lights, curbs, etc.

33. The owner of a single family residence plans to sell and wants to obtain an FHA appraisal to permit a sale with FHA financing. He should: A. Contact the nearest FHA office for an appraisal of this property B. Have a lender apply for a firm commitment C. Have a lender apply for a conditional commitment D. Submit a recent appraisal of his home to FHA

Answer: C. The recommended process for the lender to contact FHA for a 'conditional' commitment; that is; for advance assurance that an FHA loan will be made, establishing the loan value for the house.

81. Which of the following best describes a 'complete' escrow? A. It is considered a perfect escrow B. The escrow holder has ceased being an agent for both parties C. All papers are properly drawn up and ready for final steps to be taken to close the escrow D. All services of the escrow holder are involved

Answer: C. The settlement in choice "c" describes a 'complete' escrow. Usually an escrow is 'complete' in the evening and closes the following morning when the deed is recorded.

45. To alienate title to real property, one would: A. Encumber it B. Place a homestead on the property C. Convey the title D. Cloud the title

Answer: C. The term 'alienate' means to transfer or convey. To alienate title means to convey it.

55. Which of the following factors is most likely to influence demand for real estate? A. The number of real estate brokers in the area. B. The number of full-time real estate salespersons in the area. C. The wage levels and employment opportunities. D. The price of new homes being built in the area.

Answer: C. When wage levels and job expansion are increasing, workers are more likely to buy real estate; when wages are stagnant or declining, they hold back from making big purchasing commitments. Effective demand requires not only the desire to purchase a product, but also the financial means to do so.

17. A primary justification for zoning ordinances is to: A.Maintain conformity to buildings in the zoned area B. Prevent an oversupply of certain types of businesses C. Promote public health, safety, morals and general welfare D. Control the quality of building construction

Answer: C. Zoning laws are exercise of the police powers which are for the public health, safety, morals and general welfare. No compensation need be paid in exercise of police power, as they are for public protection.

70. After the due date Able makes a payment on a mortgage loan. By statute, the payment on the loan is considered late when received by the lender on: A. The first day aft after the due date B. The fifth day after the due date C. The tenth day after the due date D. After the tenth day after the due date

Answer: D. "By statute". Most lenders allow longer (i.e. 15 days) but this law establishes the minimum.

30. After acquired title is conveyed in any trust deed for the benefit of the beneficiary. It conveys: A. Personal property later affixed to the real property so as to become real property B. Improvement built on the land after title is acquired C. Additional land acquired afterward by the trustor D. All of the above

Answer: D. 'After acquired title' refers to title to fixtures or other real property items, that become part of the land that is securing the existing trust deed. If a lot serving as security for a loan made ten years ago has land affixed to it, that land becomes encumbered with the lien made ten years ago. If additional improvements, such as a swimming pool, added bedroom or new landscaping are added to the real property, they to become encumbered with a trust deed lien made ten years ago.

50. An apartment owner was figuring his net income for income tax purposes. He took the gross income and deducted certain expenses. Of the ones listed below, which could he not deduct: A. Depreciation B. Interest on loan for purpose of purchasing the property C. Management expenses D. Cost of a fence

Answer: D. A fence would be a capital improvement. The cost of it should be added to the cost basis of the property and depreciated.

83. A lender would be exempt from the requirement of providing the borrower with a Federal Right to Rescind Notice except: A. If the loan is for more than $25,000 and is not secured by the borrower's personal residence B. If security for the loan is commercial property C. If the loan is for business expansion D. If the borrower is refinancing

Answer: D. A negative question. Refinancing your personal residence is not an exemption and is fully covered by a three day right of rescission

7. All of the statements below are true, except: A. A grant deed may convey "after acquired" title even when such warranty is not actually written into the contents of the deed B. A quitclaim deed may convey any right or title including fee simple title C. A deed is of no effect unless delivered D. A reconveyance deed is used to convey title to a new purchaser in connection with a "trust deed sale"

Answer: D. A reconveyance deed is given by a trustee to the borrower (trustor) after a loan has been paid in full. The borrower records his deed of reconveyance to clear the loan lien from the record.

86. Two people entered into a land contract for the purchase of a home and the contract was recorded. A few months later, the vendee abandons the property and defaults on the contract. If the vendee refuses to execute and record some form of release, it will: A. Not affect the marketability of the property B. Result in a deficiency judgment C. Result in a trustee's sale D. Create a cloud on the title

Answer: D. A recorded land contract show an equitable interest in the property. When the vendee (buyer) defaults and abandons the property the land contract becomes a "cloud on the title" until it is removed by either a quitclaim deed or a quiet title action.

24. The right to foreclose a trust deed, under a trustee's power of sale, outlaws: A. In four years B. In three years C. In two years D. Never

Answer: D. A trust deed is not a contract, but rather a conveyance of the naked legal title with the power of sale from the trustor to the trustee. Therefore, the trustee retains the right to sell the property under the trust deed at any time for the benefit of the beneficiary. The conveyance has been performed and thus is not under the Statute of Limitations; therefore, it never outlaws.

15. Concerning business opportunities: A. The bulk sales law is contained in the Uniform Commercial Code B. A bill of sale is used to convey title to business items C. Sales tax is a tax on the sale of tangible personal property D. All are true statements

Answer: D. All are true.

92. Able submitted an offer to purchase Blackacre. During the escrow period a local credit reporting agency submitted detrimental information which Able contested. Able made repeated attempts to get the matter corrected and he was denied access to the information reported to the agency. Able may: A. Bring an action to recover punitive damages of no more than $5,000 B. Bring an action in a court of appropriate jurisdiction to recover actual damages C. After a prescribed time, require the reporting agency to delete such information from the report D. All of the above

Answer: D. All choices are open to the principal in question.

47. Which is true concerning an option: A. Title acquired by exercising an option usually dates back to the time of the option and cuts off intervening rights acquiring with knowledge of the existence of the option B. Only the optionor is bound to a sale C. The optionee has no interest or estate in the land D. All of the above statements are true

Answer: D. All of these statements are true.

64. In addition to certain municipal or county regulations which apply to the construction of a subdivision, such as zoning laws and the State Map Act, other government regulations may be imposed upon the subdivision by: A. Health, fire and building safety laws B. The Department of Real Estate C. Governmental lending agencies such as FHA and the VA D. All of the above

Answer: D. All three choices may impose additional regulations which apply to the construction of a subdivision

49. A lessee's interest is: A. Personal property B. A chattel real C. A grant to use property for a period of time which reverts to the grantor at the expiration of the term D. All of the above

Answer: D. All three choices refer to the lessee's interest in real property. Always keep in mind that a lessee's interest is personal property known as chattel real.

23. An "able buyer" means one: A. Financially able B. Having the ability to obtain the necessary funds to purchase real property C. Having the ability to obtain necessary financing D. Any of the above

Answer: D. Any of these would indicate an 'able' buyer

80. The words Broker and Realtor are A. interchangeable B. different categories of membership in NAR. C. different titles offered by separate professional organizations. D. unrelated: A broker is a real estate licensee and a Realtor is a member of NAR.

Answer: D. Brokers are licensed by their state; Realtors are voluntary members of the NAR, a trade association.

76. In the sale of a business opportunity, which of the following would contribute the least to goodwill: A.Advertising over a period of time B. Continued public patronage of the establishment C. Pleasant associations in the customers' minds because of past associations D. Adequate stock and modern fixtures

Answer: D. Goodwill is defined as the expectation of continued public patronage. Of the choice offered, adequate stock and modern fixture would contribute the least to that expectation.

59. The type of legal action that would most likely be taken in the event of a default on a land contract would be: A. Lis pendens B. Writ of execution C. Foreclosure by trustee's sale D. Quiet title action

Answer: D. If the original land contract had been recorded and the buyer has defaulted, there would be a cloud on the title and some form of legal action would be required to clear the title. This would not be a foreclosure but a quiet title action.

93. Mr. O'Riley paid an owner $10 for an option containing this clause: "Option to be for 60 days from June 1, 1967. Upon exercise of option, holder is to purchase within 30 days thereafter for all cash consideration." On July 10, Mr. O'Riley sold and assigned his option for $1,000. On July 28, the new holder notified the owner that he would purchase on August 15. The owner claimed the option was void. The option was: A. Void, because the holder sold it B. Void, because date of purchase was not within the option period C. Valid, even though Mr. O'Riley sold it, but August 15, was too late for date of sale D. Valid, and assignee could purchase on August 15

Answer: D. In as much as the terms of the option are for all cash consideration and no unsecured promissory note is involved, it must be sold or assigned. Because the new holder exercised the option within the 60 days period (before July 30) and purchase the property with 30 days of the exercise date (before August 30) the option is valid.

21. In portfolio risk management, a lender considers: A. Diversification B. Liquidity C. Reserves D. All of the above

Answer: D. In portfolio risk management, a lender determines what type of loans to have in his portfolio. Factors are: How quickly can I sell these loans? What are my reserves? How diversified are these loans? Are they all business? Are they all residential? Are they a mixture of business and residential?

46. Real property would include: A. Real property tax lien B. Trust deed C. Crude oil which has just reached the surface in a pipe drilled beneath the land D. None of the above are real property

Answer: D. None of the possible answers to this question is real property. A tax lien and a trust deed, although having to do with real property, are not real property. Oil which has been 'captured' is personal property.

51. Which of the following factors primarily affects supply in the real estate market? A. Population B. Demographics C. Employment D. Government financial policies

Answer: D. Population, demographics and employment impact demand for a commodity, but government fiscal (spending and taxing) policies strongly influence availability and cost of credit for those who produce things to be sold (like new homes).

41. A buyer of a residence, prior to the close of escrow, asks the broker for permission to move into the property. The broker should: A. Deny the buyer permission B. Grant the buyer oral permission C. Ask the buyer to sign a lease for the property D. Obtain written consent from the owner

Answer: D. Prior to the close of escrow, the seller is still the owner; therefore, the broker should get written consent from the owner before allowing a buyer to take possession.

12. A lender possessing a chattel mortgage may: A. Assess it B. Hypothecate it C. Alienate it D. All of the above

Answer: D. Re-emphasizing a prior question concerning the terms: alienate, hypothecate and assess. A chattel mortgage is a mortgage secured by personal property. Such a mortgage may be used as security for an additional loan. When the property is put up as security for a loan and one retains possession, it is said to be hypothecated. Personal property may be assessed for personal property taxes and/or federal estate taxes.

95. In which of the following ways may an agency relationship not be created: A. Verbal authority B. Necessity or emergency C. "Post hoc" ratification D. Subordination

Answer: D. Subordination means lie, trickery or deceit; hence, it cannot be a valid way to create an agency

13. A real estate broker is usually: A. A fiduciary to a person interested in buying a property the broker has listed B. An attorney-in-fact C. An agent serving the principal under a duly executed power-of-attorney D. None of the above

Answer: D. The broker is usually the agent (fiduciary) of the seller and usually does not have a power of attorney.

91. Which of the following items is usually considered to be a cost of home ownership? A. Land depreciation B. Improvement appreciation C. Amenity value D. Interest lost on the owner's equity

Answer: D. The interest that is lost on owner's equity is usually identified as lock in equity. This term applies to the fact that the owner cannot utilize the funds for other investment purposes

99. In negotiating certain loans a broker is required to fill in all of the items on a Broker's Loan Statement Form. The following item must be inserted: A. What the borrower intends to do with the proceeds of the loan, less expenses B. A statement of the value of the property supported by a proper appraisal C. The date on which the borrower acquired the property D. The amount that will be charged by a qualified agency to render a report on the financial capacity of the borrower

Answer: D. The loan broker law requires among other things, that the broker's loan statement contain estimated costs including appraisal, escrow, title, notary, recording and credit investigation.

32. A third party who takes a promissory note that is complete and regular and has no knowledge of any defects is known as a/an: A. Endorser B. Maker C. Payee D. Holder in due course

Answer: D. The party that accepts the endorsed note from the original payee without knowledge of any defects is known as the holder in due course.

100. Which of the following is not a characteristic of an easement: A. It is an interest which can be protected against interference by third persons B. It is capable of being created by a conveyance C. It is considered a non-possessory interest D. It is an interest that can be terminated at will by the processor of the land

Answer: D. The possessor of the land is the owner of the land. He cannot terminate the easement at will.

28. When a broker misrepresents his principal's property to a buyer, he could cause his principal to be subject to: A. A court action for damages by the buyer B. A rescission of the sale by the buyer C. Civil responsibility for compensating the buyer for misrepresentation of the broker D. Any of the above

Answer: D. The principal is responsible for his agent's actions. If misrepresentation occurs, there should be a rescission of the sale or civil court action for damages.

79. In an escrow, prepaid rents are normally: A. Debited to the vendor B. Credited to the vendor C. Debited to the buyer D. Credited to the buyer

Answer: D. The vendee is the buyer. The buyer normally receives the prepaid rents.

8. Which of the following is not a necessary element in the formation of a contract: A. Offer B. Acceptance C. Consideration D. Performance

Answer: D. Two parties may enter into a contract, but they might not fulfill (perform) their obligations.

39. An offer by one of the parties to a real estate transaction to carry out that party's part of the contract is called a: A. Gratuity B. Satisfaction C. Recourse D. Tender

Answer: D. Usually made at the conclusion of the transaction, the tender is the offer to perform on the terms agreed to. If the other party cannot perform, then the party that made the tender can rightfully claim the other party defaulted.