Real Estate National Exam #1

A seller lacks the funds to complete a sale without obtaining lender approval. The listing broker should ensure that the listing agreement includes a/a: A. short sale addendum. B. back-up contract addendum. C. quiet title addendum. D. estoppel addendum.

A. short sale addendum. Explanation When the seller owes more money than the home is worth and lacks funds to complete the transaction, the listing agent must disclose it as a material fact. The listing agent should ensure that the short sale addendum is included in the listing agreement. The back-up contract addendum is used in purchase contracts when the property is already under contract. An estoppel certificate and suit to quiet title are used to determine which party has the greatest claim to the property by asking the courts to settle the matter. An addendum is added to an offer and controls the offer in the event of a conflict between the standard offer to purchase and the addendum. Parties AMEND a contract to make changes to the agreed terms, of a legally formed contract.

A tenant who pays a gross monthly rent in addition to property taxes, insurance, and common area maintenance probably has which type of lease? A. full service B. ground C. percentage D. net

D. net Explanation A net lease transfers some of the owner expenses to the tenant such as taxes, insurance, or maintenance. A full-service lease is often the most expensive because it covers rent plus other services such as housekeeping. A ground lease is characterized by its extreme length of 99 years or more and is often "build to suit." A percentage lease is common in retail rentals where tenants pay a small fixed rent plus a portion of gross sales above a negotiated volume.

An investor purchased a building for rental income. Two units rent for $750 per month and the remaining 4 rent for $925 per month. Vacancy rates are 3%. A property manager was hired at a 10% management fee and this person created an operating budget factoring in property taxes of $3,211, operating expenses of $5,000, debt service of $3,000 per month, and reserves of $8,000. What estimated NOI according to the operating budget? A. $38,264.20 B. $44,317.00 C. $46,264.20 D. $60,528.00

$38,264.20 Explanation The formula for determining net operating income is GIVEN: Gross Income - Vacancy & collection = effective gross income / total anticipated revenue - operating Expenses = Net operating income. Potential Gross Income: $62,400 = (2 units X $750 + 4 units X $925) X 12 months - vacancy and losses - $ 1,872 = EGI $60,528 - operating expenses - $22,263.80 =NOI $38,264.20 We recommend that you create a flashcard that asks how to calculate net operating income. The answer side should have: GI - V&C = EGI - OP EXP = NOI *Effective Gross Income may be called Total Anticipated Revenue *No depreciation, debt service or capital improvements *Property taxes and repair reserves are operating expenses The operating expenses are $6,052.80 in property management fees plus $3,211 in property taxes plus $5,000 miscellaneous expenses and $8,000 in reserves. The answer choice of $44,317 neglected to include the 10% management fee. The answer choice of $46,264.20 neglected to include the reserves.

A buyer purchases a home for $180,000 and receives an 80% LTV loan at 5.5% interest. What will the buyer pay for interim interest, when interest is paid in arrears, the first mortgage payment is due November 1 and closing is scheduled for September 25th? A. $132 Debit Buyer B. $165 Debit Buyer C. $792 Debit Buyer D. $990 Debit Buyer

A. $132 Debit Buyer Explanation Mortgage interest is paid in arrears, where the regular monthly payment pays the prior months' interest. Interim or prepaid interest is only for one month. When calculating the days, take 30 - the date of closing + 1 as the bank is greedy.Loan Amount: 180,000 x 80% = 144,000 Daily Interest: $144,000 x 5.5% = $7920 / 360 = $22/ day Days: 30 - 25 + 1 = 6 days Interim/Prepaid Interest Charge: $22 x 6 days = $132 debit to the buyer

A broker receives 70% of the commission on a particular transaction with her firm receiving the remainder. On a recent transaction, the sale price was $240,000 and the total commission was 6% which was equally divided between the listing firm and the selling firm. How much did the broker's firm receive as a result of this transaction? A. $2,160 B. $2,610 C. $4,320 D. $5,040

A. $2,160 Explanation Total Commission: $240,000 x 6% = $14,400Commission Split Between Brokerages: $14,400/2 = $7,200Firm Compensation: $7,200 x 30% = $2,160

The Universal Exclusion of capital gains applies to the sale of which of the following property types? A. Principal residence B. Housing for the elderly C. The sale of an apartment building with four or less units D. Vacation property

A. Principal residence Explanation The universal exclusion of capital gains applies only to primary residences. The exclusion allows tax on a gain of less than $250,000 on one's personal residence will not be subject capital gains treatment. The other property types may have tax advantages but not the universal exclusion.

A buyer purchased a property for $225,000 by obtaining an 80% conventional mortgage at 5% interest for 30 years. The closing is scheduled for December 8th. What is the amount of interim interest due if the first months payment will be due February 1st? A. $575 B. $719 C. $1,325 D. $1,656

A. $575 Explanation Interim or prepaid interest is only for the month. Mortgage interest is paid in arrears, meaning that the first month a payment is due would be February, paying for January's interest. Interest is based upon the loan amount. Loan Amount: $225,000 X 80% LTV = $180,000 Days: 30 -8 + 1 = 23 days Interim Interest: $180,000 X 5% / 360 X 23 = $575

A tract of land measures 100 feet along the North side, 200 feet along the East and West sides and 100 feet along the South side. How many acres are in this tract of land? A. 0.459 acres B. 0.625 acres C. 0.918 acres D. 3.787 acres

A. 0.459 acres Explanation The area of a lot is determined by taking the length X width. It is important to remember that there are 43,560 sqft in an acre (4 blue haired ladies, going 35, in a 60). Area: 100 feet X 200 feet = 20,000 sqft Acre: 20,000 ÷ 43,560 = 0.459

The seven federal fair housing protected classes include familial status, religion, handicap (or disability), sex, color, race, and national origin. In which year was sex legally included in the federal fair housing laws? A. 1974 B. 1978 C. 1968 D. 1988

A. 1974 Explanation Race, color, religion, and national origin were in the 1968 fair housing law. Familial status and disability were included in the 1988 amendment. And 1978 refers to lead-based paint disclosures for residential housing. Sex was the only protected class added in 1974 under the Housing and Community Development Act.

An agent, in an effort to procure a listing, implements a phone calling campaign. Which of the following would be acceptable under Do Not Call laws? A. An agent may call clients in his database who he has sold homes to within the past year to ask for referrals, even if they appear on the do not call list. B. An agent may call For Sale By Owners, even if they are the do not call list. C. An agent may call potential clients on the do not call list who have requested information about the agent's services in the last 6 months. D. An agent may call expired, even if they appear on the do not call list.

A. An agent may call clients in his database who he has sold homes to within the past year to ask for referrals, even if they appear on the do not call list. Explanation The agent may call former clients for up to 18 months after working for them in a transaction. FSBOs should be checked through the do not call list before calling. Expired would need to be checked against the Do Not Call registry before calling. An agent may only call potential clients who have requested information about the agent's services for up to 3 months after the request.NOTE: A broker can all for information about the property or if the seller is offering compensation to a buyers agent. The broker cannot solicit the listing when the seller is on the Do Not Call registry.

A broker works for a buyer who wants to submit an offer. The listing agent disclosed to the broker that the seller is in a short sale situation resulting from the untimely passing of her spouse mere weeks prior to an impending divorce on the heels of a two-year separation. The broker working for the buyer made a point to disclose the material fact about a short sale situation to the buyer and to maintain the confidentiality leading to the short sale. Who, if anyone, violated agency duties in this scenario? A. Buyer's Broker and Listing Agent B. Buyer's Broker C. Listing Agent D. Listing Agent and Seller

A. Buyer's Broker and Listing Agent Explanation Agents owe their clients confidentiality of the client's information and disclosure of all other information that could influence the client to do or not do something. Agents also owe disclosure of material facts to their customers. The listing agent was correct to disclose the short sale, a material fact. However, the listing agent was wrong to disclose the confidential nature leading to the short sale. The buyer's agent was correct to share with the buyer the short sale fact but the buyer's agent violated his agent duties by withholding what he learned about the seller.

Which of the following loan types typically carries the greatest risk to the lender? A. Construction loans because the allow for drafts against a credit line to construct the property B. FHA loans because they typically allow for lower down payments C. Reverse annuity loans as they target senior borrowers D. Adjustable-Rate Mortgage since they are variable in their monthly payment

A. Construction loans because the allow for drafts against a credit line to construct the property Explanation Construction loans are risky because part of the time, the collateral is not available, as the home is being built. ARMs are risky but have caps to manage risk, and also they require mortgage insurance if there is a small downpayment. FHA loans carry some risk as well, but the government's mortgage insurance program backs them.

For a deed to be valid, it must include which of the following essential characteristics? A. Deed must contain words of conveyance B. Deed must be signed by the grantee C. Deed must be recorded D. Deed must be acknowledged by a notary

A. Deed must contain words of conveyance Explanation The essential elements of a valid deed include: The deed must be in writing, must be signed by the grantor, must have a valid legal description, must have operative words of conveyance, and must be delivered and accepted. There are other elements that one usually sees but are not essential for a deed to be valid, such as: Recordation, Acknowledgement, and dated. Acknowledgement occurs when the deed is notorized by a notary.

The owner of a duplex resides in one of the units and wishes to rent out the other. This owner will personally act as the landlord but is using the services of a real estate agent to locate a tenant. A prospective tenant called to set up an appointment for viewing the unit to which the owner agreed. Later that day when the prospective tenant arrived, the owner was dismayed to see a very dark complexion and pagri (an Indian headdress worn by men and women) because this prospective tenant didn't sound foreign on the phone. The owner refused to let this person view the unit and said, "It was rented out 30 minutes ago to someone else" even though that is a lie. Which federal fair housing law did the property owner violate? A. Federal Fair Housing B. No violation as owner-occupants are exempt from fair housing when renting out remaining units in a property. C. State Fair Housing D. Civil Rights Act of 1866

A. Federal Fair Housing Explanation Owner-occupants are not exempt from fair housing laws when a real estate agent is hired. In this case, the only federal law violated is Federal Fair Housing. Specifically the owner discriminated based on color and national origin. The Civil Rights Act of 1866 prevents racial discrimination. State Fair Housing is not a federal law and therefore cannot be the correct answer.

Which of the following ads would be in compliance with Federal Fair Housing laws when an owner is renting out a room in their home? A. Room for rent to a female applicant with for $400 per month with shared expenses for utilities. B. Room for rent to a Christian male for $500 per month with shared expenses for utilities. C. Room for rent - $700 per month. No Muslims Allowed. D. Room for rent - $800 per month. No children allowed.

A. Room for rent to a female applicant with for $400 per month with shared expenses for utilities. Explanation Federal Fair Housing legislation protects against discrimination on the basis of Race, Color, Religion, Sex, Handicap, National Origin and Familial Status (recall FRESH CORN). Technically an owner has a limited ability to discriminate when a broker is not involved, and discriminatory advertising is not used. The owner can "silently discriminate". NOTE: There is an exemption to sex when renting out a room in an owner-occupied unit. It is not a violation to market a rental that is limited by sex. No other protected class can be used - religion or familial status for example.

The Real Estate Settlement Procedures Act requires which of the following? A. That lenders provide form disclosing the cost of the financing B. Borrower shall have a three day right of rescission when obtaining a mortgage C. Borrowers should receive a loan estimate within 3 days of loan application regarding the closing costs on a particular transaction. D. Borrowers may not receive a commission refund or "kickback" from an agent or lender.

A. That lenders provide form disclosing the cost of the financing Explanation RESPA requires that borrowers be informed of their closing costs with 3 days of loan application (which is defined in the law). The purpose is so that consumers can compare the costs of different loans and lenders (Know before you owe). While Truth in Lending does allow a 3-day rescission period on equity lines, there is no rescission period when obtaining a mortgage loan to purchase a property. The cost of the financing, for example, the finance charge and APR are related to TIL, not RESPA. RESPA does eliminate kickbacks between service providers but does not prevent a service provider giving money to the borrower.

A real estate agent would be required to disclose which of the following? A. The presence of an on-site septic system B. The house is clad with masonite siding C. The presences of Polybutylene D. Radon test results

A. The presence of an on-site septic system Explanation On-site systems must be disclosed and should have a permit pulled. Polybutylene is only required to be disclosed if it has leaked in the past. Radon test results of 4.0 pC/liter or higher need to be disclosed. Masonite siding that is in good condition is not considered a material fact.

A buyer visits an open house and wants to make an offer. The agent informs the buyer that he works for the seller and has the buyer acknowledge the appropriate forms. Which of the following should the agent disclose to the buyer? A. The property is near a planned highway interchange. B. The seller is going through a divorce that could affect the seller's motivation to sell. C. The home is vacant because the owner died in the property and the heir wants to get rid of it. D. The seller would likely take less if the offer is made immediately and closes within 30 days.

A. The property is near a planned highway interchange. Explanation Note that the agent informed the buyer that he/she worked for the seller (i.e. a seller subagent) therefore, the agent cannot legally diclose any confidential info about the seller. The agent would have to disclose material facts such as planned road construction. As an agent for the seller certain information must be kept confidential such as price/terms that they might agree that are less than the list price. NOTE: It is not a material fact that the previous owner died in the home.

Which of the following would be given the most weight when valuing an apartment complex? A. The relationship between the net income of the property and the capitalization rates for similar properties B. The depreciated value of the improvements C. The cumulative effect of the sale of condos and townhouses, in the area, that provide a similar housing experience to an apartment D. The value of the land on which the apartment complex stands

A. The relationship between the net income of the property and the capitalization rates for similar properties Explanation Apartment complexes are often valued using the income or capitalization approach which is the relationship between an investor's desired return and the properties expected future net income (NOI / Cap. Rate = Value). Land value and depreciated value are especially important when using the Cost approach. Individual unit sales would be more of a market data approach which is typically for residential resales.

A seller was so excited to finally receive an acceptable offer on his house that he celebrated to intoxication with champagne before e-signing the Offer to Purchase and Contract. As a result, the contract could be considered: A. Voidable B. Valid C. Unenforceable D. Void

A. Voidable Explanation Categories of validity include: valid, voidable, void, and unenforceable. A valid contract requires both parties be legally competent yet this seller was temporarily not competent due to being drunk. A void contract means either the parties or the purpose for contracting was never legal. An unenforceable contract indicates both parties are in breach resulting in the inability of either to bind the other to previously agreed upon terms. The contract described here is voidable because only one party failed to reach the "reality of consent." Examples for lacking the reality of consent include: mutual mistake, misrepresentation, fraud, being drunk or high, being under age 18, duress, and undue influence.

Which of these is considered to be an example of a unilateral contract? A. Your neighbors promise to make your favorite dessert if you will mow their lawn. B. It is understood the restaurant will serve your food in exchange for you paying when you're done eating even though no one says this. C. A farmer told his neighbor he'd give the neighbor the chance to buy his farm first if he ever decides to sell. D. A large chain store paid a fee to legally be the only ones who purchase 20 acres on the main road during the next 5 years last year. Now they want to buy the property.

A. Your neighbors promise to make your favorite dessert if you will mow their lawn. Explanation A unilateral contract has two parties but only one party makes a promise in exchange for an action or behavior from the second party. In this case, promising to make dessert in exchange for the action of mowing a yard is unilateral. The restaurant example is an implied bilateral contract. The farmer example is a preemptive right. And the large chain store is the bilateral phase of an option contract because the store decided to exercise its option.

In general, property managers under a written property management agreement are responsible for paying all of the following as part of operating expenses except: A. annual income taxes B. annual insurance policies C. remodeling in a mold damaged unit D. real property taxes

A. annual income taxes Explanation Property managers should never pay someone else's IRS income taxes. A CPA (Certified Public Accountant) would typically handle that task. Common property manager duties include property maintenance and overseeing operating expenses to include payment of ad valorem property taxes and coverage under insurance policies.

Which of the following is one of the five rights associated with the bundle of rights in property ownership? A. control B. ejectment C. freehold D. fee simple

A. control Explanation The bundle of rights includes disposition, quiet enjoyment, exclusion, possession, and legal control. These rights are commonly referred to as DEEP-C. Freehold and fee simple refer to owning property permanently as opposed to leasing the property. Ejectment is associated with evicting tenants.

A broker is working for a buyer under an oral buyer agency agreement. The listing agent discloses information that weakens the seller's bargaining position. The buyer's agent: A. has a duty to disclose the information. B. has no obligation to disclose the information until written buyer agency agreement. C. has a duty to conceal the confidential information. D. has a fiduciary duty to inform the broker-in-charge.

A. has a duty to disclose the information. Explanation The broker has a fiduciary duty to the buyer to disclose information to the buyer even if it is detrimental to the seller. Note that the problem states that you work for the buyer and is silent to the seller's representation. Remember to answer questions based on the information available. In this scenario, the listing agent breached his/her fiduciary duty to the seller by not concealing the personal information.

65 Which of the following formulas is associated with value using the income approach? A. net operating income divided by capitalization rate equals value B. before-tax cash flow divided by down payment equals value C. effective gross income minus operating expenses equals value D. net operating income minus debt service equals value

A. net operating income divided by capitalization rate equals value Explanation Value = NOI / CAP RATE. Before-tax cash flow is calculated by subtracting debt service from net operating income. The cash on cash rate or return or equity dividend rate is calculated by taking before tax cash flow and dividing the down payment or equity. Net operating income is calculated by subtracting operating expenses from effective gross income.

68 Constructive eviction results in: A. the termination of the lease agreement. B. a breach of the property manager's fiduciary duties to the landlord. C. the termination of the property management agreement. D. a breach of the tenant's duties to the landlord under the national landlord / tenant laws.

A. the termination of the lease agreement. Explanation Constructive eviction occurs when the landlord / owner has not provided safe, fit and habitable premises. The tenant after sufficient notice may terminate the lease agreement and then has the right to sue the landlord for damages. Constructive eviction terminates the lease agreement, not the property management agreement. The landlord is in breach of the listing agreement by not repairing the property by not acting in good faith. The landlord has violated national landlord and tenant laws by not providing safe, fit and habitable premises.

The Sherman Antitrust Act prohibits all the following, EXCEPT: A. vendor kickbacks. B. group boycotts. C. price-fixing. D. market allocation.

A. vendor kickbacks. Explanation Sherman Antitrust Act prohibits price-fixing and boycotting. RESPA does not permit vendor kickbacks among settlement service providers. It is common for the exam to mix two laws and for students to be able to distinguish between the two laws.

A local real estate company provides limited listing services. For $500 the firm will put a seller's listing in the MLS and provide them with a sign. The seller will be responsible for negotiating their own contracts and scheduling showings. In this case, the limited listing service company: A. would be excused from additional services outside their contractual agreement with the seller, but not their fiduciary duties to the seller. B. would have both their fiduciary duties and services limited to the extent of the information they provide in the MLS and the sign they place in the yard. C. would not be responsible to deliver an offer communicated to them through email by an unrepresented buyer. D. would not be required to reveal material facts to potential buyers during the listing agreement period.

A. would be excused from additional services outside their contractual agreement with the seller, but not their fiduciary duties to the seller. Explanation A limited service agreement can limit the services that an agent offers to a client but does not waive the fiduciary duties of agency. Limited service agreeements do not absolve of agents of their obligations to Commission Rule and/or License Law. A broker has a duty to present all offers received to the seller.

A buyer asked her agent how much money she will owe at closing. The agent noted the purchase price of $265,000. The buyer sought a 90% LTV at 6% interest for the next 30 years. Property taxes are $985 and have not yet been paid and the buyer has agreed to pay after closing. Closing is November 22nd. The following expenses were paid by the customary party: - homeowner insurance costs $550 due in full at closing - mortgage insurance premium of $433 - home inspection cost $120 - pest inspection was $75 - courier fee to overnight the buyer's documents was $30 - excise tax is paid at the customary rate - commission is 7%. - recording fees are $90 - deed prep is $200 - interim interest. The buyer also paid an earnest money deposit of $10,000. How much money is the agent likely to tell the buyer she owes? A. $17,234.97 B. $17,274.72 C. $17,474.72 D. $18,269.72

B. $17,274.72 Explanation The buyer's debits include: $265,000.00 purchase price; $357.75 interim interest; $550.00 homeowner insurance; $433.00 mortgage insurance; $120.00 home inspection; $75.00 pest inspection; $30.00 courier fee; $90.00 recording fees. The buyer's credits include: $238,500 new loan; $881.03 property taxes from seller; $10,000 earnest money. The difference between the buyer's debits and credits is $17,274.72. Property Tax Proration: It is common for property taxes to be treated as a double debit when closing is after 9/1 and taxes are unpaid, however in this problem it states that the buyer will pay the bill after closing. To obtain the correct answer you need to calculate the seller number of days and the correct entry will be debit the seller / credit the buyer the same dollar amount. Buyer Days: (N) 8 + (D) 30 = 38 Seller Days: 360 - 38 = 322 Daily Rate: 985 / 360 = $2.7361 Tax Proration: 322 X 2.7361 = $881.03 Debit Seller / Credit Buyer Interim Interest: Interim interest will never be for more than 30 days. The buyer pays from the day of closing through the end of the month. Mortgage interest is paid in arrears, which means the buyer will have no payment in December, first payment in January and the January payment will pay December's interest. Don't fall for the testing trap of saying the buyer will make the first payment in January and then add in an additional 30 days of interest. Loan Amount: $265,000 X 90% LTV = $238,500 Days: 30 - 22 +1 = 9 Days Daily Interest: $238,000 X 6% / 360 = $39.75 Entry: $39.75 X 9 = $357.75 debit to buyer The choice $17,474.72 adds the deed preparation of $200 as a buyer debit however this is a seller responsibility to pay. The choice $17,234.97 calculates 8 interim days of interest instead of the appropriate 9 interim days. The choice $18,269.72 calculates the buyer's portion of the tax bill and includes it as a buyer debit even though the problem did not specify that the closing attorney was collecting respective shares.

Which of the following is required for a real property contract to be valid? A. A provision addressing the buyer's proposed use B. A promise of something of value in exchange for an unconditional acceptance of same C. That the house be delivered in broom-clean condition D. Earnest Money

B. A promise of something of value in exchange for an unconditional acceptance of same Explanation An exchange of promises and terms is typically considered the consideration in a contract, i.e., the buyer agrees to buy, and the seller agrees to sell under the agreed-upon terms. Earnest money is common in contracts, but not required. Proposed use and delivery of the property in a certain condition are common conditions but are not essential elements of a contract.

The subject property has a feature that is superior to the comparable property. The correct adjustment in a market analysis would be to: A. Subtract feature from the comparable property B. Add feature to the comparable property C. Subtract feature from the subject property D. Add feature to the subject property

B. Add feature to the comparable property Explanation It is important to remember that agents/appraisers never adjust the subject property, only the comparable property. Agents/Appraisers are trying to adjust the comparable property's selling price by adjusting for the differences between the subject and comparable property. NOTE: It is best to memorize Comp Superior = Subtract and Comp Inferior = Increase to avoid making a mistake and selecting an answer that adjusts the subject property. NEVER ADJUST THE SUBJECT PROPERTY!!

Which of the following could be taken into consideration when appraisers use the cost approach of valuation? A. Transferability B. Economic obsolescence C. Gross rent multipliers D. Adjustments for size

B. Economic obsolescence Explanation Economic obsolescence refers to events surrounding the property which depreciate its value. Examples include new roads changing traffic patterns or rezoning. Adjustments are used in the sales comparison approach. Gross rent multipliers are associated with the direct income capitalization approach. Transferability refers to one of the four characteristics of value.

Which of the following would NOT be considered a violation of federal fair housing laws? A. Failure to use the Fair Housing logo or slogan in advertising. B. Refusing to work with an African American family because they do not qualify for a loan. C. Telling a prospective tenant that a property is not available for rent when it is. D. Charging a higher rent rate for families with small children to compensate for extra damage.

B. Refusing to work with an African American family because they do not qualify for a loan. Explanation A broker is not discriminating when they refuse to work with someone that cannot obtain financing. It would be irresponsible for a broker to work with a buyer that is not qualified.

A seller enters into a contract to sell his real property to a buyer and later learns that a large company is relocating to the area. Convinced that this will lead to an increase in home prices, the seller wants to terminate his contract for the sale of his home. Which of the following describes a remedy for the buyer? A. Liquidated damages B. Suit for Specific performance C. Relief under the Marketable Title Act D. Suit to Quiet Title

B. Suit for Specific performance Explanation Specific performance gives the buyer the right to sue for the contract to be performed specifically as written. This speaks to the "uniqueness or non-homogeneity" of real property. Suit to quiet title is associated with Adverse Possession or easements by prescription where a private party is seeking to take the land of another. A suit to quiet title may be used in foreclosures or to settle a title dispute, where the court is asked to settle who has the highest claim to the property. Liquidated damages are money damages for a breach, which are defined in the contract. The Marketable Title Act sets a 30-year Statute of Limitations on claims against a title where old claims are extinguished to remove the cloud on the title.

Which of the following statements is most accurate regarding environmental concerns within a home? A. Lead-Based Paint has been banned in all homes built since 1968 B. The EPA has stated that there is no acceptable level of exposure to asbestos C. Radon may be encapsulated within a crawl space to avoid it spreading into the home D. Asbestos is the second leading cause of lung cancer in the US

B. The EPA has stated that there is no acceptable level of exposure to asbestos Explanation The EPA has stated that there is no acceptable exposure to asbestos. Radon is the second leading cause of lung cancer in the US; it is odorless and colorless. Radon should be ventilated, not encapsulated. Lead-Based paint has been banned from residential properties since 1978.

An agent's listing expires after a property has gone under contract but before the transaction closes. Under a typical listing agreement, which would be TRUE? A. If the seller were to hire a new agent to finish the transaction, then that agent would be considered the procuring cause B. The agent has already earned the compensation as the procuring cause of sale C. The seller would be obligated to extend the agency agreement through closing D. The agent would need to extend the listing through the closing date to be compensated

B. The agent has already earned the compensation as the procuring cause of sale Explanation The agent has already earned the commission by going under contract during the listing term. While it may be wise to extend the agency agreements, the agent is already the procuring cause. A new agent could be hired, but it would not change the fact that the first agent was entitled to compensation.

Truth in Lending laws would apply to the financing of which of the following properties? A. The purchase of an apartment complex to be used for low-income housing B. The financing of a single-family home where the loan is secured by the residence C. The purchase of a commercial property that is collateralized by an equity line against the owner's home D. The purchase of a working farm where the property secures the loan

B. The financing of a single-family home where the loan is secured by the residence Explanation Truth in Lending laws apply to consumer transactions, including when a loan is made on a consumer property for the purchase of a commercial property.Commercial transactions, farms greater than 25-acres, apartment complexes are exempt.

A buyer is making an offer on a property listed by an agent without agreeing to representation. The listing agent prepares the offer and the buyer signs. The listing agent emails the offer to the seller and sets an appointment to review the terms in person. At the meeting the seller agrees to the offer and signs it in the presence of the listing agent. The listing agent calls the buyer and leaves a message informing the buyer of acceptance. Has a legally binding contract been formed? A. Yes. The contract was formed when the agent witnessed the seller signing. B. Yes. The contract was formed when the agent left the voicemail to the buyer. C. No. The buyer must receive a copy of the written contract. D. No. The buyer has to listen to the message to from a contract.

B. Yes. The contract was formed when the agent left the voicemail to the buyer. Explanation When the buyer is not represented by a licensee, the buyer must be notified of the seller acceptance to form a legally binding contract. The notification can be made by any reasonable means - telephone (voicemail), mail, or personal delivery. Receipt of the written document is not required.

A buyer submitted an offer on a brick ranch house. The seller was thrilled with the proposed sales price and earnest money but needed settlement to happen on a different day for family reasons. The seller struck through the buyer's proposed settlement date, wrote in an alternative, initialed next to this change and dated it. Then the listing agent gave the form back to the buyer who figured this was such a small and understandable request from the seller that the buyer immediately signed and communicated to the seller. Now they're under contract. Which of the following best describes what the buyer signed? A. contract B. conditional acceptance offer C. option D. offer

B. conditional acceptance offer Explanation When a buyer or seller makes a change to any terms in an offer it may be referred to as a counteroffer or conditional acceptance offer. For an offer to become a contract, the offeree has to unconditionally accept the offer and communication of acceptance must be made to the offeror (or his/her agent). A legally binding contract was not formed when the offeree signs. The acceptance is lacking communication. An option is a specialized contract where a buyer has a contractual right to buy, or choose not to buy, at a future date. NOTE: The exam can use conditional acceptance offer or counteroffer.

The best definition for the term fiduciary is a(an)... A. legal relationship where the parties are owed only honesty, fairness and disclosure. B. legal relationship built on trust, where an agent puts the interest of the principal first. C. written agreement between the buyer and seller to pay real estate commission. D. oral agreement between the buyer and seller to pay real estate commission.

B. legal relationship built on trust, where an agent puts the interest of the principal first. Explanation A fiduciary relationship forms when a broker is hired to represent a principal/client. The agent must put the interest of the principal/client above all others. It is a relationship built on trust where the agent owes obedience, loyalty, disclosure, confidentiality, accounting and reasonable skill/care/diligence. The listing agreement or the buyer's agency agreement outlines compensation. Never include compensation a contract or agreement between the buyer and seller.

Buyers who finance a purchase with a purchase money mortgage receive which kind of title at closing? A. neither legal nor equitable title B. legal title C. both legal and equitable title D. equitable title

B. legal title Explanation A purchase money mortgage is one type of seller financing where the seller functions similar to how a lending institution would. Title to the property is transferred at closing. Equitable title refers to borrowers being allowed to possess or occupy property which is pledged as collateral for debt while legal title is held by someone else. Borrowers do receive legal title with purchase money mortgages.

A buyer and a seller each believe the other has breached the offer to purchase and contract. Which of the following could be a remedy available for breach? A. summary ejectment B. liquidated damages C. assignment D. negotiations

B. liquidated damages Explanation Liquidated damages and suing for specific performance are remedies available to breach in sales transactions. Liquidated damages are defined in the contract. Compensatory/actual damages are paid to make a party whole to cover expenses. Assignment is changing the parties to a contract with intent to continue with the existing contract. Summary ejectment is not a remedy in sales but it is a remedy in lessor/lessee situations. Negotiations are part of the offer phase, not the contract phase of a transaction.

A condominium is best defined as... A. ownership of a property by purchasing a share of stock and receipt of a lease. B. ownership of the airspace of the unit and co-ownership of the common area. C. ownership of the unit itself as well as the land that it rests upon. D. ownership of an interval unit for at least 5 years.

B. ownership of the airspace of the unit and co-ownership of the common area. Explanation Condo ownership typically occurs in a vertically stacked building where the owner obtains title to the airspace of the unit itself as well as co-ownership of the common areas. When a townhouse is purchased, you typically own the unit itself as well as the land it rests upon, with an HOA owning the common areas. A timeshare is defined as interval ownership of at least 5 non-consecutive periods, over at least 5 years, where the buyer has 5 days to cancel the purchase and the developer must keep sales funds in an escrow account for 10 days unless the buyer terminates.

When calculating the capital gain or loss on the sale of a property, the amount realized is: A. the difference between the purchase price and the capital improvements. B. the difference between the sales price and allowable closing costs. C. the difference between the amount the property sold for and the amount paid. D. the difference between the assessed value and the tax value.

B. the difference between the sales price and allowable closing costs. Explanation The amount realized is the sales price of the property less allowable closing costs. Adjusted basis is calculated by taking the purchase price and adding capital improvements and allowable closing costs. The calculation of gain or loss is calculated by taking the amount realized and subtracting adjusted basis. NOTE: The purchase price may also be referred to as BASIS.

A neighborhood is subject to restrictive covenants. The HOA has not enforced the covenants for over 3 years. The HOA can no longer enforce the covenants : A. through escheats. B. through laches. C. due to the Connor Act. D. due to the Statute of Frauds.

B. through laches. Explanation The loss of the right to enforce covenants is known as laches. Escheats occurs when someone dies with a will (intestate) and have no heirs which causes the property to fall back to the state. The Statute of Frauds requires certain contracts, such as real estate contracts, to be in writing in order to be enforceable. The Connor Act requires a deed to be recorded to protect against transfers to 3rd parties.

Sophie is trying to calculate the amount she would save in monthly payment by choosing a 30-year loan versus a 15-year loan. The purchase price is $380,000 with 90% LTV conventional loan. The 15-year loan is at a rate of 5.5% and the 30-year loan is at a rate of 6%. Using the amortization chart, what is the difference in monthly payment? AMORTIZATION CHART: Loan Term 15-Years 25-Years 30-Years Interest Rate: 5 7.91 5.85 5.37 5 1/2 8.18 6.15 5.68 6 8.44 6.44 6.00 6 1/2 8.71 6.75 6.32 A. $420.66 B. $467.40 C. $745.56 D. $961.02

C. $745.56 Explanation Loan Amount: $380,000 X 90% = $342,000. Using the amortization chart a 15-year mortgage at 5.5% amortizes at 8.18 and a 30-year mortgage at 6% amortized at 6.00. 15-Year Payment: $342,000 / 1,000 X 8.18 = $2,797.56 30-Year Payment: $342,000 / 1,000 X 6.00 = $2,052 Payment Difference: $2,797.56 - $2,052 = $745.56

A lender charged a borrower an origination fee of 1%. The borrower opted to pay two discount points to reduce the overall interest to 5.75% on her $368,000 loan. What is the yield to the lender? A. 0.0575% B. 5.875% C. 6% D. 0.06125%

C. 6% Explanation The yield on a loan is the profit generated from the interest rate and discount points paid. The origination fee must be ignored in this case. Each discount point purchased reduces the rate by 1/8th of a percent. Two discount points reduce the interest rate by 1/4. Add the 5.75% interest rate plus the 0.25% in discount points for a total of yield of 6%. Origination fees cover the lender costs for originating the loan. Discount points are prepaid interest that lowers the stated rate on the loan, thus lowering the borrower's monthly payments.

Which act requires that lending institutions use credit information only for the purpose for which it was obtained, provides a mechanism for dispute resolution of inaccurate information? A. Truth in Lending B. Equal Credit Opportunity Act C. Fair Credit reporting Act D. RESPA

C. Fair Credit reporting Act Explanation Fair credit report protects consumers in the ways mentioned in the question as well as a list of other consumer protections aimed at protecting the consumers' credit profile. Equal Opportunity Credit Act protects against discrimination of certain protected classes of persons in providing credit. Truth in Lending requires that lenders disclose the true cost of a consumer loan. RESPA requires disclosure of cost associated with the closing process and eliminates kickbacks between settlement service providers.

Which of the following is true regarding a Contract for Deed? A. It is a type of seller financing which gives the seller the right to foreclose in the event of nonpayment and pursue a deficiency judgment, when necessary B. It is often referred to as an Option Contract C. It is both a contract to convey real property as well as a financing instrument D. The seller conveys legal title at the time of closing and puts a lien on the property in the event of nonpayment

C. It is both a contract to convey real property as well as a financing instrument Explanation The contract for deed, also known as Installment Land Contract, is a type of seller financing in which the seller holds legal title until s/he is paid in full. The contract serves as both a conveyance instrument and a financing instrument. Option contracts tie up a property for a period of time in exchange for an option fee, while the buyer determines whether or not to purchase the property. A purchase money mortgage is a type of seller financing where the seller conveys legal title but then puts a lien on the property. Seller financiers cannot generally sue for deficiency judgments.

A buyer is interested in purchasing a tenant-occupied rental property. After reviewing the property, the buyer asks the seller if the refrigerator can be included in the sale. The seller verbally agrees. Will the buyer acquire the refrigerator as part of the transaction? A. Yes, because it is a rented property all personal property conveys with the sale. B. No, because personal property may not be conveyed in an investment property conveyance. C. No, because the refrigerator was not included in the offer to purchase and contract. D. Yes, because the seller agreed to convey the refrigerator.

C. No, because the refrigerator was not included in the offer to purchase and contract. Explanation The obligations between the buyer and seller are referenced in the WRITTEN offer to purchase and contract. Verbal agreements are not enforceable as the contract is the final expression between the 2 parties. Regardless of the type of sale, investment or owner-occupied, a buyer and seller can agree to transfer personal property or not. This question may cause confusion as it does not state if the tenant or the seller owns the refrigerator. The seller may not be entitled to transfer the property as he/she does not own it.

A couple separates and the divorce will finalize in six months. The couple would like to resolve the interest in the marital home by conveying the property to the wife. Which deed would most likely be used to accomplish this? A. Trustee's Deed B. Limited warranty deed C. Nonwarranty Deed D. Special Purpose Deed

C. Nonwarranty Deed Explanation Nonwarranty deeds are often referred to as "Quitclaim" deeds and would be the most likely solution for this case. Trustee's deeds are often used to convey foreclosures as it is the trustee who is delivering the deed, for the lender, not the actual title holder. Special warranty deeds are often used in commercial transactions or sale of "real estate owned" by the bank, where the title owner. Special or limited warranty deeds warrant only the period of time that they have owned the property. Special purpose deeds are often used when a property is being transferred by a public official performing a function of the office; for example a Sheriff's Deed.

Which of the following statements regarding environmental concerns is TRUE? A. Radon is detected by its distinct orange aroma. B. The only way to reduce lead-based paint risk is to remove it from the property. C. Polychlorinated biphenyls are associated with electrical equipment and are a known carcinogen. D.. Asbestos has been linked to neurological issues when the particles become airborne and enter the lungs.

C. Polychlorinated biphenyls are associated with electrical equipment and are a known carcinogen. Explanation Polychlorinated biphenyls were used as coolants in electrical equipment and are a probable carcinogen. Radon is an odorless, colorless gas that is the second leading cause of lung cancer and is considered a danger when it is above 4.0 pico cures per liter of air by the EPA. Lead based paint may be encapsulated to reduce the risks associated with lead exposure, which may cause neurological damage and organ failure. Asbestos was used in popcorn ceilings, ceiling tiles, floor tiles, siding and insulation. Exposure to friable asbestos increases the risk of lung cancer or mesothelioma.

In the event a property is sold at auction due to a foreclosure, and assuming all of the following are liens on the property, which will be paid second out of the auction proceeds? A. First Mortgage B. Excise tax C. Public special assessments D. Real property taxes

C. Public special assessments Explanation Special assessments would be paid immediately after real property taxes, as they have precedence over other recorded liens. Excise taxes are paid by the seller when the property is sold. A first mortgage does not always have priority over recorded liens, as it depends on the order of recordation.

Bob is building a home and closes on a construction loan with Speedy Close Bank. The lender will be providing temporary financing, thus requiring Bob to refinance into a more permanent loan. Which of the following best describes the new loan? A. Wraparound B. Balloon C. Take Out Commitment D. Acceleration

C. Take Out Commitment Explanation A construction loan is traditionally temporary financing, which is typically an interest only or straight mortgage. A balloon loan is commonly a partially amortizing mortgage that requires a large payment at the end of the loan term, to repay the bank. A wraparound mortgage occurs when there are two loans against the house, however the borrower is making one payment. The one payment pays the required payment on both loans. Acceleration occurs when a borrower defaults on the mortgage and the lender is calling the full amount owed as due and payable.

Typically, an agent working with a buyer or seller works under a special agency relationship. Which of the following is most descriptive of special agency? A. The agent is given broad authority, including the ability to contract on behalf of the client, within a specific area of the clients business. B. The agent is authorized to act in all capacities for the client, including making and accepting offers on behalf of the client. C. The agent performs one well-defined task such as marketing and managing the purchase or sale of a property. D. The agent owes duties only to his/her client, thereby having no responsibility to the other party.

C. The agent performs one well-defined task such as marketing and managing the purchase or sale of a property. Explanation Special agency allows the agent to perform one well-defined task. Full discretionary authority is more indicative of Universal Agency and broad discretion within one specific area is general agency. Agents have a primary duty to the client but still have obligations to third parties such as fairness, competency, and material facts.

A buyer enters a contract for a home that has been inherited by a 16-year-old, who is now the sole owner. Which of the following is TRUE regarding this contract? A. The contract will be void and either party can terminate without penalty. B. The contract is valid and there will be damages if either party terminates. C. The contract will be voidable at the discretion of the seller. D. This contract is invalid and can not be completed.

C. The contract will be voidable at the discretion of the seller. Explanation This contract can be voided at the discretion of the seller until he/she reaches the age of majority. The seller in this instance is a minor and a minor can terminate a contract event after closing has occurred.Interestingly, the buyer, in this case, is bound by the terms of the agreement and cannot unilaterally terminate. This contract is neither valid nor invalid, i.e., it can be completed but the seller cannot be compelled to sell.

Timothy entered into a buyer agency agreement with Kenneth to find a suitable property for a business. Kenneth performed a search for property and identified a property listed by an agent not affiliated with his firm. Kenneth prepares an offer to purchase which Timothy signs. Kenneth sends the offer to the listing agent. The listing agent meets with the seller who promptly signs and accepts the offer. The listing agent then emails Kenneth, stating "we are under contract". Kenneth calls Timothy with the good news about the contract. Has a legally binding contract been formed? A. No. A legally binding contract cannot be formed through electronic means unless both parties sign the UETA disclosure agreement. B. Yes. A legally binding contract formed once Timothy was informed of the sellers signing and acceptance C. Yes. A legally binding contract formed once Kenneth was informed of the seller's signing and acceptance. D. No. A legally binding contract formed when the signed contract is delivered to the buyer or buyer's agent.

C. Yes. A legally binding contract formed once Kenneth was informed of the seller's signing and acceptance. Explanation To form a legally binding contract there must be an offer, unconditional acceptance and communication made back to the offering party. Only communication of acceptance is required, not the delivery of the signed contract. UETA (Uniform Electronic Transaction Act) states that digital signatures are just as binding as wet pen signatures. While a client should consent to use electronic means and can refuse to transact electronically, there are no requirements to sign a disclosure agreement.

A buyer with the assistance of a buyer's agent emailed an offer to a listing agent who faxed the file to the seller. The seller printed out the paper and signed in pen then mailed the accepted purchase agreement in the nearest blue USPS box to the listing agent. Once received, the buyer coincidentally called the buyer's agent to say she changed her mind and instructed the agent to withdraw the offer. Can the buyer rescind at this time? A. No. A contract was formed once the accepted purchase agreement was dropped into the mail. B. Yes. No contract was formed since the seller failed to personally communicate acceptance to the buyer or buyer's agent. C. Yes. No contract was formed since the seller and the listing agent failed to communicate acceptance to the buyer or the buyer's agent. D. No. A contract was formed once the accepted purchase agreement was received after being mailed.

C. Yes. No contract was formed since the seller and the listing agent failed to communicate acceptance to the buyer or the buyer's agent. Explanation Approved methods for communicating acceptance include personal delivery, phone calls, voicemail, traditional or special mail, fax, telegram, and similar. It is acceptable to inform the client or the client's agent when communicating acceptance. In this scenario, the seller used traditional mail to get the purchase agreement back to his agent. Communication did not occur between offeree and offeror. The mailbox rule applies to contract formation if the offeree mails forms to the offeror.

A firm is acting as subagent to the seller in a transaction. An agent of the firm showed the property to a buyer that disclosed they would pay more than the list price of the home. The agent of the firm did not disclose this information to the seller. Has the agent violated his fiduciary responsibility to the seller? A. No. The agent represents the buyer and therefore must conceal the personal information. B. Yes. A listing broker always has a duty to disclose personal information learned about a buyer. C. Yes. The agent has a duty to disclose the information to the seller as he is acting as subagent to the seller. E. No. A listing broker cannot disclose price or other material terms contained in a buyer's offer.

C. Yes. The agent has a duty to disclose the information to the seller as he is acting as subagent to the seller. Explanation When a firm and its agents are acting as subagent to the seller all fiduciary duties are owed to the seller. The firm and agents must disclose information that is learned about the buyer even if it weakens the buyer's bargaining position. The broker must conceal information about the seller unless it rises to the level of material fact.

What duty does a principal owe to the agent? A. disclose all relevant information to the customer B. loyalty C. act in good faith D. disclose all defects

C. act in good faith Explanation Principals owe their agents cooperation, payment when earned, and otherwise acting in good faith, such as providing necessary documents and reasonable access to the property.

The Do Not Call registry permits real estate agents to call which of the following groups? A. a past client from 24 months ago B. a random online lead from 18 months ago C. friends and family D. a FSBO you did not expressly receive permission to call however their phone number is on their For Sale yard sign

C. friends and family Explanation Even if your family and friends are on the DNC you are permitted to call them. Do-Not-Call regulations allow you to call someone on the list if you had a business relationship within the past 18 months and calling online leads who initiate contact is permissible for 3 months. Political surveyors are exempt from DNC regulations.

A fixed-rate loan most likely is which of the following? A. negatively amortized B. sometimes amortized C. fully amortized D. partially amortized

C. fully amortized Explanation A common characteristic of fixed-rate loans is full amortization so when final payment is made the remaining balance is $0. A partially or negatively amortized loan will have a lump sum remaining after the final payment is made, which is often associated with adjustable-rate loans or construction loans.

A buyer is purchasing a home that is subject to a lease agreement. Unless the lease contained language to the contrary, the sale of the leased property will result in: A. the lease agreement being terminated. B. the lease agreement being renegotiated to remain binding. C. the lease agreement being enforceable against the buyer. D. the lease agreement being voidable on behalf of the buyer.

C. the lease agreement being enforceable against the buyer. Explanation The lease agreement will run with the land and is binding against a new owner unless the lease agreement states otherwise. The sale of a property that is subject to a lease agreement does not impact the lease, therefore it is not terminated. The new owner and tenant would not be obligated to renegotiate the agreement.

Which of the following statements is FALSE with regard to an estate in real property? A. A tenant has an estate in real property when he/she enters into a lease agreement. B. An individual may have an estate in real property even if they do not currently have possession of it. C. An estate refers to an interest in property that may be possessory now or at some time in the future. D. An estate is an interest in property that denotes inheritability.

D. An estate is an interest in property that denotes inheritability. Explanation Estates are not always inheritable; the "fee" estates are inheritable encumbrance against the property. The estate is best defined as an interest in real property now or some time in the future. A tenant has a leasehold estate in real property when they enter a lease and the landlord has a leased fee interest.

The calculation of the probable sale price of a property performed by a licensed real estate agent for a bank is best known as a(an): A. Comparative Market Analysis. B. Property Valuation. C. Appraisal. D. Broker Price Opinion.

D. Broker Price Opinion. Explanation A broker price opinion (BPO) is typically prepared for a lender before listing a foreclosed property for sale or before a lender decidies to consent to a short sale. Property valuation and appraisals are performed by licensed appraisers where the appraiser determines an estimate of market value for that given date. A CMA is prepared for a buyer or seller that is represented by a real estate agent prior to listing a property for sale or making an offer to purchase. A BPO is commonly prepared for a bank. The work product of a CMA & BPO are essentially the same.

Building codes have been established to create minimum construction standards to assure the safety of the building's occupants. Which of the following statements is CORRECT regarding building codes? A. Building codes are not permissible. Enforcement of construction is done through zoning. B. Building codes are created and enforced at the local level. C. Building codes are created at the local level but enforced by the state. D. Building codes are created at the state level but enforced at the local level.

D. Building codes are created at the state level but enforced at the local level. Explanation Building codes are created at the state level and are typically enforced locally. Counties can enact additional rules through the zoning process.

A broker representing a landlord represents the owner under: A. Implied Agency. B. Special Agency. C. Universal Agency. D. General Agency.

D. General Agency. Explanation The property manager can bind the owner to lease agreements and therefore practices General Agency. The broker has authority to perform certain defined tasks but cannot make all decisions about the property. Special agency does not permit any decision making or signing authority - gather the information and present to the client so the client can decide. Universal agency occurs with power of attorney or attorney in fact. Implied agency is based out of custom versus a specific agreement (when 2 brokerages cooperate in a real estate transaction).

An appurtenance is an item or a right said to "run with the land." Which of the following is an example of an intangible appurtenance? A. fence B. trees C. neighbor's encroaching driveway D. HOA covenants

D. HOA covenants Explanation All of these are examples of appurtenances; however the trees, fence, and encroaching driveway are tangible. They can be seen and touched. The HOA covenants are things that cannot be seen such as height or material restrictions. HOA's may restrict the owners' use of the property, by limiting paint colors, number of cars that can be parked in the driveway, permitted mailbox, etc.

Which of the following statements would constitute a "trigger term" under truth in lending Regulation Z? A. Homeowner association dues of $75 per month B. Great loan program for veterans! Call for details C. FHA financing available at great rates! D. Purchase this lovely home with only $5,000 down and payments of $1,200 per month

D. Purchase this lovely home with only $5,000 down and payments of $1,200 per month Explanation Only the answer provides specific finance terms that would trigger the disclosure of the material terms of the loan. The others are too vague or not loan terms. Trigger terms for Regulation Z are more commonly down payment, monthly payment and interest rate. When triggered disclosure of the amount borrowed, APR, number of payments, etc. are required.NOTE: APR is not a trigger in an advertisement. If the advertisement triggers Regulation Z disclosures, then APR would have to be disclosed.

At the settlement meeting a buyer asks his broker about the deductibility of certain closing expenses on his/her income tax return. Which of the following statements is TRUE? A. The broker cannot answer the question at this time without obtaining further financial details from the buyer. B. The broker should ask the attorney to answer the questions as this is a matter of law. C. The buyer should itemize rather than using the standard deduction as interest expense is tax deductible. D. The buyer should seek accounting advice from a licensed professional.

D. The buyer should seek accounting advice from a licensed professional. Explanation Unless a broker is alos a CPA, he/she should refrain from giving tax advice to his/her client. The best course of action is to advise the buyer to discuss tax issues with a tax professional. Not all buyers will benefit from the mortgage interest deduction when the amount of interest, property taxes and other itemized deductions do not exceed the standard deduction.

A veteran uses a VA loan for the purpose of purchasing his first home. When the appraisal is completed, it is determined that the appraised value is less than the sale price. Which of the following would be a viable option at this point? A. The buyer veteran may continue with the transaction by applying for a VA supplemental loan for the difference between the sale price and the appraisal. B. The buyer veteran can terminate the contract and have his earnest money and inspection costs refunded. C. The buyer veteran may terminate the contract but he will forfeit his earnest money as liquidated damages. D. The buyer veteran may terminate and have his earnest money returned.

D. The buyer veteran may terminate and have his earnest money returned. Explanation The VA CRV (certificate of reasonable value) gives the veteran the ability to terminate the contract if the house does not appraise and receive his EM back. The veteran would not be entitled to receive back the costs of tests or inspections or due diligence fees. There is not a VA supplemental for this. If a veteran wants to pay above the CRV, it would come from his/her pocket.

An exclusive buyers agent represents a buyer through ABC Realty, Inc. The buyer and her agent walk through the property but fail to note the efflorescence or white mineral build-up that indicates standing water on the foundation block. The listing agent failed to disclose this issue on the MLS or in other print media. Which of the following statements is TRUE? A. The listing agent is guilty of willful omission. B. The buyer's agent is guilty of willful misrepresentation. C. The buyer's agent is guilty of negligent omission. D. The listing agent and buyer's agent are not responsible as the buyer toured the property.

D. The listing agent and buyer's agent are not responsible as the buyer toured the property. Explanation It is important to note that the listing agent and buyer's agent are both guilty of negligent omission. Licensed real estate agents are responsible for disclosing what they know or what they reasonably should have known as they are supposed to possess reasonable skill, care and diligence. Willful vs negligent comes down to intent. Since the listing agent or buyer's agent were not intentionally lying or withholding material facts, it would be negligent. Misrepresentation vs omission comes down to whether something was said either in print or orally or whether nothing was said. In this instance, both the listing agent and buyer's agent failed to disclose so it would be omission.

A listing agent presented an offer to their seller client. The offer was low and the seller requested time to think about it. The next morning, the agent called the seller to notify him that another offer would be coming within the next week. The seller told his agent to notify the buyer who had made the low offer that the seller was rejecting the offer. In this case, which of the following is a correct statement regarding the listing agent's actions? A. Per the Statute of Frauds, all offers for real property must be in writing. The agent should not have presented the second offer until it was reduced to writing. B. The listing agent failed in their duties because they should have encouraged the seller to make a counter-offer and not to reject the offer. C. The listing agent may only present actual offers to sellers. Since the second offer may fail to materialize, the agent failed in their fiduciary duties by steering the seller to a non-existent offer. D. The listing agent fulfilled their fiduciary duties because even though the second offer had not been received the agent was obligated to notify the seller of the possibility of the second offer.

D. The listing agent fulfilled their fiduciary duties because even though the second offer had not been received the agent was obligated to notify the seller of the possibility of the second offer. Explanation Agents are responsible for keeping their clients fully informed. Therefore, the agent was correct in disclosing that a second offer was likely to materialize. While the Statute of Frauds does require contracts to be in writing to be enforceable, a verbal offer must be communicated to the seller.

Which of the following would not be included in a basic definition of real property? A. Rights and Privileges associated with the property B. Land C. A split-rail fence around a cow pasture D. The refrigerator in the kitchen

D. The refrigerator in the kitchen Explanation The refrigerator would not be considered real property as refrigerators are rarely "built-in" to the real property. Land is specifically defined as real property. Rights and privileges that "run with the land" are known as appurtenances and are considered real property. A split rail fence, although not physically "attached" to the land are considered real property because of their seemingly permanent nature as a barrier

When lenders determine the amount of loan they are willing to provide, they must consider the property's value compared to how much loan a borrower is seeking. Which of the following determines the property's value? A. contract or sales price B. contract price or appraised value, whichever is higher C. appraised value D. contract price or appraised value, whichever is lower

D. contract price or appraised value, whichever is lower Explanation Both the sales price and the appraised value are compared. The lower, not the higher, of the two values is used by the lender when calculating the loan-to-value ratio (LTV). Sometimes the lower number is the sales price, but other times the lower number is the appraised value. Lenders choose the lower value to reduce the risk of a borrower defaulting and to make the loan product a better or safer business endeavor for the bank.

A buyer is diagnosed with dementia, and the court appoints a guardian to handle his affairs. The buyer subsequently personally signs a contract to purchase real property. The guardian seeks to have the contract declared void. The courts will most likely: A. declare the contract as voidable since the buyer is incompetent. B. declare the contract void and assess damages to be paid by the buyer. C. declare the contract void and require the buyer to pay brokerage commission. D. declare the contract void since the buyer is incompetent.

D. declare the contract void since the buyer is incompetent. Explanation A buyer that has been declared incompetent lacks the capacity to enter into a valid and enforceable contract. The courts will likely declare the contract void. Since the contract is void, the seller would not be entitled to damages nor the broker entitled to receive compensation.

What legal right does a lender have in a short sale situation? A. begin foreclosure proceedings B. sell or assign the remaining mortgage C. seek a deficiency judgment D. deny the sale of the property

D. deny the sale of the property Explanation A short sale and foreclosure situation are different. The lenders' legal rights in a short sale include denial of the sale or accepting a different buyer's offer while under contract. Remember, in a short sale, all lien holders must give permission for the sale to occur. A lender's legal rights in the promissory note include selling the mortgage, beginning the foreclosure process, and seeking a deficiency judgment.

A seller hired a listing firm to market his home for a quick sale. The firm agreed to accept $10,000 in payment no matter what. This form of compensation is best described as which of the following? A. net amount B. success fee C. retainer fee D. flat fee

D. flat fee Explanation Brokerage fees can be calculated as a commission or percentage of the gross sales price, a flat fee such as the specific sum of $10,000 described in the problem. A brokerage could agree to compensation where they keep the amount over what the seller desires to net as compensation, which describes a specific type of listing agreement known as a net listing. In the latter, the seller only seeks X amount of money and if anything more comes into the transaction then it all goes to the listing firm. Conversely, if nothing over X comes into the transaction the listing firm sees no payment. Success fees and retainer fees are compensation associated with buyer agency agreements. Typically retainers are paid up front and success fees are paid at closing.

A borrower takes out a loan whose required payments do not impact the principal balance. This is known as a/an: A. variable rate loan. B. open-ended loan. C. fully amortizing loan. D. term loan.

D. term loan. Explanation A term, straight or interest-only loan requires payment of only the interest each month. No payments are made against the principle balance. A variable rate loan, or adjustable rate mortgage, contains an escalation clause, which allows the lender to increase or decrease the interest rate based upon changes in the benchmark rate. A fully amortizing loan means that the principal balance will be fully paid at the conclusion of the mortgage. An open-ended loan is a line-of-credit that allows a borrower to take on additional debt up to a maximum amount set by the lender.

A recent ad stated a 4 bedroom, 3 bathroom home listed for $288,000 is available for as low as 5.2% APR with nominal monthly payments over a typical term as long as a potential buyer pays an application fee within the next 48 hours. What trigger term was used in this ad? A. 5.2% APR B. 48 hours C. $288,000 price D. no trigger terms were used

Explanation Regulation Z is a component of the Truth in Lending Act (TILA). Trigger terms include specifically, with numbers, advertising the monthly payment, down payment, term, and dollar amount of the finance charge. Vague phrases do not trigger the need to disclose more conditions under Regulation Z. APR is not considered a trigger term.