Exam Review PSI

Which of the following would be a description used for real property and a fixture?

"In-ground" is a word used to describe an improvement that's permanently affixed to the property.

A borrower has a 30-year, $500,000 loan with an interest rate of 6.25%. His monthly principal and interest payment is $3,078.59. What's the total amount he'll pay over the life of the loan?

$1,108,292.40 To find the total amount paid back, multiply the monthly payment by the total number of payments: $3,078.59 x 360 = $1,108,292.40.

Your clients are purchasing a $160,000 home. If they have a down payment of 25% and the bank charges two points at closing, how much are they paying in points?

$2,400 $160,000 x .75 = $120,000 (the loan amount after their 25% down payment). Take $120,000 ÷ 1 (point) = $1,200. 2 points then would be $1,200 x 2 = $2,400.

A buyer has a 30-year, $400,000 loan with a 7% interest rate. How much of the first month's mortgage payment is interest?

$400,000 × 0.07 = $28,000; then $28,000 ÷ 12 = $2,333.33

Bob and Mary are financing $180,500 for a new home. Their lender will approve an interest rate of 5% if Bob and Mary pay two discount points at closing. How much will this cost them?

A discount point is 1% of the loan amount. Bob and Mary are paying two points (or 2% of $180,500), which is $3,610.

Which of the following is an example of constructive eviction?

A tenant moves out of the apartment after repeated unsuccessful requests to the landlord to repair the broken water heater. A constructive eviction occurs if a tenant vacates the property because the landlord has failed to uphold the warranty of habitability.

Your brokerage firm uses pre-printed sales contract forms, but your seller, Marcus, wants to add some language about staying in the house and renting from the buyer for a month after closing. What should you use to add this information?

Addendum An addendum is a separate page added to a complete contract and becomes part of the original agreement.

Carlson presents a real estate purchase contract to his clients. Along with the contract are several supplemental documents attached to it. What are these called?

Addendums

Harold's clients signed the real-estate contract a couple of days ago, but the seller wishes to change the amount they are going to contribute to closing. What type of contract addition will likely be used to convey the change?

Amendment An amendment is a modification made later to the terms of an already-accepted, or ratified, contract.

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

Arbitration Warranties will detail the course of action if a claim is disputed. Most often, mediation occurs first, then arbitration. The arbitration decision is generally binding and final. The disputed claim process seeks to avoid or limit litigation.

Amy is purchasing a $500,000 property, financing $400,000. Assuming a mortgag

At a rate of $0.115 per $100, the tax amount is $460. Remember, this tax only applies to the financed amount, not the sales price.

In the sales comparison approach, using comparables that are five and 15 years old when appraising a subject that is 10 years old is an example of what?

Bracketing Bracketing is a process in which an appraiser determines a probable range of values for a property by comparing a group of comparable sales to the subject.

You represent a buyer in a transaction that includes a 2% cooperating agent commission to be paid by the seller. Who's your client?

Buyer You represent the buyer, which makes the buyer your client. Compensation doesn't determine agency

Which of the following is an example of an escalator offer?

Buyer offers $650,000 with clause that buyer will beat all competing offers by $3,000 up to $675,000.

Ezra's listing sold for $100,000. His commission rate was 4%, and the property appraised at $95,000. What's Ezra's commission before splits or sharing with the cooperating agent?

Commissions are based on sales price, not appraised value or list price, and 4% of $100,000 is $4,000.

Don and Becky realized too late that the contract they signed for the sale of their home didn't include any language about a rent-back if the home they're building isn't ready in time. What can their listing agent do?

Create a contract amendment with the required language. Once a contract is signed, the document to use to alter the terms is a contract amendment

Which one of the following actions is a licensee required to take to fulfill a fiduciary duty?

Disclose personal interest and licensed status when buying property for personal use. The fiduciary duty of disclosure requires that licensees disclose any conflict of interest

Gerard has been offered a 4% interest rate on a $300,000 mortgage. His monthly mortgage payment would run about $950 per month. He plans to pay $2,000 up front to drop his interest rate to 3.75% and his payment to $920 per month. What is this upfront charge called?

Discount point A discount point is an up front charge to make up for the difference between the rate the borrower is receiving and the rate the lender normally requires.

You represent the buyer, and another licensee from your brokerage represents the seller in the same transaction. What type of agency relationship do you and the other licensee have with your clients?

Dual-license dual agency You and the other licensee from your firm are in a dual-licensee dual agency relationship. The broker is the dual agent and has designated you to represent the buyer and the other licensee to represent the seller.

Which of the following properties requires a lead disclosure?

Duplex built in 1959

Your buyer clients, the Thompsons, told you about a problem they ran into with the lender that handled their mortgage. The Thompsons, who are African American, were given less favorable loan terms than a white couple they know who used the same lender. You know the Thompsons have excellent credit. Which act should you make them aware of?

Equal Credit Opportunity Act The Equal Credit Opportunity Act lists protected classes against which lenders may not discriminate when making credit available. You should be aware of the rules and notify your clients if the rules have possibly been broken.

Commander Halfback retires after 25 years of service in the Coast Guard. He is looking to buy a home. What type of loan should he use?

FHA, VA, or conventional The fact he was in the military doesn't mean he has to take a VA loan. There isn't enough information to determine the best loan, so at this point all loans mentioned are viable options to consider.

Jerome is developing an ad for three properties he has listed in an upscale community. He wants to keep it short and simple. Which of these would NOT trigger full disclosure under TILA?

Get a low 4.925% APR An ad can show the APR without disclosing all the other credit terms. But if certain other "trigger" terms are included, such as down payment, payment amount, number of payments, or interest rate (other than APR), this would require full disclosure.

Two essential elements of a deed are the ______.

Grantor's signature and conveyance clause Only the grantor's signature is required, not the grantee's. The habendum clause is required only if the deed is conveying less than a fee simple estate.

What does the income approach to value rely on when valuing properties that are five or more units?

Gross income multiplier For five or more units, the gross income multiplier (GIM) would be used for the appraised value.

Which clause in a contract states that one or more parties won't be held liable if there are losses or expenses related to the contract?

Indemnification clause An indemnification clause is a contractual shift of liability and obligations off of a given party.

Which one of the following options best describes the purpose of a sales contract?

It identifies the terms of a real estate sale between the seller and the buyer.

A buyer is purchasing a home for $400,000 and is financing $300,000. What is the loan-to-value ratio?

It's 75%. We get this by dividing $300,000 by $400,000 and multiplying by 100.

Joyce just closed on a condo for $366,900 and put down 20% to obtain an 80% loan and avoid having to pay for private mortgage insurance. How much equity does she have in her condo?

Joyce's equity is $73,380. The value of her condo is $366,900. She put $73,380 down ($366,900 x . 20). Because she just closed, her equity is exactly the same as her down payment.

Putting clients' interests ahead of all others describes which fiduciary duty?

Loyalty This is a description of the fiduciary duty of loyalty

Which of these is an example of conversion of funds?

Monica used funds from the firm's trust account to pay her firm's rent. Conversion means that a licensee or brokerage firm uses trust funds for personal or operating purposes.

During a site evaluation to determine property value, all of the following factors are important to consider EXCEPT ______.

Neighborhood demographics Topography, utilities, and a property's size and shape all are considered during a site visit to determine property value. Neighborhood demographics might be of interest to the buyer, but generally won't be considered by an appraiser.

Carrying out a client's instructions describes the duty of ______.

Obedience Carrying out a client's legal instructions is the duty of obedience. You shouldn't blindly follow these instructions, however. If the instruction may have a negative impact on the transaction, discuss it with your client

Kendra made an offer on Sam's property. Sam rejected Kendra's offer, but made a counteroffer. Kendra is now considering the counter. What role does Kendra currently have in this scenario?

Oferee The seller considering a buyer's offer is an offeree, but if that seller makes a counter-offer, then the seller becomes the offeror and the buyer becomes an offeree.

Under which types of agency agreement may a buyer and agent operate?

Open, exclusive right to represent, and exclusive agency

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

Performance must take place within a "reasonable time."

Rohit bought 31 acres of undeveloped and mostly forested land. He is planning a weekend with friends where they'll camp on the property while scouting good locations to place a cabin. Which right in the bundle of rights allows Rohit to do the camping weekend on undeveloped land?

Possession A property owner's right of possession gives that person the right to occupy the property, whether developed or undeveloped.

Trina is a licensee at Midtown Homes. Which of these factors indicates that she's classified as an employee?

She's eligible to participate in the firms 401k retirement plan. The one factor that applies only to employees is Marge's eligibility to participate in the firm's 401k retirement plan.

Examples of real property and fixtures include which of the following?

Shelves attached with brackets could be considered real property, since they're permanently affixed to the wall.

The appraisal report submitted to Jenkins, the lender, notes that the property is being conveyed with all property rights intact. Which step in the appraisal process does this represent?

State the problem. The first step in the appraisal process is to state the problem. This includes a description of the rights associated with the property

Latrell purchased an old warehouse with the intent to create shared studio space for artists. However, he didn't perform due diligence before the purchase, and it turns out that there are hazardous materials that need to be cleaned up first. Latrell took the prior owners to court, and the court ruled that Latrell is responsible for the costs of cleanup. What kind of liability is this?

Strict liability In strict liability, the owner is responsible for cleanup, regardless of who created the initial problem.

What is TRID?

TILA-RESPA Integrated Disclosures

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

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

You're explaining to your client that using electronic documents and signatures simplifies the home buying process. Your client is skeptical about these signatures. You describe the Uniform Electronic Transactions Act (UETA) and tell your client ______.

The UETA gives electronic signatures the same legal weight as "wet" signatures

Which act encompasses a series of laws intended to lay out the standardized responsibilities and rights of both tenants and landlords but isn't mandatory?

The Uniform Residential Landlord Tenant Act The URLTA encompasses a series of laws intended to lay out standardized responsibilities and rights of both tenants and landlords. Although it isn't mandatory, many states have included parts of it in their state statutes.

If a property's income value is $200,000 and it's earning a net operating income of $40,000, what is the cap rate?

The cap rate is 20%. To calculate cap rate, divide the income by the property value. The formula for this is rate = income / value.

Office space in a downtown high rise rents annually at $33.40 per square foot. Max's tenant client is interested in renting two adjacent suites: one is 7,152 s.f., and the second is 3,560 s.f. What's the monthly rental rate?

The combined monthly rental rate for the two suites is $29,815.07. The total square footage is 10,712 (7,152 + 3,560), so the annual rental amount is $357,780.80 (10,712 x $33.40). Divide that amount by 12 to get the monthly rental rate.

In a residential real estate sale involving a federally related loan, what entity is required to provide Real Estate Settlement Procedures Act disclosures to the consumer?

The consumer's lender The lender must provide the borrower with a written disclosure of the estimated and final settlement costs.

If an apartment building is valued at $970,000 and has a capitalization rate of 9%, what is the net operating income?

The formula to determine net operating income when you know capitalization rate and value is: rate × value = income (R × V = I). Remember to convert the 9% into a decimal by shifting the decimal point two places to the left: .09 × $970,000 = $87,300.

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

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

Jerry and Simon signed a contract so that Jerry could purchase all of Simon's restaurant equipment for one price after Simon closes his restaurant next month. The contract contains a provision that states Jerry has one year from the purchase date to file a suit relative to the purchase. After the year is up, Jerry forfeits the right. What kind of contract clause is this?

The statute of limitations states the time frame in which a party can file a lawsuit relative to the contrac

Why are galvanized pipes a problem in older homes?

They can rust and cause leaks and low water pressure. Galvanized pipes can be a problem if they start to rust. The rust can cause the pipe to deteriorate, causing leaks and low water pressure.

Walt and Ginger were informed by their landlord that their option to purchase the bungalow they're renting has just been terminated. Which of the following things that can occur is likely to terminate an option to purchase?

They sublet the bungalow for a month without permission. A violation of any of the lease terms could terminate the option to purchase. Of these four actions, the only one likely to violate the lease terms is subletting without permission, since most leases have a clause requiring lessor permission to sublet.

Vicky and Lee vacation in Cancun, Mexico every year. They purchased the right to stay in a beach condo for the first two weeks in May, and their agreement continues for the next 10 years. They don't actually own the unit. What did they purchase?

Timeshare use A timeshare use, also called a right-to-use timeshare, doesn't convey ownership. It's a form of lease that conveys the right to occupy the property for some given amount of time. Timeshares sold as timeshare estates, on the other hand, convey fee simple ownership. The unit is co-owned by multiple unrelated individuals who each hold a right to occupy the unit for a certain time each year.

Sylvan, the seller, and Eric, the buyer, have signed an option agreement, which is an offer to purchase a specific piece of real estate without the obligation to buy it. Until Eric exercises his option to buy, only Sylvan is bound by the option agreement; he may not sell the property to anyone else during the option period. What type of contract is this?

Unilateral A contract in which consideration is only offered by one of the parties is a unilateral contract. In other words, the consideration only goes one way

Which physical characteristic of land addresses the concept that land isn't interchangeable and one piece of land isn't exactly like another?

Uniqueness One piece of land isn't exactly like another. This is the concept of nonhomogeneity

Physical characteristics of land include its immobility, indestructibility, and ______.

Uniqueness (nonhomogeneity) Nonhomogeneity is a unique characteristic of land. Even within a single subdivision, two identically sized parcels will have their own unique characteristics: views, access, proximity to other amenities, etc

Ken signed a contract to purchase Debra's condo. Ken signed the contract two weeks prior to turning 18, which is the age of majority in his state. Debra found out about his age prior to the closing but honored the contract, and they closed on the condo a month after Ken's birthday. What was the status of the contract when Ken and Debra entered into it?

Voidable Because Ken was a minor when he entered into the contract, he had the option to cancel it (making it a voidable contract). However, the parties to a voidable contract may choose to execute it, which is what happened here.

Xavier deposited a $3,000 earnest money check into his personal account for safekeeping while he was on vacation. The balance in his account when he left on vacation was $4,200, and when he returned, it was $2,800. He withdrew enough funds from his savings account to cover the earnest money check and delivered the funds to the escrow agent. Which statement best represents Xavier's issue?

Xavier is guilty of commingling and conversion. Because Xavier's balance fell below the amount required to cover the earnest money check, he's guilty of both commingling and conversion, even though he replaced the funds.

Aldrich is conveying marketable title to a property buyer. Should he also furnish a title insurance policy?

Yes, because title defects not revealed in a title search can crop up even with marketable title. Even though marketable title carries a higher standard of assurance than insurable title, unknown defects can occur. A marketable title that carries title insurance is the safest option for buyers.