Ohio Real Estate Principles and Practices Knowledge Checks
What is an example of steering?
A property manager suggest a prospective tenant would be happier in a more diverse building.
Chapter 8
Agency Fundamentals
A licensee learns that their seller client is highly motivated and would be happy to receive an offer for much less than market value. The licensee decides to make a cash offer for the seller's list price that the seller accepts. The licensee then sells the property for market value. Which duty has the licensee breached A. Confidentiality B. disclosure C. Obedience D. no breach has occurred
B. disclosure A licensee has a duty to disclose the property's true value, and this failure to do so is a clear example of a conflict of interest. The licensee also breached the fiduciary duties of loyalty and reasonable care. The licensee's behavior is regarded as self-dealing.
Which of the following items are tax deductible?
B. interest on a home equity loan D. Mortgage interest on a vacation home E. Property taxes on a principal residence
Ch 14 Knowledge Check 24
Blanket covers more than one parcel; bridge covers a gap between mortgages; package includes real estate and personal property; reverse pays homeowners aged 62 or over out of the equity in their homes.
Who are the parties to an agreement of sale?
Buyer and seller
Knowledge Check #18 Ivan is buying Martha's property for $200,000. At settlement, she pays a 6% commission on the sale in addition to $2,500 in other settlement costs. She owes $93,000 on the existing mortgage, which is paid from the proceeds of the sale. How much will Martha receive at settlement, assuming there are no other credits or debits? A. $92,500 B. $95,000 C. $104,500 D. $185,500
Correct! The answer is A. The sales price is $200,000, which means the commission is $12,000 ($200,000 x 0.06 = $12,000). From the sales price, it's necessary to subtract Martha's debits. $200,000 - $12,000 commission - $2,500 settlement costs - $93,000 existing mortgage = $92,500 that Martha will receive at settlement.
Knowledge Check #12 An appraiser used various cost manuals as well as their experience to determine that it would cost $69 per square foot to replace the subject property. Since the property is 2,880 square feet, it would cost $198,720 to rebuild the house. To find the value of the subject property, they must also factor in A. depreciation and site value. B. depreciation and inflation. C. inflation and labor costs. D. labor costs and site value.
Correct! The answer is A. The cost approach must also account for the accrued depreciation as well as the site value.
Knowledge Check #1 Who are the parties to a management agreement? A. landlord and property manager B. tenant and landlord C. tenant and property manager D. tenant, landlord, and property manager
Correct! The answer is A. The landlord and the property manager are the parties to a property management agreement.
Knowledge Check #15 A property manager bases the operating budget on A. anticipated expenses and revenue. B. current rental rates. C. the state's landlord-tenant law. D. supply and demand in the rental market.
Correct! The answer is A. The operating budget is the property manager's projection of revenue and operating expenses for the year. This provides owners with the expected cash flow from the property.
Knowledge Check #25 The rent for each unit of a 10-unit strip mall is $1,000 per month. The annual vacancy rate averages 5% (or $6,000). The expenses for the property come to $30,000 per year with depreciation of $15,000 and debt service of $10,000. What is the net operating income? A. $49,000 B. $54,500 C. $84,000 D. $96,000
Correct! The answer is C. NOI = Annual gross income - Vacancy loss - Expenses. 10 units x $1,000 per month x 12 months in a year = $120,000 annual gross income. Subtract vacancy loss ($6,000) and expenses ($30,000) to get $84,000. Depreciation and debt service do not figure into the calculation. So once you know the NOI, what do you do with it?
Which statement about FHA-insured loans is TRUE? A. FHA defines income limits to determine who is eligible. B. FHA loans are targeted to low-income borrowers. C. FHA loans require a smaller down payment than conventional loans. D. FHA provides funds directly to borrowers. E. Only first-time homebuyers can qualify for an FHA loan.
Correct! The answer is C. Of these statements, the only factual one is that FHA-insured loans require a lower down payment than conventional loans. The qualifying standards are a bit less stringent as well. The other statements are false but represent a number of misconceptions about FHA financing.
Knowledge Check #13 A property manager working on the operating budget for next year evaluates the property and makes a note that it might be necessary to replace the furnace. This should be included in the budget as A. cosmetic maintenance. B. net operating expenses. C. reserves for replacement. D. risk management.
Correct! The answer is C. Reserves for replacement, also known as capital expenses, are funds set aside for projects such as roof repair or major systems replacements or upgrades.
Knowledge Check #14 A property manager pays for biannual inspections of the HVAC system in the building they manage. This is an example of what type of maintenance? A. corrective B. cosmetic C. preventive D. remedial
Correct! The answer is C. Routine inspections are an example of preventive maintenance.
The borrower got a fully amortized, fixed rate loan for $230,000 at an interest rate of 4.5%. After one month, the loan balance is $229,697.50. The interest payment for month 2 is $861.37. If the monthly P&I payment is fixed at $1,165, $303.63 is applied to principal. After the second month's payment, what is the balance of the loan? A. $228,532.50 B. $228,836.13 C. $229,393.87 D. $229,696.37
Correct! The answer is C. Subtract the amount applied to principal from the balance of $229,697.50 to find the new balance: $229,697.50 - $303.63 principal reduction = $229,393.87 balance after the borrower makes the second month's payment.
Knowledge Check #23 Penelope is the property manager of a four-unit apartment building. Each unit has one bedroom. Can Penelope refuse to rent one of the units to a single mother with four young children? A. No. She can never discriminate on the basis of familial status. B. No. She can never discriminate on the basis of sex. C. Yes. Penelope has a duty to keep children from disturbing her older tenants. D. Probably. It depends on the occupancy standard established for the units.
Correct! The answer is D. Penelope could refuse to rent to a single mother with four children if the established occupancy standard is exceeded, regardless of familial status.
Knowledge Check #26 The implied covenant of quiet enjoyment in a lease A. allows landlords to set limits on loud noises in the building. B. is a promise that tenants will call landlords after business hours only in the event of an emergency. C. requires tenants to get permission from neighboring tenants to play music after a certain time. D. restricts the landlord's right of entry to the property.
Correct! The answer is D. Privacy and the right of entry are part of the implied covenant of quiet enjoyment.
Knowledge Check #16 You buy a two-year-old house in a development and receive a copy of the declaration of covenants, conditions, and restrictions (CC&Rs). Five months after you move in, you start to paint your house bright purple. You receive a notice to stop. You A. can get a variance from the zoning authority to allow you to paint your house purple. B. can ignore the notice, since the CC&Rs restrict your basic bundle of rights, specifically the right of control. OC. can ignore the notice, since you are the second owner of the house. D. must comply with the CC&Rs, since it specifies what colors are appropriate for homes in the development.
Correct! The answer is D. Regardless of whether you are the second or the 200th owner, as long as the CC&Rs are in place for the development, anyone who buys a house there needs to follow the established rules of the community.
Knowledge Check #24 An investor buys a vacant lot for $64,500. They split it into two lots and sell them for $37,200 each. What is their percent of profit? A. 8.6% B. 11.5% C. 13.3% D. 15.3%
Correct! The answer is D. Remember "what you made divided by what you paid." The investor made a profit of $9,900 ($37,200 + $37,200 = $74,400; $74,400 - $64,500 = $9,900). Therefore, $9,900 / $64,500 = 0.153 or 15.3% profit.
Knowledge Check #27 Dave buys a house from Robert. Robert had filled the fuel oil tank in January at a cost of $820. When the transaction closes on September 30, the tank is 1/4 full. Determine how to prorate this item on the settlement statement. A. $615 Debit Seller / $615 Credit Buyer B. $615 Debit Seller / $205 Credit Buyer C. $205 Credit Seller / $615 Debit Buyer D. $205 Credit Seller / $205 Debit Buyer
Correct! The answer is D. Seller Robert used 75% of the fuel oil, so he's owed 25% of his cost: $820 total cost x 0.25 = $205 prorated cost. This would be a $205 credit to the seller and a $205 debit to the buyer.
Knowledge Check #20 If the subtotals on a seller's settlement statement show more charges/debits than credits, this means the A. buyer gets a refund. B. buyer has to make up the difference to close. OC. seller gets a refund. D. seller has to pay money at settlement.
Correct! The answer is D. Sometimes, the seller's obligations are greater than what they will receive from the sale of property. When that happens, the seller will have to bring money to the closing table to settle the transaction. Let's continue our look at the settlement statement as we discuss the process of prorating expenses between buyer and seller.
Knowledge Check #20 Kyle offers to buy a vacant lot from Sue for $260,000. Seller Sue accepts his offer, which does not include any contingencies. His plan is to build a car wash, but he did not mention this fact to Sue or his agent. Two weeks before the scheduled close, Kyle learns that he cannot obtain financing. This contract is A. unenforceable. B. valid. C. void. D. voidable.
The answer is B. This contract is valid. Since it was not made contingent on financing, Kyle is obligated to perform as promised in the contract. Of course, it may be impossible for Kyle to do this, so he would be in breach.
Knowledge Check #18 These statements are all potential expressions of steering EXCEPT A. "Don't you think this neighborhood is a little low-rent for you?" B. "I hope you'll like this house as it seems to have all the amenities you requested." C. "I think you'd be more comfortable in another more familiar neighborhood." D. "I think you'll be right at home here; this building is filled with elderly people."
The answer is B. This hopeful statement is perfectly acceptable. The other choices are all examples of steering.
Uniqueness and scarcity help the value of real estate because A. it's impossible to find exactly what you want in a house. B. no two properties are exactly the same. C. real estate is difficult to find. D. real estate is unlimited.
The answer is B. Uniqueness goes to the very heart of real estate ownership-no two properties are exactly alike. Scarcity means that there is a limited supply of land, thus resulting in greater value.
The term "takeout loan" is most closely associated with A. adjustable rate mortgages. B. construction loans. C. loan assumption. D. seller financing.
The answer is B. When construction is complete, the appraiser verifies that specifications have been met and the original opinion of value is valid; then the loan is replaced by a permanent amortizing loan, called a takeout loan.
Knowledge Check #6 Comp #3 has five bedrooms; the subject property has four bedrooms. The appraiser determines that a bedroom in that neighborhood is worth $7,500. What is the appropriate way to apply this information when performing the sales comparison approach to valuation? A. add $7,500 to Comp #3 value B. subtract $7,500 from Comp #3 value C. add $7,500 to the subject base D. subtract $7,500 from the subject base
The answer is B. When making adjustments, an appraiser subtracts the value of a superior feature from the comp's value.
Knowledge Check #16 The electrical outlets in a home are out of compliance. It will cost $8,000 to replace them but will have little if no effect on the value of the property. This would most likely be considered A. curable physical deterioration. B. curable functional obsolescence. C. incurable physical deterioration. D. incurable external obsolescence.
The answer is B. While the cost to bring the property up to code is not likely to be reflected in the property's value, if the repair must be affected, the repair is curable.
Hank is a dual agent, representing both buyer Jim and seller Pam in the same transaction. Hank CANNOT A. estimate the closing costs that each should expect to pay. B. make arrangements to gather documentation in preparation for settlement. C. recommend a listing price or offer price. D. perform a comparative market analysis of similar properties and present it to both.
The answer is C. Information about the terms of the transaction is off-limits to a dual agent. The other information can certainly be shared as part of a dual agent's administrative services to his clients.
A group of investors are looking for a commercial property that is approximately 8,000 square feet and provides the most possible road access. They're comparing four properties (frontage price indicated), and they can't spend more than $50,000. Which property are they most likely to buy? A. 70'x 120'/ $400 per front foot B. 80' x 100' / $600 per front foot C. 90' x 90' / $550 per front foot D. 120'x 65' / $460 per front foot
The answer is C. Property C has 8,100 square feet (90'x 90'), and its price is $49,500 (90'x $550/front foot). It would give them the most frontage for under $50,000.
A home is built on a lot where an old underground storage tank is buried. The current owner knows about the tank but has never had any problems with it. When they sell the house, the owner tells the listing agent, but neither of them mentions it to the buyer since it hasn't been an issue. Two years later, corrosion from the tank contaminates the well water on the property. Who, if anyone, can the new owner sue? A. the listing agent B. the seller C. both the seller and the listing agent D. neither the listing agent nor the seller
The answer is C. The underground storage tank was a material fact that both the listing agent and the seller had an obligation to disclose. Both could be liable for misrepresenting a known issue with the property.
A buyer purchases a house for $300,000, making a $60,000 down payment and paying three discount points to bring down the interest rate. What is the total cost of the discount points? A. $3,000 B. $6,000 C. $7,200 D. $9,000
The answer is C. A point is 1% of the loan amount. Since the buyer made a $60,000 down payment, the loan amount is $240,000. One point of the loan is $2,400, so three points is $7,200.
What type of clause allows the lender to sell the property to pay the debt the borrower owes without going through the courts? A. alienation clause B. defeasance clause C. power of sale clause D. subordination clause
The answer is C. A power of sale clause allows the lender to sell the property to pay the debt the borrower owes without going through the courts. This is referred to as nonjudicial foreclosure.
George is one of three brokers recently convicted of illegal boycotting. What did he and his fellow co-conspirators do? A. They agreed to charge the same commission for specific services. B. They divided up their town into four quadrants so that each could focus on their specific area. C. They decided to avoid showing clients homes listed by Discount Realty. D. They included a clause in their listing contracts requiring clients to use AAA Co. as their home inspector.
The answer is C. George and his fellow brokers were guilty of illegal boycotting when they conspired to refuse to deal with another broker.
Knowledge Check #1 What is the best thing a licensee can do to help ensure that a buyer will be able to obtain the financing necessary to close a transaction? A. prequalify the buyer B. refer buyers to a specific lender C. require the buyer to be preapproved D. show only low-priced properties
The answer is C. Getting preapproval from a lender before beginning the house-hunting process is standard procedure. Buyers know in advance the maximum amount they can spend, and all parties to the transaction can have a high level of confidence that financing will not be an issue.
Knowledge Check #27 Which of these investment types do you think is the most liquid? A. antique furniture B. commercial real estate C. IRA (individual retirement account) D. shares of stock
Correct! The answer is D. Stocks are traded publicly every day relatively easily, although losing some principal is not unheard of in the stock market. While antique furniture can be sold, the market for a particular piece can affect someone's ability to sell it quickly. IRAs often restrict access to funds except under specific circumstances. Commercial real estate may be the most illiquid of these. Next, we'll discuss some tax advantages available to investors in real estate.
Knowledge Check #16 Property manager Hector is putting together his management proposal for the year. He does some analysis of the local market to see how many units are currently available. Once he has a handle on local supply and demand, he can use that information to make recommendations on A. identifying specific property risks. B. projecting capital expenses. C. revising occupancy standards. D. setting appropriate market rent.
Correct! The answer is D. Supply and demand plays a critical role when deciding fair market rent. As the number of available units increases, it may be necessary to lower rent. When occupancy rates are high, it may be possible to raise the rent.
A buyer is getting a loan to purchase 100 acres of timber with no residence. According to the Truth in Lending Act, lenders A. must disclose all settlement charges. B. must disclose the annual percentage rate. C. must give the borrower a three-day rescission period. D. are not required to make any disclosures.
Correct! The answer is D. The Truth in Lending Act does not apply to loans made for business, commercial, or agricultural purposes.
O Knowledge Check #23 Settlement for the sale of a condominium is March 31. The owner is required to pay condo fees on the first day of every month. How will this fee appear on the settlement statement? A. a three-month credit to the buyer B. a three-month debit (charge) to the buyer C. a nine-month debit (charge) to the buyer D. It will not appear on the settlement statement.
Correct! The answer is D. The fee is paid every month, so there is no reason to prorate that fee when closing on the last day of the month. It won't appear on the settlement statement.
The asking price of a house is $235,000. A prospective buyer offers $230,000, and the house appraises for $225,000. If the lender is willing to make an 80% LTV loan, what is the required down payment if the offer is accepted? A. $45,000 B. $46,000 C. $47,000 D. $50,000
Correct! The answer is D. The lender bases the loan-to-value on the lesser of the sales price or the appraised value. If the buyer is paying $230,000 on a house appraised at $225,000, the lender will loan $180,000 ($225,000 x 0.80). That means the buyer will have to make a down payment of $50,000 ($230,000 sales price - $180,000 loan) to close the deal.
What is the abbreviation for the accepted standards of ethics and appraisal practice? A. BPO B. CMA C. URAR D. USPAP
Correct! The answer is D. The rules in the Uniform Standards of Professional Appraisal Practice (USPAP) are recognized throughout the United States as the accepted standards of ethics and appraisal practice. A URAR is the Uniform Residential Appraisal Report. A CMA is a comparative market analysis, and a BPO is a broker price opinion.
Knowledge Check #15 On the settlement statement, the sales commission is generally shown as a A. credit to the buyer. B. credit to the seller. C. debit (charge) to the buyer. D. debit (charge) to the seller.
Correct! The answer is D. The sales commission is typically paid by the seller at closing, reducing their net from the sale of the property; it is a debit to the seller.
Knowledge Check #28 An office property can be depreciated over A. 15 B. 27 1/2 C. 31 1/2 D. 39
Correct! The answer is D. The time requirement to depreciate non-residential commercial property is 39 years. years.
Knowledge Check #4 RESPA prohibits a brokerage from paying a referral fee to a cooperating brokerage.
Correct! The answer is False. While RESPA prohibits payment of unearned fees or for services not actually performed, legitimate payments to a cooperating brokerage are permitted.
Knowledge Check #4 Investors Mr. and Mrs. Smith sell a rental property, making $185,000 profit. They would NOT have to pay capital gains tax on their net proceeds because it's below the $500,000 limit for married couples.
Correct! The answer is False. While up to $500,000 of gain is tax-free for married couples every two years, this applies only to a principal residence. They were selling rental property, so that exemption does not apply.
Knowledge Check #24 Property manager Ned is renting an apartment in an older building. Jackie is interested in the apartment, but the doorways are not wide enough to accommodate her wheelchair. Do you think Ned can deny Jackie a lease based on this fact?
Correct! The answer is No. Property managers must be sensitive to fair housing laws, which prohibit illegal discrimination against individuals with disabilities. Also, if there are public spaces in the apartment building, such as a lobby, laundry room, etc., a property manager should be sensitive to the provisions of the Americans with Disabilities Act, or ADA.
Knowledge Check #16 Will you, as a real estate licensee, be responsible for completing the Closing Disclosure?
Correct! The answer is No. The Closing Disclosure is completed by the lender or the settlement officer, although the lender is ultimately responsible for its timely delivery. Regardless, you should be familiar with this critical document.
Knowledge Check #3 Zach is buying a new home from Motley Home Builders, Inc. The builder has asked Zach to use Acme Title Insurance Company because the builder has a longstanding agreement with that title company. Does Zach have to use this title company?
Correct! The answer is No. Zach has the right to use any title agency he chooses.
Knowledge Check #2 A real estate licensee may NOT accept a referral fee in exchange for referring a consumer to a home inspector.
Correct! The answer is True. Accepting something of value in exchange for a referral of settlement services could be considered a kickback, which is prohibited by RESPA.
Knowledge Check #35 To find the cash flow, you deduct the total annual debt service.
Correct! The answer is True. Cash flow is a measurement of both income and expense items associated with operating the property, including debt service.
Knowledge Check #11 A fixed expense would be the same whether a building has 100% occupancy or 50% occupancy.
Correct! The answer is True. Fixed expenses are ongoing operating expenses that do not vary based on occupancy levels of the property (e.g., property taxes and insurance).
Knowledge Check #9 In general, when evaluating a property using the cost approach, replacement (rather than reproduction) cost estimates are done for most residential appraisal assignments.
Correct! The answer is True. In most residential appraisal assignments, cost estimates are done for replacing a building with one that is of similar size and function.
Knowledge Check #22 You should advise your buyer client to consider some sort of environmental investigation.
Correct! The answer is True. It would be in the buyer's best interest to know whether or not there are underground storage tanks so near to the property he wants to purchase.
Knowledge Check #10 One way a property manager can manage risk is to assess potential hazards and insure the property appropriately.
Correct! The answer is True. Property managers must protect owners from major expenses by finding the right kind of insurance, such as fire and flood insurance.
The borrower got a fully amortized, fixed rate loan for $230,000 at an interest rate of 4.5%. After one month, the loan balance is $229,697.50. The interest payment for month 2 is $861.37. If the monthly P&I payment is fixed at $1,165, $303.63 is applied to principal.
Correct! The answer is True. Simply subtract the interest portion from the fixed monthly payment: $1,165 - $861.37 = $303.63 applied to principal.
Knowledge Check #13 Mark lives in a village where the assessment rate is 40%. His house was determined to have a market value of $200,000, so the assessed value of his property is $80,000.
Correct! The answer is True. The assessment is 40% of the market value of $200,000, or $80,000.
Knowledge Check #18 A typical reason an area becomes a Superfund site is groundwater contamination.
Correct! The answer is True. The list of chemicals and heavy metals contaminating the groundwater of Superfund sites is quite long. Such contamination frequently threatens the drinking water supply, as well as agricultural lands.
Knowledge Check #2 A property management agreement creates an agency relationship.
Correct! The answer is True. The property management agreement is a personal services contract that creates an agency relationship.
Knowledge Check #3 Homeowner Steve was forced to sell his house quickly because of a lost job, lowering the selling price considerably. Appraiser Andy should take this fact into consideration if using this transaction as a comparable to arrive at an estimate of value on the subject property.
Correct! The answer is True. This is NOT an arm's-length transaction because the conditions were not typical. A good appraiser makes a serious effort to determine the impact of all significant features and conditions when rendering an opinion of value. True
If a house sits on a widened street and is surrounded by commercial buildings, that land would be more valuable if it were put to a commercial use.
Correct! The answer is True. This is the very essence of the concept of highest and best use. Land achieves its greatest value when it is put to its maximally productive use.
Knowledge Check #17 In that taxing jurisdiction, residential property assessed value is 40% of market value. if the assessed value of the property is $25,000, the market value is $62,500. True
Correct! The answer is True. To find the full market value, divide the assessed value by the assessment rate: $25,000 /0.40 = $62,500.
Knowledge Check #24 One of the benefits of a wetland habitat is that it can help to prevent flooding. True
Correct! The answer is True. Wetlands can absorb excess water and can be a buffer zone for drier land. Property owners are understandably concerned about external environmental concerns, such as contamination or pollution. They should also be aware of issues that may be present within a specific property such as lead, asbestos, radon, mold, and pests.
Knowledge Check #20 Mega Company wants to build a new shopping center. They've selected an ideal location where 10 homes now sit. Each of those homes is worth about $100,000. Mega knows, though, that the value of all 10 parcels together is $2 million. Instead of trying to buy each home for only $100,000, Mega may offer the owners, say, $120,000 as an incentive for them to sell. If every home were purchased for $120,000, Mega's total cost would be $1.2 million-much less than the total value of the combined larger parcel. This scenario describes the concept of plottage.
Correct! The answer is True. When assembling multiple parcels results in an increase in value, we have plottage.
Knowledge Check #2 Lucy has been applying every annual bonus she gets from work to the principal on her mortgage. Consequently, she pays off her 20-year mortgage in 17 years. Her lender charges her a prepayment penalty fee. Do you think she can deduct that fee from her income tax?
Correct! The answer is Yes. If a lender charges a penalty for paying off a mortgage early, that penalty amount is also deductible.
Knowledge Check #22 Do you think that a homeowner could lose equity in their home?
Correct! The answer is Yes. If the value of the property decreases more quickly than a borrower can repay a loan, that property owner can lose equity in the property. This was a familiar scenario in the collapse of the housing market when many homeowners were "underwater" with their mortgages, meaning, they owed more than the property was worth.
Knowledge Check #20 Let's say you're a buyer's agent for Stu. He's looking at a nice 1920s-era bungalow in an older neighborhood. Next door is a popular little coffee shop, Fill-r-Cup that looks like it could be in an old renovated gas station. There's even an antique gas pump out front. Is there a chance that the coffee shop next door has an underground storage tank?
Correct! The answer is Yes. It seems like a reasonable assumption. The gas tanks were probably installed in the 1950s; maybe the owner quit selling gas in the 1970s when prices went through the roof. There might still be a little gas in the bottom of the tanks and perhaps some of them have been leaking. Who would know?
Knowledge Check #10 You don't pay a special assessment tax that was imposed to put in sidewalks in your neighborhood because you don't want the liability of keeping the sidewalks free of snow and ice. Since you did not vote for the improvement, do you think the city can put a lien on your property to cover that assessment? .
Correct! The answer is Yes. Real estate tax liens on special assessment taxes are involuntary liens against a specific property. They don't need to ask your permission
Stella signs Larry's offer to buy her house, creating a valid contract. They agree to close in 21 days. Under this contract, Larry has A. actual title in the property. B. equitable title in the property. C. legal title in the property. D. no legal interest in the property.
The answer is B. The buyer will not receive legal or actual title to the property until the transaction closes and the deed is delivered. In the meantime, he does have equitable title to the property because of the signed purchase agreement. If the property is destroyed before closing, it is usually the seller who bears the consequences. Let's continue with our look at purchase contracts.
Theo wants to develop a strip mall. He made an offer to buy a vacant parcel of land for $800,000 with no contingencies. The seller accepted his offer, and Theo arranged the financing he needed to purchase the land. Less than a week before closing, the investors who were financing the strip mall development backed out. What is the status of the contract? A. unenforceable B. valid C. void D. voidable
The answer is B. The contract is valid. Since it was not made contingent on financing for the strip mall, Theo is obligated to complete the purchase of the vacant land or be in breach of contract.
Knowledge Check #14 Which is NOT a value characteristic that must be present and perceived by the user and other potential users of the property? A. demand B. immobility C. scarcity D. transferability
The answer is B. The four value characteristics are demand, utility, scarcity, and transferability (remember D-U-S-T). Immobility is a physical characteristic of real estate.
Knowledge Check #19 For which of these properties would the gross rent multiplier method be MOST appropriate? A. a single-family home that is owner-occupied B. a duplex C. a retail complex with three units D. an apartment building with five units
The answer is B. The gross rent multiplier method is generally used for residential rental property of one to four units. Only the duplex, sometimes called a two- flat or a double, meets these criteria.
A borrower's stable monthly income is $3,000. They have three monthly debts: $350 car payment, $50 personal loan payment, and $50 credit card payment. What is the maximum monthly mortgage payment they would qualify for on a conventional loan? A. $390 B. $630 C. $840 D. $1,080
The answer is B. The housing expense (front-end) ratio for a conventional loan is 28%. For this borrower: $3,000 (income) x 0.28 = $840. The debt-to-income (back-end) ratio is 36%. Looking at the debt-to-income ratio: $3,000 (income) x 0.36 = $1,080. From there, subtract the monthly debts: $1,080 - ($350 +$50+ $50) = $630. The lender will consider the lower number.
Who are the parties to a lease? A. landlord and property manager B. tenant and landlord C. tenant and property manager D. tenant, landlord, and property manager
The answer is B. The landlord and the tenant are the parties to a lease. The landlord and the property manager are the parties to a property management contract.
Knowledge Check #11 Liz is getting ready to sell her house and has no idea what it might sell for. Before listing, Liz checks the county clerk's office and sees that a house next door, which just sold for $220,000, is assessed at $110,000. Her house is assessed at $140,000. Do you think Liz can get a rough estimate of how much she might be able to ask for her house from this information?
Correct! The answer is Yes. She should be able to see that the market value of the home is about double its assessed value, which means that the level of assessment is 50% of full market value. This could give her a rough estimate of her home's market value. Next, we'll see how to calculate property taxes.
Knowledge Check #15
Expecting a change in value is anticipation; an over-improvement whose price cannot be recaptured is contribution; a buyer willing to settle for a similar house is substitution; a small house with greater value because of the highly desirable large houses around it is progression.
An individual who has AIDS is not protected under the disability clause of the Federal Fair Housing Act.
False
A deed in which the grantor warrants or guarantees the title only against the grantor's acts is a bargain and sale deed.
False It is a special or limited warranty deed that warranty title only during the time only during the time the grantor owned the property. A bargain and sale deed does not contain such a warranty.
It is legal for a landlord of a suburban apartment complex to ask a 57 year old prospective tenant: "Does your grandson live with you?"
False, That would be discrimination based on familial status
The type of business entity that pays a share of the profits to its beneficiaries is known as a syndicate.
False, the key word is "beneficiaries," who are paid profit from a REIT, or real estate investment trust.
The Civil Rights Act of 1866 was the first major legislation to address equal rights in housing by prohibiting discrimination based on color and religion.
False. While this was the first major act to address discrimination in housing, the Civil rights Act of 1866 addressed only racial discrimination. It did not address religion.
A string of successive conveyances from one owner to the next is known as an abstract of title.
False. A string of successive conveyances from one owner to the next owner arranged consecutively from the first recorded owner of the property to the current owner is called a chain of title. It is the chain of title that would reveal all past owners of the property. An abstract of title is simply a summary of the current state of the property's title.
Title to real property is conveyed when the deed is signed and recorded.
False. A title can transfer once a valid, signed deed is delivered to and accepted by the grantee. The act of recording does not transfer title.
George defaults on his mortgage, and ABC Bank forecloses and sells his house. Since George voluntarily signed a mortgage and chose not to make the payments, the sale is an example of voluntary alienation.
False. ABC Bank was encorcing the lien created by the mortgage. Although the lien was voluntary, the sale of the property at foreclosure is considered involuntary.
The abstract of title guarantees that the seller is passing marketable title to the buyer.
False. An abstract of title is simply a summary of what was revealed from the title search. Although it does provide evidence of title and any defects, it is not a guarantee of clear title
An earnest money deposit with an offer is contractual consideration
False. An earnest money deposit can be used to induce the seller's acceptance, but it is not consideration
During a person's lifetime, title to real estate may be transferred by devise
False. Devise is related to someone's estate after death.
A general warranty deed provides the greatest protection to the grantor
False. The grantor is the person who gives the deed to the grantee. A general warranty deed provides the greatest protection to the grantee, and the greatest liability to the grantor.
The agency relationship would end if a sales associate who secured the listing agreement dies before the listing period ends.
False. The listing agreement is between the seller and the broker, not the sales associate. The listing agreement would still be in effect if the sales associate were to pass away.
When property escheats, the title passes to the named heirs
False. When someone dies intestate and has no heirs, the property reverts to the state through the process of escheat. Abandoned property also escheats to the state.
A professional appraisal reflects the actual value of the subject property.
False. An appraisal is only an opinion of value, supported by facts.
The distance between range lines is four miles
False. Each range is six miles wide, north to south
Helen, a licensee with Beach Time Realty, is selling her own home through the local newspaper. She decides that she does not want to sell to anyone of another faith. Because she is selling her own home, she is exempt from the fair housing laws.
False. Helen is NOT exempt from the fair housing laws just because the home to be sold is hers. Licensees must follow fair housing laws at all times.
Teresa lives in Rainbow Tower, which is a cooperative building. Her ownership is evidenced by a deed to her individual unit.
False. A cooperative typically provides a proprietary lease to its shareholders. Teresa is a shareholder of the corporation that owns Rainbow Tower.
Rock Realty sales associate Lisa has two active listings when she transfers her affiliation to Cloud Realty. She can take those listings with her to Cloud Realty.
False. A listing agreement is a contract between the seller client and Rock Realty, which owns those listings. They stay at Rock when Lisa leaves.
Ivan buys a house and gets a standard owner's title policy. A couple years later, the house next to him sells and the new owner gets a survey, which reveals that Ivan's shed encroaches on their property. The neighbors tell him he has to removed the shed. Ivan's title insurance will cover the situation.
False. A standard policy does not protect against errors that a survey would reveal. But that does not mean a buyer cannot get additional protection.
All shareholders in a corporation own corporation property as tenants in common.
False. The "legal person" of the corporation owns property in severalty; the shareholders simply own shares in the corporation.
When an LLC or corporation is selling a property, any member or shareholder, as appropriate, is authorized to sign on the entity's behalf.
False. The business entity would need to authorize specific persons who have the authority to sign on the entity's behalf.
A point is equal to 1% of the sales price of a property
False. A point is 1% of the loan amount, which is generally the sales price minus any down payment
Earnest money is required to create a valid contract
False. Earnest money is not required. It is, instead, evidence of the buyer's serious intentions
Chapter 10
Federal Fair Housing
Chapter 15
Financing Practice
Chapter 14
Financing Principles
Chapter 2
Fundamentals of Real Property
The mortgagor is the borrower who gives the lender, the mortgagee, a mortgage as collateral for the debt.
In a land contract, the seller is the vendor, and the borrower is the vendee.
Amy and Ben each own one-third interest in a property as joint tenants with rights of survivorship. Doug owns a one-third interest in the property as a tenant in common with them. When Ben dies, what happens to his interest in their property?
It goes to Amy, who now has a two-thirds interest. Amy and Ben are joint tenants, which includes the rights of survivorship. Ben's share goes to Amy, who now owns a 2/3 interest. Doug still owns a 1/3 interest, but now Amy and Doug own the property as tenants in common.
A property description in an old deed states the following: "Starting at the northeast corner of pump house, then traveling east 90 feet, south 200 feet, west 90 feet, and north 180 feet." What does this description tell us?
It is invalid because it doesn't return to the point of beginning.
Chapter 18
Land use and Environmental Issues
Name the shaded parcel of the section and calculate the number of acres.
NW 1/4, SE 1/4, SE 1/4: 10 acres This is the NW 1/4 of the SE 1/4 of the SE 1/4 section. To find the acreage, start with the 640 and divide by the denominators of the fractions: 640/4/4/4 = 10 acres.
Jane is a black female graduate student. A landlord refuses to rent a room in an all-male off-campus house with common areas to her because she is female. Did the landlord violate the 1866 Federal Civil Rights Act?
No
A wife signed a quitclaim deed that transferred her property to a joint tenancy with her husband. She told her husband about this, but the document was never recorded. They later divorced, by which point the deed has been lost. Does the now ex-husband have a valid claim on the property?
No, although if the deed had been recorded it would have provided constructive notice
A seller and buyer agree to wait until the listing agreement with ABC Realty expires, then they will sign a purchase contract so the seller can avoid paying commission. Assuming the listing agreement did not contain any extender clause, does the broker of ABC Realty have any legal recourse?
No, the broker has no recourse since the listing agreement expired.
Chapter 12
Professional Ethics
Chapter 13
Real Estate Contracts
Chapter 9
Real Estate brokerage
Chapter 17
Real Property Appraisal
Knowledge Check 19 Assignment transfers rights but not liability, while novation substitutes both rights and liability.
Rescission is the cancellation of a contract that reverts the parties to their original status, and tender is an unconditional offer to perform the terms of the contract.
Name the shaded parcel of the section and calculate the number of acres.
SE 1/4, NW 1/4; 40 acres This is the SE 1/4 of the NW 1/4 of the section. To find the acreage, start with the 640 and divide by the denominators of the fractions: 640/4/4 = 40 acres.
Name the shaded parcel of the section and calculate the number of acres. (Bottom left square of a 4 square box)
SW 1/4; 160 acres 640/4 = 160
Chapter 20
Taxes and Investment
Which statements might be discriminatory if included in an advertisement? Select all correct responses. Then we'll review each of the choices. A. "Near Temple Beth Israel" B. "Se Renta Apartamento" C. "Playground Within Walking Distance" D. "Credit Check Required" E. "Chapel on Premises"
The answer is A, B and C.
Knowledge Check #7 Which of the following circumstances are exceptions to the two-year provision of Section 121 of the Taxpayer Relief Act of 1997? Select all correct responses. A. change in place of employment B. divorce C. health considerations D. marriage
The answer is A, B and C. Marriage is the only item listed that is not exempted. Divorce and disaster qualify as unforeseen circumstances. Next, we'll focus on property taxes.
Knowledge Check #23 When performing a CMA, which properties should a licensee evaluate? Select all correct responses. A. closed transactions B. current listings C. expired listings D. pending sales
The answer is A, B, C and D. Each of these properties-if similar in size, style, and neighborhood- could be considered when performing a comparative market analysis.
A conforming loan is a loan that A. exceeds the maximum loan amount established by Fannie Mae/Freddie Mac. B. follows the secondary market criteria set by Fannie Mae/Freddie Mac. C. is for more than $417,000 on a single family home, also called a jumbo loan. D. is offered to borrowers who do not meet qualifications for Fannie Mae/Freddie Mac.
The answer is B. A conforming loan follows the Fannie Mae and Freddie Mac criteria in order to be eligible for sale in the secondary mortgage market.
Knowledge Check #19 Which CANNOT define a neighborhood's boundaries? A. physical boundaries O B. ethnicity of residents C. income level of residents D. upkeep and maintenance
The answer is B. Almost anything can define a neighborhood, except for race, ethnicity, and other characteristics of protected classes.
A man inherits a plot of land from an uncle. A year later, he sells half of the property to an investor. A year later, the investor gives her half to her son, who sells the mineral rights. This series of events best represents the legal property right of
disposal. The right of disposal gives a property owner the ability to transfer all or some of the property.
A township tier is a six-mile strip of land that runs
east and west parallel to a baseline.
Jack and Jill sign a contract with XYZ Real Estate to represent them in their search for the perfect house. They intend for the seller to compensate XYZ. What type of agency situation does this represent?
express agency. There is a written contract between the buyers and the brokerage, making this an express agency, regardless of who is paying the compensation.
What protected classes were added under an amendment to the federal Fair housing Act?
familial status and disability
What is the primary advantage to owning property in severalty?
flexibility Property owned is severalty, meaning by only one person, gives that owner more flexibility to use or dispose of the property than is possible with shared ownership. Of course, the disadvantage is that there is no shared risk. Owners in severalty have complete liability. Next we'll discuss ownership by more than one person.
Chapter 10: Federal Fair Housing Knowledge Check #19 Which activity is NOT prohibited under the Fair Housing Act? A. charging a larger security deposit for male applicants than female applicants B. inserting a provision in a deed limiting the transfer of ownership based on someone's race O C. refusing to enter into a rental agreement with a 17-year-old minority woman D. telling someone with an accent that an apartment is rented when it is not
The answer is C. It is not against the law to refuse to enter into a contract with someone who has not yet attained the legal age of majority (18). If the refusal to contract was based only on one's membership in a protected class, however, it would be a violation.
Walk through the steps again to determine the breakdown of principal and interest for the next month. As a reminder, the borrower got a fully amortized, fixed rate loan for $230,000 at an interest rate of 4.5%. The borrower's monthly mortgage payment of principal and interest (P&I) is $1,165. After one month, the loan balance is $229,697.50. What is the annual interest? A. $9,187.90 B. $9,200.00 C. $10,336.39 D. $10,350.00
The answer is C. Multiply the current balance by the interest rate: $229,697.50 x 0.045 interest rate = $10,336.39 annual interest.
Which characteristic would indicate that a tenant's lease is a net lease? A. The rent increases periodically depending on the Consumer Price Index. B. The tenant pays a portion of their business income in addition to rent. C. The tenant pays the property taxes. D. The tenant pays utilities.
The answer is C. Net leases require the tenant to pay some or all of a property's operating expenses, such as property taxes, insurance, and maintenance. While a net lease may also require a tenant to pay utilities, so do many gross leases (for instance, most apartment rentals require tenants to pay their electric bill). A gross lease, however, will never require a tenant to pay property taxes. A graduated lease has periodic increases, and a percentage lease requires tenants to pay a portion of their business income.
Knowledge Check #13 Which of the following would NOT suffer from depreciation? A. an abandoned building B. a residential property used as a rental C. unimproved land D. a 2,700 sq. ft. commercial building
The answer is C. Only improvements suffer from depreciation; land is never depreciated.
Of these, which is MOST LIKELY to be considered an example of puffing? A. "Beautifully-maintained colonial located in historic district" B. "Charming country estate on 5 acres" C. "Great bargain on the most prestigious street in town" D. "Stunning lakefront views from this modern condominium"
The answer is C. Puffing is generally considered to be an opinion that is not necessarily intended to be a statement of fact. The use of an adjective such as "stunning" or "charming" is not necessarily puffing. Calling a street the "most prestigious in town," however, would qualify as puffing.
Knowledge Check #12 A settlement statement: A. is required for all property transfers B. is an updated statement from the lender with final loan terms C. provides a financial accounting of a buyer's and sellers' closing costs D. removes any cloud on the title
The answer is C. Settlement statements itemize all credits and debits for a buyer and seller.
The primary purpose of the Truth in Lending Act (Reg Z) is to disclose A. any adverse action when rendering a credit decision. O B. the aggregate interest charge for similar properties. C. the complete cost of credit. D. a good faith estimate of closing costs.
The answer is C. The Truth in Lending Act requires the lender to disclose the true cost of financing for consumer loans, including the annual percentage rate (APR).
Ellen's offer to buy Eric's house does not indicate how acceptance must be communicated. Eric calls his agent, Jon, and tells him to communicate his acceptance. It's late in the day and Jon decides to call Ellen the next day. That night, Ellen leaves a message on Jon's phone revoking her offer. What now? A. Ellen's revocation was not in writing, so she's still bound by the contract. B. It's too late. Eric accepted Ellen's offer, so she's bound by the contract. C. Jon did not communicate the acceptance, so Ellen can still revoke her offer. D. Since Eric's acceptance was verbal, Ellen would not be bound by it regardless.
The answer is C. The acceptance was not communicated to Ellen, the offeror, so she is not bound by it. Ellen can revoke her offer.
When Belva's toy poodle went missing, she tells her neighbor she'll give him $500 if he finds and returns her dog. This is an example of a A. bilateral express contract. B. bilateral implied contract. C. unilateral express contract. D. unilateral implied contract.
The answer is C. The contract is a unilateral express contract since one party makes a binding promise in words to the other party to act, even though there is no obligation for the second party to act.
Upon full payment of a mortgage, the lender issues a satisfaction of mortgage as required by which mortgage clause? A. acceleration B. alienation C. defeasance D. power of sale
The answer is C. The defeasance clause states that the security instrument will be canceled when the debt has been repaid. It releases the lien against the collateral property and should, therefore, be recorded.
Which federal law requires companies to take measures to secure and dispose of sensitive personal information of consumers? A. CAN-SPAM Act B. Do Not Call Act C. FACT Act D. Gramm-Leach-Bliley Act
The answer is C. The federal Fair and Accurate Credit Transaction Act (usually referred to as the FACT Act or FACTA) includes provisions to protect the identity and personal information of consumers by requiring companies that handle such data to have policies to secure and destroy it.
Knowledge Check #18 Use the appraiser's notations to determine the final estimate of value using the cost approach: Replacement cost=$127,800; Deterioration=$19,170; Site value=$25,000 A. $83,630 B. $96,130 C. $133,630 D. $171,970
The answer is C. The formula for determining value using the cost approach is Reproduction/Replacement Cost - Accrued Depreciation + Land Value = Overall Property Value: $127,800 - $19,170 + $25,000 = $133,630.
Knowledge Check #18 Ben is planning on buying a home. He wants to know how much he can borrow so he can consider the price range of homes he can afford. Which of these factors would likely have the greatest impact on the price of homes he's considering? A. age of the house B. building materials used C. location of the house D. style of the house
The answer is C. The location of a property has one of the greatest impacts on its value, and, therefore, its ultimate selling price. Location factors include access to transportation, employment areas, and amenities. Two identical homes can have vastly different values because of location, which is also called situs.
A prospective tenant believes that they are the victim of housing discrimination because of their race. Which of the following would NOT be an appropriate action to pursue? A. file a complaint at the closest HUD office B. file a complaint with a state or local fair housing agency C. file a complaint with the local sheriff D. file a civil lawsuit in federal court
The answer is C. The prospective tenant can work with a national, state, or local fair housing agency when pursuing a fair housing complaint. They could also file a civil lawsuit in federal court.
Which is NOT a function of the secondary markets? A. moderate effects of local real estate cycles B. provide lenders with money to make more loans C. serve as a depository for consumer assets D. standardize underwriting guidelines
The answer is C. The secondary market exists to standardize loan qualifying criteria and buy loans from the primary market as a stabilizing influence. The secondary markets do not lend money nor do they accept deposits from consumers.
Knowledge Check #1 Jane is being transferred. Using the ABC Realty website to look at photos of listed houses, she makes an offer on one. The seller accepts, and settlement is handled with a long-distance conference call. When Jane arrives in town, nothing looks familiar. ABC determines that its website was linking to photos of another house. This could best be described as an example of A. actual fraud. B. bait and switch. C. constructive fraud. D. puffing.
The answer is C. This is an example of constructive fraud. While unintentional, such negligence would likely result in a lawsuit.
Pam, a victim of identity theft, can't currently qualify for a loan but wants to buy her friend's condo. Pam could give him $1,000 now if he promised not to sell to anyone else in the next six months, giving her the opportunity to purchase the property within that time period. This is A. a land contract. B. a lease purchase agreement. O C. an option agreement. D. a right of preemption.
The answer is C. This is an option agreement. Pam pays her friend consideration of $1,000 in return for an option to purchase the property anytime within the six months.
While Richard is out of the country, Georgette quits paying the rent. Who will the landlord come after? A. Georgette and Richard equally B. Georgette only C. Richard only D. It's impossible to know.
The answer is C. With a sublease, the original lessee is still fully liable for the terms of the lease. The landlord would come after Richard.
Knowledge Check #7 Tom buys a parcel of land and goes to the local zoning office before he builds his house to see what restrictions he might have to consider. Which is LEAST LIKELY to be addressed by a zoning ordinance? A. the position of the building on the lot B. the size of the structure C. the type of electrical wiring used D. whether or not Tom can operate a bar from the property
The answer is C. Zoning ordinances usually regulate permitted uses of land, lot size, building size, and location in relation to any setback requirements. The type of wiring required is most likely to be addressed by the building code.
As a lender's underwriters evaluate a borrower's loan application to decide whether to make the loan, they may NOT consider the borrower's A. employment history. B. field of employment and its economic viability. C. history of making payments on past obligations. D. receipt of public assistance.
The answer is D. All people must be considered for credit equally on the basis of income adequacy, sufficient net worth, job stability, and satisfactory credit rating. Regardless of whether the borrower meets all other criteria, it would be a violation of the Equal Credit Opportunity Act (ECOA) to consider the source of that borrower's stable monthly income.
Derrick tells Louisa that he would like to buy her house at some point, and he pays her $2,000 for the opportunity to purchase her house for $200,000 anytime in the next six months. With this option to purchase, Derrick A. can purchase Louisa's property only if she receives an offer from a third party. B. is obligated to purchase the property should Louisa decide to sell. C. may opt out of the agreement and get his $2,000 back from Louisa. D. must pay Louisa the $2,000 whether he buys the property or not.
The answer is D. An option to purchase requires the one who gives an option (the optionor, seller Louisa) to complete the sale if the one who receives the option (the optionee, buyer Derrick) wants to do so. Derrick is under no obligation to complete the purchase; however, he is out the $2,000 whether he buys or not.
After the weekly business meeting of XYZ Realty, two licensees decide it makes sense to be more focused in their prospecting. Licensee Anna decides to stay on the north side of town, and licensee Billy decides to stay on the south side of town. What type of antitrust violation might this situation be considered, if any? A. boycotting B. tie-in agreement C. market allocation D. no violation
The answer is D. Anna and Billy work for the same broker. There is no antitrust violation unless they worked for different brokers. If that were the case, this would be an example of illegal market allocation.
Referring to a house as being located in a "gated community" could be considered a discriminatory description.
The answer is False. Ads that describe the property itself and not the people who live in or around it, would not be considered as discriminatory. If the house is indeed in a community that is gated, it's a mere statement of fact.
Knowledge Check #6 Once the analysis of data is complete, the appraiser considers the three appraisal approaches and averages the estimates of value to arrive at a final opinion.
The answer is False. An appraiser must use his skill and expertise to reconcile the data and should NEVER average it.
An option is a bilateral contract since one party promises to buy and another party promises to sell.
The answer is False. An option is a unilateral contract because only one party is obligated to act.
Su, a 49-year-old Asian woman, is turned down for a mortgage loan because her credit score is very low and she is still going through bankruptcy reorganization. The lender is in violation of the Equal Credit Opportunity Act because Su is a member of a protected class.
The answer is False. As long as the credit decision was not made BECAUSE of Su's membership in a protected class, there is no ECOA violation in this case.
Knowledge Check #6 Terry, an agent at TSS Realty, listed Jerry's house for sale. Agent Marge, also from TSS, found the buyer. The settlement officer will cut commission checks for Terry and Marge as indicated in the sales contract and distribute them at closing.
The answer is False. As the transaction diagram indicated, a licensee can be paid only by their employing broker. The settlement officer would provide a check to the employing broker, who would then disburse the funds as appropriate.
Now, suppose that Richard's trip will last six months instead of three, so he won't be back until after his lease expires in January. Richard transfers the apartment to Georgette for July through the end of his lease, with no intention of returning. This, too, is an example of a sublease.
The answer is False. Because Richard has transferred the entire remainder of his lease to Georgette, their arrangement is more likely an assignment instead of a sublease. Richard is the assignor, and Georgette is the assignee.
Harvey wants to transfer some property he owns to his daughter Fran. He agrees to sell Fran the house in exchange for her continued love and affection. This is NOT a valid contract.
The answer is False. Contractual consideration can be anything of value-money, services, goods-or it could be as simple as love and affection, known as good consideration. Although the consideration may seem to be unequal, this could be enough to form an enforceable contract.
Knowledge Check #17 A property that has been designated as a brownfield is so contaminated that no development can take place.
The answer is False. Development of brownfield sites may be complicated by contamination, but the designation actually provides tax incentives and other advantages to developers.
Earnest money is required to create a valid contract.
The answer is False. Earnest money is not required. It is, instead, evidence of the buyer's serious intentions.
Knowledge Check #2 The government sends you a notice stating that the houses on your street will be demolished to build a new off-ramp for an interstate that runs through your town. You are paid fairly for your home and move. The act of taking your home to demolish is known as eminent domain.
The answer is False. Eminent domain is the government's constitutional power to appropriate private property for public use. The actual act of taking the property is known as appropriation or condemnation.
Park Condominiums is having trouble finding buyers, with 20 empty units, so they start a rent-to-own program. It applies 85% of the rent to the purchase price if the tenant chooses to buy before the end of year one and 65% if the tenant chooses to buy before the end of year two. This is an example of a lease purchase agreement.
The answer is False. It's a lease with an option to buy. Under this program, the tenant is not obligated to purchase at the end of the lease, it's simply an option.
One purpose of the primary mortgage market is to buy loans from banks to free up money to make more loans available.
The answer is False. It's the secondary mortgage market that purchases loans from lenders in the primary market to free up money to make more loans. An important byproduct of secondary mortgage markets is the standardization of loan criteria. Any changes implemented by secondary mortgage markets become requirements around the country for those wanting to sell mortgages in the secondary market.
The market value of a parcel of property is always equal to the selling price.
The answer is False. Market value is an opinion of the probable selling price. It is not a guarantee, nor does it reflect the ultimate selling price.
The National Association of REALTOR® Code of Ethics must be followed by every real estate licensee.
The answer is False. Only members of the National Association of REALTORS® are obligated to follow the NAR Code of Ethics. However, licensees who are not members of NAR could certainly benefit from adopting those standards as their own.
Knowledge Check #1 RESPA applies to any commercial and residential transaction that is secured by a federally regulated loan.
The answer is False. RESPA applies only to one- to four-family residential properties (including condominiums and cooperatives) that are secured by a federally regulated loan.
Jamie signs a contract to buy Steve's house. Prior to closing, Jamie dies in a car accident. This terminates the purchase agreement.
The answer is False. The death of one of the parties to a purchase agreement does not terminate the obligation to perform according to the terms. Jamie's heirs may be required to honor the contract. Of course, Jamie's heirs and Steve could mutually agree to terminate the contract.
If you have a client who questions your firm's commission fee, you should tell him that your firm charges the standard commission rate.
The answer is False. There is no standard commission rate and to imply that there is could be an antitrust violation.
The reduction on the balance of a home loan by making regular payments toward the principal is called negative amortization.
The answer is False. This is simply amortization, the reduction of the balance of the loan by paying back on a regular basis some of the principal owed. Negative amortization occurs when the payment is not enough to cover the accrued interest, and the principal balance grows as a result.
It's uncommon, but not unethical, for an appraiser to accept compensation for hitting a requested outcome or opinion of value in an appraisal report.
The answer is False. USPAP indicates that it is unethical for the appraiser to accept compensation contingent upon the reporting of a predetermined value or a direction in value that favors the client.
Knowledge Check #5 When adjusting properties using the sales comparison approach, if a comparable is inferior to the subject, the appraiser subtracts from the comp to make it equal.
The answer is False. When adjusting properties, if a comparable is inferior is to the subject, the appraiser adds to the comp to make it equal. Remember CIA: Comp Inferior, Add. False
Gross leases tend to have lower rents than net leases.
The answer is False. With a gross lease, the landlord bears all expenses, which are generally passed on the tenant in the form of higher rent.
A tenant with a disability wants a wheelchair ramp built at the entrance to an older apartment building and asks the landlord's permission. The tenant agrees to cover all costs and will have the ramp removed (at his own expense) when he leaves. The owner thinks the ramp will detract from the building's appearance and declines the request. Is this legal?
The answer is No. It is not legal for an owner to prohibit a wheelchair ramp from being constructed on the property. A landlord may not refuse to let a renter make reasonable modifications to the housing unit or common use areas at the tenant's expense if such modifications are necessary for a person with a disability to use the housing.
A buyer loses his job three days before settlement. Do you think that fact alone lets him out of the purchase agreement?
The answer is No. He's still legally obligated to purchase that property. However, it's likely that the contract contained a financing contingency. If he's out of a job, there's a good chance that his financing would not go through. That is what might let him out of the contract.
Do you think that an employing broker would be violating his fiduciary duty for terminating the brokerage agreement of a client who expresses a desire to discriminate against a member of a protected class?
The answer is No. Ignoring a client's illegal instructions is not a breach of one's fiduciary duty, and a broker must protect himself and his business from liability. Under the circumstances, terminating the agreement may be the best course of action.
Do you think that a real estate advertisement ONLY in a language other than English meets the HUD guidelines?
The answer is No. It may make sense in markets with large numbers of immigrants to run advertisements in newspapers read by buyers who fit the targeted economic profile for a property. If an advertisement is published in a non-English language, it is advisable to include an English translation or run the same ad in an English language newspaper to avoid charges of targeting a particular ethnic group.
The pledge of property as collateral for a loan while continuing to possess it is known as hypothecation.
The answer is True. A borrower hypothecates their property as a condition of a loan, meaning they pledge their real and/or personal property as security or collateral for the loan, while still maintaining possession of it.
Knowledge Check #21 It is the seller who decides how to price his property when listing it for sale.
The answer is True. A licensee can-and should-advise a seller client on what to ask for his property, but ultimately, it is the seller's decision.
FHA loans CANNOT contain an alienation clause.
The answer is True. An alienation clause limits the borrower's right to convey the property without permission. This clause is not allowed for FHA and VA loans.
Under CAN-SPAM, every electronic solicitation must include some clear option to opt out of future communications.
The answer is True. An opt-out option must be included, and companies must honor a recipient's opt-out request within 10 business days.
The use of the Fair Housing logo, statement, or slogan is required for advertisements, yard signs, letterhead, or business cards.
The answer is True. Generally, print advertising should include the Fair Housing logo, statement, or slogan in the ad. The logo, statement, or slogan should also be used on all printed matter distributed or displayed to the public in the promotion of property for sale or rent, including marketing materials and business cards. Next, let's discuss the enforcement of fair housing laws.
Richard is the sublessor, and Georgette is the sublessee.
The answer is True. In this arrangement, as the "giver," Richard is the sublessor; Georgette, as the "receiver," is the sublessee. Remember, though, Richard is still the lessee of the lessor property owner. When Richard returns from South America at the beginning of October, Georgette will move out and Richard will resume his tenancy for the rest of the lease term.
Logan is selling his home. In an ad prepared by the listing broker, the house was described as being located in a "funky urban neighborhood, very tolerant of alternative lifestyles." This could be construed as discriminatory.
The answer is True. Many people will take words such as "urban" and "alternative lifestyles" as code words for members of a protected class. Therefore, it could be considered discriminatory. The person who placed this ad could potentially be prosecuted for a fair housing violation.
Irina wants to rent a two-bedroom unit for herself and her two kids. Landlord Jack says she would not be happy there because there are no other kids, just young single professionals. Besides, he says, there are no Russians in the neighborhood. She should look elsewhere. Although he said he was just trying to be helpful, Jack is found to have violated fair housing laws in his treatment of Irina. An administrative law judge may issue a civil fine and require Jack to reimburse Irina's actual costs.
The answer is True. Penalties can be steep for fair housing violations. You can even lose your license.
A lease is an example of a bilateral contract. rty.
The answer is True. Recall that a bilateral contract is formed when two parties make a binding promise to each other. The landlord promises the right of occupancy, quiet enjoyment and habitability; the tenant promises consideration and care of the prope
Richard has a two-year lease on an apartment. Six months before the end of his lease, he has an opportunity to take a three-month research trip to South America, so he rents his apartment to Georgette for the months of July, August, and September. This is an example of a sublease.
The answer is True. Since Richard has not transferred his entire interest, this arrangement is a sublease.
An ad that indicates an apartment is within walking distance of Hightower Mosque could be considered discriminatory.
The answer is True. Such an ad could be construed as appealing to one religious group over another and would, therefore, be discriminatory.
A borrower with a high credit score is less likely to default on a mortgage loan than a borrower with a lower credit score.
The answer is True. The higher the credit score, the better credit risk a borrower is; the lower the score, the higher the risk of default.
The immobility of land hurts its value in a bad market.
The answer is True. The immobility of land helps its value in a good market since other land can't be moved in to take away potential customers, but it hurts it in a bad market as it can't be relocated to a better position to attract buyers
John tells niece Connie that she can rent the guest house on his property for four years while she goes to law school, as long as she pays him $400 a month. They shake on the deal. This is NOT an enforceable lease.
The answer is True. This long-term oral lease would not be enforceable in a court of law.
Angela wants to buy Jan's house for $200,000, but she needs some time. They sign an option agreement, and Angela gives Jan a check for $1,200 to keep the option open for 30 days. A week later, Stan offers Jan $210,000. She signs a sales contract with Stan and mails Angela's $1,200 check back. Do you think Angela can sue for breach of contract?
The answer is Yes. A signed option agreement is a valid contract. Furthermore, the payment of consideration makes the option irrevocable until it expires. Jan's actions are a material breach.
Connie asks Uncle John to sign a lease. He says, "No, we're family. We should not have to sign contracts." So, instead, Connie tells Uncle John, "It's August 15. Let's just say I'll rent the guest house until August 14 of next year, and if that works out OK, we can renew for another year, and so on." Has Connie protected her interest in that leasehold?
The answer is Yes. An oral lease for less than a year would generally be enforceable under a state's Statute of Frauds. Connie is going to make a good attorney!
If a property has a wheelchair ramp, can that feature be advertised?
The answer is Yes. Fair housing laws do not prohibit advertising that a feature exists. To advertise the wheelchair ramp does not exclude anyone from the housing. A practitioner need only take care to describe the features of the property, not the people who might live there.
Do you think it's necessary to disclose that a right of first refusal exists when putting a house up for sale?
The answer is Yes. The seller and the listing agent have an obligation to disclose a fact like this. Additionally, a right of first refusal should be recorded in the public records since it's a cloud on the title.
Dawn sells her property to Jon, but Jon fails to record the deed. Which statement is TRUE about unrecorded deeds?
The deed is still valid between Dawn and Jon. A deed that is unrecorded is still valid. However, it exposes the grantee, Jon, to the risk that another deedholder will show up and make claims on the property.
What mandates how much a real estate broker can charge for a commission?
There are no mandates
Name the shaded parcel of the section and calculate the number of acres.
This is the NW 1/4, NE 1/4 AND the W 1/2, SW 1/4, NE 1/4 of the Section. For the first parcel: 640/4/4 = 40 acres. For the second parcel: 640/4/4/2 = 20 acres. 40 +20 = 60 acres
Chapter 6
Title Transfer and the Public Records
A real estate licensee should discuss the available agency relationships at first substantive contact with a potential client.
True
Section 1 is found in the northeast corner of a township.
True
The basic difference in the types of deeds is related to the warranties the grantor gives to the grantee
True
The purchase price is the consideration necessary to create a valid sales contract
True
A licensee who drafts an addendum to a complicated sales contract could be accused of the unauthorized practice of law.
True The answer is True. In most states, real estate licensees do not have the authority to draft contracts and must use standardized contracts that are made available from local real estate boards or bar associations. In such a case, the licensee could indeed be accused of the unauthorized practice of law.
Eminent domain is the process by which the government can assert its right to take someone's property
True Eminent domain is the right, condemnation is the actual process.
Paul, John, Todd, and Dave brought a property as joint tenants. Today, only Paul is still living. He is now the owner in severalty.
True Joint tenancy includes the rights of survivorship. When one joint tenant dies, that interest is automatically transferred to the remaining joint tenant(s). In this case, there is only one remaining owner, who now owns the property in severalty.
Elaine and George are buying a house for $250,000. They agree that Elaine will have a 60% interest in the property, and George will have a 40% interest. They must take title as tenants in common.
True Tenancy in common is the only form of co-ownership that does not require the unity of interest, meaning an unequal fractional interest is possible.
Luke signs a listing agreement with Raelynn, promising a 7% commission if she finds a buyer for his house. This contract is an executory contract.
True This contract is in the process of being performed, so it's considered executory
Cathy is applying for a loan to purchase a condominium. The monthly condo association fees would be included as part of the PITI.
True When the collateral property requires association fees as a condition of ownership, for example as with a condominium, that monthly amount must also be added to PITI to get the complete housing expense.
Knowledge Check #7 After an appraiser makes all necessary adjustments, she can average the value of the comparables to determine the appropriate estimate of value for the subject property.
True Correct! The answer is False. After all adjustments are made, an appraiser must reconcile the adjusted prices of the comparables to estimate the value of the subject property, weighting the comparables as appropriate-never averaging them.
Knowledge Check #19 Ivy is considering the purchase of an old warehouse. She wants to turn it into loft condominiums. Phase I of the environmental study reveals no records of any hazardous waste or underground storage tanks. Still, Ivy is required to hire someone to collect soil and water samples for testing.
True Correct! The answer is False. If no problems or red flags are found during Phase I of an Environmental Site Assessment, it is probably not necessary to conduct Phase II, which is testing.
Knowledge Check #30 As the capitalization rate goes up, an investor is likely to pay less for the property.
True Correct! The answer is True. The higher the cap rate, the greater the risk. Therefore, investors are likely to pay less for a property as the cap rate increases. Next, Al will summarize the three appraisal approaches and then discuss the process of reconciliation.
Knowledge Check #8 If an appraiser has an assignment to estimate the value of an A-frame in a neighborhood of ranches and split levels, the cost approach would be very useful.
True Correct! The answer is True. When there are few, if any, comparables, the appraiser will likely rely more on the cost approach. False
You find out that the house you grew up in is for sale. The seller tells you that there's a $5,000 lien on the property that has no interest in paying, but he'll sell you the house with the lien. The title insurance company will treat the lien as an exception.
True. A known defect or cloud will be treated as an exception to title insurance coverage, and so the policy would provide no coverage related to this lien.
To clear the cloud on the title caused by having a different name on the deed used to convey her property to someone else, Margaret can file a quitclaim deed.
True. Before she can grant a deed to the person who is buying her house, she needs to correct the original deed with her name change. A quitclaim deed can be used to correct this break in the chain of title.
Margaret Jones buys a house. She gets married and is now Margaret Smith. When she sells the house, the grantor name on the deed is Margaret Smith. This creates a break in the chain of title
True. If a grantor acquired land under one name and conveyed it under another, it creates a break in the chain of title that should be easy to remedy
Jack list a property for $280,000. The seller gets a bona fide offer from a quality buyer for $280,000. The seller gets cold feet about selling and rejects the offer. The seller owes Jack the negotiated commission.
True. If an offer meets the seller's terms as stated in the listing agreement, in this case, a price of $280,000, and the buyer is financially able to buy, the broker is entitled to a commission whether the seller accepts the offer or not.
Joint tenancy is also severed when one of the owners sells their interest to a third party.
True. Joint tenancy, a freehold estate, allows an owner to sell their interest. If there were two joint tenants and one sold their interest, the new owner and the original owner are both tenants in common. If there were three joint tenants, the new owner holds their interest as a tenant in common with the two remaining joint tenants.
Ad valorem refers to a tax that is based on the assessed value of property
True. The term "ad valorem" means "according to value"
The granting of a deed is an example of voluntary alienation
True. Voluntary Alienation is a willing, uncoerced transfer of ownership
A title examiner discovers a cloud on the seller's title due to a missing link in the chain of title from 25 years ago. To clear the title, the seller can file a quiet title action.
True. A quiet title action is a lawsuit that is used to remove clouds from title to real property by settling questions about the property's ownership or the legitimacy of other claims against it. A quitclaim deed will do a clear a cloud, but that requires the cooperation of whoever would need to sign the deed, and often that's not an option.
A real estate licensee should discuss the available agency relationships at first substantive contact with a potential client
True. Agency relationships should be discussed at the first substantive contact before any confidential information can be shared.
Bigtown condemns Farmer Frederica's back pasture to expand the city dump. This is an example of involuntary alienation
True. Bigtown exercised its power of eminent domain to condemn and take ownership of Frederica's land without her consent. This is an example of involuntary alienation.
Jessica sells her condominium unit to Roger. Roger also gets an undivided interest in common areas and membership in the owners association
True. When a condominium unit is sold, an undivided interest in common areas and membership in the owner's association are automatically transferred, too. A person can't sell their unit without transferring their interest in the common areas or vice versa.
Now that Roger has moved into his condominium, he can expect to get a property tax bill for his unit.
True. Within a condominium development, each owner is taxed separately for their unit.
A borrower is paying two discount points to lower their interest rate. The points they pay will be accounted for in the annual percentage rate.
True. The APR shows the true, total cost of borrowing money. The discount points they pay would impact the annual percentage rate.
The APR on a loan is typically going to be higher than the interest rate
True. The annual percentage rate reflects all of the loan fees, not just the interest rate.
Tina lists her home exclusively with Zip Realty. The listing agreement includes a provision that allows Tina to sell the home to her neighbor without owning any commission to Zip. This is an exclusive agency listing.
Under an exclusive agency agreement, Tina can still sell the property on her own and not owe a commission
Chapter 16
Valuation Fundamentals
under the federal fair housing act, can a landlord refuse to rent an apartment to an unmarried couple?
Yes Marital status is not a protected class under the federal fair housing act.
Knowledge Check #26 Let's say your CMA indicates that a reasonable asking price for a seller client's property is $260,000. The seller wants to list at $275,000, even though you inform them that the house will not likely sell at that price. Are you obligated to list for $275,000 if that's what she wants?
Yes Correct! The answer is Yes. The list price is always the decision of the seller. A licensee has a duty to obey any lawful instruction from a client, which means that you must defend your client's pricing decision if you take the listing.
You have a buyer client who confides in you that he's an alcoholic. Would you be in violation of the Federal Fair Housing Act if you showed him only properties that did not have a bar or tavern in close proximity?
Yes, because you're limiting the choices of someone with a disability. Alcoholism falls under the definition of disabled according to the Fair House Act.
Marian turned 65 in May. She has full custody of her 15-year-old grandson. She wants to move into Hometown Village, a state-certified condominium community designed specifically for persons 65 and older, because it is close to the private school that her grandson attends. Is it lawful to ask Marian: "Will your grandson be living with you?"
Yes. This situation falls under a familial status exception. Because Hometown Village is a state-certified housing community specifically designed to assist older persons, the subject of familial status may be legally questioned, and she may be legally refused.
A woman who is six months pregnant tries to rent an apartment in a four-unit building with access to a shared swimming pool. The property manager rejects her applications, citing insurance liability concerns of having small children in the building. Does this refusal violate the federal Fair housing act?
Yes. A woman who is pregnant is considered part of the familial status protected class.
Which is NOT an example of an attachment?
a basketball hoop that is moved into the garage in the winter
Over the last several years, the tide has been depositing silt onto the property along a coastal inlet, increasing the size of the property. This is an example of
accretion. Accretion is a gradual addition to dry land by the forces of nature
There's a strip of land the lies between the two neighbors. One neighbor mistakenly believes it's their land, and they consistently care for it by mowing and fertilizing the grace. At one point, they enclose the property with a fence. After enough time passes, they might be able to obtain title to the strip of land by
adverse possession
To be valid, a listing agreement may be signed by
an attorney in fact
The public records would be LEAST LIKELY to reveal what about a specific parcel of land?
an encroachment Encroachments are generally discovered through a survey of the property, while the other information would likely be available in the public records.
a voidable contract
can be ended by one of the parties without liability
steering
channeling members of a protected classes to or away from particular neighborhoods.
A property owner grants a deed to the local school district for 10 feet of land for a walkway easement beside their house to the elementary school. This property was transferred by
dedication. The owner voluntarily transferred their private property for public use, so this is an example of alienation by dedication.
Jack and Jill just got married, and Jack moves into the house Jill owned in severalty prior to the wedding. Which of these unities is present with respect to the current ownership of the house?
person They have a unity of person since they are married. They also have unity of possession since both live in the house. The deed is in Jill's name, so there is no unity of interest, time, or title. Jill could sign a new deed indicating both Jack and Jill as joint tenants with rights of survivorship, tenants in common, or, depending on the state, tenants by the entireties.
Physical land, its attachments, and its bundle of rights is known as
real property
After meeting with an agent, seller Sally agrees to sign a listing agreement. She tells the agent that her husband is out of state on business, but they want to sell the house right away since he is taking a new job and they will be moving soon. The agent should
refuse to take the listing but tell the seller they can proceed once her husband signs it.
Redlining
refusing to make loans in certain neighborhoods for discriminatory reasons
A married couple is getting divorced and decides to sell their house. Before the house sells, however, the divorce is finalized, and the judge awards the house to the husband as part of the divorce settlement. When the new deed is prepared, what is the husband's likely interest in the house?
tenant in severalty ownership in severalty is ownership held by one person.
A married couple decides to buy some investment property together. The wife wants to make sure that if she dies, her daughter from a previous marriage will be able to inherit her interest in the property. How should the couple take title to the property?
tenants in common Tenancy in common allows one co-owner to transfer their share of the property to others through a will.
Who acknowledges a deed?
the grantor The person granting the deed, the grantor, signs the deed in the presence of a notary public or other official, acknowledging that they signed it voluntarily
Which is NOT an example of an improvement?
the line of pine trees planted along the edge of the property An improvement is any manufactured attachment to the land. Although someone may have planted the pine trees, they are not, in fact, improvements but natural attachments.
A downtown condominium offers many amenities, such as a gym, tennis court, and swimming pool. These common elements are MOST LIKELY owned by
the unit owners as tenants in common. Each unit owner in a condominium owns an individual interest in the common amenities as tenants in common.
A licensee who works for Charles at ABC Realty, Inc. would be considered what type of agent of the broker?
general agent A real estate license is a general agent of their broker. The broker, the principal in that relationship, gives general authority to their agents to conduct real estate business on their behalf.
If a partnership does not pay its debts, the creditors may collect from the personal assets of the
general partners only. General partners are personally liable for all of the partnership's debts. The liability of limited partners does not exceed their investment in the partnership. There are no stockholders in a partnership.
Kim, Sal, and Lois own a house as tenants in common. When Sal dies, her 25% interest
goes to her heirs. Tenants in common do not have the right of survivorship. If one tenant in common dies, their interest in the property goes to their heirs, not the other co-owners. Next, we'll turn our attention to another type of concurrent ownership, joint tenancy with right of survivorship.
A standard owner's title insurance policy protects against losses resulting from any of the following EXCEPT
government action. No type of insurance will protect a policyholder from losses due to government action such as condemnation or zoning changes.
Blockbusting
inducing owners to sell by suggesting changes to the ethnic or racial composition of a neighborhood
A deed is not signed by the seller is still considered valid as long as it
is signed by an authorized attorney in fact. The document used to assign legal rights to another person is a power of attorney.
a void contract
lacks requirements for contract formation
Corporations General Partnership LLC Limited partnership
legal entity in which individuals hold shares of stock Two or more people who co-own a business with equal liability Legal entity with tax advantages of partnerships but protection of corporations two or more people who co-own a business that has one or more passive investors
Every owner in the condo community has a designated parking space. This is an example of a(n)
limited common area. A limited common area describes an area that are all unit owners in the condominium project own, but its use is reserved for only one designated owner.
Which document would LEAST LIKELY require a legal description
listing agreement
What is the most common way to create an agency relationship between a home seller and a broker?
listing agreement. A listing agreement is a contract that creates an agency relationship between a seller and a broker
A title free from defects that an owner has the right to convey is known as ________title.
marketable sellers are expected to cure any defects so that they can deliver marketable titles to the buyer.
This property description is found in a deed: "beginning at the old oak tree, then South 15 degrees East to the embedded steel pin, thence North 90 degrees..." What type of legal description is this?
metes and bounds The metes and bounds system uses distance (metes) and direction (bounds) to describe the boundaries of a parcel of land, using fixed monuments, such as a feature of the land or a surveyor pin.
How many square miles are there in a township?
36 A township is 6 miles by 6 miles square. Each township is comprised of 36 sections that are one square mile, or 640 acres, each
A square parcel of land is dedicated to the country for use as a nature preserve. The land has 1,890 front feet along the road. Approximately how many acres are there in this parcel?
82 acres. 1,890 x 1,890 = 3,572,1000 square feet. Then divided that by $43,560: 3,572,100 SF/43, 560 SF per acre = 82 acres
A rectangular parcel of land, starting from the point of beginning, measures 180 feet north, then 90 feet east, then 180 feet south. What is the length and distance of the last side?
90 feet west
Chapter 11
Contract Fundamentals
Knowledge Check #25 Select the matching pairs. Asbestos Fibrous material commonly used in insulation Lead Toxic metallic element found in paint, dust, water, and the ground Radon Colorless, odorless gas that emanates from the earth Mold Fungus that can release toxins causing allergic reactions
Correct! Radon is a colorless odorless gas that comes from the earth; mold is a fungus; lead is a metal; asbestos is a fibrous material.
Knowledge Check #6 A property management agreement would likely provide authority for which of the following elements? Select all correct responses. A. depositing rent payments into the owner's account B. handling security deposits from tenants C. interviewing prospective tenants and accepting applications D. negotiating leases between the owner and tenant
Correct! The answer is A, B, C and D. As a general agent of the property owner, a property manager is usually authorized to handle all of these elements as part of their duty to handle the principal's affairs in one area, i.e., management of the property. Let's continue looking at the functions of a property manager.
Knowledge Check #5 Which elements should be included in a property management agreement? Select all correct responses. A. definitive termination date B. description of the property C. management authority and limitations D. management fee
Correct! The answer is A, B, C and D. Ideally, all of these elements should be included in a property management agreement. The property management agreement should also be signed by both parties.
Knowledge Check #22 When prorating using a 360-day year, February has 28 days.
Correct! The answer is False. When using a 360-day year, every month counts as 30 days.
A security deposit is required for a lease to be valid.
The answer is False. A security deposit is not a requirement for a valid lease, but a landlord may require one.
Joe and his friend Larry buy a $250,000 house together as tenants in common. Joe pays $200,000 and Larry pays $50,000. The deed indicates that Joe owns 80% interest, and Larry owns 20% interest. How much of that property can Larry occupy?
100% With tenancy in common, each co-owner has an undivided right to possession of the entire property, even if their interest are unequal.
How many acres are there in the NE 1.4 of the NE 1/4 of the NE 1/4 of Section 16?
10 acres Each section is 640 acres. Working backward: 640/4/4/4 = 10 acres
Chapter 7
Describing Real Property
A legal description reads as follows: "The NW 1/4 of Section 2; and the W 1/2 of the SW 1/4 of Section 35." How many acres is this?
240 acres. The first parcel would be 640/4 = 160 acres The second parcel would be 640/4/2 = 80 acres 240 Total
Appraisal Process order
1-Define the problem 2-Determine the scope of work 3-Collect data/analyze data 4-Analyze highest and best use; 5-Apply the approaches of value; 6-Reconcile the final estimate of value; 7- Report the findings to the intended user(s).
valid contract
A binding, legally enforceable contract. It meets all of the legal requirements for contract formation.
Knowledge Check #13
Acceleration=allows lender to declare the entire balance due on default. Alienation=allows lender to declare balance due on sale. Defeasance=ensures that the mortgage is satisfied on final payment. Conveyance=ensures release from the lien and conveyance of title when criteria are met (also called partial release clause). Submit
Anticipation
An economic principle that says value is created by the expectation of future benefits, such as profit on resale, pleasure, tax shelter, production, income, etc. Anticipation is the foundation of the income approach.
What is another word for principal?
Client. The principal in any fiduciary relationship is the client.
Chapter 19
Closing Real Estate Transactions
Licensee Patti is having lunch with an old school friend, Janet. Janet tells Patti, "It's time to downsize. I sure wish I could sell my house." Patti responds, "Well, I have just the person for you. Make sure you're home at 7:00 this evening." Identify the statement that best describes the situation. A. Janet cannot assume any relationship. B. Janet could be Patti's client through express agency. C. Janet could be Patti's client through implied agency. D. Janet has just made Patti her universal agent.
C. Janet could be Patti's client through implied agency.
Chapter 14
Challenge Activity
Knowledge Check #27 Under what circumstances might a property manager initiate an eviction proceeding? Select all correct responses. A. The tenant brings a cat into a property that prohibits non-service animals. B. The tenant is selling stolen smartphones from the apartment. C. The tenant filed a complaint against the property owner with the city. D. The tenant's lease has expired, but the tenant does not vacate the property. E. The tenant refuses to take out the garbage, resulting in a rat infestation.
Correct! The answer is A, B, D and E. All of these situations could be grounds for eviction with one exception-it would be highly unlikely that a landlord could evict a tenant solely for filing a complaint. That would be considered retaliatory eviction, which is illegal in most states. The most common reason for eviction is when the tenant has not been paying the rent. Submit Reset
Maggie's lender is allowing her to make reduced mortgage payments for three months, as long as she brings the loan current within nine months. This arrangement is known as a A. forbearance agreement. B. loan modification. C. mortgage assumption. D. repayment plan.
Correct! The answer is A. A forbearance agreement allows the homeowner to avoid foreclosure by paying reduced mortgage payments or no payments for a certain length of time.
A buyer is applying for a loan to purchase their first house. When evaluating the loan's risk, the lender will be most concerned with A. the buyer's income and financial stability. B. the loan's interest rate. C. the property's appraised value. D. the sales price of other homes in the area.
Correct! The answer is A. Although the loan underwriting process will also consider the security property's appraised value, of the choices given, the lender will likely put the most emphasis on the buyer's income and financial stability.
Knowledge Check #6 An investor bought a warehouse for $ 100,000, paying $6,000 in closing costs. They spent $50,000 to add 1,000 square feet to the building a year later. When they sold the property for $180,000, they paid $14,000 in closing costs. What is the realized capital gain? A. $10,000 B. $16,000 C. $30,000 D. $56,000
Correct! The answer is A. Capital gain is calculated by first adding acquisition costs and capital improvements expenses to find the adjusted basis. Then subtract that from the net sales price (amount received minus sales costs). In this case, the adjusted basis is $100,000 + $6,000 + $50,000 = $156,000. The net sales price is $180,000 - $14,000 = $166,000. The capital gain realized is $10,000: $166,000 - $156,000 = $10,000.
Knowledge Check #14 Reproduction cost, as opposed to replacement cost, would be more appropriate for which type of structure? A. historical building B. personal home C. restaurant D. school
Correct! The answer is A. Cost estimates for the reproduction of a building are typically done for historical buildings, where it is important for a new structure to have the exact same materials as the original.
The borrower got a fully amortized, fixed rate loan for $230,000 at an interest rate of 4.5%. The borrower's monthly mortgage payment of principal and interest (P&I) is $1,165. After one month, the loan balance is $229,697.50. The annual interest is $10,336.39. How much will be applied to interest with the second month's payment? A. $861.37 B. $862.50 C. $887.24 D. $1,165.00
Correct! The answer is A. If the annual interest rate is $10,336.39, divide by 12 to find the interest payment for that month: $10,336.39 / 12 months = $861.37 applied to interest that month.
Knowledge Check #24 A buyer is assuming a seller's loan and getting a new loan for the balance of the sales price. How will the unpaid interest on the assumed loan appear on the settlement statement? A. credit to the buyer / debit (charge) to the seller B. credit to the seller / debit (charge) to the buyer C. debit (charge) to the buyer only D. credit to the seller only
Correct! The answer is A. If the buyer is assuming the seller's loan, the buyer will have to pay the interest due on the loan for the days of the month the seller lived in the house prior to closing. This interest must be prorated. The buyer is credited, and the seller is charged for the prorated interest amount.
Knowledge Check #4 As the property manager for owner Ross, Monica is held to high standards of good faith and loyalty, known as A. fiduciary obligations. B. goodwill duties. C. managerial obligations. D. tenancy at will.
Correct! The answer is A. Monica's fiduciary obligations include obedience, loyalty, disclosure, confidentiality, accountability, and reasonable care.
An example of a servicing activity for which a servicing fee may be charged is A. collecting monthly mortgage payments. B. increasing interest rates charged to borrowers. C. purchasing mortgages on the secondary market. D. setting reserve requirements and discount rates.
Correct! The answer is A. Servicing activities include collecting and processing payments including taxes and insurance, accounting, recordkeeping, bookkeeping, and other follow-up services.
A buyer's agent has actual knowledge of structural damage to the floorboards of a home due to termite infestation. They inform their client that there are no termites in the home. The buyer signs a contract to purchase the property. Could the licensee be susceptible to claims of fraud? A. Yes. They knowingly made an untrue statement that could be seen as an inducement to buy. B. Yes, unless there are visible signs of termites, in which case the buyer should have recognized it. C. No, because they are protected by the "as is" clause in the purchase agreement. D. No, because they said there were no termites, which could be true at present.
Correct! The answer is A. The broker can be held liable because their statements to the buyer were possibly fraudulent and could be looked upon as an inducement to enter into the purchase agreement.
Knowledge Check #13 When the purchase agreement was signed, the broker turned over the buyer's $10,000 earnest money check to the escrow agent for deposit. How will that $10,000 be accounted for on the settlement statement? A. credit to the buyer B. credit to the seller C. debit (charge) to the buyer D. debit (charge) to the seller
Correct! The answer is A. The buyer has already paid the $10,000 earnest money, so it will be applied to the purchase price as a credit to the buyer on the settlement statement.
When evaluating a loan applicant's credit obligations, a lender would LEAST LIKELY consider which of the following to be debt? A. cable television premium channel fees B. car loan payment with 15 payments left C. child support payments D. credit card debt payments
Correct! The answer is A. The cable TV channel is a debt that could most likely be canceled, while the others would have to be considered as recurring debts that impact the applicant's qualifying ratios.
Knowledge Check #28 Mark and Melissa make an offer on a house that was built in 1962, sure that it's the perfect home for raising their three small children. The home was recently remodeled with new plumbing, paint, cabinets, and siding. The listing agent is required to A. ensure the buyers get a copy of the lead-based paint pamphlet. B. ensure that paint used for the remodel was lead-free. C. provide the buyers with a copy of a recent lead inspection report. D. do nothing related to lead paint since the home was remodeled and repainted.
Correct! The answer is A. The seller of a house built before 1978 must always give the buyers a copy of the EPA's lead-based paint pamphlet. If-and only if-the property had been inspected for lead-based paint, the seller must also provide a copy of the inspection report. The listing agent is responsible for making sure that the seller complies with these requirements.
Knowledge Check #34 Which element does NOT figure into the equation to find net operating income? A. debt service B. effective gross income C. expenses D. vacancy losses
Correct! The answer is A. To find net operating income (NOI): First, subtract vacancy losses from gross income to get effective gross income. From that, subtract expenses to find NOI. Debt service is not used to find NOI.
Knowledge Check #17 Landlord Louis is charging $600 a month to rent a one-bedroom unit in Hill Apartments. A similar one-bedroom in a building down the road rents for $700 a month. That $600 represents A. contract rent. B. economic rent. C. fair rent. D. market rent.
Correct! The answer is A. What Louis charges is the contract rent. If the same type of apartment can get $700 in the market, the market or economic rent would be $700.
If a mortgage loan payment consists of interest only, the final payment which includes the full amount borrowed is called a A. amortized payment. B. balloon payment. C. monthly payment. D. term payment.
Correct! The answer is B. A balloon payment is the final lump sum that pays any remaining principal and/or interest at the end of a loan term.
Dave and Sara are young couple with a new baby who are buying a home. Sara will be working full time at her law firm for the next five years while Dave stays home with the baby and finishes school. In six years, both plan to be full time at the law firm. Which type of mortgage would offer them the best monthly payment plan and tax advantages? A. equity participation mortgage B. graduated payment mortgage C. reverse equity mortgage D. shared appreciation mortgage
Correct! The answer is B. A graduated payment mortgage is for a young professional such as a doctor or lawyer whose income may be lower now but is expected to greatly increase in the future.
Antitrust laws are in place to ensure that A. all monies in financial transactions are accounted for. B. competition in the marketplace is fair and unrestrained. C. licensees have a minimum level of education and training to protect the public. D. no one is discriminated against because of race, sex, or national origin.
Correct! The answer is B. Antitrust laws were enacted to ensure that there are no restraints on trade.
Knowledge Check #5 Which statement best describes the difference between zoning ordinances and building codes? A. Zoning ordinances affect improvements on the property; building codes control the use of real property. B. Zoning ordinances control the use of real property; building codes affect improvements on the property. C. Zoning ordinances are enforced by municipalities; building codes are enforced by the state. D. Zoning ordinances are enforced by the state; building codes are enforced by municipalities.
Correct! The answer is B. Both zoning ordinances and building codes are enforced at the local level. Local municipalities enforce building codes through a permit system to protect the public from unsafe materials or work. Local municipalities regulate the use of properties, dividing the community into zones for specific types of property, through zoning ordinances.
Knowledge Check #36 The operating statement on a rental property shows an effective gross income of $48,750 and a net operating income of $28,000. The owner pays $2,900 a year for insurance, $7,000 a year for property taxes, and $15,600 a year on the mortgage. What is the before-tax cash flow? A. $2,500 B. $12,400 C. $18,100 D. $23,250
Correct! The answer is B. Cash flow is simply net operating income minus debt service: $28,000 - $15,600 = $12,400. The insurance and property taxes would have already been deducted from the effective gross income as operating expenses to arrive at the NOI.
Which question would NOT be construed as being discriminatory in nature when asked of a buyer? A. Do you have children? B. How many bedrooms do you need? C. How many family members will be living with you? D. What church do you attend?
Correct! The answer is B. Choices A, C, and D could be alleged to be discriminatory in that they might be used to single out individuals on the basis of familial status or religion.
Knowledge Check #16 What must a property's assessed value be if its taxes are $1,800 and the property is taxed at 72 mills? A. $12,960 B. $25,000 C. $129,600 D. $250,000
Correct! The answer is B. Choose the correct tax formula: Part (Property Taxes) / Percent (Tax Rate) = Whole (Assessed Value). First, to convert mills, move the decimal point three places to the left then substitute numbers for the known factors in the formula: $1,800/0.072 = $25,000, which is the assessed value of the property.
Knowledge Check #17 A homeowner has been trying to sell their house for some time, but buyers seem to be turned off by the odor from a nearby chicken farm. This is an example of A. economic depreciation. B. external obsolescence. C. functional obsolescence. D. physical deterioration.
Correct! The answer is B. External obsolescence is when something is outside the boundaries of a property and outside the control of the property owner and makes it less desirable.
Which characteristic applies to both FHA-insured and VA-guaranteed loans? A. Both prohibit loan assumptions. B. Both prohibit prepayment penalties. OC. Both require an upfront mortgage insurance premium. D. Both require a Notice of Value.
Correct! The answer is B. FHA and VA loans allow assumptions by creditworthy borrowers, and both prohibit prepayment penalties. The VA requires the Notice of Value. FHA loans require an upfront mortgage insurance premium (MIP).
Knowledge Check #19 If a property manager realizes that he is not charging market rent on a unit, he should raise it immediately; otherwise, he would be neglecting his duty of loyalty and reasonable care to the property owner, his client.
Correct! The answer is False. The rent could not be raised until the term of the current lease is up. At that point, he could retain the tenant at the higher rent or obtain a new tenant if necessary.
Knowledge Check #25 The sale of a property will close on April 30. Ad valorem property taxes are $3,390 per year and are paid in arrears. Calculate the tax proration using a calendar year (365 days). Assume the seller owns the day of closing. A. $1,114.51 debit (charge) seller / $2,275.49 credit buyer B. $1,114.51 debit (charge) seller / $1,114.51 credit buyer C. $2,275.49 credit seller / $1,114.51 credit buyer D. $2,275.49 debit (charge) seller / $2,275.49 credit buyer
Correct! The answer is B. First, calculate the cost per day ($3,390 / 365 = $9.2876). Next, determine the number of days the seller lived in the house (January = 31 + February = 28 + March = 31 + April = 30 = 120). Finally, multiply the daily taxes by the number of days the seller lived in the house ($9.2876 x 120 days = $1,114.512). The seller is debited (charged), and the buyer is credited for $1,114.51 in taxes.
Knowledge Check #27 Jake is interested in buying a property with a net operating income of $14,400. If he paid the asking price of $200,000, what is the capitalization rate? A. 2.9% B.7.2% C. 8.6% D. 13.8%
Correct! The answer is B. Income (NOI) divided by Value (sales price) is.0072, or 7.2%. This cap rate indicates the annual rate of return on the property if it was purchased for cash.
Knowledge Check #26 An investor borrows money from a bank to purchase a small office building. They can make the mortgage payments from the rent generated by the leases and still realize a profit. This is an example of what financing concept? A. appreciation B. leverage C. liquidity D. marketability
Correct! The answer is B. Leverage is the use of other people's money to make money.
Knowledge Check #10 Chris and Fred buy a house that is located within city limits. The property has a large backyard, so they decide to build a coop and keep chickens. Which of the following determines if they can do so? A. the city's master plan B. the city's zoning ordinances C. their neighbors D. the state
Correct! The answer is B. Local zoning ordinances address the types of usage allowable within each zone. They may prohibit Chris and Fred from keeping chickens or place limits on the number of chickens they can have and the maximum size of the chicken coop.
Knowledge Check #8 While being respectful of a property owner's specific goals, a property manager will generally try to A. generate the highest gross income possible while maintaining the property. B. generate the highest net income possible while maintaining the property. C. set the highest rent allowable and offer as many amenities as possible. D. set the lowest rent feasible and offer as many amenities as possible.
Correct! The answer is B. Most owners want the highest net income possible since that takes into account the expenses associated with operating the property. However, the property manager also has to ensure that the property is well maintained to preserve its value.
Knowledge Check #11 Of these, which is LEAST LIKELY to be considered a conditional use in an area zoned as residential? A. fire station B. group home C. hospital D. school
Correct! The answer is B. Of these choices, a group home would most likely be already classified as a residential property and so would not require a conditional use. Common examples of conditional use properties include fire stations, schools, hospitals, cemeteries, and houses of worship.
Knowledge Check #23 A buyer purchases a new home for $300,000, making a 20% down payment. What is the buyer's equity in this new home? A. $0 B. $60,000 C. $240,000 D. $300,000
Correct! The answer is B. On a new home purchase, the owner's equity is limited to the amount of the down payment. In this case, the buyer made a 20% down payment: $300,000 x 0.20 = $60,000. The owner has $60,000 in equity in the home.
Knowledge Check #13 All of the homes in a Prairie Acres Subdivision appear to be built a uniform distance of 30 feet from the street. What is the probable reason? A. coincidence B. setback requirements in the subdivision regulations C. homeowners association rules and regulations D. zoning variance
Correct! The answer is B. Setback requirements are usually dictated by subdivision regulations and restrictions put on the property by the original developer. It would be up to the neighbors to enforce these.
Knowledge Check #28 You are closing an escrow at the end of the month on a four-plex. The rents are $500 per month per apartment. Each unit has a security deposit of $200 held with the landlord. Which of the following is true? A. Credit seller $800 B. Charge/debit seller $800 C. Charge/debit buyer $800 D. Credit buyer $2,000
Correct! The answer is B. Since the closing takes place at the end of the month, the rents are not prorated. However, the security deposits totaling $800 ($200 x 4 units) will be a charge or debit to the seller.
Knowledge Check #29 Bethany's clients, Melody and Jack, want to put their house up on the market. However, they currently have a rat infestation under their porch. Bethany should advise them to A. disclose the information to potential buyers and try to negotiate a deal around the problem. B. hire an exterminator, keep the records, and disclose the information to potential buyers. C. put out bait and not mention the problem to anyone. D. keep quiet until a deal is closed.
Correct! The answer is B. Situations such as these should always be disclosed. It's best to meet the problem head-on. Hire an exterminator to show proof that the problem has been addressed. Some offer warranties for their services, which could reassure a potential home buyer.
By law, lenders must cancel private mortgage insurance (PMI) when the loan-to-value reaches what percent of the property's original value? A. 80% B. 78% C. 75% D. 72%
Correct! The answer is B. The Homeowners Protection Act of 1998 (HPA) requires lenders to automatically cancel PMI when a home has been paid down to 78% of its original value, assuming the borrower is not delinquent.
Knowledge Check #30 Land can be depreciated A. always. B. never. C. only for residential rental property. D. sometimes.
Correct! The answer is B. The appraised value of land is deducted from the market value of the property to find the value of the improvements as the depreciable basis. Land is never depreciated for tax purposes.
Knowledge Check #24 Penny sells her house for $235,000. She pays a 6% commission and has closing costs of $4,200. She also pays off her current mortgage of $163,000 and a $10,000 mechanic's lien. How much did Penny net on the sale of her home? A. $33,700 B. $43,700 C. $58,280 D. $62,000
Correct! The answer is B. The commission was $14,100 ($235,000 x 0.06 = $14,100). Add the closing costs ($4,200) and the mortgage/lien payoff total of $173,000 to find total expenses of $191,300. Subtract that from the selling price to find the net: $235,000 - $191,300 = $43,700.
Knowledge Check #26 The sale of a property in a subdivision closes on August 31. The seller paid the annual association fee of $780 at the beginning of the year. On the settlement statement, how will this fee be handled (assuming a statutory year)? A. $259.99 credit buyer / $519.98 debit (charge) seller B. $259.99 credit seller / $259.99 debit (charge) buyer C. $519.98 credit seller / $519.98 debit (charge) buyer D. $259.99 debit (charge) seller / $519.98 credit buyer
Correct! The answer is B. The daily rate is $2.1666 ($780 annual cost / 360 days = 2.1666 daily rate). The seller lived in the house for eight months, leaving four 30-day months for which they paid but will not benefit, so 120 days. Multiply the daily rate by the number of days (2.1666 x 120) to find that the seller will see a credit of $259.99, and the buyer will see a debit of the same.
Knowledge Check #18 A 20-unit apartment has not had a vacancy in five years. After analyzing the market, what might the property manager recommend? A. enhance the apartments B. raise the rent C. reduce the rent D. make no changes
Correct! The answer is B. The rent in the building may not be competitive if no one has moved in five years. It might be a good idea to raise the rent if a market analysis confirms that comparative units in other buildings are renting for more.
Knowledge Check #8 June owns a florist shop on the outskirts of town. As the town grows, more homes are built and the area where her shop is located is rezoned residential. What specific exception would allow her to stay in business? A. conditional use B. nonconforming use C. special exception D. variance
Correct! The answer is B. This is a nonconforming use. A variance is where permission is given to allow a deviation from a specific zoning requirement for a property. Conditional use and special exception are the same thing; the land usage doesn't comply with the general zoning rules for the location but is allowed because the use is good for the public.
Knowledge Check #32 Of these, which would LEAST LIKELY be an exchange that would allow an investor to defer capital gains taxes? A. a beet farm for a silver mine B. a plane for an office building C. a shopping mall for an apartment building D. a warehouse for a vacant parcel of land Correct! The answer is B. To take advantage of a tax-deferred exchange, the property must be like-kind, for example, real property for real property.
Correct! The answer is B. To take advantage of a tax-deferred exchange, the property must be like-kind, for example, real property for real property.
Knowledge Check #17 The lender must provide the Closing Disclosure to borrowers at least prior to closing. A. 1 business day O B. 3 business days C. 3 calendar days D. 5 business days
Correct! The answer is B. Under the provisions of RESPA, a lender must allow the borrower at least three business days to inspect the Closing Disclosure settlement statement.
Knowledge Check #28 Your investor client is interested in looking at commercial property. An available strip mall has an effective gross income of $112,000 and a net operating income of $84,000. The capitalization rate in the area for similar properties is 12%. What is the likely asking price for the property? A. $336,000 OB. $700,000 C. $933,333 D. $1,008,000
Correct! The answer is B. Using the IRV formula to find value, you start with Income (NOI = $84,000) and divide by the Rate (cap rate = 12%) to find Value. $84,000 /.12= $700,000.
The plans for a company's new headquarters indicate a building that is 30,000 square feet. Zoning requirements state that a lot must be at least four times the size of the building located on the lot. At least how many acres does the lot need to be? A. 1 B.2 C. 3 D. 4
Correct! The answer is C. Multiply the building size by four to find the minimum square footage of the lot: 30,000 square feet x 4 = 120,000 square feet. There are 43,560 square feet per acre, so in order to exceed the required 120,000 square feet, you would need a three-acre lot: 43,560 square feet x 3 = 130,680 square feet.
Knowledge Check #20 A property manager is chatting with a prospective client who asks a lot of questions about the property's amenities and residents. The property manager should inform the prospective tenant about A. the appraised value of the property. B. a neighbor who has four children. C. plans to turn the gym into a party room. D. the racial composition of the tenants.
Correct! The answer is C. A property manager should discuss the amenities, and if the gym is going to be dismantled, that information should be shared. It could affect the prospect's decision about signing a lease. Antidiscrimination laws prevent the property manager from discussing the racial composition or familial status of other residents. While the property manager could legally tell the prospect the appraised value of the property, it's not likely to be of any interest to them.
The amount that one particular person paid for a property is its A. cost. B. market value. C. price. D. value.
Correct! The answer is C. A property's price is the amount a ready, willing, and able buyer agrees to pay for a property and a seller agrees to accept under the terms of the transaction.
Knowledge Check #4 A small apartment building is located where the county intends to construct a new off-ramp from the freeway. Can the county terminate the leases of the building's tenants? A. No, this is a violation of the Fair Housing Act. B. No, if the government forces a landlord to breach a lease, it is violating landlord-tenant laws. C. Yes, if notice is provided to the tenants and they receive relocation assistance. D. Yes, if the tenants receive just compensation from the city.
Correct! The answer is C. According to the Uniform Relocation Act, tenants whose leases terminate because of the condemnation of their residence are entitled to proper notice and assistance with relocation, including payment of moving expenses. A residential tenant does not have an ownership interest, so just compensation is not a reasonable choice.
Knowledge Check #19 A buyer contracts to purchase a $75,000 parcel of land. The commission is 5%, paid by the seller. The buyer gets a $260 credit for property taxes paid in arrears. The buyer obtains an 80% loan and pays three points in loan origination fees. Assuming no other credits or debits, what amount should the buyer bring to closing? A.$15,040 B.$15,800 C. $16,540 D.$19,913
Correct! The answer is C. An 80% loan of $75,000 is a loan for $60,000 ($75,000 x 0.80), which means the buyer needs a down payment of $15,000 ($75,000 - $60,000). Origination fees of 3% on $60,000 is a debit of $1,800 ($60,000 x 0.03). However, he gets a credit for $260 for taxes. $15,000 + $1,800 - $260 = $16,540 that he should bring to the closing. The seller, not the buyer, pays the real estate commission.
A seller lists her house "as is." A month after the sale closes, the buyer discovers a number of serious cracks in the basement walls that were covered up with paneling. The paneling looks brand new and was almost certainly intentionally installed to conceal the damage. Which of the following is correct? A. Only the listing agent is liable. B. Only the seller is liable. C. Both the seller and the listing agent may be liable. D. Neither is liable because the house was sold "as is."
Correct! The answer is C. An as-is clause does not excuse sellers and licensees from disclosing any known latent or material defects. Since the question does not indicate if the seller installed the paneling on their own or did so at the advice of the listing agent, both may be liable.
Knowledge Check #14 Carmen subdivides her land into 50 lots, placing a deed restriction that homes must be at least 2,000 square feet in size and cost at least $200,000. Eric comes along and buys a rocky, sloped lot from Carmen that she never expected to sell. Eric builds a small cabin and moves in. Who can take him to court to have the cabin removed? A. only Carmen, the grantor B. only the other homeowners under the restriction C. both Carmen and the other homeowners
Correct! The answer is C. Both the other homeowners and grantor Carmen could take Eric to court in order to enforce the deed restriction.
Knowledge Check #29 The rent for each office in a building with 10 small suites is $2,000 per month. It averages 20% vacancy and earns $1,000 a year from the parking meters. Annual expenses run $108,000 per year. If the appraiser determines the market-area cap rate to be 9.5%, what is the value of this property (rounded)? A. $807,500 B. $852,632 C. $894,737 D. $1,120,000
Correct! The answer is C. CA=C. Start with potential gross income: ($2,000 x 10 x 12 = $240,000). From that, subtract 20% vacancy: $240,000 - 20% = $192,000. Add the miscellaneous income: $192,000 + $1,000 = $193,000. Finally, subtract expenses to find the net operating income: $193,000 - $108,000 = $85,000. Use IRV to find the value: $85,000 / 0.095 = $894,737.
Knowledge Check #18 What tax rate was used for a property assessed at $148,900 that generates $8,200 in annual taxes? A. 0.55 mills B. 5.5 mills C. 55 mills D. 550 mills
Correct! The answer is C. Choose the correct formula: Part (Property Taxes) / Whole (Assessed Value) = Percent (Tax Rate) and plug in the known values: $8,200 / $148,900 = 0.0550. The tax rate used is 55 mills, $5.50 per $100 of value, $55 per $1,000 of value, or 5.5%.
Knowledge Check #25 A seller needs to pay off a $96,000 first mortgage, a $12,000 home equity loan, and wants $70,000 cash in hand. If the closing costs are $3,800 and the seller contracts to pay a 7% commission, what is the minimum sales price they can accept? Rounded to the nearest dollar. A. $191,398 B. $194,526 C. $195,484 D. $218,508
Correct! The answer is C. First, add all of the expenses to find the desired net after commission: $96,000 + $12,000 + $70,000 + $3,800 = $181,800. Then determine the percentage of the sales price after commission: 100% - 7% = 93% or 0.93. Finally, divide the desired net by the commission: $181,800 + 0.93 = $195,484. The seller must sell their home for at least $195,484 to get the desired net and pay the contracted commission.
Knowledge Check #19 A property is appraised at $175,000 and assessed for tax purposes at 50% of value. What are the semi-annual taxes if the tax rate is $65 per $1,000? A. $1,137.50 B. $2,275.00 C. $2,843.75 D. $5,687.50
Correct! The answer is C. First, calculate the assessed value: $175,000 x 0.50 = $87,500. Next, determine the number of taxing units: $87,500 / 1,000 = 87.5 taxing units. Next, find the annual taxes using the correct tax formula: Percent (Tax Rate) x Whole (Assessed Value based on taxing units) = Part (Property Taxes). Plug in the known values: $65 x 87.5 = $5,687.50 annual taxes. Finally, divide by two to find semi-annual taxes: $5,687.50 /2 = $2,843.75 semi-annual taxes.
Knowledge Check #11 A house sells for $185,900. In that state, the transfer tax is 55 cents for every $1,000 or fraction thereof. What is the transfer tax on this transaction? A. $33.80 B. $102.25 C. $102.30 D. $338.00
Correct! The answer is C. First, find the number of $1,000 units: $185,900 total / $1,000 = 185.9 units. Round up to account for the fraction to get 186 units. If state transfer tax is 55 cents for every $1,000 unit: 186 units x $0.55 tax rate = $102.30. The seller owes the state $102.30 on the sale of the home.
Knowledge Check #26 When using the income approach to value, the income capitalization method is seen as more accurate than the gross rent multiplier because it A. uses annual income. B. uses monthly income. C. considers expenses. D. doesn't consider depreciation.
Correct! The answer is C. Gross rent multiplier is held to be not as reliable as the capitalization rate method to perform an income approach appraisal for a property because the monthly GRM does not take into account expenses and losses.
Knowledge Check #25 A man purchases an investment property for $125,000. He later sells it for $105,000. What is his percent of loss? A. 8.4% B. 11.9% C. 16% D. 19%
Correct! The answer is C. He lost $20,000 on the sale ($125,000 - $105,000 = $20,000). To determine the loss, divide what he lost ($20,000) by what it cost ($125,000): $20,000 / $125,000 = 0.16 or 16% loss.
When seeking prospective tenants, a property manager can A. advertise that units are available today, even if they are not. B. require credit checks for some applicants but not for others. O C. offer inducements for signing a one-year lease. D. use a different application form for applicants with children.
Correct! The answer is C. It's acceptable to offer inducements to attract tenants. A common example is waiving the first month's rent. A property manager should use the same standardized application form and perform credits checks on all applicants. Advertising vacancies when there are none is an example of false advertising.
Knowledge Check #3 John is gathering up his paperwork to complete his income taxes. His home expenses include: Mortgage interest / month = $520; Property taxes = $3,280; New deck = $5,300. What is the total deduction John can take for the year? A. $3,280 B. $6,240 C. $9,520 D. $14,820
Correct! The answer is C. John can deduct the entire interest paid on his mortgage. At $520 each month, he paid $6,240 in interest for the year. Add to that the property taxes that he paid, and John determines that he can deduct $9,520 on his income tax returns. The new deck is not deductible.
Knowledge Check #4 When adjusting properties, the subject property is adjusted up or down depending on the features of the comps.
Correct! The answer is False. The subject property is your base and each comparable is then compared to it. The subject never changes.
A 30-year fixed rate loan for $165,000 at 4.75% interest has an $860.72 monthly payment of principal and interest. What is the loan balance after the second payment? A. $164,139.28 B. $164,346.87 C. $164,583.99 D. $164,792.41
Correct! The answer is C. The annual interest is $7,837.50 ($165,000 x 0.0475). Divide by 12 to find the amount applied to interest with the first payment: $7,837.50 12 months = $653.13. Subtract that from the loan balance to find the amount applied to principal: $860.72 - $653.13 = $207.59. Subtract the principal reduction from the original balance to find that the new balance: $165,000 - $207.59 = $164,792.41. Walk through the steps again to find the balance after the second payment: $164,792.41 x 0.0475 = $7,827.64. $7,827.64 12 months = $652.30. $860.72 - $652.30 = $208.42. $164,792.41 - $208.42 = $164,583.99. The principal balance after the second payment is $164,583.99.
A borrower has a 30-year, fixed rate, fully amortized mortgage loan for $110,000. They pay $695.20 for principal and interest every month. How much interest will they pay over the life of this loan? A. $20,856 B. $110,000 C. $140,272 D. $250,272
Correct! The answer is C. The borrower will pay $140,272 in interest for that 30-year loan. $695.20 P&I x 12 months x 30 years = $250,272 total payment - $110,000 principal = $140,272 interest.
Knowledge Check #15 Eric's cabin isn't visible to the other homes, and Carmen is thrilled just to have sold that lot, so they don't attempt to enforce the deed restriction. A few years later, Vicky buys a lot and puts a 900 square-foot prefabricated home on it. How could Vicky defend herself if Carmen and the other homeowners now want to take her to court to enforce the deed restriction? A. conditional use B. grandfather clause C. laches D. special variance
Correct! The answer is C. The concept of laches says that someone can lose the ability to assert a right if they delay in their attempt to assert that right.
O Knowledge Check #29 A tenant complains about everything. The landlord has to listen to their rants at least twice a week. When the tenant involves the city building inspectors, the landlord decides not to wait until the lease is up and begins eviction proceedings. This is an example of A. actual eviction. B. constructive eviction. C. retaliatory eviction. D. self-help eviction. Correct! The answer is C. The landlord is trying to evict the tenant in retaliation for complaining about code violations. This will not be successful since retaliatory eviction is illegal.
Correct! The answer is C. The landlord is trying to evict the tenant in retaliation for complaining about code violations. This will not be successful since retaliatory eviction is illegal.
The purpose of requiring payment into a mortgage escrow account is to A. allow the borrower to obtain actual cash from the equity built up in the property. B. allow the lender to participate in any earnings, income, or profits generated. C. ensure that enough funds are collected to cover taxes and insurance premiums. D. include the financing of personal property, such as appliances or furnishings.
Correct! The answer is C. The lender (mortgagee) provides this service to a borrower (mortgagor) by adding one-twelfth of the insurance premiums and taxes to the monthly mortgage payment amount.
Knowledge Check #31 An investor is looking for an investment property that requires lower maintenance than the apartment building they currently own. They're thinking about buying a warehouse instead. What is the primary reason the investor might consider a like-kind exchange? A. They can avoid paying commission on the sale of the apartment building if they buy another property. B. They can avoid transfer taxes on the purchase of the warehouse. C. They can defer capital gains taxes on the sale of the apartment building by reinvesting. D. They can defer income taxes on the cash flow produced by the warehouse until they sell it.
Correct! The answer is C. The purpose of a like-kind exchange is to defer capital gains taxes owed from the sale of one investment by exchanging that property for another like-kind investment property.
Knowledge Check #8 Each of these costs is typically paid by the buyer EXCEPT A. discount points. B. escrow reserves. C. existing lien payoff. D. mortgage insurance premiums.
Correct! The answer is C. The seller is responsible for ensuring that any existing liens are discharged. Although a seller could offer to pay discount points for the buyer, it's usually a financing option the buyer selects and is, therefore, responsible for paying at closing.
What is the soonest a mortgage loan could theoretically close? A. 3 business days after the application is submitted B. 3 business days after the required disclosures are delivered OC. 7 business days after the required disclosures are delivered D. 10 days from when the applicant states an intention to proceed with the loan
Correct! The answer is C. There is a 7 business-day waiting period after all required disclosures are delivered to the borrower before a loan can close.
Knowledge Check #27 Federal law requires sellers to disclose known lead paint hazards for homes built before A. 1959. B. 1964. C. 1978. D. 1986.
Correct! The answer is C. This disclosure is mandated for houses built prior to 1978, which is the year lead paint was discontinued.
Knowledge Check #1 The state and local government's authority to enact and enforce laws that protect the public's health, safety, morals, and general welfare is known as A. constitutional authorization. B. general interest license. C. police power. D. safety mandate.
Correct! The answer is C. This is known as police power.
Lisa applied for a loan with XYZ Bank on May 1. XYZ Bank must send Lisa a written explanation of their decision by A. May 10. B. May 15. C. May 30. D. June 4.
Correct! The answer is C. Under provisions of the Equal Credit Opportunity Act, a lender is required to make a credit decision within 30 days of loan application. If credit is denied or the terms offered are different, the lender must also provide the borrower a reason in writing.
Knowledge Check #2 Which homes should an appraiser consider when finding comps? A. homes currently listed for sale in the market B. homes for which the listing agreements have expired C. homes that have sold recently in the subject's area D. All homes should be considered.
Correct! The answer is C. When an appraiser is looking for comps, they will consider only homes that have sold recently.
A gift letter A. can come from a borrower's parent or guardian only. B. cannot be used for part of the down payment. C. must be signed by the donor. D. must state when the gift is to be repaid.
Correct! The answer is C. While a gift may be accepted for a borrower's down payment, there must be a gift letter-signed by the donor-stating the gift does not have to be repaid.
Which sequence of events BEST represents the steps in a judicial foreclosure? A. foreclosure action; equitable redemption period; statutory redemption period; notice of foreclosure; sheriff's sale B. foreclosure action; notice of foreclosure; equitable redemption period; sheriff's sale; statutory redemption period C. notice of foreclosure; foreclosure action; equitable redemption period; sheriff's sale; statutory redemption period D. notice of foreclosure; foreclosure action; statutory redemption period; sheriff's sale; equitable redemption period
Correct! The answer is C. With a judicial foreclosure, the lender must first record then serve a notice of foreclosure when the borrower defaults. If the buyer does not cure the default, a foreclosure action may be filed in court. After the equitable redemption period expires, a sheriff's sale is held. Some states then allow a statutory redemption period.
With an adjustable rate mortgage, the index is added to the determine the A. cap / margin B. interest rate / principal C. margin / interest rate D. principal / cap
Correct! The answer is C. With an adjustable rate mortgage, the index is added to the margin to determine the interest rate for the loan.
Knowledge Check #14 Convert the tax rate of $145 per $100 to a decimal. A. 145.0 B. 14.5 C. 1.45 D.0.145
Correct! The answer is C. You could either divide $145 by $100 or move the decimal point two places to the left. Either way, you find a tax rate of 1.45 expressed as a decimal.
Under the protections offered by the Equal Credit Opportunity Act (ECOA), when qualifying a potential borrower, a lender may NOT consider A. credit rating. B. job stability. C. liabilities. D. marital status.
Correct! The answer is D. A lender will consider income adequacy, sufficient net worth, job stability, and credit rating. Age, marital status, familial status, and receipt of public assistance are among the protected classes under the ECOA law.
Knowledge Check #9 Which is MOST LIKELY a task that is outside of the scope of authority given to a property manager? A. authorize repair to the property B. initiate eviction proceedings C. maintain security deposits in an escrow account D. prepare the owner's income tax returns
Correct! The answer is D. A property manager is a real estate licensee. In all likelihood, preparing an owner's income tax returns is beyond the scope of authority granted to a property manager in the property management agreement.
Knowledge Check #25 Property owner Fred has informed property manager Hank that he cannot rent an available apartment to anyone who is not Hispanic. What fiduciary duty compels Hank to follow his client's direction? A. loyalty B. obedience C. reasonable care D. No duty compels Hank to follow this direction.
Correct! The answer is D. As an agent, Hank must follow all legal directions of his client. Although we have not yet covered fair housing laws, you should know that it would be a violation to discriminate against a potential tenant because of race or ethnicity.
Knowledge Check #33 Phillip bought an office building several years ago for $195,000. He just sold it for $265,000 and bought an apartment building for $270,000 as part of a 1031 exchange. When will Phillip have to pay capital gains taxes? A. never, by making the exchange, he avoids any capital gains taxes B. now that he sold the office building, but only for the $5,000 difference C. now that he sold the office building, since this was not a like-kind exchange D. when he sells the apartment building, assuming he does not exchange it for another property
Correct! The answer is D. By making this like-kind exchange, he deferred paying capital gains taxes on the sale of the office building. He can continue to defer if he makes another like-kind exchange when he sells the apartment building; otherwise, he would pay at that point. Next, to wrap up this unit, we'll look at a couple of calculations investors use to evaluate the performance of their investments.
Knowledge Check #15 This year, the school system collects 12 mills in property tax. Calculate the annual school tax for a property assessed at $318,750. A. $265.62 B. $382.50 C. $2,656 D. $3,825
Correct! The answer is D. Choose the correct tax formula: Percent (Tax Rate) x Whole (Assessed Value) = Part (Property Taxes). First convert 12 mills to 0.012, then insert the values known and calculate. 0.012 x $318,750 = $3,825 in annual taxes.
Knowledge Check #29 A small strip mall has a market value of $350,000. The land on which it sits is valued at 45%. What is the total amount the owner will be able to deduct next year as depreciation? A. $3,808 B. $4,038 C. $4,654 D. $4,936
Correct! The answer is D. Depreciation is based on 55% of the $350,000 market value, or $192,500 ($350,000 x 0.55). Divide that by the recovery period of 39 years for non-residential rental property to find $4,935.89, rounded to $4,936 ($192,500 / 39).
Knowledge Check #20 Property taxes on a parcel of land are $2,120. The property was assessed at 35% of market value, and the tax rate is 47 mills. What is the market value of the real estate? (round to the nearest dollar) A. $36,190 B. $45,106 C. $126,665 D. $128,874
Correct! The answer is D. First, find the assessed value using the correct tax formula: Part (Property Taxes) / Percent (Tax Rate) = Whole (Assessed Value). Plug in the known variables: $2,120 / 47 mills (0.047) = $45,106. The question asks for market value, so divide the assessed value by the assessment rate of 35%: $45,106 /0.35 = $128,874 market value.
Knowledge Check #10 What is the purpose of Form 1099-S? A. discloses the final settlement costs owed by a seller of real property B. documents the commission earned by a broker from the sale of real property C. provides details of the closing requirements to the settlement officer D. reports the seller's proceeds from the sale of real property to the IRS
Correct! The answer is D. For sales or exchanges of certain real estate, the settlement officer must report the seller's proceeds to the Internal Revenue Service using IRS Form 1099-S.
Knowledge Check #7 Which of the following is LEAST likely to be a primary obligation of a property manager? A. create income for the owners B. fulfill the goals and objectives of the owners C C. maintain or increase the property's value D. secure financing for capital improvements
Correct! The answer is D. It's more likely that the owner would be involved in securing financing on his or her property. A property manager could be expected to be responsible for the other choices, however.
Knowledge Check #7 Which document is the most critical to settlement, basically laying the foundation for the closing? A. abstract of title B. bill of sale C. mortgage D. purchase agreement
Correct! The answer is D. Much of the closing is based on what is outlined in the purchase agreement. There are many costs associated with the transfer of real property.
Which statement about a land contract is correct? A. The vendee obtains financing from a lender to purchase vacant land. B. The vendee receives possession, and the vendor retains equitable title. C. The vendor generally pays the property tax, insurance, and cost of maintenance. D. The vendor retains the title to the property until the final payment is made.
Correct! The answer is D. The vendor (seller) retains legal (not equitable) title to the property until the final payment is made. The vendee (buyer) receives possession and equitable title while making installment payments to the vendor and paying the costs of ownership. This is a form of seller financing, and it is not reserved solely for the sale of vacant land.
Knowledge Check #5 Carol and Doug purchased a home 25 years ago for $800,000 when they got married. They recently sold the property for $1.2 million. On what amount will they have to pay capital gains taxes? A. $400,000 B. $250,000 C. $150,000 D. $0
Correct! The answer is D. They made a profit of $400,000 on the sale of the home. As a married couple, they qualify for a $500,000 tax exclusion, so they will not owe capital gains taxes on the sale of that property.
Knowledge Check #21 An appraiser determined that the two-unit rental property he's appraising should bring in $6,600 annually per unit in rent, and he also determined that the GRM should be about 135. What is the estimate of value? A. $89,100 B. $97,778 C. $135,000 D.$148,500
Correct! The answer is D. To find the estimate of value using this data, you first need to determine the monthly rent for the property. If each unit brings in $6,600 a year, the monthly rent on the property is $1,100 ($6,600 x 2 units = $13,200 / 12 months in the year). Multiply the monthly rent ($1,100) by the GRM (135): $1,100 x 135 = $148,500.
Jaycee takes out a $173,000 loan. The annual interest is $9,515. What is the interest rate on this loan? A. 4.5% B. 5% C. 5.25% D. 5.5%
Correct! The answer is D. Using Circle-Math, you know to divide the annual interest by the principal balance to find the interest rate: $9,515 / $173,000 = 0.055 or 5.5%.
Providing information about the quality of schools in an area and the demographic makeup of the students is okay as long as the A. customer has purchased the property in the area. B. customer requests it. C. customer signs a waiver. D. information provided has been published by appropriate authorities and is available to anyone.
Correct! The answer is D. You should never render an opinion regarding the racial makeup or the amenities (e.g., schools) of an area. Direct your client to local libraries, government offices, or online sources where statistical data is available.
Knowledge Check #23 Stu did some investigating and found out that there are two underground storage tanks beneath the parking lot of Fill-r-Cup, but there is no soil or groundwater contamination. If one of those tanks happens to leak in a few years, contaminating Stu's property, he would be liable for the cleanup.
Correct! The answer is False. A buyer would be liable for cleanup under CERCLA, but since Stu did an environmental investigation that showed no contamination at the time he purchased, SARA's "innocent landowner immunity" provisions would protect him to some degree.
Knowledge Check #3 There are different types of agency based on the level of responsibility and authority that each has. When considering the authority given to a property manager, a property manager would be considered a special agent of the property owner.
Correct! The answer is False. A property manager would more likely be considered a general agent of the property owner because of the broad range of duties performed.
Knowledge Check #21 On a settlement statement, expenses that are paid in arrears will show as a credit to the seller and a debit to the buyer.
Correct! The answer is False. Accrued expenses, also known as expenses that are paid in arrears, are the items on a settlement statement that are owed but not yet paid. Since these expenses have not been paid at the time of closing, the seller's portion must be calculated so the seller can be charged (debited) and the buyer credited for this amount.
Knowledge Check #22 Once you derive a multiplier for a particular property type, you can use it over and over again with each new property appraisal.
Correct! The answer is False. Because the one thing that's constant is change, the multiplier you use must reflect what's going on in the market currently. And even if you're looking for the value of two properties on the same day, they could have wildly different multipliers depending on the type of property, the location, etc. Next, we'll look at the other method for estimating value using the income approach, the capitalization rate.
Knowledge Check #26 The only way to mitigate asbestos on a property is through encapsulation, which means that it will be completely removed from the property by skilled professionals.
Correct! The answer is False. Encapsulation is the process of containing the asbestos by applying a sealant. Enclosure and removal are other ways to deal with asbestos.
Knowledge Check #21 The bungalow's homeowner, Penny, is obligated to disclose the existence of any underground storage tanks.
Correct! The answer is False. Generally speaking, sellers are NOT obligated to disclose any hazards that are external to the property being sold.
Knowledge Check #5 An escrow closing is one in which all parties to the transaction are present.
Correct! The answer is False. In an escrow closing, a disinterested third party handles the closing. The buyer and seller do not attend. A roundtable closing typically includes the buyer and seller, along with the listing broker, lender, title company representative, and possibly attorneys for both sides. Roundtable closings are sometimes called face-to-face closings.
Knowledge Check #12 The cost associated with lawn care and snow removal would be considered a capital expense.
Correct! The answer is False. Lawn care and snow removal costs would be considered variable expenses because they are annual maintenance costs.
Knowledge Check #9 Residents of the Happy Acres subdivision in Anytown request a special assessment to pay for new streetlights. If approved, this special assessment tax would be paid by all property owners in Anytown.
Correct! The answer is False. Special assessment taxes are imposed only on the owners of the properties within the special assessment district who will benefit from the improvement.
Knowledge Check #12 The role of an assessor is to determine the amount of property tax due.
Correct! The answer is False. The assessor does not determine the tax that is due. An assessor assigns an assessed value to each property to proportion the tax burden fairly.
Changing interest rates in excess of the state maximum allowed is known as
D. Usury Charging more than the interest rate set by state law is called usury and is subject to lender penalties.
Chapter 5
Forms of Ownership
Knowledge Check #15 A licensee receives two offers for their seller client's property at the same time: One from another licensee in their office, and one from a cooperating brokerage. What should the licensee do? A. submit both offers at the same time, allowing the seller to decide after looking at all the facts B. submit the higher offer first; if it is not acceptable, submit the other one C. submit the offer from their brokerage first and let the seller decide on it before presenting the other offer D. submit the offer from the cooperating brokerage first and let the seller decide on it before presenting the other offer
Incorrect. The answer is A. Licensees have a duty to present all offers. While there is likely no state statute about the order in which to present offers, the seller has the right to know all the facts and look at all the offers before reaching a decision.
Which individual is NOT protected under the disability clause of the federal Fair Housing Act?
Individual who is addicted to illegal drugs
A broker list a client's home for sale on the MLS. There is no offer of cooperation mentioned. An agent from another brokerage has a buyer client who is interested in the home and presents an offer that the seller accepts. The seller is paying 7% commission. How much of the commission must the seller pay the buyer's agent?
Nothing.
If you are standing in the middle of section 20 of a township and go one mile south, what section are you in?
Section 26 Because section numbers snake back and forth within a township, section 29 is directly south of section 20.
Which of the following property transactions would most likely be EXEMPT from federal fair housing laws (assuming that no real estate licensee was involved)? Select all correct responses. A. a six-unit apartment owned by a church that will rent only to members of its faith B. the owner-occupant of a four-unit building who refuses to rent to families with children C. a single-family home being sold by the owner who advertises "No Asians" D. a cooperative building that will sell units only to persons who are at least 62 years old E. a woman looking for a roommate but who only wants another woman
The answer is A, B, D and E. The only situation that would be subject to fair housing laws is the single-family homeowner looking to limit tenants by race. As a protected class, race is NEVER exempt.
Which situations would be a breach of a licensee's duty or obligation to a client? Select all correct responses. A. accepting commission from a seller without telling a buyer client. B. disclosing material defects about a client's property to a buyer customer C. serving as agent to both buyer and seller with their verbal consent D. showing property a buyer client is interested in to other prospective buyers E. showing properties other than the seller client's to prospective buyers F. withholding an offer that is well below the seller client's asking price.
The answer is A, C and F. A. accepting commission from a seller without telling a buyer client. C. serving as agent to both buyer and seller with their verbal consent F. withholding an offer that is well below the seller client's asking price. A licensee would breach fiduciary obligations to a client if they: accept commission from a seller without telling a buyer client (compensation must be disclosed to a client); serve as an agent to both buyer and seller with their verbal consent (dual agency requires written consent); withhold an offer below the seller client's asking price (licensees must disclose all offers; the seller decides whether to accept). The other situations would not be a breach. Now let's review.
Which statements might be discriminatory if included in an advertisement? Select all correct responses. Then we'll review each of the choices. A. "Perfect for New Couples" B. "Newly-Installed Wheelchair Ramps" C. "Exclusive Community" D. "Seniors Only" E. "Roommate Wanted: Women Only"
The answer is A, C, D and E.
A farm is being subdivided, selling for $12,500 per acre. A buyer spends $56,250 on a parcel near the creek. What is the square footage of this property? A. 196,020 OB. 196,425 C. 204,120 D. 209,385
The answer is A. First, divide the selling price by the cost per acre: $56,250/ $12,500 = 4.5 acres. The buyer purchases 4.5 acres. To convert to square feet, multiply by 43,560: 4.5 acres x 43,560 SF per acre = 196,020 square feet.
A listing agent's seller client countered a buyer's offer with an offer for $5,000 below the list price. The buyer found a different house. The listing agreement expired, and now the house is listed with a different brokerage. The original listing agent has a buyer client who wants to make an offer on the house. Can the agent tell the buyer that the seller would accept $5,000 below list price? Why or why not? A. No, the agent's negotiations on behalf of a former seller client are confidential. B. Yes, the agent has a duty to close the transaction as quickly as possible. C. Yes, the agent must act in the current buyer client's best interest. D. Yes, the agent's relationship with the seller ended when the listing expired.
The answer is A. The details of the original negotiations are confidential information. An agent's fiduciary obligation of confidentiality does not end at the termination of the agency relationship unless the former client gives the agent written permission to divulge it.
A potential home buyer is chatting with a broker. Of the information the prospect shares with the broker, which is LEAST LIKELY to be considered confidential? A. their current address B. their reason for house hunting C. their price range D. the terms of their divorce
The answer is A. The prospect's current address is likely to be a matter of public record. All of the other choices could be considered confidential information since they could-at the very least-hint at their financial situation and motivation.
A tenant needs to know the volume of a warehouse so they can install an air filtration system. The building is 110 feet long, 180 feet wide, and 24 feet high. How many cubic yards is this? A. 17,600 cubic yards O B. 39,600 cubic yards C. 158,400 cubic yards D. 475,200 cubic yards
The answer is A. To find volume, multiply length by width and height: 110 feet x 180 feet x 24 feet = 475,200 cubic feet. To find cubic yards, divide that number by 27: 475,200 cubic feet / 27 cubic feet per cubic yard = 17,600 cubic yards
A developer takes out a loan to purchase a 70-acre parcel on which they plan to build a 50-home subdivision. Whenever a buyer purchases a lot, the lender issues a partial release for that lot. This type of mortgage is called a A. blanket mortgage. B. package mortgage. C. purchase money mortgage. D. wraparound mortgage.
The answer is A. A blanket mortgage (or trust deed) covers more than one parcel of land and generally contains clauses that permit the release of portions of the secured property as they are sold.
Bettina is a licensed salesperson for ABC Realty in Newtown. Her mother is selling a house in Oldtown, which is 100 miles away. Mom lists the property with ABC, but because Bettina's name is well-known in Oldtown, and ABC Realty is not, Bettina puts up a yard sign with just her name on it. What kind of ad is this? A. blind B. spam C. spot D. tied-in
The answer is A. A blind ad is defined as any real estate advertisement placed by a licensee that does not include the listing broker's business name. In most states, blind ads are prohibited.
A condition in a purchase contract states the agreement depends on the property passing a home inspection and radon gas test. This is called a A. contingency clause. B. counteroffer. C. tender offer. D. time is of the essence clause.
The answer is A. A contingency clause is a condition placed on a contract.
Knowledge Check #14 On the settlement statement, a new mortgage loan is generally shown as a A. credit to the buyer. B. credit to the seller. C. debit (charge) to the buyer. D. debit (charge) to the seller.
The answer is A. A new mortgage loan is a credit to the buyer, as the lender brings that amount to closing on the buyer's behalf, reducing the amount of money the buyer has to bring to the closing table. A new mortgage loan is neither a debit nor a credit to the seller.
Under Regulation Z, which advertisement would require full disclosure of credit terms? A. "Affordable rates available" B. "Assume loan at 8% interest" C. "Low down payment" D. "Terms to please everyone"
The answer is B. Regulation Z requires that once you state specific credit terms in advertising, such as 8% interest, you must disclose all finance charges and total annual percentage rate (APR).
A licensee hears that a group home for people recovering from addiction will be opening across the road from a subdivision. The licensee begins calling residents in the subdivision to tell them about the group home, urging them to list their homes before property values decline. The licensee could be guilty of A. blockbusting. B. channeling. C. steering. D. stigmatizing.
The answer is A. Blockbusting is defined as inducing or attempting to induce, for profit, any person to sell or rent property based on representations made regarding entry into the neighborhood of persons in a protected class. This usually is an issue related to race, but if the action is based on any protected class, it could be considered blockbusting. Remember that addiction is generally covered under the definition of disability and is, therefore, a protected class. Blockbusting is also referred to as panic selling or panic peddling.
A purchase contract between seller Juan and buyer Rita includes a home inspection review clause. Which party to the contract can waive that contingency? A. buyer Rita B. seller Juan C. either party D. neither party
The answer is A. Buyer Rita can waive the home inspection review clause since she is the party who is protected by it and for whom the contingency is written.
Which is NOT a necessary element for a valid and enforceable contract? A. consequence B. contractual capacity C. lawful objective D. mutual agreement
The answer is A. Consideration, not consequence, is the other essential element for a valid and enforceable contract.
The National Do Not Call Registry regulations require companies to synchronize their customer lists every A. 31 days. B. 45 days. C. 3 months. D. 6 months.
The answer is A. Customer DNC lists must be synchronized at least once every 31 days.
Knowledge Check #15 Which example of depreciation is generally incurable? A. economic obsolescence B. functional obsolescence C. physical depreciation D. wear and tear
The answer is A. Economic obsolescence, also called external obsolescence, is always incurable because the property owner can do nothing to change it.
A licensee maintains several websites, each directed at various niches, such as condo buyers, seniors, etc. However, listings are currently thin in the market. To keep the websites from looking skimpy, they decide to keep several sold or expired listings on the site. This could be an example of A. bait and switch. B. blind advertising. C. collusion. D. negligence.
The answer is A. If the licensee intentionally leaves old listings posted, consumers could accuse them of using bait and switch tactics.
A prospective buyer makes an offer of $210,000 on a house that was appraised for $215,000. If the seller accepts it, what is the minimum down payment the buyer must make to get an FHA-insured loan? A. $7,350 B. $7,525 C. $8,600 D. $10,500
The answer is A. Most FHA-insured loans require a down payment of at least 3.5% of the home's purchase price or appraised value, whichever is less. If the purchase price is $210,000, the buyer would have to make a down payment of $7,350 ($210,000 x 0.035).
A licensee presents a full-price offer to a seller from a financially qualified Latino prospect. Later, he presents a lower offer to the same seller from an Asian prospect. The seller accepts neither offer but sells to a neighbor (using the same licensee) who buys the house to prevent a minority from moving in. Who would NOT be subject to liability under the Fair Housing Act? A. Latino prospect B. licensee of Ace C. neighbor D. seller
The answer is A. No person may be a party to a plan of discrimination. The neighbor, the licensee, and the seller all were in on the plan of discrimination and thus could be held liable. The Asian and Latino prospects simply submitted offers, and so are not liable.
From a borrower's perspective, what is an advantage of private mortgage insurance? A. It allows the borrower to make a smaller down payment. B. It protects the borrower against default. C. It protects the borrower's title against other claims. D. It reimburses the borrower for damage to the property.
The answer is A. Private mortgage insurance (PMI) is required on conventional loans with a loan-to-value ratio above 80%. It allows borrowers to make a smaller down payment. It protects the lender from default by the buyer.
A borrower refinances their home through a new lender. What are their rights of rescission under the Truth in Lending Act? A. three business days after signing the loan application B. seven days after signing the loan application C. three business days after receiving the funds D. They have no right to rescind the loan.
The answer is A. TILA allows borrowers who refinance their homes or get a home equity loan from a new lender a three-day right of rescission after completing the loan application or receiving the required Loan Estimate.
Which document is NOT required by RESPA to be given to consumers within three business days of a loan application? A. Closing Disclosure B. Loan Estimate C. Mortgage Servicing Disclosure Statement D. Your Home Loan Toolkit
The answer is A. The Closing Disclosure must be made available three business days prior to closing. The other documents must be given to consumers within three business days of a completed loan application.
Which is TRUE about a VA loan? A. The VA determines the loan's guaranty limit. B. The VA determines the loan's interest rate. C. The VA determines the loan terms. D. The VA requires a minimum 3.5% down payment.
The answer is A. The VA guaranty limit is the amount of the loan the VA will guarantee, up to a maximum amount. The interest rate and loan terms are negotiated between the borrower and lender. VA loans generally do not require a down payment unless the buyer purchases a property that exceeds the guaranty limit.
Knowledge Check #17 A nice, well-kept house located in the heart of an all-residential area, surrounded by other well-kept houses of similar style and value, is an example of A. conformity. B. contribution. C. regression. D. substitution.
The answer is A. The principle of conformity says that a particular property achieves its maximum value when it's surrounded by properties that are similar in style and function. This goes for neighborhoods as well. Neighborhoods are more desirable when there's a general similarity in utility and value for all properties.
Knowledge Check #23 Of these expenses, which would be included in the calculation to find net operating income? Select all correct responses. A. depreciation B. property management fees C. reserves for replacement D. mortgage payments E. property tax
The answer is B, C and E. Of these, the net operating income should take into consideration property taxes, property management fees, and reserves for replacement. Debt service and depreciation are NOT counted toward the NOI.
An owner wants to rent out a unit in the four-unit building he owns and lives in. He is 65 years old and is uncomfortable around certain people. He hires a licensee to help him. Unknown to the owner, the licensee puts an ad in the paper that says: "No college students." This ad is A. permitted because college students are not a protected class. B. permitted but only because a licensee placed the ad. C. not permitted because a licensee is involved. D. not permitted because it is discriminatory.
The answer is A. This would be a permitted advertisement because it does not discriminate against membership in a protected class. It's important to note, however, that the owner is not exempt from following fair housing laws related to advertising; it's just that this restriction against college students does not violate fair housing laws.
An appraiser needs to be state-certified to perform which of the following appraisals? A. appraisal for a loan insured by the FHA B. appraisal for a loan issued by a federally insured lender C. appraisal of a residence valued at $200,000 D. appraisal of an office building valued at $500,000
The answer is A. To appraise properties for an FHA-insured loan, the appraiser must be state-certified. Generally, federally related loans require licensure or certification, although the requirement to be state-certified applies if the loan is for a certain amount or is complex in nature.
Knowledge Check #3 The government sends Kara a notice stating that her house and neighborhood will be demolished to build a much-needed water treatment plant. What is the government required to offer Kara in exchange for condemning her property? A. just compensation B. nothing, since it is for the public good C. whatever Kara asks for D. whatever they decide is reasonable
The answer is A. To condemn Kara's property, even if for the public good, the government must give her just compensation.
Hank and Julie run brokerages on opposite sides of town. They decide they can save a lot of money on gas if they concentrate on their side only. Hank agrees to send customers interested in north side properties to Julie if she will send him any customers interested in south side properties. This is an example of A. territory allocation. B. blockbusting. C. price-fixing. D. redlining.
The answer is A. Two or more licensees who conspire to divide their customers in any way are guilty of violating antitrust laws against allocation.
Under an assignment, if Georgette quits paying the rent, who will the landlord come after? A. Georgette first and then Richard B. Georgette only C. Richard only D. It's impossible to know.
The answer is A. With an assignment, the landlord can come after both Richard and Georgette, although she is primarily liable.
A licensee has worked long hours with a buyer client to negotiate an agreement to buy a house. A day before closing, the buyer tells the agent that they just lost their job and they are sure that the mortgage won't close. However, they do not want to abandon the deal yet, just in case it does. What should the buyer's agent do? A. The agent cannot disclose this information without breaching their fiduciary duty of confidentiality. O B. The agent must disclose this information as it is a material fact. C. The agent must follow the client's lawful orders and let things stand for the time being. D. The agent should ask their employing broker to terminate the agency agreement with the buyer.
The answer is B The buyer's financial situation could jeopardize the entire transaction and is a material fact. If the seller turned down another offer with the expectation of the buyer getting a mortgage and the deal falls through, the buyer's agent will have breached their duty of disclosure, which they owe to clients and customers. Let's return to our discussion of the remaining fiduciary duties: confidentiality, accounting, and reasonable skill and care.
Assuming no real estate licensee is involved, which rental transaction must comply with the provisions of the Fair Housing Act? A. Owner A rents out one room in their residence without using any advertising. B. Owner B rents out a unit in a tri-plex using no discriminatory advertising. C. Owner C lives in one unit of their four-plex and rents another unit using no discriminatory advertising. D. Owner D lives on one side of their duplex and rents to a neighbor's son without using any advertising.
The answer is B A residential rental transaction may be exempt from the Fair Housing Act if the property is a single-family home and the owner has no more than three properties. An owner-occupied property with four or fewer units is also exempt if no discriminatory advertising or real estate broker is used. The owner of the tri-plex is not identified as an occupant of one of the units, so that transaction must comply with provisions of the Fair Housing Act.
Which statements about the mortgage are TRUE? Select all correct responses. A. The borrower in a financing transaction is called the mortgagee. B. A mortgage creates a voluntary lien. C. Once a borrower repays the amount on the note, the mortgage is worthless. D. The purpose of the mortgage is to indicate the amount of money owed and when it is due.
The answer is B and C. A borrower willingly enters into a relationship with a lender to borrow money; therefore, the lien, represented by the mortgage, is voluntary. The mortgage ceases to have any value or meaning once the debt is discharged; the lender would provide the borrower with a satisfaction of mortgage document, which is generally recorded in the public record, as evidence that the debt has been repaid. A borrower gives the lender a mortgage as collateral for the debt; the borrower, therefore, is called the mortgagor, and the lender is called the mortgagee. The purpose of the mortgage is to provide security for the debt; it references the promissory note, which is where the specific terms of the loan are found.
Knowledge Check #22 Which of these is MOST LIKELY a legitimate reason to deny giving a lease to a prospective tenant? Select all correct responses. A. arrest for drunk driving B. income level too low C. previous eviction D. receives public assistance
The answer is B and C. You should not discriminate against someone because of their source of income, if it is sufficient to support the rent and other reasonable living expenses. Also, an arrest, especially for a non-violent act, should not be used to restrict a prospective tenant's access to rental property.
Knowledge Check #9 Which of these are typically paid by the seller? Select all correct responses. A. appraisal fee B. broker commission C. home inspection fees D. title insurance E. transfer tax
The answer is B and E. Sellers are generally responsible for paying the broker's commission, title search charges (not title insurance), recording fees for the discharge of mortgage, transfer taxes, and any fees for legal representation they engage.
All Antitrust violation. A. Mo, a so-called discount broker, advertises his commission rate in the newspaper and on his website. B. Kim and Rob are licensees for different brokerages in Anytown. One day over lunch, they agree that XYZ Discount Real Estate is really hurting their commission earnings, so they decide not to show his listings to buyers. C. A local real estate board publishes a suggested commission schedule, but it does not mandate that members follow it. D. On a listing appointment, salesperson Sam tells the sellers that he guarantees he'll sell their house, but they need to use Gorgeous Home Staging Inc. to spruce up the home before he'll list it. E. Next House Realty has been doing business in town for years. When High Street Realty opens, Fran, a salesperson at Next House, tells prospective clients that High Street's agents don't know the neighborhood and can't possibly price their homes correctly.
The answer is B, C, D and E. No, simply advertising the rate to the consumer is not a violation. Since the broker is not consulting with any competing broker to set a commission rate, there is no restraint of trade. Yes, The decision to not do business with XYZ inhibits possible sales to XYZ's agents. This is an example of group boycotting. Yes, such a discussion of commission rates could be considered an unreasonable restraint of trade and, therefore, price-fixing. Yes, here Sam is attempting to tie the listing agreement to the services offered by the staging company. This is an example of a tie-in agreement. Yes, this could be an example of disparagement, especially considering the licensees at High Street might have been doing business in the area for years, just like Fran.
Review each situation and select those that represent an antitrust violation. A. Hal and Kelly are both sales agents for Northwoods Realty. At a company meeting, broker Bob told them not to accept any listing for less than 7%. B. Otto of Rock Realty tells Pam of Happy Realty that he will reject any listing south of Highway 1 if Pam will reject any listing north of it. C. A local multiple listing service refuses to accept listings from any agency that charges a flat fee. D. At a convention for the area's real estate brokers, broker Tom mentions that he's thinking of raising the commission rate his brokerage charges to 7.5%. E. Gina buys a new condo through Resort Realty. When she signs the papers at closing, she sees a clause in the contract indicating that if she ever decides to sell the condo, she must list with Resort Realty.
The answer is B, C, D and E. No, this conversation took place among agents of the same brokerage, not competing brokerages, so it is not an antitrust violation. Yes, even if the agreement seems logical given the neighborhood of each broker, it could be considered market allocation that might result in a restraint on trade because it limits the choices of the consumer. Yes, the MLS represents members from various brokerages. A refusal to deal with a specific party could be considered group boycotting. Yes, although Tom did not specifically conspire with other brokerages on the commission rate, the mere discussion of prices has been determined to be an example of price-fixing. Yes, transaction 1, the purchase of the condo, is tied to transaction 2, a listing. This could be an example of an illegal tie-in agreement.
A licensee learns that their seller client is highly motivated and would be happy to receive an offer for much less than market value. The licensee decides to make a cash offer for the seller's list price that the seller accepts. The licensee then sells the property for market value. Which duty has the licensee breached? A. confidentiality B. disclosure C. obedience D. no breach has occurred
The answer is B. A licensee has a duty to disclose the property's true value, and this failure to do so is a clear example of a conflict of interest. The licensee also breached the fiduciary duties of loyalty and reasonable care. The licensee's behavior is regarded as self-dealing.
A buyer asks the buyer's agent to write an offer on terms that don't match the listing agreement. The buyer's agent refuses to write the offer and then, in writing, unilaterally terminates the agency relationship with the buyer. Which is TRUE? A. The buyer's agent will be subject to disciplinary action. B. The buyer's agent is permitted to unilaterally terminate the agency relationship. C. The buyer's agent is allowed to terminate the agency but must write the offer before terminating. D. The buyer's agent is not permitted to write such an offer.
The answer is B. An agent may unilaterally renounce an agency relationship rather than help the principal do something they consider to be pointless or unwise. Agency termination may involve a breach of contract, so the agent could be liable for damages. The breach of contract is not necessarily grounds for disciplinary action, but failure to present an offer is. In this example, however, the agent didn't write the offer, so there was no offer to present.
Randy listed his house for sale with agent Aaron. Randy finds out that Aaron has been showing other competing properties that are for sale to buyers. Aaron A. is breaching the duty of loyalty to seller Randy. B. is not breaching the duty of loyalty. O C. has created a conflict of interest. D. may do so, but only with the seller's express permission.
The answer is B. As a seller's agent, Aaron does have a duty of loyalty to seller Randy. However, Aaron will most likely have other listings besides Randy's property. Showing buyers competing properties that are also for sale doesn't in and of itself breach the duty of loyalty to the seller or create a conflict of interest.
Put-It-Here Company builds a two-story building that is 100 feet by 100 feet. They plan to divide the space to create storage units that are 9'x 10'. If they reserve 10% of the total space on each floor for hallways, stairs, and an elevator, how many storage units will be available to rent? A. 100 units O B. 200 units C. 222 units D. 800 units
The answer is B. First, determine the square footage of one floor: 100' x 100' = 10,000 square feet. Since there are two floors, multiply by 2: 10,000 SF x 2 = 20,000 SF. Next, subtract the 10% reserved for common areas: 20,000 SF - 10% = 18,000 SF. Each storage unit is 90 SF (9' x 10'). Divide the total SF by the square footage of one unit to determine how many units will be available: 18,000 SF / 90 SF = 200 units.
Which event would LEAST LIKELY trigger the requirement to disclose an agency relationship and/or present the agency disclosure form to a prospective buyer? A. discussing an offer to buy property B. providing the price of a property in response to a phone inquiry C. requesting specific financial information from the buyer D. showing a property to a buyer (except at an open house)
The answer is B. When working with a prospective buyer of real estate, the agency relationship must be disclosed at the first substantive contact but no later than certain trigger events. A phone call from someone making an inquiry about a property is not necessarily a trigger event.
Ivy is declared incompetent by a court, and her son Dave is her legal guardian. When Dave moves out of state, he asks his brother Don to take over. Don decides to move his mom into his house, and so he lists her house for sale. Would this sale be valid? A. No, any real estate contract for an incompetent person is automatically void. B. No, Don has not been designated by a court to handle Ivy's affairs. C. Yes, but only if Don gets Ivy's written permission. D. Yes, Dave has designated his responsibilities to Don.
The answer is B. An incompetent person's property may be sold, but the deed must be signed by a court-appointed guardian or duly appointed attorney-in- fact. Don does not meet either of these criteria. Next, we'll discuss the concepts of offer and acceptance that are required to create a binding contract.
A lender must deliver the Loan Estimate to a borrower within submitting a completed loan application. A. 2 business days B. 3 business days C. 5 business days D. 7 business days
The answer is B. Borrowers must receive the Loan Estimate, which includes the disclosure of the annual percentage rate, within three business days after the submission of a completed loan application.
Licensee Lucinda accepts an earnest money check from buyer Bob when he makes an offer to purchase. She deposits the check into the company's general account instead of the escrow account. This could best be described as an example of A. clouding. B. commingling. C. converting. D. cooperation.
The answer is B. Commingling occurs when a licensee mixes client funds with brokerage funds.
Knowledge Check #37 A buyer purchases a four-unit apartment building, putting 10% down on a purchase price of $500,000. Based on the financing terms, the monthly principal and interest are approximately $2,700. The NOI is $35,000 annually. What is the cash-on-cash return? A. 4.4% B. 5.2% C. 6.5% D. 8.8%
The answer is B. Deduct annual debt service of $32,400 ($2,700 x 12) from the $35,000 net operating income to find a before tax cash flow of $2,600. Divide that by the investment (acquisition cost) of $50,000 to find the cash-on- cash return of 5.2%: $2,600 / $50,000 = 0.052.
At a local convention of real estate licensees, a broker mentions that they have to raise their commission rate to 8% or close the office. He could be found guilty of A. allocation. B. price-fixing. C. securities violations. D. nothing; he did not violate any rules or laws.
The answer is B. Even the appearance of discussing fees could be considered illegal price-fıxing.
A property is listed for $385,000. A buyer offers $383,000 and insists that the sub-zero refrigerator remains with the property. When the signed offer is presented to the sellers, the sellers accept the price but want to take the refrigerator with them. On the offer, they cross out the item about the refrigerator, sign it, and return it to the buyer's agent. Under these circumstances, which statement is TRUE? A. The offer has been invalidated and the buyer will need to begin looking for a new property. O B. The original offer is terminated, and the sellers have made a counteroffer. C. The sellers can turn around and accept the original offer if the buyer won't go along with giving up the refrigerator. D. There is now a valid contract that has been signed by all parties.
The answer is B. Even though the sellers accepted the price change, they still changed the terms of the offer by altering the part about the refrigerator. This had the effect of terminating the offer and creating a counteroffer. The sellers, in essence, become the new offerors.
Tabitha wants a loan to purchase a house. She could complete an application with each of the following EXCEPT A. ABC bank. B. Ginnie Mae. C. Jim, a mortgage broker. D. SL Savings & Loan.
The answer is B. Ginnie Mae operates in the secondary market, purchasing mortgages from primary market lenders. Banks, savings and loans, and mortgage companies are primary market lenders. A mortgage broker does not lend money but will accept an application from a borrower and place the loan with a lender.
Knowledge Check #22 Harriet and Olive have a valid contract for Olive to buy Harriet's house. The contract indicates a settlement date of April 30. On April 15, Harriet informs Olive that she no longer wishes to sell the house. Harriet's action is an example of A. partial performance. B. repudiation. C. substantial performance. D. a tender offer.
The answer is B. Harriet repudiated the contract; thus, Olive may immediately file a lawsuit for breach of contract without making a tender offer.
Knowledge Check #24 Net operating income is calculated as A. gross income divided by operating expenses. B. gross income minus operating expenses. C. gross income plus operating expenses. D. operating expenses divided by gross income.
The answer is B. In its simplest application, NOI is defined as gross income minus operating expenses.
Knowledge Check #24 Lester signs a contract to buy Kathy's house. The contract is conditional on Kathy installing new carpet throughout. Kathy installed the carpet at a cost of $12,500. Before closing, Lester tells Kathy that he does not want to buy the house. Kathy sues Lester for $12,500 and wins. The court awarded her A. collateral damage. B. compensatory damages. C. liquidated damages. D. punitive damages.
The answer is B. Money damages awarded by the court to compensate the victim for their financial loss are compensatory damages.
Which type of lease is most commonly used for residential rental? A. graduated lease B. gross lease C. net lease D. percentage lease
The answer is B. Most residential leases are straightforward gross leases where the tenant pays rent in exchange for occupancy, while the landlord pays the costs associated with ownership, such as property taxes, insurance, and maintenance.
ABC Real Estate Company bought an e-mail list from a vendor and sent out 5,000 e-mails soliciting business. To comply with provisions of the CAN- SPAM Act, ABC must honor any opt-out request within it. of receiving A. 3 business days B. 10 business days C. 30 days D. 60 days
The answer is B. Once a request is made, it must be honored within 10 business days. Any opt-out mechanism must be able to process opt-out requests for at least 30 days after the message has been sent.
Which term would BEST describe the type of loan where a seller finances all or part of the sale of property for the buyer? A. conforming loan B. purchase money mortgage C. subject to financing D. take-out loan
The answer is B. Purchase money mortgage is a general term used to describe seller financing. More specifically, however, it refers to the actual promissory note and mortgage that the buyer gives the seller in a seller-financed transaction.
Mike has always loved the little cottage at the end of the lane. One day, he knocks on the door and asks owner Carrie if she'd like to sell. She says she's not likely to sell. He offers to pay her $2,000 today if she will agree to contact him if she ever gets an offer on the cottage, giving him the opportunity to make the purchase before anyone else. This is an example of a(n) A. contingency clause. B. option to purchase. C. right of first refusal. D. tendering performance agreement.
The answer is C. A right of first refusal is an option that requires seller Carrie to give Mike the first chance to buy or lease property if the owner decides to sell or lease it after receiving a bona fide offer from a third party. Mike cannot exercise this right until Carrie gets a bona fide offer from a third party.
Any solicitation done via e-mail must include instructions for A. contacting the Federal Trade Commission with complaints about the licensee. B. filing a complaint for a fair housing violation. C. opting out of receiving future e-mails. D. steps necessary to collect damages for spam.
The answer is C. According to the CAN-SPAM Act, messages must include a clear and conspicuous explanation of how the recipient can opt out of receiving e-mail.
Which of these situations would LEAST LIKELY be considered an example of fraud? A. A buyer's agent knew their client used doctored W-2s to apply for a mortgage loan. B. A licensee advertised a recently sold property as though it was available for purchase. C. A listing agent did not disclose that their seller clients were getting divorced. D. A listing agent did not tell the buyer about a lien on the property they had listed.
The answer is C. An agent is not allowed to disclose confidential information about their seller clients. Keeping such information secret is not an example of fraud. The other activities could be.
A buyer and seller agree upon an option to purchase, with a 60-day option period. When should the parties agree upon the purchase price? A. any point between the signing of the option agreement and closing B. at closing C. before signing the option agreement D. when the buyer decides to exercise the option
The answer is C. An option agreement should contain all of the details that a purchase agreement would contain, so the terms of the contract, such as the purchase price, should be included in the option agreement before the buyer and seller sign it. Once the option agreement is exercised, it generally serves as the purchase contract.
A prospective tenant calls a landlord about an advertised apartment. The landlord informs the caller that the unit was rented. A week later, the sign is still up. The prospect believes the landlord did not show her the apartment because she is a woman and has a strong accent. If she decides to file a complaint against the landlord with HUD, she must do so within the incident. A. 90 days B. 6 months C. 1 year D. 2 years
The answer is C. Anyone can file a complaint of discrimination with HUD's Office of Fair Housing and Equal Opportunity (FHEO) within one year of the incident.
Knowledge Check #10 Homeowner Helga takes good care of her house but recently discovered a small crack in a basement wall. This type of depreciation is MOST LIKELY A. curable external obsolescence. O B. curable functional obsolescence. C. curable physical deterioration. D. incurable physical deterioration.
The answer is C. Assuming the crack is recent and is not a symptom of serious foundation issues, this is most likely an example of curable physical deterioration. If the foundation is severely compromised, however, it could potentially be considered incurable.
Broker Dean sold a house to Sara a year ago and just heard that she's being transferred. Even though her name is on the National Do Not Call Registry, can Dean call her to see if she would list her house with him? A. No, since her name is on the national DNC Registry, she is protected from solicitation for new business. B. No, the transaction was so long ago that they no longer have an established business relationship. C. Yes, assuming that her name is not on his company's internal do not call list. D. Yes, they have an established business relationship that allows him to call her for up to 18 months with no restrictions.
The answer is C. Because they have an established business relationship, Dean can call her for 18 months. If a consumer has asked to be put on a company's internal do not call list, the company may not call to solicit new business, even if there is an EBR.
Which of these phrases is LEAST LIKELY to be evidence of a licensee's conspiracy to commit an antitrust violation? A. "If you list with us, just be aware that we will use only YES Title for the closing." B. "We traditional brokers should do something about Top's discount fee policy." C. "Our brokerage charges 7%, but I can talk to the broker about lowering it for your house." D. "Your firm can have the listings north of Broad Street, and we'll take the ones south of Broad."
The answer is C. Commission can be negotiated between client and broker. All of these other phrases could get a real estate licensee into severe trouble. Antitrust laws must be taken very seriously.
Knowledge Check #12 Which is NOT a reasonable deed restriction? A. indicating the types of buildings that may be constructed B. limiting the activities that can be conducted at the site C. listing the religions of purchasers who would be acceptable D. requiring a minimum size for buildings being constructed
The answer is C. Deed restrictions in violation of fair housing laws, such as restrictions on the sale of the property to people of a particular race, religion, or ancestry, are void and unenforceable.
Knowledge Check #16 Jim signs an offer to buy Emma's house for $495,000, indicating he wants the subzero refrigerator. She's happy with the offer but intends to take the refrigerator to her new home. Emma crosses that provision out and signs the offer. Her agent returns it to the buyer. Which statement is TRUE? A. This is a valid contract since both buyer and seller have signed it. B. The original offer is invalidated, and the parties need to begin negotiating from the beginning. C. The original offer is terminated, and Emma has made a counteroffer. D. Seller Emma can accept Jim's original offer if he insists on getting the refrigerator.
The answer is C. Even though seller Emma accepted the offer price, she still changed the terms of the offer by altering the part about the refrigerator. This had the effect of terminating the offer and creating a counteroffer. Seller Emma has become the new offeror (or the counterofferor).
With a deed of trust, who holds title to the land? A. the buyer B. the developer C. the seller D. the trustee
The answer is D. With a deed of trust, a trustee holds title to the property on behalf of the seller as security. The buyer has only equitable title until the loan is repaid.
A woman lists her home for sale with a real estate agent for $300,000. At an open house, a buyer asks the agent what the seller's bottom line is. The agent says the seller won't consider any offer under $295,000. The buyer offers $295,000, and the seller accepts. Which is CORRECT? A. The agent did not violate any fiduciary duties because the seller's bottom line is not confidential information. B. The agent engaged in self-dealing to close the deal quickly, violating fiduciary duties owed to the client. C. The agent fulfilled the fiduciary duties to the seller by negotiating a successful real estate transaction. D. The agent violated the duties of loyalty and confidentiality by telling the buyer the lowest acceptable offer price.
The answer is D. By telling the buyer the seller's bottom line, the agent divulged confidential information that impacted the seller client's negotiating position. This is also a breach of loyalty to the seller, even though the transaction closed.
Licensee Lucy is hosting an open house for her seller client. Buyer Bonnie visits the house and tells Lucy that she is interested in the house but is not interested in having an agent. Lucy does NOT owe Bonnie the duty of A. accountability of funds. B. honesty. C. disclosure. D. obedience.
The answer is D. Even though Bonnie is just a customer, Lucy must treat her honestly and be accountable for any of Bonnie's money that Lucy might hold, such as earnest money. There are also certain disclosure obligations she has. She does not, however, have to obey Bonnie's instructions.
Which is the best definition of a material fact? A. a defect that could affect the buyer's possibility of receiving clear title B. a defect that is not readily apparent or visible C. knowledge that can be discovered only through physical inspection of the property O D. knowledge that would affect a buyer's decision whether or not to buy
The answer is D. While all of the options could potentially be considered subcategories of material facts, a material fact is defined broadly. It could be any knowledge that has a substantial negative effect on the property's value or on a party's ability to complete a transaction. The best response, therefore, is the one that encompasses all of the choices.
You can contact a former client for up to even if that client is on the National Do Not Call Registry. A. 3 months B. 9 months C. 12 months D. 18 months
The answer is D. A business may call a consumer with whom it has an established business relationship (EBR) for up to 18 months after the transaction, even if the consumer's number is on the National Do Not Call Registry.
A buyer signs a purchase contract, and settlement is scheduled for next month. Two weeks before the transaction closes, she asks to void the contract, indicating that she suffers from schizophrenia and was not taking her medicine when she signed the purchase contract. Is this contract valid? A. Yes, because a mental disorder does not factor into questions of contractual capacity B. Yes, because settlement was scheduled, and the deed was already in escrow. C. No, because buyers always have the right to rescind a contract prior to settlement. D. No, because the buyer's temporary incapacity allows her to rescind the contract.
The answer is D. A contract signed by someone who was temporarily incompetent at the time may be voidable if that person takes action within a reasonable period of time after regaining competency.
Knowledge Check #18 Upon receipt of an offer to purchase under certain terms, if the seller makes a counteroffer, the prospective buyer is A. bound by their original offer. B. bound by the agent's decision. C. bound to accept the counteroffer. D. released from their original offer.
The answer is D. A counteroffer is both the rejection of the original offer and the making of a new offer with new terms. Once the offer has been rejected, it may not be accepted later. Our last topic for this unit is the performance, or execution, of a contract.
A homeowner needs to replace a furnace and make some other repairs to the house. They're considering a home equity line of credit. Which statement is TRUE? A. A HELOC finances the purchase of both personal and real property. B. A HELOC is a full amortized fixed term loan. C. A HELOC involves lower payments at first and larger payments later. D. A HELOC is an open-ended secured loan.
The answer is D. A home equity line of credit (HELOC) is a type of home equity loan. While it is secured by the collateral property, it is open-ended like a revolving credit card account.
If the total payments over the life of a loan pay off the entire balance of principal and interest, the loan is referred to as A. annualized. B. compounding. C. diminishing. D. fully amortized.
The answer is D. A loan that is fully amortized means the total payments over the life of the loan will pay off the entire balance of principal and interest due at the end of the term.
Of these, which type of lease is most typically used for retail space? A. gross lease B. land lease C. net lease D. percentage lease
The answer is D. A percentage lease allows the property owner to benefit from their tenant's business income.
What type of mortgage could provide the borrower with a monthly check instead of the borrower making a monthly payment? A. blanket mortgage B. graduated payment mortgage C. interest only mortgage D. reverse mortgage
The answer is D. A reverse mortgage provides monthly income, a lump sum of cash, or a line of credit to borrowers age 62 or older, based on the equity in their homes.
To avoid foreclosure, a homeowner asks the lender to accept less than the amount owed on the property. This type of arrangement is a A. deed in lieu of foreclosure. B. deficiency agreement. C. forbearance agreement. D. short sale.
The answer is D. A short sale occurs when the borrower sells the property for less than what is owed. The lender is willing to accept this to avoid an expensive foreclosure proceeding.
Cameron gets a 5-year loan for $22,000 at 8% interest to build a pole barn on the back of his lot. He pays the bank $146.67 every month. At the end of five years, he has a $22,000 balloon payment. What kind of loan does Cameron have? A. ARM B. full-amortizing C. hybrid D. straight
The answer is D. A straight loan is a non-amortized loan in which the regular payments cover only the interest over the term of the loan. At the end of the term, a lump sum payment of the principal is required.
In which of the following cases would you MOST LIKELY expect to see market price equal to market value? A. The parties to the sale were related. B. The sale was a foreclosure. C. The sale was made with an anticipation of a change in zoning. D. The sale was an arm's-length transaction.
The answer is D. A typical transaction, also called an arm's-length transaction, means that the transaction occurred under typical conditions in the marketplace where each of the parties were acting in their own best interests.
Knowledge Check #21 Estelle is the owner of a six-unit apartment building. She decides to put together a new lease application for prospective tenants. Which question would be a potential fair housing violation? A. "Are you at least 18 years old?" B. "Do we have your permission to pull a credit report on you?" C. "Do you prefer a first-floor unit or a second-floor unit?" D. "What are the ages of any children who will live in the unit?"
The answer is D. As creditworthiness is not a protected class, Estelle can request a credit report. She can also make sure that the prospective tenant is old enough to enter into a contract, and asking about the floor the tenant prefers does not target a protected class. Asking about children, however, is a violation because familial status is a protected class. Estelle can, however, ask about the total number of occupants to ensure that it meets the building's occupancy standards.
Which of these is NOT a type of security instrument? A. deed of trust B. land contract C. mortgage D. promissory note
The answer is D. Deeds of trust, land contracts, and mortgages are all types of security instruments. A promissory note is a financing instrument.
A mixed-race couple applies to rent an apartment in a four-unit building. The real estate broker who manages the building rejects their application because their credit rating is not very good and also because one of them is a minority. Does the real estate broker's refusal violate the federal Fair Housing Act? A. No, because a poor credit history is a legitimate reason for rejecting a rental applicant. B. No, because residential buildings with four units or fewer are exempt from the Fair Housing Act. C. Yes, because credit history is a protected class under the Fair Housing Act. D. Yes, because race was a factor in the broker's decision.
The answer is D. Even though the building has four units, which allows some leeway, when a real estate licensee is involved, there are no exemptions. Also, race was one factor in the refusal, and that is a clear violation. Race is never exempt. If the broker's only reason for rejecting their application was related to their credit, however, it would not be a violation.
Knowledge Check #11 Which home suffers from external obsolescence? A. Home A allows access to the basement only from outside of the home. B. Home B has only a detached one-car garage. C. Home C has a failing septic system. D. Home D is less than 500 yards from the county dump.
The answer is D. External obsolescence occurs when something outside the control of a property or its owner makes it less desirable. The factors causing the obsolescence may be economic, environmental, or location-based.
Knowledge Check #23 Which is an example of liquidated damages? A. A broker reimburses a former client who sued for breach of agency obligations B. A court orders a reluctant seller to pay the commission due to a broker. C. A court orders a seller to return the earnest money deposit when they back out of the sale. D. A seller keeps the earnest money deposit when the buyer backs out.
The answer is D. Liquidated damages reflect the amount of money the parties to the contract specified in a contract to be returned in the event the contract is terminated. Court-ordered damages are not considered liquidated damages.
To comply with a court's judgment to pay back child support, Harry is forced to sell his cabin as quickly as possible, accepting far less than the property's market value. This is an example of A. assessed B. insurable C. investment D. liquidation
The answer is D. Liquidation value is the value a property could get if sold under the duress of a must-sell situation with less-than-typical market exposure.
Knowledge Check #21 Ellen bought her house for $240,000. If an assessor's opinion is that her property is worth $250,000 and the statutory assessment ratio is 33.33%, what is the assessed value? A. $79,200 B. $79,992 C. $82,500 D. $83,325
The answer is D. Multiply the assessor's opinion of value by the statutory assessment ratio of 33% to find the assessed value of $83,325 ($250,000 x 0.3333 = $83,325). Next, we'll turn our attention to real property investment.
Knowledge Check #6 Arrow Manufacturing Company is seeking permission to build a new industrial manufacturing facility in Everytown. When evaluating potential sites, what would MOST LIKELY be the primary factor considered by the Everytown zoning board? A. how far employees will have to commute B. how many employees Arrow will hire C. how much the facility will generate in taxes D. what is the impact on noise, water, and air pollution
The answer is D. Of the choices given, a zoning board is most likely to consider the manufacturing facility's impact on nearby neighborhoods with regard to air, noise, and water pollution.
A prospective tenant was interested in renting a unit in an owner-occupied duplex. They called the listing agent whose name was on the sign in the front yard. The agent told them that the owner, their client, does not allow children. Who, if anyone, could be held liable for violating fair housing laws in this situation? A. no one B. the owner only C. the agent and the owner D. the agent, the employing broker, and the owner
The answer is D. Once the owner chose to use a real estate licensee, the exemption associated with an owner-occupied property with four or fewer units was no longer available. The caller could file a complaint against the owner, the agent, and the broker of the agent's brokerage.
Of these, which is LEAST LIKELY to be considered an example of puffing? A. "Best view in the city" B. "Exquisite décor that will make your friends jealous" C. "Feel like royalty in this palatial beauty" O D. "Lots of interested buyers; you might want to make an offer soon."
The answer is D. Puffing is generally considered to be an opinion that is not necessarily intended to be a statement of fact. Of these choices, it would be easiest to show some evidence that a property is priced low in a neighborhood where homes go quickly.
In the event of a default, which debt is normally paid first from the proceeds of the foreclosure sale? A. deficiency judgment B. first recorded lien C. mechanic's lien D. real estate taxes and associated costs of sale
The answer is D. Real estate taxes and the associated costs of the sale are always paid first.
Knowledge Check #22 A comparative market analysis is an appraisal of the property that the seller uses to arrive at an appropriate asking price.
The answer is False. A comparative market analysis is NEVER an appraisal, and licensees should take care not to use that specific terminology.
Knowledge Check #1 There is NO minimum number of comparables needed to ensure an accurate appraisal with the sales comparison approach.
The answer is False. A minimum of three comparables is required by most secondary market lenders to ensure an accurate appraisal from sufficient data with the sales comparison approach.
Knowledge Check #17 Bud makes an offer to buy Wade's house. The offer contained a provision limiting the time for acceptance to 48 hours. Wade immediately rejects the offer as inadequate, and his agent communicates the rejection to Bud. After thinking about it, Wade calls his agent again and says, "I've changed my mind. I'll take the offer." What is the status of Bud's offer? A. It is a binding contract now that Wade has accepted it. B. It is still open because Bud hasn't formally withdrawn it. C. It is still open because it still had 24 hours before the deadline. D. It was terminated when Wade first rejected it.
The answer is D. Rejection automatically terminates an offer. A rejected offer does not have to be formally withdrawn or revoked. An offer may also be terminated by lapse of time, communication, or notice of revocation before acceptance, qualified acceptance (counteroffer), or death or insanity of either the offeror or the offeree before acceptance.
Stan is interested in listing his house with licensee Tina because she is very successful. Tina knows that for the house to show well, the walls need to be painted and the carpet needs to be replaced. She tells Stan she'll take the listing as long as he uses Ultimate Remodeling to do the work. Did Tina do anything wrong? A. No, if Stan is OK about using Ultimate, Tina didn't do anything wrong. B. No, she didn't do anything wrong if she doesn't accept a fee from Ultimate. C. No, she doesn't have to accept the listing if she does not want to. D. Yes, Tina could be guilty of promoting an illegal tie-in agreement.
The answer is D. She is trying to tie in other business in exchange for taking the listing. This could be an antitrust violation.
Which is NOT one of the sections in the REALTOR® Code of Ethics? A. Duties Owed to Clients and Consumers B. Duties Owed to Other REALTORS® C. Duties Owed to the Public D. Duties Owed to Real Estate Licensees
The answer is D. The Code of Ethics does not address duties to real estate licensees in general, though it does address duties to other REALTORS®. This is in addition to duties to the public and to clients and consumers. Now let's review.
A listing agent heard that the state wants to build a freeway ramp through the neighborhood next year, and all the homes will be leveled. They decide not to disclose this, assuming the buyer would be reimbursed market value when the state condemns the house. Could the listing agent be susceptible to claims of fraud? A. No, because the buyer should have done their due diligence. B. No, because they have no evidence that this will happen for sure. C. No, because this is not related to the condition of the property. D. Yes, because they knowingly withheld material information.
The answer is D. The agent could be held liable because they knowingly chose to withhold material information about the property. The omission could be considered fraudulent.
Manny and Sally enter into a contract stating Sally will buy Manny's house for $300,000. Before closing, Manny learns that Sally is 17 years old. As a result, Manny doesn't want to complete the sale. What is the status of this contract? A. The contract is void due to fraud. B. The contract is void due to Sally's age. C. The contract is voidable by Manny. D. The contract is voidable by Sally. ...
The answer is D. The contract could be voidable by Sally because she lacks legal capacity to contract due to her age. However, Sally could choose to affirm the contract. If all legal requirements are in place, Manny is bound to fulfill his contractual obligations and complete the sale.
Knowledge Check #16 The principle of substitution says that an informed buyer would pay for the property than they would pay to obtain a similar one with the same benefits and utility. A. considerably less B. less C. more D. no more
The answer is D. The principle of substitution says that an informed buyer would pay no more for the property than they would pay to obtain a similar one with the same benefits and utility.
Which property would NOT be subject to the disclosure requirements of RESPA? A. a condominium unit in a high-rise building OB. a farmhouse on a 10-acre lot C. a four-unit apartment building D. a single-family home bought with cash
The answer is D. The provisions of the Real Estate Settlement Procedures Act apply to federally related mortgage transactions for any one- to four-family residential property. A cash transaction would not be subject to the disclosure requirements of RESPA.
Knowledge Check #21 When a court orders someone who has breached a contract to perform as agreed, rather than paying damages, it is known as A. full performance. B. novation. C. reformation. D. specific performance.
The answer is D. This is known as specific performance, which occurs most often when the non-breaching party to a contract cannot be compensated for the harm that resulted from the other's breach.
Knowledge Check #9 The rezoning of a single parcel of land or small area to benefit one or more property owners rather than carry out objectives of the master plan is A. as of right zoning. B. cluster zoning. C. incentive zoning. D. spot zoning.
The answer is D. This is known as spot zoning, and it may be illegal.
Knowledge Check #20 A duplex recently sold for $200,000. It brings in monthly rental income of $900 per unit. The expenses for this property run $8,000 per year. What is the gross rent multiplier for this property? A. 9.26 B. 14.7 C. 18.52 D. 111.11
The answer is D. To determine GRM for this example, you take the sales price ($200,000) and divide by the $1,800 monthly income ($900 x 2 units = $1,800): $200,000 / $1,800 = 111.11 GRM. Remember, when figuring GRM, you do not consider expenses. Also, unless directed otherwise, assume a monthly GRM, not an annual one.
Under a land contract, the vendor (seller) A. is a holder in due course. B. holds a mortgage lien as security. C. holds equitable title. D. holds legal title as security.
The answer is D. Under a land contract, the vendor (seller) holds legal title to land as security, not just a mortgage lien against it. The vendee's (buyer's) present interest in a land contract is referred to as equitable title.
Cathy has a mortgage with an alienation clause. She deeds her property to her brother John and he assumes her mortgage. The alienation clause does NOT give the lender the right to A. call for the entire loan balance to be paid off at the transfer. B. charge an assumption fee. C. charge a higher rate of interest. D. refuse to let Cathy give away the property.
The answer is D. Upon sale of, or even a transfer of significant interest in the property, the lender has certain rights, but it cannot keep her from selling or transferring ownership.
A purchase agreement is executed at the point when both the buyer and seller sign it.
The answer is False. A purchase agreement, like any contract, is not executed until all parties have discharged their promise. The purchase agreement is executory until the settlement.
Which is LEAST LIKELY to be an example of a common area in Lisa's condominium community?
The balcony off Lisa's bedroom
Ji-hoon calls a real estate agent to list his home. He tells the agent that he wants $156,000 in his pocket at closing and the agent can have the rest for the commission. What type of listing would this be?
net listing
Lisa owns a condo, which means she owns a fee simple the interior:
of her unit only. If Lisa is the sole owner of her condo, she owns only the interior of her unit fee simple. Her interest in the common elements is as a tenant in common.
Joint tenancy Tenancy in common Tenancy by the Entireties
requires unities of possession, interest, time, and titles allows ownership in unequal proportions allows co-ownership by legal spouses or partners
Ida finds a coupon in the paper for $25 off a purchase of $200 or more at the Big Box Store. The coupon could best be described as an example of a
unilateral contract
Generally speaker, a broker has earned their commission
when a ready, willing, and able buyer offers to meet the seller's terms.
Of these, which is LEAST LIKELY to be negotiable in a listing agreement? A. the broker's cooperation with other brokers B. the commission C. Whether there is an end date D. the scope of activities permitted
whether there is an end date. Most states require listing agreements to be in writing and to contain a definite termination date. The other items are negotiable, and a licensee must inform the consumer of the fact.
an enforceable contract
would be denied in a court of law
