Real Estate Part 2 Exam

65 A buyer is purchasing a home for $190,000 by obtaining an 80% LTV Conventional loan for 15-years at 3.75%. The loan factor is 7.27. If annual property taxes and insurance is $2,700, what is the PITI payment? Review Later $1,105.04 $1,330.04 $1,381.30 $1,606.30 Comments

-$1,330.04 The monthly P&I is based on the loan amount. The factor represents a dollar amount per month per thousand dollars borrowed. LOAN: $190,000 X 80% LTV = $152,000. MONTHLY P&I: $152,000 / 1,000 X 7.27 = $1,105.04 MONTHLY TI: $2,700 / 12 = $225 MONTHLY PITI PMT: $1,105.04 + $225 = $1,330.04

66 A buyer purchased a lot that measures 800 ft X 700 ft. for $720,000. The property sold for: Review Later $950 per front foot $1,050 per front foot $65,000 per acre $1.285 per square foot

-$1.285 per square foot LOT SQUARE FOOTAGE: 800 X 700 = 560,000 PRICE PER SQUARE FOOT: $720,000 / 560,000 = $1.285 PRICE PER FRONT FOOT: $720,000 / 800 = $900 ACRES: 560,000 / 43,560 = 12.8558 PRICE PER ACRE: $720,000 / 12.8558 = $56,006

1 Taylor purchased a home in North Carolina for $899,900 while obtaining a loan for $599,900. How much excise tax would be paid at closing, and by which party? Review Later $1,200 paid by Buyer $1,800 paid by Buyer $1,800 paid by Seller $1,200 paid by Seller

-$1,800 paid by Seller Excise tax is paid by the seller and is based upon the sales price. It is calculated as follows - sales price ÷ 500, then round up. The tax is charged at $1 per $500 of the sales price. It is important to know that the sales price is rounded up to the nearest 500 or 1,000 as the tax is charged in whole dollars. $899,900 ÷ 500 = $1,799.80, round up $1,800

18 A seller sends an offer to a buyer. The buyer is willing to negotiate if the seller reduces the purchase price by $3,000. What action should the buyer take? Review Later Reject the seller's offer Counteroffer at the lower price Refuse to accept the higher offer Sign the offer and ask for the change in an email

-Counteroffer at the lower price When a buyer seeks terms different than in an offer, it is common to make a counteroffer. The counteroffer rejects the current offer and puts a new offer in its place. The best answer is to counteroffer based on the information provided. Rejection or refusal would end the negotiation unless the seller takes further action.

51 The practice of secondary mortgage markets institutions Fannie Mae and Freddie Mac purchasing mortgage-backed securities from multiple financial institutions to spread risk is referred to as: Review Later loan pooling. loan discounting. loan packaging. pass-through certificates. Comments

-loan pooling. Mortgage pooling or loan pooling occurs when large amounts of loans are bundled into a mortgaged-backed security and sold. Loan discounting occurs when lenders sell loans. Package loans finance real and personal property.

25 A broker representing a buyer in a purchase transaction in North Carolina: Review Later must use the standard 2-T Offer to Purchase and Contract. must disclose to the seller when the buyer is willing to pay more than the current offer. may use a standard offer prepared by an attorney. may inform the seller that the buyer qualified for more than the current offer.

-may use a standard offer prepared by an attorney. A brokerage can hire an attorney to prepare standard forms to use with clients. The forms must meet Commission standards. NOTE: The Commission does not bless the forms. A buyer's agent cannot disclose information that would weaken the buyer's bargaining position unless it is a material fact.

69 A property is listed for $288,000. The buyer and seller agree to a sales price of $277,500. The appraisal determined the estimate of market value at $285,000. If the lender will loan 90% LTV, what is the amount of the borrower's loan? Review Later $237,450 $249,750 $256,500 $259,200

-$249,750 The lender will loan on the lower of the sales price and the appraised value. Since the sales price is lower in this scenario, the loan will be based off this amount. LOAN: $277,500 X 90% = $249,750

57 The amount a property actually sells for is known as: Review Later the probable sales price. the adjusted value. the estimate of market value. the market price. Comments

-the market price. The market value is the amount that a property actually sells for. An appraiser calculates an estimate of the market value. A licensee calcuates the probable sales price.

65 A buyer is purchasing a property for $400,000 by obtaining a conventional 15-year mortgage with 80% LTV at 5 1/4% interest. Using the mortgage factor chart below, what is the monthly principal and interest payment, rounded to the nearest dollar? Mortgage Factor Chart 15-Years 25-Years 30-Years4 3/4%7.785.715.225.0%7.915.855.375 1/4%8.046.005.53 5 1/2%8.18 6.155.68 $1,770 $2,212 $2,573 $3,216

-$2,573 The principal and interest payment is based upon the loan amount. The factor represents a dollar amount per month per thousand borrowed. Loan: $400,000 X 80% = $320,000. Principal and Interest: Loan $320,000 / 1000 X Factor 8.04 = $2,572.80, rounded $2,573

68 A property is listed for $550,000. The buyer made an offer of $520,000, which the seller countered at $537,620, and the buyer accepted. The listing agreement calls for the seller's agent to receive 2.75%, and the buyer's agent receives 4.25% of the sales price. What is the commission paid to the selling agent (rounded to the nearest $100)? Review Later $14,800 $22,800 $23,000 $23,400 Comments

-$22,800 The listing agent is the seller's agent. The buyer's agent is the selling agent. Commission is typically paid based on the sales price, unless otherwise stated in the problem. Selling agent's commission: $537,620 X 4.25% = $22,848.85, rounded $22,800

69 Sondra wants to sell her rental property, which rents for $36,750 a month. Since she sees a value of $3,425,000 in her property, what GRM did Sondra use? Review Later 107 93.2 10.7 9.3 Comments

-93.2 First, you need to recall how to calculate the Gross Rent Multiplier. Remember that the multiplier is based on monthly rent rather than annual rent (which would be the gross income multiplier). Formula: GRM = Sales Price / Monthly Rent. NOTE: In this problem, the sales price = value. GRM: $3,425,000 / $36,750 = 93.197

44 A lender cannot make a VA loan without which of the following? Review Later An Appraisal A Direct Lending Authorization A Certificate of Eligibility A Funding Number

-A Certificate of Eligibility A veteran of qualifying widows or widowers must have a certificate of eligibility for a loan to be originated, which may be obtained from the VA or a qualifying lender. The lender may require an appraisal; however, it will often accept the CRV - certificate of reasonable value.

23 Linda submits an offer to purchase 12 Twisted Court for $300,000 that elects the earnest money deposit's delivery within five days of the effective date. The standard NCAR/NCBA Offer to Purchase and Contract is used. On the third day following the date of the contract, Linda delivers the earnest money deposit. The Seller's agent promptly gives the check to his broker-in-charge, who deposits the check into the trust account. Two days later, the check bounces. Which of the following statements is TRUE? Review Later A legally binding contract was formed, and the Seller may not automatically terminate the contract due to the bounced check. A valid contract can only form if the earnest money deposit is made in good funds; therefore, the property is not officially under contract. A legally binding contract is not formed, as this agreement lacks consideration. A valid contract is formed; however, the seller can terminate the contract once they are informed of the buyer breach resulting from the bounced check.

-A legally binding contract was formed, and the Seller may not automatically terminate the contract due to the bounced check. A legally binding contract is formed. For the seller to terminate, they must make a written demand for good funds and provide the buyer one banking day. The contract then becomes voidable on behalf of the seller. It is important to understand that the contract does not automatically terminate - the seller must demand the payment and then wait the prescribed time before canceling the contract.

38 A borrower recently borrowed $200,000 from a lender by way of a straight term loan. Which of the following is most accurate regarding the loan? Review Later A term loan typically negatively amortizes in the early years A term loan will include, at some point, a balloon payment toward principal A term loan always carries a variable interest rate A term loan has a long term amortization period

-A term loan will include, at some point, a balloon payment toward principal A straight term loan is interest-only for the entire term of the loan. The borrower will have to pay the entire principal balance at the end, also known as a balloon payment; therefore, the loan does not amortize. The loan may be at a variable or fixed rate.

46 A recent foreclosure sale, called by the first mortgagee, produced a total sale price of $180,000. After paying $10,000 for the cost of sale, the following liens were remaining: a tax lien of $6,000, the first mortgage of $160,000, and a home equity line of credit with a balance of $20,000. Which of the following statements is TRUE? Review Later The purchaser of a foreclosure property will take possession subject to the unpaid lien balances The first mortgage and home equity line of credit will split proceeds on a pro-rata basis All liens will be cleared from the title to the property The original borrower has up to 20 days beyond the foreclosure sale to redeem his equity in the property

-All liens will be cleared from the title to the property When a property sells at foreclosure for less than the balance owed, the remaining liens are cleared from the property. Liens are paid in the order of recordation, except for real property taxes and public assessments, which have the highest priority, or a mechanics lien that can jump in priority over other recorded liens (not taxes/assessments and will not always have a higher priority). The statutory right of redemption allows the borrower a 10-day redemption period.

40 A borrower with a large down payment, greater than 20%, and an excellent credit score, over 800, would likely choose which of the following options to purchase a $350,000 residence? Review Later An uninsured FHA loan An uninsured conventional loan An FHA insured loan An insured conventional loan

-An uninsured conventional loan A well-qualified buyer with excellent credit and a large down payment would typically choose an uninsured conventional loan. Private mortgage insurance is paid when a borrower does not have the required 20% down payment. The government insures FHA loans.

31 If an option is due to expire on July 15 and the owner of the property dies on July 5, the option is: Review Later now void. binding on the heirs. now voidable. valid, but must be exercised within the statutory period.

-binding on the heirs. An option to purchase is a contract. When a party to a contract dies it becomes binding upon the heirs to perform. The buyer or buyer's heirs could choose to exercise the option or not. A statutory period (period of time provided for by statute) is not provided for under North Carolina law.

52 Which best describes the defeasance clause in a deed of trust? Review Later Lender's right to instruct the trustee to sell the property at the courthouse Borrower's right to have note canceled when the loan is satisfied Borrower's right to assign the note to a subsequent purchaser Lender's right to call the note due in the event of a breach by the borrower

-Borrower's right to have note canceled when the loan is satisfied Think of the defeasance clause as the borrower defeating the mortgage. What do you get when you defeat the mortgage by paying it off, a cancellation of the lien against the property. Acceleration is the lender's right to call the full note balance due when a borrower defaults on the mortgage. The power of sale clause allows the lender to instruct the trustee to sell the property at auction.

71 Which of the following is not a real estate license category? Review Later Limited Non-Resident Commercial Broker Broker-in-Charge Firm

-Broker-in-Charge Broker-in-charge is a status obtained rather than a separate real estate license. The remainder a real estate licenses that must be renewed by the June 30th deadline.

6 A special warranty deed protects the grantee against: Review Later All claims by rightful owners over the past 99 years All claims forever against the property Claims from the time that the grantor owned the property All claims against the property for the past 30 years

-Claims from the time that the grantor owned the property A special or limited warranty deed only protects the grantee from claims that arise from when the grantor owned the property. A general warranty deed would warrant the property forever against claims arising from the past. The Marketable Title Act extinguishes old claims against the property after 30-years. NOTE: A grantee should obtain title insurance as the grantors may not keep promises.

57 Which of the following valuation terms would best define that a property owner will obtain a higher value for their property when they are more similar to other homes within the neighborhood? Review Later Competition Substitution Conformity Abrogation Comments

-Conformity The Law of Conformity states that a property will obtain a higher value when it's more like the property surrounding it. The amount of competition will determine the value of a property - the more listings for sale and the fewer buyers will result in a lower sales price. Abrogation means that a party cannot sign away rights that are granted by law. The law of substitution, the property with the lowest price among similar properties will sell the fastest and is the basis for the sales comparison approach, where a property's value is determined based on recently sold comps.

8 Which of the following statements is CORRECT regarding the transfer of title to real property? Review Later A party seeking property by adverse possession will make a claim to the courts to take the property through condemnation. The grantee is required to sign the deed for it to be valid. Eminent domain is a part of the police powers granted to cities and counties to take property for the public good. A grantor makes no warranties whatsoever when transferring the property to the grantee under a special warranty deed.

-Eminent domain is a part of the police powers granted to cities and counties to take property for the public good. A special warranty deed warrants against claims resulting from actions taken by the grantor while they own the property, and if a claim is made, the grantor will defend the grantee. It does not protect the grantee from claims arising before the grantors owned the property. The grantee does not sign the deed, only the grantor(s). Condemnation is taking the property for the public good and is part of police powers (eminent domain). Adverse possession is hostilely taking another's property.

37 Which of the following defines the pledging of a property to a lender as collateral without giving up possession? Review Later Hypothecation Subordination Recission Securitization

-Hypothecation Hypothecation is the pledging of a property as collateral without giving up possession. Rescission is the termination of a contract, often due to fraud. Subordination is the changing of lien priority - which can occur upon refinancing, where the second mortgage may subordinate to a refinanced first mortgage. Securitization is referring to mortgage-backed securities, which are part of the secondary mortgage market.

11 Which of the following statements is TRUE concerning a general warranty deed? Review Later The grantor's warranty is limited to his or her acts only when the grantor owned the title. It is the most common deed used when a couple divorces and ownership is transferred to one spouse. It insures title against all encumbrances and liens. It is the most protective deed a grantee can receive.

-It is the most protective deed a grantee can receive. The general warranty deed provides the buyer with the most protection as the seller makes certain assurances - which are promises and not guarantees. The general warranty deed does not prove ownership or guarantee that it is valid, or there are no encumbrances. A buyer should have an attorney perform a title search, give an opinion on the title, and purchase title insurance to be more fully protected. A quitclaim deed is most often used after a divorce where one co-owner wants to transfer his/her ownership to another. A deed that only warrants for the period that the seller owned the property is known as a special warranty deed. Title insurance should be obtained to protect against past financial claims. A general warranty deed makes promises and is not an insurance policy.

59 Which of the following is NOT a trigger to become a Broker-in-Charge? Review Later Operating as a Sole Proprietorship that earns referral compensation when the broker did not solicit. Placing a for sale or for rent sign in the yard for a listing that the broker did not solicit. Advertising services on social media to friends and family so that the broker can refer the client to another broker. Engaging in property management business where the broker delivers rent checks directly to the owner. Comments

-Operating as a Sole Proprietorship that earns referral compensation when the broker did not solicit. A broker must be BIC or affiliated with a BIC when they advertise, which includes for sale or for lease signs, solicits business, engages in a transaction that requires a trust account, or another broker/unlicensed assistant joins the business. When a broker handles rent, it must flow through the brokerage trust account. Since a trust account is required, a BIC is required to supervise.

67 A buyer is purchasing a property that has a monthly P&I of $1,700. Taxes and insurance are $2,400 annually. The borrower has $700 of other recurring debt obligations. Will the buyer qualify for the loan using 28%/36% qualifying ratios if the buyer's annual income is $85,000? Review Later The buyer qualifies under housing. The buyer qualifies under total debt. The buyer qualifies under housing and total debt. The buyer does not qualify for housing nor total debt.

-The buyer qualifies under housing. Income and expenses need to be expressed monthly to qualify a buyer. First, divide annual income by 12 to calculate monthly gross income. Next, calculate the maximum Housing and maximum total debt payment allowed. Then calculate the actual housing and actual total debt expenses. The buyer qualifies when the payment is at or below the maximum. Monthly Income: $85,000 / 12 = $7,083.33. Maximum Housing: $7,083.33 X 28% = $1,983. Maximum Total Debt: $7,083.33 X 36% = $2,550. Housing Payment: $1,700 + 200 = $1,900. Total Debt: $1,900 + 700 = $2,600. The buyer qualifies under housing but not total debt.

60 A brokerage is creating a standard offer to purchase for all agents of the firm to use. Which of the following statements is TRUE?

-The contract must comply with Commission rules that outline the mandatory provisions included in a preprinted offer or sales contract. The Commission does not review or approve standard forms that a brokerage will use. The Commission sets the rules that a brokerage must comply with when having a standard form prepared. A brokerage cannot draft an offer to purchase as they are not a party to the contract - the contract is between the buyer and the seller. A brokerage can draft provisions in a listing agreement/buyer agency agreement as they are party to the contract. A broker selling or renting his/her property may draft provisions as they are party to the contract.

56 Which of the following is TRUE regarding valuation approaches? Review Later The cost approach takes depreciation into consideration. The cost approach is the primary method to use when calculating a 200-unit apartment complex's probable sales price The income approach is the best approach for calculating the probable sales price of a single-family rental. Rent multipliers primarily drive the income capitalization approach Comments

-The cost approach takes depreciation into consideration. When using the cost approach to value, a broker would calculate the cost to build new, less depreciation, and then add in land / improvements. When calculating the value of a property using the direct capitalization approach (income capitalization) you divide net operating income by the capitalization rate. The gross income multiplier is calculated by taking the sales price and dividing by annual gross rent. The market data approach is another name for the sales comparison approach, where a broker or appraiser would search for at least 3 comparable sold properties and make adjustments for differences.

61 A builder offers brokers incentives based on the number of properties sold. When an individual broker sells 5 properties belonging to the builder, she receives a bonus of $5,000.00. When is the latest point a broker can disclose the additional compensation? Review Later The disclosure of compensation must be reduced to writing before the presentation of an offer to each buyer. The licensee must disclose the bonus prior to showing the 5th buyer property. The licensee must disclose the bonus prior to showing the builder's property to each buyer. The disclosure of compensation must be reduced to writing before presenting an offer from the 5th buyer.

-The disclosure of compensation must be reduced to writing before the presentation of an offer to each buyer. While it is preferential to disclose the bonus before showing the property, the question asks for the latest point the broker must disclose the bonus in writing before presenting an offer. The broker must disclose the bonus or potential bonus to all buyers, not only when they expect to receive the additional compensation.

63 Which of the following statements is CORRECT regarding a licensee's handling of funds related to leases, options, or purchase contracts? Review Later The payment of monthly rent may be deposited in the property owner's operating account by the licensee. The due diligence fee payment is delivered to the seller upon acceptance of an offer and does not need to be deposited into the trust account. The earnest money check received with an offer to purchase must be deposited into the brokerage trust account within 3 banking days following receipt of the funds. The payment of an option fee is deposited into a brokerage trust account until the seller accepts the contract and then is released to the seller.

-The due diligence fee payment is delivered to the seller upon acceptance of an offer and does not need to be deposited into the trust account. Due diligence fees and option payments are made payable to the seller, therefore not considered trust money. Earnest money must be deposited into a brokerage trust account the later of 3 banking days from receipt or 3 banking days from the contract's effective date. A broker must safeguard an earnest money deposit check but does not have a duty to deposit until a legally binding contract forms. A broker will deliver the earnest money to his/her broker in charge or escrow agent. The trust account is for "other people's money." A firm cannot commingle funds other than a small amount to cover the costs of maintaining the account, typically restricted to $100.

24 Which of the following would result in a voidable purchase contract? Review Later The proposed use of the property is for an illegal purpose. The offeree is illiterate, and he did not understand the contract. The purchase contract was signed by a person adjudicated incompetent. The offeree was intoxicated when he signed the contract.

-The offeree was intoxicated when he signed the contract. A voidable contract is binding against one party but not binding against the other. An agreement with a minor, an intoxicated party, etc., is voidable. A contract for an illegal purpose or contract signed by a party adjudicated insane is void. An illiterate person can hire someone to explain the contract to him. A contract that is entered into by an intoxicated individual or minor is voidable on their behalf. When a contract is entered into with a intoxicated party, under duress, or when one party is a minor would result in a voidable contract. A minor may have a guardian appointed to handle his/her affairs. A purchase contract is voidable if the property is damaged, above normal wear and tear, from the date of the contract. The buyer can elect to terminate or recover insurance proceeds from the seller to repair the damage.

30 Which of the following statements is TRUE with regard to real property sales contracts? Review Later The seller must provide a general warranty deed to the buyer. The sales contract cannot reference a broker's compensation. The buyer cannot be a minor as they are not legally competent. The sales contract must be recorded to be valid under the Connor Act.

-The sales contract cannot reference a broker's compensation. A real estate sales contract cannot contain provisions for broker compensation or disclaimer of a broker's liability. The sales contract is between the buyer and the seller, and the broker/brokerage is not a party to that contract. A sales contract typically is not recorded as it includes all the terms of the sale. The Connor act requires certain documents to be recorded to be binding against 3rd parties (mortgages, deeds, deeds of trust, easements, leases for greater than 3 years). Under license law, a STANDARD offer to purchase includes a provision that the seller will transfer the property by General Warranty Deed; it does not require the seller to do this. For example, the buyer or seller could cross out the general warranty deed and write in special or quitclaim.

9 Vikas owns a 10-acre mini-farm, which he purchased 5 years ago and did not obtain a survey at the purchase time. The previous owner installed a fence that is 10 feet onto a neighbor's property and has been growing crops for the past 20 years. Vikas continued this use. Which of the following statements is TRUE? Review Later Vikas cannot claim the property through adverse possession as he has not met the statutory requirement. Vikas may seek to obtain the property as an appurtenant easement so long as the statutory requirements have been met. Vikas could not claim the property through adverse possession unless the other owner was aware of the encroachment. Vikas may seek to obtain the title through a suit to quiet title as he has met the statutory requirement.

-Vikas may seek to obtain the title through a suit to quiet title as he has met the statutory requirement. A suit to quiet title or action to quiet title is used to settle a dispute such as adverse possession. The suit asks the court to settle who has the highest claim to the property. To have a valid adverse possession claim, it must be hostile, intentional, open, continuous, exclusive, adverse and notorious (H.I. O.C.E.A.N.). Based on the question above, Vikas does not have the color of title, meaning the mistaken belief that they own the property (such as a fraudulent deed). The property must be adversely taken for at least 20 years, and tacking on to previous owners' use is permitted so long as it meets the requirements above. A new owner can tack onto a previous owner's time so long as it meets the same above (H.I. O.C.E.A.N.). The claim can only be for the portion of the property that adversely taken, not the entire property.

35 All of the following statements regarding amortized loans are true, EXCEPT: Review Later in most mortgage loans, interest is calculated as simple annual interest and is paid in arrears. a borrower will pay the same amount of principal on all payments in a properly amortized loan. in the early years of a 30 year mortgage, a large percentage of the payments goes to interest. in a budget mortgage, the only portion of the loan payment that goes to reduce the loan balance is principal. Comments

-a borrower will pay the same amount of principal on all payments in a properly amortized loan. A variable-rate or adjustable-rate mortgage allows the lender to change the interest rate based on index changes. The bank adds a "margin" to the loan, typically a set percentage (i.e., prime + 1%). The mortgage balance would not increase unless there are payment caps - which the question did not specify. The loan term is not impacted, but the payment would. The interest rate can change because the mortgage loan contains an escalation clause.

27 Which of the following statements is FALSE regarding contracts between sellers and buyers to purchase real property? Review Later The seller of a property may sue a buyer for breach of contract; however, it will not be successful in court if they sue for specific performance. A seller is permitted to accept a second contract to purchase their property so long as a backup contract addendum is part of the second offer. When a buyer has the right of first refusal, all terms, including the sales price, are agreed to upfront, and the buyer will have a set period in which to elect to purchase the property. Both the buyer and seller must be competent when they go under contract; however, their heirs may be required to perform should one of the parties be declared insane following the contract's effective date.

-When a buyer has the right of first refusal, all terms, including the sales price, are agreed to upfront, and the buyer will have a set period in which to elect to purchase the property. An option is where the seller has agreed to allow the buyer a set period to elect to purchase the property, with all terms agreed to up front including the purchase price, how to exercise the option, and the cost involved. The right of first refusal states that the seller must first check with an interested party prior to accepting an offer made by another. It is more common in commercial transactions. However, a court will force a seller to sell under specific performance but rarely will force a buyer to buy. For a contract to be valid, the buyer and seller must be competent when the contract forms. If a buyer or seller dies or goes insane after contract formation, the heirs may be required to perform. When a property is already under contract, and another offer is received, a back-up contract addendum needs to be included; otherwise, the property is under contract twice. The addendum makes the contract unenforceable unless the primary contract fails.

42 All of the following are true regarding FHA loans, EXCEPT: Review Later FHA loans may be used to purchase a quad, a triplex, or a duplex. interest rates are based on the borrower's credit score and must be within the range established by HUD. FHA loans are for a maximum of 30 years. the loan must be for an owner-occupied residence.

-interest rates are based on the borrower's credit score and must be within the range established by HUD. The bank, not HUD set interest rates. HUD insures the lender against some of the loss in the event the lender forecloses. FHA loans can be made for 1-4 unit owner-occupied property for a maximum of 30 years.

58 The best comparable for the subject property: Review Later is a similar property that sold "for sale by owner" in the past 30-days. is a property that is exactly the same as the subject property which sold 11-months ago. is a property recently listed that is very similar to the subject property. is a property that recently sold that is most similar to the subject property.

-is a property that recently sold that is most similar to the subject property. A comparable property must be sold and not listed. The best comp is the one that recently sold and is most similar to the subject property. For sale by owner, foreclosure, and listed property are not good comps. A property that sold almost a year ago is not the best comp.

53 A broker is calculating net operating income and knows the effective gross income for the property. What addtional information is needed? Review Later annual debt service annual depreciation property taxes operating expenses

-operating expenses Calculating NOI is a G.I.V.E.N. Gross income - vacancy & collection - operating expenses = net operating income. Effective Gross Income (or may be called Total Anticipated Revenue) is calculated by taking gross income less vacancy & collection losses.

74 The sales comparison approach: Review Later requires a licensee to calculate an estimate for depreciation. requires the licensee to establish the capitalization rate. requires the licensee to have knowledge of all property sales. requires the licensee to have access to MLS sales of comparable property. Comments

-requires the licensee to have access to MLS sales of comparable property. A broker and appraiser should rely on sales that are reported in the MLS as the terms of sale are disclosed. An appraiser applying the cost approach will need to calculate an estimate for depreciation. The capitalization rate is utilized in the income approach. A broker should not use tax data to calculate an estimate of market value as the other terms of sale are not known.

25 The Standard 2-T Offer to Purchase and Contract address all of the following, EXCEPT: Review Later that the broker has limited liability in the transaction. that the seller is responsible for confirmed special assessments. that a delaying party is entitled to a 14-day delay. that the property is or is not located in a flood zone.

-that the broker has limited liability in the transaction. A broker cannot include commisson/compensation or a disclaimer of liability in an offer to purchase and contract. The purchase contract is between the buyer and the seller. Broker compensation or limitation on liability would be addressed in the agency agreement.

48 The use of which of the following terms would trigger the disclosure requirements of Regulation Z? Review Later Monthly Mortgage Payment Monthly Payment for Taxes Low Down Payment Annual Percentage Rate

-Monthly Mortgage Payment The primary triggers for Regulation Z are monthly payment, down payment, and interest rate. APR by itself is not a trigger. NOTE: When Regulation Z is triggered, full disclosure is required, including payment, down payment, interest rate, APR, finance charges, number of payments, etc. The amount of monthly property taxes or HOA dues do not trigger Regulation Z. The Federal Trade Commission (FTC) enforces Regulation Z.

29 A buyer makes an offer at less than the asking price. The seller then makes a counteroffer. The buyer refuses the counteroffer. If the seller then accepts the first offer, which of the following statements about the transaction is TRUE? Review Later The buyer is legally bound to complete the deal. The broker is liable if the contract is unenforceable. The broker has earned a commission. The buyer is released from the offer when the seller makes a counteroffer. Comments

-The buyer is released from the offer when the seller makes a counteroffer. When the seller counters the buyer's offer - the buyer's original offer is terminated, and the new offer takes its place. The buyer is released from the initial offer when the seller makes the counter offer. For a legally binding contract to form, the seller would need to make the offer at the original price, and the buyer would need to accept, then communicate acceptance.

3 A metes and bounds legal description that states, "Commencing at the corner of Ridge Street and Maple Street, then east 40 degrees 200 feet to Elm Ave, then 60 degrees south 180 feet to Main St., then 40 degrees west 200 feet to Ash Ave., then 60 degrees north 180 feet to the point of beginning is: Review Later not correct since no major highway or marker is listed. incorrect since it is not listed in rods. imperfect as no point of beginning was listed. an acceptable legal description of real property in North Carolina.

-an acceptable legal description of real property in North Carolina. The metes and bounds property description is the primary method for describing property in the 13-original colonies (including North Carolina), plus Texas. The description starts at the point of beginning and ends back at the point of beginning.

71 A newly licensed broker: Review Later may affiliate with more than one brokerage serving under the supervision of a broker-in-charge. holds on inactive real estate license when the Commission issues the license. must affiliate with a broker-in-charge. must complete continuing education by June 10th after license issuance. Comments

-holds on inactive real estate license when the Commission issues the license. holds on inactive real estate license when the Commission issues the license.

19 According to the Statute of Frauds, a contract for the sale of real estate: Review Later must be recorded to be legally binding. should be executed within a specific time, or it will automatically expire. must be in writing to be enforceable in the event of a dispute between the two parties. needs to be written and signed within appropriate time frames to be legal and enforceable. Comments

-must be in writing to be enforceable in the event of a dispute between the two parties. The Statute of Frauds requires specific contracts to be in writing to be enforceable. Purchase contracts, option contracts, and installment land contracts are all examples of contracts required to be in writing. NOTE: It is not common to record purchase contracts as it would detail all of the terms that the buyer and seller agreed to in the sale.

55 All of the following figures would be included in an analysis performed by an appraiser when determining the value of a property using the Direct Capitalization Approach, EXCEPT: Review Later the estimated vacancy and collection losses. the net operating income as well as the sales price. the estimate of the future anticipated gross rental income. the capitalization rate for similar buildings in the area.

-the net operating income as well as the sales price. The direct capitalization approach is also known as the income capitalization approach, which states that value equals net operating income divided by the cap rate. Net operating income is calculated as follows: Gross Income - Vacancy and Collection = Effective Gross Income, Effective Gross Income - Operating Expenses = Net Operating Income (no depreciation, no debt service, and no capital improvements). The sales price is not used in this calculation (it would be used when determining the gross rent multiplier or gross income multiplier).

7 A trustee deed would likely be used: Review Later to lease mineral rights to a landman. to transfer ownership upon divorce has finalized. to transfer ownership after a foreclosure auction. to remove a cloud on the title. Comments

-to transfer ownership after a foreclosure auction. A trustee's deed conveys title to a property after the foreclosure sale has been finalized in a title theory state. A quitclaim deed is used to remove the cloud on a title, which is a deed of release. A mineral deed transfers rights for an individual or entity to extract oil, minerals, or gas. A quitclaim deed is typically used when one owner releases his/her ownership rights to another in a divorce.

2 Under the government survey system, there are ___ sections in a township and ____ square feet in a section. Review Later 36 ; 27,878,400 16 ; 27,878,400 16 ; 640 36 ; 640

-36 ; 27,878,400 This is another trick question to see if you are reading the question carefully. There are 36 sections in a township in 640 acres, and each section. The question asks how many square feet are in a section, calculated by taking 43,560 X 640 acres. Make sure to read the FULL question.

72 Which of the following would trigger the requirement for a firm license? Review Later A sole proprietorship engaged in advertising A broker forms a partnership with another licensed broker. A broker affiliated with more than one brokerage A broker hires an unlicensed assistant to answer phones and show rentals

-A broker forms a partnership with another licensed broker. Partnerships, corporations and LLC's require a separate firm license regardless of activities being performed. Don't confuse the need for a BIC with the need for a firm license.

44 Which of the following would be entitled to originate a VA loan? Review Later An un-remarried widow of a veteran A widow of a veteran A mother or father of an active military veteran A fiance of a veteran Comments

-An un-remarried widow of a veteran Only a veteran or un-remarried widow/widower can originate a VA loan. A veteran or non-veteran can assume a VA loan.

2 An inheritable estate that automatically reverts to the previous owner or heirs upon an event other than death is which of the following? Review Later Fee Simple Determinable Pur Autre Vie Fee Simple Conditional Fee Simple Defeasible

-Fee Simple Determinable When a property transfers as a fee simple determinable, the property automatically transfers back to the previous owner or heirs if the deed restriction is violated. Pur autre vie means for another's life and is a life estate where someone else is the measuring life rather than the party granted the life estate. Fee simple defeasible means that ownership can be defeated and is either determinable or conditional. Fee simple conditional requires a previous owner or heir to see court action.

4 Property is owned in a state that recognizes joint tenancy by Josh, Adam, Chris and Stacey. Josh dies leaving his son Reeves as the surviving heir to his estate. Which of the following is NOT correct? Review Later Any owner can file a suit for partition if they want to sell the property and the other owners refuse Adam, Chris, and Stacey will continue to own their share of the property as joint tenants Reeves will own his father's share as a tenant-in-common The owners will still own an equal share of the property Comments

-Reeves will own his father's share as a tenant-in-common When joint tenants own property, and one of the joint tenants dies, their share will automatically pass to the surviving joint tenants. You don't pass a joint to your kids. A will cannot defeat joint tenancy; therefore, Reeves will not own his father's share.

4 Which of the following types of ownership would NOT allow a co-tenant to sue to force the property's sale? Review Later Severalty Tenancy by the Entirety Tenants-in-Common Joint Tenancy

-Tenancy by the Entirety When a property is owned tenancy by the entirety, the married co-tenants cannot sue to force the sale. They would have to sue for divorce. Both tenants-in-common and joint tenancy allow co-tenants to force the property's sale (known as a suit for partition). When a property is owned in severalty, meaning one owner, there is no reason to sue for a partition to force the sale.

41 A buyer needs to find a lender that can meet his/her unique needs. The buyer should seek the assistance of: Review Later a mortgage banker. a sub-prime lender. housing and urban development. a mortgage broker.

-a mortgage broker. A mortgage broker will have more loan options than a local bank/mortgage banker. Mortgage brokers do not lend money; they arrange credit for the borrower. HUD oversees FHA and Federal Fair Housing laws

51 The primary purpose of the secondary mortgage market is best described as: Review Later institutions originationg second mortgages and home equity loans. to secure the repayment of debt in the primary market. providing liquidity for the primary through the purchase of mortgage-backed securities. to guarantee investors a safe investment vehicle through the purchase of home mortgages.

-providing liquidity for the primary through the purchase of mortgage-backed securities. The secondary market purchase mortgages so that the primary market can continue to make loans. Lenders have a limited amount of money to lend and need to sell mortgages to refill their "bucket."

50 All of the following would be examples of the primary mortgage market, EXCEPT: Review Later FHA qualified lenders. a Real Estate Investment Trust. mortgage banking companies. the Federal National Mortgage Association.

-the Federal National Mortgage Association. FNMA or Fannie Mae purchases loans on the secondary market to provide liquidity to primary mortgage lenders (loan originators).

9 While all of the following are recommended, which of the following is not a necessary element of a deed? Review Later The deed must be signed by the grantors The grantor must have the legal capacity to execute the deed The deed must be recorded The deed must be delivered to and voluntarily accepted by the grantee Comments

-The deed must be recorded It is not a requirement that a deed be recorded. Under the Good Funds Settlement Act, the deed must be recorded before cash and keys are released. Recall IGPWED to remember the essential elements of the deed. The deed must be in writing, the grantor must be competent, adequate property description, words of conveyance, execution - signing by the grantor(s), and delivery & acceptance.

64 A buyer agrees to purchase a home for $200,000 with an LTV of 90% for 30-years at 4.0% interest. The loan amortizes at 4.78. What is the mortgage balance after one payment? Review Later $179,400.00 $179,739.60 $199,333.33 $199,710.69

-$179,739.60 To solve the problem, you must calculate the principal and interest payment using the factor. The loan payment is based upon the amount borrowed, not the purchase price. Next, calculate the amount of monthly interest to determine the amount of payment applied to the principal. Loan: $200,000 X 90% = $180,000. P&I Payment: $180,000 / 1,000 X 4.78 = $860.40. Monthly Interest: $180,000 X4% / 12 = $600. Principal Payment: $860.40 - $600.00 = $260.40. New balance: $180,000 - $260.40 = $179,739.60

68 A listing firm decides to charge a 7 percent commission to all sellers. The seller authorized the firm to pay 40 percent of the 7 percent gross commission to the selling firm. If a property sold for $89,000, how much will the selling firm receive? Review Later $1,495.20 $2,136.00 $2,492.00 $3,738.00

-$2,492.00 The listing agent is referred to as the seller's agent. The agent that writes the offer (buyer's agent or sub agent) is referred to as the selling agent. Yes...it is important that we can differentiate between the two parties. Gross commission: $89,000 X 7% = $6,290 Selling agent's commission: $6,290 X 40% = $2,492

70 Jane is purchasing a property for $400,000 by obtaining an 80% LTV conventional loan at 4.75% for 30 years. The loan amortizes at 5.2156. How much interest will Jane pay over the life of the loan, rounded to the nearest thousand? Review Later $281,000 $456,000 $431,000 $570,000

-$281,000 When making payments on a fixed mortgage, the loan slowly amortizes to a zero balance. Each monthly payment increases the amount of the fixed payment that goes to the principal and decreases the amount paid to the bank as interest. The only way to calculate the total interest paid is to multiply the monthly P&I payment by the loan term, then back out the original loan amount. MORTGAGE: $400,000 X 80% = $320,000 MONTHLY PAYMENT: $320,000 / 1,000 X 5.2156 = $1,668.99 TOTAL P&I $1,668.99 X 360 = $600,836.76 TOTAL INTEREST: $600,836.76 - $320,000 = $280,837 rounded $281,000

1 Taylor purchased a home in North Carolina for $299,900 while obtaining a loan for $250,000. How much excise tax would be paid at closing, and by which party? Review Later $600 paid by Buyer $600 paid by Seller $500 paid by Seller $500 paid by Buyer

-$600 paid by Seller Excise tax is paid by the seller and is based upon the sales price. It is calculated as follows - sales price ÷ 500, then round up. The tax is charged at $1 per $500 of the sales price. It is important to know that the sales price is rounded up to the nearest 500 or 1,000 as the tax is charged in whole dollars. $299,900 ÷ 500 = $599.80, round up $600

49 Which of the following advertisements would violate Regulation Z / Truth in Lending? Review Later 4 Bedroom / 2 Bath home with large master suite. Great financing available with as little as 5% down. Taxes $4,000 per year and HOA dues $125 per month. Call Jim at XYZ Realty. 740.222.3459 3 Bedroom / 2 Bath home on a large lot. Updated kitchen and bathrooms. Low down payment. APR 6.475%. Call Sarah with Get It Sold Realty. 336.444.1576 4 Bedroom / 2.5 Bath home with a large living room. Too good to pass up and only $475,000. Low down payment and great financing available. Homeowners dues are $500 per year. Call Betty with Buy Right Realty. 919.777.9654 3 Bedroom / 2.5 Bath home with great mountain views. Only $400,000. Low down payment. Taxes $5,000 per year. APR 6.25% Call John at ABC Realty. 980.333.8472

-4 Bedroom / 2 Bath home with large master suite. Great financing available with as little as 5% down. Taxes $4,000 per year and HOA dues $125 per month. Call Jim at XYZ Realty. 740.222.3459 Truth in Lending - Regulation Z sets advertising requirements for consumer transactions. It DOES NOT ban a broker from disclosing financing terms; it requires full disclosure when a trigger term is used. Common triggers for full disclosure include a reference to the monthly payment, down payment, or interest rate. APR on its own is not a trigger; however, when triggered, APR must be disclosed. Homeowners' dues or disclosure of property taxes in an advertisement would not trigger full disclosure. When a trigger term is used, the broker must disclose the payment, down payment, interest rate, APR, finance charge, and the number of payments.

60 Which of the following would be permitted by License Law? Review Later A provisional broker joins one firm in the mountains and another on the coast. A broker hires an unlicensed assistant that is paid a salary plus commission for each transaction that closes. A provisional broker receives compensation from a broker affiliated with another firm. A broker that is purchasing a property draft a contingency that the broker can terminate the contract without penalty if his/her spouse does not like the home. Comments

-A broker that is purchasing a property draft a contingency that the broker can terminate the contract without penalty if his/her spouse does not like the home. A broker cannot draft provisions to a contract for which they are not a party (either buyer or seller/landlord or tenant). A broker can draft provisions when they are either buyer or seller/landlord or tenant. A provisional broker cannot affiliate with more than one brokerage (specifically in different locations. As of 7/1/2020, a PB can affiliate with more than one BIC at the same office location). A provisional broker must be compensated by the firm's broker/BIC that the PB is affiliated. An unlicensed assistant cannot be paid a commission.

29 A buyer signs an offer at 8:00 P.M. on Saturday, and the buyer's agent promptly scans and emails it to the seller's agent. The seller's agent receives the offer at 9:00 AM on Sunday and promptly delivers it to the Seller. The Seller immediately signs the agreement at 11:00 AM, and the seller's agent emails the buyer's agent the acceptance. At 10:45 AM, the buyer called and left a message on their agent's voicemail asking him to withdraw the offer. Which of the following is CORRECT? Review Later A contract was formed when the buyer's agent was emailed A contract was formed at 11:00 AM when the seller signed it No contract was formed as the buyer withdrew the offer prior to the seller accepting it No contract was formed as the buyer did not receive notice of the acceptance

-A contract was formed when the buyer's agent was emailed To form a legally binding contract for the sale of real estate the contract must be in writing, unconditional acceptance, and communication made to the offering party (client or agent). For a withdrawal to be legally binding, it must be communicated to the other side. While the buyer called their agent before the seller's acceptance and seller's agent communication, the withdrawal was never communicated to the seller or seller's agent. A legally binding contract was formed when the seller's agent informed the buyer's agent of acceptance.

34 Which statement regarding discount points is NOT true? Review Later A discount point reduces the borrower's interest rate by 1/2% The cost of one discount point is 1% of the loan amount Discount points are prepaid interest Discount points increase the yield to investors

-A discount point reduces the borrower's interest rate by 1/2% Discount points typically reduce the borrower's stated interest rate on the note by 1/8% or .125% and generally require the borrower to pay 1% of the loan amount upfront. Discount points are an upfront cost that are not refundable if the borrower refinances or sells the home. They are often paid when the borrower needs to lower the mortgage payment to qualify for the loan.

20 All of the following will result in a legally binding contract to purchase a property, EXCEPT: Review Later The buyer and seller both electronically sign an offer to purchase, and the last party to sign calls the agent representing the other side. A listing agent initials the changes to a buyer's counteroffer on the seller's behalf when they receive verbal authority from the seller. The seller initials a counteroffer and electronically mails it to the buyer's agent. Upon receiving an offer to purchase and agreeing to all of the terms, the seller signs the document and mails it to the buyer's agent. Comments

-A listing agent initials the changes to a buyer's counteroffer on the seller's behalf when they receive verbal authority from the seller. The listing agent acts as a special agent - gather information and present it to the seller - where the seller makes an informed decision to enter a contract or not. The listing agent has no authority to sign on the seller's behalf, even with verbal permission. A broker can gain signing authority if the seller agrees to a power-of-attorney or attorney-in-fact, which is not common. To form a legally binding contract notification must be made to the other side. This notification may be electronic, personal delivery, or mail. The mailbox rule applies to contract formation, where an offer becomes a contract on the date it is mailed rather than when it is received. Special note: if an offer states that notice of acceptance must be received by a specific date, the mailbox rule would no longer apply, and the mailing would have to be received to form a legally binding contract.

40 Which of the following is TRUE regarding conventional and unconventional loans? Review Later Conventional loans may require private mortgage insurance on loan to value ratios of greater than 80% The federal government establishes required interest rates on FHA loans VA loans require all borrowers to pay a one-time, up-front funding fee Government direct loans to qualified home buyers are available through GNMA Comments

-Conventional loans may require private mortgage insurance on loan to value ratios of greater than 80% When a borrower does not have 20% for his/her down payment on a conventional mortgage, the lender may require the borrower to obtain private mortgage insurance. FHA insures the loans but does not set the interest rate or prevent the lender from charging fees. In certain circumstances, the VA can waive the typical funding fee. Fannie Mae, Ginnie Mae, and Freddie Mac purchase home loans on the secondary market. They do not make direct loans to buyers

24 Paula represents a buyer who submits an offer to purchase 129 Azalea Drive on Friday at 5:30 pm. The listing agent, Debra, electronically delivers the offer to the seller on Friday at 6:15 pm and sets an appointment to meet with the seller on Saturday at 11:00 am. Upon reviewing the offer and counsel by Debra, the seller signs and accepts the offer at 11:30 am on Saturday. Debra immediately calls and leaves a message of acceptance at 11:35 am to Paula. At 9:00 am on Saturday, the buyer contacts Paula to let her know that they found another home and ask her to withdraw the offer. Paula, who was skydiving, checks her messages at 11:45 am on Saturday. Which of the following statements is TRUE? Review Later A valid contract forms upon the seller's acceptance at 11:30 am on Saturday. No contract forms as the signed offer has not been delivered to Paula. A valid contract forms at 11:35 am on Saturday when Debra left the voicemail message for Paula. No contract has forms as the buyer withdrew their offer when they left the message for Paula at 9 am on Saturday. Comments

-A valid contract forms at 11:35 am on Saturday when Debra left the voicemail message for Paula. Notice of acceptance or withdrawal must be communicated to the other side to be effective. Since the buyer left a message with their agent, the withdrawal was not effective. The seller accepted the offer and the listing agent communicated the acceptance before receiving notice of withdrawal, resulting in a legally binding contract.

58 Which of the following would NOT be the best comparable property when an agent is preparing a comparative market analysis? Review Later A very similar home located in a neighboring subdivision that is comparable to the subject property and sold 13 months ago A home that is in the same subdivision that is slightly larger than the subject property that sold 10 months ago. A very similar home located next door to the subject property, with similar square footage, bathrooms, and bedrooms that was listed 2 weeks ago. A home that sold 2 months ago, which is almost identical to the subject property, sold For Sale By Owner, where the selling agent entered the information about the sale into the Multiple Listing Service. Comments

-A very similar home located next door to the subject property, with similar square footage, bathrooms, and bedrooms that was listed 2 weeks ago. A comp must be sold. When it says that a property is "listed" it means that it is actively on the market and is not sold. The next worst comp would be the For Sale By Owner (as it was not sold on the open market), followed by the home that sold 13 months ago (as it is beyond 12 months). The best comp from this list would be the slightly larger home that sold 10 months ago. NOTE: When a comp sold close to 12-months ago, it may be considered a "bad" comp.

75 The subject property has an additional bath which the comparable property lacks. A bathroom contributes $5,000. What adjustment will a licensee make? Review Later Add $5,000 to the subject property Subtract $5,000 from the subject property Subtract $5,000 from the comparable property Add $5,000 to the comparable property

-Add $5,000 to the comparable property Never adjust the subject property; only adjust the comparable. If the subject is superior, the comp is inferior, so increase the comp for the value of the bath. The comparable is adjusted to bring it in line with the subject property.

48 Concerning required disclosures under the Truth in Lending Simplification Reform Act, which of the following is NOT a finance charge? Review Later Discount points Loan origination fees Attorney fees Mortgage insurance premiums

-Attorney fees Finance charges include prepaid interest (discount points), loan fees (origination), mortgage insurance, application/commitment fee, credit report fee, flood certification, IRS fee, tax service fee, and appraisal fees. The closing attorney fee is part of closing costs and not finance charges.

8 Which of the following deeds has no warranties other than implying that the owner has an interest in the property? Review Later Quitclaim Deed General Warranty Deed Bargain and Sale Deed Special Warranty Deed

-Bargain and Sale Deed A bargain and sale deed is most similar to a quitclaim deed as it makes no warranties whatsoever other than implying ownership. A general warranty deed is the strongest and best deed that a buyer/grantee can receive as it warrants title forever for past issues. A special warranty deed is limited to the time that the grantor owns the property.

73 An appraiser measures a property that is under contract with a walk-out basement that is heated, finished and directly accessible. How will the basement be classified in the appraisal? Review Later Above-Grade Below-Grade Other Area Other Finished Area Comments

-Below-Grade Below-grade square footage is partly or wholly below the ground. Appraisers will separate above and below grade square footage

10 The law that requires certain documents to be recorded to be enforceable against third parties is known as the: Review Later Statute of Frauds. Machinery Act. Connor Act. Torrens Act. Comments

-Connor Act. The Connor Act requires deeds, easements, leases of greater than three years, etc., to be recorded to be binding against third parties. The Statute of Frauds requires certain contracts to be in writing to be enforceable. The Torrens System prevents adverse possession. The Machinery Act allows the city's and county's to charge property taxes on an ad valorem basis.

37 Oversight and promulgation of rules regarding Truth in Lending and RESPA are provided by what government agency? Review Later Federal Housing Authority Consumer Financial Protection Bureau Federal Bureau of Investigation Housing and Urban Development

-Consumer Financial Protection Bureau The Consumer Financial Protection Bureau (CFPB) oversees TRID - the Truth in Lending, Real Estate Settlement Procedures Act Integrated Disclosure.

28 What is the term for a type of financing where the seller agrees to transfers possession but continues to hold the legal title until terms are fulfilled? Review Later Contract for Deed Lease/Option Purchase Money Mortgage Preemptive Right Comments

-Contract for Deed A contract for deed or installment land contract is a type of seller financing that is heavily in favor of the seller. The buyer risks losing everything in the event of default. A purchase money mortgage is seller financing where the legal or actual title typically transfers to the buyer (lien theory state) or a trustee (title theory state). A lease option allows a tenant to rent a property and have an option to purchase the property, with all terms agreed to upfront - including purchase price, a period the tenant has to decide, and the procedures for exercising the option to close on the property. The right of first opportunity or first offer may be referred to as a preemptive right to purchase.

49 Which of the following statements regarding equity is CORRECT? Review Later Equity is calculated by taking the assessed value and subtracting the amount owed Equity is calculated by taking the loan amount and dividing it by the value Equity increases when the property appreciates Equity decreases when the borrower makes additional principal payments

-Equity increases when the property appreciates Equity increases when the property appreciates, the borrower makes additional principal payments or makes improvements that add to the property's value. Equity is calculated by taking the fair market value of the property and subtracting the amount owed. Loan to value (LTV) is calculated by dividing the loan amount by the property's value.

45 Dedra is behind on her mortgage payments and has received a foreclosure notice from the bank. Which of the following statements is NOT true? Review Later Upon default and acceleration of the note, a borrower may redeem the property, also called equitable redemption, before the property sold at a foreclosure auction. A broker must disclose to a buyer that the owner has received a foreclosure notice as this is a material fact. In a lien theory state, the process is often referred to as a foreclosure by advertisement with the property sold at an auction. In a title theory state, the borrower holds equitable title in the property so the lender can foreclose faster than in a lien theory state.

-In a lien theory state, the process is often referred to as a foreclosure by advertisement with the property sold at an auction. In a title theory state, foreclosure can be referred to as a foreclosure by advertisement with the property being sold at auction. The equitable right of redemption is before the foreclosure sale occurs. The statutory right of redemption in North Carolina is 10-days from the foreclosure sale or upset bid. It is not a material fact that a seller is behind on mortgage payments unless a foreclosure notice is received.

16 Amy threatens to assault Jane if she does not sign an offer to purchase. In this circumstance: Review Later Jane was under duress, so the contract can be voided. the offer is contingent upon court approval. Amy can sue Jane for specific performance. the offer is legally binding when Amy and Jane sign. Comments

-Jane was under duress, so the contract can be voided. The party under duress may void the contract, or choose to close. When a party to the contract is under duress, the contract is voidable. "Can" and "May" cut both ways, the party may or may not terminate the contract. Duress is a threat to hurt someone when to force a person to sign. The court would not enforce a contract formed under duress.

11 Jennifer and Michael plan to get married in 6 months. They decide to purchase a home in North Carolina prior to the wedding without telling the attorney the type of ownership they desire. Two years later, Michael dies. Which of the following statements is TRUE? Review Later Jennifer and Michael's heirs own the property as the property was owned as tenants in common. The property is owned in severalty by Jennifer since the property was owned as tenancy by the entirety. The property is owned by Jennifer and the State as tenants in common as Michael's interest escheats. The property is owned in severalty by Jennifer since the property was owned as joint tenants.

-Jennifer and Michael's heirs own the property as the property was owned as tenants in common. When two or more parties purchase property, absent the parties expressed desire, the property will be held as tenants in common. According to a will, Michael's share of the property will pass to his heirs if he died testate or as the court directs if he died intestate (without a will). For the property to be owned as tenancy by the entirety, the couple must be married at the time of purchase. The property ownership does not convert once the couple marries (without direct actions and an attorney's assistance). They will continue to own as tenants in common. Buyers must specify the desire to own property under joint tenancy, and specific language must be included in the deed. A property escheats when the decedent has no heirs. Michael was married based on the information provided above, so he has at least one heir.

6 Kevin owns a property at 1010 Pepper Lane. His neighbor is a hermit and has not been seen in many years. Kevin has a copy of a survey that marks the property line; however, he purposely places a fence 10 feet onto the neighbor's property. Which of the following statements is FALSE regarding Kevin trying to take the property through adverse possession? Review Later Should Kevin meet the statutory requirements, he can seek to obtain the title to the portion of the land through a suit to quiet title. Since Kevin does not have the color of title, he must have continued use of the portion of his neighbor's property for at least 20 years. Kevin cannot claim the title through adverse possession as his neighbor is not aware of the encroachment. Since Kevin has only taken 10 feet of the property, he will not be able to claim adverse possession of the entire lot. Comments

-Kevin cannot claim the title through adverse possession as his neighbor is not aware of the encroachment. There is no requirement for the property owner to be aware of a party taking all or a portion of their land to have a valid claim for adverse possession (prescriptive easement). Also, no protection is given when an owner is a hermit, blind, or has any other handicap.

7 Which of the following is NOT an essential element of a deed? Review Later Must be signed by the grantee Must be in writing Must identify both the grantor and the grantee Must be accepted by the grantee Comments

-Must be signed by the grantee The grantor, not the grantee, signs the deed. To recall the essential elements of a deed, remember I.G.P.W.E.D or I Get Paid With Every Deal. The deed must be In writing, the Grantor must be competent, include an adequate Property description, contain Words of conveyance, Execution / signed by the grantor, and Delivery and acceptance by the grantee.

55 An appraiser knows the capitalization rate for an area and wants to calculate an estimate of the market value. What information does the appraiser require? Review Later Effective Gross Income Total Anticipated Revenue Net Operating Income After-tax Cash Flow

-Net Operating Income The formula to calculate value using the income approach is: value = NOI/Cap Rate. Effective gross income and total anticipated revenue are synonyms which is calculated by taking gross income and subtracting vacancy and collection losses. After-tax cash flow is generally not tested.

47 An underwriter may take into consideration all of the following factors when evaluating a borrower, EXCEPT: Review Later age of applicant. child support payments. the credit score. student loan payments.

-age of applicant. Under the Equal Credit Opportunity Act, a lender cannot discriminate based on Federal Fair Housing's protected classes and the additional protections for age, marital status, and public assistance income. The lender can consider the borrower's financial obligations such as student loan payments, child support, and the borrower's credit score and repayment history.

67 A buyer wants to purchase a property for $250,000 by taking a conventional mortgage with an 85% LTV, 4.5% interest, and 25 year repayment period. The loan amortizes at 5.561. Property taxes and insurance are anticipated to cost $3,480. The borrower has the following monthly debt obligations: student loan $100, car payment $350, credit card debt $200, and an installment loan with 5 monthly payments remaining of $175. Does the buyer qualify for the loan if she makes $75,000 per year? Review Later Yes. She qualifies for housing and total debt ratios. Yes. She qualifies only for housing ratios. No. She qualifies for housing but not total debt ratios. No. She qualifies for total debt but not housing ratios.

-No. She qualifies for housing but not total debt ratios. Only long term debts needs to be included so a debt that has 5 payments remaining is short-term and does not need to be included. The minimum income is the higher of the two amounts. Monthly Income: $75,000 / 12 = $6,250 Max Housing: $6,250 X 28% = $1,750 Max Total Debt: $6,250 X 36% = $2,250 Buyer qualifies for both housing and total debt ratios. Loan amount: $250,000 X 85% = $212,500 Principal and Interest Payment: $212,500 / 1,000 X 5.561 = $1,181.71 Monthly Tax and Insurance: $3,450 / 12 = $290 Housing Payment: $1,181.71 + $290 = $1,471.71 Total Debt Payment: $1,471.71 + $100 + $350 + $200 = $2,121.71

5 All of the following are ways property may be identified in an offer to purchase or deed. Which provides the least assurance? Review Later Governmental Rectangular Survey System Metes and Bounds Property Description Property Identification Number or PIN The Deed Book and Page of the Current Deed

-Property Identification Number or PIN The property identification number or PIN may be used to identify properties in different counties, which provides the least assurance. The metes and bounds property description and the government rectangular survey system provide the most detail. It is common to refer to the deed book and page for the current deed in an offer to purchase and contract and plat book & page, lot, block, and other legal description.

49 Which of the following statements is NOT true? Review Later Truth in Lending laws allow for disclosure of APR in an advertisement without further disclosures RESPA prohibits kickbacks from settlement service providers Regulation Z requires that borrowers be informed of their total closing costs at least 24 hours prior to closing RESPA requires a Loan Estimate of settlement costs within three days of loan application

-Regulation Z requires that borrowers be informed of their total closing costs at least 24 hours prior to closing Truth in Lending - Regulation Z requires the disclosure of certain information (APR, loan term, amount financed, etc.) related to financing when a broker advertises trigger terms (payment, down payment, interest rate, etc.). It DOES NOT prevent the broker from advertising trigger terms. APR is not a trigger term, but when trigger terms are used, it must be disclosed.

54 Which of the following is CORRECT concerning the valuation of a property? Review Later The Market Data Approach to value is determined by taking the loan and dividing by the fair market value. The Sales Comparison Approach is primarily influenced by the economic principle of substitution. The cost approach considers depreciation The Cost Approach to value is calculated by taking the effective gross income, subtracting operating expenses, and dividing by the capitalization rate. Comments

-The Sales Comparison Approach is primarily influenced by the economic principle of substitution. The law of substitution is the basis for the sales comparison approach (using recently sold comparable properties). When calculating the value of a property using the direct capitalization approach (income capitalization) you divide net operating income by the capitalization rate. The gross income multiplier is calculated by taking the sales price and dividing by annual gross rent. When using the cost approach to value, a broker would calculate the cost to build new, less depreciation and then add land / improvements. The market data approach is another name for the sales comparison approach, where a broker or appraiser would search for at least 3 comparable sold properties and make adjustments for differences.

44 An agent is representing a buyer that is seeking to purchase a new home. The buyer is requesting information about possible loan programs. Which of the following statements would NOT be correct regarding unconventional financing? Review Later The VA guarantees the amount of the loan in the event of a default by the buyer. FHA loans are originated by lenders, and the government either insures the lender against some of the loss. A widow or widower of a veteran may obtain a VA loan so long as they have not remarried and do not currently have a VA loan. FHA and VA loans are not allowed to include a prepayment penalty.

-The VA guarantees the amount of the loan in the event of a default by the buye The VA guarantees loans according to a sliding scale - not for the full loan amount. We recommend that an exam candidate create a "foldie" - fold a piece of paper into three columns to compare and contrast conventional, FHA, and VA loans. Only a qualifying veteran or un-remarried widow/widower can originate a VA loan. Lenders make loans, and the government guarantees the loss according to a sliding scale. The loans are assumable by qualifying veterans and non-veterans. The maximum amount that a lender will loan is based on the CRV - certificate of reasonable value. VA loans cannot contain a prepayment penalty. FHA loans are available to qualifying veterans and non-veterans. A lender originates the loans, and the government insures a portion of the loss. An FHA-approved appraiser appraises the property. FHA loans are assumable by qualified borrowers and cannot contain a prepayment penalty.

35 A borrower obtains a mortgage with a local bank to purchase a 1920's bungalow style home by obtaining a conventional mortgage for 80% of the home purchase price. Which of the following statements regarding financing terms is CORRECT? Review Later The lender is not permitted to sell the loan to investors if the note contains a habendum clause. The lender could sue for a deficiency judgment if the borrower signed a non-recourse note. The borrower obtained an adjustable-rate mortgage if the note contains an escalation clause. The loan is assumable when the note contains an alienation clause.

-The borrower obtained an adjustable-rate mortgage if the note contains an escalation clause. The habendum clause means "to have and to hold," defining the types of rights and interests that an owner or a tenant has. A non-negotiable loan prevents the sale of a loan to investors. The escalation clause allows the interest rate to change up or down depending upon changes in the index rate. The bank's profit or margin is added to the indexed rate. A loan is not assumable if it contains a due on sale or alienation clause. A non-recourse note, which is commonly used in commercial transactions, would prevent a lender from suing for a deficiency judgment, where the proceeds of sale do not cover the amount owed as well as fees incurred.

33 Which of the following statements is CORRECT regarding the NCAR / NCBA Offer to Purchase and Contract? Review Later The buyer takes title to the property subject to proposed assessments. The buyer cannot purchase the property if it has been damaged before settlement. The settlement date is "time is of the essence." The offer is contingent upon the buyer's ability to obtain financing.

-The buyer takes title to the property subject to proposed assessments. The buyer takes title to the property subject to pending/proposed special assessments, while the seller is responsible for paying confirmed special assessments. The standard NCAR/NCBA OPC is not contingent upon financing or appraisal. The buyer should take steps to gain assurance about both prior to the due diligence period's expiration. A party that is using best efforts may delay settlement for 14 days. If the delay extends beyond the 14 days, the contract becomes voidable on behalf of the non-delaying party. When a property is damaged, reasonable wear and tear excepted, the contract becomes voidable. The buyer can elect to close and recover insurance proceeds to cover the damage or elect to terminate.

28 A buyer is interested in purchasing a property where the seller is offering financing through a contract for deed. The buyer is trying to weigh the pros and cons of seller financing versus conventional financing in a title theory state. Which of the following statements is FALSE and should not be said by the agent? Review Later The buyer will have the same rights under a deed of trust as they have in a contract for deed should they default on payments. Upon final payment of the loan or the contract for deed, the full title should be reconveyed to the buyer. To be protected from third-party transfers, the buyer should insist that the contract for deed be recorded. In both forms of financing, the buyer will hold equitable title to the proper

-The buyer will have the same rights under a deed of trust as they have in a contract for deed should they default on payments While the buyer will hold equitable title when they purchased the property and sign a deed of trust or purchase a property under an installment land contract/contract for deed, they do not receive the same rights. If a buyer defaults on a loan where a deed of trust is signed, they may receive money left over after all secured lien holders have been paid. If a buyer defaults under a contract for the deed, they lose everything. A contract for deed or installment land contracts are a form of seller financing where the title is not transferred until the final payment has been received. The buyer is the vendee, and the seller is the vendor. In the event of default, the buyer loses everything.

32 Which of the following statements regarding the Standard NCAR / NCBA Offer to Purchase and Contract is NOT true? Review Later The contract contains an indemnification clause where one party agrees to compensate the other for a loss or damage. An example of compensatory damages that may be paid to the buyer when a seller breaches the agreement would be the amount paid for the appraisal and inspections. When a buyer and seller are officially under contract, and the buyer demands the return of his due diligence fee, the listing broker must return the funds unless they already gave the check to the seller. The contract is voidable when the buyer or seller cannot close by the settlement date outlined in the contract.

-The contract is voidable when the buyer or seller cannot close by the settlement date outlined in the contract. The buyer or seller is entitled to a 14-day delay in the settlement so long as they are using their best efforts to close on the property. Closing is not "time is of the essence." The listing agent must follow the buyer's instructions when checks have not been delivered to the intended recipient. The buyer would be in breach of the contract, and the seller would be entitled to sue for damages.

26 Eduardo, an agent with Best Buyer Realty, represents a buyer who made an offer on a home for $10,000 above the asking price, with payment of a $2,500 due diligence fee and $5,000 earnest money deposit. The buyer paid the fee five days following the effective date of the contract. The listing broker promptly delivered the due diligence fee to the seller and earnest money deposit to his broker-in-charge. Subsequently, both checks bounced. Under the Standard NCAR/NCBA Offer to Purchase and Contract, which of the following is TRUE? Review Later A contract is not formed since the buyer did not make the payment with good funds. The contract will become voidable upon the seller providing notice to the buyer and waiting for the prescribed time. The seller may automatically terminate the contract upon receiving notice from their bank that the due diligence fee check was dishonored. The buyer must submit a new offer and provide certified funds in order for a legally binding contract to be formed.

-The contract will become voidable upon the seller providing notice to the buyer and waiting for the prescribed time. A legally binding contract is formed when the offer is accepted and communication is made to the offering party regarding acceptance. When the checks bounce the buyer is in breach of contract - it does not automatically terminate. The NCAR/NCBA Offer to Purchase and Contract states that the seller must make written demand and allow one banking day for the buyer to bring certified funds. After one banking day has passed he contract becomes voidable on behalf of the seller. The seller can elect to give the buyer additional time or terminate the contract. You may review the specific language in the NCAR/NCBA Offer to Purchase and Contract on the bottom of page one, continued to page 2.

63 Which of the following statements is CORRECT regarding a licensee's handling of funds related to leases, options, or purchase contracts? Review Later The due diligence fee payment is delivered to the seller upon acceptance of an offer and does not need to be deposited into the trust account. The payment of an option fee is deposited into a brokerage trust account until the seller accepts the contract and then is released to the seller. The earnest money check received with an offer to purchase must be deposited into the brokerage trust account within 3 banking days following receipt of the funds. The payment of monthly rent may be deposited in the property owner's operating account by the licensee.

-The due diligence fee payment is delivered to the seller upon acceptance of an offer and does not need to be deposited into the trust account. Due diligence fees and option payments are made payable to the seller, therefore not considered trust money. Earnest money must be deposited into a brokerage trust account the later of 3 banking days from receipt or 3 banking days from the contract's effective date. A broker must safeguard an earnest money deposit check but does not have a duty to deposit until a legally binding contract forms. A broker will deliver the earnest money to his/her broker in charge or escrow agent. The trust account is for "other people's money." A firm cannot commingle funds other than a small amount to cover the costs of maintaining the account, typically restricted to $100.

34 A married couple is interested in purchasing a new home in a title theory state. The wife is a nurse and earns $80,000 per year, and has excellent credit. The husband is a school teacher earning $40,000 per year and has a bankruptcy on his credit report from a failed investment property. Which of the following statements is most accurate? Review Later The lender may consider the combined income but use only the best credit score The lender may insist that only the wife appear on the note and the deed of trust The lender may use an average of their incomes and credit scores to determine qualification The lender may use the wife's income only for the loan but require both parties to sign the deed of trust Comments

-The lender may use the wife's income only for the loan but require both parties to sign the deed of trust A lender may allow a married couple to purchase a home using only one spouse's credit history and income. Since the property is located in a title theory state, both spouses will need to sign the deed of trust.

62 An owner tells the listing agent that the property has 2,500 heated square feet. The listing agent lists the property without measuring. A buyer's agent shows the property and after negotiations, the buyer purchases the property without financing. The buyer subsequently seeks to obtain a line of credit only to learn that the property had 2,400 heated square feet. Which of the following is TRUE? Review Later The listing agent and buyer's agent is guilty of negligent misrepresentation. The buyer's agent is guilty of making false promises. The listing agent is guilty of negligent misrepresentation. The listing agent and buyer's agent is guilty of making false promises.

-The listing agent is guilty of negligent misrepresentation The listing agent has a responsibility to measure once they make a representation about the heated square footage. The listing agent misrepresented the amount of square footage. The buyer's agent is responsible for what they know or what they reasonably should have known. The amount of square footage is too small for a prudent buyer's agent to notice. NOTE: The answer would change to both the listing and buyer agent when the difference is larger (2,000 actual heated square feet versus 2,400). NOTE: False promises occur when a statement is made to induce the sale, rather than a misrepresentation of a fact about the property.

52 Which of the following best describes the practical effect of an alienation clause in a deed of trust? Review Later The lender's right to have property sold to satisfy the debt The loan may not be assumed by a subsequent buyer The borrower's right to have the deed of trust canceled when the note is satisfied The loan may not be sold in the secondary market

-The loan may not be assumed by a subsequent buyer An alienation/due on sale clause requires the loan to be paid in full if the property is sold or transferred. This would not permit the loan to be assumed. FHA and VA loans cannot contain an alienation/due on sale clause. A loan would have to be non-negotiable to prevent the loan from being sold. A lien allows a lender to sue to recover some or all of the money lent to satisfy a debt. In a title theory state, this is explained in the power of sale clause. The defeasance clause outlines that the lender must return the title granted under the deed of trust once the final payment is received.

33 Which of the following statements are TRUE regarding the Standard NCAR / NCBA Offer to Purchase and Contract? Review Later The offer outlines that the buyer has the right to perform inspections of improvements, easements, and restrictions of use regarding the property. If a party cannot close on the date specified in the contract, they are allowed to delay up to 10 days before the non-delaying party is entitled to terminate the contract. A legally binding contract does not form if the buyer fails to deliver the earnest money outlined in the contract or if the check bounces. The offer contains an escape clause if the property does not appraise for the offer price.

-The offer outlines that the buyer has the right to perform inspections of improvements, easements, and restrictions of use regarding the property. A legally binding contract is formed when the offer is in writing, signed by all the parties, and communicated back to the offering party. The contract specifies that if the earnest money deposit or due diligence fee is not paid or the check bounces, the seller must make a written demand and allow the buyer one banking day before they can terminate the contract. After one banking day, the contract is voidable on behalf of the seller. The seller can decide to terminate or grant more time to the buyer.

22 Jane is hospitalized and decides to sell her property and enter into assisted living, thinking her illness is very serious. Her property promptly goes under contract. She later discovers the illness is not as severe and asks her listing broker to terminate the contract. Which of the following statements is CORRECT? Review Later The due diligence period has expired, the seller is entitled to earnest money deposit and due diligence fee as liquidated damages. The seller can refuse to sell the property; however, risks being sued for specific performance and other damages. The licensee should inform the seller that she must sell the property as she entered into a valid and enforceable contract. The listing licensee is not entitled to the commission unless the property closes.

-The seller can refuse to sell the property; however, risks being sued for specific performance and other damages. When a seller breaches the contract, the buyer is entitled to a refund of the earnest money deposit, and due diligence fee, a refund of actual expenses that cannot be transferred to another property, or they can sue for specific performance to force the sale. A broker cannot state that the client must sell the property; we can only inform them about the potential issues with the default and refer them to an attorney. A seller is entitled to the earnest money deposit and due diligence fee when the buyer breaches the contract. The broker earns commission/compensation when he/she finds a ready, willing, and able buyer at the price and terms the seller indicated or if the property goes under contract. It is payable at closing or upon breach.

11 The Wilsons' attorney told them that they need to order a 30-60 year history of title transfers regarding the property. They need to order a/an Review Later torrens certificate. abstract of title. title company's opinion of title. certificate of title.

-abstract of title. An abstract of title is a condensed history of the property transferring hands. While it can be a complete history, frequently, attorneys go back 30 to 60 years. The Torrens certificate protects against adverse possession, where the property is registered and transferred through the courts. Typically, an attorney would provide an opinion of title, which is also called title assurance, which would determine if a title company would issue a title insurance policy. A title insurance company will not insure the buyer/lender against defects discovered by the settlement attorney before settlement.

63 A property owner hires a provisional broker to list his property for sale in the Multiple Listing Service. The agent brings an offer that meets all of the seller's desired terms. Which of the following statements is TRUE? Review Later The seller cannot pay a bonus directly to the listing broker as the broker's firm must pay all compensation. Since the broker obtained a ready, willing, and able buyer on price and terms acceptable to the seller, the seller is obligated to sell the home. The offer to purchase submitted to the seller can include terms that would alter the commission agreed to by the seller and the listing agent's firm. The listing broker must present the offer immediately but no later than 5 calendar days from receipt.

-The seller cannot pay a bonus directly to the listing broker as the broker's firm must pay all compensation. The seller is not obligated to sell the property even when all the terms are met. The broker will be entitled to the commission regardless of the seller entering the contract or refusing to sell since they found a buyer that met all of the seller's terms. A broker must present all offers immediately but no later than 3 calendar days. The seller will then decide how to respond to the offer as the broker cannot make those decisions. An offer to purchase is between the buyer and the seller and therefore cannot contain a reference to commission/compensation or disclaim liability. All compensation must flow through the brokerage and cannot be paid directly to a broker on provisional status. Payment of compensation is typically made from the brokerage operating account and paid by the broker-in-charge.

20 All of the following are necessary to form a legally binding contract for the sale of real property, EXCEPT: Review Later The parties signing the offer must be legally competent. The agreement must be signed by all parties that own a portion of the property. The signed offer must be delivered and accepted. The agreement must be in writing according to the Statute of Frauds.

-The signed offer must be delivered and accepted. To form a legally binding contract for real property the agreement must be in writing, signed by all of the parties, and communicated back to the offeror or his/her agent. Delivery of the signed offer is not required to form a legally binding contract - just communication of acceptance. A real estate sales contract must be in writing to be enforceable per the Statute of Frauds. A person that has been adjudicated insane cannot enter into a legally binding contract.

15 A buyer enters into an option agreement to purchase an investment property that is subject to lease agreements. Which of the following is TRUE? Review Later The tenant must be notified of the buyer's name after closing. The tenant must be notified of the buyer's name when the property is under contract. The tenants must be informed that the property is available for sale. The tenants must be informed when the property is under contract.

-The tenant must be notified of the buyer's name after closing. A tenant must be made aware when the security deposit has moved to the buyer's trust account. The tenant must also be notified if there is a change in the mailing address for the monthly rent payment. An option agreement does not require the optionee to perform. A purchase contract may fail. NOTE: The lease is a lien against the property. The new owner is obligated to honor the remainder of the lease.

47 At a settlement meeting, the borrower learned that his first mortgage loan was sold to another lending institution. Which of the following is TRUE? Review Later This is a violation of the Real Estate Settlement Procedures Act The new holder of the note may change the terms within certain tolerances The terms of the note will remain the same even though the holder of the note changed The borrower has a 3-day right of rescission when his note is sold Comments

-The terms of the note will remain the same even though the holder of the note changed The note's terms do not change when the mortgage is sold from one lender/investor to another. A mortgage is a contract, and the sale or assignment would not permit the new owner to change the terms.

23 Which of the following statements is FALSE regarding contracts for deed? Review Later The vendee has an equitable title in the property until the final payment is made to the vendor. The vendee has the same rights as a buyer who purchases a property financed through a bank with a deed of trust. This form of financing greatly favors the seller. The vendor holds the legal or actual title in the property until the vendee has made the final payment.

-The vendee has the same rights as a buyer who purchases a property financed through a bank with a deed of trust. While the buyer will hold equitable title in the property, whether the bank or seller finances it through an installment land contract (contract for deed), it does not afford the same rights. If the buyer defaults on loan financed through a bank with a deed of trust, they are entitled to the remaining proceeds after all secured financing debts and foreclosure expenses have been paid. If the buyer defaults under installment land contracts, they lose everything.

32 Certain elements must be present in a real estate sales contract involving a single-family residence if the contract is valid. Although the following elements are recommended, which one is NOT an absolute necessity? Review Later Sales price Description of land Names of the parties Type of deed

-Type of deed Not real estate transactions have agents involved in them, and therefore the contract between a buyer and seller might not meet the NCREC guidelines. When a contract does not state the type of deed the sellers provide, the seller can provide any deed they want to. A quitclaim deed would eliminate liability on behalf of the seller as they make no assurances whatsoever.

56 Which of the following statements regarding property valuations is NOT true? Review Later The market value of a property determined by an appraiser is based on an analysis of data that may include comparable sales of recently sold homes for residential property. The market price may not be indicative of the market value as some properties are sold for less than their value due to circumstances affecting the seller. When using the cost approach to value, an appraiser will depreciate the building based upon the amount written off for tax purposes. To value a property using the direct capitalization approach, the appraiser will need to calculate the property's net operating income.

-When using the cost approach to value, an appraiser will depreciate the building based upon the amount written off for tax purposes. Tax depreciation is not used when applying the cost approach to value. Depreciation is based on actual depreciation (effective age). The broker or appraiser will determine the property's useful life, which may be called the economic life. We do not care about the building's actual age; we are concerned with the effective age.

10 After a buyer purchases a property, she orders a survey and finds that her neighbor, through error, has recently built an ornamental fence two feet onto her land. This would be a basic example of: Review Later an encroachment. adverse possession. an easement. an appurtenance.

-an encroachment. An encroachment occurs when one owner intrudes upon a neighbor's property (typically a fence or building). A prudent broker would recommend that a buyer obtain a survey before closing to fully protect the purchase and maximize title insurance policy coverage. An easement is often for access to a property (ingress/egress). An appurtenance is an improvement to a property (improvement, grading, utilities). Adverse possession is hostilely taking another's property, which must be open, continuous, exclusive, adverse, and notorious.

31 An agreement to purchase a property at a specified price, for a set period, that often requires the payment of a non-refundable sum of money is: Review Later an option to purchase. a contract for deed. an installment land contract. the right of first refusal.

-an option to purchase. An option to purchase ties up a property for a set time, which often requires the payment of money. Usually the option fee is nonrefundable. With the right of first refusal, the property can be placed on the market, and an offer can be received. The seller must first check to see if the party with the right of first refusal wants to meet the offer before agreeing to the buyer's offer. When a seller breaches the contract, the buyer is entitled to a refund of the earnest money deposit, due diligence fee, and compensatory damages for items that cannot be transferred to another property (property inspection, appraisal, etc.). The fees paid for credit reports or tax certifications are used to determine if a borrower is creditworthy. The buyer could choose to sue the seller for specific performance - force the sale of the property. The due diligence fee and earnest money deposit were paid to the seller and escrow agent and must be refunded, not retained. A contract for deed or installment land contract is a form of seller financing where the seller (vendor) retains legal title to the property until the buyer's final payment (vendee).

36 When the interest rate changes with an adjustable-rate mortgage, this: Review Later extends the loan term. impacts the payment amount. increases the lender's margin. increases the mortgage balance.

-impacts the payment amount. A variable-rate or adjustable-rate mortgage allows the lender to change the interest rate based on index changes. The bank adds a "margin" to the loan, typically a set percentage (i.e., prime + 1%). The mortgage balance would not increase unless there are payment caps - which the question did not specify. The loan term is not impacted, but the payment would. The interest rate can change because the mortgage loan contains an escalation clause.

12 The grantor delivers a signed deed to her attorney, however, dies before the property closing. The deed is: Review Later ​invalid unless a party has been appointed Power of Attorney. valid if the deed is delivered to the grantee. invalid as it does not meet requirements. invalid when signed but valid when recorded.

-invalid as it does not meet requirements. A deed must transfer during the grantee (seller's) lifetime to the grantee, so the delivery to the attorney is not sufficient. To determine if a deed is valid, recall IGPWED (I get paid with every deal) - in writing, grantor competent, property description, words of conveyance, execution (signed by all owners), and delivery & acceptance. A power of attorney will terminate upon the death of the seller. The grantor and grantee must be identified to have a valid deed. Both seller and buyer must be identified in a deed - you must know who is selling and who is buying.

22 Seller A is obligated to perform only if Buyer B takes action outlined in a contract. The contract: Review Later is considered unilateral. is bilateral and unenforceable. is likely a contract for deed. is bilateral and enforceable.

-is considered unilateral. A contract that requires only one party to perform is considered a unilateral contract. Under a bilateral contract, both parties are required to complete. A contract for deed or installment land contract is a form of seller financing that does not require the owner to transfer legal title until final payment of the debt.

17 Three joint tenants own a property. One joint tenant signs a contract to sell the entire property to an investor. The contract: Review Later is valid and enforceable. is void unless the contract is recorded. is void due to an inability to perform. is voidable on behalf of the joint tenant that signed.

-is void due to an inability to perform. To sell the entire property, ALL joint tenants will need to agree and sign the offer to purchase. A joint tenant can sell his/her share of the property to another without the other joint tenants' permission. The new owner will own as a tenant in common. Purchase contracts are not recorded as not all contracts are successfu

13 A business is looking for a property to lease for a marijuana dispensary. State law prohibits the sale of marijuana. The business enters into a lease with a property manager. The lease: Review Later is void. is a unilateral contract. is legally enforceable. is voidable.

-is void. A contract for an illegal purpose is void. It is not enforceable. A voidable contract requires one party to perform, while the other party may choose to complete the terms or not. A unilateral contract requires one party to perform only if the other party takes the agreed-upon action.

50 All of the following are true of a promissory note, EXCEPT: Review Later it is a contract between lender and borrower describing the terms of repayment for a debt. the promissory note is signed by the borrower(s) but not the lender. the promissory note may be sold in the secondary mortgage market. it must be recorded under the Connor Act to be enforceable.

-it must be recorded under the Connor Act to be enforceable. The promissory note is not recorded; however, the deed of trust or mortgage would be. The promissory note outlines the repayment terms. The mortgage or deed of trust provides security for the loan. The Connor Act requires certain real estate documents to be recorded to be binding against third parties.

43 A buyer on a fixed income should select a: Review Later blanket loan. brige loan. level loan. straight loan.

-level loan. Mortgage payments remain the same throughout the loan term with a fixed/level/flat loan. A bridge loan is used as short-term financing when a buyer wants to purchase a new house now and will use the current home's sales proceeds to pay the temporary loan off. A blanket loan finances multiple lots/properties into one loan (subdivision financing). A straight/interest-only loan does not require payments to the principal.

59 A broker pays a commission to a previously licensed agent for a transaction where the listing contract was signed while the agent was on inactive status. In this instance: Review Later neither the broker nor the agent are entitled to compensation. the broker compensation must be shared with the agent. compensation cannot be paid as it is a violation of the Good Funds Settlement Act. the agent cannot receive compensation, but the broker can.

-neither the broker nor the agent are entitled to compensation. The BIC must ensure that affiliated agents are on active status. Since an affiliated agent was not active at the time of listing, the brokerage is not entitled to compensation. The Good Funds Settlement Act requires all money to be received and recording to occur prior to the disbursement of sales proceeds.

61 A builder offers a $1,000 bonus to a licensee on the first sale of a home, a $2,000 bonus on the second sale, and a $3,000 on the third sale. The licensee must timely disclose the bonus in writing to all buyers: Review Later no later than the closing date. no later than the effective date of contract. no later than their first offer. no later than showing the property. Comments

-no later than their first offer. A broker must "timely" disclose the bonus in writing no later than the principal making or accepting an offer to buy or sell. (See page 15 of License Law Commission Rule Comments). The disclosure is required orally no later than a buyer considering an offer. The disclosure must be reduced to writing before the presentation of an offer.

30 A seller and buyer enter into a contract for the purchase of a home. The seller defaults on the contract with no legal excuse. The buyer sues the seller for compensatory damages. Examples of these damages would include: Review Later the listing agent's commission. the difference in the cost of the new home and the property that was under contract. nonrefundable/nontransferable fees paid to the lender in connection with the loan for the seller's home. the retention of the earnest money and due diligence fee paid. Comments

-nonrefundable/nontransferable fees paid to the lender in connection with the loan for the seller's home. When a seller breaches the contract, the buyer is entitled to a refund of the earnest money deposit, due diligence fee, and compensatory damages for items that cannot be transferred to another property (property inspection, appraisal, etc.). The fees paid for credit reports or tax certifications are used to determine if a borrower is creditworthy. The buyer could choose to sue the seller for specific performance - force the sale of the property. The due diligence fee and earnest money deposit were paid to the seller and escrow agent and must be refunded, not retained.

14 A listing contract shows a number of personal property items that the seller intends to sell with the property, including the washer/dryer set and an antique set of fireplace tools. These items are noted as being included in the purchase price on the MLS listing. The purchase contract does not mention the fireplace tools but lists the washer and dryer as personal property to convey. At closing, the fireplace tools will: Review Later be conveyed as necessary equipment to operate the fireplace. convey to the buyers since the seller listed them in the MLS. be conveyed by the deed but at a small additional cost. remain the personal property of the seller.

-remain the personal property of the seller. Under the Parole Evidence Rule, the contract is the final expression between the parties. The seller offered to leave the fireplace tools, and the buyer did not accept that offer by placing it in the offer to purchase and contract. The seller can keep the fireplace tools as they are personal property.

42 A buyer obtains a 30-year FHA 203b loan with an adjustable-rate without a payment cap. The impact of the rate change will: Review Later result in a rate and payment change. increase the mortgage balance when the payment increases. require the lender to renegotiate the loan if the borrower is unable to pay. increase the upfront costs the buyer needs to pay to obtain the mortgage.

-result in a rate and payment change. With an adjustable-rate mortgage, the interest rate and payment can change depending on the benchmark rate (US Treasury Rate / LIBOR). It would not typically impact the mortgage balance unless there was a payment cap (note the question stated that there were no payment caps). A lender is not required but may renegotiate or modify a loan if a borrower defaults. The lender and borrower signed a mortgage/note, which is a contract. Future rate changes would not impact costs incurred at the time the mortgage originates. A borrower can pay discount points to lower the state interest rate on the loan.

53 The formula for calculating the gross rent multiplier is: Review Later sales price / annual rent. gross income - vacancy and collection. net operating income / capitalization rate. sales price / monthly rent.

-sales price / monthly rent. The gross rent multiplier is calculated based on the monthly rent. The gross income multiplier is calculated based on the annual rent. Using the direct capitalization approach, value = NOI / Cap Rate. Effective gross income or total anticipated revenue = Gross income - vacancy and collection losses.

27 A buyer is interested in making an offer on a property that is currently under contract. The buyer: Review Later should wait for the primary contract to fail before making an offer. should ask the seller to grant an option to purchase. should include a back-up contract addendum to a purchase contract. should ask the seller to grant a right of first opportunity.

-should include a back-up contract addendum to a purchase contract. The Back-Up Contract Addendum allows the seller to enter into a second contract contingent upon the failure of the primary contract. The seller is only obligated to sell when the primary contract fails. An option to purchase ties up a property for an agreed-upon period, with all terms agreed to upfront. The optionee can decide to exercise the option, and the seller is obligated to sell. The right of first opportunity requires the seller to check to see the holder of the right wants to purchase the property before offering the property for sale to others.

14 A buyer and seller negotiate the sale of a property, with the seller agreeing to include the washer and dryer. The seller takes the washer and dryer when moving out. The buyer can: Review Later sue the seller to quiet title. sue the seller for partition of sale. sue the seller for specific performance. sue the seller for impossibility of performance. Comments

-sue the seller for specific performance. The seller failed to meet the terms of the sale. The buyer can sue for specific performance to force the seller to meet all the contract terms. A suit for partition is "property divorce" to force the sale of the property. The suit to quiet title settles an ownership dispute by asking the court to determine which party has the highest ownership claim. The impossibility of performance would void a contract.

52 All of the following statements regarding loans are correct, EXCEPT: Review Later the acceleration clause will be triggered if the borrower allows a buyer to assume his or her mortgage. the borrower in the note is the obligor, while the lender in the note is the obligee. a purchase money mortgage occurs when the property owner provides financing for some or all of the purchase price for a buyer. a graduated-payment loan often has a period of negative amortization, followed by a period where the loan is interest-only, followed by the remainder as a fully amortizing loan.

-the acceleration clause will be triggered if the borrower allows a buyer to assume his or her mortgage. If the owner separates themselves from the property, through assumption or contract for deed, it triggers the alienation or due on sale clause. The acceleration clause is triggered when a buyer defaults on the mortgage by not making payments. The lender calls the entire balance due and payable. Graduated payment loans and adjustable-rate mortgages with a payment cap may have negative amortization (the balance of the loan increases each month). The terms obligor / promissor / mortgagor are interchangeable - meaning the borrower (since the borrower has "or's"). The term obligee/promissee/mortgagee are interchangeable - meaning the lender (since the lender has "ee's").

21 To form a legally binding real estate contract: Review Later the buyer and seller must mutually accept. the contract cannot contain any contingencies. the buyer must pay an earnest money deposit. the contract must be recorded to protect against transfers. Comments

-the buyer and seller must mutually accept. To form a legally binding real estate contract there must be 1) offer, unconditional acceptance, and communication of acceptance to the offeror, and 2) the contract must be in writing (Statute of Frauds) and signed by the parties (not the licensee). Earnest money is not required to form a legally binding contract. The promise of the buyer to buy and the seller to sell are sufficient consideration. A purchase contract is not recorded as it would give public notice of the contract terms before closing. A contract may contain contingencies that must be met for the sale to occur.

74 A licensee that represents a buyer in the purchase of a single-family home will typically use: Review Later the income approach. the direct sales comparison approach. the cost approach. the gross rent multiplier.

-the direct sales comparison approach. The sales or direct comparison approach is used with residential property. The income approach is used for income producing property. The cost approach is used when a property does not sell often and the income generated does not reflect the value or probable sales price of the property.

46 In a short sale, all of the following components would be present, EXCEPT: Review Later a seller does not have sufficient assets to pay lien-holders when he sells his house. the lien-holders are prohibited from collecting deficiency judgments if they approve the short sale. a seller owes more on the property than he will receive from the sale. the lien-holders agree to release their liens even though they are not paid in full. Comments

-the lien-holders are prohibited from collecting deficiency judgments if they approve the short sale. A lender who agrees to a short sale may still sue the borrower for a deficiency judgment - the difference between the home sale proceeds and the balance owed to the bank

39 On his purchase of a personal residence, a borrower recently received a loan from a North Carolina Bank. All of the following are true, EXCEPT: Review Later the deed of trust cannot contain a prepayment penalty clause if the loan is $125,000. the loan will not contain a due on sale clause if it is a VA loan. the loan will require a mortgage insurance premium if it is an FHA loan. the loan cannot have a prepayment penalty clause if the loan is for $550,000.

-the loan cannot have a prepayment penalty clause if the loan is for $550,000. FHA, VA, and loans of $150,000 or less cannot contain prepayment penalties. FHA loans require the payment of an up from mortgage insurance premium and a monthly MIP payment. FHA and VA loans are assumable and therefore cannot contain a due on sale/alienation clause.

18 When an offeree counters the offeror: Review Later the offeror is obligated to accept. the original offer terminates, and an option to purchase is communicated. the original offer terminates and a new offer is communicated. the negotiations terminate.

-the original offer terminates and a new offer is communicated. A counteroffer terminates the original offer and replaces it with a new offer. The offeree cannot automatically change his/her mind if the offeree rejects the counter and accept the original offer. The offeror is not obligated to accept an offer.

9 Kevin is purchasing a 200 unit apartment complex that is located in a major metropolitan area. His attorney provides an opinion on the title to a parcel of land. This is called: Review Later title insurance. certificate of title. chain of title. title assurance.

-title assurance. Title assurance - is the result of an attorney performing a title search, checking the chain of title to ensure that there are no breaks, and providing an opinion that there is marketable and insurable title. Title insurance protects against claims that may arise out of the past conduct of previous owners.

38 A builder applies for a construction loan to erect a single family home for resale. All of the following statements are true regarding the loan, EXCEPT: Review Later construction loans are typically one of the riskiest loan types. to receive future draws against the credit line, the builder need only to show proof of expenditures. in determining a loan amount, the lender will consider the value of the property when completed. construction loans are designed to be an interim financing device.

-to receive future draws against the credit line, the builder need only to show proof of expenditures. A builder needs to reach milestones to receive additional funds. Construction loans are very risky, so banks will release draws to the builder's performance. Most construction loans provide temporary financing, with the borrower needing to obtain a "take out commitment" - which is permanent financing.

45 A lender may refuse to take a deed-in-lieu of foreclosure: Review Later when the property is subject to junior mortgages. when the borrower has equity in the property. when the property is zoned for commercial use. when the borrower lacks the required funds to repay the mortgage balance.

-when the property is subject to junior mortgages. When a lender agrees to a deed-in-lieu of foreclosure, they become responsible for all other liens against the property. For that reason, a bank will often refuse a deed in lieu and seek foreclosure instead.