Sales Associate Test Review Q & A
What is the commission rate of 5% on a sale of $250,000? A) $25,000 B) $12,500 C) $1,750 D) $3,571
The answer is B) $12,500. The commission is found by multiplying the sales price by the brokerage (commission) rate ($250,000 × 5% = $12,500).
A local government can determine how land will be used by virtue of its A) moral authority. B) police power. C) proximity to the land. D) ability to levy taxes.
The answer is B) police power. The police power of government is the source of its authority to create regulations needed to protect the public health, safety, and welfare.
The term improvements, when referring to real estate, includes A) shrubbery. B) trees. C) lawns. D) sidewalks.
The answer is D) sidewalks. An improvement is an artificial thing attached to the land. A sidewalk is a man-made addition.
A prospective homebuyer with four children asks about a listing in an area of predominately single and married couples without children. What should the broker say to this prospect? A) "I'll be pleased to show you houses in any area that you're interested in." B) "I'd be happy to show you homes in other areas where there are more children." C) "The residents here have expressed a desire to keep the area quiet and without children." D) "You wouldn't want to live in this area because the neighbors don't like children and may be disrespectful to your family."
The answer is A) "I'll be pleased to show you houses in any area that you're interested in." The broker must not channel home seekers toward or away from particular neighborhoods based on familial status. This practice is called steering.
William is seeking a home loan. He earns $6,600 gross income monthly. If the lender applies 28/36 qualifying ratios, how much monthly PITI payment can William qualify for? A) $1,848 B) $1,650 C) $2,300 D) $2,376
The answer is A) $1,848. $6,600 income × 28% (0.28) = $1,848 (monthly PITI payment).
What is the cost of constructing a fence 6 feet 6 inches high around a lot measuring 90 feet by 175 feet, if the cost of erecting the fence is $1.25 per linear foot and the cost of material is $0.82 per square foot of fence? A) $3,487.40 B) $2,083.25 C) $2,053.00 D) $1,752.90
The answer is A) $3,487.40. 90 + 90 + 175 + 175 = 530 linear ft; 530 linear ft × $1.25 = $662.50 cost for labor; 530 ft × 6.5 ft = 3,445 sq ft; 3,445 sq ft × $0.82 = $2,824.90 cost of materials; $662.50 labor + $2,824.90 material = $3,487.40 total cost to construct fence.
A home mortgage loan closed on July 1 for $765,000 at 5.5% interest amortized over 25 years at $4,697.77 per month. Using a 360-day year, what would the principal amount be after the monthly payment was made August 1? A) $763,808.48 B) $764,936.30 C) $764,106.25 D) $754,275.00
The answer is A) $763,808.48. Four steps: (1) Find annual interest based on the interest rate and principal balance ($765,000 × 5.5% = $42,075). (2) Find one month's interest by dividing the annual interest by 12 ($42,075 ÷ 12 = $3,506.25). (3) Find the amount of the first monthly payment remaining after paying interest ($4,697.77 - $3,506.25 = $1,191.52). (4) Find the principal balance after paying $1,191.52 against the balance ($765,000 - $1,191.52 = $763,808.48).
A father conveyed the family home to his daughter by will as a pur autre vie estate for the life of her mother. If the daughter should die before the mother, who gains possession of the property? A) Daughter's heirs B) Remainderman C) Mother D) Father's other children
The answer is A) Daughter's heirs. A life estate based on the lifetime of a person other than the life tenant is called an estate pur autre vie. The daughter is the life tenant, but the measuring life is the mother's. The daughter's heirs will inherit the daughter's life estate, but it will end when the mother dies.
Which of the following laws requires all advertisements that reference mortgage financing terms to contain certain disclosures? A) Truth in Lending Act B) Fair Housing Act C) Real Estate Settlement Procedures Act D) Equal Credit Opportunity Act
The answer is A) Truth in Lending Act. Truth in Lending Act requires that trigger terms about mortgage financing in any kind of advertising must also include additional disclosures in the advertisement. The Fair Housing Act prohibits discrimination against protected classes in residential real estate advertising and practice. RESPA (Real Estate Settlement Procedures Act) deals with closings and settlement and does not apply to advertisement. The Equal Credit Opportunity Act prohibits lenders and others who grant or arrange credit to consumers from discriminating against protected credit applicants.
The type of deed in which the grantor defends the title back to its beginning is A) a general warranty deed. B) a trustee's deed. C) a quitclaim deed. D) a special warranty deed.
The answer is A) a general warranty deed. The general warranty deed provides the greatest protection to the buyer because grantors defend the title against both themselves and all those who previously had title.
A woman conveys a life estate to her grandson and stipulates that upon her death the estate will pass to her son-in-law. The son-in-law has A) a remainder interest. B) a reversionary interest. C) an estate for years. D) a legal life estate.
The answer is A) a remainder interest. When a life estate ends, it is replaced by a fee simple estate. The future interest the woman's son-in-law has in the fee simple estate that will convey to him when the life estate ends is called a remainder interest.
A trust that is established after the death of the owner is called A) a testamentary trust. B) a trust by will. C) a beneficial trust. D) a living trust.
The answer is A) a testamentary trust. A trust established by will after the owner's death is called a testamentary trust, as opposed to a trust created by agreement during the owner's lifetime, which is called a living trust.
A broker's newest sales associate lists a unit in a condominium building for sale. In this transaction, the sales associate: A) acts on behalf of the broker. B) has a direct contractual relationship with the owners of the unit. C) acts on behalf of the condominium association. D) must personally find a buyer for the unit to obtain a share of the commission.
The answer is A) acts on behalf of the broker. The relationship of a sales associate to the employing broker is an agency relationship. The sales associate is the agent of the broker.
A woman bought acreage but never saw it and did not use it; although, she regularly paid the real estate taxes on it. Without her knowledge, a man moved his mobile home onto the property, drilled a well for water, and lived there for many years. The man may have become the owner of the acreage if he complied with state laws regarding: A) adverse possession. B) intestate succession. C) the statute of frauds. D) the statute of limitations.
The answer is A) adverse possession. If possession by the man in his mobile home has been open, notorious, continuous, hostile, and adverse, there must be proof of such for a statutorily prescribed period. State law may also require that the occupant pay property taxes, which is one warning sign to an absentee owner that should warrant investigation.
A real estate professional who is the agent of the buyer should do which of the following? A) Advise the buyer if the listing price of the seller's house is unrealistic B) Disclose to the seller that the buyer is a member of a protected class C) Disclose to the seller the maximum price the buyer is willing to pay D) Present to the seller only offers that are acceptable
The answer is A) advise the buyer if the listing price of the seller's house is unrealistic. As part of the fiduciary duties owed a principal, an agent for the buyer should disclose to the buyer if the property is overpriced.
If an owner takes his property off the market for a definite period in exchange for some consideration but grants an individual the right to purchase the property within that period for a stated price, this is called A) an option. B) a contract of sale. C) a right of first refusal. D) an installment agreement.
The answer is A) an option. An option is granted when an owner (optionor) gives the potential purchaser (optionee) the right to purchase the property at a fixed price within a certain period of time.
A man leases a store space to open a restaurant. He installs ovens, booths, counters, and other equipment. When would these items become real property? A) At lease expiration, if the man does not remove them B) After they are installed C) After the man defaults on his rental payments D) After the lease takes effect
The answer is A) at lease expiration, if the man does not remove them. Trade fixtures are personal property, but if they are not removed by the tenant, they become part of the real property.
Because a couple no longer needs their large house, they decide to sell it and move into a cooperative apartment building. In a cooperative, they will A) become shareholders in a corporation. B) own their individual apartment. C) own the common elements. D) receive a 20-year lease to their apartment.
The answer is A) become shareholders in a corporation. In a cooperative, a corporation holds title to the land and building and offers shares of stock.
The main purpose of police power is to A) ensure the health, safety, and welfare of the community. B) demonstrate the authority of the state. C) set limits on the amount and kinds of businesses in a given area. D) protect residential neighborhoods from encroachment by business and industry.
The answer is A) ensure the health, safety, and welfare of the community. Individual rights are subject to certain powers, one of which is police power: the power to preserve order, protect the public health and safety, and promote the general welfare of the community.
A suburban home with four bedrooms and only one bathroom suffers from what condition? A) Functional obsolescence B) Curable physical deterioration C) Incurable physical deterioration D) External obsolescence
The answer is A) functional obsolescence. Because a four-bedroom home would be expected to have more than one bathroom, a home that does not suffers from functional obsolescence; it is lacking in the usual amenities of properties of its size.
What type of lien arises as a result of a judgment, estate or inheritance taxes, a decedent's debts, or federal taxes? A) General B) Specific C) Voluntary D) Equitable
The answer is A) general. Each creates a general lien—a claim against all the personal and real property of the debtor.
Which of the following is the BEST way to ensure that there are no encroachments and verify the boundaries of a parcel of land? A) Get a spot survey B) Write a legal description C) Find the monuments D) Verify the benchmarks
The answer is A) get a spot survey. A spot survey shows the location of all improvements on a property and whether they extend over the property lines.
A man owned two acres of land. He sold one acre to a neighbor and reserved for himself an appurtenant easement over his neighbor's land for ingress and egress. The man's land A) is the dominant tenement. B) is the servient tenement. C) can be cleared of the easement when the man sells the withheld acre to a third party. D) is subject to an easement in gross.
The answer is A) is the dominant tenement. The man's parcel benefits from the easement and is the dominant tenement. The neighbor's tract, over which the easement runs, is the servient tenement.
When grantors do NOT wish to convey certain property rights, they A) may note the exceptions in the deed of conveyance. B) must note the exceptions in a separate document. C) may not do so because the deed conveys the entire premises. D) must convey the entire premises and have the grantee reconvey the rights to be retained by the grantor.
The answer is A) may note the exceptions in the deed of conveyance. If the grantors convey less than their complete interest, the wording in the granting clause must indicate this limitation. Mineral rights, water rights, and easements are frequently retained by grantors.
In what way does a deed of trust differ from a mortgage? A) Number of parties involved in the loan B) Obligation of the borrower to repay the funds C) Redemption rights allowed after foreclosure D) Time period permitted to cure a default
The answer is A) number of parties involved in the loan. A deed of trust is a three-party instrument that conveys naked title to a third party, the trustee, who holds the title on behalf of the lender, also known as the beneficiary. The borrower is the trustor. A mortgage is a two-part instrument between the mortgagor and the mortgagee.
Which of the following is a voluntary alienation of the property? A) Owner sale B) Adverse possession C) Condemnation D) Foreclosure
The answer is A) owner sale. Voluntary alienation is the legal term for the voluntary transfer of title, such as when the owner sells the property.
A man has defaulted in the payment of several of his debts, and the court has ordered his property sold to satisfy his obligations. A title search revealed several outstanding liens against the property to be sold. Which of the following liens has highest priority? A) Real estate tax lien for the current year B) Outstanding first mortgage lien dated and recorded one year ago C) Judgment lien rendered and recorded last month D) Mechanic's lien for work started two months before the mortgage was recorded
The answer is A) real estate tax lien for the current year. Tax liens usually have priority over previously recorded liens.
Which of the following is a lien on real estate? A) Recorded mortgage B) Easement C) Encroachment D) Restrictive covenant
The answer is A) recorded mortgage. A recorded mortgage is a lien on real estate. Easements, encroachments, and restrictive covenants are all encumbrances, not liens.
After real estate has been sold by the state or county to satisfy a delinquent tax lien, defaulted owners usually have a right to A) redeem the property within the time specified by law. B) have the sale canceled by paying the back taxes and penalties. C) pay their creditors directly and have their liens removed. D) record a notice of nonresponsibility for the unpaid taxes.
The answer is A) redeem the property within the time specified by law. Generally, a delinquent taxpayer can redeem the property before the tax sale. This right is known as the equitable right of redemption.
Which of the following BEST defines the law of agency? A) Rules of law that apply to the responsibilities of a person who acts as agent for another B) Selling of another's property by a licensed brokerage company C) Principles that govern conduct in business D) Rules and regulations of the state's licensing agency
The answer is A) rules of law that apply to the responsibilities of a person who acts as agent for another. In the law of agency, an agent is a person authorized to act on behalf of another.
A man's house has been listed for sale for more than one year and he is very anxious to move into a retirement community. A real estate professional, who is a subagent of the seller, tells a prospective buyer to make a low offer because she is sure that the seller will accept it. Regarding the real estate professional's conduct, which of the following is FALSE? A) She acted appropriately to sell the seller's property. B) Her conduct implies she is representing the buyer. C) She violated her fiduciary duty to the seller. D) She should not assume that an anxious seller will accept a lower offer.
The answer is A) she acted appropriately to sell the seller's property. The real estate professional's conduct is not appropriate because she violated her fiduciary duty to the seller (a subagent owes the same fiduciary duties to a principal as an agent), she may have implied she is representing the buyer, and she made assumptions that may or may not be true regarding the seller.
A broker arrives to present a purchase offer to a disabled woman and finds her son and his wife also present. In the presence of the broker, both individuals persistently urge the woman to accept the offer, even though it is much lower than the price she has been asking for her home. If the woman accepts the offer, she may later claim that: A) she was under duress from her son and daughter-in-law, and therefore, the contract is voidable. B) the broker should not have brought her such a low offer for her property. C) the broker defrauded her by allowing her son and his wife to see the purchase offer he brought to her. D) her consumer protection rights were usurped by her son and daughter-in-law.
The answer is A) she was under duress from her son and daughter-in-law, and therefore, the contract is voidable. If a person signs a contract under duress, the contract could be later disaffirmed by that party. Each party must be able to make a prudent and knowledgeable decision without undue influence or the contract is voidable by the injured party.
Which of the following is NOT a test to identify a fixture? A) Size of the item B) Intent of the parties C) Method of attachment of the item D) Adaptation of the item to the real estate
The answer is A) size of the item. The overall test to identify a fixture is intent, which is determined by method of attachment, adaptation, or agreement.
A property owner contracted to have a swimming pool installed on her property. When the pool was completed, she refused to pay for the improvement, and the contractor filed a lien for nonpayment. This lien was MOST likely a A) specific lien. B) general lien. C) special lien. D) voluntary lien.
The answer is A) specific lien. The lien filed by the contractor would be a mechanic's lien and would be a specific, involuntary lien on the property.
Breach of contract is refusal or failure to comply with the terms of a contract. If the seller breaches the purchase contract, the buyer may do all of the following EXCEPT A) sue the broker for nonperformance. B) sue the seller for specific performance. C) rescind the contract and recover the earnest money. D) sue the seller for damages.
The answer is A) sue the broker for nonperformance. The broker is not a party to a real estate sales contract and could not be sued for nonperformance in the event of a seller's breach.
A buyer took delivery of the deed to his new house but did not record the deed or take possession of the property. Under these circumstances, A) the buyer's interest is not fully protected against third parties. B) the transfer of the property from the seller is ineffective. C) the deed is invalid after 90 days. D) the deed is invalid after six months.
The answer is A) the buyer's interest is not fully protected against third parties. Constructive notice to the public of interest in a parcel of real estate is served when the deed is recorded and physical possession of the property is taken. Without this, an owner's interests could be jeopardized.
A real estate professional has been working with the buyer for many months but does not have a written contract with the buyer. This real estate professional has fiduciary obligations to A) the buyer. B) the seller. C) no one. D) the public.
The answer is A) the buyer. Buyers can easily assume that when they contact a real estate professional to show the buyers property, the licensee becomes their agent.
A lease agreement is signed by a lessee who is 16 years of age. Which of the following is TRUE? A) The lease agreement is voidable. B) A 16-year-old person cannot sign a lease. C) The lease agreement is valid provided the security deposit is increased. D) The lease agreement is void.
The answer is A) the lease agreement is voidable. A 16-year-old person can sign a contract, but because the lessee is a minor, the lease is voidable.
A bilateral contract is one in which A) the promise of one party is given in exchange for the promise of the other party. B) only one of the parties is obligated to act. C) something is to be done by one party only. D) a restriction is placed in the contract by one party to limit the performance by the other.
The answer is A) the promise of one party is given in exchange for the promise of the other party. In a bilateral contract, both parties agree to do something and promises are exchanged. A unilateral contract is a one-sided agreement that does not obligate a second party.
A primary feature of property held in joint tenancy is that A) there is always right of survivorship. B) a maximum of two people can own the real estate. C) the fractional interests of the owners can be different. D) additional owners may be added later.
The answer is A) there is always right of survivorship. Right of survivorship is the distinctive feature of joint tenancy. Any number of persons can own a property in joint tenancy—providing they all have equal shares and identical interests, come into ownership at the same moment and on the same granting document, and have equal rights of possession.
Arun and Ben are joint tenants. Ben sells his interest to George. What is the relationship of Arun and George? A) They are tenants in common. B) They are joint tenants. C) There is no relationship because Ben cannot sell to George. D) Arun owns a two-thirds interest and George owns a one-third interest.
The answer is A) they are tenants in common. When joint tenants sell their interest in the jointly held property, the unities of time and title are destroyed. The new owner, George, becomes a tenant in common with Arun.
Under the Torrens system, A) title passes when the grantee's application for registration has been approved and the real estate has been registered. B) the Torrens official performs exactly the same functions as the recorder of deeds. C) the original deed is mailed to the buyer after it has been registered. D) the registration of a title can be canceled by the owner at any time.
The answer is A) title passes when the grantee's application for registration has been approved and the real estate has been registered. Under the Torrens system, the applicant needs to prove ownership. Then the court enters an order to register the real estate, and the registrar of titles issues a certificate of title. A person acquires title only when it is registered.
In which of the following situations could a quitclaim deed NOT be used? A) To warrant that a title is valid B) To convey title C) To release a nominal real estate interest D) To remove a cloud on title
The answer is A) to warrant that a title is valid. The quitclaim deed carries no covenants or warranties. It is used to convey less than a fee simple estate or to cure a cloud on the title.
To assign a contract for the sale of real estate means to A) transfer one's rights under the contract. B) record the contract with the county recorder's office. C) permit another broker to act as agent for the principal. D) allow the seller and the buyer to exchange positions.
The answer is A) transfer one's rights under the contract. In an assignment, rights are assigned to a third party, but the original party remains primarily liable unless specifically released.
At the time a buyer was negotiating the purchase of a lot on which to build a new home, the seller represented that the soil was firm enough to support the construction of a building when, in fact, he knew it was not. This contract is A) voidable by the buyer because of fraud. B) void. C) voidable by the seller because of the mistake. D) voidable by neither party because no harm was done yet.
The answer is A) voidable by the buyer because of fraud. The contract is voidable because it contains all the essential elements of a contract but could be rescinded due to a fraud.
Which of the following defines a contract between two parties that legally binds one party to perform but allows the other party to disaffirm it? A) Voidable B) Void C) Executed D) Bilateral
The answer is A) voidable. Voidable contracts have one side obligated but the other party able to rescind the contract if they wish. A contract with a minor is always voidable; for example, if an adult agrees to buy a property a minor owns, the contract is voidable by the minor. Executed contracts are closed and completed. Void contracts lack an essential element and bilateral contracts exchange promises.
When a mortgage loan has been paid in full, it is important for the borrower to be sure that: A) a satisfaction of mortgage is recorded. B) the paid note is placed in a safe deposit box. C) they obtain a deed of partial reconveyance. D) the paid mortgage is returned to the lender.
The answer is A.) a satisfaction of mortgage is recorded. Satisfaction of mortgage needs to be recorded in the public record to show that a mortgage debt is no longer a lien on the property.
A home valued at $168,500 has just had a 70% mortgage loan placed on it. The interest rate is 5.25%. The monthly payment is $651.32 including principal and interest. What will the principal balance of the mortgage loan be after the next monthly payment is made? A) $117,560.28 B) $117,814.71 C) $117,913.56 D) $117,950.00
The answer is B) $117,814.71. $168,500 property value × 70% = $117,950 mortgage balance; $117,950 mortgage balance × 5.25% interest = $6,192.38 annual interest ÷ 12 months = $516.03 first month's interest; $651.32 - $516.03 = $135.29 principal paid in first month; $117,950 original mortgage balance - $135.29 principal payment = $117,814.71 mortgage balance after first month.
A business tenant pays 2% of his total gross sales volume as rent, with a minimum base rental of $1,000 per month. In the past year, his sales totaled $435,000. How much rent did he pay? A) $8,460 B) $12,000 C) $8,700 D) $20,700
The answer is B) $12,000. 12 months × $1,000 per month = $12,000 minimum annual base rent; $435,000 gross sales × 2% = $8,700. The tenant paid $12,000 because the minimum base rent was more than the percentage of gross sales.
A farmer owns the W½ of the NW¼ of the NW¼ of a section. The adjoining property can be purchased for $2,300 per acre. Owning all of the NW¼ of the section would cost the farmer A) $600,000. B) $322,000. C) $120,000. D) $480,000.
The answer is B) $322,000. If a person wishes to own the entire quarter (160 acres) of a 640-acre section in which that person already owns 20 acres (½ × ¼ × ¼ = 1/32 and 640 × 1/32 = 20), then the portion of the section still to be acquired is 140 acres (160 acres - 20 = 140). At a cost per acre of $2,300, the adjoining property will cost $322,000 (140 × $2,300 = $322,000).
Assuming that the listing broker and the selling broker in a transaction split their commission equally, what was the sales price of the property if the commission rate was 6.5% and the listing broker received $12,593.50? A) $139,900 B) $387,492 C) $256,200 D) $193,746
The answer is B) $387,492. Two steps: (1) Find the entire commission by doubling listing broker's half (2 × $12,953.50 = $25,907). (2) Find the sales price by dividing the entire commission by the brokerage rate ($25,907 ÷ 6.5% = $387,492).
A buyer bought a house for $125,000. The house, which had originally sold for $118,250, appraised for $122,500. Based on these facts, if the buyer applies for an 80% mortgage, what will be the amount of the loan? A) $94,600 B) $98,000 C) $100,000 D) $106,750
The answer is B) $98,000. A lender's loan-to-value (LTV) ratio uses either the appraisal or the sales price for the value. The amount a property sold for at a previous transaction is irrelevant. In this case, the appraisal is less than the current selling price. If the loan is 80% of the value and the appraisal is used as the value, use this calculation to find the loan amount: $122,500 × 80% = $98,000.
A $75,000 mortgage loan requires a discount of $1,875 to be paid by the seller. How many points is this equivalent to? A) 2 B) 2.5 C) 4.5 D) 5
The answer is B) 2.5. $1,875 discount ÷ $75,000 mortgage loan = 0.025 or 2.5%, which is the same as 2.5 points.
A loan fee charged by a lender to increase the lender's yield on a loan is A) the yield. B) a discount point. C) the interest. D) the principal.
The answer is B) a discount point. Discount points are used to increase the lender's yield on its investment. The yield is the profit the lender makes on a loan, the spread between the cost of acquiring the funds lent to the borrower and the interest rate charged to the borrower. Interest is the sum paid or accrued in return for the use of a lender's money. The principal is the balanced owed on the original loan amount.
The town of Meadowvale enacts a new zoning ordinance. Under the new ordinance, commercial buildings are not permitted within 1,000 feet of Robin Lake. A commercial building built years before on the lakeshore but permitted to continue in its former use operates as A) a variance. B) a nonconforming use. C) a special use. D) an adverse possession.
The answer is B) a nonconforming use. Nonconforming use permits allow uses existing before zoning restrictions were enacted prohibiting those uses. A municipality may allow the uses to continue for a specified length of time and with a limited right of transfer to later buyers. A variance is permission for a property use expressly prohibited by zoning ordinances. A special use or conditional use is permission to use a property for a related but nonconforming use for the public good. Adverse possession is not related to zoning issues but refers to the open, hostile, and continuous possession of another's property.
A real estate professional specializes in helping both buyers and sellers with the necessary paperwork involved in transferring property. Although not an agent of either party, the real estate professional may not disclose either party's confidential information to the other. The real estate professional is BEST described as A) a buyer's agent. B) a transactional broker. C) an independent contractor. D) a dual agent.
The answer is B) a transactional broker.. A real estate professional facilitates transactions and is called—depending on the state's law—a transaction broker or a facilitator. Some states prohibit brokers from offering such nonagency brokerage.
A farm or ranch is considered A) mixed-use property. B) agricultural property. C) special purpose property. D) commercial property.
The answer is B) agricultural property. Agricultural property includes farms, timberland, ranches, and orchards. Mixed-use property allows for two or more uses, such as a highrise building that includes retail stores and restaurants as well as apartments. A special purpose property can be privately owned, such as a place of worship or cemetery, or publicly held, such as a school or municipal building.
Rights or privileges that are connected with real property are A) improvements. B) appurtenances. C) not conveyed with the real estate. D) restricted to air and water rights.
The answer is B) appurtenances. Appurtenances are rights or privileges associated with the property and generally convey with the sale.
Which of the following would terminate a lease for years? A) Death of the tenant B) Expiration of the term C) Abandonment of the leased premises by the tenant D) Sale of the leased premises
The answer is B) expiration of the term. A tenancy (estate) for years is a leasehold estate that continues for a definite period of time with specific beginning and ending dates. The death of either party does not terminate the lease. If the tenant abandons the property, the tenant is still responsible for lease payments. If the property is sold, the new owner is subject to the terms of the lease.
Over a long period (20 years or more) the income received from a real estate investment has tended to A) go down relative to other investments. B) go up relative to other investments. C) not demonstrate a significant change. D) be a factor that real estate investors do not consider.
The answer is B) go up relative to other investments. Over time, the income received from a real estate investment tends to be greater than the return that is received from other investments.
Jamal and Tina bought a store building and took title as joint tenants. Tina died testate. Jamal now owns the store A) as a joint tenant with rights of survivorship. B) in severalty. C) as a tenant in common with the dead woman's heirs. D) in trust.
The answer is B) in severalty. Joint tenancy includes the right to survivorship, to the property passing to the other owner(s) upon the death of one tenant. In this case, Jamal and Tina took title as joint tenants, meaning that upon one's death, there is only one owner who owns the property in severalty. In a tenancy in common, the owners own an undivided fractional interest in the property and that interest is passed on according to the owner's will, to heirs, or to a trust.
When a prospective buyer makes a written purchase offer that the seller accepts, then A) the buyer may take possession of the real estate. B) the buyer receives equitable title to the property. C) the seller grants the buyer possessory rights. D) the buyer receives legal title to the property.
The answer is B) the buyer receives equitable title to the property. Equitable title occurs when the buyer and the seller have executed a sales contract and the buyer acquires an interest in the land. Legal title will not pass until the transaction is closed.
On January 1, George paid the $2,345 in taxes for the current year. If he sold the property on June 23 of that same year, how much would he be credited at closing? (Use a 360-day year.) A) $1,158.78 B) $1,293.53 C) $1,218.10 D) $1,772.50
The answer is C) $1,218.10. Because the taxes were paid in advance the buyer will owe the seller for the time the buyer owns the house: June 24 to December 30, since this is a 360-day year. Total owed ÷ total days × days owed = amount due $2,345 ÷360 × 187 = $1,218.097 rounded to $1,218.10
If a home that cost $142,500 three years ago is now valued at 127% of its original cost, what is its current market value? A) $164,025 B) $172,205 C) $180,975 D) $174,310
The answer is C) $180,975. Find 127% of the cost three years ago: $142,500 × 127% = $180,975.
A house sold for $180,000 and the buyer obtained an FHA-insured mortgage loan for $120,000. If the lender charged two discount points, the buyer would pay A) $1,200. B) $1,000. C) $2,400. D) $1,800.
The answer is C) $2,400. A point is 1% of the loan amount, not of the purchase price. Calculate what two points, or 2%, will be on the loan of $120,000: $120,000 × 2% = $2,400.
A real estate professional leased a building for 10 years at an annual rent of $48,000. She will receive a commission of 7.5% for the first five years, 5% for the next three years, and 3.5% for the final two years. What will her gross income be from this commission over the life of the lease? A) $18,000 B) $25,200 C) $28,560 D) $30,000
The answer is C) $28,560. $48,000 annual rent × 7.5% = $3,600 annual commission and $3,600 × 5 years = $18,000 commission for the first 5 years; $48,000 annual rent × 5% = $2,400 annual commission and $2,400 × 3 years = $7,200 commission for next 3 years; $48,000 annual rent × 3.5% = $1,680 annual commission and $1,680 × 2 years = $3,360 commission for final years; $18,000 + $7,200 + $3,360 = $28,560 total commission over the life of the lease.
To net an owner $900,000 after paying a 6% commission, the list price would be A) $954,050. B) $959,060. C) $957,447. D) $960,000.
The answer is C) $957,447. Two steps: (1) Find the percentage of the selling price that will be left after the broker takes 6% (100% - 6% = 94%). The desired net amount, $900,000, will be 94% of the selling price. (2) Find the required selling price by dividing the desired net by 94% ($900,000 ÷ 94% = $957,446.81, or $957,447 rounded to the nearest dollar).
How many acres are in the property described as follows: the NW¼ of the SW¼ of the NE¼ of Section 16? A) 5 B) 20 C) 10 D) 40
The answer is C) 10. Multiply denominators: 4 × 4 × 4 = 64; 640 acres (one section) ÷ 64 = 10 acres.
A $100,000 loan at 6% could be amortized with monthly payments of $843.86 on a 15-year basis or payments of $599.55 on a 30-year basis. The 30-year loan results in total payments of what percentage of the 15-year total payments? A) 106% B) 158% C) 142% D) 71%
The answer is C) 142%. Three steps: (1) Find the total of payments on the 15-year loan ($843.86 × 12 payments per year = $10,126.28 and $10,126.28 × 15 years = $151,894.23). (2) Find the total of payments on the 30-year loan ($599.55 × 12 payments per year = $7,194.61 and $7,194.61 × 30 years = $215,838.19). (3) Find what percentage $215,838.19 is of $151,894.23 ($215,838.19 ÷ $151,894.23 = 1.42 or 142%).
Louisa has operated a neighborhood grocery store for the last 25 years. Her store is the only retail property in the area that is zoned residential. The store is an example of A) an illegal enterprise. B) a violation of the zoning laws. C) a nonconforming use. D) variance of the zoning laws.
The answer is C) a nonconforming use. A nonconforming use is the legal use that existed prior to current zoning ordinances but no longer conforms to current zoning laws. The grocery store operated prior to current zoning ordinances and is legally permitted to operate as a nonconforming use. A variance is permission for a use expressly prohibited by zoning ordinances.
A broker does not have to prove that she was the procuring cause in order to collect a commission if her seller sells the property without her help because she has A) an option listing. B) an open listing. C) an exclusive right to sell listing. D) an exclusive agency listing.
The answer is C) an exclusive right to sell listing. In an exclusive- right-to-sell listing, the listing broker receives a commission no matter who sells the listed property during the term of the listing. Brokers may have to prove they were the procuring cause in some open listing and exclusive agency listing situations, but procuring cause is of no significance in exclusive right to sell listing situations.
What is the principal difference between an estate for years and an estate from period to period? A) An estate for years cannot be terminated. B) An estate from period to period must be in writing. C) An estate from period to period has no expiration date. D) An estate for years is a life estate.
The answer is C) estate from period to period has no expiration date. An estate from period to period, or periodic tenancy, does not have a specific expiration date as it automatically renews until notice is given by the tenant or landlord. An estate (tenancy) for years has specific beginning and ending dates. Neither estate is a life estate. Each can be terminated. Both an estate for years and an estate from period to period must be in writing to be enforceable.
Which of the following describes an offer that the seller has accepted and proper notice has been given to the buyer of the seller's acceptance? A) Executed contract B) Unilateral contract C) Executory contract D) Assignment
The answer is C) executory contract. The period from when the contract is agreed to and signed by both parties until it is executed (closed) is called the executory period. Executed contracts have been closed. Unilateral contracts bind only one party such as an option. Assignments transfer the contract duties but not liabilities.
The buyer of a house in a small subdivision will be the only owner of the property. This means that the house will be owned A) in common with the other homeowners in the subdivision. B) jointly with the other homeowners in the subdivision. C) in severalty by the buyer. D) as the personal property of the buyer.
The answer is C) in severalty by the buyer. Ownership of real property by a single individual is called ownership in severalty. A tenancy in common or joint tenancy means that there is ownership by more than one person.
Susan, a listing broker, presents an offer to her client, a seller, with a selling price much lower than what the seller is asking for the property. The offer allows the seller 24 hours to accept. Susan recommends the seller counter the offer and leaves a blank counter with the seller. The seller emails Susan in the morning saying that based on the wishes of her children, who are not on the title, she has accepted the offer. It this case the offer A) gives the buyer possession until closing. B) is void due to undue influence by the children. C) may be a voidable contract due to duress. D) is a valid contract which may be voidable due to fraud.
The answer is C) may be a voidable contract due to duress. The seller would have to claim her children forced her to accept the buyer's offer under duress in order to terminate the contract or make it voidable. Void contracts lack one or all of the essential elements of a contract. A contract must be entered into freely and voluntarily by each party, without undue influence. Duress, undue influence, misrepresentation, fraud, or a minor party entering into a contract are all circumstances that may create a contract that is voidable by the injured party.
A surveyor followed a property's legal description by starting at a point of beginning, then following the indicated directions between natural and artificial landmarks to arrive back at the point of beginning, using the method called A) lot-and-block. B) rectangular survey. C) metes and bounds. D) Torrens.
The answer is C) metes and bounds. A metes-and-bounds description of land always starts at the point of beginning (POB) and follows the property's boundaries between landmarks, called monuments, to arrive back at the POB.
Which of the following is NOT a category commonly applied in zoning ordinances? A) Commercial B) Residential C) Rental D) Industrial
The answer is C) rental. Zoning ordinances have traditionally classified land use into residential, commercial, industrial, and agricultural and do not include rental as one of the classifications. Rental refers to a type of property use and ownership, a leasehold, rather than a usage of the land.
All property used for single-family or multifamily housing is considered A) mixed use. B) special purpose. C) residential. D) commercial.
The answer is C) residential. Any property used as housing, whether it is in an urban, suburban, or rural area, is considered residential property. Property used for short-term stays, such as a hotel, is considered commercial property.
A broker who represents a seller under an exclusive agency listing receives two offers for the property at the same time, one from one of the broker's sales associates and one from the sales associate of a cooperating broker. What should the broker do? A) Submit the offer from the broker's sales associate first B) Submit the offer from the cooperating broker's sales associate first. C) Submit both offers at the same time. D) Submit the higher offer first.
The answer is C) submit both offers at the same time. An agent for the seller has a duty to disclose all offers, unless directed by the seller to not present an offer after one has been accepted.
A condominium community has a swimming pool, tennis courts, and a biking trail. These facilities are MOST likely owned by A) the condominium board. B) the corporation in which the unit owners hold stock. C) the unit owners in the form of percentage undivided interests. D) the unit owners in the form of proportional divided interests.
The answer is C) the unit owners in the form of percentage undivided interests. Common areas, including amenities such as swimming, biking, and tennis areas, are owned by the unit owners in undivided percentage interests as tenants in common.
In a situation where a homeowner conveys property to her uncle with a deed, and then the uncle records the deed, when did title to the property actually transfer or pass to the uncle? A) Upon delivery and acceptance of the contract B) Upon recording of the deed C) Upon delivery and acceptance of the deed D) Upon the delivery of consideration
The answer is C) upon delivery and acceptance of the deed. Title is transferred upon delivery and acceptance of the deed. At that moment, the deed is binding between the parties. When the uncle later records the deed, he is then protected against claims of third parties. Contracts do not transfer title. A valid deed must contain a clause acknowledging that the grantor has received consideration, but the consideration in itself does not transfer the title to the property.
A capped landfill can find a new, productive use for recreation or other purposes for land that was previously used for A) a water reservoir. B) subdivision development. C) waste disposal or mining operations. D) farming.
The answer is C) waste disposal or mining operations. A landfill begins as an enormous hole in the ground, either excavated for the purpose of waste disposal or left over from surface mining operations. Capping is the process of laying two to four feet of soil over the top of the site and planting grass on it to enhance the landfill's aesthetic value and prevent erosion. Test wells around landfill operations are installed to monitor the groundwater in the surrounding area and soil tests are conducted to detect contamination.
If the quarterly interest on a loan at 7.5% is $562.50, the principal amount of the loan is? A) $7,500. B) $15,000. C) $75,000. D) $30,000.
The answer is D) $30,000. Two steps: (1) Multiply the interest for one quarter by 4 to get one year's interest ($562.50 × 4 = $2,250). (2) Find the principal by dividing the amount of annual interest by the interest rate ($2,250 ÷ 7.5% = $30,000).
Which of the following parcels of land is the smallest? A) Two sections B) Two square miles C) 1,280 acres D) 5% of a township
The answer is D) 5% of a township. 5% of a township is 1,152 acres. A township is 36 sections of 640 acres each, so the total acreage in a township is 36 × 640 or 23,040 acres, and 23,040 acres × 0.05 = 1,152 acres. Two sections (two square miles) are 1,280 acres (640 × 2 = 1,280).
f the borrower paid $189.06 interest last month on a $27,500 loan, what is the interest rate? A) 8% B) 7% C) 7¾% D) 8¼%
The answer is D) 8¼%. $189.06 monthly interest × 12 months = $2,268.72 annual interest; $2,268.72 annual interest ÷ $27,500 loan amount = 0.08249 or 8¼% interest rate.
A woman held fee simple title to a vacant lot adjacent to a business. She was persuaded to make the lot available to the business. She had her attorney prepare a deed that conveyed ownership of the lot to the business "so long as it is used for commercial purposes." After the completion of the gift, the business will own A) a life estate. B) a tenancy for years. C) a periodic tenancy. D) a determinable fee estate.
The answer is D) a determinable fee estate. The words "so long as" create a fee simple determinable that limits use of the property for commercial purposes. The former owner retains the possibility of reverter.
A man allows his neighbor to store her camper in his yard for a few weeks until he needs the space. The man does not charge his neighbor rent for the use of his yard. The man has given his neighbor A) an easement appurtenant. B) an easement by necessity. C) an estate in land. D) a license.
The answer is D) a license. A license is a personal privilege to enter the land of another for a specific purpose, and the right is given orally or informally.
Under the terms of a trust established by a will, the trustee is required to sell the real estate the trust holds. The deed that will be delivered at settlement of such a sale is A) a deed of release. B) a warranty deed. C) a trustor's deed. D) a trustee's deed.
The answer is D) a trustee's deed. A trustee's deed is a conveyance from trustee to a third party. It is used when a trustee conveys real estate held in trust to anyone other than the trustor. The property is returned to the trustor by a deed of reconveyance.
At closing, how will a proration of any prepaid utility charges be reflected? A) Debit to the seller, credit to the buyer B) Debit to the buyer only C) Credit to the seller only D) Debit to the buyer, credit to the seller
The answer is D) debit to the buyer, credit to the seller. At closing, items prepaid by the seller and which will benefit the buyer will appear as debits to (charges against) the buyer and credits to the seller.
A building is valued at $100,000 using a capitalization rate of 8%. If an investor demands a capitalization rate of 10%, the value of the building will A) decrease more than $10,000. B) increase by 20%. C) increase by less than 20%. D) decrease less than $10,000. Explanation
The answer is D) decrease more than $10,000. NOI of property is $8,000, which is 8% (0.08) of $100,000 value, or 10% (0.10) cap rate of $80,000 value; $100,000 - $80,000 = $20,000, which is a decrease of more than $10,000 to get a higher cap rate. The less the investor puts into the property, the greater the rate of return.
Which of the following best defines common law concepts, such as agency? A) It is a legal doctrine that is formed from common sense and usual practices. B) It is enacted by legislatures and other governing bodies. C) It may not be superseded by statutory law. D) It is part of a body of law established by tradition and court decisions.
The answer is D) it is part of a body of law established by tradition and court decisions. The law of agency is law from judgments and decrees as opposed to law established by legislatures or other governing bodies. In many states, statutes have been enacted to further define agency representation with laws and regulations that set forth the responsibilities of real estate licensees to clients and customers.
Fair housing laws allow exceptions for all of the following EXCEPT A) private clubs. B) religious organizations. C) retirement communities. D) racial discrimination.
The answer is D) racial discrimination. The case of Jones v. Mayer in 1968 upheld the Civil Rights Act of 1866 and prohibits racial discrimination without exception. Private clubs, religious organizations, and retirement communities are not exempt from fair housing laws' prohibitions against housing discrimination based on race.
Which of the following is an NOT an example of a legal life estate? A) Dower B) Curtesy C) Homestead D) Remainder
The answer is D) remainder. Legal life estates are dower, curtesy, and homestead.
Bill hires Andrew as a buyer's agent. Bill confides he filed for bankruptcy two years ago. Bill would like to find a seller who is willing to carry the loan. In this situation, a correct statement about Andrew's responsibility regarding disclosure of the bankruptcy when presenting the offer to purchase is that Andrew is A) required to disclose the bankruptcy under ECOA. B) not required to disclose the bankruptcy because the seller might reject the offer. C) not required to disclose the bankruptcy because the broker has no agency relationship with the seller. D) required to disclose the bankruptcy because it is a material fact—information important to the seller's evaluation of the offer.
The answer is D) required to disclose the bankruptcy because it is a material fact—information important to the seller's evaluation of the offer. The broker is obligated to disclose any material fact—something that might make a party to the transaction change his or her mind, regardless of the agency or nonagency relationship the broker has with the seller. The ECOA is a federal law prohibiting discrimination in the granting of credit and does not regulate disclosures required in a real estate transaction.
Alexander, a property manager, is offered a choice of three insurance policies with different deductibles. If Alexander selects the policy with the highest deductible, which risk management technique is being used? A) Avoiding risk B) Controlling risk C) Transferring risk D) Retaining risk
The answer is D) retaining risk. Retaining risk is making a decision the chance of an event occurring are too small to justify much expense. Avoid risk is the removal of risk, such as repair cracked sidewalks. Controlling risk is preparing before something occurs, such as putting CO monitors in all units. Transferring risk is shifting risk to another party, such as an insurance company.
A real estate professional is a licensed real estate salesperson who has a written contract with his broker that specifies that he will not be treated as an employee. The real estate professional's entire income is from sales commissions rather than an hourly wage. Based on these facts, the real estate professional will be treated by the IRS as A) a real estate assistant. B) an employee. C) a subagent. D) self-employed.
The answer is D) self-employed. The real estate professional meets the IRS's three requirements to be treated as a qualified real estate agent, and thus self-employed, which are that the real estate professional (1) is a real estate licensee, (2) has a written agreement with the broker indicating the licensee will not be treated as an employee by broker contributions to Social Security or the withholding of income taxes, and (3) earns a substantial portion of income from the firm in commissions, not wages.
What type of loan requires only interest payments with a lump sum balloon payment at the end? A) Amortized B) ARM C) FHA D) Straight
The answer is D) straight. In a straight/term or interest-only loan the borrower makes payments of interest only. At the end of the loan term, the entire original principal debt must be paid in one lump sum balloon payment. An amortized loan requires equal periodic payments on both the principal and the interest. An ARM (adjustable rate mortgage) has an interest rate that fluctuates up or down during the loan term based on some economic indicator. FHA loans tend to be fully amortized loans, which are fully paid at the end of the term.
In order for a deed to be valid, A) the signature of the grantee must be witnessed. B) the deed must be recorded. C) the grantee must sign the deed. D) the grantor must be legally competent.
The answer is D) the grantor must be legally competent. Competency of the grantor is one of the requirements for a valid deed. The grantor must be of lawful age and sound mind. Witnessing the grantee's signature is never needed as the grantee does not sign the deed and recording a deed is not required for validity of the deed.
A real estate professional has an exclusive right to sell listing on a building. The owner is out of town when the real estate professional gets an offer from a buyer to purchase the building, providing the seller agrees to take back a mortgage. The buyer must have a commitment from the seller before the seller is scheduled to return to the city. Under these circumstances, A) the real estate professional may enter into a binding agreement on behalf of the seller. B) the real estate professional may collect a commission even if the transaction falls through because of the seller's absence from the city. C) the buyer is obligated to keep the offer open until the seller returns. D) the real estate professional must obtain the signature of the seller to affect a contract.
The answer is D) the real estate professional must obtain the signature of the seller to affect a contract. A real estate professional is usually a special agent. If hired by the seller, the broker is limited to finding a ready, willing, and able buyer for the property. As a special agent, the broker may not bind the principal to any contract.
The law that requires real estate contracts to be in writing to be enforceable is A) the law of descent and distribution. B) the parol evidence rule. C) the statute of limitations. D) the statute of frauds.
The answer is D) the statute of frauds. The statute of frauds requires real estate contracts to be in writing to be enforceable. An oral contract, although unenforceable, can still be valid between the parties if they fulfill its terms.
