Engage Practice Exam #1

6) If "first substantial contact" occurs by telephone, the licensee is required to transmit the "Working With Real Estate Agents" brochure immediately, but in no event later than: A) 3 calendar days after the telephone conversation B) 3 business days after the telephone conversation C) 5 calendar days after the telephone conversation D) 5 business days after the telephone conversation

A) 3 calendar days after the telephone conversation Rationale: It's a document so it's based on calendar days. The licensee is still required to have a discussion with the consumer to explain the brochure, the agency options and have the client decide the type of agency that they are choosing and which is offered by the brokerage. The brochure can be mailed, emailed or faxed, but it must be sent to the consumer within three days when the substantial contact is not face to face.

15) Which of the following real estate sale ads placed in a newspaper by a broker is/are permitted? I. House for sale, 2,500 SF, 3 bedrooms, 2 baths, $80,000. Call ABC Realty at 222-1111. II. Lovely home on a beautiful landscaped lot has 2,500 SF assumable loan. Call 222-1111. A) I only B) II only C) Both I and II D) Neither I nor II

A) I only Rationale: Real estate licensees cannot create "blind" ads. A blind ad is an advertisement which does not indicate that a real estate professional is involved. The first ad contains "ABC Realty" so that a consumer knows that the ad is coming from a real estate professional. The second ad is improper because it does not contain any information to let the consumer know that a real estate professional is involved.

7) Concerning the residential property disclosure statement, which of the following is/are TRUE? I. If the buyer does not receive the disclosure, then the buyer has 3 calendar days within which to rescind the transaction from either the date of contract or the date of receipt of the disclosure, whichever comes first. II. If a seller asks an agent how to complete the form, the agent should respond for the seller to always check "no representation" to avoid liability. A) I only B) II only C) Both I and II D) Neither I nor II

A) I only Rationale: The role of the agent in regard to the Property Disclosure Statement is to advise and assist the seller. The seller may choose to answer questions, "yes," "no," or "no representation." However, the licensee should not tell the seller to respond to any question in a particular manner.

1) Under which of the following types of mortgage loans would a buyer have to produce a certificate of reasonable value? A) VA guaranteed loan B) VA insured loan C) FHA insured loan D) conventional loan

A) VA guaranteed loan Rationale: The certificate of reasonable value or CRV is the name for the appraisal in a VA loan. VA loans are guaranteed, FHA loans are insured. The appraisal in an FHA loan is called a Conditional Commitment.

10) A licensee's annual renewal pocket card must always be: A) carried on his person while doing business as a real estate agent B) kept with the licensee's important papers C) displayed in the supervising broker's office D) held by the NC Real Estate Commission

A) carried on his person while doing business as a real estate agent

25) All of the following are requirements by the NC Real Estate Commission to obtain a limited nonresident commercial license, EXCEPT: A) satisfactory completion of the NC 40-question state licensing exam B) creation of a brokerage agreement and the signing of a declaration of affiliation with a NC resident real estate broker C) consent to be disciplined under the rules, statutes and regulations of North Carolina D) declaration of their residence in a state or territory of the United States other than North Carolina

A) satisfactory completion of the NC 40-question state licensing exam Rationale: There is no testing requirement for this license. This type of license is only available to non-residents of NC who limit their representation in North Carolina to commercial transactions. They must affiliate with a NC broker, consent to be disciplined by the NCREC. They cannot live in North Carolina and must be actively licensed in another state.

8) The initial maximum deposit in a NC trust account by a broker who is depositing their own funds is: A) $50, or whatever the financial institution requires B) $100, or whatever the financial institution requires C) $500, or whatever the financial institution requires D) $1,000, or whatever the financial institution requires

B) $100, or whatever the financial institution requires Rationale: Licensees and brokerages are prohibited from commingling funds. Commingling is the mixing together of client funds and licensee funds. However, the exception is that in order to open a trust account or for the purpose of maintaining a required minimum balance with the financial institution the brokerage may have a maximum of $100 or whatever the bank requires of their own funds in the client trust account.

17) Aunt Fran decides to sell her property to a church "so long as" the property is used for religious purposes. One year after the closing, the new owner uses the property for a nonreligious purpose. Which of the following statements are correct? I. This situation is classified as a defeasible fee II. This situation is classified as fee simple ownership III. Planning and zoning would be involved in enforcing the condition IV. Title would revert back to Aunt Fran (or her heirs). A) I and III B) I and IV C) II and III D) II and IV

B) I and IV Rationale: Defeasible fees contain conditions or restrictions in the deed between the grantor and the grantee. These are private deed restrictions and not government land use controls so planning and zoning would not be involved. When the condition is violated in a defeasible fee title to the property reverts back to the grantor.

2) Which of the following is NOT an essential element of a promissory note? A) a promise to pay B) lender's signature C) terms of payment D) amount of the debt

B) lender's signature Rationale: The promissory note is the borrower's promise to pay (IOU) for the debt. Because the borrower is the one making the promise to repay only the borrower's signature is required, not the lender's. A good rule of thumb is that usually only the party "giving something up" is required to sign the document. A promissory note only requires the borrower's signature. A deed only requires the grantor's signature.

11) Concerning the residential property disclosure statement, which of the following is TRUE? A) the listing agent should fill out the form on behalf of their seller principal B) the listing agent must reveal known material facts, even if the seller checked "no representation" C) the seller's completion of the form creates immunity for the real estate professionals from liability D) the purchaser is required to sign the form acknowledging receipt

B) the listing agent must reveal known material facts, even if the seller checked "no representation" Rationale: Regardless of how the seller completes the disclosure, a license must always disclose all material facts which they know or should have known. The should not complete the form for the seller and the completion of the form in no limits the liability of the real estate professionals involved in the transaction.

21) Which of the following statements is/are TRUE concerning footings? I. Footings form the base upon which the rest of the foundation rests. II. Footings are poured into trenches below ground level and are usually composed of masonry-type materials. A) I only B) II only C) Both I and II D) Neither I nor II

C) Both I and II

22) A joist is: I. Long horizontal boards installed parallel to each other to support the load of the ceiling and the rafters above II. Long horizontal boards installed parallel to each other that are attached to the sill to support the floor and its associated loads A) I only B) II only C) Both I and II D) Neither I nor II

C) Both I and II Rationale: Joists are long horizontal boards. There are both ceiling joists which support the ceiling and roofing of the home and floor joists which support the floor and the framing.

12) Real estate brokers must retain for at least 3 years records of: I. Trust account journals II. Unaccepted offers A) I only B) II only C) Both I and II D) Neither I nor II

C) Both I and II Rationale: The Commission requires licensees to keep all records for a period of three years. The records include all of the financial records and also all of the client file transactional documents. The rule states that the records must be kept for 3 years from the closing of the transaction or the termination of the relationship, whichever is later.

5) Which of the following statements are correct regarding construction loans? I. Construction loans have the highest risk to a lender. II. Construction loans have a longer repayment period than a home loan. III. Construction loans have a shorter repayment period than a home loan. IV. Construction loans carry a lower rate of interest than a home loan. A) I and IV B) II and IV C) I and III D) I and II

C) I and III Rationale: Construction loans are one of the riskiest loans that a lender can make. This is because of all of the issues that can arise during construction of a home. These loans are typically interest only or term loans and only last during the period of construction. Therefore, they have shorter repayment periods, not longer ones. The interest rates are typically higher and at the end of construction, the borrower will usually replace the construction loan with a permanent or take out loan.

13) If a real estate agent has been found guilty of violating the NC Real Estate Licensing Law, the NC Real Estate Commission can: I. Fine the licensee II. Imprison the licensee III. Suspend or revoke the license IV. Reprimand or censure the licensee A) I and II only B) II and IV only C) III and IV only D) All of the above

C) III and IV only Rationale: The NC Real Estate Commission may reprimand, censure the licensee or suspend or revoke the license. The Commission does not fine licensees. It does not issue prison sentences, regardless of the nature of the violation. However, if the violation involved criminal activity, the Commission can refer the matter to the Attorney General or other law enforcement agencies.

23) Which of the following best describes the owner's original basis in his/her property? A) the profit produced from the eventual sale of the property B) the cost of acquiring the home plus closing costs and the subtraction of all capital improvements C) for income tax purposes, the original cost (purchase price) of the property plus certain allowable closing costs D) the difference between the selling price and the selling expenses

C) for income tax purposes, the original cost (purchase price) of the property plus certain allowable closing costs Rationale: Basis is the financial interest that the IRS attributes to the owner of a property for the purposes of determining depreciation and loss or gain. The owner's basis is the cost of the property plus allowable closing costs plus the value of any capital expenditures for improvements, minus any depreciation allowed or actually taken. This new basis once the costs, improvements and depreciation have been calculated is called the adjusted basis.

9) If a provisional broker does not take their 90 hours of postlicensing training within three years from the date on which they were initially licensed, their license is: A) suspended B) cancelled C) inactive D) expired

C) inactive Rationale: Failure to complete any one of the thirty hour modules, failure to complete the 90 hours or failure to complete CE or education requirements results in an inactive license. An expired license occurs when the licensee fails to renew their license or pay the required fee for renewal.

20) Encapsulation refers to the: A) process of sealing a landfill with three to four feet of topsoil B) way in which asbestos insulation is applied to pipes and wiring systems C) method of sealing disintegrating "friable" asbestos D) way in which asbestos becomes airborne

C) method of sealing disintegrating "friable" asbestos

4) Which party's signature is required on a deed of trust? A) the trustee B) the beneficiary C) the trustor(s) D) the grantee(s)

C) the trustor(s) Rationale: The trustor is the borrower in a lending situation using a trust deed. The borrower is giving the lender security or collateral interests in the property. Because those rights and interests belong to the borrower and they are surrendering them, only the trustor (or borrower) must sign the trust deed.

16) Which of the following statements are TRUE? I. A licensed provisional broker, selling his own property as a FSBO without the aid of a brokerage firm, must still deposit the buyer's earnest money in the firm's trust account. II. A broker must have a separate trust account for each sales transaction. A) I only B) II only C) Both I and II D) Neither I nor II

D) Neither I nor II Rationale: How a real estate licensee must handle their own transactions when they are affiliated with a firm is dictated by company policy. Just because a licensee works for a brokerage does not mean that they must handle their own transactions through the brokerage or firm. While brokerages may have a trust account, they do not maintain a separate trust account for each transaction. Which money belongs to which clients in a trust account is tracked and monitored through the use of ledgers.

3) In regard to loan costs, FHA Mortgage Insurance Premiums (MIP) and VA funding fees, who can legally pay these items at closing? A) the borrower B) the seller C) the lender or they can be financed into the loan D) all of the above

D) all of the above Rationale: Costs and fees on loans are ordinarily paid by the borrower, but the parties can negotiate in the contract for the seller to pay all or a portion of the borrower's costs and the borrower may negotiate to have their lender pay all or part of their costs.

24) If payment of license fees are returned unpaid or dishonored by check or credit card, the NC Real Estate Commission can discipline a licensee by taking all of the following actions, EXCEPT: A) denying the license B) suspending the license C) revoking the license D) fining the licensee

D) fining the licensee

18) When must the residential property disclosure statement be given to the buyer of residential property? A) upon first substantial contact B) when the buyer discussed with the lender the possibility of financing the property C) when previewing the property with a licensed real estate agent D) no later than the time the buyer makes an offer on the property

D) no later than the time the buyer makes an offer on the property Rationale: The disclosure statement is part of the information which the borrower will use to determine if they want to make an offer on the property. It can always be provided at any time, but should be given to the borrower no later than the time at which they make an offer.

14) When is the developer of a timeshare project required to deliver the public offering statement to the purchaser? A) prior to the day of closing B) upon initial contact with the buyer C) within a reasonable time D) prior to the buyer's submission of an offer

D) prior to the buyer's submission of an offer Rationale: Public offerings need to be delivered to consumers prior to their offer. A prospective buyer should have all of the information at the time of their offer so that they can make and informed decision on whether to submit an offer on the property.

19) Radon poses the greatest potential health hazard to humans when it is: A) contained in insulation materials used in the 1970s B) found in high concentration on unimproved land C) emitted by malfunctioning or inadequately ventilated appliances D) trapped and concentrated in inadequately ventilated areas

D) trapped and concentrated in inadequately ventilated areas