C2 Practice Exam Questions Wrong
Minnesota law prohibits prepayment penalties on prime loans if the prepayment is made more than a certain amount of time after the date of the note. What is the amount of time?
42 months Prepayment penalties are prohibited on prime loans if the prepayment is made more than 42 months after the date of the note.
If a property is 500 feet by 800 feet, what's the front footage?
500 feet When given two dimensions for a piece of land, such as 400 feet x 500 feet, the first number is the frontage or width of the property.
Which of the following can indicate issues with heating and cooling?
A furnace or air conditioning unit that does not kick on when the temperature is adjusted If the furnace or A/C doesn't kick on when the temperature is adjusted, this could indicate problems with the heating and cooling systems. Homeowners should have these units regularly inspected.
According to the statute of frauds, which of the following contracts is not required to be in writing to be valid?
A lease for a term shorter than one year The statute of frauds states that a lease for a term of less than one year doesn't need to be written to be valid.
Jessica and Tom just purchased a home in Minnesota. Which of the following is a true statement?
A trustee will hold the title until the loan is paid.
"In this market, I can sell this house in two days!" Michele said to her seller client. What does this type of statement likely represent?
An exaggeration of Michele's ability to sell the property. Every transaction is different. It's important to not exaggerate your ability to sell a property.
Why has buyer representation increased since the late 1980s?
Buyers have become more aware of who works for whom.
Which act was the first to prohibit any exceptions for discrimination based on race or color?
Civil Rights Act of 1866 Unique among anti-discrimination law, the Civil Rights Act of 1866 recognized all U.S.-born persons as citizens and allowed no exceptions for discrimination based on race or color.
What legislation added persons with disabilities as a protected class?
Fair Housing Amendments Act of 1988 Under the Fair Housing Amendments Act of 1988, if a property is not accessible to a person with a disability, then the individual should discuss accommodations and modifications with the housing provider.
Luther has a buyer client who is purchasing a duplex built in 1969 and located in the heart of Minnesota. The buyer's purchase is contingent upon getting a mortgage loan. Which document must Luther ensure that his client receives from the seller?
Federal lead-based paint disclosure Because the dwelling was built before 1978, Luther must ensure that his client receives a copy of the federal Disclosure of Information on Lead-Based Paint and/or Lead-Based Paint Hazards disclosure, along with a copy of the EPA lead-based paint pamphlet.
When you're using the sales comparison approach to value a property, which of the following is considered a category of adjustment?
Financing terms and cash equivalency Categories of adjustment include financing terms and cash equivalency, conditions of sale, market conditions at time of contract and closing, location, and physical characteristics.
Dylan has gotten behind on her mortgage payments. Her mortgage doesn't include a power-of-sale clause. If her lender pursues a foreclosure sale, which process will most likely be used?
Foreclosure by action, which is a judicial process requiring court supervision Foreclosure by advertisement can be used for any mortgage in default that includes a power-of-sale clause, otherwise foreclosure by action may be required. Foreclosure by action is a judicial foreclosure process and requires court supervision.
Boris is an appraiser working for the Smith family. They've hired him to perform an appraisal on their six-bedroom house. What two types of data will Boris gather?
General and specific Appraisers gather general data about the economy and area, and specific data related to the property.
While market value is an opinion of a property's worth on the fair market, which of the following best describes market price?
How much a buyer has paid and a seller has accepted for the property.
Your clients, the Manfreds, are first-time homebuyers. They barely scraped together their down payment and really want to minimize their cash outlay. They would prefer to avoid the home inspection and just have their parents look over the property, saving the $500 for other purposes. What should you tell them?
I would not recommend that." Home inspections should not be waived. Inspections help buyers determine whether repairs are needed that would impact sales price, or the buyer's decision to purchase.
Your home inspector Mason found some discoloration in the attic and near the windows on the second floor. Why does he think this may be a concern?
It could be a sign of fire damage Discoloration in the attic or around windows and doors can be signs of a previous fire. The discoloration could be from smoke moving to the highest level of the house or escaping out openings in the home.
Drake's offer to purchase Kevin's condo currently has a financing contingency, an inspection contingency, an appraisal contingency, and a sale of current home contingency. Kevin also got an offer from Lucy, which came in at $5,000 less than Drake's offer but with only an appraisal contingency. What is true about Drake's offer compared to Lucy's?
It's likely viewed as a less favorable offer. Multiple contingencies make an offer less attractive to a seller. Even though Drake offered $5,000 more than Lucy, Kevin will probably find Lucy's offer more favorable. He won't have to wait for the sale of another home or worry about financing.
Darrel loves working in the mortgage lending industry. On a daily basis, he works with multiple lenders to find and negotiate the best deals for his customers. What is Darrel's profession?
Mortgage broker Darrel is a mortgage broker. Brokers work with multiple lenders and aren't tied to a specific suite of loan products, as mortgage bankers may be
Mardee represented condo owner Carol, and they signed an exclusive agency listing agreement. If Carol found her own buyer, would she owe Mardee a commission?
No, because Carol procured the buyer. It's easy to confuse the types of listing agreements. With exclusive agency, the seller retains the right to sell the property and not pay a commission. Exclusive right to sell agreements guarantee payment to the listing agent no matter who brings the buyer.
Inigo is selling his Minnesota house, which has a septic system. He's not sure it's compliant with regulations, so he's asked his plumber friend, Westley, to take a look and prepare an inspection report. He thinks this will be fine. Is he right?
No. A certified local government inspector or licensed inspection company should prepare an inspection report. Inspection reports are produced by certified local government inspectors or licensed inspection companies.
What type of foreclosure is commonly used when a deed of trust is the security instrument?
Non-judicial Because the right to sell in the event of a default is part of the deed of trust's language, a non-judicial foreclosure may be used.
Randa is trying to lower the vacancy rates for the commercial property she manages because her revenue targets will increase by 8% over the next year. What type of budget contains this revenue detail?
Operating budget The operating budget is an annual budget that includes income and expenses for a property's operation.
Which of the following is true regarding loan pre-qualification and pre-approval?
Pre-approval is preferred over pre-qualification because it's stronger proof that a buyer is qualified to purchase the property. The pre-approval carries more weight because the lender has verified the buyer-provided information, such as employment, income, the source of the buyer's down payment, and other aspects of the buyer's financial situation.
Where in the Broker Information section of the Minnesota purchase agreement would the buyer's broker information go?
Selling Agent and Broker A buyer's agent is also referred to as the selling agent, because the agent is selling the property.
Why should you have a conversation about financing for the property with the seller before you sign the listing agreement?
Some sellers can't accept, or won't qualify to accept, certain types of financing—such as FHA or VA loans—so you should know that up front. If your seller can only accept certain types of financing, you should know that so you can be clear about those restrictions when marketing the property.
Angela is real estate broker Rene's buyer customer. What can Rene do for Angela?
Submit Angela's offer to the seller. Rene can only submit Angela's offer to the seller. Rene can't perform any of these other duties because she technically represents the seller until Angela signs a buyer representation agreement and becomes her client.
On which principle of value is the sales comparison approach based?
Substitution The sales comparison approach is based on the principle of substitution. It compares similar properties to the subject property and makes adjustments to determine value based on the sales price of the comparables.
How soon after closing must buyers take possession of the property?
The timing is not stipulated The sales contract does not specify timing for buyer possession—that is something that must be negotiated between the parties.
Which of the following is true about lockboxes?
They require a seller's written permission to post.
Which of the following is true about for sale signs?
They require the seller's written permission to post.
What's one purpose of a BPO?
To assist lenders in determining the marketability and potential sales price for distressed properties BPOs are used mostly to assist lenders who have loans on homes in short sale, pre-foreclosure, or foreclosure status. Banks and investors also use BPOs to value real estate portfolios.
The Richards family farm is located on a 10-acre parcel of land, which is very rare in their area. However, the house is rundown and in need of many repairs. Most buyers in the area are looking for a move-in-ready home, which means they would need to either look elsewhere or wait several months for the home to be renovated. Which factor is most negatively impacting the value of the Richards' property?
Utility Although large parcels in the area are scarce, buyers are unwilling to buy and wait to live in a property that needs significant repairs, which is affecting the value.
What's the capitalization formula used in the income approach?
Value = net operating income ÷ cap rate
Julian is glad that the property owner at the townhouse community he manages established a substantial capital reserve budget for unexpected expenses, like the new roofs needed after a hail storm. What are these types of expenses called?
Variable These are called variable expenses because property managers never know when they'll hit or what they'll cost—but they must still plan for them
When can specific performance be enforced under a sales contract?
One party didn't meet the terms of the contract in the specified timeframe, and is now being required to do exactly what was agreed to in the contract. Specific performance is enforced under a sales contract when one party didn't meet the terms of the contract in the specified timeframe and is now being required to do exactly what was agreed to in the contract.
James, a seller, signed a listing agreement that allowed him to contract with multiple agents but only pay a commission to the agent who located a buyer. This type of listing agreement is called ______.
Open Think of an open listing agreement as a free-for-all. Only the licensee who locates the buyer will be paid. If the seller locates the buyer, no commission is owed.
What type of listing agreement provides the sellers with the opportunity to enter into listing contracts with multiple agents and still reserve the right to sell the property themselves, owing no commission?
Open listing In this type of listing agreement, it may be hard to get an agent to spend a great deal of time and effort securing a buyer since the commission is not guaranteed.
On what type of listing (or listings) may a net listing be used in states where they are legal?
Open, exclusive agency, or exclusive right-to-sell listings Net listings are only related to the amount of compensation received, and they may be used with many types of listing agreements.
Property owner Susan and property manager Phil just entered into a property management agreement. Which of the following is NOT something that would be addressed in the agreement?
Phil's power to sell the property without consulting Susan Phil has the ability to make day-to-day decisions regarding the property, but he can't sell or refinance it without getting Susan involved.
Which of the following can a lender do if a borrower fails to keep homeowner's insurance on the collateral property?
Place lender-acquired insurance on the property and bill the borrower Lenders may place lender-acquired insurance on the property and invoice the borrower. If not resolved, foreclosure activities may be initiated.
A potential investor has inherited $250,000 and wants to use that as a down payment on an investment property. What additional information do you need to calculate ROI for each potential investment?
Projected cash flow ROI is determined by dividing cash flow by the initial cash investment.
Two areas of vulnerability for the lender occur when homeowners insurance is allowed to lapse. What are they?
Property damage and judgment liens The lender is vulnerable when homeowner's insurance is allowed to lapse. A continued lapse can lead to default, because lenders don't like it when their assets are not protected. Two major areas of vulnerability are property damage and judgment liens.
What are the seven federally protected classes?
Race, color, religion, disability, sex, familial status, and national origin
What factors directly affect an adjustable rate mortgage?
Rate, index, and margin Rate adjustments are based on index rates, such as London Interbank Offered Rate (LIBOR), from which lenders determine their margins and the rate that they charge customers at each adjustment.
When an investment property is sold, three taxes that apply are transfer tax, capital gains, and ______.
Recaptured depreciation Three taxes take effect when an investment property is sold. The transfer tax is assessed at the time of the sale. Capital gains tax and recaptured depreciation will apply on the investor's income tax return.
Which of these choices is an example of a listing agent negotiating on a seller's behalf?
Reviewing offers and explaining any special requests or requirements Listing agents negotiate on behalf of the seller by reviewing offers, recommending counter-offers, and preparing a net sheet for the seller.
If a private individual owner doesn't own more than three single-family homes at one time, which exemption from the Fair Housing Act could apply?
Single-family housing sold or rented without the use of a broker Single-family housing sold or rented without the use of a broker is exempt, provided the owner doesn't own more than three single-family homes at one time.
The economic principle of ______ says that when there are two houses in the same neighborhood with the same size, appeal, and utility, the lower-priced one will tend to sell first.
Substitution This is called the economic principle of substitution, which states that the lower-priced option of two properties of equal quality will likely sell first.
An affidavit regarding hazardous waste disposal property includes a legal description of the property as well as which three declarations?
That the property was used for hazardous waste disposal or is contaminated by a hazardous substance, that its use may be restricted, and full details of the disposal or contamination Such an affidavit includes the property's legal description and that it was used for hazardous waste disposal or is contaminated by a hazardous substance, details of the disposal or contamination, and the possibility of restricted use.
Which organization would you call to file a deceptive ad complaint?
The Better Business Bureau The Better Business Bureau's National Advertising Division can handle regional or national complaints, and the local BBB can help resolve local ad complaints.
What's the relationship between TILA, RESPA, and TRID?
The Dodd-Frank Act requires that lenders use the TILA-RESPA Integrated Disclosures (TRID). TRID stands for TILA-RESPA Integrated Disclosures, which the Dodd-Frank Act implemented for all federally related mortgage transactions.
After a few meetings, the Stinsons sign a listing agreement with broker Vera so she can sell their house. The house has already generated interest from a potential buyer named Sergei, who has spoken with Vera about the house's price and square footage. Which of the following is true about this situation?
The Stinsons and Vera have brokerage relationship agreement. The Stinsons and Vera now have an express brokerage relationship agreement since they signed a listing agreement. Vera has only provided basic information to Sergei, so her actions have not crossed the line into agency-level assistance.
Kelly is closing on the house she's purchasing on Wednesday. Which of these statements is true?
The lender must provide the Closing Disclosure by Friday of the week before closing. Lenders must deliver the Closing Disclosure at least three days before closing.
What type of Minnesota agreement accounts for commission to be paid and includes the seller's permission for marketing the property?
The listing agreement This describes a listing agreement, which also includes the list price and has a beginning and ending date.
What records does a seller need to maintain in the contract for deed transaction?
The seller must record the buyer's monthly payments. The seller is responsible for maintaining record of the buyer's monthly payments.
What's the minimum number of business days prior to closing that lenders have to provide borrowers with the Closing Disclosure form?
Three Lenders must provide the Closing Disclosure form to borrowers a minimum of three business days before closing on the mortgage loan so that borrowers have time to compare the final terms and closing costs to the Loan Estimate they received at application.
When pricing a property, which of the following is a reason a licensee would consider expired listings?
To determine the price at which a property won't sell Knowing the prices at which similar properties didn't sell can help a licensee show sellers what might be an unreasonable sales price expectation.
What's one of the main purposes of a home inspection?
To discover defects that could materially affect value The purpose of the home inspection is to help buyers determine whether repairs are needed that would impact sales price, or the buyer's decision to purchase.
The contract for deed is used as an alternative to what?
Traditional third-party lender financing The contract for deed—in which the seller agrees to provide the buyer's financing—is an alternative to traditional third-party lender financing.
_______ policies provide extra coverage beyond those offered by primary policies.
Umbrella Umbrella policies cover more, but their coverage doesn't kick in until the primary policy is exhausted.
Dani is in love with the ranch-style home on Cardinal Avenue, says she simply must have it, and is willing to pay cash. The seller is concerned about an appraisal. Which of the following would be a good strategy for structuring her offer?
Waive the appraisal.
Which type of investor finds a deeply discounted property, closes on the property transaction, and then immediately sells it to another investor?
Wholesaler Wholesalers make their profit by finding the deals and selling them to other investors for more than the original asking price.
Jennifer is the owner of the single-family residence in which she resides. How long can she take to depreciate her property?
Zero years (personal residences cannot be depreciated) Depreciation is limited to investment properties. Owners can't depreciate a personal residence or vacation home.
Industrial warehouses and factories are considered _____ property.
industrial
We know that the original loan was for $17,000 with an interest rate of 9.5%. How much interest would be charged if the loan is paid off in 11 months?
$1,480 First find the annual interest amount: $17,000 (principal) x 0.095 (interest rate as a decimal) = $1,615. Then divide by 12 to get the monthly rate, which is $134.58. Finally, multiply the monthly interest by 11: $134.58 x 11 = $1,480.42 which we can round down to $1,480.
George has $625 in monthly debt obligations, and his anticipated mortgage payment is $1,828. His gross income is $9,869, and his net income is $7,895. What's his housing ratio?
18.52% The housing ratio doesn't include debt obligations and is calculated using gross income.
An investor is thinking about buying a $500,000 house to use as a rental property. She has $100,000 saved up for a down payment and will mortgage the remaining $400,000. The annual cash flow is projected to be $25,000. What is the potential return on investment?
25% ROI is determined by dividing cash flow by the initial cash investment. In this example, $25,000/$100,000=25%.
Shelly's flower business is blooming and it's time for her business to grow. She plans to take out a business loan to open two more shops on the north side of town. Which lending institution would she most likely go to for the loan?
A commercial bank Commercial banks, like Chase, offer consumer and business loans.
Which of the following may be considered a stigmatized property?
A home where a homicide, suicide, or haunting occurred Properties where a death took place or that may be haunted are generally considered stigmatized. Some states require disclosure if a death occurred on the property within a certain amount of time.
Carlton is selling his property to Terry. Carlton is acting as a lender and retains title to the property while Terry makes payments to Carlton. What type of loan is this?
A land contract With a land contract, the seller acts as a lender for the buyer. The seller retains title to the property while the buyer continues to make payments to the seller.
Which U.S. Supreme Court decision consolidated five cases involving the constitutionality of state-sponsored segregation in public schools?
Brown vs. Board of Education The case that came to be known as Brown vs. Board of Education was the name given to represent five separate cases that were heard by the U.S. Supreme Court concerning the issue of segregation in public schools.
Which type of office building would have decorator finishes that are considered adequate for the area?
Class B
When prices go down because there are too many homes on the market and too few buyers, what economic principle is at work?
Competition Competition is related to supply and demand. Multiple similar properties on the market create competition, causing a decrease in value (lower prices) because the supply exceeds demand. Fewer homes on the market means less competition, increasing demand and driving prices upward.
Joe's applying for a mortgage that meets all of the Fannie Mae/Freddie Mac criteria. Based on this, how would we classify this loan?
Conforming
Your clients, the Nguyens, have signed a contract for deed to purchase a property. What rights do the Nguyens receive?
Equitable title and possession of the property When a contract for the sale of land is executed, equitable title passes to the buyer. When the conditions on the sale contract have been met, legal title passes to the buyer with the deed.
Leases may be terminated by mutual agreement, expiration, or ___________________________.
Eviction Leases may be terminated by mutual agreement, expiration, or eviction.
What could discolored soil, soft spots, or mounds on the land indicate?
Former waste disposal site These are clues that the property may have been used as a waste disposal site.
Prior to a certain act's existence, there was no legal protection for women who endured sexual harassment from landlords and sellers when they attempted to obtain housing. What's this act called?
Housing and Community Development Act of 1974 The Housing and Community Development Act of 1974 included gender or a person's sex in the list of protected classes.
Why should you know when the seller can vacate the property?
If a buyer wants to close before the seller can vacate, the seller may need to rent it back from the buyer. The timing of vacating an occupied property is important when marketing to buyers who may want to move in before the seller's ready to move out.
Which fair housing case tested discrimination in a private sale?
Jones vs. Mayer
In non-full-disclosure states, whose responsibility is it to notify sellers of their duty to disclose required items?
Licensee representing the seller In states that don't require full disclosure, licensees representing the seller have a responsibility to notify the seller of their duty to disclose required items. Licensees should also remind sellers of their duty to be honest.
Maggie has a neighbor, Jim, who is facing foreclosure. She likes Jim and wants to help him out, so they agree to do a "subject to" purchase. What does this mean?
Maggie will take over Jim's loan payments without telling his lender she's doing so. When the new buyer makes the payments on a loan as if nothing has changed, this is called a "subject to" purchase.
Which of the following is the price a lender believes the property will bring at a foreclosure sale?
Mortgage value Lenders won't lend on what they can't recoup. Therefore, the loan amount will be based on what a lender would hope to recoup, should a foreclosure sale be necessary.
What is the purchase agreement phrase that wholesalers rely on for their investment strategy?
"Or assigns" The wholesaler doesn't own investment properties, but finds deals and resells them (assigns them) to other investors for a fee.
Seller Jason is giving listing agent Rebecca a tour of his house and pointing out all the features, even the spot in the attic where a previous owner's ghost likes to come back and visit. Jason asks Rebecca if buyers should be told about this. Which response is best?
"The presence of spirits stigmatizes the property. Many states don't consider this a material fact requiring disclosure, but this is my first ghost encounter, so I'll check our laws." Some states require disclosures related to stigmatized properties, so make sure you know whether your state requires such disclosures.
Your clients have been in their home for seven years, have made $12,000 of improvements, and have $130,000 left on their mortgage. The home recently appraised for $283,000. Using these figures, how much equity do they have in the property?
$153,000 Your clients have $153,000 equity in their property. Money used for improvements isn't part of the equity calculation. Equity is calculated by subtracting the amount of debt still owed on the mortgage from the appraised value.
What is the calculation used to determine the LTVR?
(Loan amount ÷ property value) x 100 The LTVR equals the loan amount divided by the property value, times 100.
To whom do licensees owe the duty of disclosure?
All parties
An investor is thinking about buying a $200,000 commercial property. She has $100,000 saved up for a down payment and wants to finance the remaining $100,000. Annual cash flow is projected to be $13,000. What is the potential return on investment?
13%
If a property's income value is $200,000 and it's earning a net operating income of $40,000, what is the cap rate?
20%
After getting into a fender bender, Parker had to buy a new car. To make the down payment on the car, he had to skip a couple of his mortgage payments. He received a notice from his lender indicating the remaining amount of his loan is due immediately and in full. What clause in his mortgage stipulates this?
Acceleration The acceleration clause gives the lender the right to make all money owed immediately due and payable if the borrower defaults.
Which form, provided to the buyer, is required by Minnesota state law when the buyer is not represented by a non-dual agent licensee or licensed attorney?
Disclosure Regarding Contract for Deed Financing The disclosure form is required by law and it must be provided to the buyer in a timely manner.
Ted's property is in foreclosure, but he has some equity in his property. An investor suggests that she and Ted enter into a sales contract for a substantially higher price than the investor would actually pay. The investor pockets the cash and allows the house to be foreclosed on. What sort of scheme is this?
Equity skimming Equity skimming occurs when an investor receives title to a property, and usually rents out the home but doesn't make the mortgage payments. When equity skimming fraud like this occur, houses usually end up in foreclosure.
To comply with the statute of frauds, an option contract must be ______.
In writing and signed by the optionor To comply with the statute of frauds, an option contract must be in writing and signed by the optionor (seller).
Kevin is having an appraisal performed on a piece of property he's interested in buying. He's especially interested in hearing about the estimated rate of return the property could pull. What type of value is he interested in?
Investment value An investment value can tell a consumer about the expected rate of return for a property.
Which one of the following statements about investors and tax depreciation is true?
Investors can depreciate an appreciating asset. Depreciation of investment properties allows investors to depreciate an appreciating asset and use the depreciation as a business deduction. Depreciation is limited to investment properties. Improvements can be depreciated; land itself cannot.
What effect does a pre-approval letter have on an offer?
It assures the seller that the buyer's financial information has been verified. The pre-approval is a verified pre-qualification. It provides more assurance to the seller that the buyer will be able to complete the transaction.
What will be of the highest concern to a fix-and-flip investor once the property is rehabbed?
Making a profit quickly to start a new project Although a high sales price is always desirable, of bigger concern to the fix-and-flipper is access to cash to fund the next deal.
Marcus, a listing agent, told a potential buyer that his seller client's property had no flooding issues, though the seller had mentioned water in the basement a few years back when there was a particularly heavy rainy season. Which of these statements is true?
Marcus committed intentional misrepresentation because he knew his statement was false. This is intentional misrepresentation because Marcus knew his statement was false.
The Bransons have a conventional loan for which they were required to obtain private mortgage insurance. Their local real estate market has been going like gangbusters, and their house is now appraised at twice their loan balance! Will their PMI be cancelled?
Maybe, but they'll have to petition their lender Cancellation of PMI happens once the borrower reaches a 22% equity position. This is determined by loan-to-value ratio at the time of the purchase. Unless loan-to-value ratio is now 78% or lower, the Bransons would have to petition to get PMI cancelled.
