LTP: Part 1 Prelicense Exam Need to review
Compute the excise tax if the purchase price is $199,750 with a $150,000 loan assumption and $26,000 in seller financing if the rate is $1 per $500.
$400.00 Excise tax is calculated on the sales price, not the financed amount. Remember that the taxman is greedy, so round up excise tax the next whole dollar. Alternatively, you can round up the sales price to the nearest five-hundred or thousand, then divide by 500. Sales Price Rounded: $200,000 Excise Tax: $200,000 / 500 = $400. NOTE: Excise Tax may be referred to as Transfer Tax on the national exam.
A property sold for $10,000,000. The listing agreement outlined compensation as follows: 6% on the first $5 million, 5% on the next $2 million, and 4% of the remainder. How much commission did the seller pay?
$520,000 $5,000,000 X 6% = $300,000. $2,000,000 X 5% = $100.000; $3,000,000 X 4% = $120,000. Total Compensation: $300,000 + $100,000 + $120,000 = $520,000
A licensee measures a standard two-story brick home. Under the Residential Square Footage Guidelines prepared by the North Carolina Real Estate Commission, which of the following is TRUE?
An agent must make an adjustment to the second floor if the opening for the stairway is larger than the stairs. When measuring a property using the NCREC residential square footage guidelines, space must be heated, finished, and directly accessible. Ceilings should be 7 feet tall (6'4" under ducts or beams); however, in a room with a sloped ceiling, the height can go down to 5 feet so long as 50% or more of the ceiling height is 7 feet.
Which of the following statements is TRUE about property disclosures in North Carolina?
The listing licensee must inform the seller about a known error on the disclosure form.
Which of the following statements is TRUE about property disclosures in North Carolina?
The listing licensee must inform the seller about a known error on the disclosure form. The listing agent must ask the seller to correct known errors on the property disclosure as the seller may be liable for lying to prospective buyers. The seller can select "no representation," although this does not relieve the broker's duty to disclose material facts. The listing agent does not complete the form, nor does the listing agent make any disclosures on the disclosure form. The Mineral, Oil, and Gas Disclosure is not required in foreclosures or transfers among related parties. It is required in new construction sales.
An agent is listing a property for sale on behalf of her client. Which of the following MUST be agreed to at the time the listing agreement is signed?
The method of calculating commission that will be paid to the listing firm in total and any amount paid, if any, to a buyer's agent
A deed contains restrictions that a buyer violates. The buyer never agreed to the restrictions, however accepted the deed at closing. What is the most severe penalty?
The original owner may regain the title A deed that contains deed restrictions is said to be defeasible, thus able to be defeated. The most severe action that could be taken by the courts is to return the title to the original owner. Fee simple determinable results in an automatic loss. Fee simple conditional requires court action. Specific performance is a remedy to enforce a legally binding contract. Liquidated damages are defined in a contract and result when a party to the contract breaches.
A deed contains restrictions that a buyer violates. The buyer never agreed to the restrictions, however accepted the deed at closing. What is the most severe penalty?
The original owner may regain the title. A deed that contains deed restrictions is said to be defeasible, thus able to be defeated. The most severe action that could be taken by the courts is to return the title to the original owner. Fee simple determinable results in an automatic loss. Fee simple conditional requires court action. Specific performance is a remedy to enforce a legally binding contract. Liquidated damages are defined in a contract and result when a party to the contract breaches.
Which of the following statements is FALSE regarding deed restrictions and restrictive/protective covenants?
The sales contract should have specifically excepted the hot tub A built-in hot tub is considered a fixture. The seller's failure to exclude the hot tub in the offer to purchase will require him/her to leave the hot tub. Listing on the MLS that the seller will not transfer the hot tub is not sufficient - it must be excluded in the offer to purchase and contract.
A commercial tenant renting space under a 10-year lease installs a wall oven, and exhaust fans in the kitchen financed through a bank under a commercial line of credit. Which of the following is TRUE concerning the termination of the lease?
The tenant can remove the equipment as it is a trade fixture before lease termination.
Which of the following is an easement that requires adjoining lots that create a dominant and servient estate?
Appurtenant easement An appurtenant easement requires adjoining lots that creates a dominant and servient estate. The dominant state gets the benefit. The servient estate gets the burden. An appurtenant easement transfers with the sale of either estate. A prescriptive easement or easement by prescription is generally granted by the course when a lot is landlocked. Easement by prescription is similar to adverse possession. A personal easement remains for the owner's lifetime. The personal easement cannot be willed or transferred. A commercial easement in gross may be sold, inherited or conveyed.
A broker violates the Do Not Call Registry when contacting a seller on the registry by:
calling a FSBO whose number is on the sign to seek a listing appointment.
A broker on provisional status may perform all of the following for compensation, EXCEPT:
earning compensation for a broker price opinion performed under the supervision of a broker-in-charge. A provisional broker cannot be compensated for preparing a broker price opinion or comparative market analysis. They can receive a commission for selling the property. It is a duty to provide a comparative market analysis to a buyer or seller client to determine the offer or listing price. The project broker supervises licensed brokers selling timeshares.
The protection clause:
extends the time that a seller agrees to pay commission. A protection clause (protection period, extender clause) requires the principal to pay compensation beyond the expiration of the agency agreement for a specified number of days. NOTE: In NC, the standard 2-T NCAR/NCBA Offer to Purchase allows a 14-day delay in settlement when the delaying party is using his/her best efforts to close.
A buyer's agent is told by the listing agent that there are no defects with the property. The buyer's agent views the property and notes several problems. The buyer's agent:
has a duty to disclose this to the seller and buyer. A licensee must disclose material facts to all parties to the transaction. The buyer's agent should disclose the defects to his/her client and the listing agent. A broker is responsible for discovering and disclosing material facts that are known or should reasonably be known.
An easement by prescription is best defined as:
obtaining title through a suit to quiet title. An easement by prescription is adverse possession. The party adversely taking the property would file a suit to quiet title to acquire title to the property. The suit asks the courts to settle who has the highest claim on the property.
A property may have a leaking underground oil tank. The buyer's agent should:
recommend that the buyer hire a qualified environmental engineer to perform testing.
An easement granted to Google for their new installation of Google Fiber in Cary:
runs with the land as an encumbrance. An easement is considered an encumbrance against real property as the owner must permit Google access to maintain the fiber line. This is an example of a commercial easement in gross. Emblements are annual crops that are considered personal property of the person that planted the crops. An easement by necessity is granted when a property is land-locked and needs access.
When the ownership is tenants in common:
there is no right of survivorship. Property is inheritable by the heirs when owned as tenants in common. Joint tenancy and tenancy by the entirety ownership have survivorship's rights, meaning that the title passes to the other co-owners rather than to heirs. NOTE: You don't pass a joint to your kids. A tenant in common may sell his/her share of the property without permission from the other co-owners; however, it cannot sell the entire property without all owners' consent.
A house with a market value of $100,000 is located in a city where the assessed value is 50% of market value. The city tax rate is $1.60 per hundred of valuation in the city and $1.40 per hundred in the county. Compute this year's property tax.
$1,500 The formula to calculate annual property taxes is the Assessed Value / 100 X tax rate. When a property is located in the city, the owner will pay both city and county taxes. Assessed Value: $100,000 X 50% = $50,000 Tax Rate: $1.60 + $1.40 = $3.00 Annual Property Tax: $50,000 / 100 X $3.00 = $1,500
A seller tells the listing agent that the property line extends 20 feet beyond the rear fence. The agent has not reviewed a survey. The listing agent includes this information when advertising the property on the Multiple Listing Service. What if anything is the agent guilty of?
Negligent Misrepresentation
Rohan, a provisional broker, is hired by Cassandra as her exclusive buyer's agent without approving dual/designated agency. Rohan's broker-in-charge lists a property that meets all of Cassandra's needs. Which of the following statements is FALSE?
Rohan may obtain subsequent approval and act as a designated dual agent in the transaction.
Nate is purchasing a home located at 2100 New Hope Church Road and asks how property is taxed. Which of the following statements is CORRECT with regards to taxation?
The Machinery Act details that taxes are charged based upon an ad valorem basis The assessed value of the property changes on reassessment dates, not when the property sells. Property taxes are charged on a calendar year basis. Taxes attach January 1, are due September 1, and are late after January 5 of the following year.
What is the square footage of a two-story house with exterior dimensions of 75X32 feet?
4,800 The dimensions provided are for the first floor. It is important to remember to double the amount for the second story. Square Footage First Floor: 75 X 32 = 2,400 Square footage for 2-story house: 2,400 X 2 = 4,800
A lot has dimensions of 425 feet by 680 feet. There is a 4-foot wide hedge that surrounds the entire lot and detracts from the usable space. How many acres of usable space exist on this lot?
6.63 Lot Square Footage: 425 X 680 = 289,000 Lot Acreage: 289,000 / 43,560 = 6.634
Tim, a licensed broker in North Carolina, is writing an offer to purchase for Sherri, his buyer client. Which of the following statements is FALSE?
A broker should reference a bonus paid by the seller to the buyer in the contract. Compensation to the broker cannot be referenced in an offer to purchase as the broker is not a party to the agreement - it is between the buyer and the seller. Compensation must be disclosed when paid by the third party and would be accomplished by using the Confirmation of Compensation form
A licensee has failed to renew his/her real estate license for 9 months. Which of the following is NOT correct?
A builder may compensate the licensee representing his sister for selling a home in a new subdivision.
A licensee has failed to renew his/her real estate license for 9 months. Which of the following is NOT correct?
A builder may compensate the licensee representing his sister for selling a home in a new subdivision. An expired licensee cannot earn compensation on behalf of another, including compensation for a family member or friend.
Which of the following statements is FALSE regarding real estate licenses?
A newly licensed broker desiring to remain on active status must complete continuing education by June 10th before their first license renewal.
An agent that helps investors purchase rental property also manages the property for rent. He needs additional help to fulfill all of his duties. The agent hires an unlicensed assistant to help him. Which of the following activities would violate License Law and Commission Rules when performed by an unlicensed assistant?
Allowing a prospective buyer into a home that the broker has listed to view the property
For a space to meet the definition of living area, it must meet which following criteria?
It must be finished and directly accessible
John is the Broker-in-Charge for Best Yet Realty. He takes a listing at 123 Main Street for $475,000 with the seller authorizing both dual and designated agency. Mary is an agent with Best Yet Realty and is working with a buyer who wants to make an offer on the home. Mary's client has authorized both dual and designated agency. Under the following scenario, which of the following statements is FALSE?
John and Mary may always act as designated agents so long as they do not know personal or confidential information regarding the other party. A broker-in-charge and provisional broker that he/she supervises cannot act as designated agents. The BIC supervises the broker and could become aware of personal/confidential information that if disclosed would hurt another client of the firm. The BIC and provisional broker are permitted to act as dual agents. The BIC and PB can share personal and confidential information about the buyer or seller among themselves, however cannot disclose it to the other party. For example, the BIC and PB have confidential information about the buyer. They can discuss it among themselves, however cannot disclose it to the seller. In order for dual agency to form the brokerage must represent both the buyer and the seller in the transaction, the clients must authorize dual agency representation.
Which of the following statements is TRUE regarding licensure in North Carolina?
Only the Commission may suspend or revoke a real estate license. This Question Is Tricky. A licensee must report a conviction or guilty plea for a felony crime within 60 days; however, it is not required to report a charge. A licensee must notify the Commission of a change in address or name within ten days. A licensee on inactive status is not required to complete postlicensing or continuing education.
Which of the following statements is FALSE regarding property taxes?
Property taxes attach to real estate when they are not paid by the due date on the tax bill.
John James left his estate, including his real property, for the care of his son with disabilities. When his son dies, the estate, including the real property, will pass to his daughter. The daughter is known as a/an:
Remainderman The party that has an interest in a property at the end of a life estate is known as the remainderman. A sublessee is a party that takes over the remaining lease term (with or without release of liability). A tenant at will holds a lease where either the party may terminate the lease without notice.
A developer wants to build an affordable housing subdivision. The use does not conform with the current zoning; however, the county would provide fast-track approval under certain conditions. The developer would see which of the following from the county?
Special use permit A special use permit would allow the developer to have the property rezoned quickly if it met the city/county requirements. A non-conforming use is grandfathered in when a city/county change the zoning ordinance. Spot zoning is frowned upon where the use for one property is changed rather than an area. A variance is a minor change from the current rules rather than a rezoning, which occurs when there is a use change.
Which of the following is considered a material fact in North Carolina?7
The HOA is considering a special assessment to replace the roof The fact that the HOA is considering a special assessment would be material to a buyer. A licensee would need to disclose if they know or reasonably should have known about an issue with the property. Some items are always a material fact - leaking polybutylene pipes, meth house, or information that would impact a buyer's decision to buy or seller's decision to sell. Some items are not considered material - sex offender, murder, death, suicide, or HIV/AIDS.
A buyer hires an agent under an exclusive buyer agency agreement. Which of the following statements is TRUE?
The agent will not be able to show any listings with his/her brokerage unless both the buyer and seller agree to dual agency representation. A broker and/or brokerage can show the same property to the same buyers per the buyer's agency agreement. A buyer client understands that a brokerage could work with multiple buyers looking for similar property and agree that this is not a conflict of interest. When a brokerage represents both the buyer and seller in a transaction, dual agency arises. A dual agency must be agreed to by both buyer and seller. A firm may practice designated agency, so long as both the buyer and seller consent, and the designated agents are not BIC and PB, and no personal/confidential information is known at the time of designation.
Taylor is purchasing a property located at 5009 Buck Horn Road. She did not want to hire a buyer's agent to represent her, opting for seller sub-agency. Which of the following statements is FALSE regarding the transaction?
The broker must disclose to Taylor that a registered sex offender resides near the property.
When must an oral buyer's agency agreement be reduced to writing?
The buyer asks the buyer's agent to prepare a written offer to purchase According to the WWREA disclosure and Q&A on Working with Real Estate Agents, "You may begin with an oral agreement, but your agent must enter into a written buyer agency agreement with you before preparing a written offer to purchase or communicating an oral offer for you." An oral buyer agency agreement must be non-exclusive (the buyer can work with other agents) and open-ended (no end date). NOTE: This is a departure from past teaching and so your textbook may note prior to presentation of an offer. We recommend studying the above new requirement for testing purposes.
All of the following statements regarding property taxes is TRUE?
The city/county budget determines the tax rate The machinery act allows cities and counties to charge property taxes. It does not set the rate. The rate is determined by the budget. Taxes are charged based upon the assessed value. The assessed value can change every year, but must change at least every 8 years (octennial reappraisal).
A newly licensed agent is granted a license on August 25 of the current year, which they desire to remain on active status. Which of the following statements is TRUE?
The licensee must complete continuing education by June 10th following their first license renewal.
Which of the following statements is FALSE regarding deed restrictions and restrictive/protective covenants?
Violations of deed restrictions are resolved by a suit to partition. When an owner violates a deed restriction, it will depend if the estate is fee simple determinable or conditional. A suit to quiet title would be filed to determine who has the highest claim on the property. A suit for partition is property divorce - where one co-owner is suing the other owner(s) to force the sale. The city/county has no obligations to check private use restrictions before issuing a permit. Restrictive covenants are typically more restrictive than zoning. Whichever rules is more strict will apply.
What is leverage?
Use of financing to purchase a property Leverage is the use of financing (other people's money) to purchase an asset
A developer wants to build an affordable housing subdivision. The use does not conform with the current zoning; however, the county would provide fast-track approval under certain conditions. The developer would see which of the following from the county?
Violations of deed restrictions are resolved by a suit to partition. When an owner violates a deed restriction, it will depend if the estate is fee simple determinable or conditional. A suit to quiet title would be filed to determine who has the highest claim on the property. A suit for partition is property divorce - where one co-owner is suing the other owner(s) to force the sale. The city/county has no obligations to check private use restrictions before issuing a permit. Restrictive covenants are typically more restrictive than zoning. Whichever rules is more strict will apply.
When is compensation earned by a buyer's agent in a real estate transaction?
When the buyer enters into a legally binding contract A buyer's agent earns compensation when a legally binding contract forms. It is generally paid at closing. The buyer's agent may also be entitled to compensation when the buyer breaches the contract under certain circumstances. No compensation is due to the listing or buyer's agent when a buyer terminates the contract during the due diligence period.
Detra is representing a buyer in the purchase of a new home. One of the properties she is about to show is offering a $10,000 bonus paid by the seller in addition to the 3% buyer agency fee. When would be the latest time that Detra can disclose the bonus and still comply with License Law and Commission Rules?
When the buyer is considering an offer The latest time to disclose a bonus paid by a 3rd party is when the buyer is considering an offer. The latest time to reduce the disclosure to writing is before writing the offer to purchase. While it may be best practice to disclose 3rd party bonus prior to showing the property, that is not typically the answer the test is looking for. Many questions relate to the latest point a disclosure can be made.
Which of the following is an example of government powers?
Zoning Ordinance An easement by prescription is adverse possession - the hostilely taking of another's property. Recall HI OCEAN - hostile, intentional, open, continuous, exclusive, adverse, and notorious. The government does not need to take property through adverse possession as they can condemn property through eminent domain. Escheats occur when a person dies without heirs, so the property passes to the state. Eminent domain is the right to take property for public use, and condemnation is the action. The owner is compensated fair market value. Zoning ordinances set the permitted use of a property.
A licensee typically represents owners that want to sell a property. The licensee enters into a property management agreement with one owner. Under the property management agreement, the licensee will act as:
a general agent The property management agreement grants the licensee a broad scope of authority to perform certain defined tasks. PM agreements create a general agency relationship. The PM can sign lease agreements on behalf of the owner/landlord, collect rent, screen tenants, enforce rules, etc. Universal agency occurs when a person is granted power-of-attorney or attorney-in-fact and can legally stand in legally for the person. Special agency arises when a licensee represents a buyer, seller, or tenant in a real estate transaction. Special agents have no decision making authority, thus cannot sign on behalf of the client.
Independent contractors in a brokerage firm would expect to have:
a written agreement allowing the contractor to set their schedule and making the licensee responsible for most expenses. The Independent Contractor agreement establishes general agency between the licensee and the brokerage. As an independent contractor, the licensee is allowed to set the hours they will work and makes them responsible for most expenses.
A licensed broker working for a subdivision developer is holding an open house in a model home. A potential buyer wants to make a deposit to reserve a lot in Phase II. The preliminary approved plat for Phase II is posted in the model; however, the plat has not been approved and recorded. The agent may:
accept the deposit and reserve a particular lot for the buyer.
North Carolina Real Estate Commission Rules require the broker-in-charge to assume responsibility for assuring that:
all actively affiliated brokers complete real estate continuing education on time.
Protective covenants:
are enforced by court action. From the answer choices provided, the courts enforce restrictive/protective covenants. The lawsuit used to stop a violation of CC & R's (Covenants, Conditions, and Restrictions) is an injunction.
In 1990 a duplex was built in an approved area and allowed under the then enacted zoning. In 2005 the area was rezoned for single-family residential housing. In 2008 the home sold, and the new owner combined the units. In 2012 the property sold to an investor who reset the house to a duplex to attract higher rents. This is an example of a/an:
illegal nonconforming use. The property was a conforming use until 2005 until the area rezoning. It then became a legal nonconforming use (allowed to continue - grandfathered in) until 2008 when the units were combined. The property loses its grandfathered status and cannot be converted back once it reverts to the single-family conforming use. In 2012 the investor converted the property to an illegal nonconforming use as the area is zoned for single-family residential. Overlay districts add additional rules above current zoning - flood zone, aesthetic zoning, historic zoning, etc. Spot zoning is not favored, where the zoning is changed for one property owner rather than rezoning an area.
Failure to provide the Residential Property and Owner Association Disclosure Statement in a transaction where it is required may result:
in termination of the contract by the buyer without penalty. The buyer can terminate the contract and receive a refund of due diligence and earnest money, the earlier of three calendar days from receipt, three calendar days from the effective date of the contract, or settlement or occupancy by the buyer. Only the Commission can reprimand a licensee. The courts can assess guilt and charge fines. A timeshare developer is required to pay a $500 fine per violation of the timeshare act.
Procuring Cause
is most important to a brokerage and seller in an open listing. Procuring cause is the person that started the chain of events that resulted in a purchase contract. With an open/non-exclusive listing or exclusive listing, the brokerage and seller are competing to find the buyer. If the seller is the procuring cause (finds the buyer), the brokerage is not entitled to compensation. The seller owes compensation no matter how the buyer is procured under an exclusive right to sell listing agreement.
Procuring cause:
is most important to a brokerage and seller in an open listing. Procuring cause is the person that started the chain of events that resulted in a purchase contract. With an open/non-exclusive listing or exclusive listing, the brokerage and seller are competing to find the buyer. If the seller is the procuring cause (finds the buyer), the brokerage is not entitled to compensation. The seller owes compensation no matter how the buyer is procured under an exclusive right to sell listing agreement.
A licensee pays an unlicensed employee a fee for screening leads and scheduling listing appointments. This practice:
is not permitted as prospecting requires an active real estate license. A licensee cannot pay commission to an unlicensed person for acts that require an active real estate license. Prospecting/solicitation and negotiations require an active real estate license. For a list of activities, an unlicensed salaried employee can perform, see pages 3-4 of License Law Commission Rule Comments. NOTE: "An unlicensed employee can record and deposit earnest money deposits, tenant security deposits and other trust money and otherwise maintain records of trust account receipts and disbursements...:", "assist a licensee in assembling documents for closing," and "compute commission checks for licensees affiliated with a broker or firm and act as the bookkeeper for the firm's bank operating account." The Sherman Antitrust Act outlaws price-fixing, boycotting, and market allocation.
A salesperson pays a "bird dog fee" to a friend that works for a large corporation. The friend has advanced knowledge when an employee will relocate to the area or out of the area. This payment:
is not permitted as prospecting requires an active real estate license. A licensee cannot pay the commission to an unlicensed person for acts that required an active real estate license. Prospecting/solicitation and negotiations require an active real estate license.
