National Practice Exam 3
A couple is buying a house with an oddly shaped living room. The seller built a custom-made bookcase to specifically fit into the room. Absent an agreement, the bookcase is most likely: Select one: A. A fixture B. The buyer's personal property C. A replacement fixture D. The seller's personal property
A. A fixture- In determining whether an item is a fixture, consider: the method of the object's attachment, whether the object demonstrates adaptation to a unique feature, whether the parties have reached an agreement regarding the object, and the relationship of the parties. In this case, the object was specifically built to fit the unique layout of the room (an adaptation). Therefore, absent an agreement to the contrary, the bookcase is most likely to be a fixture. The correct answer is: A fixture
Deed restrictions are imposed by: Select one: A. Developers B. Zoning ordinances C. Neighborhood associations D. All of the above
A. Developers- Deed restrictions are imposed on property by the property owner. Of the choices given, a developer is the only property owner. Neighborhood associations can create rules to enforce deed restrictions, but these rules must be consistent with the deed restrictions. The correct answer is: Developers
A decline in property values after building an airport near a residential subdivision would be an example of: Select one: A. Economic obsolescence B. Physical depreciation C. Functional obsolescence D. None of the above
A. Economic obsolescence- An airport that is near the subdivision would tend to depreciate nearby property values (due to noise, traffic, etc). This is an example of economic obsolescence because it's due to a condition outside of the property, which the owner has no control over. The correct answer is: Economic obsolescence
Brock wants to open a convenience store in the local shopping center. He would like to pay $2,500 every month and have the landlord cover maintenance expenses. What kind of lease should Brock sign? Select one: A. Flat lease B. Net lease C. Land lease D. Ground lease
A. Flat lease- Under a flat lease (also known as a gross or fixed lease), the lessee pays a fixed rate while the lessor pays taxes, insurance, and other expenses (maintenance and repairs). The correct answer is: Flat lease
A person has the capacity to contract if he: Select one: A. Is mentally competent B. Has given consent C. Has agreed to the terms of the contract D. Is not subject to coercion
A. Is mentally competent- Consent, agreement, and coercion do not establish whether one has the legal capacity (ability) to contract with another person. Mental competence, on the other hand, is relevant to whether one has the capacity to contract. That is, assuming no other problems, a person who is mentally competent has the capacity to contract. Compare this to minors who have a limited capacity to contract, and to the legally insane who do not have the capacity to contract. The correct answer is: Is mentally competent
Deed restrictions are usually imposed by: Select one: A. Owners B. Zoning C. Neighborhoods D. Governments
A. Owners- Restrictive covenants (deed restrictions) are imposed in deeds by owners (which includes developers). The correct answer is: Owners
Which of the following practices would most likely deteriorate the economic status of a neighborhood? Select one: A. Redlining B. Steering C. Overdevelopment of property D. Bulk zoning
A. Redlining- The practice of redlining would most likely lead to an economic decline. Lenders refusing to make loans would greatly restrict the sale of the properties in the neighborhood; thus, tending to depress real estate value. The facts are insufficient to determine the effect of overdevelopment, as this may or may not deteriorate a neighborhood. The correct answer is: Redlining
A house sold for $140,000 and the buyer made a 20% down payment. Assuming a rate of $1.00 per $1,000, the grantor's tax would be: Select one: A. $28, based on the down payment B. $112, based on the loan amount C. $140, based on the selling price D. None of the above
C. $140, based on the selling price- The grantor's tax (also known as the transfer tax) is based on the selling price of the property. Calculate the Grantor's tax as follows: Tax rate = $1 / $1,000 = 0.001 Grantors's Tax = Sales Price x Tax Rate Grantor's Tax = $140,000 x 0.001 = $140. The correct answer is: $140, based on the selling price
Tom built a 28' by 140' single story home. The average cost of construction was $11.25 per square foot. What is the total cost of the house? Select one: A. $441,000 B. $63,250 C. $44,100 D. $4,410
C. $44,100- First, determine the square footage as follows: 28' x 140' = 3920 square feet. Next, multiply the square footage by the average cost per square foot as follows: $11.25 x 3,920 = $44,100 The correct answer is: $44,100
Which appraisal approach accounts for replacement or reproduction costs? Select one: A. Market data B. Income C. Cost D. Gross Rent Multiplier
C. Cost- When an appraiser is using the COST approach, she calculates the costs to build by use of either the replacement cost (similar materials and amenities) or reproduction cost (an exact duplicate) for the subject property. The correct answer is: Cost
Title passes from the grantor to the grantee after a deed is: Select one: A. Signed B. Acknowledged C. Delivered D. Recorded
C. Delivered- Legal title to real property conveys (passes) to a purchaser (grantee) when the deed is delivered by the seller (grantor) and accepted by the grantee. Acceptance is legally presumed in absence of evidence to the contrary. The correct answer is: Delivered
Which of the following actions is NOT a form of steering? Select one: A. Excluding Hispanic Americans from a Caucasian community B. Attempting to attract only Puerto Ricans into a Puerto Rican neighborhood C. Encouraging Caucasians to sell by saying that African Americans are moving into the neighborhood D. Efforts to keep Asian Americans out of a Caucasian neighborhood
C. Encouraging Caucasians to sell by saying that African Americans are moving into the neighborhood- Attempting to induce members of one race to sell their properties by saying that members of another race are moving into the neighborhood is BLOCKBUSTING, not steering. Blockbusting and steering are both violations of Fair Housing Law. The correct answer is: Encouraging Caucasians to sell by saying that African Americans are moving into the neighborhood
All of the following circumstances are examples of insurable title defects, except: Select one: A. Forged documents B. Undisclosed heirs C. Mental incompetence D. Unrecorded easements
D. Unrecorded easements- All of the listed items, except unrecorded easements, are commonly insured title defects. Unrecorded easements and other rights of parties in possession are generally excluded, along with facts that an accurate survey would reveal, taxes, assessments not yet due or payable, zoning, and other governmental restrictions. The correct answer is: Unrecorded easements
Which pair is the most appropriate means of estimating value? Select one: A. Bob's house -- Cost approach B. The Raymond Civic Center -- Income approach C. Rookie Apartments -- Market data approach D. Valley View Mall - Income approach
D. Valley View Mall - Income approach- Bob's house is best suited to the market data approach. The Raymond Civic Center is best suited to the cost approach. Rookie Apartments is best suited to the income approach. The Valley View Mall is best suited to the income approach. The correct answer is: Valley View Mall - Income approach
What type of loan would most likely have an 80% LTV ratio? Select one: A. Conventional B. VA C. FHA D. Conventional guaranteed
A. Conventional- Usually, an 80% loan would be a conventional loan. FHA insured loans and VA guaranteed loans may be up to 100%. Conventional guaranteed is a meaningless term. The correct answer is: Conventional
Property management agreements usually represent a: Select one: A. General agency B. Special agency C. Dual agency D. Universal agency
A. General agency- Property management agreements usually represent a general agency relationship. The correct answer is: General agency
The current value of Pete and Martha's home, minus the lot, is $125,000. What did Pete and Martha originally pay, assuming the home depreciated 6% per year for the past 10 years? Select one: A. $310,560 B. $312,500 C. $355,000 D. $376,655
B. $312,500- First, calculate the total depreciation as follows: Total depreciation = 6% per year x 10 years = 60% depreciation From here, we can determine the percentage that is left from the original home value: Current value = 100% Original cost - 60% Depreciation = 40% Original cost Current value = X - 0.60X = 0.40X Finally, we can use this information to determine the Original value of the home: Current value = 40% Original cost = $125,000 Current value = 0.40X = $125,000 X = $125,000 / 0.40 = $312,500 Original cost The correct answer is: $312,500
A lender advertises 80% LTV conventional loans. 80% is applied to: Select one: A. Appraised value B. Selling price C. The buyer's income D. Either A or B
D. Either A or B
All of the following circumstances will automatically terminate a listing broker's agency agreement, EXCEPT: Select one: A. Bankruptcy of a principal B. Destruction of the property C. Condemnation of the property D. Unilateral action
D. Unilateral action- A listing is automatically terminated by law upon bankruptcy or death of either party (principal or agent), or by the destruction or disposition of the property (including condemnation). Acting unilaterally to terminate the listing would be the act of one party, not an operation of law. The correct answer is: Unilateral action
Under the statute of frauds, an oral listing is: Select one: A. Void B. Voidable C. Unenforceable D. Valid
D. Valid- A listing is an agency agreement for a broker to perform services (sell a house). A listing is not a contract for the sale of land or transferring an interest in land (a lease). Therefore, a listing need not be written under the statute of frauds. Note that some states may require listings to be written under state license laws (applicable only to the State Portion of the exam). However, the question addresses the statute of frauds, not state license laws. The correct answer is: Valid
Which of the following could be an enforceable deed restriction? Select one: A. Exterior design B. Building size C. Limitations on the height of trees D. All of the above
D. All of the above- A deed restriction is a limit on property use, placed on the property by the owner. It could control and restrict the use of the property for any of the reasons given. It CANNOT be a restriction that is in violation of the law, such as Fair Housing laws. The correct answer is: All of the above
A listing will automatically terminate: Select one: A. If the listing broker goes bankrupt B. On the date specified in the listing agreement C. If the seller dies prior to receiving an offer from a ready, willing, and able buyer D. All of the above
D. All of the above- A listing terminates if either the agent or the principal dies or goes bankrupt. Listings also terminate when they expire. The correct answer is: All of the above
Which of the following real estate documents must be in writing? Select one: A. Option B. Real estate sales contract C. Lease for more than one year D. All of the above
D. All of the above- As required by the statute of frauds, all of these documents must be in writing in order to be enforced by a court of law. The correct answer is: All of the above
A quitclaim deed may be used to: Select one: A. Transfer ownership of a fee simple estate B. Transfer interest in a life estate C. Terminate an easement D. Any of the above
D. Any of the above- A quitclaim deed CAN be used to transfer any interest in real property from one party to another. It is normally used for the transfer of an interest that is less than fee simple. The correct answer is: Any of the above
Buyer Billy and Broker Bobby enter into a buyer-broker agreement. Billy grows increasingly suspicious of Bobby's abilities. After two weeks pass without being shown a satisfying property, Billy revokes the agreement. All of the following statements could be true about this action, except: Select one: A. Billy was justified because Bobby was in breach B. Billy was in breach C. Billy owes Bobby for damages D. Bobby could sue for specific performance
D. Bobby could sue for specific performance- All of the described scenarios could be true under various circumstances, except Bobby cannot require Billy to perform. Specific performance is NEVER a remedy for personal service contracts. The correct answer is: Bobby could sue for specific performance
If a seller deposits the deed with an escrow agent, but dies before it is delivered to the purchaser, the transfer of title becomes effective on the date the deed was deposited into escrow due to the: Select one: A. Party's consent B. Law of contracts C. Parole evidence rule D. Doctrine of relation-back
D. Doctrine of relation-back- Note that this question states the definition of the relation-back doctrine. The correct answer is: Doctrine of relation-back
How can you BEST demonstrate your compliance with Fair Housing Laws? Select one: A. Document transactions with any person who is protected by the Fair Housing Law B. Show minority buyers any property they ask to see C. Show minority buyers all properties they want to see D. Document all transactions with all clients or customers
D. Document all transactions with all clients or customers
Mortgage covenants require the mortgagor to do all of the following, EXCEPT: Select one: A. Pay taxes B. Maintain the property C. Pay principal and interest D. Maintain life insurance
D. Maintain life insurance- The borrower is NOT required to have life insurance. He must have fire and hazard insurance to protect the lender. The correct answer is: Maintain life insurance
In which type of listing is the commission least likely to be expressed in terms of a percentage? Select one: A. Open B. Exclusive agency C. Exclusive right-to-sell D. Net
D. Net- In a net listing, the seller stipulates the price he wants to receive for a property, and agrees that the broker may keep any amount above this price as commission. In a true net listing, a commission is not specified. Note that net listings are illegal in most states. The correct answer is: Net
An appraiser is estimating the value of a house. The sellers want to list for $370,000 since it has 4 bedrooms, 3 bathrooms, and a pool. A comparable property recently sold for $350,000 (with 3 bedrooms, 3 bathrooms, and a sun room). In the adjustment process, the appraiser estimates that an extra bedroom is worth $45,000, the pool is worth $4,000, and the sun room is worth $17,000. What is the adjusted sales price of the subject property? Select one: A. $338,000 B. $382,000 C. $402,000 D. None of the above
D. None of the above- Remember that adjustments are made to the comparable properties, not to the subject property. The correct answer is: None of the above
Which of the following principles of value would a real estate salesperson consider first when preparing to do a CMA? Select one: A. The principle of conformity B. The principle of contribution C. The principle of substitution D. The principle of highest and best use Feedback
D. The principle of highest and best use- While the CMA is based largely on the principle of substitution, the first step is to locate comparable properties. The best comparable properties are those with the same highest and best use. The salesperson would then examine comparables and make adjustments as necessary. The correct answer is: The principle of highest and best use
In an all elderly housing development, 90% of the units are occupied by persons over age 55. A single mother with 2 small children wants to rent one of the units. Which of the following statements is true according to the Fair Housing Law, as amended in 1988? Select one: A. The applicant can be denied a lease B. The applicant's right to rent is protected by familial status C. The landlord can deny rental because the applicant is a single mother, which is contrary to the composition of the community D. The landlord can refuse to lease on the basis of marital status
A. The applicant can be denied a lease- Elderly housing is exempt from familial status protections if it falls into one of two categories: (i) all residents are 62 or older; or (ii) in at least 80% of units, one of the residents is 55 or older. In this situation, since 90% of the units are occupied by someone 55 or older, the landlord can exclude the renter without violating the Fair Housing Law. Therefore, answer A is the best choice. The correct answer is: The applicant can be denied a lease
What is a legal action available to either the buyer or seller to enforce the terms of a sales contract? Select one: A. Pur autre vie B. A suit for specific performance C. A suit for quiet title D. All of the above
B. A suit for specific performance- The question asks about enforcing the terms of the contract. Specific performance is remedy for breach of contract, which seeks performance as promised. The correct answer is: A suit for specific performance
If the seller makes a counteroffer, when can that counteroffer be withdrawn? Select one: A. At any time before settlement B. At any time prior to acceptance C. Within 72 hours D. Within 24 hours
B. At any time prior to acceptance- Like any offer, a counteroffer may be withdrawn at any time before acceptance by the offeree. The correct answer is: At any time prior to acceptance
Which of the following circumstances will not terminate an agency by operation of law? Select one: A. Destruction of the property B. Discharge of the broker by the principal C. Death of the principal D. Death of the broker
B. Discharge of the broker by the principal- Discharge of the broker (revocation by the principal) is termination by act of the parties, not by operation of law. The correct answer is: Discharge of the broker by the principal
Under which of the following conditions would a buyer most likely sue for specific performance? Select one: A. If the seller did not inform the buyer that the purchased property is a serviant estate B. If the seller defaulted on the sales contract before closing C. If the broker lied about the location of the schools D. If the salesperson misquoted the size of the lot
B. If the seller defaulted on the sales contract before closing- Even if the size of the lot, location of the schools, or the fact that the property is a servient estate are real issues for the buyer, he would not sue to have the contract carried out (to have the sale to go through). However, if the seller tries to back out of the contract, then the buyer would probably sue for specific performance. The correct answer is: If the seller defaulted on the sales contract before closing
Henry enters into an exclusive right-to-sell listing agreement with Bob the Broker. The parties agree upon a 6% commission. Bob presents an offer to Henry, which he accepts. At closing, Henry discovers that the customary commission is 3%. Feeling as if he was taken advantage of, Henry refuses to pay Bob any more than a 3% commission. Is the listing still effective? Select one: A. Yes, because Henry breached the agreement B. No, because Bob produced a ready, willing, and able buyer C. Yes, unless a 6% commission is excessive D. No, because Bob violated a fiduciary duty
B. No, because Bob produced a ready, willing, and able buyer- Make sure you read the question carefully! This question does not ask whether Bob will get his commission; it asks whether the listing is still in effect. Agency relationships terminate upon completion of the employment objective. In this case, the employment objective is to produce a ready, willing, and able buyer. According to the facts, Broker Bob satisfied his end of the bargain. The correct answer is: No, because Bob produced a ready, willing, and able buyer
Which of the following is the BEST example of a unilateral contract? Select one: A. Lease B. Option C. Real estate contract for sale D. Listing agreement
B. Option- A listing agreement could be either unilateral or bilateral. However, the best example shown here is the option. The seller is obligated to keep the offer open, but the buyer is not required to exercise the option. The correct answer is: Option
Dick and Jane build a home for $250,000 in a neighborhood where the other properties are valued around $125,000. Which principle most likely describes the value of their home in relation to the others? Select one: A. Plottage and assemblage B. Progression and regression C. Increasing and decreasing returns D. Supply and demand
B. Progression and regression- This situation describes the theory of progression and regression. Increasing and diminishing returns applies when the owner makes improvements to the property which cost more than the value that is added to the property. The correct answer is: Progression and regression
Gwen lists her home with Broker Steve under a valid exclusive right-to-sell listing. Steve works diligently to find a buyer for Gwen. After two weeks of focused searching, Steve finally finds a buyer to make an offer. However, when Steve presents the offer to Gwen, he discovers that Gwen also worked with Broker Gerry and sold her home without informing Steve. Steve is furious and demands his commission. Is Steve's listing still active? Select one: A. Yes, because Gwen and Steve had a valid exclusive right-to-sell listing B. No, unless the offer was at or above the list price C. No, because Gerry sold the house D. Yes, assuming that Gwen is in breach
C. No, because Gerry sold the house- Make sure you read the question carefully! It question does not ask whether Steve will get his commission; it asks whether the listing is still active. While Steve may have a good case for collecting his commission, the listing agreement terminated by operation of law when the subject of the contract (Gwen's home) was sold. The correct answer is: No, because Gerry sold the house
The right of one party to possess and use real property exclusive of others is: Select one: A. Hypothecation B. Partition C. Ownership D. All of the above
C. Ownership- Ownership is the right to possess and use property exclusive of others. This is a textbook definition of the term. The correct answer is: Ownership
An area where zoning regulates the specific balance of shopping, business, and recreational facilities is an example of: Select one: A. Urban renewal B. Spatial zoning C. PUD D. Commercial condition zoning
C. PUD- Planned Unit Developments (PUDs) are mixed-use developments that use zoning ordinances to achieve a desired balance. The correct answer is: PUD
Pete purchased a home from Tony. He did not record his deed, but took immediate possession. Tony died a few months later and according to the terms of his will, the property was to go to his nephew, Bob. Bob knew his friend Angela was interested in buying a house. They inspected the property and Angela agreed to buy it from Bob. Angela recorded her deed. Who owns the property? Select one: A. Angela, because she recorded the deed B. Bob, because Tony died testate C. Pete, because he purchased it from Tony D. Pete, due to the relation-back doctrine
C. Pete, because he purchased it from Tony- Remember that a deed need not be recorded to effectuate a valid transfer of title. If Bob and Angela inspected the property, they would have actual notice that Pete was in possession of the property (and should have questioned the ownership rights). There could be a fight in court if Angela sues, but the property legally belongs to Pete. Note that the relation-back doctrine applies where the grantor dies while the property is in escrow. The correct answer is: Pete, because he purchased it from Tony
Federal Fair Housing Laws do NOT provide protection on the basis of: Select one: A. Gender B. Handicap C. Sexual preferance D. Single parenthood
C. Sexual preferance- Sexual orientation is not protected under Federal Fair Housing Laws. Note that it may be a protected class in some states, or in some counties or cities within states. The correct answer is: Sexual preferance
A buyer enters into a sales contract with a seller. Which of the following facts could make the sales contract voidable? Select one: A. The buyer provides no earnest money deposit B. The seller, being illiterate, signed the agreement with an "X" C. The seller was under the influence of alcohol when the contract was signed D. The seller dies after executing the contract, but before closing
C. The seller was under the influence of alcohol when the contract was signed- A voidable contract is one that appears valid, but could be declared as void under certain circumstances. An intoxicated person might have been incompetent at the time of signing. If true, he could declare the contract void or elect to let the contract stand. However, note that the seller's intoxication must be to a degree that he did not understand the nature and consequences of executing the contract. The correct answer is: The seller was under the influence of alcohol when the contract was signed
Which of the following policies provides compensation for defects? Select one: A. Homeowner's insurance B. Private mortgage insurance (PMI) C. Title insurance D. Both B and C
C. Title insurance- Title insurance reimburses the title holder for certain losses incurred due to defects in the title. Homeowner's insurance reimburses the homeowner for damage to the home or property. PMI is used by lenders to hedge against the risk that a borrower will default on a mortgage. The correct answer is: Title insurance
Under RESPA, the Mortgage Servicing Statement informs borrowers of: Select one: A. All the payments expected to be deposited into the escrow account B. The actual fees and services that will be provided C. Whether the lender expects someone else to service the loan D. Settlement service charges that the borrower will likely have to pay
C. Whether the lender expects someone else to service the loan- The Mortgage Servicing Statement must be provided to the borrower within three (3) business days for receiving a loan application. It informs borrowers of whether the lender expects someone else to service the loan (collect payments). The correct answer is: Whether the lender expects someone else to service the loan
Taxes are $2,100 per year. The tax rate is $3.00 per $100. The assessed value of the property is 40% of the estimated market value. What is the market value of the property? Select one: A. $70,000 B. $90,000 C. $157,000 D. $175,000
D. $175,000- First, calculate the assessed value of the property: Tax rate = $3.00 / $100 = 0.03 Assessed Value = Property Tax / Tax rate Assessed Value = $2,100 / 0.03 = $70,000 assessed value Using this information, we can now determine the market value of the property. 40% x Market Value = Assessed Value 40% x Market Value = $70,000 0.40X = $70,000 X = $70,000 / 0.40 = $175,000 market value. The correct answer is: $175,000
After delivery of the Closing Disclosure Form, RESPA requires an additional 3 day waiting period before settlement if: Select one: A. There is a typo on the disclosure form B. An expense increases by at least $20 C. The APR is lowered on the loan D. A prepayment penalty is added to the loan
D. A prepayment penalty is added to the loan- The lender must provide a Closing Disclosure no later than 3 business days before settlement. However, an additional 3 day waiting period will be triggered if the lender changes the basic terms of the loan. This will include: (i) an increase to the APR; (ii) adding a prepayment penalty; or (iii) switching the type of loan product (ex. from fixed rate to adjustable rate loan). The correct answer is: A prepayment penalty is added to the loan
