Real Estate Practice Exam 07
Bailey Broker leases a property to Susie Smiley for 5 years. Bailey will receive a 5% commission. The rent for the property is $300 per month for the first year, with a $50-per-month increase each succeeding year. Knowing this, what will Bailey's commission be? A. $1,200 B. $3,600 C. $4,200 D. $4,800
A. $1,200 To solve this problem, you must figure out the total rent for each of the 5 years, then add those together and multiply that sum by 5% to arrive at the commission. So, $300 x 12 months = $3,600; $350 x 12 months = $4,200; $400 x 12 months = $4,800; $450 x 12 months = $5,400; and $500 x 12 months = $6,000. The total of all these numbers is $24,000, and that multiplied by 5% equals a commission of $1,200.
If Chris's house declines in value at the rate of 2.5 percent per year for 10 years and has a present value of $12,500, what was the original value of the house? A. $16,666 B. $17,000 C. $18,346 D. $20,000
A. $16,666 To solve this problem, first multiply 2.5 by 10 (years) for the total depreciation of 25%. Subtract that from 100% for 75%. Then, take $12,500/.75 = $16,666, which was the home's original value.
Wayne Goodspeed falls in love with and buys a house for a price that is 5% more than the appraised value. He secures a 10% down loan for $220,000 which represents the appraised value less the 10% down. What was the purchase price, and how much did Wayne have to come up with in cash? A. $256,666/$36,666 B. $244,444/$44,444 C. $256,666/$44,444 D. $244,444/36,666
A. $256,666/$36,666 The Purchase Price is $256,666. The total amount in cash Wayne needed to come up with is $36,666. While it's not recommended that one pays more than the appraised value of a home, it can be done, as long as the buyer doesn't mind coming up with extra cash. To figure the amount, we do the following: Step 1 -$220,000 divided by 90% =244,444.44 Step 2 - $244,444.44 X 105% = $256,666.67 Step 3 - $256,666.67 minus $220,000 = $36,666
An $11,000 house is assessed at 30% of its original cost. If the school tax on this property is 12 mills, then what was the approximate yearly tax, rounded up to the nearest dollar? A. $40 B. $42 C. $33 D. $50
A. $40 To arrive at the answer, you would multiply as follows: $11,000 x .30 = $3,300, which is the assessed amount. Then take this total and multiply it by 12 mills, so $3,300 x .012 = $39.60, then round up to the nearest dollar, which gives you the answer of $40.00.
How do you calculate the tax base of a market? A. Assessed value - exemptions B. Market value - exemptions C. Assessed value / millage rate D. Market value + exemptions
A. Assessed value - exemptions tax base = assessed values - exemptions. Market value is not used for taxation questions.
In a repayment of a mortgage loan, which type of interest is used? A. Simple B. Discount C. Compound D. Floating
A. Simple Compound interest is the interest paid depositors for their savings while "discount" and "floating" are associated with the business-to-business financial markets.
Dole and Randy each purchased homes in a subdivision of 346 homes. They agreed to the subdivision restrictions that said no large animals may be kept. Several years later, the 8-year-old daughter of Randy asked for a pony. Randy obtained the proper building permits and constructed a beautiful barn and white rail fence to house the new animal. The daughter was very happy until Dole insisted they get rid of the pony. Could Dole force Randy to remove the pony from the property? A. Yes. Dole could force them to comply with the restrictions in the deed. B. Yes. Dole has a legal obligation to report the existence of the pony to the appropriate governmental agency. C. No. Since Dole did not adjoin Randy's property, Dole was not an interested party. D. No--since the action was not taken prior to the issuance of the building permits.
A. Yes. Dole could force them to comply with the restrictions in the deed. Restrictive covenants are enforceable not only for as long as Dole and Randy occupy their homes, but on all successive buyers as well. Further, the restriction against housing large animals such as ponies is reasonable, so Randy will either have to move, house the pony at a stable or sell it.
An encumbrance that affects the title, usually related to money, is known as A. a lien. B. an easement in gross. C. an easement by necessity. D. an easement by prescription.
A. a lien. A lien is a charge against a property--a financial encumbrance. The other easements listed here do not deal with finances, but are considered usage encumbrances and affect the way in which the land may be USED.
A term used to refer to any document that transfers title to real property is known as: A. conveyance B. conversion C. consideration D. counteroffer
A. conveyance Conveyance describes any act of transferring. Don't confuse this with conversion, which is simply changing the status of a property; consideration, which is something of value given to induce a party into a contract; or counteroffer, which happens BEFORE the purchase agreement is completed.
When the supply of a commodity decreases A. prices and demand tend to rise. B. prices and demand tend to drop. C. demand tends to rise and prices are not affected. D. demand tends to drop and prices drop.
A. prices and demand tend to rise. With a decreased supply, the demand usually rises because the current supply cannot meet the current needs, and prices increase.
The effort that brings about the desired result in a real estate sale is known as A. procuring cause. B. creative salesmanship. C. closure. D. advancement.
A. procuring cause. Procuring cause of sale is the effort that brings about the desired result--in this instance, a ready, willing, and able buyer. The procuring cause is a constellation of events that result in the culmination of the desired outcome, usually a sale.
A house sale is closed on July 15. The taxes of $648 for the calendar year have been paid. Assuming the seller owns the day of closing, what is the total prepaid portion that the buyer will owe the seller? (round to the dollar) A. $190 B. $300 C. $427 D. $638
B. $300 Divide taxes of $648 by 365 days in a year = $1.7753 a day. Now figure out the days that the buyer owes the seller for - July 16 days, Aug. 31 days, Sept. 30 days, Oct. 31 days, Nov. 30 days, Dec. 31 days = 169 days X 1.7753 a day = $300.03 that the buyer would owe the seller for the prepaid taxes. (Using the actual number of days method.)
How would a construction loan differ from a VA or FHA loan on an existing home? A. A construction loan cannot be amortized. B. A construction loan is generally a higher risk than a residential loan. C. A construction loan cannot have discount points. D. A construction loan is guaranteed by the FDIC.
B. A construction loan is generally a higher risk than a residential loan. From the lender's perspective, construction loans are higher risk on two counts. First, they carry no guarantees, as is the case with VA and FHA loans. Second, a house under construction is riskier than a completed one since any number of events, including material shortages, delivery issues, unexpected financial difficulties for the builder or owner and many others, can impact its completion.
Which of the following is not true in regard to developing an Internet presence? A. It should be designed by a professional. B. It is very expensive to maintain a website. C. Your webpage should have contact information. D. Your website should have current listings.
B. It is very expensive to maintain a website. Websites are not expensive to maintain.
Movable objects, which are not considered real estate, are known as: A. Real property B. Personal property C. Fixtures D. Emblements
B. Personal property Personal property is something that belongs to a PERSON, and that a PERSON could take with him when moving. Don't confuse this with real property, which is permanently affixed (and could be considered the opposite of personal property). Remember that a fixture is an article of personal property that has become permanently attached to land or a building, and then becomes a part of the real estate. While emblements are generally considered personal property, this term refers specifically to annual crops on a property.
The earth's surface extending downward to the center of the earth and upward into space, including all things permanently attached, is known as: A. Real property B. Real estate C. Land D. A bundle of legal rights
B. Real estate The correct answer to this is real estate, but the terms real property and land are often confused with the term "real estate." However, "land" is a more specific definition, since it includes the earth's surface and all things attached by nature; while "real property" actually is the "bundle of legal rights of ownership" (or option D of the preceding answers).
Which would NOT fall under a blanket mortgage? A. Industrial development B. Single unit in a condominium development C. Residential development D. Private residence and two adjoining lots
B. Single unit in a condominium development Blanket mortgages, by definition, are for multiple properties--usually within a business context, such as a land or housing developer.
What is the BEST definition of interest? A. An upfront fee charged by a lender to process a loan B. The fee a borrower pays to a lender for the use of the money C. A fee charged by the lender to increase their equity position D. The total amount owed by a borrower.
B. The fee a borrower pays to a lender for the use of the money Said another way, interest is the profit on money in the same way mark-up is the profit stores make on the goods they sell.
The illegal practice of inducing homeowners to sell their properties by making representations about the prospective entry of persons of a certain race/national origin into the neighborhood is also called: A. redlining B. blockbusting C. commingling D. steering
B. blockbusting It is easy to get the three Fair Housing violations of redlining, steering, and blockbusting confused, but think of "blockbusting" as "busting up a block" by trying in induce or force people to move out of their neighborhood (or block). (Commingling isn't a Fair Housing violation at all, but a violation involving finances.)
An estimate based on an analysis of comparable sales and other pertinent market data is known as: A. income approach B. sales comparison approach C. market price D. cost approach
B. sales comparison approach An analysis the uses sales is the sales comparison approach. Any of the approaches can yield an opinion of market value.
A buyer purchased an option on a property. In this case A. the optionee would have to sue to get the money back if he does not exercise the option within the option time period. B. the optionee would lose the money paid if he does NOT exercise the option within the option time period. C. the optionor could sue the optionee to complete the option. D. the optionor must purchase the property at any price another buyer would offer.
B. the optionee would lose the money paid if he does NOT exercise the option within the option time period. The money an optionee puts down is the price he pays for the privilege of taking time to consider whether or not he wishes to exercise the option. It is the optionor's to keep, regardless of the option-holder's decision. The option is a unilateral contract, binding on the seller (optionor) but not the buyer (optionee), until the byuer decides to exercise the option.
A house is appraised for $25,000, and shows an assessed value of $20,000. The taxes on the house are $300 annually. What would the tax be on a house that is appraised at $45,000, with an assessed value of $40,000? A. $150 B. $300 C. $600 D. $750
C. $600 To solve this problem, first figure out the levy (assessment) percentage by dividing the tax amount by the assessed value (of the first house), and then multiply that number by $40,000. So, $300/$20,000=.015 tax levy. Then $40,000 x .015 = $600.
A property had an area of 920 square yards with a 40-foot frontage. What was the depth of the lot? A. 23 feet B. 69 feet C. 207 feet D. 408 feet
C. 207 feet We know the total square yardage as well as the frontage expressed in feet. Since area is a function of length times width, and since there are 9 square feet in each square yard, we know that 40 times X divided by 9 will give us our answer. To make the calculation, multiplying 920 yards by 9 will allow us to divide the result by 40 to find the depth, which is 207 feet.
If a builder wanted to obtain a mortgage for several pieces of property with a release clause, which type would be best? A. Purchase money mortgage B. Package mortgage C. Blanket mortgage D. Clustered mortgage
C. Blanket mortgage A blanket mortgage, as the name implies, is a single loan for a number of properties. The release clause allows the builder to make additional or accelerated payments and thus release or partially release some of those properties as security on the loan.
Which of the following items protects a lender from having the loan assumed by another party? A. Defeasance B. Subordination C. Due on sale D. Acceleration clause
C. Due on sale By declaring the entire balance due on the transfer of property, lenders control who owns the note because homeowners can't sell or transfer the mortgage without first selling the property. Also known as the alienation clause.
Which best describes ownership in severalty? A. Ownership of several properties by one person B. Ownership of one property by two or more persons C. Ownership of one property by one single person or entity D. Ownership of several properties by two or more persons
C. Ownership of one property by one single person or entity The root of "severalty" in legal terms has to do with the state of being separate and distinct, thus representing sole ownership of one property.
Which of the following is NOT a purpose of the Federal Reserve System? A. To help banks determine how much money to keep on hand B. To make more money available so lenders can make loans C. To buy loans in a depressed area or in times of a tight money market D. Set the "discount rates" of interest, which is the rate it charges for loans to its members
C. To buy loans in a depressed area or in times of a tight money market The Fed provides loan mechanisms and helps maintain an orderly marketplace, but it does not make, buy or sell actual loan instruments.
A woman bought a house and wanted to bring along her pet cougar to keep in the backyard. Which would most likely keep her from doing this? A. Police power, because the police have authority over types of animals for pets. B. Urban development regulations, since they list allowable animals for the properties. C. Zoning ordinances, because often these contain which animals may be kept. D. Building codes, since they would contain the most restrictions for city dwellings.
C. Zoning ordinances, because often these contain which animals may be kept. It's common for zoning ordinances to regulate the kinds of animals that may be kept. For example, in urban and heavily populated suburban areas, housepets only may be allowed. In more country-like settings, only housepets may be allowed in one zoning category, while housepets and horses in another. Other than zoos and wilderness areas, cougars are out of luck when it comes to being welcomed into the community.
Addition to the land through natural causes, usually by a change in water flow. A. accession B. acquisition C. accretion D. annexation
C. accretion Remember, accretion always has to do with natural causes, like a river or creek (think "accreektion"), while accession is the acquisition of title as a result of annexation of fixtures or accretion.
The illegal act of a real estate broker who places his client's or customer's funds with his own funds is known as: A. panic selling B. redlining C. commingling D. blockbusting
C. commingling Commingling, or mixing funds, is ILLEGAL and brokers who commingle funds can be prosecuted. Each of the other terms listed here fall under the realm of Fair Housing violations.
The grantor guarantees that the grantee's title is good against anyone who challenges the grantee's ownership in the A. covenant of seisin B. covenant of further assurance C. covenant of quiet enjoyment D. covenant against encumbrances
C. covenant of quiet enjoyment Covenant of quiet enjoyment basically means that the grantee has the right to enjoy his property without being challenged. Don't confuse that with other "covenants" - the covenant of seisin, in which the grantor warrants that he is the owner of a property and has the right to convey it ; the covenant of further assurance, which tells the grantee he has what he needs to make the title good, or the covenant against encumbrances, which offers protection against encumbrances.
The type of lease that allows for the rent to be increased or decreased periodically based on changes in a financial indicator is known as a: A. percentage lease B. graduated lease C. index lease D. assignment lease
C. index lease An index lease allows for increases OR decreases in the rent dependent on a particular index. Don't confuse this with a graduated lease, which only allows for INCREASES in rents; assignment leases, which is subleasing; or a percentage lease, which provides for a minimum fixed rental fee plus a percentage of the tenant's business income.
In the appraisal of an office building, which of the following would be classified as external obsolescence? A. Termite damage to the structural components of the building B. A poor architectural design resulting in a cluttered floor plan C. An inadequate number of elevators and antiquated restroom facilities D. A law requiring the building to be retro-fitted with fire sprinklers
D. A law requiring the building to be retro-fitted with fire sprinklers External obsolescence is caused by events outside of the owner's control, such as a zoning change that makes the building's current use non-conforming.
Which of the following statements BEST shows the difference between an exclusive right to sell and either an open or an exclusive agency? A. An exclusive right-to-sell agreement enables the seller to negotiate a commission; the others do not. B. An exclusive right-to-sell agreement permits the seller to sell his house without paying a fee; the others do not. C. An exclusive right-to-sell appoints only one agent; the others do not. D. An exclusive right-to-sell guarantees the listing broker a commission if he/she procures a ready, willing and able buyer; exclusive agency and open listing do not provide the same protection.
D. An exclusive right-to-sell guarantees the listing broker a commission if he/she procures a ready, willing and able buyer; exclusive agency and open listing do not provide the same protection. Exclusive agency, in fact, means that the seller will owe no commission if he finds his own buyer. Open listings are even riskier for brokers because they will lose the commission if the buyer or any other broker or salesperson provides a buyer.
Which of the following is NOT true about an option? A. The optionee has no interest or estate in the property until the option is exercised. B. The optionor usually retains the money paid for the option even if unexercised. C. The option rights are assignable unless otherwise noted. D. An unexecuted option creates certain rights to the use of the land by the optionee.
D. An unexecuted option creates certain rights to the use of the land by the optionee. Whether for property, gold, soybeans or frozen orange juice, an expired or unexercised option carries with it no rights whatsoever.
Which of the following events does NOT usually terminate a listing? A. Bankruptcy of the seller B. Expiration of the agreed upon time period C. Foreclosure on the listed property D. Death of either the selling broker or buyer
D. Death of either the selling broker or buyer The old joke, "death is no excuse," has some validity in real estate transactions. In this particular case, however, the matter is straightforward. Listing agreements are with firms and so survive the death of an individual, and the death of one buyer has no direct bearing on the listing agreement at all.
An owner listed a farm with a broker. Although the owner did not mention it, the broker knew the owner was in poor health. What should the broker tell potential buyers? A. Tell them of the need to sell quickly B. Tell them the owner is not interested in selling unless it is a full-price offer C. Tell them of the illness but NOT the need to sell D. Don't tell them anything because it would reduce the seller's bargaining leverage.
D. Don't tell them anything because it would reduce the seller's bargaining leverage. Disclosing the owner's health not only violates the broker's responsibility to help the owner get the best price possible for his property, it also violates his rights of confidentiality.
An owner was constructing a building and was using second-hand materials. A building inspector checked the construction on numerous occasions; however, the construction continued. Which of the following would this accelerate? A. External obsolescence B. Functional obsolescence C. Economic obsolescence D. Physical depreciation
D. Physical depreciation Because the building was inspected numerous times during construction, we can assume that the use of second-hand materials was permissible and that they met minimum established safety standards. Even so, those materials can be expected to have a shorter useful lifespan than new and so it is physical depreciation that is accelerated.
Who is responsible for filling out the property disclosure form? A. The buyer B. The license C. The appraiser D. The seller
D. The seller Real estate licensees are not responsible for filling out the disclosure form. That responsibility belongs to the seller. But it's important for the licensee to understand all the legal aspects of the disclosure form, so that he or she can help the seller by answering any questions the seller may have in filling out the form.
Broker Nancy agrees to finance a condominium development since the developer agrees to give her the exclusive right to sell the finished condo units. The developer is not able to revoke the listing agreement. This is A. transaction brokerage. B. unlimited agency. C. dual agency. D. agency coupled with an interest.
D. agency coupled with an interest. An agency coupled with an interest is an agency relationship in which the agent has an interest in the property that is being sold. This type of agency cannot be revoked by the principal, nor is it terminated if the principal dies. This relationship should be disclosed to prospective buyers.
If a landlord breaches a lease by allowing the property to fall into disrepair, which causes her tenant to leave the property because it is uninhabitable, this is known as: A. actual eviction B. breach of lease C. termination of lease D. constructive eviction
D. constructive eviction In a constructive eviction, it is the LANDLORD breaching the lease, rather than the tenant. In an actual eviction, it is the tenant breaking the lease. Neither termination of lease (which is simply the expiration of the lease), or breach of lease (the tenant's failure to follow any lease provision) is a form of eviction.
The clauses in a deed that limit the future uses of a property are known as: A. acknowledgements B. granting clauses C. words of conveyance D. deed restrictions
D. deed restrictions Deed restrictions can impose various limitations and conditions - in other words, they RESTRICT the types of structures that may be built on the property, or the uses for which a property can be utilized. On the other hand, an acknowledgement is proof of identification (for the grantor's signature). The granting clause and words of conveyance are the same thing - they grant the intention to transfer or convey the property's ownership.
A refusal to make reasonable accommodations in rules, policies, practices, or services when such accommodations may be necessary to afford such person equal opportunity to use and enjoy a dwelling is one definition of: A. Fair Housing B. redlining C. blockbusting D. discrimination
D. discrimination Discrimination is the correct term in this case, the broad term to describe all types of discriminatory acts. Remember that these people are usually protected under the Fair Housing laws. Keep in mind that both redlining and blockbusting are specific discriminatory acts.
In an appurtenant easement, the party that benefits is known as the: A. lessee B. leaser C. servient tenement D. dominant tenement
D. dominant tenement The person whose land is benefited by the easement, and therefore is the DOMINATING PARTY, is considered the dominant tenement. The servient tenement is the opposite of this. Leaser and leasee involve lease agreements, and have nothing to do with easements.
This appraisal approach estimates the value of the present worth of the future rights to the income the property generates by converting the net income of the property into a value. This is known as: A. comparative market analysis B. substitution C. cost approach D. income approach
D. income approach The income approach, also called capitalization, is used to appraise investment or income-producing properties. Don't confuse this with the cost approach, which estimates the amount needed to reproduce or replace the property; the comparative market analysis, which compares recently sold, similar homes; or substitution, which isn't an appraisal approach, but is an economic principle comparing two similar homes.
