Real Estate - Practice Exam 1
A borrower grosses $4,000 per month and pays $600 monthly for debt obligations. What monthly payment for housing expenses (principal, interest, taxes, insurance) can this person afford based on an FHA debt ratio of 41%? $1,040 $1,394 $760 $1,404
$1,040
A homeowner's rented residence has an assessed valuation of $150,000, and a market value of $170,000. The homestead exemption is $25,000. Tax rates for the property are 7 mills for schools; 3 mills for the city; 2 mills for the county; and 1 mill for the local community college. What is the homeowner's tax bill? $2,210 $1,950 $1,625 $1,885
$1,625
A principal residence is bought for $180,000. A new porch is added, costing $7,000. Five years later the home sells for $220,000, and the closing costs $18,000. What is the homeowner's capital gain? $29,000 $33,000 $51,000 $15,000
$15,000
A certain investor wants an 11% return on investment from any real estate investment. A property priced at $360,000 has gross income of $60,000 and expenses of $22,000. Approximately how much too high or too low is the price of this property for the investor to obtain her desired return exactly? $8,000 underpriced $16,000 underpriced $15,000 overpriced $1,000 overpriced
$15,000 overpriced
A lender determines that a homebuyer can afford to borrow $120,000 on a mortgage loan. The lender requires an 80% loan-to-value ratio. How much can the borrower pay for a property and still qualify for this loan amount? $106,000 $160,000 $150,000 $96,000
$150,000
A property sells for $180,000 one year after it was purchaseIf the annual appreciation rate is 10%, how much did the original buyer pay for it? $180,000 $163,636 $198,000 $162,000
$163,636
A property has a net income of $50,000, interest payments of $35,000, principal payments of $3,000, and annual cost recovery of $7,000. The property's tax rate is 28%. What is the property's annual tax on income? $3,360 $4,200 $2,240 $1,400
$2,240
An apartment building has an effective income of $150,000. Its bills total $64,000, and depreciation is an additional $12,000. Interest payments on the loan total $40,000, and principal payments are $5,000. What is the property's pre-tax cash flow? $29,000 $34,000 $41,000 $46,000
$41,000
Spenser, who works for selling broker Smith, sells a house listed by listing broker Adams. The house sells for $425,000. The co-brokerage split between Smith and Adams is 50-50. Spenser is on a 65% commission schedule with Smith. If the total commission rate is 7%, what is Spenser's commission? $9,669 $19,338 $13,812 $14,875
$9,669
A tract of land is described as the W 1/2 of the N 1/2 of the NE 1/4 of Section 16. What is its acreage? 80 acres 20 acres 160 acres 40 acres
40 acres
A $300,000 loan has monthly payments of $2,000. Its annual interest rate is: 10%. 4%. 6%. 8%.
8%
Which of the following is true of a homestead? A homestead interest can be conveyed by one spouse. A homestead is any privately owned single-family residence. A homestead interest is a form of legal life estate A homestead interest cannot be exempt from creditors.
A homestead interest is a form of legal life estate
Which of the following is included in the legal concept of land? An abandoned vehicle. A felled tree. A lake A corn crop
A lake
In which of the following situations would Fair Housing laws allow discrimination? The developer of a subdivision containing fifty single-family homes refuses to sell to families that have children. A property owner who owns four small apartment buildings with six units each rents only to married couples. A retirement community whose residents are all over 62 refuses to allow families with children to buy in the community. A condominium community refuses to allow married couples or persons older than 40 to buy a condominium unit.
A retirement community whose residents are all over 62 refuses to allow families with children to buy in the community
How is a legal life estate created? Through the four unities Through a defeasible conveyance By an owner's voluntary grant By operation of law
By operation of law
Which of the following ways of specializing is common in the real estate brokerage business? By type of mortgage financing required By years of experience in the business By type of property By background of client
By type of property
A sale transaction on rental property closes on December 16. The landlord received the December rent of $713 on December 1. Assuming the closing day is the buyer's, and that the 365-day method is used for prorating, which of the following entries would appear on the settlement statement? Credit buyer $368.00 Debit seller $345.00 Debit buyer $345.00 Credit seller $713.00
Credit buyer $368.00
At the direction of a seller-client, an agent tells a pregnant working woman that the property is not in a good neighborhood for a single woman, particularly if she regularly works late hours. The neighborhood has an increasing crime rate, and people are moving out. What has this agent done wrong? Practiced blockbusting Nothing: an agent may show or not show any property if the client so directs Engaged in steering Committed negligent misrepresentation
Engaged in steering
A family is looking for a home in a certain price range. The wife suggests several listings on the east side of town, and the agent agrees to show the family the suggested properties. En route to the targeted neighborhood, the agent drives a certain route to show the family certain retail services and two schools. What has this agent done wrong? He has done nothing wrong. He has steered the family. He has provided unequal services. He is liable for blockbusting.
He has done nothing wrong
While a property is under a contract for deed, the buyer, or vendee, takes possession of the property and makes timely payments of principal and interest. At the end of the term, the vendee obtains a loan and uses the funds to pay off the vendor. Given these circumstances, what option does the seller have? He may offer to repurchase the property after conveying title. He may extend the vendee's lease term since timely payments were made. He may cancel the agreement because of an improper financing arrangement. He may exercise the right to retain the deposit as liquidated damages.
He may offer to repurchase the property after conveying title
Which of the following is NOT a sanction that can be imposed by the NCREC? Suspension of a license Revocation of a license Incarceration Censure a licensee
Incarceration
Which of the following items would affect a homeowner's adjusted basis? Installing a new furnace Replacing a washing machine Stripping and staining hardwood floors Replacing a broken picture window
Installing a new furnace
How does the Equal Credit Opportunity Act (ECOA) affect property managers? Managers must be consistent and nondiscriminatory in evaluating the creditworthiness of tenant applicants. Managers cannot charge higher rents to tenants because of the fact they have children. Managers must identify the owners of all funds in their keeping for others. Managers must make housing facilities available to handicapped persons.
Managers must be consistent and nondiscriminatory in evaluating the creditworthiness of tenant applicants
Who is responsible for disciplinary matters related to real estate brokers? The Secretary of State NCREC The Real Estate Disciplinary Board The Attorney General
NCREC
An unlicensed assistant to a real estate broker may NOT perform which of the following duties? Showing units to prospective tenants Accepting rental payments Accepting security deposits Negotiating leases or rental agreements
Negotiating leases or rental agreements
The taxable income from an investment property is estimated by using which of the following formulas? Net income plus depreciation Net income minus interest and depreciation Net income minus debt service Cash flow minus depreciation
Net income minus interest and depreciation
When does the duty of confidentiality end? 3 years after the agency relationship terminates When the transaction closes When the agency relationship ends Never
Never
Under what circumstances may the NCREC impose a fine? When the offense is also a felony. Only in matters related to time shares. When an offense is egregious. When the offense has cause substantial harm to a consumer
Only in matters related to time shares
Which of the following are examples of items typically prorated between seller and buyer at closing? Real estate taxes Survey Mortgage origination fees Inspections
Real estate taxes
A retailer installs special display counters to exhibit her products. At the end of the lease term, the retailer moves to another state, leaving the counters in the store. At this point the counters are considered which of the following? Trade fixtures, and therefore real property Personal property that must be returned to the retailer Trade fixtures and therefore personal property Real property, since the trade fixtures were abandoned
Real property, since the trade fixtures were abandoned
Five liens have been recorded against a certain house, in the following order: first mortgage, mechanic's lien, second mortgage, real estate tax lien, special assessment lien. Which lien will be the last one to be paid from the proceeds of the sale of the house? Second mortgage lien Mechanic's lien Special assessment lien Real estate tax lien
Second mortgage lien
What are the dimensions of a township? Six miles by one mile. Six miles by six miles. One mile square. One mile by one mile.
Six miles by six miles.
The order in a NCREC disciplinary may be appealed to the Superior Court. local REALTOR(r) association. Chairperson of the NCREC. North Carolina Supreme Court.
Superior Court
Which of the following, by law, is NOT considered a material fact? The presence of mold in the garage but nowhere in the living quarters That a registered sex offender resides in the neighborhood A small leak in the garage The presence of lead-based paint.
That a registered sex offender resides in the neighborhood
A seller accepts a buyer's counteroffer and mails the accepted contract to the buyer two days after receiving it. Because of confusion in the post office, it takes four days for the accepted contract to reach the buyer. In the meantime, the buyer's offer has expire. Which of the following is true? The buyer's counteroffer expired before it was accepted. The buyer has no obligations to the seller whatsoever. The seller is no longer bound to the agreement. The buyer is bound to the contract.
The buyer is bound to the contract.
Which of the following is NOT required in a BPO or CMA prepared for a fee? A list of the assumptions or limiting conditions. A copy of the request for the BPO or CMA. The basis of reasoning for the price reached. The historical trend of the price reached.
The historical trend of the price reached
In a residential lease, who is responsible for installing smoke detectors? The tenant The landlord The landlord and tenant. The local fire department.
The landlord
Which of the following transactions requires a large lender (more than five loans per year) to use the CFPB Closing Disclosure form? The loan amount exceeds $85,000. The closing costs exceed one percent of the loan amount. The loan is for a 30-year fixed first mortgage secured by a house. The buyer/borrower is not represented by a broker.
The loan is for a 30-year fixed first mortgage secured by a house
A buyer submits an offer to the seller. While the seller is considering the offer, the buyer calls and cancels the offer, saying the home was too expensive. The seller protests, claiming she was going to accept the contract. Which of the following is true? The buyer may not revoke the offer in such a short period of time. The seller may accept the offer, thus binding the buyer to a contract. The original offer is cancelled, and the protest means nothing. The seller can offer to lower the price, thereby binding the buyer.
The original offer is cancelled, and the protest means nothing
What is meant by "opportunity cost" when speaking of real estate as an investment? The financial risk of the investment. The financing charge associated with borrowing money to invest in real estate. The return an investor could reasonably expect to earn from competing investments. The full cost of acquiring an investment property.
The return an investor could reasonably expect to earn from competing investments.
What is the primary aim of a marketing program for a managed property? To find and attract the right kind of tenants To enhance the image of the property owner To attract skilled professional staff to the property To discourage current tenants from leaving the property
To find and attract the right kind of tenants
In the past, borrowers were often surprised by unexpected financing costs and charges at closing. This situation has been largely corrected through disclosure requirements mandated by which of the following laws? Truth-in-Lending laws National Disclosure Procedures Act Federal Fair Housing Laws Equal Credit Opportunity Act
Truth-in-Lending laws
A property abuts a non-navigable stream. What does the owner own? Land to the high-water mark Underlying land to the middle of the waterway Land to the low-water mark All water to the middle of the waterway
Underlying land to the middle of the waterway
A property owner in a development is required to have a shake roof. This requirement is most likely to come from a building code. a deed restriction. a condominium declaration. a zoning ordinance.
a deed restriction.
In accordance with the statute of frauds, an unwritten lease is fraudulent. oral leases are not enforceable. a five-year lease must be in writing to be enforceable. leases in excess of one year must be recorded to be enforceable.
a five-year lease must be in writing to be enforceable
A master plan can be best described as a fusion of land use laws and local land use objectives and strategies. a forecast of existing land use patterns in a market. an annual review of all building permits and zones. a plat of subdivision preceding the design of a land use development.
a fusion of land use laws and local land use objectives and strategies
The Real Estate Settlements and Procedures Act prohibits a broker from having any business relationship with an insurance company that is involved in the broker's transaction. a lender from requiring a deposit from a borrower for a tax and insurance escrow account. a lender from paying a fee to a broker for referring a borrower to the lender. a broker from pre-qualifying a buyer for a mortgage loan.
a lender from paying a fee to a broker for referring a borrower to the lender
A buyer representative locates a suitable property through an owner broker. The buyer buys the property, the seller pays a commission, and the two agents split the commission. In this instance, the owner broker is acting as a dual agent. a subagent of the buyer representative. a single agent for the owner. a co-operating agent.
a single agent for the owner
A business buyer wants to acquire a business in its totality, including the business identity and all rights, obligations, liabilities, and assets. The type of transaction that would accomplish this aim is an asset sale. a stock sale. a rights lease. a proprietary lease.
a stock sale
A zoning board of adjustment might give favorable consideration to a land use variance if the owner can demonstrate a valid homestead exemption. the appeal is prepared by professional land use attorneys employing the correct procedures. there is a grandfathering clause in the deed. compliance would cause the owner undue and unjustified hardship.
compliance would cause the owner undue and unjustified hardship
In deriving cash flow from net operating income, debt service is subtracted from NOI. debt service is added to NOI. income taxes are added to NOI. cost recovery expense is subtracted from NOI.
debt service is subtracted from NOI.
One investment advantage of owning a principal residence is that the owner may be able to defer capital gain tax. deduct mortgage interest and principal. defer depreciation expenses. deduct capital gain when the property is sold.
defer capital gain tax
A real estate broker has a duty to an unrepresented party in a transaction to disclose all material facts. advocate on behalf of the unrepresented party. list the property on an MLS. keep any statements made by the unrepresented party confidential
disclose all material facts
A tax rate is derived by multiplying the tax base times the tax requirement. dividing the tax requirement by the tax base. subtracting other sources of revenue from the total budget of the taxing district. dividing the tax base by the tax requirement.
dividing the tax requirement by the tax base
The "Working with Real Estate Agents" (WWREA) pamphlet must be given to a prospective buyer or seller during the first contact. within 1 day of the first contact. during the first substantial contact. immediately after signing a brokerage agreement.
during the first substantial contact
Pursuant to the Offer to Purchase and Contract, a buyer must pay a(n) earnest money deposit and due diligence fee. due diligence fee and escrow fee. earnest money deposit and escrow fee. due diligence fee and a signing fee.
earnest money deposit and due diligence fee
A critical determinant of commercial and residential property demand in a market is employment. existing supply of properties. per capita income. availability of land.
employment
During the executory period of a sale contract, the buyer enjoys which of the following interests? equity of redemption. legal title. executory title. equitable title.
equitable title
If a real estate brokerage firm, acting as an escrow agent, places an earnest money deposit into an interest-bearing trust account, the interest earned must be dispersed to the buyer. escrow agent. occupying the accommodation. buyer and seller equally.
escrow agent.
Two important tasks in identifying value through the cost approach are estimating the cost and depreciation of the land and improvements. estimating the cost of the land and the depreciation of the improvements. estimating the cost of the land and its accrued depreciation. estimating the value of the improvements and the obsolescence of the land.
estimating the cost of the land and the depreciation of the improvements.
Under a special agency agreement, a broker is not authorized to discuss price adjustments with the principal. schedule open houses. advertise the property using the name of the brokerage. execute a contract for sale agreement.
execute a contract for sale agreement.
The most common kind of landlord default is failure to maintain the property and provide services. entering the leased premises without the tenant's permission. selling the property without notifying the tenants. death of the landlord.
failure to maintain the property and provide services
A condominium estate is distinguished by ownership of a share in an association and a condominium lease on the owned unit. fee simple ownership of an equal share of the entire property. fee simple ownership of a unit and an undivided share of the common areas. tenancy in common interest in airspace and common areas of the property.
fee simple ownership of a unit and an undivided share of the common areas
A real estate broker may legally draft a simple promissory note. draft a simple contingency in a purchase agreement. fill in blanks on preprinted forms. draft short provisions in a purchase agreement.
fill in blanks on preprinted forms.
To engage in real estate activities a business entity must obtain a special broker license. broker license. provisional broker license. firm license.
firm license.
The Veteran's Administration assists numerous qualified mortgage loan applicants because it purchases loans made by approved lenders. insures loans made by approved lenders. guarantees loans made by approved lenders. originates loans made by approved lenders.
guarantees loans made by approved lenders.
An agent fails to discover crumbling wallboard on the basement ceiling beneath a bathroom. The agent sells the property, and the buyer later sues the agent for not discovering and disclosing a clearly visible and obvious problem. In this case, the agent may be guilty of intentional misrepresentation. can countersue the buyer for not employing an inspector. is not vulnerable, since the problem is not expensive to correct. has an exposure to negligent misrepresentation.
has an exposure to negligent misrepresentation
In North Carolina property held in a joint tenancy cannot include a right of survivorship. includes a right of survivorship if provided in the conveyance instrument. can only include a right of survivorship when created by a deed. automatically includes a right of survivorship.
includes a right of survivorship if provided in the conveyance instrument
A major employer relocates, leaving many homes in an area vacant and unmaintained. This is an example of incurable economic obsolescence. curable external obsolescence. functional obsolescence. physical deterioration.
incurable economic obsolescence
Highest and best use of a property is that use which complies with the area's master plan and is best for the community. involves the highest permissible structure and yields the best income. is economically feasible, and gives the developer the best return. is legal, physically and financially feasible, and most productive.
is legal, physically and financially feasible, and most productive
The Offer to Purchase and Contract can never be assigned. is not assignable except for a 1031 tax deferred exchange. may be assigned no later than 10 days after the effective date of the contract. is freely assignable.
is not assignable except for a 1031 tax deferred exchange
A broker and salesperson agree to a 40-60 commission split. This commission rate is probably a reflection of competitive commission rates. must be within guidelines set by state regulation. must be approved by the listing client. is probably the result of an agreement with other brokers.
is probably a reflection of competitive commission rates.
Unintentional misrepresentation is generally considered the same as fraud. more serious than intentional misrepresentation because it demonstrates a lack of professional competence. an accident that requires no punishment. less serious than intentional fraud but still a violation to be punished.
less serious than intentional fraud but still a violation to be punished
The function of a board of equalization is to adjust assessed values so that most property owners have nearly equal tax bills. adjust ad valorem taxes in accordance with a household's income. equalize millage rates among taxing districts. minimize wide discrepancies of assessed values within the district.
minimize wide discrepancies of assessed values within the district
Commingling is the practice of appropriating client or customer deposits for use in the agency's business. mixing deposits from multiple transactions in a single account. mixing agents' commissions with funds for operating expenses of the agency. mixing escrow funds with the broker's operating funds.
mixing escrow funds with the broker's operating funds.
A tenant obtains a low rental rate for a building, but agrees to pay all operating expenses. This is an example of a proprietary lease. percentage lease. gross lease. net lease.
net lease
A property owner wants to put $240,000 in the bank after selling a property and accounting for all expenses. A broker finds a buyer and sells the property for $280,000. Closing costs come to $10,000, not including the broker's commission. According to agreement, the remainder of the amount over $240,000 goes to the broker as commission. The listing agreement is probably a(n) net listing. open listing. exclusive right-to sell agreement. exclusive agency agreement.
net listing
A landlord agrees to pay a broker for procuring a tenant unless someone else finds the tenant first. This is an example of a(n) open listing. net listing. exclusive right-to sell agreement. exclusive agency agreement.
open listing
To shift some of the risk inherent in recommending vendors to consumers, a licensee is advised to present a broad range of choices and allow the consumer to make the selection. recommend only one well-known vendor and tell the consumer that the licensee vouches for that vendor.. recommend only vendors who are willing to share their fee with the licensee. recommend a different vendor to each consumer or client.
present a broad range of choices and allow the consumer to make the selection.
The nature and import of the agency relationship should be disclosed to the client prior to completing an offer. within 24 hours after completing a listing agreement. upon the initial contact with the person. prior to completing a listing agreement.
prior to completing a listing agreement
A special assessment tax differs from other tax levies in that the tax levy takes into account other ad valorem taxes paid. it creates an voluntary junior lien on the property. less valuable properties which stand to benefit will pay proportionately lower taxes. properties that receive no benefit do not pay the tax.
properties that receive no benefit do not pay the tax.
Robert has just obtained his real estate license. He will be issued a broker license. salesperson license. limited license. provisional broker license.
provisional broker license.
A sale contract contains a one-month financing contingency to allow the buyer to procure a loan. Thirty- two days later, the buyer still has no loan commitment. At this point the seller may sue the lender to commit to a loan under fair financing laws. sue for specific performance. put the property back on the market. retain the buyer's deposit.
put the property back on the market
The risk management strategy that aims to decrease the probability or the severity of a potential loss is called risk reduction. risk retention. risk avoidance. risk transference.
risk reduction
An important function of the secondary mortgage market is to issue tax certificates and sell them to primary lenders. purchase pools of defaulted loans from lenders to keep them solvent. borrow funds from banks so the banks can make more loans. sell mortgage-backed securities in order to buy pools of loans.
sell mortgage-backed securities in order to buy pools of loans
If rents are declining in office properties in a market, it is likely that demand exceeds supply of space. supply exceeds demand for space. the market is in equilibrium. unemployment is decreasing.
supply exceeds demand for space
A kind of insurance that provides coverage for losses resulting from the criminal acts of an employee is workers' compensation. consequential loss. surety bond. liability.
surety bond
A principal instructs an agent to inform any minority buyer that the property was just put under contract an hour ago and is no longer available. The agent refuses to comply. In this case the agent is liable for breaching the listing terms. the agent may sue the principal for discrimination and misrepresentation. the agent has not violated fiduciary duty. the agent should exercise caution until the listing expires, then decline to renew it.
the agent has not violated fiduciary duty.
In evaluating a loan application, a mortgage lender is most concerned about the loan interest rate and loan term. the applicant's credit history and background. the applicant's financial capability and the value of the collateral. the property location and the amount of the borrower's down payment.
the applicant's financial capability and the value of the collateral.
A strength of the sales comparison approach to value is that the approach is based on the principle of substitution. the approach is accurate with unique, special purpose properties. sale prices can be compared in a neighborhood, since all enjoy the same approximate rate of appreciation. old as well as new sales data may be used in the adjustment process.
the approach is based on the principle of substitution
The primary jeopardy of overpricing a property is that buyers are put at an unfair disadvantage. the client's expectations may not be achieved. the agent stands to lose a commission. the tax rate will be higher for the client.
the client's expectations may not be achieved
As an economic product, real estate is unique because the demand must come to the supply. it has appreciation value. it is quick to respond to supply-demand imbalances. its appeal is predictable.
the demand must come to the supply
Exceeding the limits of the authority granted is a major risk in the development of policy manuals. complying with fair housing laws. the fulfilling of listing agreements. cooperating with brokers from other firms.
the fulfilling of listing agreements.
In a lien-theory state liens are recorded in trusts as opposed to title records. trustees retain title during a mortgage period. liened properties are foreclosed by strict foreclosure. the lender records a lien while the borrower retains title to the mortgaged property.
the lender records a lien while the borrower retains title to the mortgaged property
Lenders use the loan-to-value ratio as a guideline in underwriting because borrowers tend to inflate the true value of the property. the loan amount needs to be less than the property's value. a full-price loan overfinances the borrower. the property's value serves to measure the profitability of the loan.
the loan amount needs to be less than the property's value
An easement by prescription requires that the owner of the affected property be an adverse possessor. the use be continuous, open, and hostile for a required period of time. the use be continuous, known, and permitted by the owner for a period of time. the owner of an adjoining property be landlocked.
the use be continuous, open, and hostile for a required period of time.
A miner openly lives and prospects on a 20,000-acre ranch. After twenty years, the owner notices the miner and kicks him off the property. The miner makes a claim of ownership to the property. This claim will likely be declined in favor of an easement by prescription. declined, because the occupancy period was insufficient. declined since the owner was not aware of the possession. upheld, because the possession was not concealed.
upheld, because the possession was not concealed.
When a licensee is sued by the Federal Trade commission, it is usually for acting without a license. violating fair housing laws. failing to following correct renewal procedures. violating antitrust laws.
violating antitrust laws.
The president of a local bank wants to sell her home. She instructs an agent to inform a buyer moving to town that her bank, along with others, is about to curtail mortgage lending for the rest of the year. Hearing this, the buyer hurries to make a full-price offer in order to get the loan application in before the freeze. The seller accepts the offer.This contract is null. enforceable. valid. voidable.
voidable.
Unless otherwise agreed, pursuant to the Offer to Purchase and Contract, title to the property must be transferred with a bargain and sale deed. special warranty deed. quitclaim deed. warranty deed.
warranty deed
