Real estate exam 1 Questions and Answers (Graded A)

Document Content and Description Below

The closing date is August 16. The property's fair market value is $180,000. In this community, property is assessed at 50% of its market value, and taxes are applied at 55 mills per dollar of assesse... d value. Using a 365-day calendar year and assuming the buyer is responsible for the closing day, what would the buyer's prorated share of the annual property taxes be? A. $1,856.25 B. $1,871.28 C. $3,078.72 D. $3,743.01 - ANSWER B Explanation: This problem requires two steps: finding the annual property taxes, and then prorating them. Begin with the tax assessment problem. The assessed value is 50% of the market value ($180,000 × .5 = $90,000). The tax is calculated using mills, which are equivalent to one-tenth of a cent, so 55 mills equals 5.5 cents on the dollar ($90,000 × .055 = $4,950). Next, prorate the annual tax amount. First, find the per diem amount using a 365-day year ($4,950 ÷ 365 = $13.56). Calculate the number of days for which the buyer is responsible (16 in August, including the closing date, 30 in September, 31 in October, 30 in November, and 31 in December = 138 days). Multiply the number of days by the per diem rate to find the amount the buyer must pay at closing, to cover the remainder of the year's taxes ($13.56 × 138 = $1,871.28). 2. A buyer is looking at a house in a neighborhood with newly installed sidewalks. When the buyer asks about taxes, the seller assures her that the home isn't subject to any special assessments. The buyer's agent should: A. advise the buyer that the property may be subject to special assessments and recommend that the buyer look into it B. check the county records to see if the property has any special assessments pending against it C. contact an attorney to begin an investigation of the matter D. say nothing and take the seller's word for it - ANSWER A. Explanation: As part of the fiduciary duty of loyalty, a buyer's agent is required to promote the buyer's interests; so it's appropriate for the buyer's agent to recommend that the buyer investigate the question of a special assessment instead of relying on the seller's assurances. (State law may specify that the agent is under no duty to investigate the matter himself, unless he specifically agreed to do so.) 3. Which of the following pieces of information must a listing agent convey to a seller? A. A potential buyer confides that he plans to violate zoning restrictions B. A potential buyer is a member of a racial minority C. A potential buyer, who has asked for the seller to take back a purchase money mortgage, has abused his credit in the past D. The neighborhood where the seller plans to move is seeing more minorities moving in - ANSWER C. Explanation: A listing agent owes the duty of loyalty to his principal, the seller. If the listing agent discovers information that suggests that selling to a particular buyer could be detrimental to the seller (perhaps, for example, the buyer lets slip some problems obtaining financing in the past), that should be disclosed to the seller. 4. Maria has a lease that begins on June 1 and ends on December 1 of that same year. Maria has a: A. periodic estate B. tenancy at will C. term tenancy D. joint tenancy - ANSWER C. Explanation: A term tenancy, also known as an estate for years, is a tenancy for any fixed period of time (even for less than one year). 5. Bob builds a fence extending 20 feet onto the neighboring property. He uses the land for 15 years without the knowledge of the neighboring owner, who lives in another city. When Bob wants to list his property for sale, including the extra 20-foot strip, which of the following is true? A. Adverse possession does not apply because the neighboring owner did not know about Bob's possession of the land B. Adverse possession does not apply since Bob did not pay taxes on the land during those 15 years C. Bob has not proven hostile intent, because there has not been a confrontation with the neighboring owner D. The land is his to sell, having passed through adverse possession - ANSWER D. Explanation: Bob's possession of the land meets all of the criteria for adverse possession: he occupied the land, his use was open and notorious, it was exclusive, and for the required period of time. Hostile intent does not require confrontation. (Bob may need to file a quiet title action, though, to perfect the title before proceeding with the sale.) 6. A deed restriction is a covenant that: A. controls housing costs in a subdivision B. lasts forever C. prevents the property from becoming encumbered D. restricts future owners of the property - ANSWER D. Explanation: A deed restriction is a private agreement that limits uses of a property. It runs with the land, so it affects future owners of the property. While it potentially could last forever, there are a number of ways in which a deed restriction may be terminated. 7. A developer wants to subdivide a parcel and market it to potential buyers in other states. The property is divided into 135 vacant lots. He must register with the Office of Interstate Land Sales, which is administered by: A. FNMA B. HUD C. state real estate office in developer's home state D. state real estate office in state in which property is located - ANSWER B Explanation: The Interstate Land Sales Full Disclosure Act requires the developers of subdivisions with more than 100 vacant lots who will market the lots through interstate commerce to register with the Office of Interstate Land Sales, a division of the Department of Housing and Urban Development. (Note: As of July 2011, responsibility for administration of ILSA has been transferred from HUD to the federal Consumer Financial Protection Bureau, but you may still encounter a question similar to this on the state exam.) 8. The parties negotiate the sale of a property by writing letters to each other (in the old-fashioned way, by hand). Their agreement is: A. invalid; the parties must meet with each other in person B. invalid; the parties must use a preprinted form C. invalid; each letter is only a counteroffer to the previous letter D. valid; under the statute of frauds, contracts to sell real estate are enforceable if they are in writing - ANSWER D Explanation: The statute of frauds requires contracts for the sale of real estate to be in writing. Simple notes, memoranda, or a series of letters can be sufficient to meet the requirement, as long as they identify the property adequately, indicate agreement between the parties, and are signed by the parties. 9. A home is built on a hillside with underground springs that cause the ground to soften from time to time. The owner, who has had the property for three years with no problems, sells the house without mentioning the underground springs. The listing agent is also aware of the springs but says nothing. A year later, the buyer realizes that a corner of the house is sinking. She is entitled to sue: A. the listing agent B. the seller C. both the listing agent and the seller D. neither the listing agent nor the seller - ANSWER C Explanation: The agent's failure to tell the buyer about the springs (a known material fact) amounted to misrepresentation by omission, and the agent may be liable to the buyer. If the seller knew about the springs, the seller could also be liable to the buyer for misrepresentation. And even if the seller did not know about the springs, in many states the seller could be held vicariously liable for his agent's misrepresentation. 10. The primary purpose of the Truth in Lending Act (Regulation Z) is to require the lender to: A. provide the borrower with a statement showing its aggregate interest charge for similar properties in today's marketplace B. include in any advertisement about available financing the annual percentage rate, plus the applicable finance charges C. disclose the complete cost of credit to consumer loan applicants D. reveal the true cost of all real estate loans, except purchase money loans - ANSWER C Explanation: The Truth in Lending Act requires lenders to disclose financing costs to applicants for consumer loans, including consumer loans secured by real estate. 11. A seller wanting to get an estimate of the value of her property before settling on a listing price should obtain a/an: A. abstract of title B. assessment C. fee appraisal D. title search - ANSWER C Explanation: An appraisal is an estimate of a property's value, as of a given date. A seller would obtain an appraisal from a fee appraiser, an independent appraiser hired to value a particular property for a fee. 12. Agent Amy has a listing on an investment property where she will get a $4,000 commission if it sells. She has another listing on an investment property where she'll get a $5,000 commission if it sells. If she arranges an exchange of the two properties, her commission would be: A. $4,000 B. $5,000 C. $9,000 D. None, because it was an exchange rather than a sale - ANSWER C Explanation: A real estate agent who arranges a Section 1031 exchange (and who is often referred to as a 1031 facilitator) may receive compensation from both parties to the exchange. 13. A property management agreement is amended to take into account some changing circumstances. The amendment must be signed by the owner and: Your Answer: A (CORRECT) A. the designated broker for the firm providing management services B. anyone who works for the brokerage company C. the tenant D. the tenant and the real estate licensee - ANSWER A Explanation: A property management agreement is a contract between a property owner and the real estate firm that provides the management services. It is not a contract between the property owner and an individual licensee, although in some cases a licensee may sign on behalf of his brokerage. 14. Which of the following people might bring a suit for specific performance? A. A buyer in a real estate transaction in which the seller backed out one day before closing B. A homeowner unhappy about a neighbor who painted her house purple in violation of the subdivision CC&Rs C. A real estate broker who didn't receive the commission she was promised D. A seller who was overcharged during escrow - ANSWER A 15. After listing a property for sale, a licensee learns that the property was used as a beer hall during Prohibition, for illegal drug sales in 2003, and as a homeless shelter in 2009. What is the licensee's duty regarding property disclosures? A. All of these uses must be disclosed B. Only the most recent use must be disclosed C. The drug sales must be disclosed D. None of these uses must be disclosed - ANSWER D Explanation: While any of these prior uses might stigmatize the property, none of them are material facts that would have to be disclosed by a seller or a seller's agent. There would be an exception if a prior use adversely affected the property's physical condition. For example, if the property had been used for illegal drug manufacturing, which may leave behind harmful chemical residues, this would have to be disclosed. However, the question refers only to drug sales, not drug manufacturing. 16. Once a lender issues a veteran a VA-guaranteed loan, the veteran: Your Answer: A; Correct Answer: C A. can never receive another VA loan B. cannot prepay the principal on the loan C. immediately becomes liable for the guaranteed amount D. must purchase private mortgage insurance - ANSWER C Explanation: A VA loan borrower who later defaults may be liable to the VA in some situations; in all situations, his guaranty entitlement (which he could use to obtain another VA loan) won't be restored until he reimburses the VA. 17. A property manager decides to offer some additional services beyond what is specified in the property management agreement. She may do so after: A. giving the tenants 30 days' notice B. obtaining written authorization from the owner C. providing notice to the Department of Licensing D. the management agreement is amended in writing - ANSWER D Explanation: Whenever the duties and powers of a property manager change, the property management agreement (the document that describes the scope of a property manager's authority) must be amended. 18. A property's real estate taxes are $250 per month, paid at the end of the year. The property is sold and the closing date is May 15. Which of the following options is closest to what the seller's share of the taxes would be? A. $750 B. $875 C. $1,000 D. $1,125 - ANSWER D Explanation: The seller is responsible for the taxes for the first four and a half months of the year (January, February, March, April, and half of May). $250 × 4.5 = $1,125. 19. An optionee's rights can be assigned under all of the following circumstances, except when the: A. option money is $10 or less B. option money is in the form of a promissory note C. optionor has died D. optionee has died - ANSWER B Explanation: If the option money is in the form of a promissory note, the optionee cannot assign it (nor can his estate, if the optionee is dead). 20. An older retail building has narrow hallways and window air conditioning units rather than central AC. These would be examples of: A. economic obsolescence B. external obsolescence C. functional obsolescence D. physical deterioration - ANSWER C Explanation: Functional obsolescence includes both undesirable or out-of-date design elements (such as the narrow hallways) and undesirable or out-of-date fixtures or appliances (such as the window units). 21. A tenant has already paid his $1,200 rent for the month for a single-family property. The property's owner sells it to a new buyer, with closing occurring on the 15th of June. The parties decide the seller is entitled to rent for the closing date. On the settlement statement, the prorated rent will appear as a: A. $600 debit for the buyer and a $600 credit for the seller B. $600 debit for the seller and a $600 credit for the buyer C. $1,200 credit for the buyer D. $1,200 credit for the seller - ANSWER B Explanation: The tenant's prepaid rent has already been received by the seller, so the seller needs to give the buyer a share of that rent at closing. The buyer's prorated share will be a debit for the seller and a credit for the buyer on the settlement statement. The seller's share is for the 1st through the 15th (15 days), and the buyer's share is for the 16th through the 30th (also 15 days), so the $1,200 can be divided in half. The settlement statement will show a $600 debit for the seller and a $600 credit for the buyer. 22. A seller lists his house and sells it "as is" to a buyer. Shortly after the sale closes, the buyer finds a large hole in the ground next to the house. The hole, which has caused significant damage to the foundation, was almost certainly intentionally concealed with leaves and branches. Which of the following is correct? A. Only the licensee is liable B. Only the seller is liable C. Both the seller and the licensee may be liable D. Neither is liable, because the house was sold "as is" - ANSWER C Explanation: Even when property is sold "as is," sellers and real estate agents have a duty to disclose any known latent defects or other material facts. Here, whoever concealed the hole—whether it was the seller, the licensee, or both of them—would be liable for misrepresentation. If only one of them covered up the hole, the other one could also be liable if he or she was aware of the deception and failed to say anything about it to the buyer. Also, even if the seller knew nothing about the problem, in many states the seller could be vicariously liable if it was the seller's agent who concealed the hole. 23. The owner of property located along a stream or river may have which type of water right? A. Alluvion B. Riparian C. Appropriation D. Littoral - ANSWER B Explanation: Riparian rights are water rights that belong to owners of property that borders a stream or river. (Littoral rights refer to water rights associated with property that borders stationary water, such as a lake.) 24. Five people buy an investment property. They take title so that they each have equal ownership shares, and so that if one of them dies, his share will pass to his heirs. How did they take title? A. Community property B. Joint tenancy C. Tenancy in common D. Term tenancy - ANSWER C Explanation: If co-owners are able to will their property to their heirs (instead of having it pass through right of survivorship), that means they hold title as tenants in common. 25. What would cause a judgment lien to be imposed on a landowner's property? A. Foreclosure B. Lawsuit C. Unpaid construction project D. Unpaid property taxes - ANSWER B Explanation: A judgment lien may attach to the property of someone who loses a lawsuit and is ordered to pay damages. (This person is referred to as the judgment debtor.) If the judgment debtor doesn't pay off the lien, the court can issue a writ of execution ordering the sale of the property. 26. Maria buys a home in a subdivision that is subject to restrictive covenants. The city Maria lives in allows fences, but the subdivision's restrictive covenants don't. Of the following, which is true? A. Restrictive covenants only limit lot size; they don't limit fencing B. The city is a government entity, so its rules take precedence over private restrictions C. The deed's restrictive covenants take precedence over the city because they are more restrictive D. Maria owns the property, so she has a legal right to build a fence regardless of the deed's restricTIONS - ANSWER C Explanation: When zoning ordinances and private restrictions conflict, the more restrictive of the two prevails. 27. Siobhan listed her property with ABC Realty. She asks her agent, Robert, to draft deed covenants that will prevent a buyer from subdividing the land in the future. She'd also like the agent to create a trust from the sale, to benefit her disabled sister. Robert's reply should be: A. I can draft the trust, but an attorney will need to draft the covenants B. I can draft both of these documents C. I can draft the covenants, but an attorney will need to draft the trust D. I can't help you with either of these things; you'll need to contact an attorney - ANSWER D Explanation: A real estate licensee is limited to filling in the blanks on a printed form drafted by attorneys. Going beyond that, by drafting covenants or trust documents, for example, would be considered the unauthorized practice of law. 28. Mortgage interest rates are primarily influenced by the: A. assessed value of the property B. condition of the money market C. credit history of the borrower D. value of similar mortgaged properties in the area - ANSWER B Explanation: Mortgage interest rates are primarily influenced by the supply of and demand for funds in the money market. This is determined by many factors, including actions taken by the Federal Reserve. 29. The requirements of the Truth in Lending Act would apply to a: A. construction loan used by a builder to build a model home B. loan for the purchase of a mobile home and lot for use as a principal residence C. loan to purchase space in a mini-mall D. loan to renovate a gas station - ANSWER B Explanation: The Truth in Lending Act applies to consumer loans (for family, personal, or household purposes), including the purchase of mobile homes and the land they're on. It does not apply to commercial loans, such as a construction loan for a developer. 30. For income tax purposes, a homeowner can deduct: A. property taxes B. principal payments on a mortgage C. capital expenditures D. the adjusted basis - ANSWER A Explanation: A real property owner can deduct the property taxes she pays. 31. An Asian-American buyer asks to be shown homes that are located in neighborhoods that he knows are primarily Asian. If a real estate agent complies with his wishes, this is: A. illegal, as it is blockbusting B. illegal, as it is steering C. legal, as it is done at the buyer's request D. legal, as the Fair Housing Act has an exception for single-family homes - ANSWER C Explanation: It is legal for an agent to show a buyer homes in the neighborhoods that the buyer has chosen, even if the buyer chose the neighborhoods based on race. Nothing in the Fair Housing Act requires an agent to show buyers houses against their will. 32. A tenant farmer has occupied a farm on which she has grown crops for several years. The landowner sells the farm to someone else who immediately gives the tenant notice to vacate. The timing of the notice will mean the crops currently in the ground will not be ready for harvest before the end of her lease. Who do the crops belong to? Your Answer: A (CORRECT) A. The tenant B. The former owner C. The new owner D. The tenant and the new owner - ANSWER 33. Mark and Kim's two-year lease on their apartment expires. Unhappy that the couple doesn't plan to renew the lease, the property manager charges them one month's rent for failure to give notice. If the lease is silent regarding this issue, in this case: A. no notice is required and no additional fee must be paid B. Mark and Kim owe one month's additional rent C. Mark and Kim owe one month's additional rent plus a nonrenewal fee D. Mark and Kim will lose the full amount of their security deposit - ANSWER A Explanation: The tenants had an estate for years: a lease for a specific period of time. Unless the parties renew the lease, or unless the lease itself provides otherwise, an estate for years simply terminates at the end of the agreed period. No notice is necessary, and the tenants can't be charged a penalty for failing to give notice. 34. A seller finds that he cannot provide marketable title because of a cloud on the title. To clear the title, he must file a/an: A. adverse possession claim B. quiet title action C. quitclaim deed D. partition suit - ANSWER B Explanation: A quiet title action is a lawsuit that is used to remove a cloud on the title to property, by settling questions about the property's ownership or the legitimacy of other claims against it. A quitclaim deed will also clear a cloud, but it requires the cooperation of whoever would need to sign the deed. Thus, a quiet title action is a more complete answer for this question. [Show More]

Last updated: 1 year ago

Preview 1 out of 122 pages