Broker Smithson, although believing the seller was demanding too high an asking price, took an exclusive right to sell listing on a home. Several months later, Smith met with the seller and urged her to reduce the listing price, but to no avail. Now, just as the listing is about to expire, Smithson advertises the property at a price below that shown on the listing and immediately receives an offer which the seller accepts. Broker Smithson's actions:
C. Constitute a breach of the agency agreement
Agents may only advertise the agreed-upon price.
What document serves as excrow intructions?
B. Purchase agreement
the document executed between the buyer and the seller includes intructions for the escrow agent to follow.
For a conventional loan, how much of borrower's income can be debt?
The qualifying standard (set by teh secondary market) states that 36% of the borrower's income can go to servicing debt.
An agent is showing a house to a customer. The agent tells the buyer that the seller is desprerate for an offer. Which duty has the agent breached?
An agent must have the client's permission to reveal such a motivation to a customer.
For VA loans, how much of the borrower's income can be debt?
VA loans allow 41% of the borrower's income to be debt.
Which of the following could a real estate agent lawfully complete?
C. Standard real estate purchase contract
A real estate agent amy only "complete" (i.e. fill in the blanks) a pre-printed real estate purchase contract.
When the appraiser looks at the home Sandy has just purchased, he notices it has a fireplace and the comparable homes do not. He makes a $3,000 upward adjustment on his sales comparison approach worksheet. The $3,000 adjustment is based on what appraisal principle?
This is the amount the fireplace "contributes" to the value. It is not necessarily the cost to install the individual item
When a contract is terminated without undoing anything that has been done so far, the action is called:
Cancellation most often occurs when a purchase agreement is terminated.
In title states, what clauseis unique to the mortgage?
In title theory states, there must be language that cancels the mortgagee's right to the title to land on the payment on the debt.
John has an open listing on his home with Company X. Paul has an exclusive right to sell listing with the same company. Their contracts have a 30-day protection period. Both listings expire on March 31. On April 15, Paul and John view each other's properties for the first time, and decide to swap homes. How much commission is Company X due?
No commission is due Company X. Protection periods will only protect an agency in regards to purchasers who have viewed the property during listing period.
What is the limit of the amount of punitive damages that can be awarded based on the Civil Rights Act of 1866?
C. No limit
There is no limit for the amount of punitive damages that can be awarded.
Building codes are primary enforced by:
D. The issuance of permits
Building codes set contruction standards; building plans must comply with the code for a permit to be issued failure to comply with the permit may result in a stop order, fines and/or injunctions. Zoning laws set forth permitted uses. Licenses allow certain activities.
A salesperson is told by his client not to disclose the fact that, during heavy rains, the basement takes on water. The agent:
C. Must disclose the defect to any interested buyers
An agent's duty of obedience only applies to lawful instructions. Latent defects must be disclosed.
While determining the net operating income of an investment property, an appraiser will take into account all of the following except:
A. Property management fees
B. Interest expense
C. Income from vending machines
D. Utility costs
B . Interest expense
Although tax deductible, the amount of interest an owner pays is not used to calculate the net operating income.
When a broker received an unexpected bill, he deposited a client's earnest money check into his personal account to cover the expense. This best describes:
Most states consider this behavior a violation of license law.
What is an appraisal?
B. An opinion of value for the day the appraisal only
Because market conditions can change (as can the property itself) the appraisals is only an opinion of value as of the day of appraisal.
If it is the policy of the broker to prohibit non-management level licensee dual agency, which of the following can not happen?
A. A buyer's agent can also represent the seller in the same transaction.
When the broker does not allow an agent to represent both parties in the same transaction, the only option to the agent is for one side of the transaction to be a customer, or the broker can designate an agent to represent the interests of the separate clients. In that instance, the broker must be a dual agent.
For the income approach to appraisal, value is a reference to what?
A. The worth of the investment
Net income divided by the rate will yield the value, the worth of the investment.
The subject property is next to a sewage treatment plant. What could this situation be causing?
B. Economic obsolescence
Economic obsolescence refers to a situation outside of the subject property that may affect the value of the subject property.
What properties are affected by the Lead Based Paint Hazard Reduction Act?
B. Residential properties built before 1978
The purpose of RESPA is to
D. Regulate settlement and closisg procedures
The purpose of RESPA is to regulate procedures, so that consumers can make informed decisions.
Which of the following describes the equitable remedy, when a contract is breached, that allows a cout to order someone to perform as agreed instead of paying damages?
C. Specific performance
The injunction awarded by the court to force someone to perforn as agreed is specific performance.
A real estate investment business organized as a trust best describes a/an:
Corporations, partnerships, and LLC ownership interest are not required to have a specified number of individuals. The REIT must have at least 100 investors.
The act of the government taking private property for public use is
The act is condemnation, the power is eminent domain
When one party lets the other party know, before the time limit of performance, that they are not going to perform as agreed, the action is called:
A. Anticipatory repudiation
When a party repudiates a contract, the other party can then sue for performance or damages.
"Effective gross income" best describes:
B. Gross income minus a figure for vacancy and collection losses
Effective gross income is generated by a property, plus miscellaneous income, minus a figure for vacancy and collection losses.
A buyer and a seller were separted in negotions by only five hundred dollars. The listing and sales agent agree to reduce the commission by that amount to make the deal. Each agent gives their clients two hundred and fifty dollars after closing. What unethical practice exist here?
C. Undisclosed inducement and dividing commissions with non licensees
This behavior constitutes a violation of licese law.
In which situation is there no fiduciary relationship?
D. Seller and the buyer
The seller and buyer have no fiduciary relationship.
Developer George purchased 5 acres of residential land on the edge of town with frontage on the main highway. When the zoning board and city council refused to rezone the property to accommodate a commercial development, George sued for the value that he would have received had the land been rezoned to a higher classification. This type of legal challege is known as:
A. Inverse condemnation
Inverse condemnation occurs when a property owner sues the government, asking the court to order the government either to pay compensation or loosesn land use restrictions. It may or may not be frivolous to do this. Eminent domain is the power of goverment to take private land for public use. Spot zoning is changing the zoning classification of a specific parcel of land.
In real estate terms, an estate for years also may be called:
D. A leasehold
An estate for years is a lease that begins and ends on a specific date. A fee is the ownership of real property, and joint tenancy is co-ownership of the same property by two or more people at the same time.
The rule that says a buyer will not pay more for a property than a comparable substitute best describes:
D. The rule of substitution
Buyers ultimately determine the value of a property. A buyer not pay more for a property than for a comparable substitute, which is why comparing is the most accurate determining factor of value.
Of the following, which is not an example of a freehold estate?
A. Periodic tenancy
A periodic tenancy is a leasehold estate
Upon arrival, the listing agent dealing with an elderly lady realizes that she would be happy receiving an offer for much less than market value. The agent decides to make a cash offer for the list price that the seller chose. The agent then sells the property for maket value. What duty has the agent breached?
An agent has a duty to disclose the property's true value. The agent's behavior is regarded as self dealing.
Transferring one's right or obligations under a contract to another and being relieved of liability best describes
An assignment does not relieve the withdrawing party of liability. A novation does.
How long does a claimant have to file a complaint based on Title VIII with the HUD Office of Equal Oppurtunity?
A. 1 year
Filing a lawsuit based on the Federal Fair Housing Act must be done within 2 years. A complaint would be filed with the HUD Office of Equal Oppurtunity within 1 year.
"Gross income" best describes:
C. Income before expenses
The total of all income generated from an investment property is its gross income.
What is market price?
D. The price the property actually sold for
Market value is what the property is likely to sell for. Insurance value deals with the cost of replacement.
Which of the following is not true of the Federal Housing Administrator
C. Guarantees mortgage loans
The only entity that guarantees mortgages is the VA; FHA insures loans.
Which of the following does not derive from a city's police power?
B. Developer's restrictive covenants
All are governmental restrictions on land use except C, which is enacted by a private citizen.
A court order instructing an official (i.e. a sheriff) to sell property in order to pay a judgment is called:
B. Writ of execution
Foreclosure is the preceeding which declare a mortgage void and forces the sale of property to satisfy the debt. The court order directing an official to seize and/or sell the property is called the writ of execution.
Two non-management level licensees (both working for the same broker) are representing opposing sides of a transaction. This best describes:
C. Split agency
Split agency occurs when one salesperson represents the buyer and another salesperson from the same firm represents the seller. In this split agency, the broker alone is a dual agent.
What is the body of law that governs negotiable instruments?
D. Uniform of Commercial Code
The UCC sets out certain requirements for negotiable instruments.
Mortgages are recorder in order to:
D. Create a valid lien
While the promissory note creates a debt, the mortgage is given to secure repayment of the debt; it becomes a lien against the property only when it is recorded.
If not given with the application, when must a lender give the required RESPA information to a buyer?
B. Within 3 days
A lender must give the buyer a good-faith estimate of settlement charges within 72 hours of the loan application.
The three most important aspects of a house are:
D. Location, location, location
Where the property is located alone can contribute value to the property regardless of size, style, or function.
A closing conducted by a disinterested third party best describes a/an:
A. Escrow closing
A closing conducted by a disinterested third party is an escrow closing. The roundtable closing involves all of the parties to the transaction signing documents at the same place at the same time.
In the state where bob lives, someone who receives a loan from a lender must transfer his/her property to the bank's holding company while the loan is outstanding. The document used to accomplish this is a/an
D. Deed of trust
A mortgage does not transfer title to a lender; rather, it allows a lien to be posted against the property by a lender. With deed of trust, the homeowner actually transfers his property "interest" to a third party trustee, who holds title to the property while the loan is outstanding.
A buyer buys interest in a condominium in Mexico; she has one week's use of the property each year. Such an ownership is best describe as
C. Time share
This person receives the right to use the property for one week only, she is thus "sharing time" of possession with 51 other owners.
The "subject property" best describes:
C. The property for which the value is sought
The appraiser does not consider properties on the market. The subject is the property for which an opinion of value is sought, also called the base.
Which of the following could a real estate agent lawfully prepare?
D. An independent contractor's agreement with a broker
The real estate agent could prepare the independent contractor's agreement, as he is a party to that agreement with the broker. The other contracts involve drafting agreements for third parties, an action that requires a license to practice law.
All of the following are examples of real property except:
Drapes are usually not considered real property. In some instances (i.e. drapes custom made to fit an unusual window), they can be considered real property
The agreement whereby a broker is entitled to be paid a commission by a buyer is a/an:
D. Buyer broker contract
What type of legal description is based on baseline and principal meridian?
D. Rectangular survey system
The rectangular survey system divides an area into townships and ranges.
When a landlord raises the rent after a tenant complaints about code violations, what has occured?
Raising the rent or filing for an eviction after a tenant has complained could be grounds for an unlawful eviction lawsuit.
The subject property has five bedrooms but only one bathroom. What could this situation be causing?
C. Functional obsolescence
When something inherent in the subject property causes the lose of value, the property suffers from functional obsolescence
Which of the following is not party of the secondary market?
C. Federal Universal Mortgage Association
The Federal Universal Mortgage Association is not a real association
What law is being violated when agents from different firms discuss and agree upon commission rates?
B. Sherman Antitrust Act
Discussing commission rates with other licensees is regarded as price fixing under the Sherman Antitrust Law.
After listing a property that the agent believes is overpriced, the agent returns to the office and vents his frustration to a fellow licensee at the brokerage. Which duty has the agent breached?
If an agent decides to take the listing at the price indicated by the seller, the agent must be loyal to the seller and not imply that the list price is unreasonable.
A residential tenant with a month-to-month lease enjoys which leasehold estate?
D. Periodic tenancy
Periodic tenancy is a lease that automatically renews itself from period to period
As an agent is showing a house to a customer, the agent notices a large vertical crack in the basement wall. What is the agent's duty?
The crack on the wall is obvious and falls into the category of patent defects. The agent has no duty to disclose patent defects.
A brief summary of a property's history, listing all recorded documents that may affect the title is a/an:
B. Abstract of title
An abstract of title is evidence of marketable title. It is prepared by an atorney acting as a neutral party in the closing.
According to the Lead Based Paint Hazard Reduction Act, what can happen to a licensee if he or she fails to give a buyer the lead-based paint pamphlet and disclosures?
D. All of the above
The EPA has the power to apply all of these santions.
The mortgagor is:
A. The borrower
The borrower is giving the mortgage to the lender; thus, the borrower is the mortgagor.
The leasehold estate that can be terminated by either party and can not be assigned is:
A. Tenancy at will
Tenancy at will can not be assigned; it is based on the wishes of the parties.
When showing a downtown condominium, a licensee brags, "This unit propbably has the best view of Lake Michigan in the whole city!" Would this statement have legal consequences?
B. No-this is "puffing" and is the agent's opinion.
Bragging about a property is allowable, but an agent must use care. Saying "the basement never leaks," for example, might be a cause for legal action if the basement does leak.
What expenses would not be found on a good faith estimate?
D. Moving costs
The good faith estimate provides the buyer with the costs they will incur to take title to the land.
The rule that says a buyer is expected to reasonably inspect the property, instead of relying on what he or she was told. This best desribes:
C. The doctrine of caveat emptor
Caveat Emptor literally translates as, "let the buyer beware"
Executor Fred calls agent Tom to list a vacant tract of land, instructing him to list the land for $700,000. Several weeks later, agent Tom becomes aware of a developer who would pay as much as $1,000,000 for the property. Tom thereupon submits a full-price offer to the owner and purchases the property. Tom then resells the property to the developer and pockets a $300,000 profit. Which one of the following statements is correct?
A. Tom violated the law by not providing notice of information that would affect Fred.
Tom had a duty to inform Fred of the information, regardless of the listing price.
What is it called when personal property is transformed into real property?
D. Actual annexation
Constructive annexation occurs when property is so closely related to real property that the law treats it as a real property, even though it is not physically attached. The fixture is the item that was transformed.
Which of the following is an involuntary specific lien?
B. Mechanic's lien
The IRS is a general involuntary lien against all items owned by an individual (including, but not limited to , real estate). The mechanic's lien is an involuntary specific lien against property worked on by a contractor. The mortgage is a voluntary specific lien which is given freely by the landowner to the buyer. The easement is not a lien, although it is an encumbrance on the property.
What document is evidence of the relationship between property owner and property manager?
C. Property management agreement
A listing agreement is between seller and broker. A buyer broker contract is between buyer and broker. A lease is between landlord and tenant.
What law requires lenders to limit the amount of funds that can be held in reserves?
Although lenders are touched and concerned with A, B, And D, RESPA sets limits concerning reserves.
Which approach to value would be most appropriate when appraising a vacant factory?
A. Cost approach
Unusual structures, where comparable properties are not readily available, are best appraised using the cost approach to value.
What refers to the interest in real property created by the execution of a valid sales contract?
B. Equitable title
A buyer's interest (at the time the offer is accepted) is only a future interest until the transaction comes to fruition.
"Plants and trees cultivated for harvest" best describes:
D. Fructus industrales
Fructus industrales would be crops, forests or other plants intended to benefit farmers of such plants. Tenant farmers' crops, grown for the benefit of thelandowner, would be trade fixture.
When rented property is sold by the owner, the outstanding leases:
B. Remain binding upon the new owner
A lease goes with the land. A new owner would be subject to any existing leases.
What pledges property as security for a loan?
D. Hypothencation clause
The hypothencation clause in a mortgage literaly states that the real property is being pledged as security for repayment of a promissory note/loan. The habendum clause literally transfers real estate in a deed, not a mortgage; it is often referred to as the "to have and to hold" clause. The defeasence clause in a mortgage says that once the promissory note is paid, the mortgage is void. There is no such clause as the collateral clause.
The Real Estate Settlement Procedures Act was enacted to
A. To protect consumers from abusive lending practices.
RESPA ensures that consumers are provided with important, accurate, and timely information about the actual costs of selling or closing a transaction, not about the cost of obtaining a loan and interest. The cost of obtaining loans and interest are provided under Regulation Z of the Truth-in-Lending Act.
What type of land use doesn't comply with the zoning restriction for where it is located, but is permitted because it benefits the public?
C. Conditional use
Conditional use (hospitals, schools etc) usually do not comply with zoning limitations.
In what type of installment agreement does the buyer make payments for the right to possession, but does not receive the title until most or all of the terms have been met?
B. Land contract
In a land contract, the seller retains title until the contract has been satisfied.
Transferring one's rights or obligations under a contract to another with secondary liablility is called:
Novation relieves the withdrawing party of liability. Assignment does not.
When must a buyer be allowed to inspect the HUD-1 settlement?
D. One business day before closing
The buyer has a right to inspect the HUD-1 settlement statement one day prior to closing. If discrepancies are discovered, the transaction cannot close until they are corrected.
A broker, acting as a property manager, may refuse to rent to individuals because:
D. They are poor credit risks
Not renting to someone because of religion, gender, or race is a violation of the Federal Fair Housing Act.
The leasehold estate that has a specified termination date best describes a/an:
C. Estate for years
An estate for years has a specified termination date. If landlord and tenant agree to continue the tenancy affter termination, it converts to tenancy at will.
Mom & Dad's Cafe is located in an area that has recetly been rezoned "residential." Will they be allowed to continue operating as a restaurant?
B. Yes, because the restaurant will be " grandfathered" into the area
Most rezonings will allow for existing properties that do not conform to the new zoning to be "grandfather" in and continue to operate. The "grandfather" clause could be lost in the future for a variety of reasons.
The law that requires buyers and sellers be given an itemization of all costs and expenses of the buying and selling of a home is:
The Real Estate Settlement Procedures Act requires that a thorough listing of the debits and credits due a buyer and seller be issued at the time of closing. Truth-in-Lending applied only to the borrower; it provides the borrower a disclores of the costs of getting a loan.
Fee simple absolute estates are all of the following except:
If a condition exists in the deed, the estate is fee simple conditional. Fee simple absolute implies there are no conditions in the deed.
A closing with all parties presetn is a/an:
B. Roundtable closing
In many states, all parties to the transaction sign documents and transfer title at the same place and time; this is referred to as a roundtable closing.
When an agent represents both parties in the same transaction, it is called:
A. Disclosed dual agency
Split agency refers to an in-company transaction. Exclusive agency implies the broker represents only one side. Dual agency can only occur when both parties consent to it.
Roberta wishes to build her garage 2 feet from her side lot line. City codes calls for all sides setbacks to be at least 5 feet. She will need to get what to be able to legally proceed and be assured that future owners will not have a problem?
C. A variance
A variance will provide permanent permission to deviate from setback rules.
The listing agent discriminates against a minority group buyer. If the seller were to be held responsible for the actions of the agent, it would be an example of:
B. Vicarious liability
Vicarious liability occurs when a client is held liable for the actions of his/her agent.
How often must a property manager report to the owner?
Unless otherwise specified in the property management agreement, the amanger must report to the owner on a quarterly basis.
An unlicensed property manager can do all of the following except:
C. Negotiate lease terms
Most states require anyone who lists, sells, leases, exchanges or otherwise negotiates in real estate of others must be licensed
When can a property manager use a self-help eviction?
C. Only in non-residential tenancies
A landlord may only use a utility shut-off or lockout against a non-residental tenancy
The act of the government taking private property for public use is
The act is condemnation, the power is eminent domain.
Which of the following would terminate a listing agreement?
B. Death of the principal
The death of one of the parties would terminate the agreement.
A lead-based paint disclosure form is required for all residential dwellings built before January 1, 1978. When applicable, who must sign the form?
B. Buyer, seller and both agents
All parties must sign the disclosre form. Both agents are equally liable for compliance.
Eric and Sue purchase a new home and lot which is accessible only through a 12-foot-wide easement across Mr. Wilson's property. In this situation, the land owned by Eric and Sue is referred to as the:
C. Dominant tenement
The land benefited by an appurtenant easement is called the dominant tenement. The land burdened by the appurtenant easement is called the servient tenement. The appurtenancy is the right that the appurtenant easement provides the dominant tenement. The beneficiary is the owner of the dominant tenement.
A property management account:
C. Can earn interest
A property management trust account can earn interest that gets paid to the property owner.
A real estate owner who lease the property is called
C. The lessor
The lessor and lessee are the parties to the lease. The lessor (the owner) is the giver of the leasehold estate, and the lessee (the tenant) is the receiving party in the lease.