exam prep

Question 1

Which of the following professionals involved in the real estate business are most concerned about managing real estate for clients?

Answer 1

Property managers

Question 2

Real estate can be defined as

Answer 2

land and everything permanently attached to it.

Question 3

Which of the following is included in the bundle of rights inherent in ownership?

Answer 3

To possess

Question 4

The overriding test of whether an item is a fixture or personal property is

Answer 4

how it is described in a sale or lease contract

Question 5

An owner of a lakefront property tells a fisherman that he cannot fish in a boat within fifty feet of the owner’s shoreline. The fisherman protests that the owner cannot prevent him. Which of the following is true?

Answer 5

The fisherman is correct because the water and the land underlying it are public property.

Question 6

The distinguishing feature of a defeasible fee simple estate is that

Answer 6

it may revert to a grantor if the prescribed use changes.

Question 7

Dower can best be defined as

Answer 7

a wife’s life estate interest in her husband’s property.

Question 8

A distinct feature of a joint tenancy is that joint tenants

Answer 8

cannot will their interest to a party outside the tenancy.

Question 9

Interests in a condominium differ from those in a cooperative, in that

Answer 9

the coop owner owns stock in the cooperative association, whereas the condominium owner simply owns real estate.

Question 10

There are two adjoining properties. An easement allows property A to use the access road that belongs to property B. In this situation, property B is said to be which of the following in relation to property A?

Answer 10

Servient estate

Question 11

Title records of a property reveal several recorded liens: a one-year old judgment lien; a mechanic’s lien dating from two years ago; a special assessment tax lien recorded last month; and a first mortgage lien recorded five years ago. In case of a foreclosure, which of these liens will be paid first?

Answer 11

Special assessment tax lien

Question 12

A lender may terminate foreclosure proceedings if the defaulting borrower executes

Answer 12

a deed in lieu of foreclosure.

Question 13

A person has occupied a property for seven years, and no one has ever attempted to evict her or co-occupy the parcel. In this case, the person might base a claim of legal ownership on

Answer 13

constructive notice of possession.

Question 14

A person wishes to convey any and all interests in a property to another with full assurances against encumbrances, liens, or any other title defects on the property. This party would most likely use which of the following types of deed?v

Answer 14

A general warranty deed

Question 15

The chain of title to a property refers to which of the following?

Answer 15

A chronology of successive owners of record

Question 16

A leased property is conveyed to a new owner. What happens to the lease?

Answer 16

It remains in effect.

Question 17

The Uniform Residential Landlord and Tenant Act fundamentally attempts to

Answer 17

encourage fairness and simplicity in lease forms and provisions.

Question 18

A primary objective of residential zoning is

Answer 18

promote the value and planned land use of a neighborhood.

Question 19

A shop was originally built in a commercial zone. The zone has since been changed to a residential zone. Zoning authorities permit the use, most likely as

Answer 19

a legal nonconforming use.

Question 20

Authorities conduct comprehensive land use planning in order to

Answer 20

balance public interests with individual property rights.

Question 21

The purpose of a formal legal description of a property is to

Answer 21

locate and identify the property reliably.

Question 22

A parcel is described as the SW 1/4 of the N 1/2 of the E 1/2 of Section 14. What is its acreage?

Answer 22

80 acres

Question 23

A suburb has a growing need for single-family housing, but the land available for new construction is running low. In this case, it is likely that the price of existing homes

Answer 23

will increase.

Question 24

The demand for homes in a market is best expressed in terms of

Answer 24

number of households seeking housing.

Question 25

What is the significance of base employment in a real estate market?

Answer 25

It drives total employment and population growth, which lead to demand for real estate.

Question 26

The concept known as substitution states that

Answer 26

buyers will not pay more for a certain house than they would for another, similar house.

Question 27

The "price that a willing, informed, and unpressured seller and buyer agree upon for a property, assuming a cash price and reasonable exposure of the property to the market" describes which of the following concepts of value?

Answer 27

Market value

Question 28

A warehouse building lacks sufficient ceiling height for the operation of modern forklifts. This is an example of

Answer 28

functional obsolescence.

Question 29

To derive value using the income capitalization approach, one must

Answer 29

divide the capitalization rate into net income.

Question 30

An office building rents for $600,000, has expenses of $400,000, and a cash flow of $100,000. The prevailing gross rent multiplier is 8. Using the GRM, what is the value of the building?

Answer 30

$4,800,000

Question 31

An owner obtains a loan and gives the mortgagee a mortgage on the property as collateral. The mortgagor/owner retains title to the property, and the mortgagee records a lien. This is an example of

Answer 31

hypothecation.

Question 32

An important characteristic of a promissory note is that

Answer 32

it is assignable.

Question 33

Disclosure of estimated closing costs is required of a lender in order to comply with

Answer 33

the Real Estate Settlement and Procedures Act.

Question 34

The secondary mortgage market organizations do all of the following EXCEPT

Answer 34

directly originate loans.

Question 35

Negative amortization of a loan occurs whenever

Answer 35

a payment does not pay the interest owed.

Question 36

A borrower earns $3,000/month and makes credit card and car note payments of $500. A conventional lender requires a 27% income ratio. What monthly amount for housing expenses (principal, interest, taxes, insurance) will the lender allow this person to have in order to qualify for a conventional mortgage loan?

Answer 36

$810

Question 37

A $250,000 interest-only loan carries a 7% rate. Monthly payments are

Answer 37

$1,458.

Question 38

A lender is charging 2.75 points on a $240,000 loan. How much must the borrower pay for points?

Answer 38

$6,600.

Question 39

Which of the following is generally true of a real estate investment?

Answer 39

The greater the return, the greater the risk

Question 40

The capital gain on sale of an investment is computed as

Answer 40

net sales proceeds minus adjusted basis.

Question 41

The formula for return on equity is

Answer 41

cash flow divided by equity.

Question 42

Mary Bright bought a home for $80,000, paying $10,000 down and taking a mortgage loan of $70,000. The following year she had a new roof put on, at a cost of $2,000. What is Mary's adjusted basis in the house if she now sells the house for $100,000?

Answer 42

$82,000

Question 43

An office building has a potential income of $500,000 and vacancy of 10%. Its cash-paid bills total $300,000, and annual depreciation is $5,000. Payments on the loan total $100,000. What is the property's pre-tax cash flow?

Answer 43

$50,000

Question 44

A property is purchased for $200,000. Improvements account for 75% of the value. Given a 39-year depreciation term, what is the annual depreciation expense?

Answer 44

$3,846

Question 45

An income property is bought for $500,000. Gross income is $100,000, and net operating income is $60,000. Cash flow is $10,000. What is the return on investment (ROI)?

Answer 45

12%

Question 46

Which of the following is the formula for deriving the tax base of a jurisdiction?

Answer 46

The total of all assessed values minus exemptions

Question 47

The purpose of a homestead tax exemption is

Answer 47

to offer tax abatement on a principal residence.

Question 48

A homeowner's tax bill for a taxing district is derived by

Answer 48

multiplying the tax rate times the taxable value of the property.

Question 49

The village of Parrish has an annual budget requirement of $20,000,000 to be funded by property taxes. Assessed valuations are $400,000,000, and exemptions total $25,000,000. What must the tax rate be to finance the budget?

Answer 49

5.33%

Question 50

A canal dredging project is to cost $100,000. There are 40 properties along the canal, and 40 others across the street from the canal. The total canal footage to be dredged is 2,500 feet. How much will the assessment be for a 150-foot property on the canal?

Answer 50

$6,000

Question 51

A prospective homebuyer offers to buy a house if the seller agrees to pay financing points at closing. The seller gets the offer, signs it, and gives it to his agent to deliver. At this point the status of the offer is

Answer 51

still an offer.

Question 52

One aim of the statute of frauds is to

Answer 52

require certain conveyances to be in writing.

Question 53

A buyer agrees to all terms of a seller's offer and sends notice of acceptance back to the seller. The seller now tells the buyer the deal is off because he has learned that the home was underpriced. Which of the following is true?

Answer 53

The buyer has a binding contract.

Question 54

A principal discloses to the listing agent that she must sell a property within two months to avoid a financial problem. Nearly seven weeks later, a buyer's agent hears of the seller's difficulty from the listing agent and advises his buyer to submit an offer for 80% of the listed price. The buyer complies, and the seller accepts the offer. Which of the following is true?

Answer 54

The listing agent has violated fiduciary duties owed the client.

Question 55

An owner's agent is showing a buyer an apartment building. The buyer questions the agent as to whether some cracking paint contains lead. The agent's best course of action is to

Answer 55

inform the seller of the inquiry and test the paint.

Question 56

Agent Jerry, who works for Broker Lucy, obtains an owner listing to lease a building. Lucy's other agent, Linda, a tenant representative, locates a tenant for Lucy's listing. If there is no arrangement to the contrary, Broker Lucy in this instance is

Answer 56

a dual agent.

Question 57

A transaction broker should disclose his or her agency relationship to the transaction principals

Answer 57

upon first substantive contact.

Question 58

An agent obtains a listing which ensures compensation for procuring a customer, provided the agent is the procuring cause. This agent has entered into a(n)

Answer 58

exclusive right-to sell agreement.

Question 59

A landlord promises to compensate a broker for procuring a tenant, provided the landlord's brother decides not to rent the property within a month. This would be an example of a(n)

Answer 59

exclusive right-to-lease agreement.

Question 60

The amount of a real estate brokerage commission is determined by

Answer 60

agreement among competing brokers.

Question 61

Real estate sales agents are legally authorized to

Answer 61

represent buyers on their broker's behalf.

Question 62

In eliciting an offer from a buyer, an owner's agent must be careful to

Answer 62

complete any offer the buyer might decide to make.

Question 63

An example of conversion is

Answer 63

spending a customer deposit on a surety bond for the agency.

Question 64

Three leading agencies charge identical commission rates for brokering office properties in Phoenix. Which of the following is true?

Answer 64

This is a perfectly legitimate business practice.

Question 65

A business owner insists on a price for his enterprise that exceeds the value of the tangible assets, claiming that it is a well-known family business with a loyal clientele. The excess value is known as

Answer 65

the buyer’s premium.

Question 66

An agent informs owners in an area that a decline in property values over the past five years is due to an influx of minority families. He suggests that the trend will continue, and advises them to sell before it is too late. This agent is probably guilty of

Answer 66

blockbusting

Question 67

An agent spends two hours with a minority buyer, then shows the buyer five available properties all over town. Later, a similarly qualified minority couple enter the office. The agent spends twenty minutes with the couple, gives them the MLS book to review, and encourages them to drive by the listings on their way home. If they like anything, they should come back the next day to discuss terms. This agent could be liable for

Answer 67

providing unequal services.

Question 68

An owner suddenly pulls a property off the market after hearing from the agent that a minority party has made a full-price offer. The agent then goes back to the minority party and reports that the seller has decided to wait until next year to sell the home. Who, if anyone, has violated fair housing laws?

Answer 68

Both owner and agent.

Question 69

An owner completes a contract to sell her property. Before closing, she runs into financial trouble and assigns the contract to her mortgagor. Which of the following is true?

Answer 69

The sale contract remains valid.

Question 70

Buyers and sellers rely on escrow accounts in order to

Answer 70

allow a third party fiduciary to handle the funds.

Question 71

An option-to-purchase expires. The landlord agrees to extend it in exchange for a higher price. The optionee claims he can exercise the option within the redemption period. Which is true?

Answer 71

The landlord is under no obligation, since options do not have a redemption period.

Question 72

RESPA requires specific closing procedures whenever

Answer 72

the loan is to be sold to the FNMA.

Question 73

When an item is prorated between buyer and seller on a settlement statement, the closing officer must

Answer 73

debit one party and credit the other.

Question 74

Which of the following items are paid in arrears?

Answer 74

Taxes and interest

Question 75

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 seller's, and that the 365-day method is used for prorating, which of the following entries would appear on the settlement statement?

Answer 75

Credit buyer $368.00

Question 76

The most common form of risk transference in brokerage firms is

Answer 76

errors & omissions insurance.

Question 77

Which of the following is a major risk in the fulfilling of listing agreements?

Answer 77

Exceeding the limits of the authority granted by the agreement

Question 78

In the contracting process, a licensee must be careful to avoid

Answer 78

drafting a contract illegally.

Question 79

If a licensee is found guilty of obtaining a real estate license under false pretenses, the most likely penalty will be

Answer 79

license revocation.

Question 80

A broker responsible for handling a trust account is violating the law by

Answer 80

depositing an earnest money check in a personal account.

Question 81

In order to set rents and to estimate the expected return on a managed property, a property manager needs to prepare a(n)

Answer 81

operating budget.

Question 82

Why is it important for a property manager to maintain good relations with tenants?

Answer 82

None of the above.

Question 83

While physical maintenance of the property is a primary function of the property manager, the level of maintenance performed must be balanced with

Answer 83

owner objectives and tenant demands.

Question 84

What kind of insurance would provide coverage for loss of income when a rental property is damaged so badly that it cannot be used?

Answer 84

Consequential loss

Question 85

Property managers are usually considered to be

Answer 85

dual agents serving both the landlord and the tenants.

Question 86

Licensees may not engage in the unauthorized practice of law, including preparation of certain documents. Which of the following documents may be prepared by a licensee?

Answer 86

Listing and sales contracts, and buyer representation forms

Question 87

Which of the following statements is true regarding the Tennessee Real Estate Commission?

Question 88

An affiliate broker may be paid by

Question 89

Which of the following statements is FALSE regarding licensing requirements?

Question 90

Escrow account records must be maintained

Question 91

Which of the following statements is accurate regarding records that must be retained by the broker?

Question 92

Which of the following statements is FALSE regarding offers and counteroffers?

Question 93

Which of the following statements is TRUE of implied agency in Tennessee?

Question 94

What is true regarding the written disclosure of agency?

Question 95

Which of the following statements is TRUE regarding environmental issues?

Question 96

Tennessee law mandates that, if possible, at least one member of the Tennessee Real Estate commission should be

Answer 96

a resident of the southern grand division.

Question 97

When applying for a license for a branch office, a licensee must provide written proof that

Question 98

Who is ultimately responsible for seeing that a licensee meets all requirements for license maintenance?

Question 99

Of the following, which one CANNOT be used to establish an agency relationship in Tennessee?

Question 100

Which of the following statements about commercial brokerage is TRUE?