Property Management SAE

Question 1

Who can legally use the REALTOR® designation?
A) Any licensed Texas broker
B) Only members of the National Association of REALTORS®
C) Any state-licensed agent
D) Any TREC license holder

Answer 1

✅ Correct Answer: B) Only members of the National Association of REALTORS®
Explanation: Only NAR members can use “REALTOR®.”

A, C, D: A license alone does not grant the REALTOR® title.

Question 2

. Under TRELA, how long must Texas brokers keep transaction records?
A) 2 years
B) 3 years
C) 4 years
D) 5 years

Answer 2

Correct Answer: C) 4 years
Explanation: TRELA requires records to be kept for 4 years.

A, B: Too short for compliance.

D: 5 years applies to some insurance documents, not trec

Question 3

What is the primary purpose of the Texas Real Estate License Act (TRELA)?
A) To train new agents
B) To protect the public from dishonest real estate practitioners
C) To regulate property tax rates
D) To manage apartment leases

Answer 3

Correct Answer: B) To protect the public from dishonest real estate practitioners
Explanation: TRELA’s main purpose is consumer protection.

A: Training is secondary.

C, D: TRELA doesn’t regulate taxes

Question 4

What is one key question under the Deceptive Trade Practices Act (DTPA)?
A) Did the buyer overpay for the property?
B) Did the defendant know or should they have known about the misrepresentation?
C) Was the buyer represented by a broker?
D) Did the tenant sign a waiver?

Answer 4

Correct Answer: B) Did the defendant know or should they have known about the misrepresentation?
Explanation: DTPA looks at whether the misrepresentation was intentional or should have been known.

A, C: Not DTPA criteria.

D: Waivers aren’t valid defenses

Question 5

Which of the following is NOT a valid defense under DTPA?
A) Using a licensed inspector
B) Relying solely on an “as-is” clause
C) Providing a written seller’s disclosure
D) Using government-provided information

Answer 5

Correct Answer: B) Relying solely on an “as-is” clause
Explanation: Waivers and “as-is” clauses do not protect under DTPA.

A, C, D: These show due diligence and are valid defenses.

Question 6

What damages can consumers receive under the DTPA for intentional deception?
A) Refund only
B) Actual and punitive damages
C) Deposit refund only
D) Reduced property taxes

Answer 6

✅ Correct Answer: B) Actual and punitive damages
Explanation: DTPA allows punitive damages when deception is intentional.

A, C, D: Too limited or unrelated.

Question 7

Which form must Texas brokerages provide to explain agency relationships?
A) TREC Complaint Form
B) Information About Brokerage Services (IABS) form
C) Seller’s Disclosure Form
D) Fair Housing Declaration

Question 8

Under Canon 2, Integrity, what is strictly prohibited for Texas license holders?
A) Misrepresentation
B) Setting rents
C) Using “as-is” clauses
D) Signing leases on behalf of owners

Answer 8

Correct Answer: A) Misrepresentation
Explanation:

Correct: Integrity requires honesty and prohibits misrepresentation.

B, D: These may be allowed if authorized under PMA.

C: Not specifically part of Canon 2.

Question 9

According to TRELA, who enforces disciplinary actions against license holders?
A) The National Association of REALTORS®
B) The Texas Real Estate Commission (TREC)
C) The Texas Legislature
D) Local REALTOR® Boards

Answer 9

Correct Answer: B) The Texas Real Estate Commission (TREC)
Explanation:

Correct: TREC licenses, disciplines, and enforces TRELA.

A, C, D: NAR and local boards cannot enforce TRELA.

Question 10

What type of damages may be awarded under DTPA if the misrepresentation was committed “knowingly”?
A) Refund of application fees only
B) Punitive and actual damages
C) Only actual damages
D) Mediation fees

Answer 10

Correct Answer: B) Punitive and actual damages
Explanation:

Correct: DTPA awards both if actions were intentional or knowing.

C: Only applies to non-knowing violations.

Question 11

What is a broker required to do with trust account records under TREC rules?
A) Keep them for 2 years
B) Keep them for 4 years
C) Submit them monthly to TREC
D) Keep them for 5 years

Answer 11

Correct Answer: B) Keep them for 4 years
Explanation:

Correct: TREC Rule 535.146(c)(6) requires 4 years.

A, D: Wrong timeframes.

C: They don’t need to be submitted monthly unless requested.

Question 12

Under Canon 1, what is the key principle of Fidelity?
A) Acting with skill and knowledge
B) Placing the client’s interests above all others
C) Prohibiting discrimination
D) Providing financial reports to TREC

Answer 12

Correct Answer: B) Placing the client’s interests above all others
Explanation:

Correct: Fidelity = client’s best interests first.

A: Competency, not Fidelity.

C: Discrimination prohibition = Canon 5.

D: Not a Canon requirement.

Question 13

What is the primary purpose of the Equal Credit Opportunity Act (ECOA)?
A) To ensure accurate consumer credit reports
B) To prevent discrimination in lending decisions
C) To protect tenants from eviction during military service
D) To establish a public registry of sex offenders

Answer 13

Answer: B
Why Correct: ECOA prohibits discrimination in credit approvals.
Why Others Wrong:

A: FCRA deals with credit report accuracy.

C: SCRA protects servicemembers.

D: Megan’s Law requires a sex offender registry.

Question 14

Under the Servicemembers Civil Relief Act (SCRA), what right does an active-duty service member have regarding residential leases?
A) To demand rent reductions during deployment
B) To terminate a lease without penalty due to relocation orders
C) To sublease the property without owner consent
D) To delay paying rent until after deployment

Answer 14

Answer: B
Why Correct: SCRA allows lease termination without penalty when relocating.

Question 15

Which law gives consumers the right to dispute inaccuracies in their credit reports?
A) Fair Credit Reporting Act (FCRA)
B) Equal Credit Opportunity Act (ECOA)
C) Deceptive Trade Practices Act (DTPA)
D) Fair Housing Act

Answer 15

A , Why Correct: FCRA ensures credit report accuracy and dispute rights.
Why Others Wrong:

Question 16

What does the Uniform Electronic Transactions Act (UETA) ensure regarding real estate contracts?
A) Electronic signatures are legally equivalent to handwritten ones
B) Sellers must provide printed copies of all contracts
C) Digital signatures replace the need for notarization
D) Banks are required to accept electronic signatures

Answer 16

Answer: A
Why Correct: UETA gives electronic records/signatures equal legal status.
Why Others Wrong:

B, C, D: UETA doesn’t mandate printed copies, remove notarization, or require banks to accept e-signatures.

Question 17

What is the key requirement under Megan’s Law for property managers?
A) To screen all tenants for past criminal activity
B) To provide tenants with local sex offender registry information
C) To refuse rental to registered sex offenders
D) To conduct background checks for all applicants

Answer 17

Answer: B
Why Correct: Megan’s Law ensures community notification about sex offenders.
Why Others Wrong:

A, C, D: While managers may screen tenants, they are not required to deny rentals based solely on registry status.

Question 18

What does Antitrust law primarily aim to prevent in real estate?
A) Discrimination based on protected classes
B) The use of electronic signatures in transactions
C) Unreasonable restraints on trade such as price fixing
D) Misleading advertising practices

Answer 18

Correct Answer: C
Explanation:
✔ C is correct – Antitrust law prohibits price fixing, tie-ins, and market allocation to maintain competition.
✘ A – Discrimination is under the Fair Housing Act, not Antitrust.
✘ B – Electronic signatures fall under UETA/E-Sign Act.
✘ D – Misleading ads are regulated by TREC and FTC, not Antitrust.

Question 19

Which of the following is considered a blind advertisement under Texas law?
A) A lease listing with the broker’s name and license number
B) A classified ad including the broker’s phone number only
C) An ad that omits the broker’s name or business name entirely
D) A marketing flyer with a team name but no logo

Answer 19

Correct Answer: C
Explanation:
✔ C is correct – A blind ad is one with no broker name or business name.
✘ A – Properly includes broker details.
✘ B – Phone number alone may violate TREC, but it’s not always “blind” if tied to a broker.
✘ D – Team names require broker info but aren’t automatically blind.

Question 20

What does the Implied Warranty of Habitability guarantee to tenants?
A) Freedom from discrimination
B) Compliance with building codes and safe occupancy
C) Lease termination rights for military deployment
D) Protection from foreclosure

Answer 20

Correct Answer: B
Explanation:
✔ B is correct – The warranty ensures safe, habitable conditions and building code compliance.
✘ A – Discrimination is covered by the Fair Housing Act.
✘ C – Military lease terminations fall under SCRA.
✘ D – Foreclosure protections are unrelated.

Question 21

What practice is prohibited under Antitrust law in real estate?
A) Price fixing and market allocation
B) Steering tenants away from certain neighborhoods
C) Blind advertising
D) Misstating lead-based paint hazards

Answer 21

Correct Answer: A
Explanation:
✔ A is correct – Antitrust bans price fixing, bid-rigging, and market allocation.
✘ B – Steering is a Fair Housing violation.
✘ C – Blind advertising violates TREC rules, not Antitrust.
✘ D – Lead hazard misstatements fall under lead-paint laws and DTPA.

Question 22

What is required if a sole proprietor operates under a name different from their own, such as “Best Choice Management”?
A) Obtain a corporate charter
B) File a Fictitious Business Name Statement with the county clerk
C) Register with the Texas Real Estate Commission
D) Apply for an LLC license

Answer 22

✅ Correct Answer: B
Explanation:
✔ B is correct – A fictitious name must be registered with the county clerk.
✘ A – A corporate charter is for corporations, not sole proprietorships.
✘ C – TREC licensing applies to real estate activities, not business name registration.
✘ D – LLCs are separate legal entities

Question 23

Which of the following best describes a joint venture?
A) A permanent partnership between two or more parties
B) A business project for a limited time or single project
C) A corporation formed by two partners
D) A hybrid business structure with limited liability

Answer 23

Correct Answer: B
Explanation:
✔ B is correct – A joint venture is temporary and for a single project.
✘ A – Permanent partnerships are general partnerships.
✘ C – Corporations are separate legal entities.
✘ D – Limited liability hybrid refers to an LLC.

Question 24

What is required for a partner in a general partnership regarding liability?
A) They share equal liability unless otherwise stated in writing
B) They only risk their initial investment
C) Liability depends on the amount of profit earned
D) They have no personal liability for partnership debts

Answer 24

Correct Answer: A
Explanation:
✔ A is correct – General partners share liability equally unless a written agreement states otherwise.
✘ B – Limited partners risk only their investment, not general partners.
✘ C – Liability is not based on profits.
✘ D – General partners have personal liability.

Question 25

Who is responsible for managing and bearing unlimited liability in a limited partnership? A) All limited partners B) The general partner C) The LLC members D) The Board of Directors

Answer 25

Correct Answer: B Explanation: ✔ B is correct – The general partner manages operations and bears unlimited liability. ✘ A – Limited partners have limited liability and do not manage. ✘ C – LLCs are a different structure. ✘ D – Boards manage corporations, not partnerships.

Question 26

What is the minimum percentage of stock typically needed to control a corporation? A) 25% B) 51% C) 66% D) 100%

Answer 26

Correct Answer: B Explanation: ✔ B is correct – Majority control requires at least 51% of stock. ✘ A, C, D – These percentages are either too low or imply full ownership, not necessary for control.

Question 27

What distinguishes an S corporation from a C corporation? A) An S corporation cannot have shareholders B) Profits and losses pass through to shareholders for tax purposes C) S corporations are only for single projects D) S corporations require no state registration

Answer 27

Correct Answer: B Explanation: ✔ B is correct – S corporations pass profits and losses to shareholders, avoiding double taxation.

Question 28

What is a key advantage of forming an LLC for property management? A) Owners avoid paying taxes entirely B) It combines partnership tax benefits with corporate limited liability C) It requires no filing with the state D) Members cannot extend the LLC beyond its initial duration

Answer 28

Correct Answer: B Explanation: ✔ B is correct – LLCs combine pass-through taxation with limited liability. ✘ A – Taxes are paid; they are just pass-through. ✘ C – State filing is required. ✘ D – Members can vote to extend its duration.

Question 29

What is a key advantage of forming an LLC for property management? A) Owners avoid paying taxes entirely B) It combines partnership tax benefits with corporate limited liability C) It requires no filing with the state D) Members cannot extend the LLC beyond its initial duration

Answer 29

Correct Answer: B Explanation: ✔ B is correct – LLCs combine pass-through taxation with limited liability. ✘ A – Taxes are paid; they are just pass-through. ✘ C – State filing is required. ✘ D – Members can vote to extend its duration.

Question 30

What does Errors and Omissions (E&O) insurance generally NOT cover? A) Errors in lease agreements B) Fraud and civil rights violations C) Property management mistakes D) Misfiled property records

Answer 30

Correct Answer: B Explanation: ✔ B is correct – E&O insurance does not cover fraud, own-property transactions, or civil rights violations. ✘ A, C, D – These are covered if they’re unintentional professional mistakes.

Question 31

What must property managers do before signing management contracts regarding insurance? A) Purchase workers’ compensation coverage only B) Ensure all required state insurance policies are active C) Buy full ownership in the managed property D) File insurance details with TREC

Answer 31

Explanation: ✔ B is correct – Required insurance must be in effect before signing contracts. ✘ A – Workers’ comp may be required but not solely. ✘ C – Property managers do not need to own the property. ✘ D – TREC does not require insurance filing.

Question 32

What is the primary federal source for regional economic and demographic data? A) Local chamber of commerce B) Multiple Listing Service (MLS) C) U.S. Census Bureau D) State housing authority

Answer 32

Correct Answer: C Explanation: ✔ C is correct – The U.S. Census Bureau is the main federal source for economic and demographic data, including vacancy and absorption rates. ✘ A & B – Local sources like MLS and chambers of commerce have useful but secondary data. ✘ D – State housing authorities may collect data but are not the primary national source.

Question 33

What is the primary federal source for regional economic and demographic data? A) Local chamber of commerce B) Multiple Listing Service (MLS) C) U.S. Census Bureau D) State housing authority

Answer 33

C

Question 34

Which zoning example best shows that zoning does not always define neighborhood boundaries? A) Mixed-use zoning in downtown areas B) Upscale homes adjacent to rundown homes in the same residential zone C) Agricultural zoning near commercial farms D) Industrial zones next to shipping warehouses

Answer 34

Correct Answer: B Explanation: ✔ B is correct – Economic and demographic factors, not just zoning, can separate neighborhoods. ✘ A, C, D – These examples are typical uses consistent with zoning.

Question 35

What should a manager compare to analyze potential growth and highest and best use? A) HOA regulations and deed restrictions B) Zoning ordinances and property types C) Mortgage rates and insurance costs D) National economic policies

Answer 35

Correct Answer: B Explanation: ✔ B is correct – Zoning and property types reveal growth potential and highest/best use. ✘ A, C, D – These factors influence costs but don’t determine use potential directly.

Question 36

What best describes the payback period in a cost-benefit analysis? A) The total time a lease is active B) The time it takes increased income to equal the cost of a change C) The depreciation period for improvements D) The expected time a tenant stays in a unit

Answer 36

Correct Answer: B Explanation: ✔ B is correct – Payback period measures how long it takes to recover costs from income gains.

Question 37

Increasing rental rates and updating marketing strategies are examples of what type of change? A) Operational change B) Physical change C) Change in use D) Depreciation adjustment

Answer 37

Correct Answer: A Explanation: ✔ A is correct – Operational changes affect management strategies, not physical property features. ✘ B – Physical changes involve repairs or renovations. ✘ C – Change in use involves repurposing the property. ✘ D – Depreciation is a result, not a change type.

Question 38

Which scenario is most likely to involve a change in use? A) Lowering rental rates during a slow market B) Demolishing a building to construct a higher-income property C) Repainting exterior walls for better curb appeal D) Adding online ads to attract tenants

Answer 38

Correct Answer: B Explanation: ✔ B is correct – Changing use includes major shifts, like replacing a building for a better

Question 39

By when must trust money received by a Texas broker be deposited if no other written agreement exists? A) By the end of the same business day B) By the close of business of the second working day after receipt C) Within 5 business days D) Within 7 calendar days

Answer 39

Correct Answer: B – TREC requires deposit by the close of business of the second working day.

Question 40

What is the maximum time a broker may wait to remove earned commissions from a trust account to avoid commingling? A) 10 days B) 20 days C) 30 days D) 60 days

Answer 40

Correct Answer: C – Must remove no later than 30 days.

Question 41

What is the primary purpose of maintaining a journal for a trust account? A) Track only tenant security deposits B) Provide a chronological record of all transactions and running balances C) Record only bank service fees D) Track beneficiary-specific balances

Answer 41

B – Journals show all transactions in time order with running balance. A, C are too narrow; D is for ledgers, not journals.

Question 42

What is the purpose of maintaining a ledger in addition to a journal? A) To record bank interest earned B) To track transactions for individual accounts or beneficiaries C) To record only canceled checks D) To store monthly bank statements

Answer 42

Correct Answer: B – Ledgers track individual beneficiary or property-specific transactions.

Question 43

5. How long must Texas brokers maintain trust account documentation such as journals and ledgers? A) 4 years B) 2 years C) 5 years D) 7 years

Answer 43

A – TREC requires records be kept for 4 years

Question 44

What type of account must trust funds generally be held in if interest-bearing? A) A certificate of deposit (CD) B) A demand account C) A savings account with withdrawal penalties D) A retirement account

Answer 44

B – Demand accounts allow instant access with no penalties

Question 45

What is the primary exception to the prohibition on commingling trust funds? A) Keeping client money longer than 30 days B) Depositing a reasonable amount to cover bank service fees C) Using trust funds to pay brokerage rent D) Combining personal and trust funds for convenience

Answer 45

Correct Answer: B – A reasonable amount for bank fees is allowed, with records.

Question 46

What is a pooled trust account? A) An account that combines personal and trust money B) One trust account holding multiple clients’ funds, tracked individually C) Separate trust accounts for each client D) A temporary holding account for broker commissions

Answer 46

Correct Answer: B – Pooled accounts combine clients’ funds but track them separately in ledgers. A is illegal commingling; C is opposite of pooled; D is not trust account purpose.

Question 47

What is a broker required to do if they cannot determine who is entitled to disputed trust funds? A) Hold the funds indefinitely B) Return the funds to the last person who paid them C) Deposit the funds into the court registry through interpleader D) Give the money to TREC for safekeeping

Answer 47

Correct Answer: C – Interpleading into the court removes liability. A, B, D do not meet TREC requirements.

Question 48

What records are unique to a trust account ledger? A) Total brokerage income B) Property address, beneficiary names, escrow amounts, and disbursement details C) Bank service fees only D) Journal running balance

Answer 48

Correct Answer: B – Ledgers track specific beneficiary or property transactions

Question 49

How soon must trust funds be disbursed after receiving a written agreement altering the original terms? A) Immediately upon receipt B) No later than 30 days after receipt of the new written agreement C) 60 days after confirmation D) Within the same business day

Answer 49

Correct Answer: B – Brokers have 30 days to disburse under a new written agreement.

Question 50

What is NOT generally covered by E&O insurance for property managers? A) Lease negotiation mistakes B) Fraud or civil rights violations C) Clerical errors in rent collection D) Property management service errors

Answer 50

Correct Answer: B – Fraud and civil rights violations are excluded. A, C, D are normally covered.

Question 51

What is required for brokers during a TREC audit of trust accounts? A) Bank statements only B) Complete records for the prior 4 years, including journals and ledgers C) Only recent transactions D) Verbal explanations from agents

Answer 51

Correct Answer: B – Brokers must provide complete 4-year trust account records. A, C, D are insufficient.

Question 52

How soon must a Texas broker deposit trust money after receiving it? A) Within 24 hours B) By the end of the second working day after receipt C) Within 5 calendar days D) By the end of the week

Answer 52

Correct Answer: B – TREC requires deposits by the close of business on the second working day.

Question 53

What must a broker do with trust account documentation in Texas? A) Keep it for 1 year B) Keep it for 4 years C) Keep it for 7 years D) Keep only canceled checks

Answer 53

– TREC requires trust account records be kept for 4 years.

Question 54

What is a rent roll primarily used for? A) Calculating property taxes B) Tracking occupancy, rent amounts, and lease dates C) Recording maintenance requests D) Marketing vacant units

Answer 54

B – Rent rolls track leases, rent payments, and occupancy.

Question 55

What is the first step in creating a property management plan? A) Establishing marketing strategies B) Conducting a physical, financial, and market analysis C) Negotiating with tenants D) Hiring maintenance staff

Answer 55

Correct Answer: B – The plan begins with analyzing property conditions and market data. A, C, D are later steps.

Question 56

What is the difference between a policy and a procedure in property management? A) Policies are optional; procedures are mandatory B) Policies outline strategic guidelines, procedures outline specific steps C) Policies are state laws; procedures are office rules D) Policies cover maintenance only; procedures cover trust accounts only

Answer 56

Correct Answer: B – Policies are broad guidelines, procedures are detailed steps.

Question 57

What is required in a Policies & Procedures (P&P) manual for Texas brokers? A) Only marketing guidelines B) Strategic guidelines, licensee competency, trust fund handling, and record maintenance C) Only fair housing compliance D) Advertising slogans for marketing

Answer 57

Correct Answer: B – P&P manuals must include competency, trust fund rules, and records.

Question 58

What is a management proposal? A) A legal lease agreement B) A preliminary document outlining how a manager will meet owner goals C) A detailed trust account ledger D) A tenant application form

Answer 58

B – A management proposal is the first draft of the property management plan.

Question 59

What is a broker allowed to do to prevent commingling? A) Deposit unlimited personal funds in the trust account B) Deposit a reasonable amount to cover bank service fees C) Move trust money to the business account for safekeeping D) Pay personal bills from the trust account if reimbursed later

Answer 59

Correct Answer: B – Brokers may deposit reasonable funds for bank fees only. A, C, D are prohibited.

Question 60

What is the consequence of trust account mismanagement in Texas? A) Only a verbal warning B) Possible fines, license suspension, or criminal charges C) Automatic permanent license revocation D) No consequence if money is repaid

Answer 60

Correct Answer: B – TREC can impose fines, suspension, or even criminal charges for fraud.

Question 61

What must be included in lease files for compliance? A) Only tenant names and addresses B) Client, owner, and property files, lease agreements, financial records, and maintenance logs C) Only trust account ledgers D) Only signed rent checks

Answer 61

B – Complete lease files include agreements, financials, and maintenance records

Question 62

Which formula correctly calculates Potential Gross Income (PGI)? A) NOI – Operating Expenses B) Number of Units x Rent C) PGI – Vacancy Factor + Miscellaneous Income D) NOI / Cap Rate

Answer 62

Answer: B Explanation: PGI is calculated as the total possible rental income if all units are occupied: Number of Units x Rent.

Question 63

How is Effective Gross Income (EGI) determined? A) PGI – Debt Service B) PGI – Vacancy Factor + Miscellaneous Income C) NOI – Operating Expenses D) Gross Income – Cash Flow

Answer 63

Answer: B Explanation: EGI = PGI – Vacancy Factor + Miscellaneous Income.

Question 64

Which of the following is considered a miscellaneous income source? A) Property taxes B) Coin-operated laundry machines C) Insurance premiums D) Loan refinancing

Answer 64

Answer: B Explanation: Miscellaneous income includes fees like parking, storage, and coin-operated laundry. ❌ A and C are fixed expenses, ❌ D affects cash flow but isn’t income.

Question 65

What is the correct formula for Return on Investment (ROI)? A) PGI / Capital Invested B) NOI / Capital Invested C) NOI – Operating Expenses D) NOI x Cap Rate

Answer 65

✅ Answer: B Explanation: ROI measures return based on NOI: NOI / Capital Invested = ROI. ❌ A is incorrect, ❌ C calculates NOI, ❌ D is for property value.

Question 66

If a property earns $5,000 NOI yearly and the investor invested $50,000, what is the ROI? A) 0.5% B) 1% C) 5% D) 10%

Answer 66

Answer: D Explanation: $5,000 / $50,000 = 0.10 or 10% ROI. The other options are miscalculations.

Question 67

Which formula is used to estimate property value? A) NOI – Debt Service B) NOI / Cap Rate C) PGI – Vacancy Factor + Miscellaneous Income D) NOI x Cap Rate

Answer 67

Answer: B Explanation: Property Value = NOI / Cap Rate. ❌ A is for cash flow, ❌ C is for EGI, ❌ D is wrong; cap rate divides, not multiplies.

Question 68

What is the correct formula for Cash Flow? A) PGI – Vacancy Factor B) NOI – Debt Service C) NOI / Capital Invested D) EGI – Operating Expenses

Answer 68

Answer: B Explanation: Cash Flow = NOI – Debt Servic

Question 69

In the example of the office park's groundskeeping budget, why was no adjustment required later in the year? A) The budget was increased by the owner B) The IRS allowed additional deductions C) Unusually rainy summer reduced water costs D) Tenant contributions covered extra costs

Answer 69

Answer: C Explanation: Rainy weather reduced watering needs, offsetting earlier snow removal costs. A is false; they chose not to increase the budget. B is unrelated, and D is not mentioned.

Question 70

Which report provides a list of all expenditures, including operating expenses and capital expenditures? A) Statement of receipts B) Statement of disbursements C) Rent roll D) Narrative report

Answer 70

Answer: B Explanation: The statement of disbursements (cash disbursements report) lists all expenditures. A lists income, C tracks rent collections, and D explains operations in a narrative.

Question 71

Which report explains numerical information from other reports in letter form to the client? A) Environmental report B) Narrative report of operations C) Summary of operations D) Reserve account report

Answer 71

Answer: B Explanation: The narrative report explains numerical data in writing. A addresses contamination, C summarizes data briefly, and D lists reserve fund transactions.

Question 72

According to the IRS General Depreciation System, what is the statutory recovery period for residential rental property placed in service after 1986? A) 15 years B) 27.5 years C) 30 years D) 39 years

Answer 72

Answer: B Explanation: Residential rental property = 27.5 years. D applies to nonresidential real estate, and A/C are incorrect.

Question 73

When does the depreciation period end for a rental property? A) When the property’s loan is fully paid B) When the property is retired from service, sold, or converted to personal use C) When the property reaches 27.5 years, regardless of use D) When a new tenant signs a lease

Answer 73

Answer: B Explanation: Depreciation ends when the property is sold or retired from service, even if the full cost isn’t recovered. A, C, and D are incorrect.

Question 74

What is the primary purpose of Form W-4? A) To report annual wages to the IRS B) To allow employees to designate dependents and withholding status C) To report compensation to independent contractors D) To verify employment eligibility

Answer 74

Answer: B Explanation: Form W-4 tells employers how much federal income tax to withhold based on dependents and filing status. A refers to W-2, C to 1099 forms, and D to Form I-9.

Question 75

Which form must employing brokers file quarterly to report federal income tax, Social Security, and Medicare taxes? A) Form 1099-MISC B) Form 941 C) Form W-2 D) Form W-4

Answer 75

Answer: B Explanation: Form 941 reports quarterly payroll taxes (income, Social Security, Medicare). A is for miscellaneous income, C is for annual wage reporting, and D is employee withholding elections.

Question 76

When is Form W-2 required to be issued to employees? A) At the beginning of employment B) After the first quarter only C) At the end of the year, for the last quarter D) Monthly with each paycheck

Answer 76

Answer: C Explanation: W-2s are issued annually (after year-end) to summarize wages and taxes. A and D are incorrect, and B refers to 941, not W-2.

Question 77

Which form reports compensation to statutory nonemployees, such as real estate licensees? A) 1099-MISC B) W-4 C) 1099-NEC D) W-2

Answer 77

Answer: C Explanation: 1099-NEC reports payments to statutory nonemployees, including real estate licensees. 1099-MISC covers rent and other miscellaneous payments, W-2 is for employees, and W-4 is for withholding.

Question 78

What is the minimum amount paid to an independent contractor that requires filing a 1099-MISC? A) $400 B) $500 C) $600 D) $1,500

Answer 78

Answer: C Explanation: Payments of $600 or more must be reported on 1099-MISC. $1,500 is related to FUTA requirements, not 1099 reporting.

Question 79

What does Form I-9 verify? A) Tax withholding status B) Identity and employment authorization C) Annual income for unemployment compensation D) Number of dependents for Social Security purposes

Answer 79

Answer: B Explanation: I-9 verifies identity and work authorization. A

Question 81

Which of the following is NOT reported on Form 1099-MISC? A) Rent payments B) Cleaning services C) Compensation to real estate licensees D) Payments to maintenance contractors

Answer 81

Answer: C Explanation: Compensation to licensees goes on 1099-NEC, not 1099-MISC. Rent, cleaning, and maintenance services over $600 are reported on 1099-MISC

Question 82

What triggers FUTA filing for a broker? A) Paying $1,000 in rent annually B) Paying $1,500 or more in wages to workers (non-farm, non-household) C) Paying $600 to a cleaning contractor D) Hiring a statutory nonemployee

Answer 82

Answer: B Explanation: $1,500+ in wages triggers FUTA filing. A and C relate to other reporting, and D does not trigger FUTA.

Question 83

How often must FUTA deposits generally be made? A) Monthly B) Quarterly C) Annually D) Semi-annually

Answer 83

Answer: B Explanation: FUTA taxes are deposited quarterly. Annual filing occurs after year-end but deposits are quarterly.

Question 84

What must employers do when examining documents for Form I-9 compliance? A) Submit copies to the IRS immediately B) Record document details and certify authenticity appears valid C) File the documents with Form W-2 D) Keep the originals in a public employee file

Answer 84

Answer: B Explanation: Employers must review and record document details, certifying they appear genuine. A, C, and D are incorrect and would violate privacy or legal guidelines.

Question 85

Which form reports compensation to statutory nonemployees, such as real estate licensees? A) 1099-MISC B) W-4 C) 1099-NEC D) W-2

Answer 85

Explanation: 1099-NEC reports payments to statutory nonemployees, including real estate licensees. 1099-MISC covers rent and other miscellaneous payments, W-2 is for employees, and W-4 is for withholding.

Question 86

What is the minimum amount paid to an independent contractor that requires filing a 1099-MISC? A) $400 B) $500 C) $600 D) $1,500

Answer 86

C Explanation: Payments of $600 or more must be reported on 1099-MISC. $1,500 is related to FUTA requirements, not 1099 reporting.

Question 87

What does Form I-9 verify? A) Tax withholding status B) Identity and employment authorization C) Annual income for unemployment compensation D) Number of dependents for Social Security purposes

Answer 87

Answer: B Explanation: I-9 verifies identity and work authorization. A is W-4, C relates to FUTA, and D is not I-9 related.

Question 88

Which of the following is NOT reported on Form 1099-MISC? A) Rent payments B) Cleaning services C) Compensation to real estate licensees D) Payments to maintenance contractors

Answer 88

Answer: C Explanation: Compensation to licensees goes on 1099-NEC, not 1099-MISC. Rent, cleaning, and maintenance services over $600 are reported on 1099-MISC.

Question 89

What triggers FUTA filing for a broker? A) Paying $1,000 in rent annually B) Paying $1,500 or more in wages to workers (non-farm, non-household) C) Paying $600 to a cleaning contractor D) Hiring a statutory nonemployee

Answer 89

B

Question 90

How often must FUTA deposits generally be made? A) Monthly B) Quarterly C) Annually D) Semi-annually

Answer 90

Answer: B Explanation: FUTA taxes are deposited quarterly. Annual filing occurs after year-end but deposits are quarterly.

Question 91

How is residential rental property depreciated for tax purposes under IRS rules? A) 25 years B) 27.5 years C) 30 years D) 39 years

Answer 91

Answer: B Explanation: Residential rental property is depreciated over 27.5 years. 39 years applies to nonresidential real estate.

Question 92

What is the formula for calculating Net Operating Income (NOI)? A) Gross Income + Operating Expenses B) Gross Income – Operating Expenses C) Effective Gross Income – Capital Expenditures D) NOI – Debt Service

Answer 92

Answer: B Explanation: NOI = Gross Income – Operating Expenses. Debt service and capital expenditures are not included in NOI.

Question 93

What is the primary focus of a property manager when analyzing financial performance? A) Cash-on-cash return B) Net Operating Income (NOI) C) Capital gains tax D) Depreciation deductions

Answer 93

Answer: B Explanation: A property manager’s main focus is increasing NOI (bottom-line property performance). ROI and tax issues are primarily owner concerns

Question 94

Under Texas rules, how soon must brokers deposit trust money after receiving it? A) Immediately, same day B) By close of business of the second working day C) Within 5 business days D) Within 30 days

Answer 94

Answer: B Explanation: TREC requires trust money to be deposited no later than the close of business of the second working day after receipt.

Question 95

When must a broker remove earned commissions from a trust account to avoid commingling issues? A) Immediately after lease signing B) By the end of the month C) No later than 30 days after acquiring ownership of the funds D) At the end of the quarter

Answer 95

Answer: C Explanation: TREC rules require removal within 30 days after the broker becomes entitled to the funds.

Question 96

What does a rent roll primarily track? A) Capital expenditures and tax deductions B) Tenant names, lease dates, unit numbers, and rent amounts C) Property tax assessments and insurance premiums D) Vacancy rates by neighborhood

Answer 96

Answer: B Explanation: A rent roll lists units, tenant names, lease dates, and rent amounts to track occupancy and financial planning.

Question 97

Which type of expense is considered a fixed expense? A) Utility bills B) Property taxes C) Maintenance costs D) Tenant turnover cleaning

Answer 97

Answer: B Explanation: Property taxes are fixed expenses, occurring regularly regardless of occupancy. Utilities and maintenance are variable.

Question 98

What is the formula for ROI (Return on Investment)? A) NOI ÷ Capital Invested B) NOI × Cap Rate C) NOI ÷ Cash Flow D) Cap Rate ÷ Property Value

Answer 98

Answer: A Explanation: ROI = NOI ÷ Capital Invested. Cap Rate is used to estimate value, not ROI.

Question 99

Which of the following is a statutory nonemployee under IRS rules? A) Real estate licensees working under a broker B) Property owners leasing their own property C) Administrative assistants on payroll D) Independent contractors hired for landscaping

Answer 99

Answer: A Explanation: Real estate licensees are statutory nonemployees; they’re self-employed for tax purposes but under broker supervision.

Question 100

What is the main purpose of a property management agreement? A) To provide tax advice to the property owner B) To create an agency relationship and define duties between owner and manager C) To authorize the sale of the property D) To determine the property’s depreciation schedule

Answer 100

The PMA creates the legal agency relationship and outlines duties, authority, and compensation.

Question 101

What is the typical recovery period for nonresidential real estate depreciation under IRS rules? A) 27.5 years B) 30 years C) 39 years D) 40 years

Answer 101

Answer: C Explanation: Nonresidential real estate is depreciated over 39 years under the IRS General Depreciation System.

Question 102

What is the first step in calculating cash flow from a property? A) NOI ÷ Capital Invested B) NOI – Debt Service C) Cap Rate × Property Value D) Gross Income – Operating Expenses

Answer 102

Answer: B Explanation: Cash Flow = NOI – Debt Service. NOI itself is calculated by subtracting operating expenses from gross income.

Question 103

What must a broker do before using an assumed business name in advertising? A) Submit it to the local MLS only B) Register the name with TREC and provide evidence of legal authority to use it C) Publish the name in three local newspapers D) Include it only on lease agreements

Answer 103

Answer: B Explanation: Brokers must register the assumed name with TREC and provide proof (e.g., county clerk or Secretary of State registration).

Question 104

What is considered a blind advertisement under TRELA? A) An ad placed on social media B) Any ad without the broker’s business name C) Any ad promoting both commercial and residential services D) An ad without the property address

Answer 104

Answer: B Explanation: A blind ad is an ad that does not include the sponsoring broker’s name.

Question 105

Which of the following is NOT prohibited by TRELA in advertising? A) Misleading or deceptive ads B) Ads implying a sponsored license holder operates the brokerage independently C) Ads creating a misleading impression D) Ads posted in local MLS systems

Answer 105

Answer: D Explanation: Posting ads in MLS is allowed; misleading or deceptive ads are prohibited.

Question 106

Can TRELA discipline a license holder for violating local sign placement laws? A) No, TRELA does not regulate sign placement at all B) Yes, if the violation constitutes negligence or incompetence C) Only if the sign violates TREC rules directly D) No, only the county can take action

Answer 106

Answer: B Explanation: Placing signs in violation of CC&Rs or local ordinances can be seen as negligence, which is grounds for discipline.

Question 107

Which law governs the suspension or revocation of a license due to advertising violations? A) The Fair Housing Act B) TRELA Section 1101.62 C) ECOA D) Federal Trade Commission Act

Answer 107

Answer: B Explanation: TRELA Section 1101.62 gives TREC authority to discipline license holders for misleading ads.

Question 108

What is the main ethical standard that applies to advertising in Texas real estate? A) All ads must include property taxes B) Ads must be clear, honest, and not misleading C) Ads must be posted in three languages D) All ads must include CC&R references

Answer 108

Answer: B Explanation: Honesty and integrity are core ethical standards in Texas real estate advertising.

Question 109

What could result if a property manager ignores TRELA advertising rules? A) Higher ROI for the owner B) Mandatory E&O insurance increase C) Administrative penalties, suspension, or revocation D) Only a written warning with no consequences

Answer 109

C

Question 110

If a property manager uses an unregistered assumed name in ads, what is it considered? A) Legal as long as the property owner approves B) A blind advertisement, which is illegal C) A minor administrative oversight only D) Acceptable if it’s a social media ad

Answer 110

Answer: B Explanation: Using an unregistered assumed name is considered a blind ad.

Question 111

What does a high tenant retention rate indicate? A) High marketing expenses and frequent turnover B) Tenant dissatisfaction and poor amenities C) Tenant satisfaction and reduced turnover costs D) Low occupancy and rising vacancies

Answer 111

Answer: C Explanation: High retention = satisfied tenants, lower turnover costs, and less vacancy loss.

Question 112

What is the formula for tenant retention rate? A) Total leases expiring / Total tenants renewing B) Total tenants renewing / Total leases expiring C) Total tenants moving out / Total leases expiring D) Total tenants signing new leases / Total units vacant

Answer 112

Answer: B Explanation: Retention Rate = Tenants Renewing ÷ Leases Expiring.

Question 113

If 12 leases expire and 8 tenants renew, what is the tenant retention rate? A) 60% B) 65% C) 66.6% D) 70%

Answer 113

C

Question 114

What does the “Average Time to Lease” KPI measure? A) The total number of days a lease lasts before renewal B) The average number of days units remain vacant before being leased C) The average number of days to collect rent D) The average number of days tenants stay before moving out

Answer 114

Answer: B Explanation: Average Time to Lease = total days vacant ÷ properties leased

Question 115

If 15 units were vacant for a total of 600 days, what is the average time to lease? A) 30 days B) 40 days C) 45 days D) 50 days

Answer 115

Answer: B Explanation: 600 ÷ 15 = 40 600÷15=40. Wait—actually, correct is 40, so ✅ Correct Answer: B.

Question 116

What is the formula for Return on Marketing Investment (ROMI)? A) Marketing Costs ÷ Total Revenue B) (Revenue Generated - Marketing Costs) ÷ Marketing Costs C) Total Revenue ÷ Total Properties Leased D) Marketing Costs ÷ Total Tenants Acquired

Question 117

What is the Return on Marketing Investment (ROMI) if a $12,000 marketing campaign generated $48,000 in new lease revenue? A) 200% B) 300% C) 400% D) 500%

Answer 117

Answer: B Explanation: ROMI = (Revenue Generated – Marketing Costs) ÷ Marketing Costs ROMI = (48,000 – 12,000) ÷ 12,000 = 36,000 ÷ 12,000 = 3.0 or 300%. For every $1 spent on marketing, $3 was earned.

Question 118

What does a positive ROMI indicate? A) Marketing efforts cost more than the revenue generated B) Marketing efforts generated more revenue than they cost C) Marketing had no effect on revenue D) Marketing efforts failed entirely

Answer 118

Answer: B Explanation: Positive ROMI = revenue > marketing costs

Question 119

What might cause ROMI to fluctuate? A) Stable market conditions only B) The number of property inspections C) Changes in rental market conditions D) Tenant retention rates only

Answer 119

Answer: C Explanation: ROMI can rise or fall with market demand and leasing speed.

Question 120

What is the biggest challenge in calculating ROMI for property managers? A) Determining operating expenses B) Tracking tenant referrals and attributing revenue to specific marketing channels C) Calculating monthly rent D) Determining NOI

Answer 120

Answer: B Explanation: ROMI is difficult to calculate without accurate tracking of which marketing channel produced each tenant

Question 121

What strategy might reduce average time to lease and increase ROMI? A) Reducing marketing spend completely B) Offering competitive rent or promotions to attract tenants faster C) Avoiding market research to save money D) Limiting ads to one marketing channel

Answer 121

Answer: B Explanation: Promotions and competitive pricing attract tenants quickly, reducing vacancy loss and improving ROMI

Question 122

What does a tenant retention rate of 40% likely indicate? A) Satisfied tenants and low turnover costs B) Problems with pricing, maintenance, or customer service C) High occupancy stability D) Excellent amenities and competitive rents

Answer 122

Answer: B Explanation: Low retention (<50%) usually signals issues with property management or pricing.

Question 123

If a manager retains 30 out of 45 expiring leases, what is the retention rate? A) 50% B) 60% C) 65% D) 70%

Answer 123

Answer: D Explanation: 30 ÷ 45 = 0.666 ≈ 67 30÷45=0.666≈67 (rounded).

Question 124

What KPI measures how effectively a property manager’s marketing budget generates revenue? A) NOI B) Tenant Retention Rate C) ROMI D) Average Time to Lease

Answer 124

Answer: C Explanation: Return on Marketing Investment (ROMI) measures marketing efficiency.

Question 125

What do demographics refer to in property marketing? A) The property’s square footage and lot size B) The average sales prices in the neighborhood C) Characteristics of a population, like median age or education level D) Tenant turnover and vacancy rates

Answer 125

Answer: C Explanation: Demographics describe human population traits such as family size, median age, or education level, which help target marketing efforts.

Question 126

Which of the following is a Key Performance Indicator (KPI) used in property management? A) Broker’s licensing renewal schedule B) Tenant retention rate C) Property tax assessment schedule D) County zoning updates

Answer 126

Answer: B Explanation: Tenant retention rate is one of the KPIs used to measure property management success, along with occupancy rate, ROMI, and NPS.

Question 127

What is the main purpose of tracking Key Performance Indicators (KPIs)? A) To ensure compliance with local zoning ordinances B) To create legal lease agreements C) To make data-driven decisions and improve profitability D) To calculate property tax assessments

Answer 127

Answer: C Explanation: KPIs provide measurable values that help managers optimize strategies and increase profitability.