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1
Q

Which type of estate cannot pass by inheritance?

A. fee simple estate
B. fee simple condition subsequent estate
C. conventional life estate
D. pur autre vie life estate

A

R1-1 C

A conventional life estate reverts back to the grantor automatically and immediately at the death of the life tenant. There is no interest remaining for the life tenant to pass on to their heirs.

2
Q

Which of the following liens is/are considered a “specific lien” on real estate?

A. deed of trust
B. mechanic’s lien
C. real estate taxes
D. all of the above

A

R1-2 D

All of these liens are “specific.” That means that they are tied to a specific parcel of property. General liens include judgments and income tax liens.

3
Q

Which of the following statements is/are correct regarding the Interstate Land Sales Full Disclosure Act? I. If a development contains 25 or more lots, the developer must furnish prospective buyers with a property report. II. The property report must be given to a prospective purchaser prior to a sales contract being signed. III. The purchaser can revoke, or rescind, the sales contract at his or her option until midnight of the fifth day following the signing of the contract. IV. This Act applies only to the sale of lots to consumers located in the state.

A. I and II
B. III and IV
C. II and IV
D. I and III

A

R1-3 A

The Interstate Land Sales Full Disclosure Act was meant to protect buyers purchasing property from outside the state. It only applies to the sale of developments containing 25 or more lots and the disclosure report must be provided to the prospective purchaser at least three business days before a contract is signed.

4
Q

A rectangular-shaped parcel of land, which measures 400 feet by 600 feet, is divided into two equal lots by a creek that runs from the northeast corner to the southwest corner. What is the approximate acreage of each divided parcel?

A. .55 acres
B. 2.75 acres
C. 3.47 acres
D. 5.51 acres

A

R1-4 B

The total of both lots is 400 feet x 600 feet which equals 240,000 square feet. They are equal parcels, so each parcel contains 120,000 square feet (240,000÷2). There are 43,560 square feet in an acre. 120,000 square feet÷43,560 = 2.75 acres.

5
Q

Assume annual real estate taxes amount to $1,800 and have been paid in advance for the calendar year by the seller. If closing is set for September 15, which of the following is correct?

A. credit seller $525; debit buyer $1,275
B. credit seller $1,275; debit buyer $525
C. credit buyer $525; debit seller $1,275
D. credit seller $525; debit buyer $525

A

R1-5 D

The annual taxes are $1,800. The daily amount is $1,800 divided by 360 = $5 per day. The seller has been in the property for 255 days. (From Jan - Aug - 240 days + 15 days for the month of September = 255). 255 days at $5.00 per day means the seller owes $1,275. The seller has already paid $1,800. $1,800 - $1,275 = $525. The seller will be credited for the $525 and the buyer will be debited that amount at closing.

6
Q

Which of the following statements is/are true? I. A freehold estate and a nonfreehold estate will never exist at the same time on the same property. II. A life estate is a nonfreehold estate.

A. I only
B. II only
C. Both I and II
D. Neither I nor II

A

R1-6 D

A parcel could be utilized as both a freehold (ownership) and a non-freehold (less than ownership) if the owner of the property also decided to rent it. Therefore, the first statement is false. The second statement is also false because a life estate is a freehold interest. The life tenant is the owner of the property.

7
Q

Title to real property may be transferred by which of the following?

A. bill of sale
B. oral agreement
C. ceremony of seizing
D. laws of intestate succession

A

R1-7 D

The law of intestate succession is a reference to the state laws which determine the heirs of an individual who dies without a will. This is a transfer of real estate. When real estate is transferred to the heirs from someone who died intestate it is called a “descent.”

8
Q

Which of the following statements is/are correct? I. A “deed of gift” must be recorded within 3 years to be valid. II. A deed that warrants only against defects or encumbrances that have occurred “by, through, or under the grantor” is a special warranty deed.

A. I only
B. II only
C. Both I and II
D. Neither I nor II

A

R1-8 B

A deed does not have to be recorded to be valid. It is recorded to give constructive notice to third parties, not to make the transfer valid. Therefore, I. is incorrect. A deed whose warranties are limited to the time that the grantor owned the property is a special warranty deed.

9
Q

Smith is interested in purchasing a warehouse for the storage of inventory from his business. If the building which he is considering purchasing is 30 feet high, 28 feet wide and 62 feet long, how many cubic feet of storage space will the building provide?

A. 52,080 cubic feet
B. 177,000 cubic feet
C. 18,000 cubic feet
D. 1,860 cubic feet

A

R1-9 A

The formula to calculate volume and cubic feet is length x width x height. 62x28x30 = 52,080 cubic feet.

10
Q

Public land use controls include all of the following, EXCEPT:

A. subdivision regulations
B. environmental protection laws
C. master plan specifications
D. deed restrictions

A

R1-10 D

Deed restrictions are considered private land use restrictions, not public ones.

11
Q

When an old service station is located in an area that has been rezoned for residential use only, the station may be permitted to continue to operate as a service station under a: I. Legal nonconforming use II. Variance III. Illegal nonconforming use

A. I only
B. II only
C. III only
D. Both I and II

A

R1-11 A

When zoning changes, pre-existing uses and buildings which were legal, but following the change do not meet current zoning codes, are allowed to remain as legal non-conforming use. It is also known as grandfathered use. The owner does not have to get a variance, apply for a permit or take any action in order to continue their previous use of the property.

12
Q

Which of the following would be considered a “material fact” by law in NC? I. Recorded lien on the property II. Information about a pending zoning change that would enhance the value of a seller’s property even if the agent is a buyer’s agent.

A. I only
B. II only
C. Both I and II
D. Neither I nor II

A

R1-12 C

A material fact is information which affects the seller’s willingness to sell or a buyer’s willingness to buy. Both of these items are material facts. Material facts must always be disclosed to all parties in the transaction.

13
Q

Aunt Fran decides to sell her property to a church with a fee simple interest, but Aunt Fran reserved or excepted a conventional life estate. Which of the following statements is true regarding this transfer?

A. The church is the life tenant and Aunt Fran has a reversionary interest.
B. Aunt Fran is the life tenant and the church has a remainder interest.
C. The church owns the property and Aunt Fran has established a non-freehold interest.
D. This is best referred to as a life estate pur autre vie.

A

R1-13 B

Aunt Fran is the life tenant and she owns a freehold interest. It is a conventional life estate. When Aunt Fran dies the property will not revert back to her as the grantor, it will pass automatically and immediately at the time of her death to the church. The church has a remainder interest in the life estate created by Aunt Fran.

14
Q

The basic premise for controlling the use of land is to protect and promote the health, safety, welfare and morals of the general public. As imposed under the government’s right to police power, zoning ordinances do NOT regulate:

A. the use to which a property may be put
B. the placement of buildings on the property
C. the bulk and density of buildings
D. minimum acceptable material and construction standards

A

R1-14 D

Acceptable material and construction standards are usually regulated by building codes, not zoning restrictions.

15
Q

Joe, Moe and Harry are joint tenants owning a parcel of land. Harry conveys his interest to his long-time friend, Will. After the conveyance, Joe and Moe:

A. become tenants in common
B. continue to be joint tenants with Harry
C. become joint tenants with Will
D. remain joint tenants with Will becoming a tenant in common

A

R1-15 D

A joint tenant can convey their interest in the property without the approval or consent of the other joint tenants. Joe and Moe will remain joint tenants. Will cannot be a joint tenant because his ownership does not meet the four unities required of joint tenancy. He did not come into ownership at the same time or on the same title as Moe and Joe. Will, therefore, would have to hold title to the property as a tenant in common.

16
Q

Land is sold to a church so long as the land is used only for religious purposes. What type of freehold estate is described?

A. tenancy for years
B. fee simple absolute
C. conventional life estate
D. defeasible fee

A

R1-16 D

A transfer in which the grantor imposes conditions on the grantee, such as “so long as the land is used for religious purposes” is a defeasible fee. The ownership has conditions imposed by the grantor.

17
Q

Deed restrictions are a means by which:

A. local zoning laws are enforced
B. the planning commission controls developers
C. municipalities enforce building restrictions
D. grantors control the future use of the property

A

R1-17 D

Deed restrictions are private land use restrictions created by a previous grantor. They are not created, enforced or regulated by the government or municipalities.

18
Q

Which of the following would terminate a Tenancy by the Entireties?

A. Divorce
B. A partition action
C. Legal separation
D. A unilateral sale of an interest in the property

A

R1-18 A

Only married couples can hold title as tenants by the entireties. Therefore, a divorce would end that form of ownership. A legal separation is not the end of the marriage. Tenants by the entireties do not have the right to file an action for partition and neither of them may convey their interest without the consent of the other party. Therefore a unilateral transfer is not possible.

19
Q

Which of the following items would be included in the bundle of rights of a land owner? I. Mineral rights II. Easements III. The land IV. The privilege or right to sell the land.

A. III and IV
B. I, II and III
C. III only
D. I, II, III and IV

A

R1-19 D

The bundle of rights includes the land, the mineral and air rights and all other rights and privileges which are appurtenances and get transferred with the land. The easements and right to sell the land are part of the bundle of rights as well.

20
Q

What type of ownership is an individual unit owner’s parking space at a condominium complex?

A. Amenity utilization of the common area.
B. Limited common area with a fractional undivided interest as tenants in common.
C. Proprietary lease of common areas.
D. Joint tenancy with right of survivorship of the the common area.

A

R1-20 B

An owner of a condominium owns a fee simple interest in their unit and an undivided interest as a tenant in common of the common area. Limited common areas are those areas and facilities that may be available for use by one or more of the tenants, but not all.

21
Q

A developer owns 2 acres and plans to subdivide them into 6 individual lots. If the six lots are all equal in size and each one is 100 feet wide, what is the depth of the lots?

A. 189.60 feet
B. 249.50 feet
C. 145.20 feet
D. 329.25 feet

A

R1-21 C

The entire parcel is 2 acres. There are 43,560 square feet in an acre. 43,560x2 = 87,120 square feet. There are six lots, each one is 100 feet side so the frontage of the parcel is 600 feet. 87,120 square feet (total of the parcel)÷600 = 145.20 feet is the depth of the lots.

22
Q

What is true about eminent domain?

A. The Department of Transportation is exempted from compensating land owners for critical road widening projects.
B. In order to establish eminent domain the government must meet the elements of adverse possession.
C. Should the government condemn a rental property, the lease is automatically terminated.
D. Eminent domain is the process by which the government condemns land.

A

R1-22 C

Eminent domain terminates the lease and the government may owe compensation to both the property owner and the tenant as a result of exercising eminent domain over a property occupied by a tenant.

23
Q

A city evicts tenants of an apartment complex by the power of eminent domain because of a planned highway expansion. Does the city have to pay compensation and does the city have to let the tenants finish their lease terms.

A. The city would have to allow the tenants to complete their lease term and must pay them compensation.
B. The city may never condemn an apartment building or other facility that is currently occupied.
C. The city does not have to allow the tenants to complete their lease term, but the city will have to compensate the tenants.
D. The city does not have to allow the tenants to finish their lease terms and because they are not the owner of the apartment building, the tenants have no right to compensation.

A

R1-23 C

The right of the government to exercise eminent domain is absolute. The just compensation may include compensation to both the owner and to tenants adversely affected by the condemnation proceeding.

24
Q

A neighbor regularly mows a vacant lot next door. After several years the neighbor erects a fence on the vacant lot. After several more years the neighbor wishes to claim adverse possession of the vacant lot. Can the neighbor claim adverse possession?

A. No, his use was not open and notorious.
B. Yes, assuming the neighbor met the minimum number of years to claim adverse possession.
C. Yes, because all the neighbor had to do was physically occupy the land.
D. No, because the neighbor has failed to pay vacant lot’s property taxes.

A

R1-24 B

The neighbor is not required to pay the taxes. In order to claim adverse possession, he must meet the statutory requirements of OCEAN, open, continuous, exclusive, adverse and notorious. If he meets these requirements and the minimum number of years (20 in NC) then he may be able to claim ownership through adverse possession.

25
Q

Which method of land measurement uses meridians and range lines?

A. Government plat maps.
B. Assessor’s parcel numbers.
C. Government metes and bounds.
D. Government rectangular survey.

A

R1-25 D

The government rectangular survey uses meridians, base lines, township lines and range lines. It is the grid used in states other than North Carolina.

26
Q

What is the system of land measurement that uses stakes, markers and monuments?

A. Lot and block.
B. Metes and bounds.
C. Government rectangular survey.
D. Recorded plat.

A

R1-26 B

27
Q

A developer requires all builders within the subdivision to build a certain standard home and also requires that no home may be built smaller than 4,000 square feet. What type of restriction has the developer created and how may it be enforced?

A. Building permits, enforced through the city or county in which the property is located.
B. Private deed restrictions, enforced through a court of law.
C. Building codes, enforced through state and city building councils.
D. Zoning, enforced through the zoning board.

A

R1-27 B

The government will have no involvement in the enforcement of these restrictions. They will appear as private deed restrictions from the grantor or developer and will have to be privately enforced with a court action. They will not be enforced by zoning or the permitting departments.

28
Q

Two friends are interested in purchasing a piece of real estate as co-owners. What is the MOST likely way that they will hold title in North Carolina?

A. Severalty.
B. Joint tenants.
C. Tenants in common.
D. Tenancy by the entireties.

A

R1-28 C

Tenants in common is the presumed and most common method of co-ownership for unmarried co-owners in North Carolina.

29
Q

A “Quiet Title Action” can best be described as a lawsuit which is:

A. used by a seller to convey title to a buyer through a quit claim deed.
B. filed to establish ownership or interests of real property and/or to remove a cloud on title.
C. used to evict a disruptive tenant.
D. used by a buyer to force a seller to sell the property because the seller is in breach

A

R1-29 B

Quiet title actions are lawsuits to resolve disputes or interests about the ownership or use of real property. When concerns arise about adverse possession, easement interests and the reversionary interests of defeasible fees a quiet title action is utilized to resolve the dispute.

30
Q

Which of the following adds land due to natural changes along non-navigable streams?

A. Accretion
B. Avulsion
C. Erosion
D. Reliction

A

R1-30 A

When accretion occurs (the natural increase of land along waterways) the size of the land is automatically increased and the owner does not have to take any legal actions to benefit from this increase in land.

31
Q

Which of the following would be considered emblements?

A. Oil and minerals
B. Wheat and corn
C. Water and air
D. Trees and bushes

A

R1-31 B

Emblements are the right of a tenant farmer or previous owner to re-enter the land and harvest the crops for the current growing season.

32
Q

Liens, easements, mechanic’s liens and restrictive covenants are all examples of:

A. estates
B. encumbrances
C. estovers
D. emblements

A

R1-32 B

An encumbrance is a right or an interest by someone other than the owner. Each of these items is a right or interest held by someone other than the owner of the property.

33
Q

The condemnation of private property for public use is exercised under which government right?

A. Escheat
B. Taxation
C. Eminent Domain
D. Manifest Destiny

A

R1-33 C

Eminent domain is the right of the government to take private property for public use by paying just compensation. The process by which the government does so is called condemnation.

34
Q

The recording of a deed:

A. insures the interest in a parcel of real estate.
B. warrants the title to real property.
C. gives constructive notice of the ownership of real property.
D. is all that is required to transfer the title to real estate.

A

R1-34 C

Recording is never required to have a valid transfer. It is required in order to give constructive notice against 3rd parties and to create a deed which is enforceable.

35
Q

Which of the following is less than a freehold estate?

A. Life estate
B. Leasehold estate
C. Defeasible fee estate
D. Fee simple absolute estate

A

R1-35 B

There are two major categories of estates. Freehold (ownership) estates which include, fee simple, life estates and defeasible fees. The other category includes leasehold estates which are less than freehold ownership interests.

36
Q

What type of deed is normally used to convey real estate in a typical sale of residential real estate?

A. Special warranty deed
B. Bargain and sale deed
C. General warranty deed
D. Quit claim deed

A

R1-36 C

The highest and best deed is a general warranty deed and it is typically used in residential sales transactions.

37
Q

John and Marsha each owned property prior to their marriage. The individual parcels that they owned were held in severalty. Once John and Marsha got married what is the status of the title to the property?

A. The property will remain in their individual names as property held in severalty.
B. They will hold title to the property as joint tenants with a right of survivorship.
C. They will hold title to the property as tenants in common.
D. They will automatically hold the property as tenants by the entireties.

A

R1-37 A

The fact that John and Marsha got married does not automatically change the form of ownership. Although married couples in NC typically hold property as tenants by the entireties, the act of getting married does not automatically change the manner in which title was held.

38
Q

What is the size of a section of real estate?

A. 640 acres
B. 43,560 square feet
C. 6 miles square
D. 460 acres

A

R1-38 A

A section of land contains 640 acres and measures one mile by one mile.

39
Q

How many acres are contained in the following legal description: the SW1/4 of the NE 1/4 of the NW 1/4 and the SW 1/2 of the NW 1/4?

A. 160 Acres
B. 70 Acres
C. 120 Acres
D. 90 Acres

A

R1-39 D

There are two parcels, separated by the word “and.” The first parcel has 640 acres÷4,÷4,÷4 = 10 acres, plus the second parcel which is 640 acres÷4,÷2 = 80 acres. 80 acres + 10 acres is a total of 90 acres.

40
Q

What is the amount of the excise taxes charged to a seller who sells a property for $143,250?

A. $287
B. $300
C. $242
D. $378

A

R1-40 A

The amount of the excise tax is $1 for each $500 of value. The sales price must be rounded up to the nearest $500. $143,500÷$500 = $287

41
Q

The owner of a property wants to build a garage which is in violation of the existing setback requirements for the parcel of real estate. In order to build the garage and eliminate issues with the setback requirements, the homeowner will need to obtain:

A. an easement from their neighbor.
B. approval from the local HOA.
C. a license issuing them permission.
D. a variance.

A

R1-41 D

Setback requirements are enacted pursuant to the police power by municipalities and are part of zoning requirements. Because they are governmental restrictions, the homeowner will need to obtain a variance.

42
Q

Subdivision regulations in North Carolina are administered and enforced by:

A. the city and county local municipalities.
B. through the state office of Code Enforcement.
C. the state Department of Transportation.
D. the developer and the local homeowner’s association.

A

R1-42 A

In NC subdivision regulations are enforced at the local level by cities, counties and municipalities.

43
Q

With regard to road disclosures in North Carolina:

A. a public street is guaranteed to be approved and maintained by NCDOT.
B. a licensee must disclose whether the streets are public or private and who has the responsibility for maintaining the street.
C. the buyer representative and the listing agent are not required to make street disclosures. Such disclosures are the seller’s responsibility.
D. all public streets are maintained by NCDOT or they are automatically maintained by the municipality where the streets are located.

A

R1-43 B

Licensees must disclose to prospective buyers whether the streets are public or private and who has the responsibility for maintaining the street. Just because a street is public does not mean the government maintains it in North Carolina.

44
Q

Jason, a buyer, is purchasing a property and is concerned about the location of a fence and the exact size of the parcel. He expresses his concerns about these items to his buyer representative. What is the BEST response of the licensee who is representing Jason?

A. Reassure Jason that the closing attorney will provide him with a full opinion letter that will address these issues.
B. Advise Jason that if he is concerned about encroachments and property lines he should obtain a survey.
C. Advise Jason that when the property is appraised, the appraiser will verify these items.
D. Tell him that title insurance provides coverage for such defects and issues.

A

R1-44 B

Jason should be advised to get a survey. Title insurance generally excludes coverage for errors or encroachments, which a survey would have revealed. The attorney’s opinion letter does not usually address such issues. The attorney’s opinion letter and the title insurance are usually based only on review of the recorded documents.

45
Q

Which of the following is an example of an encumbrance?

A. A lis pendens filed at the register of deeds.
B. A driveway that is shared by two neighbors.
C. A lien which has been satisfied and paid in full.
D. A fence that is extending two feet over the property line.

A

R1-45 A

The lis pendens is an encumbrance. The rights of a hunter to use the land of another is a license or a personal easement in gross. The driveway is not an encumbrance, because driveways can be shared without the creation of a formal easement. A fence which is over the property line is considered an encroachment.

46
Q

The Marketable Title Act of NC is best summarized by which of the following statements?

A. The seller is assuring that they have good marketable title and the buyer, in turn, will have good marketable title.
B. A fixture always remains personal property until it has been paid for in full.
C. A deed is considered to be of good quality if an unbroken chain of title can be documented for the past 30 years.
D. The attorney shall disburse no funds from closing until the buyer’s deed has been properly recorded.

A

R1-46 C

The Marketable Title Act requires the attorney or closing agent to document the chain of title for a 30 year period in order for it to be considered marketable.

47
Q

Which of the following debts or liens would be subject to the Homestead Exemption Act of NC?

A. Liens of judgment creditors.
B. A mechanic’s lien which has been appropriately recorded.
C. Past due taxes which have not been paid.
D. A first deed of trust on which the lender is attempting to foreclose.

A

R1-47 A

The NC Homestead Exemption only applies to the liens of judgment creditors. It would have no effect on past due taxes, a mortgage or deed of trust being foreclosed or a mechanic’s lien.

48
Q

When do real property taxes become a lien in North Carolina?

A. September 1st
B. Once they are past due
C. July 1st
D. January 1st

A

R1-48 D

The property taxes become a lien on January 1st for the coming calendar year. Tax bills get issued in July and the taxes are due September 1.

49
Q

Karen purchased a property and has a written and recorded document that gives her permanent ingress and egress to her parcel across an adjacent property. Which of the following statements is correct regarding Karen’s situation?

A. Karen has a license which will end when her term of ownership terminates.
B. Karen has an easement in gross which is an appurtenance and travels with the property.
C. She owns the dominant parcel and the adjacent property is the servient parcel.
D. She owns the servient parcel and the parcel over which the easement runs is the dominant parcel.

A

R1-49 C

What Karen possesses is a permanent right to use the property of another. It is an easement appurtenant. Her parcel benefits from the existence of the easement and is the dominant parcel. The adjacent parcel which is being utilized for the easement is the servient one.

50
Q

The North Carolina Real Estate Commission consists of nine members, three of which must have a license and two which must be members of the public and not licensed. Which of the following is also true regarding the NCREC?

A. The NC Real Estate Commission will not hear commission disputes between the agent and their client, but they will assist in the resolution of fee disputes between real estate licensees
B. The terms of the NC Real Estate Commission are life-long appointments.
C. Seven of the NC Real Estate commission members are appointed by the Governor, one is appointed by the house and one is appointed by the senate.
D. The NC Real Estate Commission is led by a commission chair that is also appointed by the Governor.

A

R1-50 C

The Real Estate Commission does not get involved in disputes between agents and their clients. They are appointed to three year terms, three expire each year. They can be reappointed. Seven are appointed by the Governor, one by the house and one by the senate. The commission chair is selected by the members.

51
Q

If a seller’s agent or subagent has been informed of a latent defect in the property and the seller on the property disclosure statement checks “No Representation” and the agent fails to inform the buyer of the defect who is liable?

A. seller
B. the seller’s agent
C. both seller and agent
D. neither seller nor agent

A

R2-1 B

The seller does not have a duty to disclose. However, the seller’s agent has a duty to disclose all defects which they know about or should have known about.

52
Q

Broker Ron Thompson listed and sold Mr. Simpson’s property. Thompson did not disclose to Mr. Simpson that there was a potential zoning change in the works that would allow the property to be used as a convenience store. The new use would substantially increase the value of Mr. Simpson’s property. Which of the following is/are true? I. Thompson did not have to divulge the zoning change since it had not been put into effect. II. Thompson did not have to divulge the zoning change since the property sold at its fair market value.

A. I only
B. II only
C. Both I and II
D. Neither I nor II

A

R2-2 D

Changes in zoning, new highways and changes in the neighborhood are all material facts and they must be divulged or disclosed to all parties in the transaction, regardless of whom the licensee represents.

53
Q

Under which type of listing agreement does the seller lose his/her right to compete for the commission?

A. open listing
B. exclusive agency listing
C. exclusive right to sell listing
D. net listing

A

R2-3 C

Under an exclusive right to sell listing agreement, the firm will be entitled to compensation regardless of who sells the property. Even if the owner sells the property themselves, they will still be obligated to pay the firm a commission.

54
Q

A contract that binds the owner of real estate to hold an offer to sell open for a set period of time, and gives the buyer the legal right to either accept or withdraw is a(n):

A. right of first refusal
B. option to purchase contract
C. backup offer
D. installment land contract

A

R2-4 B

In an option to purchase, the seller is obligated to sell and the buyer is not obligated to buy. Another way of saying this is to say that an offer is binding on the optionor (the person giving the option) but not binding on the offeree (the person receiving the option).

55
Q

An oral real estate sales contract is unenforceable under:

A. Real Estate Licensing Law
B. Statutes of Limitations
C. Law of Agency
D. Statute of Frauds

A

R2-5 D

Not all contracts must be in writing in order to be enforceable, only certain types of agreements. However, the transfer of any interest or ownership in real estate must be in writing in order to be enforceable. This is due to application of the statute of frauds.

56
Q

Which of the following is not required for a contract to be valid and enforceable?

A. legal capacity
B. consideration
C. mutual assent
D. witnesses

A

R2-6 D

This question is not asking about a specific type of agreement. It is asking about contracts in general. In general, an enforceable contract must only have the elements of mutual assent, consideration, legal capacity and be for a legal purpose.

57
Q

Which of the following statements is/are correct? I. In dual agency, the seller client and buyer client are aware and understand that the firm’s dual agency role is to provide balanced and fair representation of the seller client and buyer client and to encourage and effect communication between them rather than as an advocate or exclusive agent or representative. II. In designated agency, the firm designates an agent to represent the seller client and another agent in the firm to represent the buyer client as long as both agents have not actually received confidential information concerning the other client and shall represent the interests of the parties to the extent permitted by law.

A. I only
B. II only
C. Both I and II
D. Neither I nor II

A

R2-7 C

Dual agency limits the representation that a licensee may provide because they cannot advocate and must remain fair and impartial to both the seller and the buyer. Designated agency, while still a form of dual agency, helps alleviate this limited representation by allowing each of the licensees to fully advocate on behalf of and represent their client, so long as they have not already received confidential information regarding the client.

58
Q

Several months ago, Bill purchased four lots for $24,000 each. He later divided the lots into six lots and sold each for $20,000. What was Bill’s percent of profit (loss)?

A. 20%
B. 25%
C. 80%
D. 125%

A

R2-8 B

Bill’s total investment was $96,000 (4 lots at $24,000 each). He divided the lots and sold a total of 6 at $20,000 a piece and received $120,000. His total profit was $24,000 ($120,000-$96,000). If he invested $96,000 and made $24,000, then the amount he made of $24,000 divided by his original investment of $96,000 = 25%.

59
Q

Lucy Jones, a subagent of the seller and provisional broker with ABC Realty, sold a property listed with XYZ Realty. The buyer made a low offer but told Lucy they would be willing to offer more money and better terms if the sellers did not accept the original offer. Lucy presented the offer to Joe Baker, listing agent, and repeated to Joe the buyer’s statement that, “They would be willing to offer more money and better terms.” Joe presented the offer, making no mention that the buyers would be willing to go higher. Which agent(s) violated the Law of Agency? I. Joe, the listing agent II. Lucy, working with a buyer, as a seller’s subagent

A. I only
B. II only
C. Both I and II
D. Neither I nor II

A

R2-9 A

Only Joe, as the listing agent. Lucy was not representing the buyer. She was working with the buyer as a seller’s subagent. She had an absolute duty to disclose the buyer’s comments because she owed duties to the seller through subagency. She owed no such duties to the buyer. Joe, who was the listing agent, also had fiduciary duties to the seller and his failure to inform the sellers of the buyer’s comments breached his duties of loyalty to his client.

60
Q

Jones is acting as a buyer’s agent under a signed buyer agency agreement. Jones assists the buyer in preparing an offer to purchase, which the buyer signs. The buyer then immediately leaves town on business. Jones presents the offer to the listing agent. The seller signs the offer without any changes, and Jones is notified of the acceptance at 4 p.m. Jones checks his voice mail messages at 5 p.m. and discovers that the buyer left him a message at 2 p.m. withdrawing his offer. Which of the following statements regarding this situation is true?

A. The contract became legally binding when Jones was notified of the seller’s acceptance.
B. No contract was legally created because the buyer withdrew his offer before his agent was notified of the seller’s acceptance.
C. The contract is voidable because the buyer was not notified personally of the acceptance.
D. The contract is voidable because the buyer withdrew the offer before it had been accepted.

A

R2-10 A

A buyer may withdraw their offer at any time prior to acceptance. In order to be effective, the withdrawal must be communicated to either the listing agent or the seller. That did not occur. The seller accepted the offer and the acceptance was communicated to the buyer’s agent before the withdrawal was communicated to the listing agent or the seller.

61
Q

Mary Smith is broker-in-charge of Smith Realty, which has several affiliated agents. Mary is actively involved in listing and selling properties. Sue Long, a provisional broker with Smith Realty, has a buyer client who has expressed interest in one of Mary’s listings. Which of the following agency agreements is permissible in this situation?

A. Mary and Sue may act as dual agents.
B. Mary and Sue may act as designated agents.
C. Mary and Sue may both represent the seller, treating the buyer as a customer.
D. Mary may represent her seller, and Sue may represent her buyer.

A

R2-11 A

Mary and Sue work for the same firm. Therefore, they cannot be single agents. The relationships formed will be either dual agency or designated agency. However, under the law of designated agency, a broker-in-charge cannot be a designated agent with a provisional broker whom they are required to supervise. When a BIC and a provisional broker are representing parties in the same transaction they will always be dual agents.

62
Q

At an open house, the seller’s agent must disclose his/her agency status to a prospective buyer:

A. when the prospect first walks into the house and shows interest in the property .
B. when the prospect asks questions about the price of the property and its features
C. when the prospect begins to talk about his/her property needs and ability to purchase
D. prior to giving the prospect a tour of the property and providing detailed information about the features of the property

A

R2-12 C

The disclosure and use of the WWREA brochure must occur at first substantial contact and that does not occur simply because the buyer walked into an open house. It does occur when the prospect begins to discuss their motivations, confidential information, individual needs or wants concerning the transaction.

63
Q

Which of the following would be used to terminate a contract in a situation where the buyer is entitled to be relieved of all liability and have all of their money returned?

A. Rescission
B. Relegation
C. Reversion
D. Revision

A

R2-13 A

Rescission is the process of restoring the parties to their original condition before the contract was executed.

64
Q

A deed was not properly recorded. This would best be described as:

A. Failure of privity, but valid between the parties
B. Failure of contract, but valid between the parties
C. Failure of notice, but valid between the parties
D. Failure of estate, but valid between the parties

A

R2-14 C

In NC the Conner Act requires a deed to be recorded in order to be enforceable against third parties. However, a deed and the transfer of real estate is complete between the parties once a deed is signed, delivered and accepted. A deed can be valid between parties, but unenforceable as to claims by third parties who were not provided with constructive notice of the transfer due to the non-recordation of the deed.

65
Q

An agent works for Smith & Wesson Realty and is acting as a buyer’s agent. The buyer is interested in a property that is listed with Jones Realty. From whom will the agent receive her commission check?

A. The Smith & Wesson Realty firm.
B. Either firm may pay the licensee.
C. The licensee will be paid directly by the buyer/client.
D. The Jones Realty firm.

A

R2-15 A

All compensation passes through the firm with which the licensee is affiliated.

66
Q

A broker receives two offers on a property that he has listed. He submits the first offer at 9:00 AM to the seller but does not submit the second offer until the seller has decided how to respond to the first offer. The actions of the broker would best be described as:

A. allowed, providing he notifies the buyer’s agents.
B. allowed, if the company policy specifically permits this conduct.
C. not allowed, because the broker must submit all offers to the seller.
D. not allowed, because the seller must notify each buyer of the other offer.

A

R2-16 C

A licensee must submit all offers immediately, but never later than 5 days. The licensee must submit all offers in their possession at the same time to fulfill the fiduciary duties to their client. Such conduct would be a breach of the licensee’s fiduciary duties to the principal.

67
Q

Once a binding contract exists between two parties, the document that the licensee would use to make any changes or modifications to an already existing contract or to add to the terms of a contract would be called a(an):

A. contingency clause
B. adaptation
C. addendum
D. counteroffer

A

R2-17 C

An addendum changes or alters the terms of an existing contract. All changes, alterations or modifications must be in writing pursuant to the statute of frauds and the parties must mutually agree to the changes.

68
Q

A seller entered into an Exclusive Right to Sell Listing Agreement. A qualified buyer presented an offer for the listed price. The seller refused to sell to the buyer. Which of the following is a correct statement?

A. The seller can refuse to sell, but a commission may still be owed to the firm.
B. The seller can refuse to sell and has no legal liability to anyone.
C. The seller must accept the offer because it was for the listed price.
D. The seller must still sell based on the obligation he agreed to in the Exclusive Right to Sell Listing Agreement.

A

R2-18 A

The Exclusive Right to Sell Listing Agreement is not an agreement to sell the property. It is an employment contract hiring the broker to find a ready, willing and able buyer. The seller cannot be forced to sell and has not agreed to sell anything. If the broker fulfils the terms of the agreement by finding a ready, willing and able buyer, the firm may be entitled to a commission.

69
Q

According to North Carolina law, what are the buyer and seller allowed to negotiate after contract formation?

A. The buyer and seller may renegotiate, but only during the due diligence period.
B. Assuming that they are both interested in negotiating, all terms of the contract may be renegotiated during the contractual period.
C. Nothing. The buyer and seller are bound to the terms of the agreed to contract.
D. The buyer and seller may renegotiate, but they will need to create a new contract through novation.

A

R2-19 B

Contracts are mutual agreements. The parties may renegotiate any terms to which they can mutually agree. They need to document their alterations, modifications and changes by executing a written and signed addendum to the contract.

70
Q

A seller notified his listing agent that the water heater was not working properly. The agent failed to mention this to a buyer’s agent. Which of the following would be at fault if the buyer is harmed due to the malfunctioning water heater?

A. Seller and listing agent.
B. Listing agent and buyer’s agent.
C. Buyer’s agent.
D. Listing agent

A

R2-20 D

Only the listing agent. The seller is never required to disclose any defects, so long as they make no representations to the buyer or the buyer’s agent. The listing licensee must disclose everything they know and should have known. The buyer’s agent is not liable because this type of defect is not something that the buyer’s agent exercising a reasonable standard of care should have known.

71
Q

Sam, a prospective buyer, signs an option contract and pays the seller $500 for an option fee. Which term best describes this contract?

A. Voidable
B. Void
C. Unenforceable
D. Valid

A

R2-21 A

Options are unilateral contracts which bind only one party. An option binds the seller, but the buyer is under no obligation to buy. Since the contract can be made void by one of the parties, the contract is considered voidable by the buyer should they so choose.

72
Q

All of the following are true regarding the “Working with Real Estate Agents Brochure” EXCEPT:

A. the brochure must be provided at first substantial contact.
B. if first substantial contact is by phone, the brochure must be mailed within 3 days
C. the brochure includes a place for disclosure of seller subagency and an acknowledgement of such agency status by the prospective buyer.
D. the buyer must sign the brochure before the agent can work as a buyer’s agent

A

R2-22 D

It is not required that the client/customer sign the brochure. The licensee, however, should document the date and retain the tear off flap in the real estate file as evidence of a proper agency disclosure with the consumer.

73
Q

Barney Buyer made an offer to a seller which was accepted. Three days prior to closing, Barney dies. What is the status of the agreement between the buyer and the seller?

A. The contract was automatically voided at the time of Barney’s death.
B. The seller will have to enforce the contract through a court order for specific performance.
C. Barney’s heirs have the option of making the contract voidable.
D. The contract is still valid and enforceable. The contract is now an obligation of the estate and the probate court will direct the proper way to proceed with the agreement.

A

R2-23 D

Death of one of the parties does not end a purchase contract. The contract is still valid and enforceable and will become an obligation of the estate.

74
Q

Jim, a provisional broker, is an agent for ABC Realty. While discussing agency with a prospective buyer which of the following would be a correct statement that Jim can make to the buyer?

A. Once you hire me, I agree to protect and promote your interests and to protect your confidential information, even if our agreement is oral.
B. I can present your offer so long as we have a buyer’s agency agreement in writing before closing.
C. Our firm practices designated agency. If we look at a home that is listed by my BIC, then my BIC will act as the designated agent for the seller and I can fully represent you as your designated agent.
D. You don’t have to decide you want to hire me until you are ready to write an offer. Let’s start out by me just showing you homes.

A

R2-24 A

Whether working under an oral or written agreement, a licensee who is hired by a buyer must work to protect and promote the buyer’s interest. The licensee owes fiduciary duties to the buyer including confidentiality.

75
Q

When must a licensee get an Exclusive Right to Sell Listing Agreement signed?

A. before the seller receives an offer
B. at first substantial contact
C. prior to closing
D. at the time of employment or the start of the relationship

A

R2-25 D

There is no such thing as an oral listing agreement. The listing agreement must be in writing at the time of employment or the start of the relationship. If the licensee does not have a written listing agreement, they do not have a listing and may take no actions on behalf of the seller.

76
Q

A buyer’s agent is permitted to have an oral agency employment agreement with a buyer so long as the licensee gets the written employment agreement no later than the:

A. date of closing
B. time an offer is submitted
C. time an offer is accepted
D. formation of a contract between the seller and buyer

A

R2-26 B

A written buyer brokerage agency agreement must exist at the time an offer is submitted.

77
Q

A broker has an exclusive right to sell listing on a building. An offer to purchase the building is received while the owner is out of town. The offer requires a commitment from the seller before the seller is scheduled to return to the city. Under these circumstances, the:

A. broker may create a binding agreement on behalf of the seller
B. broker may collect a commission even if the transaction falls through because of the seller’s absence from the city
C. the buyer is obligated to keep the offer open until the seller returns
D. the broker must obtain the acceptance of the seller to effect a contract

A

R2-27 D

A contract cannot exist without an offer and acceptance by the parties to the agreement.

78
Q

Adam is a licensed real estate agent and has a written buyer agreement with Sally. At the time that Sally hired Adam she authorized exclusive agency only. Which of the following statements is true regarding the properties which Adam may show to Sally?

A. He is not allowed to show his company’s listings at all.
B. He may not show any of his firm’s listings without getting oral dual agency authorization
C. He may show an in-house listing, but must get written dual agency authorization prior to Sally making an offer.
D. He may show an in-house listing so long as he gets Sally to consent to dual agency authorization in writing before showing an in-house listing.

A

R2-28 D

Once a written buyer agency agreement has been created, the authorization for dual agency must also be in writing. The disclosure and consent for dual agency must occur before showing a property.

79
Q

At what point in the transaction must the real estate licensee have an agency discussion with the consumer and use the “Working With Real Estate Agents” brochure?

A. At initial contact.
B. At first substantial contact.
C. Prior to showing a home.
D. Prior to writing an offer.

A

R2-29 B

First substantial contact occurs when conversation between a broker and consumer shifts from facts about the property to possible confidential information about the consumer’s needs, wishes, and abilities or when the consumer or broker begins to act as if there is a fiduciary relationship.

80
Q

Jason is a licensee who is representing a seller. At the open house a buyer indicates that they are interested in purchasing the home. Jason has an agency discussion with the buyer, provides them with the Working with Real Estate Agents brochure and has the buyer sign a buyer brokerage agreement. What else must Jason have from both the seller and buyer in order to proceed with the transaction.

A. Written acknowledgement that the buyer and seller agree to the single agency representation.
B. Oral disclosure and consent to dual agency representation.
C. Since the parties have both signed a written employment agreement, nothing else is required.
D. Written disclosure and consent to dual agency representation.

A

R2-30 D

When both employment agreements are in writing, the licensee must have written disclosure and consent to dual agency when representing both parties in the transaction.

81
Q

When must a licensee working for a buyer reduce the oral agency employment agreement to writing?

A. Prior to submitting an offer.
B. Prior to showing a home.
C. At initial contact.
D. At first substantial contact.

A

R2-31 A

A licensee may work for a buyer under an oral employment agreement, so long as the written agreement is in place prior to submitting an offer.

82
Q

Acme real estate brokerage has been in business for many years. A new company, Flat Fee Listers, has been charging much less than the Acme firm charges to list and sell homes. At a recent company meeting the owner of Acme instructed their agents not to show any listings that were being sold by Flat Fee Listers. Such conduct:

A. is legal because Acme has the right as a brokerage firm to choose the companies with which it wants to work.
B. is considered an acceptable and normal business practice.
C. would likely be a boycotting violation under the Sherman Antitrust Act.
D. would be considered illegal redlining.

A

R2-32 C

The Sherman Anti-Trust Act prohibits unfair practices including boycotting other entities, market allocation and price-fixing.

83
Q

Sam was recently declared incompetent and his sister Sally was appointed his guardian by the courts. To raise funds to assist with Sam’s medical needs, Sally hires a real estate agent to sell a home which is in Sam’s name. A buyer is found and Sally signs the Offer to Purchase and Contract on behalf of Sam as his legal guardian. Is this legal?

A. Yes, because Sally is now a special agent on behalf of Sam.
B. No, the creation of a guardianship is always for medical needs and decisions only.
C. Yes, because a court appointed guardian would be able to enter into contracts on behalf of their ward.
D. No, only the court can enter into a legal contract on behalf of Sam since he has been declared incompetent.

A

R2-33 C

The purpose of a guardianship is to empower another person to act on behalf of someone else. The person taking action is the guardian and the person over whose affairs the guardian has control is called their ward.

84
Q

A broker has an Exclusive Right to Sell Listing Agreement with Fast-Food Market with a $4,000 commission fee. The same broker has a similar listing with Smithy-Hardware Store with a $7,000 commission. Due to changing demographics, the two stores decide to swap locations and ownership of the stores through a 1031 tax deferred exchange. In this case, the broker’s commission would be?

A. $7,000, assuming that Smithy-Hardware was listed prior to Fast-Food Market.
B. $4,000, assuming that Fast-Food Market was listed prior to Smithy-Hardware.
C. $11,000 because the broker assisted in the conveyance of real property.
D. None, because an exchange of real property is not a sale of the property that results in a commission payment.

A

R2-34 C

There is no reason the firm would not be entitled to both commissions. An Exclusive Right to Sell Agreement includes instances where the owner sells or transfers the property with or without the assistance of the brokerage.

85
Q

Mr. Jones makes a full price offer on a home contingent on his wife approving the contract within one week after the offer becomes legally binding. If the seller accepts Mr. Jones’ offer what is the status of the agreement between the parties to the contract?

A. Mr. Jones has created a binding contract which is not voidable. As a spouse, Mr. Jones can bind his wife to the agreement without her signature.
B. There is no contract in existence because all parties must sign a contract for it to be binding.
C. This is a valid agreement, although the contract will be voidable at the Jones’ option should Mrs. Jones not approve of the agreement.
D. This is an illegal agreement because an Offer to Purchase and Contract cannot include contingencies.

A

R2-35 C

Mr. Jones cannot bind his wife to an agreement. Her signature will be required for the transaction to close, however, this is a valid contingency and a contract exists.

86
Q

A licensee has a listing agreement with the seller. The seller dies before the agent can enter the listing into the MLS. What should the licensee do?

A. The property can be advertised but the licensee cannot show the property without probate court approval.
B. The agent can enter the information into the MLS and show the property, but the agent must wait for probate court approval of the heirs before receiving any offers.
C. There is no valid agreement and the agent must cease all activity.
D. There is still a valid agreement so the licensee should put the information into the MLS and is under an obligation of fiduciary duties to market the property on behalf of the heirs.

A

R2-36 C

All employment agreements including listings and buyer representation agreements are personal contracts for services and they terminate at the death of the party. The licensee no longer has a listing if the seller dies.

87
Q

An intoxicated individual enters into a sales contract to purchase a home. The contract would be considered:

A. valid
B. voidable
C. void
D. unenforceable

A

R2-37 B

When a person lacks capacity to enter into a contract the contract is voidable. It can be made void at the option of the person who lacked capacity or competency. The other party to the contract is not able to make it void. This same rule applies to minors who lack legal capacity.

88
Q

Smith and Baker executed a valid contract to buy and sell a home. The home burns down. What is the status of the contract?

A. The seller may void the contract.
B. The buyer and seller are still under contract and must go through with the terms as written.
C. The contract is voidable at the buyer’s option.
D. The contract is void.

A

R2-38 D

Destruction of the property would cause the contract to be void. Voidable occurs when a party lacks capacity or the parties have created contingencies which allows one of them to take action to void the agreement.

89
Q

A buyer is under an exclusive buyer’s agency agreement and using their buyer agent they submit an offer to a listing agent who then submits the offer to the seller. The parties have many discussions and negotiations. The seller decides to contact the buyer directly. During their phone call, the buyer and seller agree to the terms of the contract. The seller makes the changes and faxes them directly to the buyer. The buyer initials the changes, dates and signs the counteroffer and faxes it back to the seller. Neither the buyer’s agent nor the listing agent are aware of these communications. Which of the following is correct?

A. A contract has been formed because the parties reached an agreement, the agreement was signed and it was communicated to the seller.
B. The Uniform Electronic Transactions Act expressly forbids faxed copies to create legally binding contracts.
C. A contract has not been formed because all communication must go through the agents when an exclusive agency agreement exists.
D. The buyer and seller have violated NC licensing law by directly communicating.

A

R2-39 A

There is no prohibition against the parties communicating directly and here, that activity led to a binding contract. Licensees should properly advise their clients not to have direct communication with the other party, but such activity is not illegal or prohibited.

90
Q

An agency relationship is BEST established in what way?

A. Implied.
B. By an oral agreement.
C. In a written agreement.
D. Voluntarily.

A

R2-40 C

All answers are ways in which agency relationships get established. The question asks what is the BEST way. It is preferable to have written agreements so that the parties clearly know that an agency relationship has been created and understand their respective obligations and duties.

91
Q

Under North Carolina law and commission rules, which of the following is a correct statement regarding designated agency? I. The BIC cannot be a designated agent. II. An agent cannot be appointed as a designated agent if the agent has prior confidential knowledge about the other party in the transaction.

A. Both I and II
B. II only
C. Neither I nor II
D. I only

A

R2-41 B

Designated agency requires that the confidential information of the client not be shared with other agents in the office. If the agent already possesses the confidential information they cannot be appointed a designated agent. A BIC is permitted to be a designated agent, they just can never be a designated agent with a provisional broker in the same transaction.

92
Q

A buyer and seller enter into a contract. The seller backs out and the buyer sues for specific performance. What is the buyer seeking in this lawsuit?

A. A new contract
B. Transfer of the property
C. Deficiency judgment
D. Money damages

A

R2-42 B

Specific performance is a remedy for the default on a contract. Specific performance is a court action seeking to enforce the terms of a contract and force the parties to carry out contractual obligations. The buyer is seeking a court order to force the seller to sell the home.

93
Q

A buyer made an earnest money deposit of $1,500 and gave the licensee a due diligence fee of $500. The licensee submitted the offer to the seller. However, the buyer contacted the licensee and withdrew their offer before it was accepted. The licensee is responsible for taking what action with the earnest money and due diligence fee?

A. Both the earnest money and due diligence fees should be turned over to the seller.
B. The earnest money gets returned to the buyer, but the seller is entitled to the due diligence fee.
C. Both the earnest money and the due diligence fee should be returned to the buyer.
D. The seller will get to keep the due diligence fee, but the earnest money must be deposited into the trust account.

A

R2-43 C

A buyer can terminate or withdraw an offer at any time for any reason prior to acceptance of the offer. When this occurs all monies should be returned to the buyer. The buyer and seller did not enter into a contract.

94
Q

Which of the following is NOT true about the North Carolina Residential Property Disclosure form?

A. If the seller marks, “No Representation” on the form the licensee is relieved of their duty to discovery and disclose material facts.
B. If the form is not provided per the statute, the buyer may be able to cancel any resulting contract.
C. The use of the form is required of a seller even if no real estate licensee is involved in the transaction.
D. If the buyer rescinds the contract within the allowed time period both the due diligence fee and the earnest money deposit will be returned to the buyer

A

R2-44 A

A seller must complete the form, but is under no duty to disclose and may choose “No Representation.” However, regardless of how the seller completes the form, a licensee is always under an obligation to disclose all material facts to all parties in the transaction.

95
Q

A valid and binding contract is created by a seller when acceptance of an offer is:

A. communicated to either the buyer representative or the buyer
B. communicated either in writing or verbally to the listing agent
C. delivered in writing to the offeror
D. created by an affirmative act of the seller

A

R2-45 A

To create a binding contract the seller’s acceptance only needs to be communicated to either the buyer or the buyer’s representative. Although licensees must provide all documents to the parties immediately, but never later than 5 days, the delivery of the documents is not necessary to create acceptance and a binding contract.

96
Q

A seller’s residence is listed with a broker and the seller stipulates that they want to receive $100,000 from the sale and the broker can keep any amount higher than that as the commission. What type of listing agreement is this?

A. Exclusive agency listing
B. Exclusive right to sell listing
C. Open listing
D. Net listing

A

R2-46 D

When the broker agrees to provide the seller with a set amount and keep any additional money as a commission, it is a net listing. Net listings are legal, but not encouraged. Licensees involved in net listings must make certain that they have fulfilled their fiduciary duties to their clients regarding proper advice on the price and value of the property.

97
Q

The Statute of Frauds requires that certain agreements must be in writing in order to be enforceable. Which of the following types of agreements is subject to the Statute of Frauds?

A. Offers to purchase and contract
B. Buyer brokerage agreements
C. One year leases with tenants
D. Exclusive right to sell listing agreements

A

R2-47 A

The statute of frauds requires all contracts for the sale or transfer of real property to be in writing in order to be enforceable. Employment agreements and leases for less than 3 years do not have to be in writing pursuant to the statute of frauds.

98
Q

Which of the following is TRUE regarding the assignment of contracts?

A. Assigned contracts make the assignee solely liable in the event of breach.
B. Contracts may not be assigned without the seller’s permission.
C. An assignment transfers all rights and obligations of a contract to a third party.
D. Contracts are assignable, unless the contract specifically prohibits assignment.

A

R2-48 D

This is the general rule regarding the assignment of contracts. When a contract is assigned the assignor is still responsible if the assignee fails to perform unless the assignor is specifically released by the other party to the contract.

99
Q

Which of the following is TRUE regarding oral buyer agency agreements?

A. They are permitted up until a written offer is submitted on behalf of the buyer.
B. They must be for a set period of time.
C. If there is an oral agreement then the brochure “Working With Real Estate Agents” must be provided at the time the agreement is reduced to writing.
D. They can be exclusive, prohibiting the buyer from working with other agents.

A

R2-49 A

Oral buyer agreements are allowed as long as they nonexclusive and indefinite (they can’t restrict clients from working with other agents and can’t have a definite time period). The agreement must be reduced to writing before an offer is submitted or the agent tries to make the relationship exclusive. or for a definite time period. The brochure must be presented at first substantial contact whether the agreement is oral or written.

100
Q

Which of the following would not terminate a listing?

A. The real estate firm goes out of business.
B. The seller declares bankruptcy.
C. The listing agent leaves the real estate company for another firm.
D. The seller’s home burns down.

A

R2-50 C

The listing agreement is between the firm and the client. The listing agent is not a principal in the agreement.

101
Q

With regard to the Wood Destroying Insect Report, which statement is correct?

A. The seller is responsible for repairing all structural damage discovered.
B. The report determines that there is no sign of insects, but does not guarantee structural integrity.
C. The seller usually pays for the report.

A

R3-1 B

The Wood Destroying Insect Report is usually paid for by the buyer. It provides information as to the presence of insects, but it does not guarantee the status of structural integrity. If damage is found, that issue is subject to negotiation between the parties as to who pays for the repairs.

102
Q

Assume annual real estate taxes amount to $1,800 and have been paid in advance for the calendar year by the seller. If closing is set for September 15, which of the following is correct.

A. Credit seller $525, debit buyer $525
B. Credit buyer $525, debit seller $525
C. Credit seller $1,275, debit buyer $525
D. Credit seller $525, debit buyer $1,275

A

R3-2 A

Annual taxes are $1,800. The daily amount is $1,800 divided by 360 = $5 per day. From January 1 through August 30 is 240 days + 15 days for September = 255 days. The seller owes 255 days x $5 per day = $1,275. The seller paid $1,800 - $1,275 owed = $525. The seller will be credited the amount they overpaid of $525 and the buyer will be debited that amount at closing.

103
Q

Personal property taxes on a residential closing are normally: I. Prorated between the buyer and seller. II. Single entry debit to the seller if the personal property taxes are unpaid. III. No entry and disregarded if the personal property taxes are paid.

A. I & II
B. II and III
C. I & III
D. I only

A

R3-3 B

Usually the personal property taxes are the seller’s responsibility and are paid. When the personal property taxes have been paid, there is no entry on the HUD and the amount of the personal property taxes is disregarded.

104
Q

The type of interest usually charged on home loans is:

A. simple interest
B. compound interest
C. interim interest
D. accrued interest

A

R3-4 A

Usually mortgage loans are simple interest loans meaning that interest is charged only on the outstanding principal balance.

105
Q

The purpose of a percolation test is to:

A. test for brownfield cleanup requirements.
B. test a soil’s absorption or drainage capacity to accommodate septic systems.
C. test for soil toxins to assure they do not leach into the septic system.
D. test the potability of drinking water from a private well.

A

R3-5 B

A percolation (or perc) test is conducted on homes that have a septic system as opposed to a city sewer connection to make certain the septic tank can operate properly.

106
Q

What is the federal law which requires the lender to provide the borrower with a Good Faith Estimate and the booklet, “Shopping for Your Home Loan” within 3 business days of loan application?

A. Fair Credit Reporting Act
B. Real Estate Settlement & Procedures Act
C. Truth in Lending Act
D. Equal Credit Opportunity Act

A

R3-6 B

The Good Faith Estimate (GFE) and the booklet are required within 3 business days of loan application by the Real Estate Settlement & Procedures Act (RESPA).

107
Q

If a consumer receives 100% financing, which of the following types of loans would the consumer MOST likely be obtaining?

A. Conventional
B. Seller financing
C. FHA
D. VA

A

R3-7 D

Although there are other loans which provide 100% financing, the most common and heavily utilized 100% financing loan program is a VA loan.

108
Q

A buyer who has a VA loan has elected to pay the loan off early because the buyer inherited a large sum of money. Which of the following would be a correct statement?

A. VA loans may be paid off early with no penalty.
B. VA loans may be paid off early, but a 30 day prepayment penalty is allowed.
C. VA loans may be paid off early, but the lender may collect interest through the end of the month in which the loan payoff is received.
D. VA loans may not be paid off early.

A

R3-8 A

There is no prepayment penalty with VA loans. In fact, Conventional, FHA and VA loans do not have a prepayment penalty. However, on the payoff of an FHA loan the lender may collect interest for the entire month in which the loan is paid off.

109
Q

When calculating qualifying ratios, real property taxes are included when you calculate:

A. neither the housing expense nor the total debt of recurring obligations expense.
B. only the housing expense.
C. only the total debt of recurring obligations expense.
D. in both the calculation of the housing expense and the total debt of recurring obligations expense.

A

R3-9 D

When calculating debt ratios, the payment which is used to qualify the borrower is a PITI payment which includes the taxes and insurance. That same payment must be included in the total debt of recurring obligations.

110
Q

An adjustable rate mortgage (ARM) can BEST be described as:

A. one in which payments go up when the index to which it is based goes down.
B. one in which payments assure that the loan will be paid off at the end of it’s term.
C. one in which payments can go up or down depending on the fluctuation or changes in an index upon which it is based.
D. one in which payments are adjustable in the first few years, but then fixed.

A

R3-10 C

Adjustable rate mortgages can fluctuate either up or down. The change which occurs when the interest rate is adjusted is based on the margin and the index of the loan. The margin is a constant number set for the loan at the time the loan is made. The index is a number which will change based on financial markets.

111
Q

Which of the following ads would be considered a violation of Regulation Z requiring the disclosure of costs?

A. Only $235,000 for this beautiful home, Monthly payment is $1875 (PITI) with $3000 down and an APR of 12%.
B. Seller willing to finance at an interest rate of 10%.
C. Terrific commercial mortgage at 12% interest with just $5,000 down.
D. Fantastic residential loan can make you a home owner for just $1,000 down.

A

R3-11 D

Regulation Z, also known as the Truth in Lending Act or TILA requires disclosure of the APR amount and this ad must therefore include the APR, when trigger terms (use of any of the loan terms) is used in 1-4 family residential properties. Here, the trigger term is the amount of the down payment.

112
Q

All of the following statements are correct, EXCEPT:

A. The trustee receives naked or bare title from the trustor.
B. The trustor holds equitable title when a trust deed is used.
C. The beneficiary delivers a deed of reconveyance to the trustee when the loan is paid in full.
D. The trust deed conveys the power of sale from the trustor to the trustee.

A

R3-12 C

This statement is incorrect. The deed of reconveyance, which evidences payoff of the promissory note and releases the lender’s lien on the property is delivered by the trustee to the trustor at the instruction of the beneficiary.

113
Q

All of the following statements are correct, EXCEPT:

A. the payoff document in a mortgage is called the satisfaction of mortgage.
B. RESPA requires attorneys to close real estate transactions in North Carolina.
C. TILA or Regulation Z requires lenders and real estate agents to clearly explain the costs of a loan in advertisements when a trigger term is included in the advertisement.
D. the payoff document with a deed of trust is called the deed of reconveyance.

A

R3-13 B

The use of real estate attorneys is a matter of state law. RESPA does not dictate the use of real estate attorneys as closing agents, that is required because NC is an attorney state.

114
Q

Which federal law provides individuals with the right to check their own credit reports and demand that mistakes be corrected?

A. Truth in Lending Act
B. Real Estate Settlement and Procedures Act
C. Fair Credit Reporting Act
D. Equal Credit Opportunity Act

A

R3-14 C

The Fair Credit Reporting Act provides that consumers have a right to access their credit report at least once a year and provides a process for them to correct credit report errors. It also requires that lenders provide to consumers the identity and source of credit information that may have been utilized in a decision to deny credit.

115
Q

Which of the following Acts requires credit institutions to inform borrowers of the true cost of obtaining credit so that the borrowers can compare the costs of various lenders and avoid the uninformed use of credit?

A. Real Estate Settlement & Procedures Act
B. Fair Credit Reporting Act
C. Regulation Z
D. Equal Credit Opportunity Act

A

R3-15 C

Regulation Z or the Truth in Lending Act deals with the cost of obtaining credit and the true costs of that credit. It is why TILA imposes the inclusion of the Annual Percentage Rate (APR) in both advertising and as a separate disclosure to the consumers at closing.

116
Q

James Smith moved to North Carolina. What type of document will Mr. Smith be asked to sign that gives a security interest in the real property to the lender?

A. Promissory note
B. Security deed
C. General warranty deed
D. Deed of trust

A

R3-16 D

In NC borrower’s usually sign two documents for the lender, the promissory note (or the IOU) is the written promise to pay back all of the money under certain terms and conditions and the trust deed gives the trustee (neutral third party) a security interest in the property.

117
Q

When must the brochure, “Shopping for Your New Home Loan” and a Good Faith Estimate be provided to a borrower?

A. Within 5 business days of loan application
B. Within 7 business days of loan application
C. At the settlement meeting
D. Within 3 business days of loan application

A

R3-17 D

A borrower makes a loan application when they provide the lender with enough information upon which a credit decision could reasonably be based. Within 3 business days, the lender must provide the borrower with Good Faith Estimate (GFE) and the booklet “Shopping for Your New Home Loan.”

118
Q

A real estate agent has created a “Gratitude Program” where they provide a $100 gift certificate to a local restaurant each time a home inspector or a loan officer refers a client to them. Which federal law prohibits this type of referral fee or “kickback?”

A. Regulation Z
B. Real Estate Settlement & Procedures Act
C. Marketable Title Act
D. Truth In Lending Act

A

R3-18 B

RESPA prohibits a kickback or referral fee to a settlement service provider in connection with the referral of business in a real estate transaction. Both the home inspector and the loan officer would be considered “settlement service providers.”

119
Q

Which of the following best describes a package loan?

A. One loan is wrapped around another loan in the same transaction.
B. A term used by the Federal Reserve for loans made from the Reserve directly to member banks.
C. A term used in the secondary mortgage market when loans are purchased in bulk from lenders.
D. Both real and personal property are included in the loan.

A

R3-19 D

A package loan is one which covers both real and personal property. They are rare in residential transactions. In residential transactions we convey personal property with a separate Bill of Sale. However, if a commercial buyer were purchasing a restaurant and their lender combined the loan for the real estate and all of the restaurant equipment and personal property it would be considered a package loan.

120
Q

Which of the following is another name for the due-on-sale clause?

A. Defeasance clause
B. Acceleration clause
C. Subordination clause
D. Alienation clause

A

R3-20 D

An alienation clause and a due on sale clause are the same thing. They both mean that the borrower is alienating (selling or transferring) the real estate and must pay off the entire loan balance.

121
Q

In North Carolina, the closing attorney is usually selected by:

A. the buyer’s agent
B. the buyer
C. the closing agent
D. the bank

A

R3-21 B

The buyer typically selects the closing attorney and pays the closing attorney’s fees.

122
Q

In performing their duties, which would be a correct action by a Property Manager?

A. Paying for the capital improvements and repairs that need to be made in order for the premises to be in a fit and habitable condition.
B. Spot checking credit histories for a large enough sample size of tenants to assure all tenants credit histories are in line with the property owner’s credit history criteria.
C. Analyzing the capital gains and tax advantages of the rental property and providing regular investment reports to the owner.
D. Offering concessions to all prospective tenants to induce tenants to fill those vacancies.

A

R3-22 D

Concessions are inducements to retain or attract tenants and with the permission and consent of the owner are often offered by property managers.

123
Q

An amortized loan payment includes:

A. principal and interest payments
B. principal, interest, taxes and insurance (PITI) payments
C. principal payments only
D. interest payments only

A

R3-23 A

An amortized loan is a loan in which each level payment includes a portion that is applied to principal and a portion that is applied to interest.

124
Q

Which of the following best describes subordination?

A. An insurance company which is stepping into the shoes of their insured in order to recover losses that they have paid
B. Entering into a mortgage agreement with the lender
C. A waiver of lien priority of one lender to another lender
D. Selling a loan to the secondary mortgage market

A

R3-24 C

One lender may waive their lien priority and allow other lenders to be in a high lien priority. This is subordination. The superior lien would have to waive its rights in order for a junior lien to be paid ahead of it.

125
Q

An owner’s equity is best represented as:

A. the property’s original market value minus its original cost
B. the current appraised value of the property
C. the amount of money the owner has repaid the lender
D. the difference between the market value and the remaining mortgage owed

A

R3-25 D

The equity created in a property would be that amount over all of the liens and monies owed, or the difference between the market value and what is owed. While the homeowner owns the property we would refer to this as equity. If they sell the home it would be their profit.

126
Q

Shortly before the sale of their property the seller obtained a loan on the property and failed to disclose this lien to anyone. Because of the timing of the loan, it did not show up in any recorded documents prior to the sale. At closing the borrower obtained title insurance which paid off the loan when it later appeared as a lien on the borrower’s newly acquired property. The title insurance may have the right to recover the money and get reimbursement from the seller through the concept of:

A. policy contribution
B. subordination
C. subrogation
D. containment

A

R3-26 C

This is a good example of why buyers should obtain title insurance. The title insurance typically insures all judgments and liens have been satisfied at the time the property is transferred. The buyer could have the claim covered by title insurance, but the title insurer will have the right to recover their losses from the seller who caused the loss. The right of insurance companies to recover their losses or seek reimbursement is known as subrogation.

127
Q

In order for a deed of trust to be valid, it must contain which of the following?

A. The signature of the trustor
B. The lender’s signature
C. A seal or notarization
D. The trustee’s signature

A

R3-27 A

The only person who must sign the deed of trust is the trustor. Generally, only the person who is giving up or surrendering a right must sign the document. We only require the grantor to sign a deed and we only require the trustor to sign the trust document because they are giving up a right or an interest in the property as collateral for the loan.

128
Q

Which of the following best describes an open-end mortgage?

A. A mortgage contract providing for advances from a lender, up to, but not exceeding a specific amount.
B. A mortgage given by the buyer to the seller to cover all or a portion of the purchase price.
C. One mortgage covering two or more parcels.
D. A mortgage with flexible terms.

A

R3-28 A

Also known as a HELOC or home equity line of credit, this type of loan allows the borrower to continue to borrower money up to a specific amount. Payment is based on the amount borrowed. Credit cards are a type of open end loan.

129
Q

When a rental property is transferred or sold and there are valid leases for market rents, what is the status of the leases on the property?

A. The new owner must honor the leases for a minimum six month period.
B. The leases are void and extinguished at the time of the sale or transfer.
C. The leases are valid and must be honored by the new owner.
D. The new owner has the option of honoring or cancelling the leases.

A

R3-29 C

Sale or transfer of a property does not terminate a lease. The leases travel with the property and must be honored by the new owner.

130
Q

In which type of loan are release provisions normally contained?

A. RAM loan
B. Package loan
C. Subordinated loan
D. Blanket loan

A

R3-30 D

A blanket loan covers more than one parcel. When this occurs it is typical for the blanket loan to contain a release provision. A release provision provides for a particular parcel to be released from the loan or lien upon a predetermined reduction in the amount of the principal.

131
Q

If closing takes place on June 18th and the real property taxes have not been paid, what would be the appropriate entry on the settlement statement?

A. debit seller/credit buyer for the buyer’s portion of the taxes
B. credit seller/debit buyer for the seller’s portion of the taxes
C. debit seller/debit buyer to collect the total amount of the taxes
D. debit seller/credit buyer for the seller’s portion of the taxes

A

R3-31 D

If the taxes are unpaid, debit the seller for the amount of taxes for the time that they were in the property, credit that same amount to the buyer. When the buyer gets the full tax bill they will be responsible for it all, but will have collected at closing, funds to cover the period of time during which the seller was in possession of the property.

132
Q

Under which federal act is the use of Annual Percentage Rates (APR) required to be included in advertising when a trigger term is placed in the ad?

A. Real Estate Settlement Procedures Act
B. Equal Credit Opportunity Act
C. Sherman Anti-trust Act
D. Truth in Lending Act

A

R3-32 D

The Truth in Lending Act requires the disclosure of the true costs of obtaining credit. It is also known as TILA or Regulation Z.

133
Q

Discount points are best described as:

A. Points are used to offer the borrower a below market interest rate as opposed to the par rate, while at the same time increasing the lender’s yield
B. Points are used to reduce the borrower’s closing costs.
C. A dollar amount needed to improve the value and marketability of bundled loans.
D. Fees charged by lenders that allow the banks to receive an upfront amount of money that they can then reinvest in new mortgages.

A

R3-33 A

Each point that a bank charges reduces the borrower’s interest rate by .125% (1/8 of one percent). When the borrower buys down the rate they are paying points to increase the lender’s yield on the loan in exchange for paying a lower interest rate.

134
Q

Which of the following may qualify for a VA loan?

A. Any immediate family member of the veteran.
B. Any U.S. citizen may qualify for a VA loan.
C. Veterans and certain widows or widowers.
D. Veterans, their children and grandchildren.

A

R3-34 C

In order to obtain a VA loan, a veteran must obtain a Certificate of Eligibility. In certain instances when the veteran is deceased the widow or widower may still be entitled to VA loan.

135
Q

When a borrower has repaid the amount in full that they borrowed and the borrower has used a trust deed what is the payoff document that the borrower receives called?

A. A satisfaction of mortgage
B. A deed of reconveyance
C. A defeasance document
D. A release of liability

A

R3-35 B

A loan in a title theory state, such as NC, is obtained with the borrower (Trustor) signing a Promissory Note and a Deed of Trust. The Deed of Trust conveyed the power of sale to the Trustee. Once the loan is paid off, the beneficiary will instruct the trustee to issue a deed of reconveyance (returning the power of sale) to the trustor.

136
Q

The federal law which requires lenders or “arrangers of credit” to disclose various information concerning the cost of credit to borrowers or consumers in connection with consumer loans, including real estate loans that are not made for business, commercial or agricultural purposes called?

A. Real Estate Settlement Procedures Act
B. Truth in Lending Act
C. The Good Funds Act
D. Marketable Title Act

A

R3-36 B

The Truth in Lending Act (aka TILA or Regulation Z) is the federal law requiring disclosure of the true costs of obtaining credit, including disclosure of the APR.

137
Q

All of the following are exempt from the Truth In Lending Act (TILA) EXCEPT:

A. Commercial loans
B. Agricultural purpose loans
C. Closed end residential loans
D. Business purpose loans

A

R3-37 C

The Truth in Lending Act applies to loans on 1-4 unit residential properties. The residential loan may have been an acquisition loan, a refinance loan or a home equity open end loan. All of these are still loans on residential property and are subject to the provisions of the Truth in Lending Act.

138
Q

A borrower has a three day right of rescission of their loan after the loan documents have been signed on which of the following types of properties?

A. The refinance of an owner occupied residence.
B. The purchase of an investment property.
C. The purchase of a commercial building.
D. The purchase of a primary residence.

A

R3-38 A

Under the Truth in Lending Act a borrower has a three day right of rescission on a refinance loan of their primary residence. The days are calendar days and the time commences from the time the actual loan documents are signed. The rescission does not apply to the purchase, only refinance loans.

139
Q

Under what circumstances is a lender required to waive a VA funding fee?

A. When a widow is applying for the VA loan.
B. When a disabled veteran is applying for the loan.
C. When the veteran is on active duty.
D. When a veteran has completed their term of active service.

A

R3-39 B

The funding fee is the charge paid at closing for the guarantee of the loan by VA. It is waived in certain circumstances, usually when the veteran has a disability.

140
Q

A borrower is obtaining a loan of $98,000 at an interest rate of 6%. What is the monthly interest that the borrower will pay at the time of the first payment if the loan is a 30 year fixed rate loan.

A. 588
B. 5880
C. 6200
D. 490

A

R3-40 D

Interest on mortgage loans is simple interest and paid on the outstanding balance only. At the beginning of the loan $98,000 x 6% = $5,880 in annual interest, divided by 12 = $490 per month.

141
Q

What is the clause in the loan documents that provides for the lender to release their interest in the property once the loan has been paid in full?

A. Deed of Reconveyance
B. Alienation
C. Satisfaction of Mortgage
D. Defeasance

A

R3-41 D

Defeasance comes from the word “defeated.” When a loan has been repaid in full, a process called defeasance occurs, meaning that the borrower has defeated the lender’s interest in the collateral. The defeasance clause requires the lender to release their lien when the promissory note has been paid in full.

142
Q

A due on sale clause in mortgage lending is also known as a(an) :

A. Defeasance clause
B. Alienation clause
C. Subordination clause
D. Acceleration clause

A

R3-42 B

Alienation means to sell or transfer. An alienation clause or due on sale clause means that if the owner sells or transfers the property, the entire loan balance is due and payable.

143
Q

Subject Property is 2000 sq ft. and has 3 bathrooms, 2 bedrooms and a garage. The comparable sold four months ago for $120,000 and is 2200 sq ft. There is 1 bathroom and 3 bedrooms. The comparable does not have a garage. Construction cost is $50 per sq ft. Bedroom value = $5000, Bathroom value = $2000, garage value = $6000. The property value in the area has increased 12% over the past year. Which would be the appraised value of the subject property?

A. $102,480
B. $126,810
C. $119,800
D. $112,260

A

R3-43 C

Comp price+4% appreciation+2 bathrooms-1 bedroom-200sf+garage=adjusted price
$120,000+$4,800+$4,000-$5,000-$10,000+$6,000=$119,800

144
Q

During the course of a sale, homes need to be appraised to be sure they are worth the price the buyer is willing to pay. Who selects the appraiser?

A. The appraiser is assigned by an appraisal management company selected by the lender
B. The buyer
C. The loan officer
D. The seller

A

R3-44 A

Federal law requires that the appraisal for a borrower obtaining a loan must be obtained through an appraisal management company. Lenders work with appraisal management companies and the specific appraiser is assigned on a rotating basis at random.

145
Q

A seller has requested a real licensee prepare a comparable market analysis. The potential seller’s home is located in an older neighborhood. The home is 2,300 square feet. The only other home the agent can find as a comparable is a 2,500 square foot home in an older neighborhood. Assuming that a square foot is valued at $100.00, what adjustment should the agent make?

A. Add $20,000 to the subject property.
B. Subtract $20,000 from the subject property.
C. Add $20,000 to the comparable property.
D. Subtract $20,000 from the comparable property.

A

R3-45 D

Adjustments are always made to the comparable property, not the subject property. Because the comparable is superior (200 square feet bigger) the agent must subtract $20,000 from the comparable property.

146
Q

A provisional broker is trying to determine the value of an office building. Which valuation approach would be the most important in determining the value of the building?

A. Cost approach
B. Comparable market analysis
C. Market approach
D. Capitalization approach

A

R3-46 D

The capitalization approach is used for income producing properties. Commercial properties such as the office building are being purchased for income purposes and therefore would rely most heavily on applying and analyzing capitalization rates.

147
Q

If the licensee can determine the net operating income for the property and they know the market capitalization rate for similarly situated buildings, the licensee can calculate:

A. the sales price of the building
B. the actual return on investment for the buyer
C. the cost of the building
D. the value of the building

A

R3-47 D

The net operating income divided by the market capitalization rate will provide the value of the building.

148
Q

An appraiser in valuing a property using the cost approach would rely on all of the following, EXCEPT:

A. the cost of building materials
B. the labor required to construct the structure
C. the age of the structure
D. the net income of the property

A

R3-48 D

the net operating income would be used in the income approach, not the cost approach

149
Q

A subject property was built in 2010. The best comparable properties that the agent has identified were all built prior to 2000. In creating a CMA, which of the following is correct regarding the adjustments that the licensee must make?

A. Adjust the subject property up for its age
B. Adjust the comparable properties down for their age
C. Adjust the subject property down for its age
D. Adjust the comparable properties up for their age

A

R3-49 D

The adjustments are always made to the comparable property, not the subject property. Compared to the subject property the age of the comparable is inferior and therefore the comparables will have to be adjusted up for their age.

150
Q

A shopping center in a neighborhood was recently vacated by the tenants. The shopping center is now run down with a lot of vacant shops and high crime which is adversely affecting the value of the homes in the neighborhood, an appraiser would refer to this as:

A. economic obsolescence
B. functional obsolescence
C. external depreciation
D. obsolete functionality

A

R3-50 A

When a property suffers a decrease (diminution) in value due to external neighborhood issues it is called economic obsolescence. Functional obsolescense occurs when the property itself has outdated or obsolete features.

151
Q

Last year your firm managed a 48-unit apartment building. Two units were four-bedroom, penthouse units renting for $1,000 per month. Twenty-five units with three bedrooms and two baths rented for $850 per month. Ten two-bedroom units rented for $750 per month, and 11 one-bedroom apartments with balconies rented for $650 per month. The three-bedroom units carried a 5% vacancy; the two-bedroom units carried a 5% vacancy; the one-bedroom units carried a 10% vacancy. The management fee is 12 %. How much commission did your firm gross last year from managing this building?

A. $45,480
B. $50,036
C. $51,476
D. $53,136

A

R4-1 C

152
Q

A landlord would be allowed to utilize a tenant’s security deposit for all of the following, EXCEPT:

A. to remove stains on the carpet that are beyond ordinary wear and tear.
B. to repaint due to unauthorized paint colors that were used on the wall.
C. for dirty walls and windows.
D. to cover crayon and permanent marker drawings on a wall.

A

R4-2 C

Deductions can only properly be made from a tenant security deposit for damages caused by the negligence of the tenant and not ordinary wear and tear items. The landlord must itemize all deductions.

153
Q

What is the maximum amount that a lessor can charge a tenant as a monthly fee when rental payments are not made in accordance with the lease provisions.

A. $15.00 or 5% of the monthly rent, whichever is less
B. $5.00 or 15% of the monthly rent, whichever is less
C. $15.00 or 5% of the monthly rent, whichever is greater
D. $5.00 or 15% of the monthly rent, whichever is greater

A

R4-3 C

If the monthly rent is $200, then the lessor could charge $15 since 5% of $200 is $10.00. If the monthly rent is $800, then the landlord could charge $40.00 since that is 5% of $800 and is larger than $15.00.

154
Q

Which of the following may a tenant use as a defense in an eviction proceeding?

A. Self help eviction
B. Summary ejectment
C. Retaliatory eviction
D. Judgment summation

A

R4-4 C

Retaliatory eviction occurs when a tenant has made a legitimate complaint or request either to a regulatory agency and in response the lessor has attempted to evict the tenant from the property or the lessor has disproportionately increased the rent. The tenant has a defense to a potential eviction action for 12 months after the complaint by claiming that the eviction is retaliatory.

155
Q

A residential lessor or landlord must provide an itemized security deposit accounting to a tenant:

A. immediately upon lease termination
B. within 7 days of lease termination
C. within 3 days of lease termination
D. within 30 days of lease termination

A

R4-5 D

The lessor or landlord must provide the tenant with an itemized security deposit within 30 days of lease termination. If there are additional invoices or receipts which the lessor needs to obtain the final accounting and distribution of all funds must occur within 60 days.

156
Q

Joe, a lessor and landlord, has been renting a small apartment to Sally under a written lease. If Joe defaults on his mortgage payment and the bank forecloses on the property, which of the following clauses would best protect the tenant?

A. Survivorship clause
B. Assignment clause
C. Right of first refusal clause
D. Right of quiet enjoyment

A

R4-6 D

The right of quiet enjoyment is not a right to be free of “noisy” neighbors. The covenant of quiet enjoyment which is included in leases means the right not to have the leasehold disturbed by outside parties claiming a superior interest in the property (i.e. the bank).

157
Q

In performing their duties, which would be a correct action by a Property Manager?

A. Offering concessions to all prospective tenants to induce tenants to fill those vacancies.
B. Analyzing the capital gains and tax advantages of the rental property and providing regular investment reports to the owner.
C. Paying for the capital improvements and repairs that need to be made in order for the premises to be in a fit and habitable condition.
D. Spot checking credit histories for a large enough sample size of tenants to assure all tenants credit histories are in line with the property owner’s credit history criteria.

A

R4-7 A

Concessions are inducements to retain or attract tenants and with the permission and consent of the owner are often offered by property managers.

158
Q

When a rental property is transferred or sold and there are valid leases for market rents, what is the status of the leases on the property?

A. The leases are void and extinguished at the time of the sale or transfer.
B. The leases are valid and must be honored by the new owner.
C. The new owner must honor the leases for a minimum six month period.
D. The new owner has the option of honoring or cancelling the leases.

A

R4-8 B

Sale or transfer of a property does not terminate a lease. The leases travel with the property and must be honored by the new owner.

159
Q

Which of these is a provision of the North Carolina Rental Agreements Act?

A. A fair and equitable security deposit must be charged before a lease is considered valid.
B. Landlords must provide and maintain premises that are fit and habitable.
C. Leases in shopping centers may be cancelled by the tenants if business is poor and the lessor did not provide adequate signage and consumer traffic.
D. Tenants have the right to withhold rent if heat or other basic services are unavailable for more than ten consecutive days.

A

R4-9 B

This is an absolute duty of lessors and landlords. A lessor cannot limit or disclaim their obligation to keep the premises fit and habitable.

160
Q

The obligations of a property manager to the owner are PRIMARILY determined by:

A. drafted lease agreements
B. the Residential Rental Agreements Act
C. the common law of agency
D. the written property management agreement and fiduciary duties

A

R4-10 D

The property manager works for the owner pursuant to the terms of a written property management agreement which establishes an agency relationship. The property manager owes fiduciary duties to the property owner over the tenants.

161
Q

What is the BEST way for a property manager to minimize problems with a tenant?

A. To talk with the tenant about the tenant’s conduct
B. To discuss and give a copy of the rules and regulations to the tenant
C. To report the tenant to the appropriate authorities
D. To involve the NCREC in an arbitration hearing with the tenant

A

R4-11 B

Providing the tenant with the provisions of the Tenant Security Deposit Act and the Residential Rental Agreements Act is the best approach.

162
Q

When must tenant security deposits in North Carolina be held in a trust account?

A. Only when the property is managed by a licensed property manager
B. Only if the property is managed or owned by a licensee
C. Only if the tenant demands that the interest on the deposit be paid to the tenant
D. All tenant security deposits must be held in a trust account

A

R4-12 D

The NC Tenant Security Deposit Act requires all tenant security deposits to be held in a trust account whether managed by a licensee or a private invidividual. Private individuals may also post a bond in lieu of holding the funds in a trust account.

163
Q

Which of the following is least likely to terminate a lease?

A. The property is taken by eminent domain
B. The lessor sells the property
C. The tenant dies
D. The landlord dies and leaves the property in their will to their heirs.

A

R4-13 B

Sale of a property does not terminate the lease. The new owner must honor the existing lease agreement.

164
Q

Violations of federal and state fair housing laws can result in which of the following?

A. A fine
B. Imprisonment
C. NCREC disciplinary action
D. All of the above

A

R5-1 D

The violation of fair housing laws is both a civil and a criminal violation. Penalties can include fines, imprisonment and disciplinary action by the NCREC including suspension or revocation of the real estate license.

165
Q

How long does a consumer have to file a fair housing complaint under federal law?

A. 90 days
B. 80 days
C. 1 year
D. 2 years

A

R5-2 C

Fair housing complaints are filed with HUD or HUD approved local enforcement agencies. The complaint must be filed within 1 year of the time of the alleged violation.

166
Q

A residential property built in 1950 is currently on the market for sale. The owner is required to give which of the following to a potential purchaser?

A. All of the applicable zoning regulations.
B. Lead based paint disclosure.
C. EPA report.
D. Water potability test results.

A

R5-3 B

The lead based paint disclosure is mandatory under federal law. The borrower gets the disclosure, the lead based paint pamphlet and any reports that may be in the possession of the seller regarding lead based paint.

167
Q

An individual sold their primary residence after owning and occupying the home for a minimum of two years out of the last five. They used the proceeds of the sale to purchase an investment property. Which of the following statements is correct?

A. In order to avoid paying income tax on the gain from the sale of residence the owner should consider a 1031 tax deferred exchange since they are purchasing an investment property
B. All of the gain that is realized on the sale of the home will be rolled forward and not be taxed until the eventual sale of the investment property
C. The gain on the home will not be taxed unless it exceeds $250,000 if the individual is single or $500,000 if they are married.
D. The individual will be taxed on the entire gain from the home regardless of how they reinvest the proceeds from the sale.

A

R5-4 C

When a property has been utilized as a primary residence for 2 out of the last 5 years, the gain is not taxed unless it exceeds $250,000 if the individual is single or $500,000 if they are married. A 1031 tax deferred exchange is not permitted on a primary residence, neither at the time of acquisition nor the time of sale.

168
Q

Bob Jones, an elderly white businessman, owns a four-plex apartment building. He lives in one of the units and uses it as his primary residence. He personally manages all matters pertaining to the rental of the apartments and does not use a real estate firm to manage the property. He openly refuses to rent to an individual based on their race. Bob Jones is in violation of:

A. The 1968 Fair Housing Act
B. The 1866 Civil Rights Act
C. The NC Fair Housing Act
D. All of the above

A

R5-5 B

he 1866 Civil Rights Act prohibits discrimination based on race or color. There are no exemptions for discrimination based on race or color. While there are exemptions for rental units in a 1-4 unit building under both the NC Fair Housing Act and the 1968 Fair Housing Act, those exemptions do not apply to issues of race or color, which has been illegal since 1866.

169
Q

The Americans with Disabilities Act (ADA) requires which of the following?

A. Landlords of 1-4 unit residential property may not discriminate on the basis of a disability
B. A residential tenant with a handicap has the right to modify their unit, but can be required to restore the modifications at the end of the tenancy
C. Commercial and public buildings must have accessibility for those with a handicap or disability
D. A tenant of a duplex may have an assistive animal if a medical professional has indicated that the animal is necessary due to a disability

A

R5-6 C

ADA applies to commercial and public buildings. All of the other answers are required, however, they are required on residential property by the Fair Housing Act, not because of ADA.

170
Q

All of the following are protected classes under the 1968 Fair Housing Act and it’s 1988 Amendments, EXCEPT:

A. A couple or an individual who has a 17 year old son living with them.
B. pregnant women
C. a couple from China
D. a 68 year old individual

A

R5-7 D

Age is not a protected class under the federal Fair Housing Act, therefore based on the information given, there is nothing to indicate that this individual is within a protected class.

171
Q

Several friends got together to form a business entity. Many of them have invested some money, but have no liability for the actions of the business beyond the amount of their investment. This type of business arrangement would be best classified as a:

A. sole proprietorship
B. a limited liability corporation
C. a limited liability partnership
D. a joint venture arrangement

A

R5-8 C

There are two types of partnerships. A general partnership where each partner is liable for all of the actions of the partnership as well as the actions of the other general partners. In a limited partnership or a limited liability partnership the limited partners are liable only to the extent of their investment.

172
Q

Which of the following would NOT require a professional license in order to conduct business?

A. a property manager who is managing the property of another
B. a mortgage broker or mortgage banker
C. an appraiser
D. a professional home stager

A

R5-9 D

A professional home stager is not a licensed individual.

173
Q

In order to be entitled to the owner occupied residence tax exclusion from capital gains, how long must homeowners reside in their primary residence?

A. Two out of the last three years.
B. Two out of the last five years.
C. Three out of the last five years.
D. One out of the last three years.

A

R5-10 B

The capital gains tax exclusion for the sale of a primary residence requires that the homeowner lived in the property for at least two years out of the last five years prior to sale. The homeowner may realize a tax free gain of up to $250,000 if single and $500,000 for married couples. The amounts are on the gain of the sale, not the sales price.

174
Q

A property manager operates an apartment complex with a “no pets” policy. A blind lady with a seeing eye dog wants to rent a unit. Which of the following is correct?

A. So long as the property manager has been uniformly enforcing the “no pets” policy they do not have to make the unit available to this prospective tenant.
B. The property manager must rent to the tenant, but may charge a reasonable pet deposit for any damage that might likely be caused by the animal.
C. The property manager must rent the unit and may not charge an additional deposit for the animal.
D. The property manager must follow the instructions of the property owner as to whether or not to allow the animal.

A

R5-11 C

No deposits can be charged for assistive animals that are necessary due to a disability or handicap. The tenant may be required to provide a letter from a medical professional that the animal is necessary for a disability. The property manager must rent the unit.

175
Q

An investor is interested in purchasing an apartment building. The potential gross income for the building is $200,000 per year. Vacancy and collection losses total $50,000 per year. Management fees and operating expenses total $40,000 per year and the debt service to the lender is $80,000 per year. If the investor desires a 20% capitalization rate, what is the maximum amount that they should pay for the building?

A. $550,000
B. $1,000,000
C. $750,000
D. $55,000

A

R5-12 A

The NOI (net operating income) is determined by starting with the potential gross income of $200,000 minus the credit and collection losses of $50,000 to determine effective gross income of $150,000. From the $150,000 effective gross income, subtract the operating expenses of $40,000 (the debt service is not included as part of the operating expenses. The NOI is $110,000 divided by the cap rate of 20% = a value of $550,000.

176
Q

Which of the following would NOT be considered a violation of both federal and state fair housing laws?

A. Telling a prospective tenant that a property is not available for rent, when the property is still available.
B. Charging a higher rate for families with small children to compensate the owner for damages likely to be caused by the children.
C. Instructing a buyer that they may not want to live in a certain area.
D. Refusing to work with an Asian couple who does not qualify for a loan.

A

R5=13 D

Inability to qualify for a loan whether based on insufficient income or poor credit is not a protected class and therefore, no violation would exist in this example.

177
Q

The income capitalization approach would most likely be used in determining the value of which of the following properties?

A. The valuation of raw land
B. The valuation of a newly constructed home
C. The valuation of an apartment building
D. The valuation of a church

A

R5-14 C

The apartment building is an income producing property and would most likely be valued using the capitalization approach.

178
Q

When a borrower obtains a loan on a property, federal law requires that the borrower obtain a flood certification. All of the following are true about flood certifications, EXCEPT:

A. if the property is located in a flood zone delineated on the flood certification the borrower must obtain flood insurance.
B. the entity which issues flood certifications is FEMA, the Federal Emergency Management Agency.
C. the FEMA flood maps are created by the Army Corp of Engineers.
D. the borrower may not purchase the property if it is located in a flood zone.

A

R5-15 D

Flood certifications must be obtained from FEMA by the lender prior to placing a loan on a property. The FEMA flood maps are created by the Army Corp of Engineers and if the property is located in a FEMA flood zone the borrower must acquire flood insurance. They may still buy the property but they either must have the insurance or pay cash and not obtain a loan.

179
Q

What is a homeowner’s adjusted basis given the following? The property was purchased at a price of $350,000 with a loan of $245,000. The owner did exterior painting at a cost of $5,000, added a sunroom at a cost of $25,000, installed a new roof of $4,000 and paid closing costs at the time of purchase in the amount of $4,500.

A. $379,500
B. $21,500
C. $350,000
D. $376,500

A

R5-16 A

Adjusted basis is determined by the sales price + allowable closing costs + capital improvements. $350,000 purchase price + closing costs of $4,500 = $354,500 + $25,000 for the sunroom addition = $379,500. The amount of the loan is irrelevant. Maintenance costs such as roof and painting repairs are not capital improvements.

180
Q

The Quinn’s purchased a home to use as an owner occupied residence for $295,000. They received a 90% mortgage and paid $5,310 in annual mortgage interest. In their first year of ownership they also paid $4,500 in real estate taxes. They spent $5,000 on new tiling and made capital improvements by adding a deck for $10,000 and installing a $20,000 pool. They also repainted the home for $2,000. What amount are the Quinn’s entitled to as a tax deduction on this property?

A. $4,500
B. $14,810
C. $9,810
D. $39,810

A

R5-17 C

On an owner occupied residence a tax deduction is permitted for mortgage interest and real estate taxes. $5,310 + $4,500 = $9,810. The owners do not get a tax deduction for capital improvements or repairs.

181
Q

An investor is selling a commercial property which is free and clear for a price of $750,000. The investor is planning on doing a 1031 tax deferred exchange and acquiring another investment property. The investor decides to reinvest $700,000, but to keep $50,000 of the proceeds for other purposes. Which of the following statements is true?

A. The investor may not keep any of the proceeds and must reinvest the entire amount that he realizes from the sale.
B. If the investor keeps any funds from the sale the entire amount of $750,000 may become taxable as a capital gain.
C. The investor must still invest the $50,000 into real estate.
D. The investor may keep all or any portion of the funds. The portion the investor keeps and does not reinvest will be called “boot” and is taxable.

A

R5-18 D

“Boot” is the amount of proceeds which an investor does not reinvest in the replacement property. An investor may keep any portion they desire, but the portion kept will be taxed as a capital gain.

182
Q

An investor is interested in purchasing a building for $345,000. The net operating income of the building is $45,000. What is the capitalization rate on the building?

A. 13%
B. 76%
C. 1.3%
D. 130%

A

R5-19 A

A capitalization rate is determined by taking the NOI (net operating income) and dividing it by the building’s value. $45,000 divided by $345,000 = 13%

183
Q

All of the following are exemptions under federal fair housing law, EXCEPT:

A. a owner who is renting property when they own less than three properties and do not use the services of a licensed property manager
B. a religious organization who owns property and refuses to rent units to members of another faith or religion
C. a landlord who is renting out one unit of a duplex while occupying the other unit
D. a for sale by owner, not using the services of an agent who refuses to show their home to someone who has children

A

R5-20 A

A landlord is subject to fair housing law, regardless of the number of units they own and whether they use the services of a licensee or not. They are only exempt when renting out units in properties which they occupy (1-4 unit properties)

184
Q

A prospective tenant visits a property management company. The tenant is an elderly male, age 80, with hearing and mobility issues. He requests to only be shown units in buildings that are not near or that contain children, because he is afraid that the children will knock him down and he does not want to hurt a child or himself. In this case, what should the property manager do?

A. Comply with his wishes due to the Americans with Disabilities Act.
B. Comply with his wishes because due to his age he is in a protected class.
C. Show him those units for "adults only" because that is in the best interests of everyone's safety.
D. Not follow his instructions and explain to him the protected class of familial status.
A

R5-21 D

The tenant’s request is an illegal one. Families with children are protected under the class of familial status.

185
Q

The following are all correct statements under the Housing for Older Persons Act (HOPA), EXCEPT:

A. the complex or development may require that all residents of the home are 62 or older and those tenants occupy 100% of the units or that 80% of the units are occupied by at least one resident over the age of 55.
B. HOPA added the protected class of age to fair housing
C. the complex or development must verify the ages of residents and must advertise as an age restricted community
D. HOPA permits a properly created retirement community to be exempt from familial status and discriminate against families with children under the age of 18

A

R5-22 B

Age is not a protected class within fair housing laws. HOPA did not create the protected class of age, but did allow certain areas if they met requirements to exclude children from living there.

186
Q

Real estate licensees as well as firms may choose many types of business entities. Which of the following forms of business ownership would not require the licensee to obtain a firm license in North Carolina?

A. a limited liability corporation
B. a partnership
C. a subchapter S corporation
D. a sole proprietorship

A

R5-23 D

A sole proprietorship is a way of doing business that does not involve the creation of a formal business entity. There is no liability protection or tax advantages to having a sole proprietorship. Since it is not an entity it is a form of business ownership in North Carolina that does not require a firm license.

187
Q

Directing that sellers should move out of a neighborhood due to declining values caused by the racial, ethnic or religious background of residents is a fair housing violation that is most properly classified as:

A. familial status
B. blockbusting
C. redlining
D. steering

A

R5-24 B

Forcing or encouraging sellers to sell due to ethnic or racial changes is blockbusting. It is sometimes called “panic peddling.” When buyers are directed to or away from certain areas that would most likely be classified as steering.

188
Q

In North Carolina which of the following is correct? I. Statewide building codes set minimum standards for construction II. A certificate of occupancy must be issued before a structure can be occupied III. Unpermitted construction or remodeling is a material fact and must be disclosed by licensees

A. I and II
B. II and III
C. I and III
D. I, II and III

A

R5-25 D

All three of these statements is true. In NC, building codes exist at the state level and are enforced at the local or municipal level. Certificates of Occupancy also knows as (C of O) are issued by local permit departments to verify that all construction is properly done and unpermitted areas are a material fact. They affect square footage, value, safety and insurability.

189
Q

R-Value indicates the level of heat resistance. It is usually attached and associated most closely with insulation qualities of homes. Which of the following is correct?

A. The lower the R value the more economical the home will likely be to own
B. The higher the R value the more economical the home will likely be to own
C. Real estate professionals are expected to research and disclose R values
D. The R value refers to a reduction in the materials used to construct the home

A

R5-26 B

Many factors will affect the economical ownership of a home, but the higher the R value, the higher the home’s resistance to heat transfer and homes with a high R value of insulation will likely result in lower utility bills for the owner.

190
Q

All of the following are part of a home’s wall framing, EXCEPT:

A. studs
B. girders
C. sole plate
D. headers

A

R5-27 B

Girders rest on top of piers and support the floor joists between the sills. They are part of the floor framing, not the wall framing.