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exam c Flashcards

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1
Q
  1. Jeff and Susan enter a real estate office asking to see a property listed with another brokerage office. A real estate salesperson calls the listing agent and makes an appointment to show the couple the property. Without having the couple sign a written buyer agency contract, the salesperson drives Jeff and Susan to the house, and even recommends that before they buy the house they secure an independent property inspection. He also confides to the couple that he knows the owners are getting a divorce and want to sell the house quickly. In this case, the salesperson has created a(n)
    a. express agency relationship with the buyers.
    b. implied agency relationship with the buyers.
    c. general agency relationship with the buyers.
    d. universal agency relationship with the buyers.
A
  1. b. The answer is implied agency contract with the buyers. The salesperson has unintentionally created an agency relationship with the buyers. There is no formal oral or written agency contract with the buyers. Express agency occurs when two parties enter into an oral or written formal agency agreement. Universal agency empowers the agent to do anything the principal could do personally, such as authorized by a power of attorney. General agency allows the agent to act for the principal in a wide range of matters, as authorized, for example, in a property management contract.
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2
Q
  1. An unlicensed support person may do which of the following?
    a. Show property when the licensee is out of town
    b. Make cold calls trying to locate listing prospects
    c. Staff a booth at a home show
    d. Attend an open house with a licensee, but only for purposes of safety or disability-related assistance to the licensee
A
  1. d. The answer is attend an open house with a licensee, but only for purposes of safety or disability-related assistance to the licensee. An unlicensed person may not independently show property, make cold calls to the public, or staff a home show booth.
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3
Q
  1. A salesperson verbally agrees to represent a homeowner couple as clients in the sale of their principal residence. An agent in the same real estate office shows the home to a buyer, who presents a written offer. The listing agent is called
    a. a single agent.
    b. a transaction agent.
    c. the principal.
    d. a limited consensual dual agent.
A
  1. b. The answer is a transaction agent. Before a listing agreement is signed, the licensee cannot act as the agent for the owner. The listing agent can only act as a transaction agent.
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4
Q
  1. When should written agency disclosure be provided to a consumer?
    a. Immediately
    b. At the time of contract execution
    c. Within 24 hours of first contact with the consumer
    d. As soon as reasonably possible and before asking for any potential confidential information
A
  1. d. The answer is as soon as reasonably possible and before asking for any potential confidential information. This makes the consumer aware of different agency choices available before disclosing too much.
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5
Q
  1. The listing agent is most often
    a. a dual agent.
    b. a special agent.
    c. a general agent.
    d. either a special or a general agent, but almost never a dual agent.
A
  1. b. The answer is a special agent. Real estate brokerage agents are special agents, having only the ability to expose a property to the marketplace, show it, and negotiate. The listing agent does not have the ability to bind the seller to a contract. General agents, on the other hand, have the ability to bind their principals. A property manager is usually a general agent and may sign leases on behalf of the landlord, in addition to other commitments.
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6
Q
  1. You are the listing agent for a property under contract. After expiration of the inspection contingency period, the buyer sends you notice of contract cancellation and demands a full refund of the earnest money because you failed to disclose the known presence of asbestos floor tiles under the vinyl flooring in the game room. You should advise your client,
    a. “You had no duty to disclose this. You can agree to cancellation or not, but are under no obligation to do so.”
    b. “You had a duty to disclose. I recommend allowing cancellation.”
    c. “You had a duty to disclose. I recommend allowing cancellation but requiring a full release before we refund the earnest money.”
    d. “You had a duty to disclose and should allow contract cancellation, but you will still owe me the full commission for presenting a ready, willing, and able buyer.”
A
  1. a. The answer is “You had no duty to disclose this. You can agree to cancellation or not, but you are under no obligation to do so.” In this situation, the seller had no duty to disclose the presence of the asbestos tiles.
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7
Q
  1. In which of the following situations is RECAD disclosure NOT required?
    a. A corporation buys a single-family residence.
    b. An individual buys a single-family residence.
    c. An individual buys an office building.
    d. None of these; disclosure is required in all situations.
A
  1. a. The answer is a corporation buys a single-family residence. RECAD disclosures are required any time an individual buys or sells real estate. The character of the real estate—residential or commercial—does not matter. However, the identity of the buyer/seller—individual or artificial entity—does matter.
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8
Q
  1. A new real estate agent in town does not know very many local inhabitants. In order to build up her business, she targets owners of properties that have been listed for sale for more than 12 months. She assumes the reason for the failure to sell must be some fault of the listing agent. She tells each owner they have a right to expect better service and the legal grounds they can use to cancel their listing agreements with their current agents. This practice is
    a. a public service assisting under-represented homeowners.
    b. an illegal interference with a contractual relationship.
    c. legal because a listing agreement may be cancelled at will by the consumer after the first six months.
    d. unethical but legal.
A
  1. b. The answer is an illegal interference with a contractual relationship. Consumers can cancel listing agreements and choose another agent to represent them. They might owe two separate commissions as a result, but that sometimes happens. What is illegal is to take any action to persuade a consumer to cancel a listing agreement.
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9
Q
  1. A real estate professional is a licensed real estate salesperson who has a written contract with his broker that specifies that he will not be treated as an employee. The real estate professional’s entire income is from sales commissions rather than an hourly wage. Based on these facts, the real estate professional will be treated by the IRS as
    a. a real estate assistant.
    b. an employee.
    c. a subagent.
    d. self-employed
A
  1. d. The answer is self-employed. The real estate professional meets the IRS’s three requirements to be treated as a qualified real estate agent, and thus self-employed, which are that the real estate professional (1) is a real estate licensee, (2) has a written agreement with the broker indicating the licensee will not be treated as an employee by broker contributions to Social Security or the withholding of income taxes, and (3) earns a substantial portion of income from the firm in commissions, not wages.
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10
Q
  1. What type of arrangement is established when a broker helps a buyer and a seller with paperwork but does not represent either party?
    a. A transactional brokerage
    b. Prohibited in all states as a broker must always represent one party
    c. Dual agency
    d. Designated agency
A
  1. a. The answer is transactional brokerage. When a broker does not represent either party in a transaction and acts as a facilitator or nonagent, the arrangement is known as transactional brokerage and is legal in some states. Dual agency exists when an agent represents both the buyer and the seller in the same transaction. Designated agency exists when a broker acting as a dual agent for both parties in a transaction assigns an individual agent to represent the seller and another agent to represent the buyer in the same real estate transaction; each agent is known as a designated agent.
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11
Q
  1. The estimated net sheet for a residential real estate transaction must be prepared by the
    a. listing and selling agent for her own customer or client.
    b. listing agent.
    c. selling agent.
    d. title company.
A
  1. a. The answer is Listing and selling agent for her own customer or client. Buyers and sellers must be given a net sheet before they sign an offer, acceptance, or counteroffer.
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12
Q
  1. Stuart, a salesperson representing a buyer, is told that the buyer plans to operate a pet grooming business out of any house he buys. Stuart does tell the buyer to verify local zoning ordinances to determine in which parts of town such a business can be conducted. Which duty does Stuart violate?
    a. Obedience
    b. Care
    c. Loyalty
    d. Disclosure
A
  1. b. The answer is care. A salesperson must use his or her skills and knowledge to protect the client’s interests in purchasing. In this case the salesperson should have told the buyer to verify local zoning ordinances that might prohibit a buyer conducting a business from a home. All salespersons and broker’s owe this duty and the disclosure of material facts to the consumer. An agent would owe obedience and loyalty to the principal.
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13
Q
  1. A licensed real estate salesperson from another state may apply for an Alabama real estate license after completing a
    a. six-clock-hour reciprocal salesperson license course.
    b. credit and background check.
    c. 90-day internship under an Alabama broker.
    d. 60 clock-hour pre-license course.
A
  1. a. The answer is six-clock-hour reciprocal salesperson course. A licensed real estate salesperson from another state may apply for an Alabama real estate license after completing a six-clock-hour reciprocal salesperson license course.
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14
Q
  1. Two sales associates working for the same broker obtained offers on a property listed with their firm. The first offer was obtained early in the day. A second offer for a higher purchase price was obtained later in the afternoon. The broker presented the first offer to the seller that evening. The broker did not inform the seller about the second offer so that the seller could make an informed decision about the first offer. Which of the following is TRUE?
    a. The broker has no authority to withhold any offers from the seller.
    b. The broker’s actions are permissible provided the commission is split between the two sales associates.
    c. After the first offer was received, the broker should have told the sales associates that no additional offers would be accepted until the seller decided on the offer.
    d. The broker was smart to protect the seller from getting into a negotiating battle over two offers.
A
  1. a. The answer is the broker has no authority to withhold any offers from the seller. It is the agent’s (broker’s) duty to keep the principal informed of all facts or information that could affect a transaction. An agent for the seller has a duty to disclose all offers.
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15
Q
  1. A licensee facing disciplinary charges for not disclosing dual agency wishes the presence of his attorney at all hearings. This is
    a. not allowed because the charges are open-and-shut, and only punishment is an issue.
    b. allowed, but only if the attorney is related to the licensee.
    c. allowed.
    d. not allowed because no hearing is allowed for this type of charge.
A
  1. c. The answer is allowed. The licensee is allowed an attorney at all phases of a disciplinary proceeding.
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16
Q
  1. A property manager is hired to manage a property while the owner is overseas for two years. The property manager is
    a. a general agent.
    b. a special agent.
    c. a universal agent.
    d. an attorney-in-fact.
A
  1. a. The answer is a general agent. A property manager usually represents the principal in a broad range of matters and is usually considered a general agent.
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17
Q
  1. Which of the following best defines common law concepts, such as agency?
    a. It is a legal doctrine that is formed from common sense and usual practices.
    b. It is enacted by legislatures and other governing bodies.
    c. It may not be superseded by statutory law.
    d. It is part of a body of law established by tradition and court decisions.
A
  1. d. The answer is it is part of a body of law established by tradition and court decisions. The law of agency is law from judgments and decrees as opposed to law established by legislatures or other governing bodies. In many states, statutes have been enacted to further define agency representation with laws and regulations that set forth the responsibilities of real estate licensees to clients and customers.
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18
Q
  1. Emily is a listing broker. After she takes a listing of a residence, the owner specifies that he will not sell his home to any family that is not of the same Asian background as the seller. Emily should do which of the following?
    a. Advertise the property exclusively in Asian language newspapers.
    b. Abide by the principal’s directions despite the fact that they conflict with the fair housing laws.
    c. Explain to the owner that his instruction violates federal law and that the broker cannot comply with it.
    d. Require that the owner sign a separate legal document stating the additional instruction as an amendment to the listing agreement.
A
  1. c. The answer is explain to the owner that his instruction violates federal law and that the broker cannot comply with it. The situation places the broker in the position of either violating the fiduciary duty of obedience or violating the federal Fair Housing Act. To avoid breaking the law, the broker must end the agency agreement if the owner insists on the discriminatory instruction. The broker may not advertise the property exclusively in foreign-language newspapers, and a legal document signed by the owner does not exempt the broker from following fair housing laws.
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19
Q
  1. Dual contracts could result in
    a. civil and criminal liability.
    b. a higher sales price for the property.
    c. more advantageous seller financing terms.
    d. deferral of income taxes through Section 1031 of the Internal Revenue Code.
A
  1. a. The answer is civil and criminal liability. A dual contract is the situation in which one contract—usually at a higher purchase price—is disclosed to the title company and the purchaser’s lender. The real contract—at a lower price—is the second contract. Typically, the seller “agrees” to hold a second mortgage for the difference between the two contracts, and then cancels the mortgage shortly after closing. It is a method for buyers to borrow more money than would be supportable under the real purchase contract and constitutes bank fraud.
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20
Q
  1. The phrases caveat emptor, property sold as-is, and time is of the essence are all contract clauses and concepts that favor the
    a. buyer and should be disclosed to seller, but are not required to be separately identified and disclosed.
    b. seller and must be separately identified and initialed by the buyer.
    c. seller but are not required to be separately identified and disclosed to the buyer.
    d. buyer and must be separately identified and initialed by the seller.
A
  1. c. The answer is seller but are not required to be separately identified and disclosed to the buyer. Caveat emptor stands for the proposition there are no warranties in the sale of used residential properties. Use of the phrase as-is means the buyer is not entitled to rely on any verbal representations, even if known to be false by the person making the statement. Time is of the essence means all deadlines are firm, with no grace periods of a “reasonable time.” For example, under a time is of the essence contract, if closing must be completed by 4 pm on a certain date and the buyer does not arrive at the lawyer’s office until 4:05 pm, the seller can cancel the sale.
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21
Q
  1. A broker took a listing and later discovered that the client had been declared legally incompetent before signing the listing. The listing is now
    a. of no value to the broker because it is void.
    b. binding because the broker was acting as the owner’s agent in good faith.
    c. the basis for the recovery of a commission if the broker produces a buyer.
    d. renegotiable.
A
  1. a. The answer is of no value to the broker because it is void. A contract made by a person who has been adjudicated insane is void on the theory that the judgment that this is not a competent party is a matter of public record.
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22
Q
  1. Which of the following defines a contract between two parties that legally binds one party to perform but allows the other party to disaffirm it?
    a. Voidable
    b. Void
    c. Executed
    d. Bilateral
A
  1. a. The answer is voidable. Voidable contracts have one side obligated but the other party able to rescind the contract if they wish. A contract with a minor is always voidable; for example, if an adult agrees to buy a property a minor owns, the contract is voidable by the minor. Executed contracts are closed and completed. Void contracts lack an essential element and bilateral contracts exchange promises.
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23
Q
  1. When a prospective buyer makes a written purchase offer that the seller accepts, then the
    a. buyer may take possession of the real estate.
    b. buyer receives equitable title to the property.
    c. seller grants the buyer possessory rights.
    d. buyer receives legal title to the property.
A
  1. b. The answer is buyer receives equitable title to the property. Equitable title occurs when the buyer and the seller have executed a sales contract and the buyer acquires an interest in the land. Legal title will not pass until the transaction is closed.
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24
Q
  1. Which of the following terms describes a legally enforceable contract in which two parties exchange promises to do something for each other?
    a. Unilateral contract
    b. Void contract
    c. Option contract
    d. Bilateral contract
A
  1. d. The answer is bilateral contract. A bilateral contract is one in which both parties make a promise to the other. A unilateral contract is a one-sided contract in which one party makes a promise to induce a second party to do something. A void contract lacks one or all of the essential elements of a contract. An option contract is a unilateral contract in which only one party makes a promise to perform, in this case to hold open the right for a buyer to purchase a property in the future.
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42. The parties enter into a signed contract to buy/sell the property for $250,000. The earnest money is $10,000. Two days later, someone submits a backup offer for $275,000. One day after that, the listing agent receives notice the earnest money check bounced. In this situation, the a. listing agent should send the 24-hour notice of contract failure to the buyer, and a contract should be signed with the backup buyer. b. agent should try to get replacement funds for the earnest money, but the contract is still fully enforceable. c. listing agent’s broker should send the 24-hour notice of contract failure to the buyer, and a contract should be signed with the backup buyer. d. listing agent’s broker should contact the buyer’s broker and advise of contract failure due to the bounced check and that a contract will be executed with the buyer.
42. b. The answer is agent should try to get replacement funds for the earnest money, but the contract is still fully enforceable. Many sales contracts contain a specific clause stating that if the earnest money check bounces, the contract is immediately cancelled. Without such a clause, the contract is still enforceable, because the earnest money is not consideration. There is no failure of consideration if the earnest money check bounces. The promise to sell, and the promise to buy, are the consideration that supports the contract.
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43. Which of the following would be the BEST description of a listing contract? a. Property management contract b. Escrow contract c. Sales contract d. Personal service contract
43. d. The answer is personal service contract. A listing is a personal employment contract between a broker and his or her client setting forth the broker's responsibilities in finding for the seller a ready, willing, and able buyer. A property management contract establishes the responsibilities of a broker in managing a principal's property. A sales contract is a contract between a buyer and seller for purchase of a property. An escrow contract is an agreement between a buyer, seller, and escrow holder (such as a broker) defining the responsibilities of each.
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45. You are the listing agent for a property under contract. After expiration of the inspection contingency period, the buyer sends you notice of contract cancellation and demands a full refund of the earnest money because you failed to disclose the known presence of asbestos floor tiles under the vinyl flooring in the game room. You should advise your client, a. “You had no duty to disclose this. You can agree to cancellation or not, but are under no obligation to do so.” b. “You had a duty to disclose. I recommend allowing cancellation.” c. “You had a duty to disclose. I recommend allowing cancellation but requiring a full release before we refund the earnest money.” d. “You had a duty to disclose and should allow contract cancellation, but you will still owe me the full commission for presenting a ready, willing, and able buyer.”
45. a. The answer is “You had no duty to disclose this. You can agree to cancellation or not, but you are under no obligation to do so.” In this situation, the seller had no duty to disclose the presence of the asbestos tiles.
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56. Even if the seller refuses to agree, earnest money can be disbursed a. if the seller files for bankruptcy. b. when the buyer provides timely notice that the property has failed an inspection contingency. c. if the buyer signs a notarized indemnity agreement. d. by payment into court with an interpleader lawsuit.
56. d. The answer is by payment into court with an interpleader lawsuit. The only way earnest money can be disbursed is by interpleader, by agreement of all parties, or if the property has been foreclosed and the contract is impossible to perform. Whether or not a contingency has been broken is a question for the courts, not the agent. If the seller files for bankruptcy, the property can still be sold—it simply requires bankruptcy court approval.
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62. The law that requires real estate contracts to be in writing to be enforceable is the a. law of descent and distribution. b. parol evidence rule. c. statute of limitations. d. statute of frauds.
62. d. The answer is statute of frauds. The statute of frauds requires real estate contracts to be in writing to be enforceable. An oral contract, although unenforceable, can still be valid between the parties if they fulfill its terms.
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68. Lawrence does not want to be obligated to purchase a property but would like to have the right to purchase a property within 60 days for $300,000. Lawrence should try to negotiate a. a contract for deed. b. a purchase money mortgage. c. a purchase agreement. d. an option.
68. d. The answer is an option. An option contract would allow the investor the time to determine if she wants to buy and has the advantage of locking the seller into selling at a price agreed to at the beginning of the process. Contract for deed and purchase money mortgages are forms of seller financing and would not give this type of flexibility. Both require a purchase agreement to create the terms of the financing.
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72. An injured party can sue if a fraudulent statement was a. intentional only. b. intentional, reckless, or negligent. c. not a negligent mistake. d. made with the intention of providing an advantage or profit to the person who made the statement.
72. b. The answer is intentional, reckless or negligent. It is irrelevant whether the person being sued profited from the fraud. The injured party’s damage is the proper important focus.
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83. Which of the following is FALSE about contingencies? a. They must specify what is required to satisfy the contingency. b. They must identify who will pay for any costs involved. c. Common contingencies include mortgage and inspection contingencies. d. They create a contract that is unenforceable.
83. d. The answer is they create a contract that is unenforceable. A contingency creates a voidable contract but not an unenforceable one; if the contingency is not satisfied, the contract is voidable by the party for whose benefit the contingency was created. For example, a home purchase may have a financing contingency stating the loan terms that the buyer will accept; if the only loan available to the buyer is on stricter terms (higher interest rate; longer loan term), the buyer may still decide to proceed with the loan and close the sale.
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101. A bilateral contract is one in which a. the promise of one party is given in exchange for the promise of the other party. b. only one of the parties is obligated to act. c. something is to be done by one party only. d. a restriction is placed in the contract by one party to limit the performance by the other.
101. a. The answer is the promise of one party is given in exchange for the promise of the other party. In a bilateral contract, both parties agree to do something and promises are exchanged. A unilateral contract is a one-sided agreement that does not obligate a second party.
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129. On Monday, the seller offers to sell his vacant lot to the buyer for $42,000. On Tuesday, the buyer counteroffers to buy for $40,500. On Friday, the buyer learns that several other prospects may be making offers on the property, so he withdraws the counteroffer and agrees to the original asking price of $42,000. Under these conditions, there is a. a valid agreement because the buyer accepted the seller's offer exactly as it was made. b. not a valid agreement because the buyer's counteroffer was a rejection of the seller's offer, and once rejected, an offer cannot be accepted later. c. a valid agreement because the buyer accepted before the seller advised the buyer that the offer is withdrawn. d. not a valid agreement because the seller's offer was not accepted within 72 hours.
129. b. The answer is not a valid agreement because the buyer's counteroffer was a rejection of the seller's offer, and once rejected, an offer cannot be accepted later. A counteroffer is a new offer; it voids the original offer.
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132. Bo signed a purchase agreement, but then the seller decided not to sell. Bo sued the seller successfully and was able to purchase the house. What was the contract remedy if the seller was in default? a. Mutual agreement b. Unilateral rescission c. Liquidated damages d. Specific performance
132. d. The answer is specific performance. The buyer does not have the option of liquidated damages since the seller has not brought any earnest money to the contract. Mutual agreement is when the parties terminate and return all items of value to each party as if the contract did not exist. Unilateral rescission is one party terminating.
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136. If a broker took a listing and later discovered that the client had been declared legally incompetent before signing the listing, the listing is now considered a. voidable by the broker. b. void. c. valid. d. voidable by the incompetent client.
136. b. The answer is void. A contract made by a person who has been adjudicated incompetent is void because the judgment of sanity is a matter of public record. The contract is neither valid nor voidable as it is missing the essential element of a contract, that the contract be made by legally competent parties.
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138. A sales contract requires that the seller re-sod the front lawn before closing. At final walkthrough on the morning of closing, the purchaser sees that only half the lawn has been re-sod. On your advice, he refuses to proceed with closing unless $1,000 is withheld from the seller’s funds in order to pay for completing the job. Your advice a. is good, assuming the $1,000 figure is a reasonable amount. b. is a conflict of interest. c. could result in the purchaser being sued for breach of contract. d. was legally required because of your obligations to your client.
138. c. The answer is could result in the purchaser being sued for breach of contract. Agents may not instruct the withholding of funds at closing.
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11. Alex made an offer for 90% of the $120,900 list price of a property. The offer was accepted, and the lender agreed to negotiate an 80% loan at 8% interest for 30 years. Alex had a $5,000 earnest money deposit, paid $350 for title expenses, $250 for attorney fees, and had other expenses of $749. How much money does Alex need to close on the property? a. $23,111 b. $10,159 c. $18,111 d. $15,159
11. c. The answer is $18,111. $108,810 = 90% × $120,900. $87,048 = 80% × $108,810. $108,810 – $87,048 = $21,762. $21,762 – $5,000 + $350 + $250 + $749 = $18,111.
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15. If the quarterly interest on a loan at 7.5% is $562.50, the principal amount of the loan is a. $7,500. b. $15,000. c. $75,000. d. $30,000.
15. d. The answer is $30,000. Two steps: (1) Multiply the interest for one quarter by 4 to get one year's interest ($562.50 × 4 = $2,250). (2) Find the principal by dividing the amount of annual interest by the interest rate ($2,250 ÷ 7.5% = $30,000).
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21. Daniel has a property valued at $125,000 that is assessed at 35% of its value. If the local tax rate is 6,400 mills per $100 of the assessed value, what are Daniel's monthly taxes? a. $140.33 b. $233.33 c. $480 d. $280
21. b. The answer is $233.33. Tax rate = 6,400 mills ÷ 1,000 = 6.40 ÷ 100 = 0.064 Assessed value = $125,000 × 35% = $43,750 $43,750 × 0.064 = $2,800 annual tax $2,800 ÷ 12 = $233.33 monthly tax
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32. A seller wants to net $165,000 from the sale of a house after paying the broker's fee of 6%. The seller's gross sales price, to the nearest dollar, will be a. $182,242. b. $175,532. c. $174,900. d. $155,000.
32. b. The answer is $175,532. Two steps: (1) Find what percentage of the selling price the seller will get after the broker takes 6% (100% – 6% = 94%). (2) Because the amount the seller wants to net is $165,000, which is also 94% of the gross selling price, find the actual gross selling price (to the nearest dollar) by dividing $165,000 by 94% ($165,000 ÷ 94% = $175,531.91, or $175,532).
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38. If the annual net income from a certain commercial property is $22,000 and the capitalization rate is 8%, what is the value of the property using the income approach? a. $275,000 b. $176,000 c. $200,000 d. $183,000
38. a. The answer is $275,000. $22,000 net income ÷ 8% cap rate = $275,000 value of property.
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59. A parcel of vacant land, which is 80 feet wide on the street side of the property and 200 feet deep, is sold for $200 per front foot. How much money would a salesperson receive for her 60% share in the 10% commission? a. $640 b. $1,600 c. $2,400 d. $960
59. d. The answer is $960. A front foot measures frontage on the front of the property. 80 feet × $200 = $16,000 sale price. $16,000 × 10% commission (0.10) = $1,600 (total commission). $1,600 × 60% (0.60) = $960 (the salesperson's commission).
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61. By way of custom in Alabama, the buyer usually pays the deed recordation fee for a property being purchased. If you are working with a buyer, what would you advise him regarding the amount of the deed recordation tax for a $119,000 house? a. $119.00 b. $129.00 c. $178.50 d. $238.00
61. a. The answer is $119.00. The deed tax due when recording a deed is 0.1% of the equity in the property, rounded upward to the nearest $0.50. $119,000 × 0.01 = $119.00.
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70. What would it cost to put new carpeting in a room measuring 15 feet by 20 feet if the carpet costs $16.95 per square yard, plus a $250 installation charge? a. $815 b. $589 c. $505 d. $5,335
70. a. The answer is $815. One square yard contains nine square feet. Three steps: (1) Find the area of the floor to be covered in square feet by multiplying length by width (15 ft × 20 ft = 300 sq ft). (2) Change square feet to square yards by dividing by 9 (300 sq ft ÷ 9 = 33.33 sq yd). (3) Multiply the number of square yards needed by the price per square yard (33.33 × $16.95 = $565). (4) Add the installation charge to the carpet cost ($565 + $250 = $815). Total cost is $815.
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75. In a $13,500 loan with an interest rate of 6%, what is the amount of semiannual interest payment? a. $405 b. $59,655 c. $810 d. $20,250
75. a. The answer is $405. A semiannual interest payment is paid twice a year. To find the amount of the payment, divide the annual interest amount by 2: $13,500 × 6% (0.06) (the interest rate) = $810 (annual interest amount); $810 ÷ 2 = $405 (semiannual interest).
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80. What is the capitalization rate for a property that produces $10,000 annual net operating income (NOI) and for which an investor paid $105,263 (Rounded)? a. 9% b. 10% c. 9.50% d. 10.50%
80. c. The answer is 9.50%. $10,000 (annual NOI) ÷ $105,263(purchase price) = 9.5% (0.095) the capitalization rate
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94. A buyer offers $26,280 for a 20% share in a property. What is the total value of the property? a. $31,536 b. $131,400 c. $32,850 d. $105,120
94. b. The answer is $131,400. $26,280 offer ÷ 20% share = $131,400 total value of property.
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102. A parcel of vacant land has an assessed valuation of $274,550. If the assessment is 85% of market value, on what market value is the assessment based? a. $315,732.50 b. $320,000.00 c. $830,333.33 d. $323,000.00
102. d. The answer is $323,000.00. If the assessment, $274,550, is 85% of market value, find the market value on which the assessment is based by dividing the assessment by 85% ($274,550 ÷ 0.85 = $323,000).
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107. An investment property now worth $180,000 was purchased seven years ago for $142,000. At the time of the purchase, the land was valued at $18,000. Using a 39-year life for straight-line depreciation purposes, the present book value of the property is a. $95,071.35. b. $113,071.00. c. $126,000.50. d. $119,743.59.
107. d. The answer is $119,743.59. The book value of the property is not related to the market value; book value is an accounting technique for getting the tax benefits of paper depreciation. Land does not depreciate in book value. The property (including land and improvements) was purchased for $142,000. Five steps: (1) Find the original book value of the improvements by subtracting the value of the land from the entire purchase price ($142,000 – $18,000 = $124,000). (2) Find the depreciation for one year using a 39-year economic life ($124,000 ÷ 39 = $3,179.49). (3) Find total depreciation over the last 7 years ($3,179.49 × 7 = $22,256.41). (4) Find the present book value of the improvement ($124,000 – $22,256.41 = $101,743.59). (5) Find the present book value of the improvement plus the land ($101,743.59 + $18,000 = $119,743.59).
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108. A developer is planning a warehouse that will contain 103,000 square feet. Construction costs are estimated to be $62 per square foot. Ninety-five percent financing is available for the structure. How much money must the developer put up to complete the project? a. $638,600 b. $5,747,400 c. $6,066,700 d. $319,300
108. d. The answer is $319,300. 103,000 sq ft × $62 per sq ft = $6,386,000 total construction cost; 6,386,000 × 5% down payment (100% sales price – 95% amount financed) = $319,300 developer needs to complete the project.
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112. A building is valued at $100,000 using a capitalization rate of 8%. If an investor demands a capitalization rate of 10%, the value of the building will a. decrease more than $10,000. b. increase by 20%. c. increase by less than 20%. d. decrease less than $10,000.
112. a. The answer is decrease more than $10,000. NOI of property is $8,000, which is 8% (0.08) of $100,000 value, or 10% (0.10) cap rate of $80,000 value; $100,000 – $80,000 = $20,000, which is a decrease of more than $10,000 to get a higher cap rate. The less the investor puts into the property, the greater the rate of return.
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113. Assuming that the listing broker and the selling broker in a transaction split their commission equally, what was the sales price of the property if the commission rate was 6.5% and the listing broker received $12,593.50? a. $139,900 b. $387,492 c. $256,200 d. $193,746
113. b. The answer is $387,492. Two steps: (1) Find the entire commission by doubling listing broker's half (2 × $12,953.50 = $25,907). (2) Find the sales price by dividing the entire commission by the brokerage rate ($25,907 ÷ 6.5% = $387,492).
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117. Five years ago, Juanita bought a home for $250,000. Home values in her area have improved, and the current market value of the house has increased by 15%. If Juanita has $95,875 left to pay on her mortgage loan, what is her current equity in her home? a. $191,625 b. $138,712 c. $154,125 d. $250,000
117. a. The answer is $191,625. The homeowner's equity is the difference between the market value of her property and the debt that encumbers it. Original cost ($250,000) + increase in value ($250,000 × 15% (0.15) = $37,500) = current market value ($287,500) Current market value ($287,500) – mortgage debt ($95,875) = the homeowner's equity ($191,625)
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118. The current property taxes on a parcel are $1,743.25 and have not been paid. If the sale is to be closed on August 12, what is the approximate tax proration that will be charged to the seller based on a 360- day year? a. $1,104 b. $1,220 c. $1,074 d. $668
118. c. The answer is $1,074. $1,743.25 annual taxes ÷ 360 days = $4.84 daily rate for taxes; January 1 to August 12, based on 30-day months = 222 days (30 days for each of the 7 months for January through July plus 12 days in August, or 210 + 12 = 222 days); 222 days × $4.84 daily rate = $1,074.48 prorated taxes seller owes.
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122. A small office building sold for $949,000, and the broker received a commission of $55,042. What was the broker's commission rate? a. 5.8% b. 6.2% c. 7% d. 11.3%
122. a. The answer is 5.8%. $55,042 commission ÷ $949,000 sales price = 5.8% (0.058) commission rate.
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125. A buyer agrees to purchase a house for $234,500. The buyer pays $2,000 as earnest money and obtains a new mortgage loan for $167,500. The purchase contract provides for a March 15 settlement. The buyer and the sellers prorate the previous year's real estate taxes of $4,880.96, which have been prepaid. The buyer has additional closing costs of $2,250, and the sellers have other closing costs of $1,850. How much cash must the buyer bring to the settlement? a. $76,389.00 b. $77,839.89 c. $79,639.17 d. $71,114.09
125. d. The answer is $71,114.09. Four steps: (1) Find the buyer's required down payment by subtracting the loan from the price ($234,500 – $167,500 = $67,000). (2) Find the monthly taxes by dividing the annual taxes by 12 ($4,880.96 ÷ 12 = $406.746). (3) Find the value of 9.5 months' taxes at $406.746 per month ($406.746 × 9.5 = $3,864.09). (4) Find how much cash the buyer needs so far, and then subtract the deposit already paid ($67,000 down payment + $3,864.09 prorated tax + $2,250 other closing costs – $2,000 deposit = $71,114.09).
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127. A buyer has deposited 10% of the sales price of a condominium with the broker as earnest money, and the bank has agreed to lend $51,000, which is 80% of the sales price. How much additional funding must the buyer provide to complete this transaction? a. $5,100 b. $5,500 c. $6,375 d. $6,125
127. c. The answer is $6,375. $51,000 loan balance ÷ 80% = $63,750 sales price; $63,750 sales price × 20% (100% sales price – 80% loan = 20% down payment) = $12,750 down payment; $63,750 sales price × 10% deposit = $6,375 earnest money; $12,750 down payment – $6,375 earnest money = $6,375 needed.
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139. The commission on the sale of a house is $9,410, and 30% goes to the broker who listed the property. Of the remainder, the broker whose sales associate completed the transaction gets 45%, and the sales associate receives the balance. How much does the sales associate who made the sale receive? a. $4,389 b. $3,622.85 c. $3,728 d. $2,425
139. b. The answer is $3,622.85. $9,410 total commission × 30% = $2,823 commission to listing broker; $9,410 – $2,823 listing broker commission = $6,587 remainder of commission. Sales associate's share of selling broker's commission is 55% (100% – 45%), and $6,587 × 55% = $3,622.85 commission sales associate receives.
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19. What is the difference between a general lien and a specific lien? a. A general lien cannot be enforced in court, while a specific lien can be enforced. b. A general lien affects all of a debtor's property, while a specific lien affects only a certain piece of property. c. A specific lien is held by one person, while a general lien is held by at least two persons. d. A specific lien covers real estate, while a general lien covers personal property.
19. b. The answer is a general lien affects all of a debtor's property, while a specific lien affects only a certain piece of property. A general lien affects all of a debtor's property, both real and personal. A specific lien affects only a particular property.
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28. Capitalization uses annual net operating income in order to a. estimate present value. b. determine replacement cost. c. establish depreciation. d. establish effective gross income.
28. a. The answer is estimate present value. Capitalization converts the net operating income (NOI) into an indication of value in the income approach to determine the current or present market value. An appraiser estimates the return on investment (ROI) an investor would demand for the property being appraised. An appraiser will determine replacement costs, reproduction costs, and depreciation for a property when using the cost approach to value. The effective gross income is estimated by deducting an appropriate amount for vacancy and rent loss in an income-producing property.
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30. Which of the following is NOT required for a deed to be valid? a. Legal description b. Signature of the grantee c. Execution of the grantor d. Consideration
30. b. The answer is signature of the grantee. A valid deed does not require signature of the grantee, but does require that the deed be executed or signed by the grantor. A legal description and consideration are among the essential elements required for a valid deed.
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31. What is the sale price of a 1.25 acre lot that is 150 feet deep if the selling price of the lot is $26,500 per front foot? a. $3,975,000 b. $932,800 c. $9,619,500 d. $1,442,920
31. c. The answer is $9,619,500. 1.25 acres × 43,560 (sq. ft. per acre) = 54,450 (total sq. ft.) ÷ 150 ft (the depth of the lot) = 363 front feet × $26,500 per front foot = $9,619,500 (the selling price). The term front foot refers to a unit on frontage of a lot, usually the street frontage or water frontage. When two dimensions are given for a tract and not labeled, the first dimension is the frontage. Each front foot extends the depth of the lot.
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36. Which of the following principles would affect the value of smaller homes in a neighborhood that also contains large houses? a. Progression b. Increasing returns c. Competition d. Regression
36. a. The answer is progression. Under the principle of progression, the smaller homes in an area with larger homes will have their value increased. The principle of regression is the opposite of progression and states that the owners of larger homes in an area with smaller homes may find the values of their homes decrease. Competition is the interaction of supply and demand causing prices for property to rise or fall. Under the principle of contribution the law of increasing returns applies when money spent on improvements to a property produce an increase in income or value.
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46. The process by which government can acquire ownership of private land for public use is a. escheat. b. condemnation. c. eminent domain. d. doctrine of public acquisition.
46. b. The answer is condemnation. Condemnation is the process; eminent domain is the right of the government to acquire ownership of private land for public use.
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54. In what way does a deed of trust differ from a mortgage? a. Obligation of the borrower to repay the funds b. Redemption rights allowed after foreclosure c. Number of parties involved in the loan d. Time period permitted to cure a default
54. c. The answer is number of parties involved in the loan. A deed of trust is a three-party instrument that conveys naked title to a third party, the trustee, who holds the title on behalf of the lender, also known as the beneficiary. The borrower is the trustor. A mortgage is a two-part instrument between the mortgagor and the mortgagee.
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59. A parcel of vacant land, which is 80 feet wide on the street side of the property and 200 feet deep, is sold for $200 per front foot. How much money would a salesperson receive for her 60% share in the 10% commission? a. $640 b. $1,600 c. $2,400 d. $960
59. d. The answer is $960. A front foot measures frontage on the front of the property. 80 feet × $200 = $16,000 sale price. $16,000 × 10% commission (0.10) = $1,600 (total commission). $1,600 × 60% (0.60) = $960 (the salesperson's commission).
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60. In order for a deed to be valid, the a. signature of the grantee must be witnessed. b. deed must be recorded. c. grantee must sign the deed. d. grantor must be legally competent.
60. d. The answer is grantor must be legally competent. Competency of the grantor is one of the requirements for a valid deed. The grantor must be of lawful age and sound mind. Witnessing the grantee's signature is never needed as the grantee does not sign the deed and recording a deed is not required for validity of the deed.
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61. By way of custom in Alabama, the buyer usually pays the deed recordation fee for a property being purchased. If you are working with a buyer, what would you advise him regarding the amount of the deed recordation tax for a $119,000 house? a. $119.00 b. $129.00 c. $178.50 d. $238.00
61. a. The answer is $119.00. The deed tax due when recording a deed is 0.1% of the equity in the property, rounded upward to the nearest $0.50. $119,000 × 0.01 = $119.00.
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64. Which of the following best defines reconciliation? a. Analyzing and weighing the findings obtained by the different approaches to arrive at a final estimate of value b. Separating the value of the land from the total value of the property to compute depreciation c. Loss of value due to any cause d. The process by which an appraiser determines the highest and best use for a parcel of land
64. a. The answer is analyzing and weighing the findings obtained by the different approaches to value to arrive at a final estimate of value. The three approaches to value typically produce three different values. An in-depth analysis of these values is required to determine the most valid, logical, and reliable approach to be used to provide the final value estimate. Determining depreciation, a loss of value due to any cause, is part of the process of the cost approach. The highest and best use of a property is the single most profitable use for that property. Determining highest and best use is only one of the factors considered in an appraisal prior to choosing an approach to value and reconciliation.
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70. What would it cost to put new carpeting in a room measuring 15 feet by 20 feet if the carpet costs $16.95 per square yard, plus a $250 installation charge? a. $815 b. $589 c. $505 d. $5,335
70. a. The answer is $815. One square yard contains nine square feet. Three steps: (1) Find the area of the floor to be covered in square feet by multiplying length by width (15 ft × 20 ft = 300 sq ft). (2) Change square feet to square yards by dividing by 9 (300 sq ft ÷ 9 = 33.33 sq yd). (3) Multiply the number of square yards needed by the price per square yard (33.33 × $16.95 = $565). (4) Add the installation charge to the carpet cost ($565 + $250 = $815). Total cost is $815.
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74. Anita is assigned to appraise a house in an area with very few sales over the past year. One of the comparable properties she chooses is a home similar to the subject property. The house recently sold as a foreclosure property. When writing her appraisal report, what action will Anita take as a result of the foreclosed sale? a. Make a positive adjustment to the value of the subject property b. Make a positive adjustment to the sales price of the foreclosed home c. Make a negative adjustment to the sales price of the foreclosed home d. Make a negative adjustment to the value of the subject property
74. b. The answer is make a positive adjustment to the sales price of the foreclosed home. A foreclosed home usually will sell for less than fair market value. The appraiser will make a positive, upward adjustment to the sales price of the foreclosed home to compensate for the sale at less than market value. In the sales comparison approach, adjustments are made to the sales prices of comparable properties, never to the subject property.
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79. If a home sold as a mortgage foreclosure does NOT bring an amount sufficient to satisfy the outstanding mortgage debt, the mortgagor may be responsible for a. a default judgment. b. liquidated damages. c. punitive damages. d. a deficiency judgment
79. d. The answer is a deficiency judgment. A deficiency judgment entitles the mortgagee to a personal judgment against the borrower for the unpaid balance when a foreclosure sale does not produce enough cash to pay the loan balance in full after deducting expenses and accrued unpaid interest. It may also be obtained against any endorsers or guarantors of the note and against any owners of the mortgaged property who assumed the debt by written agreement. The mortgagee is not entitled to any damages. A default judgment is a judgment in favor of a plaintiff when a defendant does not appear in court.
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102. A parcel of vacant land has an assessed valuation of $274,550. If the assessment is 85% of market value, on what market value is the assessment based? a. $315,732.50 b. $320,000.00 c. $830,333.33 d. $323,000.00
102. d. The answer is $323,000.00. If the assessment, $274,550, is 85% of market value, find the market value on which the assessment is based by dividing the assessment by 85% ($274,550 ÷ 0.85 = $323,000).
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108. A developer is planning a warehouse that will contain 103,000 square feet. Construction costs are estimated to be $62 per square foot. Ninety-five percent financing is available for the structure. How much money must the developer put up to complete the project? a. $638,600 b. $5,747,400 c. $6,066,700 d. $319,300
108. d. The answer is $319,300. 103,000 sq ft × $62 per sq ft = $6,386,000 total construction cost; 6,386,000 × 5% down payment (100% sales price – 95% amount financed) = $319,300 developer needs to complete the project.
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115. The type of deed in which the grantor defends the title back to its beginning is a a. general warranty deed. b. trustee's deed. c. quitclaim deed. d. special warranty deed.
115. a. The answer is general warranty deed. The general warranty deed provides the greatest protection to the buyer because grantors defend the title against both themselves and all those who previously had title.
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116. Which of the following would be considered acceptable evidence of marketable title? a. Title insurance policy b. Seller signing a general warranty deed c. Deed of trust d. Copy of the seller's current deed
116. a. The answer is title insurance policy. Nothing can guarantee ownership or marketable title. An abstract with a title opinion or a title insurance policy show the title was researched and offer protection against future defects in the title. A deed by itself is not considered evidence of marketability.
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128. A four-bedroom home that only has one bathroom would probably have its appraised value reduced due to a. external obsolescence. b. curable physical deterioration. c. functional obsolescence. d. incurable physical deterioration.
128. c. The answer is functional obsolescence. Functional obsolescence exists when a property has outmoded or unacceptable physical or design features. A four-bedroom home with one bath is not desirable for buyers. External obsolescence exists due to economic, environmental, or social forces outside a property. Physical deterioration refers to a loss of value because a property has not been maintained property (deferred maintenance).
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131. Of the following liens, which would usually be given highest priority in disbursing funds from a foreclosure sale? a. A mortgage dated last year b. Unpaid real estate property taxes c. A mechanic's lien for work started before the mortgage was made d. A judgment rendered the day before foreclosure
131. b. The answer is unpaid real estate property taxes. Unpaid real estate property taxes have first priority and "move to the head of the line" when property is liquidated at a foreclosure sale. They are a statutory lien with priority over liens created by contract, such as mortgages. Unpaid real estate property taxes take priority over mechanic's liens and judgments, no matter when those liens were recorded.
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134. In a standard deed, which of the following clauses conveys the rights and privileges of ownership? a. Exception clause b. Seisin clause c. Granting clause d. Acknowledgment
134. c. The answer is granting clause. The granting clause states the grantor's intention to convey the property at the present time. An exception and reservations clause notes any encumbrances, reservations, or limitations affecting the title. The convent of seisin is the grantor's promise of ownership and ability to convey title in a general warranty deed. The acknowledgement is a formal declaration under oath that the person signing the deed does so voluntarily and that the signature is genuine and is not required to make a deed valid but is often required to record the deed.
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137. Escheat and eminent domain are both examples of a. adverse possession. b. transfers of title by descent. c. involuntary alienation. d. voluntary alienation.
137. c. The answer is involuntary alienation. Involuntary alienation occurs when property is transferred without the owner's consent. The right of eminent domain allows a government to acquire property for a public purpose through condemnation. When a person dies without a will (intestate) and without heirs, the property passes (escheats) to the state. This process was neither planned nor initiated by the owner before death. Voluntary alienation occurs when property is transferred with the owner's consent. Adverse possession is the acquiring of title through open, notorious, hostile, and continuous use of another's property. Descent occurs when an heir inherits a property through probate from a deceased owner who died intestate, without a will.
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2. The road to a man's home is winding and long, and the shorter, more direct route is across a neighbor's land. The man has used the more direct route for years and has never seen the neighbor. He hopes to eventually gain an easement by a. necessity. b. condemnation. c. license. d. prescription.
2. d. The answer is prescription. If the man's use of the land is visible and open, and if the owner must have been able to learn of it, he may be able to acquire an easement by prescription, depending on the time period required by state law.
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3. Dianne owns 50 acres of land with 500 feet of frontage on a desirable recreational lake. She wishes to subdivide the parcel into salable lots. Dianne also wants to retain control over the lake frontage while allowing lot owners to access the lake. Which right would provide the greatest protection for a prospective lot purchaser? a. Easement in gross b. Easement by necessity c. Appurtenant easement d. License
3. c. The answer is appurtenant easement. An appurtenant easement is attached to the ownership of one parcel and allows the owner use of the neighbor's land. The easement transfers with the title and so provides the greatest protection for a prospective purchaser. An easement in gross is a company's right to the use of another's land. An easement by necessity is created by a court order. An easement by necessity is created when an owner sells a parcel of land that has no access to a street except over the seller's remaining land. A license is a personal privilege to enter the land of another for a specific purpose. A license can be terminated or revoked at any time.
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5. A cooperative obtains the funds necessary to cover ongoing operating expenses and mortgage payments by a. charging rent to each of the shareholders. b. selling the common elements. c. collecting regular assessments from shareholders. d. charging special assessments.
5. c. The answer is collecting regular assessments from shareholders. Funds for the budget are assessed to individual shareholders, generally in the form of monthly fees.
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6. Which of the following is an involuntary alienation of property? a. Quitclaim b. Inheritance c. Condemnation d. Gift
6. c. The answer is condemnation. Condemnation is an operation of the law that carries out an involuntary transfer (alienation).
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10. Eric and Benito are co-owners in fee simple of a small office building. Benito dies intestate and leaves nothing to be distributed to his heirs. Eric is neither related to Benito nor his creditor. What would explain how Eric acquired Benito's interest in the office building? a. Reversionary rights b. Adverse possession c. Remainder interests d. Joint tenancy
10. d. The answer is joint tenancy. Upon the death of an owner in a joint tenancy, all remaining interests do not pass to the heirs of the deceased owner or according to the will but to the surviving joint tenant or tenants. Reversionary rights and remainder interests refer to the future right to an estate in real property. Adverse possession occurs when a person acquires title to another's property by means of open, hostile, and continuous possession over time.
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12. An owner conveys a life estate to her grandson George and stipulates that on her death the estate will pass to her son-in-law Tomas. Tomas has a(n) a. reversionary interest. b. estate for years. c. remainder interest. d. legal life estate.
12. c. The answer is remainder interest. The owner's death will end the life estate conveyed to her grandson, which will then mean the holder of the remainder interest, the son-in-law, will have fee simple absolute ownership of the property. An estate for years is a leasehold estate that continues for any definite period of time. A legal life estate is a freehold estate created out of a provision.
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14. If a property owner conveys a life estate to his sister for her lifetime and then designates his nephew as the person to whom the property will pass when the life estate ends, when the sister dies, what happens to the property? a. The property reverts back to the original property owner. b. The nephew automatically becomes the fee simple owner of the property. c. The property passes to the sister's heirs. d. The property owner must designate a remainderman for the property.
14. b. The answer is the nephew automatically becomes the fee simple owner of the property. The property owner named his nephew as the remainderman, the one to whom the property would pass upon the death of his sister. On his sister's death, the life estate ends, and the property automatically passes to the nephew. If the property owner does not choose a remainderman when conveying the life estate to his sister, ownership reverts back to the original property owner or to his or her heirs (or other individuals specified in the property owner's will).
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19. What is the difference between a general lien and a specific lien? a. A general lien cannot be enforced in court, while a specific lien can be enforced. b. A general lien affects all of a debtor's property, while a specific lien affects only a certain piece of property. c. A specific lien is held by one person, while a general lien is held by at least two persons. d. A specific lien covers real estate, while a general lien covers personal property.
19. b. The answer is a general lien affects all of a debtor's property, while a specific lien affects only a certain piece of property. A general lien affects all of a debtor's property, both real and personal. A specific lien affects only a particular property.
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25. A developer wishes to purchase the land on which an eight-unit condo complex once stood in Gulf Shores, but which was completely destroyed by a major hurricane. You need to obtain purchase contract(s) from a. the last known president of the condo association. b. the state of Alabama, because the land escheated. c. no one—this land cannot be purchased. d. all of the condo owners.
25. d. The answer is all of the condo owners. The condo owners own the land as tenants in common. Each condo owner held title to the interior space between their exterior walls, ceiling, and floor. Everything else is common area and is owned by them as tenants in common.
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37. How long is the post-tax sale administrative redemption period in Alabama? a. One year b. Two years c. Three years d. Four years
37. c. The answer is three years. Redemption periods might be much longer if the owner never relinquished possession of the property to the investor, but the administrative period is only three years. This is the time period during which redemption may be accomplished through county personnel. If any redemption rights still exist after the first three years, redemption must be negotiated directly with the investor via a process called judicial redemption.
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41. Owen tells his next door neighbor that she can store her camper in his yard for a few weeks until he needs the space. Owen does not charge the neighbor any rent for the use of his yard. Owen has given his neighbor a(n) a. easement by necessity. b. estate in land. c. license. d. easement appurtenant.
41. c. The answer is license. A license is a revocable personal privilege to use the land of another for a specific purpose, and the right is given orally or informally. The property owner's permission does not grant the neighbor an easement or an estate in the land.
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44. The main purpose of police power is to a. demonstrate the authority of the state. b. set limits on the amount and kinds of businesses in a given area. c. protect residential neighborhoods from encroachment by business and industry. d. ensure the health, safety, and welfare of the community.
44. d. The answer is ensure the health, safety, and welfare of the community. Individual rights are subject to certain powers, one of which is police power: the power to preserve order, protect the public health and safety, and promote the general welfare of the community.
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46. The process by which government can acquire ownership of private land for public use is a. escheat. b. condemnation. c. eminent domain. d. doctrine of public acquisition.
46. b. The answer is condemnation. Condemnation is the process; eminent domain is the right of the government to acquire ownership of private land for public use.
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53. Alabama real estate taxes are assessed on _____ for the year in _____. a. October 1, arrears b. October 1, advance c. January 1, arrears d. January 1, advance
53. a. The answer is October 1, arrears. Taxes are assessed and due on October 1 of each year, for the prior 12-month period. They may be paid any time between October 1 and December 31 without penalty, but will become liable for penalties, expenses, and interest starting on January 1. This information is important when preparing an estimated settlement sheet for a buyer or seller because the contract often calls for proration of real estate taxes.
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54. In what way does a deed of trust differ from a mortgage? a. Obligation of the borrower to repay the funds b. Redemption rights allowed after foreclosure c. Number of parties involved in the loan d. Time period permitted to cure a default
54. c. The answer is number of parties involved in the loan. A deed of trust is a three-party instrument that conveys naked title to a third party, the trustee, who holds the title on behalf of the lender, also known as the beneficiary. The borrower is the trustor. A mortgage is a two-part instrument between the mortgagor and the mortgagee.
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60. In order for a deed to be valid, the a. signature of the grantee must be witnessed. b. deed must be recorded. c. grantee must sign the deed. d. grantor must be legally competent.
60. d. The answer is grantor must be legally competent. Competency of the grantor is one of the requirements for a valid deed. The grantor must be of lawful age and sound mind. Witnessing the grantee's signature is never needed as the grantee does not sign the deed and recording a deed is not required for validity of the deed.
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66. Franklin bought acreage in a distant county, but never went to see the acreage and did not use the land. After the purchase, Susan moved her mobile home onto the land, drilled a well, and lived on the property for 20 years. Susan may become the owner of the land if she has complied with the law regarding a. quitclaim deeds. b. adverse possession. c. voluntary alienation. d. prescriptive easements.
66. b. The answer is adverse possession. The woman may file an action in court to receive title to the property if she has complied with state laws. Her possession must have been open, notorious, continuous and uninterrupted, hostile and adverse. Adverse possession is a form of involuntary alienation. A quitclaim deed is frequently used to correct an error in a deed or to release an interest in a property. Prescriptive easements while similar to adverse possession are used to gain permanent access to the property not title.
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73. Susan uses her neighbor Joe's driveway to reach her garage, which is on Susan's property. Susan's attorney explains that ownership rights of Susan's real estate includes an easement appurtenant giving her the right to use Joe's driveway. In this case Joe's property is the a. dominant tenement. b. leasehold interest. c. servient tenement. d. licensed property.
73. c. The answer is servient tenement. In an appurtenant easement the parcel over which the easement runs is known as the servient tenement, and the neighboring parcel that benefits from the easement is known as the dominant tenement. Joe's property is the servient tenement, and Susan's is the dominant tenement. The easement does not create a leasehold estate.
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76. When receiving a gift of a parcel of real estate, one of the two new owners was given an undivided 60% share, and the other received an undivided 40% share. The new owners now hold title as a. joint tenants. b. community property owners. c. tenants in common. d. cooperative owners.
76. c. The answer is tenants in common. Tenants in common hold property with undivided fractional interests, and the shares do not have to be equal. In a joint tenancy, each owner holds equal shares and interests to the property. Community property consists of personal or real property acquired by either party in a marriage and belonging to both parties to the marriage. In a cooperative, owners own shares in a corporation, partnership, or trust which owns a property, with each owner holding a proprietary lease and the right to occupy his or her unit.
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77. What type of estate is created when a property owner deeds a parcel of his property to a town "for recreational purposes only?" a. Leasehold estate b. Fee simple absolute estate c. Fee simple defeasible estate d. Life estate
77. c. The answer is fee simple defeasible estate. The deed conveys a fee simple defeasible estate which includes a specific condition on the use of the parcel. If the town uses the parcel for any purpose other than for recreational use, the property owner can take possession of the property through legal action. Holder of a leasehold estate has no ownership, only possession. A fee simple absolute estate has no restrictions on the use of the property. A life estate is limited in duration to the life of the owner of the estate or to the life of some other designated person.
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88. Zoning authority by a municipality is limited by a. a requirement that it not favor one part of the municipality at the sacrifice of another. b. a majority vote of the planning board. c. a requirement that any actions promote the health, safety, morals, or general welfare of the community. d. regulations issued by the Alabama Department of State.
88. c. The answer is a requirement that their actions promote the health, safety, morals, or general welfare of the community. Zoning by its nature tends to favor some parts of the community over others. Planning boards do not vote—they make recommendations. The Alabama Department of State issues rules related to business entities and elections. It has nothing to do with zoning.
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89. When may the holder of a reversionary interest in a qualified fee estate be able to obtain title to the property? a. Only if the remainderman died first b. If he or she changed the conditions and the owner was unable to meet the requirements c. If the holder of the qualified fee estate breaks the deed condition d. If the holder of the qualified fee estate sells the property
89. c. The answer is if the holder of the qualified fee estate breaks the deed condition. The holder of a reversionary interest retains the right to repossess a property if a deed condition is not met or broken. If the condition is broken, the holder of the reversionary interest can go to court to try and obtain ownership of the property. If a remainderman dies, the remainder interest in a life estate passes to his or her heirs. The holder of a reversionary interest does not have the right to change the conditions of a qualified fee estate. A holder of a qualified fee estate may sell the property so long as the conditions or limitations of the qualified fee estate continue.
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90. What will happen to real estate when its deceased owner did NOT write a will and no heirs can be located? a. The ownership will pass by devise. b. The ownership will escheat. c. The ownership will revert to the previous owner. d. The courts will seize the ownership.
90. b. The answer is the ownership will escheat. Title to real estate passes to the state by the state's power of escheat in the event a person dies intestate and no heirs can be located.
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99. A tax lien on the property can hinder the sale of a property because it is a. a monetary charge that the purchaser must satisfy. b. an appurtenance that does not affect the title. c. an encumbrance. d. an encroachment.
99. c. The answer is an encumbrance. An encumbrance is a claim, charge, or liability that attaches to real estate. It is a right or interest held by someone other than the fee owner of the property that affects title to real estate.
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100. Peter deeds a parcel of his property to a town "for recreational purposes only." The deed conveys to the town a a. fee simple defeasible estate. b. leasehold estate. c. fee simple absolute estate. d. life estate.
100. a. The answer is fee simple defeasible estate. The deed conveys a fee simple defeasible estate which includes a specific condition on the use of the parcel. If the town uses the parcel for any purpose other than for recreational use, Peter can take possession of the property through legal action. Holder of a leasehold estate has no ownership only possession. A fee simple absolute estate has no restrictions on the use of the property. A life estate is limited in duration to the life of the owner of the estate or to the life of some other designated person.
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106. Taxes levied on a property owner to pay for installation of sidewalks or sewers are called a. ad valorem taxes. b. general property taxes. c. special excise taxes. d. special assessments.
106. d. The answer is special assessments. Special assessments are taxes levied on real estate to fund public improvements.
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109. A property owner has 40 acres of land with road frontage on only the northern boundary. He sells the southern 20 acres to his sister, who reaches the road by a driveway that passes over her brother’s land. No documents give her ingress and egress rights because they are siblings and don’t think it is necessary. Five years later, the brother dies and his 20 acres are sold to pay estate taxes. Can this landlocked property be sold? a. Yes, because Alabama is a caveat emptor state and the buyer must beware b. Yes, because the southern 20 acres has an easement by necessity over the northern 20 acres c. No, because the property is landlocked and a purchaser cannot obtain clear title d. No, because it is fraudulent to offer landlocked property for sale
109. b. The answer is yes, because the southern 20 acres has an easement by necessity over the northern 20 acres. The law seeks to avoid land being landlocked and will not allow it at all when a common owner created the situation giving rise to the property being landlocked.
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115. The type of deed in which the grantor defends the title back to its beginning is a a. general warranty deed. b. trustee's deed. c. quitclaim deed. d. special warranty deed.
115. a. The answer is general warranty deed. The general warranty deed provides the greatest protection to the buyer because grantors defend the title against both themselves and all those who previously had title.
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116. Which of the following would be considered acceptable evidence of marketable title? a. Title insurance policy b. Seller signing a general warranty deed c. Deed of trust d. Copy of the seller's current deed
116. a. The answer is title insurance policy. Nothing can guarantee ownership or marketable title. An abstract with a title opinion or a title insurance policy show the title was researched and offer protection against future defects in the title. A deed by itself is not considered evidence of marketability.
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130. The owner of a secluded area adjacent to an ocean noticed that people from town walked along the shore in front of his property. The owner learned that the local citizens had been walking along this beach for several years. He went to court to try to stop people from walking along the water's edge in front of his property. The owner is likely to be a. unsuccessful because the owner's property extends only to the high-water mark and the public may use the land beyond this point. b. unsuccessful because the local citizens have been doing this for years and thus have an easement. c. successful because the owner's property extends to the low-water mark. d. successful because the owner can control access to his own property.
130. a. The answer is unsuccessful because the owner's property extends only to the high-water mark and the public may use the land beyond this point. Under the doctrine of littoral rights, an owner whose land borders an ocean would own the property up to the mean high-water mark. Any land below this is owned by the government. The homeowner could not block other people from walking along the water's edge.
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131. Of the following liens, which would usually be given highest priority in disbursing funds from a foreclosure sale? a. A mortgage dated last year b. Unpaid real estate property taxes c. A mechanic's lien for work started before the mortgage was made d. A judgment rendered the day before foreclosure
131. b. The answer is unpaid real estate property taxes. Unpaid real estate property taxes have first priority and "move to the head of the line" when property is liquidated at a foreclosure sale. They are a statutory lien with priority over liens created by contract, such as mortgages. Unpaid real estate property taxes take priority over mechanic's liens and judgments, no matter when those liens were recorded.
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134. In a standard deed, which of the following clauses conveys the rights and privileges of ownership? a. Exception clause b. Seisin clause c. Granting clause d. Acknowledgment
134. c. The answer is granting clause. The granting clause states the grantor's intention to convey the property at the present time. An exception and reservations clause notes any encumbrances, reservations, or limitations affecting the title. The convent of seisin is the grantor's promise of ownership and ability to convey title in a general warranty deed. The acknowledgement is a formal declaration under oath that the person signing the deed does so voluntarily and that the signature is genuine and is not required to make a deed valid but is often required to record the deed.
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137. Escheat and eminent domain are both examples of a. adverse possession. b. transfers of title by descent. c. involuntary alienation. d. voluntary alienation.
137. c. The answer is involuntary alienation. Involuntary alienation occurs when property is transferred without the owner's consent. The right of eminent domain allows a government to acquire property for a public purpose through condemnation. When a person dies without a will (intestate) and without heirs, the property passes (escheats) to the state. This process was neither planned nor initiated by the owner before death. Voluntary alienation occurs when property is transferred with the owner's consent. Adverse possession is the acquiring of title through open, notorious, hostile, and continuous use of another's property. Descent occurs when an heir inherits a property through probate from a deceased owner who died intestate, without a will.
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24. The federal Fair Housing Act prohibits all of the following EXCEPT a. discriminating on the basis of marital status. b. discriminatory advertising. c. redlining. d. blockbusting.
24. a. The answer is discriminating on the basis of marital status. Marital status is not one of the seven protected classes under the federal Fair Housing Act. The Act and regulations based on the Act do prohibit discriminatory advertising, redlining, and blockbusting.
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47. RESPA (Real Estate Settlement Procedures Act) permits real estate firms to be affiliated with title insurance companies or mortgage brokers as long as a. consumers are required to use the services of the affiliated companies. b. companies disclose their relationships with one another to the consumer. c. companies pay referral fees between them. d. consumers are unaware of these arrangements.
47. b. The answer is companies disclose their relationship with one another to the consumer. RESPA permits such arrangements as long as a consumer is clearly informed of the relationship among the affiliated companies and provided information that the consumer may use other service providers for the same services. The companies may not require a consumer to use the services of any affiliated company. The companies may not pay one another referral fees.
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87. Which of the following is an example of prohibited anti-trust behavior? a. All qualifying brokers in a marketplace agree to hire at least one bi-lingual agent. b. All agents in a marketplace agree they will not engage in buyer brokerage. c. All personal assistants in a marketplace agree to help each other place yard signs on weekends. d. The majority of qualifying brokers in a marketplace follow a local custom of businesses closing their offices on Wednesday afternoons.
87. b. The answer is all agents in a marketplace agree they will not engage in buyer brokerage. This limits the choices for consumers in a marketplace and is anti-competitive. None of the other activities are anti-competitive.
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88. Zoning authority by a municipality is limited by a. a requirement that it not favor one part of the municipality at the sacrifice of another. b. a majority vote of the planning board. c. a requirement that any actions promote the health, safety, morals, or general welfare of the community. d. regulations issued by the Alabama Department of State.
88. c. The answer is a requirement that their actions promote the health, safety, morals, or general welfare of the community. Zoning by its nature tends to favor some parts of the community over others. Planning boards do not vote—they make recommendations. The Alabama Department of State issues rules related to business entities and elections. It has nothing to do with zoning.
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126. According to team advertising rules in Alabama, teams may a. display the team name but must also display company name and names of all team members. b. not display a team name unless a real state license has been issued in that name. c. not display a team name at all. d. display the team name, but must also display the company or broker name and the name of at least one member of the team.
126. d. The answer is display the team name, but must also display the company or broker name and the name of at least one member of the team. Teams are not issued real estate licenses, and it is not necessary to display the names of all team members, although that is commonly done.
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4. Which of the following would terminate a lease for years? a. Death of the tenant b. Expiration of the term c. Abandonment of the leased premises by the tenant d. Sale of the leased premises
4. b. The answer is expiration of the term. A tenancy (estate) for years is a leasehold estate that continues for a definite period of time with specific beginning and ending dates. The death of either party does not terminate the lease. If the tenant abandons the property, the tenant is still responsible for lease payments. If the property is sold, the new owner is subject to the terms of the lease.
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5. A cooperative obtains the funds necessary to cover ongoing operating expenses and mortgage payments by a. charging rent to each of the shareholders. b. selling the common elements. c. collecting regular assessments from shareholders. d. charging special assessments.
5. c. The answer is collecting regular assessments from shareholders. Funds for the budget are assessed to individual shareholders, generally in the form of monthly fees.
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20. What is the primary purpose of security deposits? a. Provide additional revenue for the landlord b. Pay for the last month's rent c. Ensure that the lease is valid d. Repair damage to the property caused by the tenant
20. d. The answer is repair damage to the property caused by the tenant. A security deposit is held by the landlord during the term of a lease to pay for damage to the property or to pay rent if the tenant defaults on the rent. The deposit is not required for the validity of a lease. Normally a security deposit does not pay for the last month's rent. A lease should identify any advance payments as a security deposit or as an advance payment for the last month's rent.
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26. The qualifying broker for a property management firm has her license suspended for 90 days. What action must be taken? a. All management contracts must be transferred by the broker to another management company. b. All landlords must be advised their management contracts are cancelled and that they are free to hire another property management firm for as long a period as they choose. c. Any associate broker may temporarily take over the qualifying broker’s responsibilities for the period of suspension. d. All tenant security deposits must be refunded within 60 days.
26. b. The answer is all landlords must be advised their management contracts are cancelled and that they are free to hire another property management firm for as long a period as they choose. There is no getting around this, unless the disciplined broker hires another qualifying broker and obtains the landlord’s agreement to the temporary arrangement. Real estate contracts are always with a particular broker, not with a particular company. They are personal services contracts. Personal services contracts cannot be assigned to another person.
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28. Capitalization uses annual net operating income in order to a. estimate present value. b. determine replacement cost. c. establish depreciation. d. establish effective gross income.
28. a. The answer is estimate present value. Capitalization converts the net operating income (NOI) into an indication of value in the income approach to determine the current or present market value. An appraiser estimates the return on investment (ROI) an investor would demand for the property being appraised. An appraiser will determine replacement costs, reproduction costs, and depreciation for a property when using the cost approach to value. The effective gross income is estimated by deducting an appropriate amount for vacancy and rent loss in an income-producing property.
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49. A property manager in a college town charges a higher rent for male students because they typically cause more property damage than female students. This practice a. violates fair housing laws. b. violates no state laws. c. is allowed because it has a rational basis related to preservation of property values. d. is allowed because of the student exemption.
49. a. The answer is violates fair housing laws. This practice discriminates on the basis of sex and is illegal. There is no student exemption, and it does not matter if the landlord has a plausible reason for its prohibition. If the landlord had a sexually neutral policy of refusing to rent to people who previously forfeited some or all of their security deposit, that would not violate fair housing law and would have achieved the same goal.
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57. If lease agreement is signed by a lessee who is 15 years of age, which of the following statements is TRUE? a. A 15-year-old person cannot sign a lease. b. The lease agreement is voidable by the minor. c. The lease agreement is valid provided the security deposit is increased. d. The lease agreement is void.
57. b. The answer is the lease agreement is voidable by the minor. A 15-year-old person can sign a contract. However, it was incumbent on an adult who is the other party to the contract to stop the minor from signing the contract. If this does not occur because the lessee is a minor, the lease is voidable by the minor. The amount of the security deposit does not affect the validity of a lease contract. The 15-year- old may in fact decide to enforce the lease contract, in which case the lease is valid.
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65. What is the principal difference between an estate for years and an estate from period to period? a. An estate for years cannot be terminated. b. An estate from period to period must be in writing. c. An estate from period to period has no expiration date. d. An estate for years is a life estate.
65. c. The answer is estate from period to period has no expiration date. An estate from period to period, or periodic tenancy, does not have a specific expiration date as it automatically renews until notice is given by the tenant or landlord. An estate (tenancy) for years has specific beginning and ending dates. Neither estate is a life estate. Each can be terminated. Both an estate for years and an estate from period to period must be in writing to be enforceable.
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67. When appraisers use the GRM (gross rent multiplier), they would consider which of the following? a. Rental income and market price b. Market price of comparables and adjustments to the subject c. Market value and potential rent income d. Capitalization and net operating income
67. a. The answer is rental income and market price. The GRM (gross rent multiplier) time's the rental income will determine the properties market value or anticipated sales price. Comparables and adjustments are used in the sales comparison approach. Market value is what the GRM is determining not market price which is the actual sale price. Capitalization and net operating income are used in the income approach.
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119. Which of the following statements about a holdover tenant is TRUE? a. The landlord may evict the tenant. b. The tenant must give the landlord a 30-day notice to vacate. c. The tenant may continue to occupy the premises without permission of the landlord. d. The landlord must accept additional rent if the tenant remains on the premises.
119. a. The answer is the landlord may evict the tenant. A tenant who remains in possession of the premises after an estate for years has expired is called a holdover tenant. If the landlord accepts a rental payment from the holdover tenant, acceptance of the payment will usually create a periodic tenancy. However, a landlord can evict the holdover tenant and not accept any additional payments.
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121. A property manager is hired to manage a property while the owner is overseas for two years. The property manager is a. a general agent. b. a special agent. c. a universal agent. d. an attorney-in-fact.
121. a. The answer is a general agent. A property manager usually represents the principal in a broad range of matters and is usually considered a general agent.
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