Free National Real Estate Practice Exam (100 Questions)

The assessed value is a property's determined valuation to calculate the appropriate tax rates.

Liquidated damages are presented in certain legal contracts as an estimate of otherwise intangible or hard-to-define losses to one of the parties. A liquidated damages clause specifies a predetermined amount of money that must be paid as damages for failure to perform under a contract.

When contracting parties have signed a contract and both parties have done all they promised to do, it is called an executed contract or executed agreement.

Hypothecation occurs when an asset is pledged as collateral to secure a loan. A rental property, for example, may undergo hypothecation as collateral against a mortgage issued by a bank.

A tenancy from period to period, also called a periodic tenancy, continues for successive rental periods until properly terminated. Here, the parties expressly agree to recurring one-month periods, creating a month-to-month periodic tenancy. The original fixed 12-month term has ended. State terminology and notice requirements vary; for example, Massachusetts also uses tenancy-at-will for month-to-month rentals. Sources: California Department of Real Estate, Fixed Term and Periodic Tenancies; Massachusetts Attorney General, Terms of Tenancy.

Usury is the practice of making unethical or immoral monetary loans that unfairly enrich the lender. Currently, most states have usury laws in place and set a cap on the maximum amount of interest a lender can charge. These rates can vary significantly by state and may differ depending on the type of financial product you’re using. Usury is a form of predatory lending.

Correct answer: It reduces the loan amount the buyer can afford.

For the same loan term and monthly principal-and-interest budget, a higher mortgage rate means the buyer can borrow less. Higher borrowing costs can weaken housing demand. However, inflation or an interest-rate increase alone does not determine whether home prices rise or fall; supply, demand, income and other market conditions also matter.

The Federal Reserve may tighten monetary policy to address inflation, but this does not establish a rule that interest rates and housing prices always move in the same direction. Do not assume a guaranteed house-price change from an inflation statement alone.

Source: Federal Reserve: how monetary policy works.

Encroachment is an intrusion on a person's territory or property. For those of you who are football fans, it's pretty much the same thing as the penalty. If a tree grows over someone's property, or when a fence or another piece of your neighbor's property crosses the property lines. Those are all examples of encroachment. Encroachment can lead to some large legal issues and if there are potential encroachment owners and agents should seek a solution immediately.

The Superfund Amendments and Re-authorization Act of 1986 (SARA) was passed when the original act, CERCLA, expired in 1985. It amended the comprehensive environmental response, compensation, and liability act. The big change had to do with liability. When a property owner has been innocent of all involvement with a hazardous waste site, under certain circumstances, he may claim immunity from responsibility. In plain terms it allows truly innocent landowners to have immunity from legal liability. SARA also required EPA to revise the Hazard Ranking System to ensure that it accurately assessed the relative degree of risk to human health and the environment posed.

Users, owners, renters, developers, renovators, and facilitators are the main participants in real estate markets.

It generally has to do with performance. Time is of the essence clause in real estate contracts refers to a clause that requires one party in a real estate contract to fulfill their obligations within a specific time frame.

Real estate has three physical characteristics that differentiate it from other assets in the economy: 1. Indestructibility meaning land cannot be destroyed or worn out. Its appearance may be altered but it always continues to exist. 2. Immobility meaning geographical location of the property remains the same & can never be changed, it is fixed. 3. Uniqueness or non-homogeneity meaning no parcels of real estate are exactly alike. An economic characteristic of real estate is scarcity meaning the total supply is fixed.

Reverse mortgages can provide much-needed cash for seniors whose net worth is mostly tied up in the value of their home. In this instance age does in fact matter you must be at least 62 years or older to qualify for a reverse mortgage. There is no minimum credit score requirement for a reverse mortgage, primarily because the main thing lenders want to know is whether you can handle the ongoing expenses required to maintain the house. Lenders will, however, look to see if you're delinquent on any federal debt.

Amortization is the gradual repayment of principal. With a balloon loan, the scheduled payments do not repay the full balance over the loan term, leaving a larger payment due. A borrower should not assume refinancing will be available.

A voidable contract remains binding unless a party with the legal right to avoid it does so. A void agreement, by contrast, has no legal effect from the outset.

Mortgage points, also known as discount points, are fees paid directly to the lender at closing in exchange for a reduced interest rate. The interest rate decreases not the down payment. They are a great option for someone who knows they will be owning a specific property for a long time. Mortgage points are directly paid to the lender or bank at closing.

Easements are appurentent meaning generally pass along with ownership changes in real estate, but there are several ways of legally terminating them. Expiration, release, merging, and abandonment of the easement are all ways to legally terminate the applicable easement. The servient estate serves the dominant estate and cannot terminate the easement even through revocation.

A Sole Proprietorship is one individual or married couple in business alone. Sole proprietorship's are the most common form of business structure. This type of business is simple to form and operate and may enjoy greater flexibility of management, fewer legal controls, and fewer taxes. However, the business owner is personally liable for all debts incurred by the business. A sole proprietor may purchase property for both personal and business use through his own name or through the name of his business. However, only personal property used in direct relation to business operations is viewed as a tax-deductible business expense.

The execution date or date executed is the day the contract is signed. The effective date is the day the contract goes into effect. Both dates can both be found in a contract. In many instances, the execution and effective dates are the same; however, that is not the case in some circumstances. You might sign a lease today to move into an apartment, but you won’t be able to move in until the following week. The execution date might be today, but the effective date will be when you move into your brand new home. Many times, the execution date and effective date are the same, but again not always.

Trusts can be created during an individual's lifetime, or they can be established following someone's death. A trust works as it follows: the first party, the trustor or settlor, transfers a property upon the second party for the benefit of the third party, the beneficiary. The trustee is required to manage the trust property in accordance with the trustor's wishes and in the beneficiary's best interests. A trustee can be an individual or a financial institution such as a bank.

A life estate is an interest in real property which is held for the duration of the life of a designated person. It may be limited by the life of the person holding it or by the life of another person. This designated person is called a life tenant. Read More Here

Zoning regulates uses and development characteristics, such as density and height. Those restrictions can influence property value, but the zoning ordinance does not itself set the property’s market sale price.

Closing is the final step in executing a real estate transaction. It is when official ownership and payment is transferred to the rightful parties. The fees that the buyer pays to close the deal are called closing costs.

The formula for finding commission is pretty simple. Just times whatever percentage you have by the total price of the house. In this case, they give us the rate and what the broker received so we have to adjust the steps. In order to find the commission, you can take $11,000 and divide it by the percentage which is .055 making your total $200,000. Alternatively, you can take the answers below and multiply each one by .055 and whichever matches the broker's commission is the correct answer.

The Gross Rent Multiplier is found by dividing the price of the property by its rent.

Remember, an open listing is truly open. Each broker has an opportunity to earn the entire commission if they can come up with a buyer.

The correct answer is voidable. This question expressly assumes the minor has a legal right to disaffirm the contract. A voidable contract can be avoided by a party with that right; it is not automatically void from the outset.

Do not apply this answer to every contract involving a minor. State law, emancipation and the type of contract matter. California Family Code section 6710 generally allows disaffirmance except as otherwise provided by statute, while section 6701 restricts a minor’s ability to make contracts relating to real property.

Sources: California Family Code 6710; California Family Code 6701.

At least 80% of the occupied units must have at least one occupant who is 55 or older. The community must also publish and follow policies showing its intent to operate as housing for persons 55 or older and comply with age-verification requirements. This is an exemption from the Fair Housing Act’s familial-status provisions, not from its other protections. The rule measures occupied units, not the percentage of all residents who are 55 or older.

The subordination clause in real estate establishes order of priorities of financial claims (liens). The subordination clause effectively makes the current claim number 1 to any existing claims that have already been recorded.

In real estate, the increase of the actual land via a stream, lake or sea by the action of water which deposits soil upon the shoreline is accretion.

Joint tenancy is the best answer because the stated ownership includes equal interests and survivorship. Tenancy in common does not itself provide survivorship. Other ownership forms and eligibility rules vary by state, including rules for registered domestic partners.

Roads and other public infrastructure are common examples. Eminent domain permits acquisition for public use with just compensation; the Fifth and Fourteenth Amendments protect property owners against unconstitutional takings. Read More Here

An agent representing a principal owes duties including loyalty, care, disclosure, confidentiality and accounting within the relationship. This question concerns the principal’s representative, rather than every role that may carry fiduciary duties.

An implied contract is a legally enforceable obligation that arises from one or more parties due to the parties actions, conduct, or circumstances. It has the same legal effect as an express contract, a contract between two or more parties that is willingly entered into and agreed upon verbally or in writing. An implied contract is presumed to exist but does not require written or verbal confirmation.

A mechanic’s lien also called a construction lien is a lien placed on your property for nonpayment for work you had done on the property. It is a claim made against a property by a contractor or other professional who has supplied labor or materials for work on that property. They are designed to protect professionals from the risk of not being paid for services. A mechanic’s lien is involuntary and specific.

The comprehensive plan, aka, master plan is a document that is prepared by local government to guide growth and development. It is generally a plan looking 10 to 20 years into the future for the area. These plans can be found at many levels, from neighborhoods, to cities and counties on up to the state level, all across the US.

Don’t overthink this. He is no longer the listing agent, he MUST inform the caller that information. Anything else would be deemed unethical and potentially illegal.

The statute of frauds is a common law concept that requires written contracts for certain agreements to be legally binding. The statute applies to land sales and most purchases of goods over $500 (this includes real estate sales agreements). This is a bit of a trick question. There are some circumstances in real estate where a written contract is not required, so it is not ALL real estate contracts, but it is ALL real estate sales agreements.

Fixing is the practice of setting the price of a good or service to make a particular price a standard. So in our terms, real estate fixing is when competing agents meet up and agree on the same commission rates. Any agreement even if it just implied with other brokerages to set a standard commission rate is a violation of the antitrust laws.

Dividing Territories is when competing brokers agree to split territories, and divide interests accordingly. This is a clear antitrust violation.

Conspiracy to Boycott occurs when two or more persons or entities conspire to restrict the ability of someone from competing. Another clear antitrust violation.

Selling property you listed to someone who resides in more than one state over is not a violation and is legal.

A general agency. A general agent has continuing authority to handle a series of transactions within a defined area of the principal’s business, as in ongoing property management. A special agent is authorized for a particular transaction or task without that continuing scope. “Limited power” alone does not distinguish the two: a general agent must still stay within the authority granted by the management agreement. See the California Department of Real Estate Reference Book, Chapter 10, page 148.

A tenant who continues to occupy property after his or her rights have expired is said to occupying the property under an Estate at Sufferance.

An amendment changes an existing contract. Here, both parties agree in writing to change their already binding purchase agreement by including furniture.

An amendment may add terms as well as change or remove them. An addendum is generally a supplemental attachment incorporated into an agreement. The labels used by local forms can vary, so read the document and follow the applicable law; “adds” versus “changes” alone is not a reliable distinction.

Official example: the Texas Real Estate Commission’s Amendment to Contract is used to change or add terms to an already executed contract.

The amount owed is called the principal and the price of borrowing the money is called the interest.

Escheat allows property to pass to the state when an owner dies without a valid will and without heirs entitled to inherit under applicable law. Dying without a will alone is not enough: intestacy law ordinarily identifies the relatives who inherit. Procedures are governed by state law.

Novation substitutes a new obligation or party with the necessary consent and releases the obligation it replaces. A delegation alone need not release the original party.

Fee packing, equity stripping, and balloon payment abuses are all examples of predatory lending practices. Predatory lending typically refers to lending practices that impose unfair, deceptive, or abusive loan terms on borrowers. While these practices are wrong, unfortunately sometimes they are perfectly legal.

A creditor can consider age, if it's used to determine the meaning of other factors important to creditworthiness. For example, a creditor could use your age to determine if your income might drop because you’re about to retire. A creditor cannot consider age in any of the other situations listed.

Appurtenant is an adjective meaning it is attached to something. If something is appurtenant, it belongs to something else, either attached to or by law. An appurtenant easement is a type of easement that “runs with the land.” These all would be considered appurtenant, other than a trade fixture. Remember, trade fixtures are pieces of equipment used in a business and can usually be easily removed.

A non-exclusive buyer agency agreement allows buyers to hire more than one agent to find their home; however, buyers must inform each agent they work with that another agent is involved and whether they have shown them specific homes.

Adverse possession is a legal principle under which a person who does not have legal title to a property acquires legal ownership based on the continuous occupation of the property. If successful in proving adverse possession, the person or parties are usually not required to pay the owner for the land. Read More Here

A landowner of land which borders a navigable waterway owns the property up to the high-water mark at the water’s edge. The government owns the water and land beneath it, and the public has an easement right to travel on the water. The owner would be unsuccessful because the owner's property extends only to the high-water mark.

It's the seller that must make the disclosure. It's real estate professionals' job to make sure all parties are in compliance with the law, but ultimately it's the sellers obligation.

A listing agreement authorizes a broker to represent an owner in marketing property under agreed terms. It defines the scope, duration and compensation. Termination can depend on the agreement, the parties’ legal status and applicable law.

This is a financing contingency. It conditions the buyer’s obligation to complete the purchase on the stated financing terms. The contract can bind the parties before that condition is resolved; cancellation, notice deadlines and deposit treatment follow its terms.

The U.S. Department of Housing and Urban Development's Office (or HUD) administers and enforces federal laws and establishes policies that make sure all Americans have equal access to the housing of their choice.

When a home is purchased using an adjustable rate mortgage or ARM, the monthly loan payment on the mortgage will vary over the life of the loan depending on fluctuations in the interest rate to which the loan is referenced. A variable-rate mortgage, adjustable-rate mortgage, or tracker mortgage is a mortgage loan with the interest rate on the note periodically adjusted based on an index which reflects the cost to the lender of borrowing on the credit markets.

The surface rights are the rights to use the surface of the earth. Subsurface rights are the rights to the natural resources lying below the earth's surface. Interestingly an owner may transfer rights without transferring the subsurface rights. For example, a landowner can sell his rights to an oil and gas company in his land but still can own the land itself.

Forgery refers to the false making or material alteration of a legal instrument with the specific intent to defraud anyone. It is illegal and real estate agents must be aware of the action.

The actual transfer of title in a real estate transaction is handled by lawyers or title agencies, not the agent. However as with other legal aspects in the transactions a real estate agent needs to understand them. Alienation is the act of transferring title, ownership, an estate, or an interest in real estate from one party to another.

Public controls, such as zoning, originate in government authority. Private controls, such as restrictive covenants, originate in private arrangements and may be enforced through courts, subject to applicable law.

The cost approach is considered to be reliable when used on newer buildings, and not as reliable with older. The cost approach becomes nearly ineffective after 25 years or so because of the difficulty in: estimating depreciation, estimating changes in the cost of construction, and estimating changes in prices of building materials.

Specific performance is the legal concept that anyone who signs a contract is bound to the terms of the contract. Both the buyer and seller can sue for specific performance, but it's more common for a buyer to sue and win a suit on specific performance. The buyer is more likely to force since the seller was the one who put the property on the market.

An addendum is a supplemental attachment incorporated into the agreement. Here, the parties include it with the original purchase agreement before signing.

An amendment changes an existing agreement and may change or add terms. Simply saying that a document “adds something” is not enough to distinguish the two. The timing, document language, and applicable forms matter; terminology can vary by jurisdiction.

For an official example, the Texas Real Estate Commission describes its Amendment to Contract as changing or adding terms to an already executed contract.

Intangible Deterioration. There is no such thing as intangible deterioration. All the others are forms of depreciation.

The Federal Housing Administration (FHA) provides mortgage insurance on single-family, multifamily, manufactured home, and hospital loans made by FHA-approved lenders throughout the United States and its territories.

By definition, a dominant estate is a parcel of real property that has an easement over another piece of property.

Covenants are agreements or promises within deeds. For example, a warranty deed can include six forms of covenants. Those six are a series of legally binding promises and warranties to the grantee agreeing to protect the grantee against any prior claims and demands of all persons whomsoever in regards to the conveyed land.

A builder’s warranty generally addresses specified workmanship, materials or structural defects. Coverage and exclusions depend on the written warranty. External flood damage is different from defective construction.

Sales comparison uses recent sales of comparable land to estimate the lot’s value. The cost approach can combine land value with depreciated improvements; the income approach considers income-producing potential.

Similar to a receipt, a bill of sale is a written instrument that attests to a buyer's purchase of property from a seller.

The Americans with Disabilities Act (ADA) became law in 1990. The ADA is a civil rights law that prohibits discrimination against individuals with disabilities in all areas of public life, including jobs, schools, transportation, and all public and private places that are open to the general public.

In this case, the contract would be voidable by the buyer because of fraud. Voidable contracts have the necessary elements to be enforceable, so they appear to be valid, but can be rejected by one party if the contract is discovered to have any number of defects. Fraud is the act of intentionally deceiving another party for financial or personal gain.

The rectangular survey system consists of principal meridian lines that cover most states in the US, running north to south and baselines running east to west. These principal meridian lines are named or numbered to identify their location. Using those lines for references, quadrangles are formed, which are smaller squares identifiable by where they are located near the principal meridian and baseline. This process continues, creating a smaller and smaller grid that can be used to identify the specific location of any property.

The correct answer is void. An agreement whose sole purpose is unlawful is void from the outset; it is not a valid agreement that one party may choose to avoid.

Do not confuse an unlawful purpose with a missing signature or writing. A failure to satisfy an applicable statute of frauds raises enforceability issues, and the result depends on the law and facts. For example, California Civil Code section 1598 addresses an agreement with a single unlawful object, while section 1624 separately addresses writing requirements.

California Civil Code section 1598

Proration is the allocation or division of money items at the closing. Proration mainly comes into play when a seller prepays their home taxes for the year. Because they paid for the full year and are selling the property, the buyer will then owe the seller the remaining months of taxes.

CC&Rs stands for covenants, conditions, and restrictions. These provisions may impose private restrictions on how property is used. Restrictive covenants may also be called deed restrictions, but this question asks specifically for the abbreviation. Sources: California Department of Real Estate, RE 624 Part III, item 47; Title to Real Property, Deed Restrictions.

Home inspection contingencies are one of the most common home buying contingencies. According to NAR, around 80% of homebuyers include a home inspection contingency in their purchase agreement. Financing is right behind it, as it allows the buyer to terminate the contract if they cannot obtain a loan.

Corporations may be formed for profit or nonprofit purposes. A corporation is managed and operated by a board of directors. A corporation has certain rights, privileges, and liabilities beyond those of partnerships. Doing business as a corporation has its advantages and disadvantages. Because a corporation is a legal entity, it can purchase property. One large disadvantage especially when it comes to corporations is when owning income producing property they experience double taxation. Since its a legal entity they must pay taxes on profits. Dividends from the remaining corporate profits are then distributed to the shareholders and then taxed again as part of the shareholder's income.

Consideration need not be cash; it can be a promise, an act or forbearance of legal value. Capacity, consent and lawful purpose also matter.

Tax liens are imposed by the federal, state, or local government based upon back property taxes that are due. Not only can these seriously impact your credit report, but until they're paid off, they can prevent you from selling the property. Tax liens are involuntary and usually specific. The important thing to remember is the government always gets paid first in terms of money distribution.

In order for a contract to be valid a few things must occur:

-The party must be at least 18 years old and of sound mind.

-A contract must be legal. For example, there cannot be a contract to kill, steal or anything illegal.

-The contract must hold a clear and definite consideration.

-There must be mutual consent of the contract.

Any offer to purchase real estate MUST be signed by both the buyer and seller in order to be valid. Both parties must follow these guidelines. It becomes a legal contract as soon as both parties sign.

The income approach is a real estate valuation method that uses the income the property generates to estimate fair value. It's calculated by dividing the net operating income by the capitalization rate.

Remember DUST and your essential elements of value. Demand: This means the desire to buy and an ability to pay. Utility: The item satisfies a human need or desire; such as shelter, income, or recreation. Scarcity: Limited in supply, as supply diminishes, value increases. Transferability: Able to transfer from one owner to another.

Instead of being handed down to his family(since he has none), his assets (farm included) are going to go to the government in the process called escheat. Escheat is the government's right to take ownership of unclaimed real estate or assets. Read More Here

Joan is the optionor, and Bob is the optionee. And Bob can assign an option if he wants. Joan cannot force to purchase the property. Remember, a seller cannot force a buyer to buy the property with an option to purchase. It's worth noting that they can in a lease to purchase, but in the question, it specifies it's an option contract.

Condo is short for condominium. A condominium generally combines separate ownership of a unit with an interest in common property. The unit can be financed or rented; condominium describes ownership, not whether its occupant is an owner or tenant.

Fixtures are personal property attached to the land to count as real property. Window blinds are screwed into the house, therefore they are considered a fixture in this example.

Safe Drinking Water Act (SDWA) was established in 1974. It allowed greater control by EPA to control contaminant levels, take legal action against public water auth. for violations, and require periodic water testing and notification to state authority and homeowners if contaminated.

Most real estate agents make money through commission. A commission is a fee paid to an agent for performing a transaction. A commission is usually a percentage of the property's selling price, although sometimes it can be a flat fee.

If a dispute is pending, the court will likely issue an injunction preventing Mr. Joe from cutting down the trees until they are entirely resolved. Injunctions can be used to protect interests in real property. A court ordered injunction can be used to prevent a harmful action, stop ongoing or repeated conduct, or force a defendant to take action to prevent harm.

If problems emerge after a sale is complete; that is not the seller's problem, and not a cause for the buyer to sue. Unfortunately, exactly when a problem started and when the seller first "knew" about it are not always clear. In this instance the seller didn't know about the issue, meaning she is not liable for failure to disclose the material defect.

Service Contracts are agreements between a customer or client and a person or company who will be providing services. A listing agreement is a service contract between the seller and the broker, or brokerage company.

Constructive eviction can arise from substantial interference with a tenant’s use caused by the landlord’s conduct or failure to act. Notice, an opportunity to cure and leaving the premises may matter under the governing law; it does not permit every tenant to terminate immediately.

Estates can be divided into two different sections: freehold estates, and less than freehold estates(or leasehold estates).The key difference between a leasehold estate and a freehold estate is the limitation of time. A freehold estate is an estate in which you have exclusive right to enjoy the possession of a property for an undefined length of time, while a leasehold estate is an estate held by one who rents or leases property for a period of time. Read More Here

The proper procedure for changing a contract that has already become binding is to sign a separate amendment. Remember, separate amendments are used to modify or change executory contracts.

Steve should advise the agents that their proposed agreement could violate the Sherman Antitrust Act, refuse to participate, and leave the price-fixing discussion. Competing businesses must set their prices independently.

The key fact is the proposed agreement among competitors. Advertising an independently determined fee, negotiating a commission with a client, or merely having similar prices is not automatically price fixing. An unlawful agreement need not be written. State laws may impose additional requirements.

Source: FTC guidance on price fixing.

A percentage lease is a lease in which all or part of the rental is a specified percentage of gross income from the total sales made upon the property.

In order to qualify for the Fair Housing Act’s "Housing for Older Persons" Exemption, at least 80 percent of the units must have at least one occupant who is 55 years of age or older OR all units are occupied by residents over the age of 62.

In this problem we have to find the annual property taxes. First off we have to find the assessed value. In order to do that we have to take the market value which is $400,000 and then multiply it by the assessment rate which is 25%. So $400,000 x .25 = $100,000. Now that we the assessed value we must subtract the deductions. So $100,000 - $25,000 = $75,000. The next step is to utilize mills. The mill rate is the amount of tax payable per dollar of the assessed value of a property. So we have to multiply the assessed value by the mill rate which is $75,000 x .02275 = $1,706.25 So the annual property taxes on the property is $1,706.25.