Free National Real Estate Practice Exam (100 Questions)

A purchase agreement records the buyer’s and seller’s agreed transaction terms. Applicable requirements for formation, writing and signatures still matter.

The five most popular types of businesses are Sole Proprietorship, General Partnership, Limited Partnership, Corporation, and Limited Liability Company (LLC). From the question above; "Corporation, Sole Proprietorship, Limited Liability Company" are all real business structures. Here are the definitions: Corporations may be formed for profit or nonprofit purposes. A corporation is managed and operated by a board of directors. A Sole Proprietorship is one individual or married couple in business alone. Lastly, an (LLC) is a hybrid legal entity that has certain characteristics of both a corporation and a partnership or sole proprietorship.

Economic Obsolescence refers to the loss of property value due to external factors, meaning things off the property affecting the properties value. Examples of causes of economic obsolescence can include: flight patterns, a busy highway, and rise in local crime. Read More Here

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.

The Environmental Protection Agency (EPA) is the federal agency responsible for dealing with environmental issues. The EPA was established in December 1970 by an executive order of United States President Richard Nixon. The agency enforces all federal environmental rules and regulations.

Riparian rights generally attach to land adjoining a watercourse. Other systems, including appropriative rights, have different rules, so this principle should not be applied to every water right. Read More Here

The primary public land-use control is zoning. The primary private land-use control is deed restrictions or restrictive covenants, which limit what can be done on the property by the owner. Deed restrictions are limitations to the use of the property imposed by a past or current owner and are usually legally bound forever.

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

An individual seeking to be excused from the requirements of a zoning ordinance needs a variance. A variance is a request to deviate from current zoning requirements. If granted, it permits the owner to use his land in a way that is ordinarily not permitted by the zoning ordinance.

A less than freehold estate (also known as a leasehold estate) is an estate held by one who rents or leases property. The key difference between a leasehold estate and a freehold estate is the limitation of time. As lease is a legal estate, leasehold estate can be bought and sold on the open market.

Condominium often shortened to condo, is a type of living space which is similar to an apartment but which is independently sellable and therefore regarded as real estate. Unlike apartments, which are leased by their tenants, condominium units are owned outright. The answer is all the condominium owners in the form of percentage undivided interests because all condominium owners legally own a portion of all the facilities there.

Tenants by the entirety Is a special form of co-ownership used in some states that allow a husband or wife to inherit the other spouse's ownership interest upon death. Community Property Laws are based on the idea that husband and wife are equal, separate, partners rather than one whole one like tenants by the entirety. Both terms pertain to spouses.

Mortgage warehousing involves holding originated loans pending sale in the secondary market, often financed through a warehouse line. It is distinct from creating mortgage-backed securities.

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

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.

The buyer doesn't need to know the sellers getting a divorce. Lead paint, and flooding, however, both must be disclosed (nationally). State laws differ on whether a buyer is entitled to know about deaths. In Texas, deaths from natural causes, suicides, or accidents unrelated to the property do not have to be disclosed. However, deaths related to the condition of the property or violent crime on the property must be disclosed. Other states impose a duty on a stigmatized property in which there has been a suicide or murder.

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.

A land trust is a legal agreement in which a property owner transfers the title to a property to a trustee. The property owner is typically the beneficiary and directs the trustee in all matters relating to the management of the property, as outlined in the trust agreement or deed. The property owner also retains all property rights including the freedom to develop, rent and sell the property. One of the main advantages of this trust is that the actual property owner remains anonymous. Land trusts can not only bring some legal protection, but it can also help the property owner negotiate prices if he or she is particularly wealthy and wants to remain anonymous.

Eminent domain is the government’s constitutional right to take over privately-owned real for public use (usually despite the owners’ wishes). Eminent domain for the federal government is protected under the Fifth Amendment of the Constitution, while for state governments, it is protected under the Fourteenth Amendment. Mr Jay’s example is an example of eminent domain. Read More Here

All of the options would be justifiable reasons to insist on a mutual release except the buyer finding another property they prefer.

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.

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

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.

A contingency clause is considered one of the most important purchase contract provisions for the potential buyer of real property. A contingency is a future event or circumstance which is possible but cannot be predicted with certainty. So in this instance, the married couple intends to purchase property, but only if they can qualify for a mortgage loan at a reasonable rate. That is a contingency.

A real estate agent is a professional who has passed the required real estate classes and licensing exams in the state where he/she intends to work. This is the starting point for most real estate professionals agents. Agents are also legally called a licensee or license holder.

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.

Earnest money should be deposited into a trust account in a timely manner, according to state laws. While the time period varies from state-to-state its best practice to always deposit the money as soon as possible.

The principal is always the one whom you have an agency relationship with and therefore is the person whom you owe fiduciary responsibility.

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.

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.

A property owner or homeowner can sue to obtain the required just compensation through the process of inverse condemnation. Inverse condemnation is the event in which the government takes private property but fails to pay compensation or just compensation. Read More Here

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.

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.

A release clause is a contract provision (typically in a blanket mortgage) that allows for the freeing of all or part of a property from a claim through a proportional or full amount of the mortgage being paid off.

An amendment typically changes terms of a contract. An addendum “adds” terms to a contract. For example, let's say a buyer and seller have agreed to an April 10th closing date but later both agreed to change the closing date to April 25th. They would use an amendment. Addendums are used to add or delete terms or conditions NOT previously agreed to. That's the difference.

A real estate option contract is a one-of-a-kind contract that is solely between the seller and the buyer. In this arrangement, the seller gives the buyer the option to purchase property at a given price for a set period.

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.

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.

In the cost approach, accrued depreciation is deducted from the cost of improvements. Income valuation can also reflect depreciation through income expectations or recapture, so depreciation is not exclusive to one approach.

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 term retroactive liability is used in connection with CERCLA and the Superfund. It means that all previous owners also can be held accountable for the hazardous waste site.

Equal Credit Opportunity Act (ECOA) is a regulation that aims to give all legal individuals an equal opportunity to apply for loans. The act prohibits creditors and lenders from considering a consumer’s race, color, national origin, sex, religion or marital status in deciding whether to approve their credit application. This act protects consumers from being wrongfully discriminated. No matter what type of person applies for a loan they cannot be turned away due to factors that are not directly related to their credit.

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

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.

Technically speaking, if there is a high occupancy rate (higher than usual), rent may be too low. The theory of supply and demand supports this. Property managers need to be aware of this as one of their responsibilities is to make sure the rental property is at max profitability.

A blind offer in real estate is a purchase contract written by a buyer without seeing the property. This is common in commercial properties such as apartment complexes, and it’s not uncommon in multi-family homes such as duplexes and fourplexes. It’s not typical in single-family homes or apartments.

The federal disclosure rule generally covers most housing built before 1978, with specified exemptions. Before a buyer or renter is obligated under a contract, covered sellers and landlords must disclose known lead-based paint information, provide available records and the EPA pamphlet, and include the required contract disclosures. Buyers also receive an opportunity for a lead inspection or risk assessment, normally 10 days; the parties may agree in writing to a different period, or the buyer may waive it. The underlying Residential Lead-Based Paint Hazard Reduction Act was enacted in 1992.

Radon is radioactive gas dispersed from natural decay of mineral in earth. odorless, colorless, tasteless. Rises out of ground and enters homes through openings in basement where usually found. If trapped inside a house, can increase to harmful health levels. Small particles inhaled into lungs can cause cancer. Can also contaminate groundwater. Radon is usually detected by radon test kits.

A lien is a legal claim on an asset. Mortgages are a type of lien as it provides the lender a claim over the borrower’s assets and allows the lender the right to detain the assets, property or goods to secure payment. Read More Here

No replacement cost, is the cost of replacing an asset or property. Reproduction cost estimates how much it would cost to exactly reproduce an asset or property to exact specifications. Reproduction cost looks at the cost of creating an exact replica, and should not be confused with replacement cost, which looks at the cost of replacing an insured property with one of similar functionality. Reproduction cost is more specific.

It is permissible to attach legal descriptions to the contract rather than writing them into the contract itself, but they must be attached. This is common with sales contracts with extensive and detailed legal descriptions.

Frontage is the boundary between a plot of land or a building and the road onto which the plot or building fronts. Frontage may also refer to the full length of this boundary. This length is considered especially important for certain types of commercial and retail real estate, in applying zoning bylaws and property tax.

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.

Surveying is the "general" technique of determining three-dimensional positions of points and the distances and angles between them. The point of a survey is to accurately measure land in a legal fair manner. While subdivision surveying is definitely a form of surveying this question is asking for the general form, which is just surveying.

The lender generally orders the appraisal used for its mortgage decision. The borrower may be required to pay the appraisal fee; the seller does not automatically pay it merely because the property is sold. A mortgagor is the borrower, while a mortgagee is the lender.

Sources: CFPB appraisal guide; NCUA mortgage glossary.

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.

“Catholics preferred” states a religious preference in housing advertising. The Fair Housing Act prohibits advertisements that indicate a preference, limitation or discrimination based on religion and other protected characteristics.

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.

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.

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.

The correct answer is tenancy at will: consensual occupancy for an indefinite duration without a fixed term or agreed recurring rental period. Termination must follow applicable notice and other legal requirements; it does not necessarily mean the tenant can be required to leave immediately.

A month-to-month arrangement is commonly described as a periodic tenancy. State terminology can differ: Massachusetts also uses tenancy-at-will for month-to-month arrangements, whether oral or written. The existence of a signed document alone does not determine the tenancy type.

Source: Massachusetts Attorney General’s tenancy guide.

The correct answer is her death. The deed expressly identifies Gabby as the person whose life measures this estate. It is her life-estate interest that ends; ownership of the property then continues in the holder of the applicable future interest.

A life estate can instead be measured by another person’s life, called an estate pur autre vie. The life tenant and the person whose life measures the estate need not be the same person. Giving someone a life estate alone should not substitute for stating the measuring life in this question.

For a statutory example recognizing an estate measured by a third person’s life, see California Civil Code 766.

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.

Property tax is an ad valorem tax assessed on real estate by a local government and paid by the property owner. Public services for real estate owners are paid by real property tax.

The fiduciary duty of confidentiality lasts forever. Confidentiality requires that you do not disclose any information learned about your clients, their business, financial or personal affairs or motivations. Again, this duty lasts forever.

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.

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

The keywords here are lender and payment. Some of these provisions protect the borrower, lender, or both. The Acceleration Clause and Prepayment Penalty Clause is the best answer here. The acceleration clause is a contract provision that requires a borrower to repay all of an outstanding loan if upon a breach of the contract - which definitely protects the lenders and their interests by asking for repayment. A prepayment penalty clause states that a lender can penalize a borrower if the borrower pays off the mortgage much sooner than usual - This definitely protects the lenders, their interests, and results in repayment as well. Within the other answers the clauses may, or may not protect lenders, or do not require some form of payment or insurance.

A universal agency has the broadest scope: the agent may act for the principal across all matters that may lawfully be delegated. A general agency concerns a particular business or continuing activity, while a special agency concerns a specific act or transaction. The scope of authority is the distinguishing fact; saying only that an agent may act for the principal is not enough.

Personal property is all things removable like clothes, lawn mowers, couches, TV's, and furniture. Real Property is all things attached to the land and all the legal rights to it. Real property is usually things that are immovable such as the home itself or the buildings within the property line. There are some exceptions of items that can be moved but are still real property, like for businesses. In this case the only item that would qualify as real property is garage.

Market value estimates the price a property would most probably bring under normal market conditions. Market price is the amount actually paid in a particular sale. A sale affected by unusual pressure, special financing or other atypical conditions may have a price that differs from market value.

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

Deed restrictions are limitations to the use of the property imposed by a past or current owner and are usually legally binded forever. Some common examples of deed restrictions are: Type and number of trees you can remove from the property, house color, window size, overall style, color, and construction materials used in a renovation.

The principle of anticipation in appraisal is the principle that the value of property today is the present value of the sum of anticipated future benefits. It’s also worth noting that the principle of anticipation doesn’t always refer to monetary gain. It could also be emotional or mental gain.

Compliance with zoning ordinances is monitored through the issuance of zoning permits; where the property owner or developer cannot substantially alter the use of the property without getting a zoning permit, which will not be issued unless the proposed development conforms to the zoning ordinance. Zoning permits are usually required before building permits can be issued.

Under the FTC rule, an inquiry or application can support an established-business-relationship exception for three months for qualifying live sales calls. A seller-specific do-not-call request overrides it; this does not authorize robocalls.

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.

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.

Using the stated guideline, $4,500 × 28% = $1,260. This is the housing-expense limit for this calculation, not a guarantee of mortgage approval; loan programs use different underwriting requirements.

A bit of a trick question. Crossing out part of a printed contract is actually allowed and legally enforceable as long as both parties and the original text is still readable.

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.

Communication of acceptance. The seller (offeree) must communicate acceptance to the buyer (offeror) as the offer requires and before it expires. Signing alone does not satisfy an express notice requirement. The contract remains executory while promised performance is still due. Writing and signature requirements also depend on applicable law; communication does not replace them. See the California DRE Reference Book, Chapter 20, “Acceptance of Offer”.

Novation is the procedure in which an original contract is terminated and replaced with a new one. The legal process of novation makes it possible to transfer all contract benefits and liabilities from previous parties to a set of new ones. In plain terms, it’s a simple way to replace an old contract with a new one while maintaining most or all of its original properties.

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.

Emblements are annual crops cultivated by a tenant that is treated as the tenant's personal property. Read More Here

Closing is known by many names. Some areas of the country may call it settlement and transfer some may call it passing papers. The textbook name is for closing is closing.

A mortgagee is an entity that lends the mortgagor money. This entity is typically referred to as the lender.

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

The rescission of a contract occurs when there is an agreement between the contracting parties to waive all the remaining duties and to terminate the contract. Basically, it would be returning the parties to the same legal position they were in before entering into the contract.

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.

Mechanic's liens are legal documents that essentially reserve the rights of the filer to seek unpaid compensation. They are usually filed by contractors, subcontractors, or suppliers that never received payment for work that they performed or materials that they provided on the property.

Real property includes land, qualifying attachments and the associated legal interests. Fixtures, trade fixtures and crops have specific classification rules; business use alone does not determine whether an item is real or personal property.

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.

Functional obsolescence refers to the loss of property value due to an obsolete design feature. Outdated plumbing would be considered functionally obsolete because it is outdated. Who determines what is obsolete or not? Usually the buyer or homeowners. If a neighborhood is filled houses with new bathrooms and/or new plumbing, and your's isn't, It would be considered functionally obsolete. Read More Here

Antitrust Laws are a collection of federal and state government laws that regulate the conduct and organization of business corporations, normally to promote fair competition for the benefit of consumers. In retrospect, antitrust laws protect the consumer and are healthy for a stable economy. It’s important to know and understand the ones that deal with real estate as they directly relate to how you function as an agent.

The habendum clause is the statement in a contract that describes the rights and interests being given. It almost always begins with the words "to have and to hold."

A lease option gives the tenant the right to buy on the option’s terms without requiring exercise. A lease purchase generally includes a purchase commitment. Whether financing failure permits termination depends on the agreement and applicable law.

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.

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.