Free National Real Estate Practice Exam (100 Questions)

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.

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.

It’s important the buyer and seller clearly understand the document as it becomes legally binding as soon as both parties sign. It is an agent's duty to explain to purchase agreement and not mislead both or either parties.

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.

An individual seeking to be excused from the requirements of a zoning ordinance needs a variance. Or a conditional use permit. A conditional use permit is a zoning exception that allows you to use your property in non-conforming ways. A variance is a request to deviate from current zoning requirements.

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.

An offer from a third party does not affect someone else's offer. A counteroffer by that offeree would affect an offer, however, as well as a cancellation or death of the offeror before the offer is accepted.

Condemnation is the procedure used by a public or private entity with the powers granted from eminent domain to take privately owned real estate. eminent domain is the right which grants the government to take privately owned land from someone while condemnation is the action of taking that land.

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.

Verifying ingress and egress rights is an essential part of the due diligence process when purchasing property for both real estate agents and buyers. If one of your clients is planning to buy landlocked property, don't assume anything. Check records. Have the land surveyed, if necessary. Due diligence is the process of examining the details of a transaction to make sure it's legal. When the deal satisfies both aspects of due diligence, the two parties can finalize and correctly price the transaction. 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 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.

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.

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

Consideration is anything of legal value that is offered in exchange by one party for something of value from another party. Common forms of consideration include money, property in exchange, work or a promise to perform. Without consideration, a contract is not valid.

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.

A borrower is a mortgagor while the lender is the mortgagee. A mortgagee is an entity that lends money to a borrower (also known as a mortgagor) for the purpose of purchasing real estate.

A comparative market analysis is an examination of the prices at which similar properties in the same area recently sold. Agents can use a comparative market analysis for their clients to help them determine a price when selling or buying a home.

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.

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

The correct answer is riparian rights. In this question, the property adjoins a river or stream and the owner may make reasonable use of its water. Water-rights terminology and limits vary by state; for example, California includes lakefront land within its definition of riparian land. Riparian rights are subject to applicable law and do not mean unrestricted use. Read More Here

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.

Void contracts are not contracts because they lack an essential element of a contract and are thus unenforceable. 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.

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 trustor can be an individual or organization.

A testate estate means that the decedent or deceased person left a will. An intestate estate means that the decedent did not leave a will. If this occurs then a probate court will determine the distribution of his or her property to the appropriate parties.

Each state determines the rules for brokerage firm trust accounts and how earnest money must be deposited.

Fraud, legally significant misrepresentation or a qualifying mistake can support rescission. The required facts, procedure and remedy depend on applicable law; a minor error alone does not automatically cancel a contract.

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.

A satisfaction of mortgage records that the mortgage debt has been paid and the mortgage lien discharged. The name and required release procedure vary by jurisdiction.

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.

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

A general warranty deed gives broad title covenants that can cover claims arising before the grantor owned the property. Those promises provide remedies if breached; they do not make title defects impossible. The deed’s wording, exceptions and governing law matter. 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. While selling a house without a license is illegal and some of the other answers are too, the only clear antitrust violation is dividing territories. Which is when competing brokers agree to split territories, and divide interests accordingly. An example of this is if agencies meet up and agree to divide the town in to three separate areas to work in. This prevents competition which is bad for the consumer and a clear antitrust violation.

Agents or brokers function under certain legally mandated duties called fiduciary duties. Fiduciary duties include: Loyalty, confidentiality, disclosure, obedience, reasonable care and diligence, accounting and more. Honesty and fairness must be given to an unrepresented buyer.

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

The agent is not entitled to any compensation. With exclusive agency listings agents only get paid if they sell the property. No fee is earned if the owner alone sells the property. Also if it was open listing, the agent would still NOT be entitled to any compensation. This scenario only works because it is an exclusive agency listing.

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

Foreclosure is a legal process in which a lender attempts to recover the balance of a loan from a borrower who has stopped making payments to the lender by forcing the sale of the asset used as the collateral for the loan.

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.

If demand increases more than supply does, we get an increase in price. If supply rises more than demand, we get a decrease in price. If they rise or decrease the same amount, the price remains the same.

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.

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.

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 process of valuing real estate is a challenging one. There are many different techniques and sources that can be used to arrive at an estimate of the cost. It requires extensive experience to achieve accurate results with all relevant factors present. Reconciliation is the final step in a real estate appraisal where the appraiser weighs each appraisal approach and determines which one is most relevant and should be used.

Commingling refers to mixing brokers funds with clients funds. The opposite of commingling is separation, which is just separating the funds.

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.

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.

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.

Demand is an economic principle referring to a consumer's desire to purchase goods and services and willingness to pay a price for a specific good or service (holding all other factors constant).

Blockbusting, also sometimes referred to as "panic selling," is a discriminatory and illegal real estate practice. Blockbusting is when real estate agents try to increase their sales and profit by suggesting that people leave their neighborhoods before property values decrease. They may base their statements about these declining values on the race, ethnicity, or economic class of some of the people living in the neighborhood.

The statute of frauds is a legal concept that requires certain types of contracts to be executed in writing (real estate included). The statute specifically covers contracts for the sale of land, agreements involving goods worth over $500, and contracts lasting one year or more.

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 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 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.

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.

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.

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.

Eminent domain is the power to take private property for public use, subject to just compensation. The Fifth Amendment limits that power; its protections also apply to state and local government through the Fourteenth Amendment.

Leo should use Contribution. Contribution is most commonly applied to determine how renovation and property changes may affect the property’s overall cost. In this case, since the owner wants a feasibility study, contribution would need to be used. Swimming pools are a common contribution example. It's worth noting the cost doesn't always equal the value to the home. For example, a pool could add $5000 to the value of a home but cost $10,000 to build.

Correct answer: Alienation clause (due-on-sale clause).

A due-on-sale clause gives the lender an option to demand repayment after a covered transfer without prior written consent. It is a specific type of acceleration provision. Acceleration is the broader concept of making the remaining debt due early; it is not limited to payment default.

The clause does not automatically require payoff for every transfer. The loan terms, lender consent and applicable legal exceptions matter. Federal law protects certain transfers of covered residential property, subject to stated conditions.

Source: 12 U.S.C. § 1701j-3.

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.

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.

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.

The seller is usually entitled to keep the earnest money, because this is considered forfeiture of the contract. The only way the buyer can back out and get their earnest money back is if something happens with the inspection, appraisal, or they have a contract clause offering that protection.

The correct answer is Voidable. The facts expressly give the buyer a legal right to avoid the agreement because of fraud. The agreement remains effective unless the protected party properly exercises that right.

A contingency is different: a binding contract may contain conditions affecting performance or contractual termination rights. The presence of a contingency does not automatically mean no valid contract exists until the condition is met.

Sources: California DRE contract classifications and binding agreements and conditional escrow.

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.

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

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.

The buyer can withdraw their offer as long as the seller did not accept the offer and the buyer can obtain the $3,000 deposit. This is all because the seller has to accept the offer. Remember an offer isn’t legally binding until it becomes a contract through acceptance.

For special-purpose and public service buildings like schools, churches, and post offices the cost approach is the best choice. The reasoning is because these types of buildings usually do not have income so Income Approach is out, and there's not enough comparables to do the sales comparison approach. Cost approach is the best answer.

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.

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.

The legal document that authorizes someone to act on behalf of another person, in business or for some sort of business transaction is a power of attorney. An attorney-in-fact is someone authorized to act on behalf of another person, the legal document that authorizes that person is called a power of attorney. Read More Here

A timeshare is a property with a divided form of ownership or use rights. These properties are typically resort building units, in which multiple parties hold rights to use the property, and each owner of the same accommodation is allotted their period of time. They differ from regular condominiums as they typically are exclusively for vacations.

Holding other factors constant, lower supply with unchanged demand tends to raise the equilibrium price. That tendency does not predict the exact sale price or order of individual homes.

This is an example of a balloon loan. A balloon loan is a mortgage which does not fully amortize over the term. Amortization is when payments divide into equal amounts for the duration of the loan. A balloon loan is different as not all payments are the equally divided and the most substantial payments are called Balloon payments.

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.

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.

Severance is the opposite of attachment. Severance is taking an item that is attached to the land and removing it as personal property.

A package loan finances real property and included personal property together. It is a financing arrangement, not the only permitted way to buy both.

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.

There are three different main approaches that appraisers use while they make an appraisal. They are the Market Data Approach, Cost Approach, and Income Approach. The Market Data Approach is also commonly called the sales comparison approach. The Cost Approach is also referred to as summation. And lastly, the Income Approach, is also known as capitalization. Each method has its own set of benefits. When applied together, the various valuation methods provide the best estimate of the value of the income-producing real estate under evaluation.

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.

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.

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.

Economic life is the expected period of time during which an asset remains useful to the average owner. When an asset is no longer useful to its owner, then it is said to be past its economic life. The economic life of an asset could be different than its actual physical life.

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.

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.

In an exclusive right to sell listing the agent gets paid no matter who sells the property, regardless of whether it’s the agent or the seller. Knowing this, it's safe to assume this was an exclusive right to sell listing.

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

An owner’s express dedication of land for public use is voluntary. Foreclosure, condemnation and adverse possession can cause involuntary loss of title when their legal requirements are met.

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.

Economic obsolescence refers to the loss of property value due to external factors, meaning things off the property affecting the properties value. A new noisy highway would be considered economic obsolescence because it is an external factor. Usually, in these circumstances, homeowners cannot do anything to prevent it. Read More Here

A double net lease is when two additional costs will be added to your base rent. Usually taxes and insurance costs are added to your monthly payment.

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.

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.

The contract was established under duress, fraud, deception, or coercion making it voidable. A voidable contract is a legal agreement between two parties that may be unenforceable for any number of reasons. 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.

Most loans require some form of homeowners insurance. Homeowners insurance is property insurance that covers losses and damages. They cover an individual's house and assets in the home. It may also provide liability coverage against accidents in the home or on the property.

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.