Prep SC Chapter Tests 11-29 Student Version PDF

11 National Agency SUPPLEMENTAL CHAPTER QUESTIONS CHAPTER 11: NATIONAL AGENCY 1. The agency relationship is defined by a. the Realtor® Code of Ethics. b. the laws of agency...

11 National Agency SUPPLEMENTAL CHAPTER QUESTIONS CHAPTER 11: NATIONAL AGENCY 1. The agency relationship is defined by a. the Realtor® Code of Ethics. b. the laws of agency. c. the law of real estate contracts. d. the agreement between a principal and an agent. 2. Which of the following is true of the connection between compensation and the agency relationship? a. An agreement to give and receive compensation creates an agency relationship. b. If an agency relationship exists, the principal must provide valuable consideration to the agent. c. The relationship is independent of any compensation arrangement. d. If an agency relationship exists, the agent is entitled to compensation. 3. The defining feature of a special agency is that the agent has authority to perform a. all actions legally delegated by a power of attorney. b. all actions necessary to conduct an enterprise on behalf of the principal. c. all actions necessary to complete a specific transaction on behalf of the principal. d. specific activities on behalf of the principal, as defined in the agency agreement. 4. The agent and principal may terminate the agency relationship by mutual consent a. at any time. b. at any time until the agent has begun to perform the obligations of the agreement. c. only if the written agreement provides for cancellation. d. only if the principal and agent have a contract. 5. If an agency relationship terminates because one of the parties defaulted, which of the following is true? a. All obligations are extinguished. b. Both parties must continue to perform all obligations of the agreement. c. The defaulting party may have a financial liability. d. The damaged party has no claim against the defaulting party. 6. Among the fiduciary duties imposed on a real estate agent is the requirement to a. refuse offers the agent knows will be unacceptable to the principal. b. present all offers to the principal. c. advise the principal against accepting an offer that is below full price. d. advise a prospect that the principal will not accept the prospect's offer in order to elicit a better offer. 7. One of the agent's fiduciary duties that continues even after a listing agreement expires is a. obedience. b. diligence. c. confidentiality. d. disclosure. 8. The level of competence that a principal has the right to expect from an agent is generally that which is a. specified in the agency agreement. b. necessary to earn the promised compensation. c. necessary to procure a customer. d. comparable to that of other practitioners in the area. 9. If a potential buyer discloses financial qualifications to a seller's agent, the agent is required to a. keep the information in confidence. b. disclose the information to the buyer's agent. c. disclose the information to the seller. d. verify the buyer's statements before disclosing them to the client. 10. A buyer's broker owes the full set of fiduciary duties to a. the buyer. b. the seller. c. the party who will pay the commission. d. the seller's agent. 11. A subagent is technically the agent of a. the seller. b. the buyer.  c. a broker who has an agency relationship with a client. d. the client's and the customer's agents. 12. Which of the following is a dual agency situation? a. Two agents share the exclusive right to represent the same client. b. One agent represents both sides in a transaction. c. A selling agent from one brokerage works with a listing agent from another brokerage to complete a transaction. d. One agent represents two sellers at the same time. 13. Which of the following situations has the potential for creating an implied dual agency? a. A listing agent's subagent learns that a potential buyer has made false claims about his financial qualifications and informs the listing agent. b. A listing agent's subagent learns that a potential buyer has made false claims about his financial qualifications and does not inform the listing agent. c. A buyer's agent notices a structural problem in a house the buyer is considering and informs the buyer. d. A buyer's agent notices a structural problem in an house the buyer is considering and informs the buyer and the seller's agent. 14. Among the duties of a broker who is acting as a transaction broker, or facilitator, is a. preserving the confidentiality of information received from either party by not telling the other party. b. helping the two parties to arrive at a deal that is closest to achieving the objectives of each party. c. disclosing material facts that affect the value of the property to both parties. d. choosing to obey the instructions of one party and informing the other party of the decision. 15. In which of the following contact situations would a seller's agent be expected to disclose his agency relationships? a. The agent is showing the client's property to a prospective buyer. b. The agent tells an acquaintance at a party about the client's property. c. The agent answers questions about the client's property for a telephone caller responding to a newspaper ad. d. The agent is showing a potential buyer houses in a certain price range in the multiple listing book.  12 Listing Agreements: An Overview SUPPLEMENTAL CHAPTER QUESTIONS CHAPTER 12: LISTING AGREEMENTS: AN OVERVIEW 1. In addition to creating contractual obligations, a listing agreement creates a. an agency relationship with fiduciary obligations. b. a general partnership with financial obligations. c. a joint venture. d. a temporary business entity subject to corporation regulations. 2. The scope of authority granted by a listing agreement generally allows the agent to a. create contractual obligations for the client. b. negotiate the selling price between client and customer. c. hire inspectors, architects, and other individuals to prepare the property for marketing. d. advertise and show the property. 3. Even if legally valid, oral listings are generally not advisable for an agent because a. they do not specify a commission. b. they are not recognized by cooperating brokers. c. they can be difficult to enforce if disputed. d. they have no expiration date. 4. A salesperson, without an oral or written listing agreement, brings potential buyers to the seller. The seller says, "You can bring me buyers if you want, but I'm not paying you a commission." The salesperson then continues to direct buyers to the property. Which of the following is true about this situation? a. There is no agency relationship, and therefore the seller will owe no commission if one of the salesperson's buyers buys the property. b. An implied agency may have been created, with obligations to perform for both seller and agent. c. The seller and agent have an illegal, undisclosed agency relationship. d. The agent has an open listing with no commission agreement, and therefore no fiduciary duties to the seller. 5. An agent signs a listing agreement with a home seller, but then becomes too busy to fulfill the agreement. To alleviate the problem, the agent assigns the agreement to a competing broker. Which of the following is true about this situation? a. The agent cannot assign the listing agreement. b. The new broker acquires the full set of fiduciary duties to the client. c. The new broker has to split any commission that results with the assigning broker. d. The original broker has to disclose the assignment to the seller. 6. From an agent's point of view, the most desirable form of listing agreement is a(n) a. exclusive agency. b. exclusive right to sell. c. open. d. net. 7. What kind of listing agreement is a buyer representation agreement? a. An implied listing. b. An informal open listing. c. An exclusive listing with a disclosed dual agency. d. An exclusive, exclusive agency, or open listing. 8. What is a multiple listing? a. A listing shared by a listing agent and a selling agent. b. A listing that a listing agent delegates to a subagent. c. A listing that is entered in a multiple listing service to enable cooperation with member brokers. d. A listing that authorizes a listing agent to market more than one property for a seller. 9. Which of the following conditions is necessary for a customer to qualify as "ready, willing, and able?" a. The customer's offer must be accepted. b. The customer must be legally capable of completing the transaction. c. The customer must have a commitment from a lender. d. The customer must have no business relationship with the agent. 10. Although a listing broker may delegate marketing responsibilities to a salesperson, the broker may not delegate the authority to a. obtain and distribute compensation. b. provide cooperating brokers with information about the property. c. advertise the property. d. inspect the property for hazardous substances. 11. One of the principal determinants of "procuring cause" in a completed transaction is a. having a written listing agreement. b. being a member of the multiple listing service that listed the property. c. being first to find the customer. d. having a cooperative commission agreement with the seller. 12. If an agent has an exclusive listing to sell a property, and the property is then taken by eminent domain, what is the status of the listing? a. The seller's obligations under the listing are assigned to the agency that takes the property. b. It becomes a voidable contract. c. The commission clause of the agreement is canceled. d. It may be terminated against the agent's will. 13. A broker obtains an exclusive listing to sell a house but after a month abandons the listing because the seller is “too much trouble." What can the seller do in this situation? a. Nothing. b. Sue the broker for money damages. c. Sign a listing agreement with another broker and force the first broker to pay the commission. d. Force the broker to perform the contract without compensation. 14. What is a "listing price?" a. The seller's gross asking price as stated in the listing. b. The price that is actually achieved in a transaction. c. The price that must be obtained for the listing agent to earn a commission. d. The lowest price that is acceptable to the seller. 15. A married couple who own a house as tenants by the entireties want to give a broker the exclusive authorization to sell the house. Who must sign the listing agreement to make a valid contract? a. Either owner. b. Both owners and all mortgage lien holders. c. Both owners and the broker. d. Either owner and the broker.  13 General Brokerage Practices SUPPLEMENTAL CHAPTER QUESTIONS CHAPTER 13: GENERAL BROKERAGE PRACTICES 1. Which of the following business entities is generally prohibited from brokering real estate? a. Sole proprietorship. b. Partnership. c. Corporation for profit. d. Non-profit corporation. 2. A joint venture may generally broker real estate if the co-venturers a. form a business trust. b. form a co-operative association. c. are properly licensed. d. are limited partners. 3. What is an independent brokerage? a. A brokerage that is not affiliated with a franchisor. b. A brokerage that does not belong to a multiple listing service. c. A brokerage that trades only for its own account. d. A brokerage that is organized as a sole proprietorship. 4. A licensed salesperson may work only for a. a client who has signed a listing agreement with a licensed broker. b. a single employing broker who has an active broker's license. c. a client who has signed an authorization agreement with a licensed salesperson. d. an employer who has an active or inactive broker's license. 5. Which of the following activities is a licensed salesperson allowed to conduct? a. Accept a listing that is in the salesperson's name. b. Accept a fee directly from a client. c. Offer a property for sale on behalf of the employing broker. d. Sign a contract with a management company on behalf of a client. 6. If a salesperson works for a broker as an independent contractor, who pays for the salesperson's business expenses? a. Expenses are paid according to the terms of the agreement between broker and salesperson. b. The salesperson must pay all expenses. c. The employing broker must pay all expenses. d. The salesperson must pay all expenses that are incurred outside the brokerage office. 7. A salesperson's primary obligation to an employing broker is to a. conform to the broker's office policies and marketing philosophy. b. fulfill the fiduciary duties owed to the broker and the broker's clients. c. work every day that is a business day for the brokerage. d. earn sufficient revenue to keep the brokerage solvent. 8. If a salesperson has worked on a completed transaction that involved a listing agent, a selling agent, and several subagents for each of these, from whom will the salesperson receive any compensation that is due? a. The listing agent. b. The selling agent. c. The seller. d. The employing broker. 9. A property has sold for $127,000. The listing agreement calls for a commission of 7%. The listing broker and selling broker agree to share the commission equally. What will the listing agent receive if the agent is scheduled to get a 40% share? a. $4,445. b. $3,556. c. $2,667. d. $1,778. 10. A real estate salesperson brings a buyer to a "For Sale By Owner" transaction. The home sells for $245,000, and the seller agrees to pay a commission of 3%. The salesperson is on a 65% commission schedule with her broker, who pays her 65% minus office expenses of $500. How much will the salesperson receive from this transaction? a. $4,778. b. $4,452. c. $4,278. d. $3,175. 11. Obtaining exclusive listings for the broker is traditionally one of the salesperson's most fundamental tasks because a. a commission is assured if a buyer is procured. b. it is the broker's only source of income. c. it is the easiest task for the salesperson to perform. d. it is the only task that a salesperson is licensed to perform. 12. A salesperson makes a listing presentation to a home seller and obtains a signed listing agreement. The first thing the salesperson must now do is a. determine the optimal selling price for the property. b. submit the listing to the multiple listing service. c. submit the listing to the broker for approval and signing. d. place the company "For Sale" sign on the property. 13. A salesperson working with a customer shows a property that is listed by a brokerage firm other than the salesperson's and obtains an offer that is $10,000 less than the listing price. What must the salesperson do about this offer? a. Advise the buyer that the offer is too low. b. Present the offer to the seller at the earliest possible moment. c. Ask the listing broker for permission to lower the listing price. d. Refuse the offer. 14. During the pre-closing period of a sale contract, what is the listing broker's primary responsibility? a. Assist the buyer to obtain financing. b. Assist the seller to clear the title. c. Hire inspectors and contractors to comply with contract contingencies. d. Handle deposited funds according to law. 15. A broker receives an earnest money deposit from a buyer and signs the check over to the listing agent as a commission advance. What is wrong with this procedure? a. Nothing, provided the deposit does not exceed the total commission to which the broker is entitled. b. The broker and the agent are guilty of collusion. c. The broker has illegally converted the deposit for business use. d. The agent will have to return the advance if the transaction falls through. 16. Under what circumstance may a property listed for sale with a brokerage be advertised without identifying the broker? a. When the salesperson is an independent contractor. b. When the seller instructs the broker to do so. c. When the listing is an exclusive authorization to sell. d. Never. 17. The practice of competing brokers in a local market agreeing on a standard commission rate is a violation of a. fair trade and anti-trust laws. b. the law of agency. c. contract law. d. the Uniform Commercial Code. 18. To engage in business brokerage, a broker generally must hold a real estate license because a. only real estate licensees understand the requirements of a business sale transaction. b. a business sale usually involves a transfer of a real property interest. c. a business entity is considered a type of tangible property. d. a business cannot operate as its own real estate broker.  14 Overview of Conveyance Contracts SUPPLEMENTAL CHAPTER QUESTIONS CHAPTER 14: OVERVIEW OF CONVEYANCE CONTRACTS 1. A real estate sale contract is an executory contract until a. the completed sale transaction is recorded. b. the buyer and seller have agreed to all provisions and have signed the contract. c. all the obligations and promises are performed and the transaction is closed. d. the buyer's earnest money deposit and down payment have been delivered to and accepted by the seller. 2. If a married couple own a property that is for sale, and only one of them signs a sale contract, what is the legal status of the contract? a. The contract is invalid. b. The contract is unenforceable. c. The contract may be valid. d. The contract is executed. 3. In assisting a buyer or seller to complete an offer to purchase, what should an agent do to reduce the risk of committing an unauthorized practice of law? a. Use a standard contract promulgated by a state agency or a real estate board. b. Charge no more than a nominal fee for the assistance. c. Offer legal advice only on points of the contract that the agent is absolutely certain about. d. Write contract terms that are manifestly fair to both buyer and seller. 4. To be enforceable, a contract for the sale of real estate must a. contain clearly defined contingencies. b. be written. c. be recorded. d. have an expiration date. 5. A buyer makes an offer to purchase a house, and the seller accepts the offer. Both parties sign the sale contract, but the buyer fails to provide an earnest money deposit. What are the seller's obligations to the buyer? a. None. There is no valid contract. b. The seller must give the buyer an opportunity to make a new offer. c. The seller must perform under the terms of the contract d. The seller must notify the buyer in writing that the buyer is in default. 6. Which of the following is an essential element of a valid contract for the sale of real estate? a. Price based on certified appraisal. b. Signature of the listing broker. c. Offer and acceptance. d. Social Security numbers of seller and buyer. 7. What kind of interest does the buyer own after a real estate sale contract is signed by the principal parties? a. Legal title. b. Lien holder interest. c. Remainder interest. d. Equitable title. 8. A contingency in a sale contract is a. a promise by buyer or seller to perform a specific action. b. a condition that, if unmet, renders the contract unenforceable. c. one of several alternative actions that buyer or seller may take to satisfy contract requirements. d. an optional, unilateral action that either party may take at the request of the other party. 9. A "termite" clause in a sale contract states that the seller must provide suitable evidence that the property is free of infestation. On the day of closing, the buyer learns that the inspection service hired by the seller was not properly licensed. The seller expresses surprise, promises to pay for another inspection and/or extermination, and insists on proceeding with the closing. The buyer refuses, and declares that the sale is off. Which of the following is true of this situation? a. The seller is in default and is liable for damages. b. The buyer will be in default, and liable for damages, if he does not complete the transaction. c. The buyer may be able to have the contract canceled.  d. The contract is automatically void. 10. A buyer signs an earnest money agreement and gives it to the broker who showed her the property she is buying. After leaving the broker's office, she reconsiders and decides she prefers a different property. How long does she have to take back her offer? a. Until the seller communicates acceptance of the offer. b. Twenty-four hours. c. She can take it back at any time, but must forfeit the earnest money. d. She cannot take it back until after the expiration date of the offer. 11. On Wednesday, Fred offers to sell his property to Jack for $275,000, with the offer to remain open until 5 p.m. the next day. On Thursday morning, Sally offers Fred $280,000 for the property and Fred accepts. At 1 p.m. on Thursday afternoon, Jack accepts. Which of the following is true of this situation? a. The acceptance by Sally creates a contract and terminates Fred's offer to Jack. b. Fred has entered into contracts with both Jack and Sally to sell the same property. c. Fred's acceptance of Sally's offer is invalidated by Jack's acceptance, because Fred's offer to Jack was made prior to Sally's offer to Fred. d. No contract has been created because it is impossible to have two valid sale contracts for the same property. 12. What parties must be identified in a sale contract? a. Only a seller. b. Seller and buyer. c. Seller, buyer, and agent(s). d. Seller, buyer, and title company. 13. To create an enforceable option-to-buy contract, there must be an exchange of a. a promise to sell and a promise to buy. b. valuable consideration and a right to buy. c. valuable consideration and a promise to buy. d. a down payment and a post-dated contract for sale. 14. Mary Carboy buys a house from Jim Schmidt and at the same time obtains an option to purchase the adjoining vacant lot for $10,000 within one year. A few months later, Carboy informs Schmidt that she is ready to exercise her option, but finds that Schmidt has received an offer of $12,000 from another party. Schmidt states that he will accept the offer unless Carboy is willing to match the $12,000 offer. Which of the following is true of this situation? a. Schmidt must sell to Carboy for $10,000. b. Carboy must pay $12,000 or lose the property. c. Schmidt may sell to Carboy or the other party, but the price cannot exceed $10,000. d. If the other party delivers payment before Carboy does, the option is canceled. 15. An option-to-buy is a. not assignable unless the contracts specifically allows assignment. b. never assignable. c. assignable, with seller permission. d. assignable unless the contract prohibits assignment. 16. Which of the following is true of a contract for deed transaction? a. At the end of the contract period, the vendee receives equitable title, provided all required periodic payments have been made. b. The vendee has no right to possess or occupy the property during the contract period. c. At the end of the contract period, the vendor conveys legal title, provided the vendee has fulfilled all obligations. d. The vendor may cancel the contract at any time before the final payment has been received.  15 Real Estate Market Economics SUPPLEMENTAL CHAPTER QUESTIONS CHAPTER 15: REAL ESTATE MARKET ECONOMICS 1. Which of the following statements best describes the relationship between price and value in the market system? a. Value is based on the interaction of underlying economic factors; price is a quantification of value in a transaction. b. Value and price are identical at any given moment. c. Value by definition is the price one paid for an item, adjusted for time and costs paid in addition to price. d. Value is an estimate of the cost of an item; price is an estimate of what one will pay for the item. 2. If the price of an item is increasing, one can usually assume that a. demand for the item is decreasing in relation to supply of the item. b. demand for the item is increasing in relation to supply of the item. c. supply of the item is increasing. d. demand for the item and supply of the item are increasing. 3. Which of the following conditions would be true if the market for an item has achieved "market equilibrium?" a. New suppliers will enter the market and drive the price down. b. Demand will slowly taper off, driving the price down. c. Unmet demand for the item is directed toward demand for some other item. d. Supply and demand are equal, and price and value are equal. 4. One of the economic characteristics that distinguishes real estate is a. its homogeneity. b. its variety. c. the uniqueness of every parcel. d. its ability to appreciate in value. 5. If demand is increasing, what would be the likely effect on real estate prices in an area where the municipality has declared a moratorium on new construction? a. Prices would level off. b. Prices would continue to follow the trend that preceded the moratorium. c. Prices would fall. d. Prices would rise. 6. If a new company that sells its products worldwide moves into a town and hires 100 employees, it would be reasonable to expect a. an immediate rise in the demand for industrial real estate, but no other changes in the real estate market. b. an increase in demand for all types of real estate. c. a housing boom, but no other changes in the real estate market. d. an immediate increase in the prices for industrial and office real estate, but no impact on the residential market. 7. What is "absorption?" a. The amount of new space that is added to available space over a period of time. b. The number of houses that are built over a period of time. c. The amount of space that is occupied at any given time. d. The number of available units that become occupied over a period of time. 8. During a time of declining vacancy in a real estate market, one would expect a. rising prices. b. falling prices. c. falling construction activity. d. rising absorption.  16 Appraising and Estimating Market Value SUPPLEMENTAL CHAPTER QUESTIONS CHAPTER 16: APPRAISING & ESTIMATING MARKET VALUE 1. A person paid $150,000 for a house with the intention of renting it out for $1,000 per month. The economic principle that led the person to pay this price based on the property's ability to generate this future income is known as a. substitution. b. anticipation. c. supply and demand. d. utility. 2. Which of the following situations illustrates the principle of contribution? a. A homebuyer makes a down payment of 20% instead of the 10% the lender requires. b. A homeowner adds a third bathroom to a house and thereby increases the appraised value by $10,000. c. The appraised value of a house goes up by $20,000 over a two-year period because of the prices recently paid for other houses in the neighborhood. d. Because of a decline in mortgage interest rates, a homeowner in a certain market is able to list her house at a higher price. 3. A property owner buys an adjacent parcel and combines it with the original parcel to create a property with a higher value than the total of the two separate property values. The operative principle of value in this situation is called a. assemblage. b. accretion. c. progression. d. subdivision. 4. What is the difference between the appraised value of a property and its mortgage value, if any? a. They are the same. b. The appraised value is an appraiser's estimate; mortgage value is the amount a lender will lend for the purchase of the property. c. The appraised value is an appraiser's estimate; mortgage value is the value a lender imputes to the property as collateral. d. Appraised value is mortgage value multiplied by a lender's loan-to-value ratio. 5. What is the difference between market value and market price, if any? a. They are the same. b. Market value is an estimate; market price is the price at which a property is offered. c. Market value is an average price derived from comparable sales; market price is a price based on the cost of creating the property. d. Market value is an estimate; market price is the price at which a property sold. 6. An appraisal is a. a professional appraiser's opinion of value, supported by data and following approved methods. b. a professional appraiser's estimate of market price. c. an estimate of sale price offered by a knowledgeable real estate professional. d. a broker's opinion of value, based on comparison with recent comparable sales and current listings in the multiple listing service. 7. The first step in the appraisal process, regardless of the appraisal method, is to a. identify the highest and best use of the property to be appraised. b. collect and analyze property data. c. estimate the value of the land as if it were vacant. d. define the appraisal problem and the purpose of the appraisal. 8. In the final step of an appraisal, the appraiser reconciles the value estimates derived by the various appraisal approaches by a. disregarding the high and low extreme results. b. averaging the results of all three approaches. c. weighing the applicability of the approaches and considering the quality of data supporting each approach.  d. choosing the result that is closest to the average for properties in the immediate neighborhood. 9. Which of the following statements properly describes the central concept of the sales comparison approach? a. Find the median price of recently sold comparable properties and add or subtract dollar amounts in the subject property to account for competitive differences. b. Make dollar adjustments to the sale prices of comparable properties to account for competitive differences with the subject. c. Find at least three comparable properties that are currently for sale and make dollar adjustments to the listing prices to account for competitive differences with the subject. d. Apply an appreciation factor to the price at which the subject property most recently sold and make dollar adjustments to account for competitive differences with comparable properties currently for sale. 10. One of the strengths of the sales comparison approach is that it a. takes into account the subject property's investment value. b. reveals the profit margin of the builder or developer of the subject property. c. discovers the underlying value of the subject property apart from the influence of competing properties. d. takes into account the competitive value of specific amenities of the subject property. 11. In making dollar adjustments in the sales comparison approach, the appraiser a. adds value to a comparable that is inferior to the subject property. b. adds value to the subject property if it is inferior to a comparable. c. subtracts value from a comparable that is inferior to the subject property. d. subtracts value from the subject property if it is inferior to a comparable. 12. The best comparable property for use in the sales comparison approach is the one that a. is located closest to the subject property. b. requires the fewest and smallest adjustments. c. sold most recently. d. was built according to the same plan as the subject and at about the same time. 13. A house is being appraised using the sales comparison approach. The house has three bedrooms, two bathrooms, and a patio. The appraiser selects a comparable house that has three bedrooms, 2.5 bathrooms, and no patio. The comparable house just sold for $100,000. A half-bath is valued at $5,000, and a patio at $1,000. Assuming all else is equal, what is the adjusted value of the comparable? a. $100,000. b. $104,000. c. $96,000. d. $106,000. 14. Which of the following statements properly describes the methodology of the cost approach to appraisal? a. Apply a depreciation factor to the reported actual cost of acquiring and improving the subject property. b. Estimate the cost of building the improvements on the subject property. c. Estimate the land value and add to this the actual cost of the improvements adjusted for competitive differences with similar properties. d. Add the estimated land value and cost of improvements and subtract the accrued depreciation of the improvements. 15. One of the strengths of the cost approach is that it a. takes into account the amount of money required to develop a similar property. b. is very accurate for a property with new improvements that represent the highest and best use. c. results in an actual price in dollars instead of an estimated value. d. reveals the owner's return on money invested in the cost of development. 16. The principle underlying depreciation from physical deterioration is that a. eventually, a property loses all of its value. b. a property loses a portion of its value each year because of economic obsolescence. c. a property loses the same increment of value each year over the economic life of the property. d. the value lost to depreciation is incurable. 17. A property is being appraised by the cost approach. The appraiser estimates that the land is worth $10,000 and the replacement cost of the improvements is $75,000. Total depreciation from all causes is $7,000. What is the indicated value of the property? a. $68,000. b. $92,000. c. $82,000. d. $78,000. 18. Which of the following statements properly describes how to apply the income capitalization approach to appraisal? a. Apply a desired rate of return to the price paid for an income property. b. Divide the income a property generates by a desired rate of return. c. Estimate the amount of income a property must generate to return the capital amount invested in it. d. Estimate the rate of return a property owner receives from income generated by the property. 19. A strength of the income capitalization approach is that it a. uses a rate of return that is required for all potential purchasers in a market. b. yields an accurate projection of investment income. c. uses a method that is also used by investors to determine how much they should pay for an investment property. d. can be used with any type of property in any market. 20. A property is being appraised using the income capitalization approach. Annually, it has an estimated gross income of $30,000, vacancy and credit losses of $1,500, and operating expenses of $10,000. Using a capitalization rate of nine percent, what is the indicated value (to the nearest $1,000)? a. $206,000. b. $167,000. c. $222,000. d. $180,000. 21. An apartment building that sold for $450,000 had monthly gross rent receipts of $3,000. What is its monthly gross rent multiplier? a. 12.5 b..01. c..08. d. 150. 22. A rental house has monthly gross income of $1,200. A suitable gross income multiplier derived from market data is 14.1. What estimated sale price (to the nearest $1,000) is indicated? a. $169,000. b. $102,000. c. $203,000. d. $173,000. 23. A certified appraiser is one who has received certification by a. a licensed real estate school. b. the Appraisal Institute. c. the state in which the appraiser operates. d. the Appraisal Review Board. 24. The act that required federally-related appraisals to be conducted by a certified appraiser is known as a. the Financial Institutions Reform, Recovery and Enforcement Act (FIRREA). b. the Uniform Standards of Professional Appraisal Practice Act (USPAPA). c. the Appraisal Foundation Authorization and Reform Act (AFAR). d. the Federal Institution for Regulation and Enforcement of Appraisal Act (FIREAA).  17 Real Estate Finance SUPPLEMENTAL CHAPTER QUESTIONS CHAPTER 17: REAL ESTATE FINANCE 1. Mortgage financing is the practice of a. buying and selling mortgages as an investment vehicle. b. lending money to real estate investors to finance the purchase of mortgages. c. using borrowed funds secured by a mortgage or trust deed to purchase real estate. d. obtaining equitable title to real estate by buying promissory notes. 2. What is a lien-theory state? a. A state in which a lienor holds legal title to a secured property. b. A state in which a mortgage is considered to be a lien against a secured property. c. A state that allows a real estate owner's creditors to record liens against the owner's property. d. A state in which a lien is considered as a conveyance. 3. What is the function of a note in a mortgage or trust deed financing arrangement? a. It is evidence of the lender's interest in the collateral property. b. It is evidence of ownership of the mortgage or trust deed. c. It contains the borrower's promise to maintain the value of the property given as collateral for a loan. d. It is evidence of the borrower's debt to the lender. 4. The document that provides evidence that a certain property is pledged as collateral for a loan is the a. trust deed or mortgage. b. promissory note. c. loan commitment. d. collateral acknowledgment. 5. The borrower in a mortgage loan transaction is known as the a. mortgagee. b. mortgagor. c. lienor. d. trustee. 6. If a borrower obtains an interest-only loan of $75,000 at an annual interest rate of 8%, what is the monthly interest payment? a. $720. b. $625. c. $42. d. $500. 7. If a borrower's monthly interest payment on an interest-only loan at an annual interest rate of 9% is $375, how much was the loan amount? a. $40,500. b. $50,000. c. $500,000. d. $46,500. 8. A borrower of a $95,000 interest-only loan makes annual interest payments of $8,312.50. What interest rate is the borrower paying? a. 8.75%. b. 7.29%. c..729 %. d. 9.125%. 9. How much is a discount point? a..1% of the loan amount. b. 1% of the loan amount. c. 10% of the loan amount. d. It depends on the interest rate and the loan amount. 10. Which of the following is true of an amortizing loan? a. The amount of annual interest paid is the same for every year of the loan term. b. Part of each periodic payment is applied to repayment of the loan balance in advance and part is applied to  payment of interest in arrears. c. Except for any points that may be paid, the interest on the loan balance is usually paid in advance. d. The interest rate is reduced each year to maintain equal payments even though the outstanding loan balance is smaller. 11. For a loan that is not backed by the Federal Housing Administration or Veterans Administration, and for which the borrower is making a down payment of less than 20%, the lender is likely require the borrower to obtain a. a subrogation agreement. b. private mortgage insurance. c. a letter of credit. d. a co-signer on the note. 12. What is a loan-to-value ratio? a. The percentage of a lender's portfolio that is composed of mortgage loans. b. The ratio of borrowed principal plus total interest to the appraised value of the collateral property. c. The ratio of a lender's return on a mortgage loan to the value of the collateral property. d. The fraction of the appraised value of the property offered as collateral which the lender is willing to lend. 13. The difference between what a borrower has to pay to purchase a property and the amount a lender will lend on the property is the a. loan-to-value ratio. b. lender's profit margin. c. buyer's down payment. d. origination fee. 14. The Equal Credit Opportunity Act prohibits a lender from a. refusing a loan because the property is located in a certain area. b. including income from self-employment in the borrower's qualifying income. c. requiring both spouses to sign the loan application form. d. refusing a loan because a borrower has a defective credit report. 15. A loan applicant has an annual gross income of $36,000. How much will a lender allow the applicant to pay for monthly housing expense to qualify for a loan if the lender uses an income ratio of 28%? a. $2,160. b. $840. c. $1,008. d. $720. 16. If a lender discovers that an applicant for a mortgage loan has borrowed the down payment from a relative and has to repay that loan, the lender is likely to a. refuse the application. b. adjust the applicant's debt ratio calculation and lower the loan amount. c. increase the loan amount to enable the borrower to pay off the loan to the relative. d. require the borrower to make payments to an escrow account for repayment of the relative's loan. 17. The Federal Reserve's Regulation Z applies to which loans? a. All loans. b. All loans secured by real estate. c. All loans secured by a residence. d. All loans over $25,000. 18. If a particular loan falls under Regulation Z's right of rescission provision, a. the lender has the right to change the terms of the loan within a certain period. b. the lender has the right to accelerate repayment of the loan because of a change in the borrower's credit status. c. the borrower has the right to pay off the loan ahead of schedule with no penalty. d. the borrower has a limited right to cancel the transaction within a certain period. 19. Under the Equal Credit Opportunity Act, a lender, or a real estate agent who assists a seller in qualifying a potential buyer, may not a. tell a rejected loan applicant the reasons for the rejection. b. ask the buyer/borrower about his/her religion or national origin. c. ask the buyer/borrower to explain gaps in his/her employment history. d. use a credit report if the loan applicant disputes any information in the report. 20. A conventional mortgage loan is one that is a. backed by the Federal National Mortgage Association. b. insured under Section 203(b) of the Federal Housing Administration loan program. c. guaranteed by the Government National Mortgage Association.  d. not FHA-insured or VA-guaranteed. 21. The assumability of an FHA-insured loan is a. unrestricted. b. limited by when the loan was originated and by the type of property. c. limited to owner-occupied properties. d. prohibited on all existing loans under current regulations. 22. A VA certificate of eligibility determines a. whether an individual is a veteran. b. the maximum loan amount an approved lender can give to veterans. c. how much of a loan the VA will guarantee. d. whether a lender is approved to issue VA-guaranteed loans. 23. A borrower obtains a 30-year, fully amortizing mortgage loan of $30,000 at 8%. What is the principal balance at the end of the loan term? a. $1,000. b. $30,000. c. $220. d. Zero. 24. Which of the following describes a purchase money mortgage financing arrangement? a. A bank gives a buyer a senior mortgage loan that fully covers the cost of purchasing the property. b. The buyer gives the seller a mortgage and note as part of the purchase price of the property. c. A land trust holds title to the property while the buyer makes periodic installment payments to the seller. d. The seller uses the purchase money obtained from the buyer's mortgage loan to repay the seller's outstanding loan balance.  18 Real Estate Investment SUPPLEMENTAL CHAPTER QUESTIONS CHAPTER 18: REAL ESTATE INVESTMENT 1. When an investment property generates less income than the amount the investor has to pay a lender to finance the investment, the investor suffers from a. negative amortization. b. negative leverage. c. a reverse mortgage. d. a debt investment. 2. An individual buys a small office building as an investment and participates actively in the management and operation of the building. This is an example of a. syndication. b. equity investment. c. direct investment. d. illiquidity. 3. Which of the following best describes a Real Estate Investment Trust? a. Investors are partners in an entity that sells pools of mortgages secured by real property. b. Investors are general partners who pool cash resources to buy, develop and operate a property. c. Owners of an income property convey title in the property to a land trust as a tax shield. d. Investors own shares in a trust that receives 75% of its income from real estate investments. 4. Cost recovery is allowed as a federal tax deduction on a. principal residences. b. income properties. c. land. d. land and improvements. 5. A homeowner paid $285,000 for a house three years ago. The house sells today for $339,000. How much has the property appreciated? a. 23 %. b. 77 %. c. 19 %. d. 123 %. 6. The primary tax benefit in owning a non-income property such as a residence is a. depreciation of improvements. b. appreciation of land. c. a deduction for costs of operating the property. d. a deduction for mortgage interest. 7. A house sold for $350,000. The seller paid a brokerage commission of six percent, legal fees of $600, and had other closing costs of $3,000. What are the net proceeds from the sale? a. $343,000. b. $329,000. c. $346,400. d. $325,400. 8. A homeowner bought a house five years ago for $250,000. Since then, the homeowner has spent $6,000 to pave the driveway and has added a central heating/air-conditioning system at a cost of $10,000. What is the homeowner's adjusted basis if the house is sold today? a. $260,000. b. $266,000. c. $256,000. d. $234,000. 9. A homeowner sold her house and had net proceeds of $191,000. Her adjusted basis in the home was $176,000. She immediately bought another house for $200,000. What was her capital gain? a. $191,000. b. $9,000.  c. $15,000. d. None. 10. After three years of owner-occupancy, a young homeowner sells his principal residence for a gain of $150,000, and the next month buys another principal residence that costs more than the adjusted sale price of the old home. Which of the following is true of the treatment of the tax on gain? a. There is no taxable gain. b. It must be paid in the year of the sale. c. The homeowner may choose to pay it or defer it.. d. Tax is due on the difference between the cost of the new home and adjusted basis of the old one. 11. Which of the following are limitations on the exclusion of capital gain on the sale of a house? a. The seller is 55 years old, the property is used as a principal residence, and the seller's previously claimed exclusions do not exceed $125,000. b. The property is owner-occupied and the seller has never claimed an exclusion previously. c. The seller must have owned it for two years of the previous five, used it as a principal residence for two years during that period, and not claimed an exclusion in the previous two years. d. The seller must have owned and occupied it for five years and not claimed an exclusion in the previous year. 12. Bill Holdfast owns a small retail property that he inherited from his father. There are no mortgages or interest expenses connected with the property. Bill takes an annual cost recovery expense of $5,000. The property has a monthly gross income of $1,500 and monthly operating expenses of $500. Bill's taxable income from this property will be taxed at a rate of 24%. What is the tax liability for the year? a. $1,680. b. $4,320. c. $3,840. d. $7,000.  19 Real Estate Taxation SUPPLEMENTAL CHAPTER QUESTIONS CHAPTER 19 REAL ESTATE TAXATION 1. Which of the following can legally levy real property taxes? a. The Internal Revenue Service. b. A utility company. c. A tax district. d. A court of law. 2. Certain classes of property owner and types of property are exempted or immune from real property taxation in many areas. The protected categories usually include a. recreational properties. b. properties owned by a government agency. c. properties that comply with the Americans with Disabilities Act. d. properties occupied by single-parent families. 3. What is the purpose of an equalization factor in ad valorem taxation? a. It modifies a local tax rate to bring it into conformity with statutory tax rates. b. It changes the assessed value of an individual property to make it reflect the assessed values of other properties in the same neighborhood. c. It adjusts assessments in a locality to make them more consistent with an average level for the state or other higher level jurisdiction. d. It adjusts the amount of the homestead exemption in a certain area to make it proportionally equivalent to the average homestead exemption in other areas. 4. To qualify for a homestead exemption, a property owner generally must a. reside on the property. b. have a house on the property. c. be 55 years old. d. have children. 5. What is a tax levy? a. The total of the assessed values of all real properties within a taxing jurisdiction. b. The sum of all the taxes a local taxing jurisdiction collects in a tax year. c. The action a taxing jurisdiction takes to impose a tax. d. The number of dollars per thousand of assessed value a property owner must pay in property taxes. 6. A school district's tax rate is 10 mills. The school district's required revenue from taxes is $10,000,000. What is the tax base of the area? a. $10,000,000. b. $100,000,000. c. $1,000,000,000. d. $100,000,000,000. 7. A homeowner receives a tax bill that includes an amount for the library district, taxed at $1.00 per $1,000, and the fire protection district, taxed at $2.00 per $1,000. How much does the taxpayer have to pay for these two items if the property's taxable value is $47,000? a. $1,567. b. $157. c. $1,410. d. $141. 8. A town is replacing a sidewalk that serves five homes. The length of the sidewalk is 200 feet. Mary's property has 38 feet of front footage. If the cost of the project to be paid by a special assessment is $7,000, what will Mary's assessment be? a. $1,400. b. $1,330. c. $184. d. $1,840. 9. What is a tax deed? a. A conveyance instrument for a property that is sold to enforce a tax lien. b. A document recorded in title records showing that property taxes have been paid.  c. A notice to a homeowner that a tax lien has been entered against the property. d. A document that gives a municipal authority the power to collect an individual tax bill 10. The right of a property owner to redeem his or her property after a tax sale is called a. a legal right of rescission. b. an equitable right to acquire title. c. a right of homestead exclusion. d. a statutory right of redemption.  20 Professional Practices SUPPLEMENTAL CHAPTER QUESTIONS CHAPTER 20: PROFESSIONAL PRACTICES 1. The fair housing law that first protected people against discrimination in housing based on race was the a. Civil Rights Act of 1866. b. Civil Rights Act of 1968. c. Executive Order 11063 of 1962. d. Title VIII amendment to the Fair Housing Act. 2. The classes protected against discrimination by the Fair Housing Act of 1968 are a. race only. b. religion and gender only. c. race, color, religion, and national origin. d. age and gender only. 3. An agent tells a prospective buyer that a seller will not provide any assistance in financing, when, in fact, seller financing is available. If the buyer belongs to one of the groups protected by fair housing laws, the agent may be guilty of which type of illegal discrimination? a. Steering. b. Discriminatory misrepresentation. c. Redlining. d. Providing unequal services. 4. Which of the following actions represents discriminatory advertising? a. Telling prospective buyers about the positive and negative aspects of a certain neighborhood. b. Telling a prospective seller that now would be a good time to put a property on the market. c. Advertising a property as available to individuals of a particular race. d. Telling a prospective buyer that the agent is too busy to show the buyer properties personally on a given day. 5. Which of the following is an example of blockbusting? a. An agent shows a minority home buyer properties located in a neighborhood where there are no other minority home owners. b. An agent persuades a minority home buyer to avoid looking in a neighborhood where there are no minority home owners. c. An agent persuades a family to put their house on the market because ethnic minority families are beginning to move into the neighborhood. d. An agent persuades a minority home buyer to buy a property located in an area where most of the home owners belong to minority groups. 6. What is the significance of the Jones v. Mayer Supreme Court decision? a. It provides that anyone seeking to buy or rent a residential property who feels victimized by racial discrimination may take legal action under the 1866 Civil Rights Act. b. It allows for certain exemptions to the Title VIII prohibitions against discrimination provided there is no broker involved in the sale or lease transaction. c. It established that brokers and lenders must indicate their compliance with fair housing laws by displaying a standard HUD poster. d. It added gender, age, and family status to the groups protected against discrimination in housing. 7. A home seller tells the listing agent that he will not consider any offers from minority buyers. A cooperating broker wants to show the home to a minority buyer, but learns from the listing agent of the seller's instructions. The cooperating broker then informs the buyer that he cannot show that home to him. The buyer subsequently asks to be shown only houses that are in minority neighborhoods. Which parties in this scenario are probably liable for violating fair housing laws? a. The seller only. b. The seller and the listing agent only. c. The seller, the listing agent, and the cooperating broker. d. All four parties. 8. The practice of redlining is specifically prohibited by a. The Home Mortgage Disclosure Act. b. The Real Estate Settlement Procedures Act.  c. The Civil Rights Act of 1866. d. The Americans with Disabilities Act. 9. Title VIII of the Civil Rights Act of 1968 applies to the sale of a. all single-family residences. b. all privately owned single-family residences. c. privately owned single-family residences listed with a broker. d. privately owned single-family residences "for sale by owner." 10. A broker signs a listing agreement to sell a home for $100,000. An immigrant couple are interested in the house and ask the agent the price. The agent states the price as $110,000. According to the fair housing laws, such an action is a. illegal, because the agent changed the terms of the sale to discourage this particular couple. b. illegal, because the agent violated the listing agreement. c. legal, because the quoted price increase did not exceed 10% of the listing price. d. legal, because the increased price does not necessarily exclude the couple. 11. Which of the following actions is allowed under federal fair housing laws? a. A broker, following the instructions of the seller, advertises the property as for sale to Christian families only. b. A home seller, acting without a broker, places a "for sale-- mature, single men only" sign in front of the house. c. The owner of four rental houses advertises one of the properties for rent "to married couples, no children, no pets." d. The owner of a duplex who resides in one of the units refuses to rent the other unit to a non-Christian. 12. May Southfeldt believes a real estate agent has kept her from seeing a certain property for rent because she is a woman. What actions should she take if she wants legal satisfaction for her complaint? a. File charges of illegal discrimination with the police department that has jurisdiction over the local area. b. File a complaint with HUD and/or file suit against the offending parties in a state or federal court within the prescribed time period. c. Wait two years and then file a civil suit in federal court. d. File a civil suit in federal court to force HUD to enforce the Fair Housing Amendments Act of 1988. 13. John Dunbar hires Betty Jones to sell his house, with the condition that he will not be the first one in the neighborhood to sell to members of a certain ethnic group. What should Betty do about this condition? a. Inform Dunbar that the condition is illegal and that she cannot comply with it. b. Note the condition on the listing agreement and have Dunbar initial it. c. Pretend that she did not hear the condition and proceed to market the property to all groups. d. Inform Dunbar that she will try to discourage members of that group from looking at the property, but that she cannot control cooperating brokers. 14. Under federal fair housing laws, the owner of a ten-unit apartment building may legally a. advertise that the property is not available to anyone requiring wheelchair access. b. refuse to rent to aliens. c. require families without children to pay the same security deposit that families with children must pay. d. require tenants to move out when they become 62 years old. 15. Under what conditions would federal fair housing laws allow a home owner to refuse to rent to a family because they have children? a. The owner has a consistent no-children policy in all her rental properties. b. The owner can prove that costs to repair damage caused by previous tenants with children exceeded the tenants’ security deposit. c. It is a single-family house that is part of a federally-designated planned unit development. d. It is a single-family house, and the owner owns only one other rental home in addition to his own residence. 16. Which of the following is a material fact about property condition that must be disclosed to a property buyer? a. A registered violent offender lives in the neighborhood. b. The listing agent has a negative view of the property. c. The seller is a notorious felon. d. There is no homeowners’ association. 17. A certain house for sale was built in 1997. The seller and seller’s agent must be sure to disclose to buyers that a. the house probably contains lead paint hazards. b. the house definitely contains urea formaldehyde insulation. c. the house was built in 1997. d. the house’s water supply is not protected by the Safe Drinking Water Act. 18. What is the purpose of a home warranty?  a. Protect the lender against loss of collateral b. Protect the homeowner against costs arising from major system failures c. Provide funds to rebuild the home in case of natural disaster d. Ensure the lender that the homeowner will make mortgage payments 19. If there is cause to believe a property for sale has been contaminated in some way, the transaction parties would be wise to a. have an environmental site assessment performed. b. begin Phase 4 remediation immediately. c. ask the local government for an environmental impact statement. d. contact the local health department.  21 Closings SUPPLEMENTAL CHAPTER QUESTIONS CHAPTER 21: CLOSINGS 1. During the period between the signing of the sale contract and the closing date, a. the seller may continue to accept offers on the property. b. the seller may not occupy or use the property. c. buyer and seller are expected to remove any contingencies that are stated in the contract. d. buyer and seller continue to negotiate the selling price if either party is dissatisfied. 2. When should a buyer undertake a "buyer's walk-through" of a property that is under contract? a. Immediately after the offer is accepted. b. Immediately after closing. c. As shortly before the closing date as possible. d. As soon as all inspections have been completed. 3. If a sale transaction is to occur in escrow, a. the broker has no further involvement. b. an escrow agent holds funds and documents until all parties have satisfied the conditions necessary for closing. c. the seller's broker holds the sale documents until the buyer has satisfied the terms of the contract. d. the buyer's escrow agent and the seller's escrow agent complete the transaction. 4. If the conditions of an escrow agreement are not met and the transaction cannot be completed, the escrow agent a. levies a fine against the defaulting party. b. assigns his or her fiduciary responsibilities to the seller's broker. c. returns funds to the buyer. d. cancels the sale contract and destroys the transaction documents. 5. A buyer and a seller have employed an escrow agent to handle a closing. Which of the following statements is true? a. Buyer and seller do not need to attend the closing. b. The seller receives the earnest money deposit from the escrow agent as soon as the buyer delivers it. c. The buyer receives legal title as soon as the seller accepts the down payment. d. The escrow agent certifies the buyer's earnest money check and provides the buyer with an opinion of abstract. 6. If the Real Estate Settlement Procedures Act applies to a transaction, the lender must a. give the seller a booklet describing settlement costs and procedures. b. use a prescribed form to disclose settlement costs to the buyer. c. sign an agreement with seller and buyer to act as closing agent. d. allow the buyer to inspect the closing statement at least one week prior to the closing date. 7. To avoid violating the Real Estate Settlement Procedures Act, parties who are providing services to the buyer or seller in a transaction must a. be paid before the closing date for any service they provide. b. inform the closing agent of the cost of their services at least one week before the closing date. c. receive payment only from the funds held in escrow, not directly from buyer or seller. d. disclose in writing any business relationships they have with other parties involved in the transaction. 8. In the context of a closing, proration refers to a. determining the amount of the commission that buyer and seller owe their respective agents at the closing. b. apportioning an amount paid, received, or due according to the period of time that a party is responsible for the item. c. determining which expenses the buyer and seller should pay unilaterally outside of the closing. d. completing the settlement statement. 9. If an item to be prorated affects buyer and seller, and no outside party, which of the following statements is true? a. The item must be prorated and recorded as a debit to one party and a credit to the other party for the same amount. b. The item must be prorated and recorded as a debit to one party; the remainder is recorded as a credit to the other party.  c. The party who is owed money receives a credit for the entire item, and the party who owes money receives a debit for the prorated amount. d. The party who owes money receives a debit for the portion owed and a credit for the portion that is not owed. 10. An item is said to be paid in arrears if it is normally paid a. on a monthly or yearly basis. b. at some time after the expense is incurred. c. only after it is billed. d. whenever it is incurred. 11. Which of the following items is paid in arrears? a. Apartment rent. b. A flood insurance premium. c. A loan origination fee. d. A real estate tax bill. 12. Which of the following items is paid in advance? a. A special assessment for a sidewalk. b. A commission to a real estate broker. c. An insurance premium payment. d. Interest on a home equity loan. 13. A seller paid a $100 item in advance. At closing, the seller has "used" only $75 of this item. What should appear on the closing statement? a. A debit to the buyer and credit to the seller for $25. b. A debit to the buyer for $25 and a credit to the seller for $75. c. A debit to the buyer for $25 and a credit to the seller for $100. d. A debit to the buyer and credit to the seller for $75. 14. A seller received a rental payment of $100 in advance. At closing, the seller has "earned" only $32 of this rent. What should appear on the closing statement? a. A debit to the seller and credit to the buyer for $32. b. A debit to the seller for $68 and a credit to the buyer for $32. c. A debit to the seller for $32 and a credit to the buyer for $100. d. A debit to the seller and credit to the buyer for $68. 15. A buyer will receive a water bill for an estimated $100 at the end of the month. At closing, the seller has used an estimated $43 in water. What should appear on the closing statement? a. A debit to the seller and credit to the buyer for $57. b. A debit to the seller and credit to the buyer for $43. c. A debit to the buyer and credit to the seller for $57. d. A debit to the buyer and credit to the seller for $43. 16. A sale transaction closes on April 1, the ninety-first day of the tax year. The day of closing belongs to the seller. Real estate taxes for the year, not yet billed, are expected to be $3,150. According to the 365-day method, what is the seller's share of the tax bill? a. $776.71. b. $785.34. c. $959.54 d. $2,364.66. 17. A sale transaction closes on July 4. The day of closing belongs to the seller. On January 1, the seller paid a hazard insurance premium of $375 for the calendar year. According to the 12-month/30-day method, what is the seller’s share of the insurance premium? a. $183.33. b. $187.50. c. $189.05. d. $191.67. Questions 18-25 use the following data: Closing date (day belongs to seller): September 1 (day 244 of the year) Sale price: $262,500 Earnest money: $3,600 Loan amount (buyer's): $236,250 (90%; 30 years @ 5%) Points (buyer pays): 2 Monthly payment: $1,268.24 ($984.37 interest first month) Tax and insurance escrow (buyer's loan): 6 months Pre-paid interest (buyer's loan): Sept. 2-Sept. 30 Hazard insurance (existing): $700 (paid by seller through Dec. 31) Hazard insurance (new): $700 (to be prorated in tax and insurance escrow) Current Year real estate taxes : $3,300 (will be billed to buyer next year) Broker's commission (seller pays): 6% Lender's title insurance (buyer pays): $250 Escrow fee (seller and buyer share equally): $500 Recording fee (buyer pays): $25 Transfer tax (seller pays): $481 Complete the attached closing worksheet and then answer the questions. Use the 365-day method for prorating. 18. What is the seller's share of the real estate taxes? a. $1,093.98 b. $1,103.01 c. $2,196.99 d. $2,206.03 19. What is the buyer's share of the existing hazard insurance already paid in full? a. $232.05 b. $350.00 c. $467.95 d. $245.55 20. How much is the buyer's tax and insurance escrow? a. $1,174.00 b. $1,972.00 c. $2,000.00 d. $2,348.00 21. What is the buyer's prepaid interest? a. $951.56 b. $984.37 c. $1,018.31 d. $1,047.33 22. How much will the buyer pay for points? a. $472.50 b. $4,175 c. $4,725 d. $4,500 23. How much will the seller pay the broker? a. $7,087.50 b. $7,875 c. $14,175 d. $15,750 24. How much will the seller receive at closing? a. $238,751 b. $239,099 c. $246,750 d. $244,045 25. How much will the buyer have to pay at closing? a. $24,500 b. $25,591 c. $27,650 d. $28,878 CLOSING WORKSHEET FOR QUESTIONS 18-25 Buyer Seller Debit Credit Debit Credit Sales Price Earnest Money Loan amount Points Prepaid Interest Tax/Insurance escrow Hazard insurance Real estate taxes Broker’s commission Title insurance Escrow fee Recording fee Transfer tax TOTALS CREDITS (DEBITS) RECEIVABLE OR (PAYABLE)  22 Overview of Licensing And Regulation SUPPLEMENTAL CHAPTER QUESTIONS CHAPTER 22: OVERVIEW OF LICENSING AND REGULATION 1. State real estate license laws set a minimal level of competence for real estate professionals and, in addition, a. establish commission and fee schedules. b. set ethical and professional standards. c. limit the number of brokerages that may operate in the state. d. prescribe methods of obtaining real estate business. 2. A particular real estate activity generally requires a license if it a. involves a buyer and a seller. b. concerns a transfer of title. c. results in a taxable event that must be reported to state and federal revenue agencies. d. is performed for another party for compensation. 3. Mary is selling her house. Betty wants to buy it. Margaret intends to help Mary and Betty with the sale contract. In return, Mary will send her son to paint Margaret's house. Which of the following circumstances will probably allow Margaret to help Mary and Betty without holding a real estate license? a. Margaret and Mary are sisters. b. Betty is Mary's daughter. c. Margaret is Mary's attorney. d. Margaret works in the office of a licensed broker. 4. An active broker's license generally authorizes the holder to perform services a. within the area administered by the local real estate board. b. anywhere in the state. c. anywhere in the country. d. in neighboring states as well as in the issuing state. 5. Which of the following is the only capacity in which a licensed salesperson may act? a. As agent for a seller. b. As agent for a principal who has signed a listing agreement. c. As agent for one or more licensed brokers, depending on the transaction. d. As agent of an employing broker. 6. If a licensee's license is voided, a. the licensee may continue performing those services already in progress at the time of voiding. b. the licensee may not practice real estate. c. the licensee may never obtain another license in the same state. d. the licensee may only work for another licensee with a valid license. 7. To obtain a real estate salesperson's license, an individual must a. pass a state license examination. b. have previous experience as an assistant to a licensed salesperson. c. be currently employed by a licensed broker. d. be sponsored by a licensed salesperson. 8. Carl's broker's license is revoked by the state commission. Lily, a licensed salesperson working for Carl, must a. continue to perform services for her clients pending Carl's reinstatement. b. cease performing real estate services. c. go to work for another employing broker. d. obtain a broker's license. 9. If the state licensing authority finds that a consumer's complaint against a licensee is justified, the authority may a. issue a money judgment against the licensee. b. sentence the licensee to jail. c. suspend or revoke the license as well as report the case to an appropriate judicial authority. d. negotiate a financial settlement with the complainant on behalf of the real estate commission. 10. To maintain a valid license, a licensee needs to a. generate a minimum number of transactions within the licensing period. b. remain in the same agency affiliation for at least one year. c. pass the licensing examination on a yearly basis. d. satisfy educational requirements for license renewal.  23 Risk Management SUPPLEMENTAL CHAPTER QUESTIONS CHAPTER 23: RISK MANAGEMENT 1. In which risk management strategy does a party take full responsibility for consequences and enter into an activity in spite of known risks? a. Avoidance b. Reduction c. Transference d. Retention. 2. Brokerage firms can best reduce the risks that licensees will commit errors and violate laws by a. obtaining errors and omissions insurance. b. hiring only agents with law degrees. c. disclaiming knowledge of the law. d. providing professional education. 3. How does documentation manage risk? a. It shows the public that the office is well-managed. b. It serves as evidence that laws have been complied with. c. It relieves agents of the need to remember details. d. It keeps office staff too busy to interfere with transactions. 4. A good way of reducing the risk that brokers and sales affiliates will commit errors or inadvertent law violations is to a. establish a company-administered system of fines and penalties. b. maintain a comprehensive and up-to-date procedures manual. c. hire only licensees with at least five years’ experience. d. have licensees sign an agreement that they take sole responsibility for their actions. 5. The risk of committing an unauthorized practice of law can be practically reduced by a. having customers and clients provide their own legal forms. b. avoiding situations that require the use of legal forms. c. using standard forms and contracts prepared by attorneys. d. having on on-staff attorney be present at the signing of any legal form. 6. Transaction records required to be maintained typically include a. road maps. b. photographs of all transaction parties. c. copies of agents’ school transcripts. d. closing statements. 7. What kind of coverage is provided by general liability insurance? a. Coverage for any financial harm caused by a covered licensee. b. Coverage for a property owner’s risks incurred when the public enters the insured premises. c. Coverage for property damage caused by a property manager. d. Coverage for financial harm caused by an illegal action of a licensee. 8. Standard E & O policies exclude coverage of damages resulting from a. violations of law. b. negligent performance of a professional service. c. failing to carry out a company policy. d. cooperation with other brokerage firms. 9. Failure to maintain client confidentiality is a risk associated primarily with a. trust fund handling. b. office management. c. the agency relationship. d. the closing process. 10. The lead-based paint disclosure requirement a. applies to all properties. b. applies to residential properties built before 1978. c. applies to the seller of a property, not to the seller’s agent. d. is mandatory for the seller of a property but optional for the seller’s agent. 11. Creating a false impression that the licensee is a certified appraiser is a danger in a. performing a comparative market analysis.  b. writing property advertisements. c. presenting written offers. d. researching ownership documents 12. One of the major risk areas in advertising a listed property is that an advertisement will a. describe the property in excessively glowing terms. b. fail to appear at the same time in all available media. c. omit any mention of the owner’s main selling points. d. make a substantial misrepresentation. 13. Which of the following actions can a real estate licensee perform without risking the commission of an unauthorized practice of law? a. Give legal advice b. Fill in blanks on a lawyer-prepared contract form c. Charge a fee for preparing a purchase contract d. Draft an addition to a preprinted form 14. In assisting a party to prepare a purchase contract, it is essential for a licensee to a. use the services of an attorney. b. make sure that the buyer and seller do not make any changes to the preprinted form. c. sign the contract along with the buyer and seller. d. make sure the information in the contract is accurate and that all agreed terms are included. 15. To minimize the risk of violating fair housing laws, a licensee should a. refuse to use terms that refer to or describe any of the classes of persons protected by the laws. b. avoid working in neighborhoods that are predominantly occupied by a single ethnic group. c. make discriminatory or derogatory remarks in conversation only, never in writing.. d. give better service to members of a protected class than is standard for other clients or customers. 16. If licensees working for competing firms are overheard discussing commission rates, they are at risk for being charged with a. commingling. b. price fixing. c. insider trading. d. redlining. 17. A licensee who knowingly conveys false information about a property is committing a. intentional misrepresentation. b. unintentional misrepresentation. c. accidental fraud. d. felonious representation. 18. The risks that attend recommending service providers can be effectively reduced or transferred by a. presenting a broad range of choices and letting the consumer make a selection. b. recommending all the relevant providers listed in the telephone directory. c. recommending only those providers who are willing to work on a commission split. d. recommending service providers who have performed well in the past. 19. Which of the following is an area of risk for the licensee regarding the Real Estate Settlement and Procedures Act? a. Forgetting to file a tax form reporting a completed sale. b. Failing to be present at a closing c. Failing to make sure the consumer is informed about rights guaranteed by RESPA d. Failing to fill out a Uniform Settlement Statement for a client 20. The main danger in the area of handling trust funds is the possible commission of a. separate record keeping. b. trustor malfeasance. c. fraudulent credit scoring. d. commingling and conversion.  24 Property Management SUPPLEMENTAL CHAPTER QUESTIONS CHAPTER 24: PROPERTY MANAGEMENT 1. The general task of a property manager is to a. produce the highest net return for the owner while safeguarding the property. b. find and retain tenants at the least expense to the owner. c. relieve the owner of all responsibility for operating and maintaining the property. d. negotiate rents and regulations between the tenants and the landlord. 2. Financial reporting is a. a duty imposed on a property owner by the Internal Revenue Service. b. a function usually outsourced by the owner to a Certified Public Accountant. c. a fundamental responsibility of the property manager. d. a property management technique used to ensure that tenants pay the correct amount of rent. 3. Which of the following is “cash flow?” a. The total of rents plus revenues from other sources generated by a property b. Fixed operating expenses minus variable operating expenses c. Effective gross income minus net operating income d. Net operating income minus debt service and reserves 4. A certain building has a vacancy rate above that of the general market. The most likely reason for this is a. high property tax rates. b. a bad market. c. poor management. d. lack of incentives from the municipality. 5. One of the principal concerns for a manager in selecting a commercial tenant is a. compatibility of the tenant’s business with that of other tenants. b. the tenant’s corporate management philosophy. c. the current cost of borrowed funds for build-outs. d. the location of the tenant’s corporate headquarters. 6. Which of the following is a true statement about the Americans with Disabilities Act? a. It applies only to residential properties. b. It applies only to commercial properties. c. It requires landlords and managers in some cases to make changes to their facilities. d. It requires property managers to hire the disabled. 7. What are “tenant improvements?” a. Alterations to a rental space made to fit a particular tenant b. Marketing programs that yield a higher quality of tenant c. Increased revenue resulting from a rise in rental rates d. Increased occupancy resulting from a population increase in the market area 8. One of a manager’s common environmental responsibilities is a. ensuring that the building is properly waterproofed. b. arranging for environmental audits. c. seeing that all hazardous materials are hidden from view. d. remodeling the building every year to keep up with changing standards. 9. Which of the following is an illustration of a risk avoidance procedure that a property manager might take? a. The manager hires a firm to provide security guards. b. The manager increases the reserves for replacing the carpeting. c. The manager closes a stairwell that is in need of repair. d. The manager adds a rider to the building’s hazard insurance policy. 10. It is important for tenants to understand that a. there are no insurance policies that specifically cover tenant property. b. their landlord is required to provide insurance coverage for their personal belongings. c. they do not need any insurance coverage other than the standard fire and flood policy. d. their personal belongings are not covered by their landlord’s insurance policies. 11. For the proper handling of client and owner monies, a property manager is generally required to  a. deposit all funds every month in the management firm’s central operating account. b. employ a notary to witness and record every deposit or payment received. c. maintain a special trust account in a qualified financial depository. d. disburse all funds to their legal owners on a weekly basis. 12. A management agreement establishes a(n) a. agency relationship. b. trust account. c. power of attorney. d. vicarious liability 13. Which of the follow statements about management compensation is false? a. It may be a flat fee based on square footage. b. It may be a commission based on rent. c. It must be negotiated between the agent and the principal. d. It is a standardized amount established by the Universal Landlord and Tenant Act. 14. Which of the following describes a net lease? a. The tenant pays a base rent plus some or all of the operating expenses. b. The tenant pays a fixed rent, and the landlord pays all operating expenses. c. The tenant pays a base rent plus an amount based on income generated in the leased space. d. The tenant pays a rent that increases at specified times over the lease term. 15. If an apartment contains a washer and drier that are included in the lease, a. the lessee is required to maintain them at the lessee’s expense. b. the property manager is responsible for maintaining them. c. the landlord retains the right to use them at any time. d. the lessee has the right to remove them. 16. Which of the following is one of the landlord’s rights under most residential leases? a. Enter the tenant’s property at any time without notice. b. Raise the rent at any time during the lease term after giving due notice c. Expect prompt payment of rent d. Retake possession of the premises at any time after giving due notice 17. How does an actual eviction occur? a. A landlord obtains a court order to force the tenant to vacate the leased premises. b. The landlord’s agents forcibly remove the tenant from the premises. c. A tenant declares a landlord in default and vacates the leased premises. d. A landlord declares a tenant in default and takes possession of the leased premises. 18. The Universal Residential Landlord-Tenant Act a. provides a standard lease form that is required in all 50 states. b. establishes a national board that hears complaints from tenants and landlords. c. aims to clarify imprecise language in residential leases. d. makes it illegal for landlords to demand more than two weeks’ rent as a security deposit.  25 South Carolina Licensing Environment SUPPLEMENTAL CHAPTER QUESTIONS CHAPTER 25: SOUTH CAROLINA LICENSING ENVIRONMENT 1. What type of penalties can be imposed upon an unlicensed person performing real estate activities in South Carolina? a. Felony and be fined up to $5,000 b. Misdemeanor and be either fined or jailed c. Felony and be fined or jailed or both d. Misdemeanor and be fined or jailed or both 2. What license status allows a broker to complete only the mandatory four-hour core course biennially to maintain active licensure? a. A minimum of twenty-two (22) years of licensure b. A minimum of twenty (20) years of licensure and an experience-based partial continuing education waiver c. A minimum of twenty-five (25) years of licensure and an experience-based partial continuing education waiver d. A minimum of twenty-five (25) years of uninterrupted licensure 3. An applicant for initial licensure can be licensed, but a. the license will be placed on “inactive” status until a criminal background search has been completed. b. the license will be placed on “inactive” status until that new licensee can activate under a broker-in-charge. c. will be licensed as "preactive” status until that new licensee can activate under a broker-in-charge. d. will be licensed on “inactive” status until the Commission appoints a broker-in-charge. 4. In order to avoid license cancellation in the South Carolina, what actions must a resident licensee take who becomes a nonresident? a. Notify the Commission of the new state of residence of the licensee's active status in SC. b. Notify the Commission and be placed on inactive status. c. Notify the Commission in writing, within sixty (60) days of the change in residency. d. Notify the Commission in writing, within thirty (30) days of the change in residency and comply with nonresident requirements. 5. What is the maximum period of time that any licensee may choose to place his or her license on inactive status? a. Indefinite period of time b. 2 years c. 5 years d. 8 years 6. Which of the following statements is true? a. All licensees must renew in odd numbered years. b. All licensees must renew in even numbered years. c. Approximately one half of the licensees must renew in even numbered years and the remainder in odd numbered years. d. All licensees must renew on their initial license application anniversary date. 7. A resident licensee may pay a referral fee on a cooperative basis to a brokerage of another state, provided that the out-of-state broker a. does not conduct brokerage services in South Carolina. b. is on inactive status in South Carolina. c. previously held a South Carolina real estate license. d. uses a South Carolina-based company for the closing transaction. 8. Which of the following statements is true? a. A nonresident licensee is required to maintain a place of business in South Carolina if the nonresident expects to receive any compensation or referral fees from transactions conducted within South Carolina. b. A nonresident licensee can maintain an inactive license in the state of residency, have no active place of business in SC, and receive compensation from transactions conducted within South Carolina. c. A nonresident licensee is required to maintain a place of business in both South Carolina and the state of residency if the nonresident expects to receive any compensation or referral fees from transactions conducted within South Carolina. d. A nonresident licensee is not required to maintain a place of business in South Carolina if the nonresident  maintains an active place of business in the state of residence. 9. How long must a person wait before reapplying for a license after revocation? a. 3 years b. 3 years and one day c. 2 years d. 90 days 10. An applicant who passes the examination must apply for a license within what timeframe in order to avoid needing to reapply and retake the exam? a. 120 days b. One year c. 90 days d. Two years 11. A property manager-in-charge applicant must have an active property manager license and must have completed a. seventeen (17) hours of instruction in property management accounting and record keeping approved by the Commission. b. ten (10) hours of instruction in property management accounting and record keeping approved by the Commission. c. fifteen (15) hours of instruction in property management accounting and a baccalaureate degree or a master's degree. d. seven (7) hours of instruction in property management accounting and record keeping approved by the Commission. 12. South Carolina law states that there must be how many active licensed real estate members on the Commission? a. 8 b. 7 c. 6 d. 5 13. Once a hearing is conducted, the Commission has to render a decision and serve notice to a licensee within how many days? a. 30 days b. 45 days c. 90 days d. 120 days 14. What action can a licensee take to appeal an adverse order given by the Commission? a. Request a case review before the Real Estate Hearing Review Board. b. Request a hearing before the Administrative Law Court. c. Request a hearing before the First State Court. d. Request a case review by the Attorney General's office. 15. What is the purpose of the South Carolina Real Estate Commission Education and Research Fund? a. Support a real estate scholarship program for low-income licensee applicants in South Carolina b. Pay for the publication and distribution of a real estate newsletter in South Carolina c. Develop real estate training programs d. Evaluate factors that affect the real estate industry in South Carolina 16. A change in residency must be reported to the Commission in writing within a. 30 days of the change. b. 60 days of the change. c. 45 days of the change. d. 90 days of the change. 17. Brokers and salespersons must complete a. 12 hours of continuing education biennially, 4 of which must be in mandated topics. b. 10 hours of continuing education biennially, 4 of which must be in mandated topics. c. 14 hours of continuing education biennially, 4 of which must be in mandated topics. d. 12 hours of continuing education biennially, 6 of which must be in mandated topics. 18. A license is valid for 2 years and expires on a. July 30. b. June 15. c. June 30. d. May 1. 19. Which of the following statements is true?  a. Nonresident licensees are not recognized in SC. b. Nonresident licensees will be recognized in SC only if the licensee’s jurisdiction recognizes SC licensees. c. All nonresident licensees are recognized in SC. d. Nonresident licensees will be recognized in SC after completing 12 hours of approved continuing education courses. 20. What is the minimum age to become a property manager in-charge? a. 18 years old b. 19 years old c. 20 years old d. 21 years old  26 South Carolina Regulation of Licensees SUPPLEMENTAL CHAPTER QUESTIONS CHAPTER 26: SOUTH CAROLINA REGULATION OF LICENSEES 1. License law requires a branch office to be accessible by the public, investigators, and inspectors a. during the hours of 8 AM and 5 PM. b. whenever the broker-in-charge is on the premises. c. during reasonable business hours. d. at least one weekend day. 2. Licensee Bruce was asked to take over the broker-in-charge duties at his office when broker-in-charge Ruth passed away unexpectedly. Bruce can remain in this position for how long? a. Two months b. Up to six (6) months c. 30 days d. Up to one year 3. Which of the following statements is FALSE? a. A broker-in-charge can never be liable for a law violation committed by an associated licensee. b. An associated licensee may receive compensation for real estate activities only from the employing broker- in-charge. c. A broker-in-charge may be liable to some degree for law violations committed by an associated licensee. d. Trust funds received in connection with a real estate transaction may be deposited into an interest-bearing account. 4. Which of the following statements about team members is true? a. They may conduct real estate business from a home office. b. They may conduct brokerage activities in a branch office without direct supervision of a broker-in-charge. c. They must conduct all activities from their Commission-established office under the supervision of a broker- in-charge. d. They may conduct real estate business from a car/van. 5. A broker-in-charge may pay an unlicensed person a. a percentage of the commission on a real estate transaction. b. a referral fee, as long as that person is a party in the real estate transaction. c. a fee for showing homes to buyers. d. a fee for negotiating an offer for a licensee who is on vacation. 6. When dealing in a real estate transaction where the licensee owns an interest in the property, a licensee must reveal his or her license status a. when the customer asks for advice. b. when the customer makes a purchase offer. c. at any time prior to the customer making a purchase offer. d. at the first substantive contact with a consumer. 7. Which of the following actions would be classified as "first substantive contact?" a. When a customer asks what houses are for sale in a particular school district b. When a customer begins to talk about financial qualifications c. When a customer comes to the real estate brokerage d. When a customer calls to get the asking price for a property 8. A licensee must disclose the nature of a stigmatized property a. when there are rumors that the property is haunted. b. when a suicide occurred on the property. c. when a former owner had HIV. d. when asked directly regarding a stigma. 9. When a client's offer is rejected by a seller without a counteroffer being made, the licensee must a. inform his client within 48 hours of receipt of the rejection notice. b. have the seller and the buyer sign a Commission-promulgated offer rejection form which affirms presentation of the offer. c. sign a Commission-promulgated offer rejection form which affirms presentation of the offer.  d. have the seller sign a Commission-promulgated offer rejection form which affirms presentation of the offer. 10. Which of the following statements is true? a. A broker-in-charge must keep all real estate records in hardcopy form only. b. A broker-in-charge may keep electronic records as long as a hardcopy is stored in an off-site location. c. A broker-in-charge may not store electronic data as back-up copies. d. A broker-in-charge may keep real estate records electronically as long as a backup copy is stored in a off-site location. 11. Commingling can be best described as a. depositing minimal funds in a trust account to cover bank charges. b. depositing trust funds in a licensee’s personal account. c. establishing a trust account at the same institution where a personal account is held. d. depositing escrow money in a trust account. 12. Conversion is defined as a. depositing trust fund monies in an interest-bearing account. b. using trust funds for a purpose other than the purpose for which they are held. c. returning trust account funds when a transaction has ended. d. adding personal funds to a business trust account to cover shortfalls in the minimum balance. 13. For how long must a broker-in-charge maintain transaction documents? a. 2 years b. 3 years c. 4 years d. 5 years 14. South Carolina would prohibit using which of the following account titles for the deposit of escrow/trust monies? a. Becker Real Estate Trust Account b. Harris Real Estate Trust Account c. Becker Real Estate Escrow Account