2023 Edition

Pennsylvania Real Estate Salesperson Practice Exam - National

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Real Property Characteristics

1.	Paul bought a new tub to install as part of the remodeling of his bathroom. He stores it in a backyard shed and will put it in his house after he finishes removing the old tiles in the bathroom. The tub is:
		a. Personal property
		b. A fixture
		c. A trade fixture
		d. Part of the real estate
A bathtub is considered personal property until it is affixed to the property. Once affixed to the property, it is a fixture. Fixtures are considered part of the real estate. Incorrect answer. Please choose another answer.

2.	The owners of Tasty Donuts have leased a space and installed and mounted booths, tables, and prep tables in the premises. These items are specific to the business, and they are part of a large chain of Tasty Donuts. What type of property are these items considered during the lease term?
		a. Chattel
		b. Trade Fixtures
		c. Fixtures
		d. Improvements
A trade fixture is equipment that has been attached to a commercial property for use by the business tenant. Trade fixtures are considered personal property during the lease term. They are used for a trade of business and must be removed no later than the last day of the lease. If the trade fixtures remain on the premises after the last day of the lease term, they will become fixtures and improvements to the landlord's/ owner's real estate. Chattel is another term for personal property. Incorrect answer. Please choose another answer.

3.	Of the economic characteristics of real estate, which one relates to the fact that land is not limitless and that value will fluctuate with supply and demand?
		a. Physical address
		b. Scarcity
		c. Permanence of Investment
		d. Area Preference
The economic characteristics of land are as follows: Scarcity Improvements Permanence of Investment and Area Preference (situs) Scarcity refers to the economic characteristic of land that it is not limitless.Though abundant in some places, it can be scarce in others.The cost for land increases as the available supply decreases.In this way, scarcity relates to the concepts of supply and demand. Area preference is the most important economic characteristic.It refers to a properties situs (location) and to people’s choices and tastes with regards to convenience, reputation and history. Incorrect answer. Please choose another answer.

4.	Which of the following systems of legal description starts and ends at a point of beginning, typically a property corner, and provides a measurement in feet of the entirely of the parcel noting the direction and degrees of any angles and results in a mathematically closed figure?
		a. Rectangular Government Survey System
		b. Lot and Block Recorded Subdivision Plats
		c. Metes and Bounds
		d. Plat map system
Metes and Bounds is a legal description that uses Measurements and Monuments (natural or manmade) to describe the properties location and must begin and end at a Point of Beginning (POB). The POB is typically a corner of the parcel. The metes is the math describing the property lines forming the perimeter of the property. Bounds are more general descriptions of the boundary, such as along a wall or watercourse. A metes and bounds description is typically done in a clockwise direction and, if done accurately, will provide a mathematically closed figure. The following is an example: From the Pearson Fence Post 1 (POB) 140 ft directly East to the edge of Peach Creek, then South 75 ft to Boulder X then directly West 140 ft to Pearson Fence Post 2 then North directly 75ft back to Pearson Fence Post 1 (POB), If the description does not read back to the POB, it is incomplete and not accurate. Lot and block survey system partitions land into individual lots and multiple lots into blocks. It will read like this:Lot 1 Block 2 of Landsdown Sec 5 The Rectangular Government Survey System is a type of legal description system that partitions land segments into Townships, Township Tiers and the lands position relative a principal Meridian line.Each Township is 36 Square Miles and in a square shape.Legal descriptions under this type of system look like this:NW ¼ of the SW ¼ of the N ½ of Smiley Township. Incorrect answer. Please choose another answer.

5.	A land surveyor prepares a document that describes the parcel's exact location, shows all easements appurtenant to the real estate, shows the land boundaries and maps the size and location of improvements on the parcel. What type of document is this?
		a. Plat
		b. Land survey
		c. Improvement survey
		d. Map
Improvement surveys are prepared by a certified land surveyor. They include all boundaries, location and measurement of the land, easements and improvements of the parcel. A land survey depicts the land measurements, boundaries and easements but does not include improvements. Plats typically show the dimensions of property before improvements are made. Maps and plats are the same thing and are not considered surveys. Incorrect answer. Please choose another answer.

6.	Which of the following powers allows a state to take privately owned land for the expansion of a major highway that requires the state to file a petition in court for condemnation and offer fair market value to the private landowner?
		a. Escheat
		b. Taxation
		c. Eminent Domain
		d. Zoning
Eminent domain is the right of the state to take privately held land for public us after filing for condemnation with the court, offering fair market value for the property and proving it is for the greater good for the public. Police power is a governing agency's right to impose regulations that affect how a property owner uses a property or how structures are built. Escheat is the taking of privately held land when a person has died intestate and the state cannot find an heir to pass it too. In the event an heir cannot be found, the state will auction off the property and hold the proceeds in the Commonwealth's General Fund for Commonwealth use. Incorrect answer. Please choose another answer.

7.	The city changed the zoning in a particular area from commercial to residential. Juan and Maria Sanchez have been running a small grocery store in this area for many years. After the zoning change, Juan and Maria Sanchez go to the city, and ask if they can continue running the grocery store, even though the area on which the grocery store sits is now zoned for residential properties only. If the city agrees, this will be an example of a(n):
		a. Zoning amendment.
		b. Nonconforming use.
		c. Variance.
		d. Overlaying zoning.
A nonconforming use (aka a "grandfather clause" or being "grandfathered in") allows an owner to continue using the property in a way that no longer conforms with current zoning laws. In order for the municipality to approve this, the owner's prior use must have been legal. A is incorrect. Typically, a zoning amendment changes the zoning for an entire geographic area. C is incorrect. A variance allows an owner a slight deviation from current zoning to prevent economic hardship. A classic example of this is for the local government to allow an owner of an irregularly-shaped parcel to build a portion of a building into the setback restriction. A variance does not change the zoning for everyone, just for the owner who would be unfairly burdened. D is incorrect. Overlaying zoning indicates that there are additional layers of zoning, possibly by different governmental entities. With overlaying zoning, the land will be subject to the requirements of both the base zoning and the overlay zoning. Overlaying zoning is frequently found for properties located in a historic preservation zone, in a coastal zone, or near an airport. Incorrect answer. Please choose another answer.

8.	Daryl has purchased property in a housing development and his deed has restrictive covenants created by the developer to manage the neighborhood. By the rules, he is not able to put his trash out before 6 AM the day of pick up. What type of land use control is this?
		a. Private Land Use Control
		b. Municipal Ordinance
		c. Public Land Use Control
		d. Zoning ordinance
Deed restrictions are private land use controls created by developers in a housing development to maintain property value and aesthetics of the community. The restriction run with the land in that they are pass from owner to owner over time when ownership is transferred. Public land use controls are a government's police power to provide health, safety and welfare to its citizens and the community. A government's police power includes the powers of taxation, zoning and environmental regulation. Municipal and zoning ordinances are governmental regulations. Incorrect answer. Please choose another answer.

9.	What type of easement will a cable company have to run internet transmission lines through a home owner's backyard and to enter the property to do repairs and install boxes?
		a. Easement by prescription
		b. Encroachment
		c. Easement appurtenant
		d. Easement in gross
An easement in gross benefits a company who owns it. Unlike an easement appurtenant, there is no dominant adjoining land or landowner who claims access. Easements in gross do not run with the land. However, like easement appurtenant, easements in gross do not terminate when the owner of the servient estate sells or devises the land. Usually, the deeds will include a reservation for the utility companies to have the right to access private properties to provide their services and maintain their equipment. The easement by prescription is acquired by continually accessing another person's property for 20 years. An easement appurtenant grants an owner the use of an adjacent property. An encroachment is the use of another's property without authorization, for example taking a few feet from the neighbor's lot when laying a fence. Incorrect answer. Please choose another answer.

Forms of Ownership, Transfer and Title

10.	The bundle of legal rights afforded a title holder in fee simple includes all the following, except:
		a. Disposition
		b. Amortization
		c. Exclusion
		d. Control
The bundle of legal rights affords a title holder in fee simple the legal rights of disposition, exclusion, control, enjoyment, and possession. The term amortization refers to the accounting technique of paying off debts in a fixed repayment schedule or the spreading out of capital expenses for intangible assets over a specific time period. Incorrect answer. Please choose another answer.

11.	Susan has moved in with her Uncle Ben to be his caretaker. Uncle Ben changed his deed to allow Susan to live on his property until he passes away, at such time the property will be given to his daughter by way of a will. Susan has to pay the bills associated with the house, including the property taxes. What type of interest does Susan have in the property?
		a. Life Estate
		b. Fee Simple Absolute
		c. Life Estate Pur Autre Vie
		d. Leasehold Estate
Susan has a life estate pur autre vie (for another's life). A life estate is an interest in real estate, the term of which is measured by a human life. A life estate gives the holder of the interest (life estate tenant) a limited right to use the property during the life of the person by whom it is measured. The life estate tenant has responsibility to pay the expenses related to the property, such as maintenance costs, property taxes and insurance. The life estate tenant cannot sell or transfer the interest. When the life estate is held by the person whose life measures the term of the life estate, it is referred to as a life estate. When the life estate is measured by the life of someone other than the life estate tenant, it is referred to as a life estate pur autre vie. When the person by whom the life estate is measured dies, the estate will transfer upon death to a person named as a remainderman in the deed or will or revert to the original owner or owner's estate. Incorrect answer. Please choose another answer.

12.	Steven has an 18-month lease that will expire at the end of this month. What type of lease does Steven have?
		a. Periodic Tenancy
		b. Estate for Years
		c. Gross Lease
		d. Oral Lease
A leasehold estate that has a definite termination date and no periodic tenancy clause (month to month) is known as an Estate for Years. A periodic tenancy does not have a specific end date and continues for successive periods until the landlord or the tenant give notice of termination. In an estate for years, there's no notice requirement to terminate the lease, as it expires on its own accord. A gross lease requires the tenant to pay a fixed rental amount and includes all of the costs associated with use of the property, including taxes, insurance and utilities, which the landlord pays. An oral lease can be an estate for years or periodic tenancy depending on whether the termination date is agreed upon. The lease in this case could not be oral, because the Statute of Frauds requires leases for more than one year to be in writing to be enforceable. Oral leases that have a periodic tenancy require a notice equal to one rent interval by either party. Incorrect answer. Please choose another answer.

13.	Which lien has the lowest priority?
		a. Property taxes
		b. Mortgage or trust deed
		c. Unsecured judgments
		d. Special assessment
Liens are legal documents that are attached to persons and/or property to secure a debt. Specific liens attach to a property and general liens attach to persons and/or property. At the closing of a property being sold, any liens discovered during a title exam would have to be paid before the property could be transferred. Liens are typically paid in the order in which they were filed, with property tax liens and mortgages having priority over all other liens. Special assessments are taxes levied for special projects typically road improvements, sidewalk repair, and street lighting. Liens from unsecured judgments have the lowest priority. Incorrect answer. Please choose another answer.

14.	If a buyer wants assurances and protections that the property is free from liens or other encumbrances guaranteeing possession undisturbed by any hostile claims on the title, the buyer should request the following type of deed:
		a. Bargain and sale deed
		b. Special Warranty Deed
		c. Quitclaim Deed
		d. General Warranty Deed
The general warranty deed provides certain covenants of title, one of which is the covenant of general warranty. This covenant warrants that the seller will protect and defend the buyer from harm caused by title defects, including those that may arise from prior owners. The other covenants include: Covenant of Seisen, warranting that the seller owns the property Covenant of Right to Convey, warranting the right to sell the property Covenant Against Encumbrances, warranting there are no encumbrances Covenant of Quite Enjoyment, warranting the buyer’s use and enjoyment of the property The special warranty deed offers the same warranties as the general warranty deed, but limits them to the time the seller owned the property. The seller is not liable for any title issues arising because of prior owners.In the quitclaim deed, the grantor makes no warranties about the quality of the title.The bargain and sale deed does not protect the grantee from defects or claims to title. Incorrect answer. Please choose another answer.

15.	Andre owns a parcel of residential real estate. He sells the property to Bernard. Bernard does not record the deed and also does not take possession of the property. Following the conveyance to Bernard, Andre sells the same property to Candy. Candy promptly records the deed. Who owns this real estate if it is located in a state with a race-notice Recording Act?
		a. Bernard
		b. Candy
		c. Andre
		d. Both Bernard and Candy are owners.
If the property has a Recording Act that is race-notice, a later buyer with no notice of the earlier conflicting interest, will be deemed the owner of the property if they record their deed first. Here, race means a sprint to see who can get their deed recorded first. Candy will be the owner if she purchased the property for value (a bona fide purchaser), recorded her deed first, and had no constructive or actual notice of the earlier conveyance to Bernard. Bernard has not provided constructive notice ("notice to all the world") of the transfer: Recording a document like a deed and taking possession of a property are two ways of providing constructive notice. Bernard has not done either. If someone had informed Candy directly about the earlier conveyance to Bernard, that would have provided actual notice. Note: Bernard's recourse would be to try to get his money back by suing Andre for selling the property twice. Incorrect answer. Please choose another answer.

16.	A title search finds an undischarged mortgage from 1984. The title insurance company agrees to cover against this defect to facilitate a transfer of ownership in a sale of the property. What kind of title will be transferred?
		a. Marketable
		b. Unmarketable
		c. Insurable
		d. Free and clear
A title is "marketable" if it is free and clear of from all defects. When a chain of title has defects and a title insurance company agrees to cover the defect in the event it becomes a problem to ownership or value down the road, is considered "insurable". Insurable title can be transferred as long as title insurance covers the defect. If there's a defect in the chain of title and no insurance, the owner will have to repair the problem before he or she can convey marketable title. Incorrect answer. Please choose another answer.

17.	Which of the following is an encumbrance that is voluntary, monetary, and specific?
		a. Mechanics Lien
		b. Easement by Prescription
		c. Mortgage
		d. Judgement lien
A mortgage is a voluntary encumbrance. It's a lien that the owner willingly gives the lender. It is a monetary encumbrance: The owner is borrowing money from a lender. It is specific: The mortgage is a lien only on the property that is security or collateral for the loan. It is specific to the parcel of land identified on the mortgage. Compare this to a general lien. A general lien attaches to all the owner's property located in the county where the lien was recorded. A is incorrect. The owner does not agree voluntarily to a mechanics lien. This encumbrance is placed on the owner’s property when the owner has not paid for the supplies or labor that have gone to improve the property. The mechanics lien is a foreclosable lien. B is incorrect. An easement by prescription is when someone uses the owner’s property without the owner’s knowledge and consent. A common example of an easement by prescription is when someone crosses the owner’s property (without the owner’s consent) to get to a road. An easement by prescription is not a monetary encumbrance. D is incorrect. A judgment lien is a general lien entered on the record by a court, which means that it is an involuntary lien attached to all of the property of a debtor unless specifically exempted by law in the county where the judgment was recorded in the public records. Incorrect answer. Please choose another answer.

Property Value and Appraisal

18.	Susan, a real estate agent, generated a Comparative Market Analysis (CMA) for John who wanted to sell his home. The CMA was based on like-kind homes recently sold in the area in the past six months. The CMA showed the estimated value of the home to be $525,000. John told Susan that he thought the value was $550,000. Susan listed the home for $540,000 and sold it for $535,000. Which amount represents the "market value" in this scenario?
		a. $550,000
		b. $540,000
		c. $535,000
		d. $525,000
Market value is an estimate of value based on the current market and uses comparables, recent sold listings that are comparable to the subject property, to determine value. A real estate agent uses a CMA to estimate the market value for a seller. In the example, the seller's opinion of value at $550,000 is not necessarily based on the actual market data but on a desired amount. The agent's list price of $540,000 will often be set just above or at the top of a market value range in order to leave room for negotiation. $535,000 is the actual market price which is distinguished from the market value because it reflects price instead of an estimate of value. Incorrect answer. Please choose another answer.

19.	An appraisal is an estimate of value. What are the four elements of value?
		a. Demand, Utility, Cost, Transferability.
		b. Scarcity, Utility, Cost, Stability.
		c. Utility, Demand, Scarcity, Transferability.
		d. Transferability, Scarcity, Utility, Conformity.
These are the four essential elements of value. Utility is subjective: If someone is looking for a home, commercial real estate will not be useful. If someone is looking to open a retail shop, residential property will not be useful. Another element of value is demand. If demand for a particular property is high (e.g., oceanfront property), it will typically raise the value of the property. Scarcity is another element of value. If properties in a particularly desirable neighborhood come onto the market infrequently, that will affect the value of the appraised property. Transferability is also an element of value. If the property cannot easily be transferred from the current owner to a prospective buyer, that will negatively impact its value. (e.g., former owners who never signed the deed to the seller, monetary liens that surpass what the property is currently worth, etc.). Test-Taking Tip: Use "DUST" or "STUD" to help remember these four elements of value. Incorrect answer. Please choose another answer.

20.	The sales comparison approach or market data approach to establish the value of a property in an appraisal is based on which of the following principals?
		a. Substitution
		b. Transferability
		c. Utility
		d. Replacement
The Principal of Substitution forms the basis for the sales comparison approach or market data approach in appraisal. The principal states that a properties' highest value is established by the cost to purchase an equivalent substitute, with the same use and design, in the same geographical area. The principal is demonstrated, by example, with the question why would someone spend $500,000 for a property if they can get a similar property in the same area for $300,000? The sales comparison approach is often used to determine the value of a property and consists of selecting similar properties with comparable physical, geographical, and financing characteristics, among others, and evaluating their recent sales data to arrive at the most probable market value.The sales considered relevant are usually no older than one year old.More recent sales are preferred.Appraisers will make adjustments to the comparable assets to account for any minor differences, like number of rooms or bathrooms, to arrive a market value.Real estate agents will use the approach more generally and will typically use the comparable sales to arrive at an average cost per square foot that can be applied to the property they seek to buy or sell. Incorrect answer. Please choose another answer.

21.	Which of the following appraisal methods would yield the most accurate appraisal for a newly constructed warehouse?
		a. Sales Comparison Approach
		b. Cost Approach
		c. Market Data Approach
		d. Income Approach
Cost Approach is an appraisal method best used on new construction where the cost to construct the building is known. It is also used on special use properties, like libraries, schools and churches, where there's no income and few comparable sales. The cost approach establishes value by calculating the cost to reproduce or replace an equivalent building, less depreciation, plus the cost of the land. There are two types of cost appraisal methods: (1) Reproduction Method, which establishes the cost to build a replica with original materials; and (2) Replacement Method, which establishes the cost to build a new structure with the same function but newer materials and designs. Incorrect answer. Please choose another answer.

22.	Appraiser was hired to appraise a very large historic mansion. The client told the appraiser to estimate what it would cost to build a replica of the mansion. The mansion had extensive antique woodwork and tile, and there were no similar mansions nearby. Which method of property valuation would the appraiser most likely use?
		a. The replacement cost approach
		b. The income approach
		c. The reproduction cost approach
		d. The sales comparison approach
The key words in the test question are "historic" and "replica." The reproduction cost approach is used for historic properties when the appraiser must estimate what it would cost to build a replica with roughly the same materials found in the original. In the real world, the reproduction cost approach is very rarely used. However, it's tested frequently on the state exam. These are the correct steps for the reproduction cost approach: Estimate the cost of building a replica of the building, deduct accrued depreciation, and then add the value of the land. Remember: Land does not depreciate. Why not? Because, unlike a building, land does not have a lifespan after which it will need to be replaced). A is incorrect. The replacement cost approach is used when the project calls for an appraisal of a property with an estimate of how much it would cost to build the improvement with the same function or utility but constructed with modern materials and design. B is incorrect. The income approach is used for income-producing properties and does not include estimating the cost of constructing an exact replica of the building. D is incorrect. The sales comparison approach (also called the market data approach) is used primarily for residential homes and vacant lots. In order to complete an appraisal using this technique, the appraiser must find several comparable properties in the same general area that have recently been sold. Here, the test question states that this unique historic property is in an area where there are no similar mansions. Moreover, in the sales comparison approach, there is no requirement to estimate the cost of constructing an exact replica of the building. Incorrect answer. Please choose another answer.

23.	An appraiser is assigned the valuation of a property that is adjacent to an expressway. After inspecting the property, the appraiser adjusts the value down due to the excessive noise. What is the factor called, in an appriasal, that reduces value due to such things as the continual sound of a nearby expressway?
		a. Physical deterioration
		b. Functional obsolescence
		c. Incurable depreciation
		d. External obsolescence
External obsolescence occurs when a property loses value due to negative influences outside the control of the owner, such as an expressway adjacent to the property or neighborhood deterioration due to several foreclosures in the neighborhood. Incorrect answer. Please choose another answer.

24.	Which of the following would be considered a functional obsolescence?
		a. High replacement cost
		b. Unrepaired water damage to a ceiling
		c. Inefficient or outdated floor plan
		d. Lack of exterior maintenance
Functional obsolescence refers to the reduction of the usefulness of real estate due to an outdated design feature that cannot be easily changed. Functional obsolescence results in a loss of property value due to an obsolete feature. The real estate may have been made inferior because of technical advances. Some examples are inadequacy of wiring, plumbing and HVAC systems, an inefficient number of bathrooms or closets, faulty design, or lack of automation. It is considered curable if it can be fixed without too great an effort or expense. Incorrect answer. Please choose another answer.

25.	The primary purpose of a comparative market analysis (CMA) is to determine:
		a. An estimate of a home's value for a secondary lender.
		b. A range of probable selling prices for a homeowner.
		c. The potential gross income that a rental property may be able to bring in.
		d. The remaining economic life of the subject property.
CMAs are conducted by real estate licensees to assist a seller in accurately calculating the market value of the property and for providing a range of probable selling prices for the given subject home. Incorrect answer. Please choose another answer.

26.	The Gross Rent Multiplier (GRM) is a simpler, less accurate alternative to the income approach. It is overwhelmingly used for single family residences that are rental properties. The GRM is a useful tool for investors who may not want to pay for an appraisal each time they consider purchasing a residential rental property. Which relationships can be calculated using the Gross Rent Multiplier?
		a. Gross rents X Gross Rent Multiplier = Value of the Property
		b. Value of the property ÷ Gross Rent Multiplier = Gross Rents
		c. Value of the property ÷ Gross Rents = Gross Rent Multiplier
		d. All of the above.
A, B, and C are the relationships and formulas of the Gross Rent Multiplier. Note: The value of the property could also be the list price or an offer that a prospective buyer is thinking of making. This is easier to understand with specific numbers. For example, 2 X 3 = 6 (That’s answer choice “a,” and, of course, that means that 3 X 2 = 6.) 6 ÷ 3 = 2 (That’s answer choice “b.”) 6 ÷ 2 = 3 (That’s answer choice “c.”) Let’s work through an example: This approach relies on comparables. In order to use the Gross Rent Multiplier, it is important to have comps where both the purchase price and the gross rent are known. Let’s say the Gross Rent Multiplier is 120 in a particular neighborhood. A buyer is thinking of purchasing a single-family residence in the same neighborhood. The owner tells the buyer he is charging the current tenants $1,200 monthly gross rent. In order to determine what offer to make on the property, the prospective buyer would multiply $1,200 (the gross monthly rent) X 120 (the Gross Rent Multiplier). The prospective buyer can offer $144,000 on the property to maintain a Gross Rent Multiplier of 120.Test-Taking Tip: Be careful on the state exam to see if they are asking about an annual Gross Rent Multiplier or a monthly Gross Rent Multiplier. Incorrect answer. Please choose another answer.

27.	An appraiser has steps they follow to gather and evaluate information in order to come to an estimate or opinion of value for a property. What is the final step prior to issuing the appraisal report where the appraiser reviews the data and develops an opinion of value after considering the different approaches to value, like the sales comparison approach?
		a. Statement of Purpose
		b. List of data needed
		c. Gather market data
		d. Reconciliation
The last step for an appraisal prior to issuing a final report is reconciliation. The appraiser may use multiple appraisal approaches for one appraisal, like the sales comparison approach, the cost approach and the income approach. The appraiser does not average out the different approaches. Instead, he or she will review the information and use the applicable approaches to value and then reconcile them in an opinion of value. Incorrect answer. Please choose another answer.

28.	What is the assessed value of real estate?
		a. The current market value of property based on an appraisal.
		b. A property's value determined by a willing buyer and seller.
		c. A property's value used to determine applicable taxes.
		d. The present worth of the future benefits of ownership.
An assessment and a property's assessed value is a government's valuation of property for tax purposes. Tax assessors conduct the evaluation process and it is done on a periodic basis. A property's assessed value and appraised value (current market value) may be the same, but assessed value typically does not keep up with the fluctuations of the market, which is due to the periodic nature of the assessment process. Incorrect answer. Please choose another answer.

Real Estate Contracts and Agency

29.	Which type of contract states the terms and reflects the intentions of the parties to an agreement?
		a. Unilateral contract
		b. Quasi contract
		c. Implied contract
		d. Express contract
An express contract is created when the parties declare, orally or in writing, the terms and conditions of the transaction and their intention to be legally bound by the agreement. Real estate contracts and listing agreements are express contracts. Implied contracts are created by the courts when the parties have not agreed to a contract in words, but through their conduct or the circumstances, a contract is deemed to exist in the interest of fairness. Implied contracts can be found in fact or at law. Contracts implied in fact are based on the surrounding circumstances where the parties act in a way where it suggests a contract created obligations. Contracts implied at law are imposed by the court when the circumstances are such that it would cause unjust enrichment to a party without a contract. Quasi contract is another name for contracts implied at law. Unilateral contracts are contracts where one party makes an offer that can be accepted by performance of another party. An example of a unilateral contract is a reward or contest. An express contract is a bilateral contract. Incorrect answer. Please choose another answer.

30.	Dan signs a lease to rent a house for the next 12 months. The lease includes an option for Dan to buy the house within that time period for $180,000. The option is an example of a:
		a. Bilateral expressed contract
		b. Bilateral implied contract
		c. Unilateral expressed contract
		d. Unilateral implied contract
The option-to-buy contract is a unilateral expressed contract since it is in writing and only one party has made a binding promise to act and has offered an option to act to the other party; there is no obligation for the second party to act. Dan is not bound or required to buy the house, but if he does, then the owner is contractually bound to sell it to him. Incorrect answer. Please choose another answer.

31.	Ignacio accepts Patrick's offer to purchase Ignacio's home, and both have signed the contract. Closing will take place on or before February 28, a month away. The contract is now an _________________ contract.
		a. executed
		b. executive
		c. executory
		d. unilateral
An executory contract is a contract that is not fully performed or completed. Most contracts in real estate begin as executory contracts. A mortgage agreement, for example, is a contract which the borrower pays money over a term to the lender. Another example is a listing contract. A real estate broker markets a property for a defined time period until it is sold. Finally, an installment contract is an executory contract, where the buyer accepts seller financing and pays over time to acquire legal title. An executed contract is a contract that is complete upon formation, like a sales contract when a customer purchases goods at a store. Incorrect answer. Please choose another answer.

32.	Which of the following real estate contracts is voidable?
		a. Where a seller enters into a contract to sell property he does not own.
		b. A contract that leaves out the consideration for the sale.
		c. Where unbeknownst to the seller, a buyer signs a contract when intoxicated.
		d. After a lease is signed, the apartment building burns down before the tenant moves in.
A voidable contract is a contract that is binding on one party and the other party has the right to rescind it or legally avoid its contractual obligations. A void contract, on the other hand, lacks one of the requirements to form a contract and is binding on neither party. Only answer c involves a voidable contract. If the buyer can prove he or she was intoxicated and did not have the intent to be legally bound, the buyer can cancel the contract. The seller would be bound to the contract and would not have any right to rescind based on the buyer's condition. Answers a and b lack consideration needed for a valid contract, i.e., the seller must own the property in fee simple to convey it. If the performance of the contract becomes impossible, like when a tenant can no longer move in to an apartment building that burns down, the contract will be void, not voidable, because the purpose of the contract cannot be carried out. Incorrect answer. Please choose another answer.

33.	Which of the following is not an essential element of a valid real estate contract?
		a. Earnest Money
		b. Signatures of all the parties
		c. Legal Description of the property
		d. Consideration
In order to have a valid real estate contract, there needs to be: Competent parties Mutual agreement Lawful objective Consideration Sufficient legal description of the property Be in writing and signed when required by law. Earnest Money is not an essential element of a valid contract.There does not need to be earnest money to have a valid contract.Earnest money shows good faith by the buyer. If the buyer has agreed in the contract to deposit earnest money and fails to do so within the time agreed to, the seller may terminate the contract or exercise remedies. Incorrect answer. Please choose another answer.

34.	Jennifer is selling her condominium. Jennifer's listing price is $900,000. Tanisha submitted a written offer of $910,000 for the property. Which of the following statements is correct?
		a. Because the listing price was $900,000, Tanisha actually put in a counteroffer of $910,000.
		b. Because Tanisha's offer was $10,000 over the listing price, Jennifer and Tanisha have now entered into a binding contractual agreement.
		c. The listing price is consent by Jennifer to entertain offers.
		d. Because Tanisha's offer is $10,000 over the listing price, Jennifer must accept it, unless there are even higher offers.
A listing price is merely consent by the owner of the property to entertain or consider offers. A is incorrect. Because the list price is merely consent by the owner of a property to consider offers, Tanisha put in an offer, not a counteroffer. B is incorrect. There is no binding contractual agreement at the offer stage.D is incorrect. The owner does not have to accept any offer, no matter how much higher than the listing price the offer is. Incorrect answer. Please choose another answer.

35.	David instructs his agent Lisa to write an offer on a house they recently viewed. Lisa writes and submits the offer to Tyrone, the seller's agent. The sellers sign the purchase agreement. Which step is still required for this contract to become binding?
		a. Tyrone must send the signed, accepted contract back to the buyer acknowledging their acceptance.
		b. There are no further steps required. Once both sides sign the contract, it is binding.
		c. Lisa must submit the signed contract to her broker before it can become binding.
		d. Tyrone must file the signed contract with the seller's title company.
Tyrone must send the signed offer back to Lisa communicating their acceptance of the offer. Communicating acceptance of the contract is required to bind the contract and make it valid, thus the need to send the signed contract back to the buyers. Incorrect answer. Please choose another answer.

36.	The terms of a real estate contract provide that the buyer would conduct a property inspection within 15 calendar days from contract's acceptance. Closing is to be in 45 days. Buyer attempted to schedule an inspection within the 15 day peirod, but the seller was not avaialbe and did not grant access to the property as he was obligated to do by the terms of the contract. The 15 days for inspections have now passed and the inspections have not been done. The closing date is in a few weeks. The buyer does not want to not waive her right to inspections. Can the buyer terminate the purchase agreement and, if so, on what grounds?
		a. Yes, on the grounds of impossibility of performance.
		b. Yes, on the grounds of lapse of time.
		c. Yes, on the grounds of breach of contract.
		d. No, since the purchase agreement was executed.
The causes of termination of a contract are performance, mutual rescission, the impossibility of performance, lapse of time and breach. In this case, there are grounds for the termination due to breach because the seller did not provide for the inspections to occur within the allotted timeframe as required by the contract. There is no impossibility of performance because there is nothing wrong with the property or title that would make the transaction impossible to complete. Impossibility of performance is a defense to a contract action when a party seeks to excuse its performance due to unforeseen circumstances that make performance impossible. Lapse of time is also not at issue here because the date of inspections would not have the character of time of the essence, as the closing date may have. If the expiration date of the contract has not passed, there is no ground for termination for the lapse of time. Incorrect answer. Please choose another answer.

37.	All of the following are remedies for a breach of contract, except:
		a. Specific performance
		b. Lien
		c. Compensatory damages
		d. Rescission
Liens are a form of security interest in property to secure payment of a debt. A lienholder can use the court system to seize the asset that is encumbered, like with a mortgage, to satisfy a debt. A remedy for breach of contract, on the other hand, is a way a court of law orders a resolution for a party harmed by the breach. The purpose of a remedy is to put the injured party in the position it would have been in had the contract been performed as it was agreed or to return them to the position they were in before the contract was created. There are a number of ways a court can provide a remedy. Three of the legal or equitable remedies for a breach of contract are as follows: Specific performance is where the court forces the breaching party to perform the services or deliver the goods or property as contracted. Compensatory damages provide an award of money to compensate for financial losses resulting from a breach of contract. Rescission annuls or terminates a contract. Parties may be able to rescind a contract on the basis of fraud, duress, mistake, breach in the performance of a promise, amongst other grounds. Incorrect answer. Please choose another answer.

38.	Certain contracts such as those for the purchase of real estate must be in writing signed by the parties to be enforceable in a court of law. This is mandated by the:
		a. Statute of Frauds
		b. Electronic Signatures Act
		c. Uniform Commercial Code
		d. Fair Credit Reporting Act
The statute of frauds requires contracts for the sale of real estate to be in writing and signed by the party to be charged to be enforceable in a court of law. Electronic signature acts allow the use of digital documents and signatures in commerce. Incorrect answer. Please choose another answer.

39.	Carl has a contract to sell an undeveloped tract of land to Steve and the contract has a closing date of May 10th. Carl prepared for closing and was ready to close on May 10th, but Steve was not ready for closing and requested an extension. What condition should Carl have included when the contract was drawn, and can be made a condition of an extension, if granted?
		a. A punitive damages clause
		b. A specific performance clause
		c. A Time is of the Essence clause
		d. Waiver of Liability.
Time is of the essence means that all parties to the contract will perform and complete their responsibilities by a certain date. Failing to perform on time results in a breach of the contract. Without a time is of the essence clause, contracts may be interpreted to allow a reasonable time to perform, and if and when a contract is breached is more indefinite. In this scenario, if Carl's contract did not have a Time is of the Essence clause, it would be advisable to include a Time is of the Essence clause into the contract with an agreement on an extension, so Steve will be motivated to be ready on time at the next closing date, and if he's not ready, Carl can declare a breach if he so chooses. Incorrect answer. Please choose another answer.

40.	Which of the following clauses in a real estate contract limits the amount of money a buyer is obligated to pay to the seller in the event the buyer is not able to close on a real estate contract?
		a. Liquidated damages clause
		b. Risk of Loss clause
		c. Marketable Title clause
		d. Mortgage Financing Contingency clause
A liquidated damages clause sets a predetermined amount of money to be paid as damages for failure to perform under a contract. Real estate contracts typically require the buyer to deposit in escrow a certain amount of money upon the signing of a real estate contract, typically 3% or less of the total contract purchase price. A contract will include the liquidated damages clause either in the escrow clause or in a purchaser's default clause. For a liquidated damages clause to be legal, actual damages must be speculative at the time of contracting and the amount set must be reasonable and not punitive. Incorrect answer. Please choose another answer.

41.	A condition in a purchase contract states that the sale depends on the property undergoing a home inspection and radon gas test. This is a:
		a. Contingency clause
		b. Counteroffer
		c. Earnest money clause
		d. Time is of the essence clause
A contingency clause is a condition placed on a contract. Contingencies are "if" clauses -- the party placing the contingency will fulfill the contract "if" the specific contingency is met. If contract contingencies are not met, the contract is voidable and the party to whom the contingency benefits may terminate the contract. An inspection clause is a common contingency in real estate purchase contracts. A counteroffer changes the terms of the original offer. A counteroffer is a rejection of the original offer and the making of a new offer that proposes different terms. The party being offered the counteroffer does not have to accept it, and would thereby be released from the original contract. When there is a "time is of the essence" clause in the contract, failure to meet the exact and specific deadline for settlement is a material breach and the contract is voidable. An earnest money clause covers the management of the earnest money deposit. Incorrect answer. Please choose another answer.

42.	Mirna is a real estate broker in Pennsylvania who represents a firm of investors from Canada who own a shopping center in Pennsylvania. She finds and negotiates property for the investors, supervises the repairs, rents the properties, collects the rent and performs monthly reconciliations as well as prepares the budget for each year. Based on the law of agency, the Canadian investors are considered Mirna's:
		a. General agents
		b. Beneficiaries
		c. Subagents
		d. Principals
Under the laws of agency, a person who delegates authority to another is a principal. The person who accepts the authority and acts on the principal's behalf is an agent. A real estate licensee acts as an agent to their principals, the buyers and sellers, creating a fiduciary relationship. A general agent is authorized by its principal to perform acts associated with the continuing operations of a business of the principal. Mirna is a general agent in the scenario. A subagent is appointed by the agent to assist the agent. Incorrect answer. Please choose another answer.

43.	Which of the following relationships is typically a special agency?
		a. A salesperson and that salesperson's broker of record.
		b. A listing agent and an unrepresented member of the public.
		c. A seller of a single-family residence and that seller's listing agent.
		d. A property owner and that property owner's licensed property manager.
The question is asking you to identify which agent is a special agent. A special agent is one who is employed by a principal for a particular transaction or for a particular act. The seller of a single-family residence employs a broker for a particular transaction (i.e., the sale of the single family residence). Note: A special agency is typically advisory, and the agent lacks the capacity to bind the principal. For example, the listing agent can solicit offers and present them to the seller but cannot accept an offer and bind the principal. A and D are incorrect. They are both examples of general agency. A general agent is typically used for ongoing business affairs, and the general agent does have a limited capacity to bind the principal. B is incorrect. A broker for the seller (the listing agent) and an unrepresented member of the public are not in any kind of agency or fiduciary relationship with each other. Incorrect answer. Please choose another answer.

44.	Nelly has specialized in apartment locating in her short career as a broker. A client asks her to be property manager for a large commercial office building. If Nelly accepts this work, an issue may arise with which of the following fiduciary duties?
		a. Duty of loyalty
		b. Duty of obedience
		c. Duty of accounting
		d. Duty of reasonable care and skill
An agent must use reasonable care and skill in serving the principal's interest. The standard of care is that of a competent real estate professional who obtains the facts and conducts the investigations that a prudent real estate agent would be expected to conduct. Since the broker is an apartment locating specialist, she would be working outside her area of expertise and may be unable to provide the reasonable care and skill needed to manage a commercial office building. Nelly should receive some education and experience in property management before taking on this client. A broker owes the following fiduciary duties to a client: Obedience Loyalty Disclosure Confidentiality (lasts forever even after the completed transaction), Accounting Reasonable Care and Skill Use the acronym OLDCAR to remember these duties.The duty of obedience means that an agent must act at the direction of his principal. The duty of accounting means that the agent must be responsible with the funds of his principal. The duty of loyalty means that the agent must put his client's interest ahead of his own and always act in the best interest of the principal. Incorrect answer. Please choose another answer.

Real Estate Practice

45.	Which of the following constitutes the unauthorized practice of law?
		a. An agent advises a seller how much he should list a home.
		b. An agent explains to the buyer how to deposit earnest money.
		c. An agent tells her seller that its ok to cancel a contract because the risk is small.
		d. An agent schedules and communicates with a home inspection company.
In Pennsylvania, as in all states, only licensed attorneys are authorized to practice law. The practice of law is defined as the application of legal principles and judgment with regards to situations that require the knowledge and skill of a person trained in the law. Brokers and agents must not engage in the practice of law. The practice of law includes such acts as giving legal advice on whether a breach occurs or the consequences of breach of contract. If a broker or agent engages in an unauthorized practice of law, it violates the ethical and legal provisions for real estate professionals. Brokers and agents can explain the meaning of a contract. They can perform transaction management duties such as scheduling home inspections or a closing. They can advise their client on real estate. However, they are not permitted to: Draft legal papers. Explain the potential legal outcomes of a dispute. Evaluate a legal issue and give advice on how to proceed. Incorrect answer. Please choose another answer.

46.	What type of listing agreement allows a listing broker to be compensated regardless of who procures a ready, willing and able buyer?
		a. Exclusive Listing
		b. Open Listing
		c. Exclusive Right to Sell Listing
		d. Net Listing
In an Exclusive Right to sell listing, the broker will receive a commission even if the seller finds a buyer. In an exclusive listing agreement, if the seller finds the buyer, the broker will not receive a commission. An agreement that allows the seller to make agreements with multiple brokers and whomever finds the buyer will receive a commission is an open listing. A net listing is not legal in Pennsylvania, on basis that it causes a conflict of interest. It is an agreement that establishes a net price for the seller and the broker will take the difference in the sales price and the net price as commission. Incorrect answer. Please choose another answer.

47.	Sally Hernandez is planning on selling her condominium. Hernandez wants to hire a real estate broker but does not want to pay a commission if she finds the buyer herself. Which of the following agreements will give her this leeway?
		a. Exclusive Right-to-Sell
		b. Exclusive Agency
		c. Exclusive Buyer Representation
		d. Hiring a real estate salesperson, in contrast to hiring a real estate broker, will give Seller this flexibility.
The Exclusive Agency listing agreement provides that the broker will earn his or her commission unless the seller finds the buyer. If the seller finds the buyer, the broker will not receive a commission. A is incorrect. If a buyer is found during the term of the Exclusive Right to Sell listing agreement, the broker will earn his or her commission. This is true even if the seller finds the buyer.C is incorrect. The Exclusive Buyer Representation agreement is an agreement by and between a broker and a buyer. Under the Exclusive Buyer Representation agreement, the buyer’s broker will earn a commission no matter who finds the home for the buyer.D is incorrect. A real estate salesperson can never act independently of a broker for any of those activities for which a real estate license is required. Here, it means that Hernandez will never be able to hire a real estate Incorrect answer. Please choose another answer.

48.	A corporation that owns multiple rental apartment buildings in Pennsylvania hires a property management company to manage the rentals. The corporation wants to authorize the property management's broker to sign leases on its behalf. To accomplish this, there must be a property management agreement giving the broker authority to sign on the corporation's behalf and the corporation must:
		a. Give the broker stock in the corporation.
		b. Issue a resolution allowing the corporation to enter into the agreement.
		c. Make the broker an officer of the corporation.
		d. Obtain errors and omissions insurance
Brokers may be given permission to sign leases on behalf of the property owner when this is included in the property management agreement. If the owner is an individual (not a company) it must be clear that the agent is signing FOR the owner - i.e., the landlord's name must in the lease and the agent's signature should include "per procurationem" (p.p.), which highlights that the broker is signing in a representative capacity on behalf of the owner. When the property owner is a company, there must be a resolution signed by the company members, granting permission to the broker to sign the lease agreements in their stead. Note: In Pennsylvania, a salesperson may not independently negotiate or sign leases on behalf of the lessor. 49 Pa.Code 35-287. Incorrect answer. Please choose another answer.

49.	Real estate agent licensees who act as property managers have a fiduciary responsibility to the principal. Depending on the property management agreement, there may be many tasks in the agent's job description. Which of the following would be considered a breach of the fiduciary duty?
		a. Giving a tenant an extra day to pay the rent.
		b. Hiring your brother to do work on the property because you know you can trust him.
		c. Keeping records on your office computer.
		d. Only communicating with the principal twice weekly instead of daily.
If you are going to hire someone who is related to you to perform a service for the building, it needs to be disclosed to the principal. It can be considered a conflict of interest and the decision must be the principals to make. It may be an asset to him to have someone you trust in the position, but it could also lead to favoritism, or worse. The other choices are minor things that may have been covered in the agreement, but are not necessarily a breach of duty unless something else had been agreed upon. Incorrect answer. Please choose another answer.

50.	All of the following will terminate an exclusive right to sell listing agreement between a broker and a seller except:
		a. If both parties mutually agree.
		b. Successful sale of the property.
		c. Destruction of the property.
		d. The seller decides to use a different broker.
Choosing to switch to another broker will not terminate a listing agreement. The listing is a bilateral agreement entered into by mutual consent. The other three choices are some of the ways an exclusive right to sell listing agreement is terminated. A principal can ask a broker in writing to let him or her out of the contract, but the broker is under no obligation to agree. If the seller were to go ahead and list with another broker without a written release, the seller may be liable to pay two commissions if the house sells before the first broker's contract has expired. Incorrect answer. Please choose another answer.

51.	The Fair Housing Act (FHA) applies to which of the following owners?
		a. Nathan, who lives in one side of a duplex he owns and is looking for a tenant without a broker's help.
		b. Barbara, living in an apartment building she owns that has three units where she rents them out herself.
		c. Brad, an owner of a single-family home that is listed for sale by Rooftop Realty Inc.
		d. St. James Presbyterian Church renting out rooms exclusively to students of its seminary.
The FHA protects tenants and home buyers from housing discrimination. It applies to most types of housing but there are some exclusions. The FHA does not cover owner-occupied buildings with less than four units, single family homes sold or rented without a broker as long as the owner does not own more than three homes, and religious organizations that lease apartments for non-commercial purposes. In this question, Brad, the single-family home owner, is not exempt from the FHA because he uses a realtor to sell his home. Incorrect answer. Please choose another answer.

52.	The following ad appears in a local newspaper: For Lease: Lovely 2-bedroom 1.5 bath cottage in Post Oak Trails; plenty of parking; large backyard looking out on to public golf course; close to shopping and entertainment.This is an adult only residence, no children. Call TODAY Move-In tomorrow. What protected class if any did the agent violate in the ad?
		a. Familial Status
		b. Sex/ Gender
		c. Marital Status
		d. Race
The ad specifically is denying rental to families with children and violates the Fair Housing Act. The Fair Housing Act of 1968 established seven protected classes. It has been amended twice and today prohibits discrimination based on color race national origin religion sex familial status (families with children younger than 18); and people with mental or physical disabilities. The was no mention of race or gender restriction.Marital status is protected under ECOA, not Fair Housing. Incorrect answer. Please choose another answer.

53.	Which of the following activities in real estate sales are illegal?
		a. Steering
		b. Blockbusting
		c. Redlining
		d. All of the above.
All these activities are illegal. A is illegal. Steering means to discriminate against clients by directing them towards or away from neighborhoods (e.g., showing clients who are Hispanic homes only in neighborhoods with a Hispanic majority). B is illegal. Blockbusting (also called panic peddling) occurs when real estate professionals create a sense of urgency to sell because a member of a protected class (e.g., race, religion, national origin, color, etc.) has moved into the neighborhood. C is illegal. Redlining occurs when lenders deny loans based solely on the geographic location of the property or the membership of a loan applicant in a protected class. Test-Taking Tip: All three terms are very frequently tested on the state exam. Incorrect answer. Please choose another answer.

54.	Becky is looking to lease an apartment at Lakeville Glens Apartments. Lakeville does not allow pets. Becky has a service dog, Smooch, who is her companion as well. Lakeville must allow Becky to lease an available unit of her choice and must allow Smooch to live there with Becky pursuant to:
		a. Equal Credit Opportunity Act
		b. Americans with Disabilities Act
		c. Fair Housing Act
		d. Services Animal Act
Americans with Disabilities Act mandates that a landlord allow service animals even if they do not accept pets. Service animals are defined as dogs that are individually trained to do work or perform tasks for people with disabilities. Landlords must allow a handicapped/ disabled person to make needed accommodations to a unit, at the tenant's expense, and may or may not require the tenant to restore the unit upon vacating. Ramps and other mobility property modification are the landlord responsibility and expense. Incorrect answer. Please choose another answer.

55.	A buyer's agent accidentally cracks a sliding glass door window while showing a home to his client. The broker who employs the buyer's agent is responsible for the damage caused to seller's home under what theory of liability?
		a. Broker Liability
		b. Employer Liability
		c. Vicarious Liability
		d. Strict Liability
Vicarious liability is when an employer is deemed responsible for the harm caused by its employees, agents and contractors. The theory covers both negligence and intentional conduct. Liability is imputed on the employer for the acts of its employees, agents and contractors as long as the acts which cause the harm are connected to and within the scope of the employment. Incorrect answer. Please choose another answer.

56.	Two brokers in Spring Branch meet to discuss each other's commission structure. They discuss that they heard that a large brokerage office in the area has been charging 7% listing fees. Together, they agree that they too will charge all sellers 7% on listings. They feel this will give them leverage in demanding higher commissions. This practice is prohibited which of the following Acts?
		a. Sherman Anti-Trust Act
		b. Fair Credit Reporting Act
		c. Federal Trade Commission Act
		d. Truth in Lending Act
The Sherman Anti-Trust Act promotes fair competition by prohibiting agreements amongst competitors to fix prices. In real estate transactions, commissions must be negotiable and brokers cannot fix listing/ selling commissions or fees to force a non-negotiable fee on consumers. Incorrect answer. Please choose another answer.

57.	The federal Consumer Protection Act established a national Do Not Call Registry to protect consumers who wish to avoid telemarketing calls. In which of the following scenarios is the real estate sales associate in violation of the Act?
		a. A sales associate contacts a customer within three months of a business inquiry or application.
		b. A sales associate contacts an individual with whom she has a business relationship, while the customer's name is on the national registry.
		c. A sales associate autodials calls For-Sale-By-Owner sellers to try to get them to list with the realtor.
		d. All of the above violate the Act.
Only answer option c presents a violation of the Act. It's a violation for a couple of reasons. The Federal Trade Commission (FCC) provides certain exceptions to the Act for telephone solicitations done by realtors. In order to make autodial telemarketing calls or texts to wireless numbers, the FCC rules require a business to obtain a written consent, on paper or through electronic means. Further, sales associates representing potential buyers may call FSBO sellers, but only if the associate has an actual buyer interested in the property and for purposes of negotiating a sale. The other scenarios present contacts that are permissible under the Act. Whenever a prospective buyer contacts a real estate office to inquire about homes for sale, the customer consents to receive notifications regarding possible prospective properties. When a sales associate closes a transaction for a client, it is part of a professional practice to follow-up with the client within the following six months from the date of the transaction. Incorrect answer. Please choose another answer.

58.	What type of insurance will protect a broker for mistakes her agents make in the paper work of real estate transactions that lead to financial harm to clients?
		a. Business interruption
		b. Errors and Omissions
		c. General liability
		d. Casualty
Errors and omission insurance, also referred to as professional liability insurance, covers erroneous, late or incomplete work that causes financial harm to clients. It is specialized insurance purchased in addition to general liability insurance. Errors and omission insurance only covers circumstances where the acts or omissions of the agent were unintentional without knowledge of the error or omission - in other words, negligence. It does not cover matters where fraud was committed. Business interruption insurance is for business loss due to business shut down for various reasons. General liability covers claims for bodily injury or property damage resulting from business operations. Casualty insurance protects the insured if they are found legally responsible for an accident that causes injury to another person or their property. Incorrect answer. Please choose another answer.

Disclosures and Environmental Issues

59.	Which federal agency is given authority to set pollution discharge limits and enforce regulations under the federal Clean Water Act?
		a. Federal Trade Commission
		b. Environmental Protection Agency
		c. Department of Agriculture
		d. Department of Housing and Urban Development
The Clean Air Act was enacted to protect the nation's waterways through regulations that limit the type and amount of pollutants that property owners can discharge into the waterways. The Environmental Protection Agency (EPA) was given authority under the Act to set pollution discharge limits and enforce regulations. Incorrect answer. Please choose another answer.

60.	A seller of a home built prior to 1978 must provide to buyer a required lead-based paint disclosure. What must accompany the disclosure?
		a. A lead inspection report.
		b. The pamphlet "Protect Your Family From Lead in Your Home".
		c. The Seller's Disclosure Notice that the seller received when purchasing the home.
		d. The Environmental Assessment Addendum
If a home is built prior to 1978, a seller is required by federal law to provide written disclosure of lead-based paint or lead-based paint hazards that they are aware of on the property. Lead-based paint is especially dangerous to children. Along with the disclosure, the seller must deliver to the buyer the pamphlet "Protect Your Family From Lead in Your Home". The buyer must be given at least 10 days to inspect the property for lead-based paint. Incorrect answer. Please choose another answer.

61.	When does asbestos becomes dangerous?
		a. When it gets wet.
		b. When it is covered and/ or sealed by a barrier.
		c. When it is moved and particles become airborne.
		d. None of the above.
Asbestos is made by combining six natural occurring minerals that resist heat. It was used in the construction of real estate for many years. Siding and floor tiles are common items made of asbestos that still must be disclosed in real estate practice. Asbestos is regulated and is not banned in the United States. Asbestos is friable, meaning that's its fibers break down over time and it becomes dangerous when moved or disturbed causing particles to become airborne. Dangers arise when someone is repairing, remodeling, or tearing down a structure containing the contaminate. If not done properly, particles become airborne and inhaled. Asbestos in known cause of mesothelioma (lung cancer) and other cancers. Incorrect answer. Please choose another answer.

62.	The following was established under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) to help further the cleanup of contaminated sites across the nation?
		a. Tribal sovereignty
		b. Water Management Plan
		c. Superfund
		d. Emission Standards
CERCLA became law in the United States in 1980. It created a tax on petroleum and chemical industries and a broad federal authority to respond to release or threatened release of toxic and hazardous substance that could endanger the public. $1.6 billion was collected the first five years, which was increased to $8.5 billion under the Superfund Amendments and Reauthorization Act (SARA). Informally known as the Superfund, it provides the funds to pay for the cleanup and restoration of contaminated sites. Where there is no viable responsible party, the Superfund pays for the cleanup and remediation. If a responsible party is found, they can be forced to do the cleanup themselves or reimburse the government for an EPA-led clean up. Incorrect answer. Please choose another answer.

63.	Jessica and Ashleigh are preparing to sell their home. In conversations with their sales agent, Ryan, they mention that the soil on their property had previously tested positive for the presence of PCBs, a known carcinogen. They ask Ryan if this must be disclosed on the Sellers Disclosure Form and in the listing information. How should Ryan answer this question?
		a. No, since this is an older issue, there is no need to disclose this information.
		b. Yes, but only in the notes on the listing on the MLS.
		c. Yes, the sellers must disclose the environmental hazard on the seller's disclosure form.
		d. No, disclosing the environmental hazard would likely hurt the sale of the property.
Under Pennsylvania's Seller's Disclosure Act, a seller is required to provide a written Seller's Disclosure Statement (SDS) to prospective buyers before the sale of a home. 68 Pa.Stat 7304(b). The SDS specifically asks if there are any known hazardous substances on the property. 68 Pa.Stat 6304(b)(14); 49 Pa.Code 35-335a. Therefore, the sellers have a legal obligation to disclose the known presence of PCBs. Failure to do so would constitute fraud. Ryan, the agent, has a legal responsibility to correctly advise his clients on the disclosure of environmental hazards and other material facts. Whether this information should be also disclosed in the general listing description is a matter of discretion, but is not required. Incorrect answer. Please choose another answer.

64.	Seller Ali completed a Seller's Disclosure Statement when listing his house with Broker Janet. After completing the Disclosure Statement, the central air conditioning condenser stopped working. Seller Ali should:
		a. Immediately update the Seller's Disclosure Statement.
		b. Inform Broker Janet and ask her to change the listing description.
		c. Repair the central air conditioning and say nothing.
		d. Seller has no obligation to amend the disclosure statement.
Even if Ali repairs the air conditioning immediately, he must still update the Seller's Disclosure Statement with this information. Any material changes to the property that occur after the Seller's Disclosure is initially completed must be noted on an updated version of the disclosure form. Incorrect answer. Please choose another answer.

65.	Listing agent Patti is working with Sarah who is a seller. During the course of completing the Residential Real Estate Disclosure Form, Patti notices that Sarah is having trouble completing the form regarding the facts of the house she wants to sell. Which of the following actions can Patti take that to avoid violating disclosure requirements?
		a. Help Sarah complete the form by answering questions for her.
		b. Advise and coach Sarah on what to disclose and not disclose.
		c. Advise Sarah to get assistance from a person with knowledge in filling it out.
		d. Tell her not to worry about the disclosure, it can be taken care of at closing.
When an agent is taking a listing for a residential property, they will have to have their seller complete a Seller Disclosure. It is important that the seller complete this disclosure independent of the listing agent's help. The listing agent can advise them to have someone with knowledge assist them in completing it, however the agent cannot fill it out or coach on how to complete it. Incorrect answer. Please choose another answer.

66.	The owner of a property in a rural area has agreed to sell his property to his neighbor. The seller has oil heat and used to have an old tank that was rusted and leaked. The seller got rid of the tank and put another tank underground in the same spot, doing the work himself. He filled out a property disclosure form mentioning the new tank. A couple years later, the new owner hired a company to switch from an underground to above ground tank. The contractor discovered the old oil seepage. Who is liable for the clean-up?
		a. The current owner
		b. The former owner
		c. The oil company, as they delivered the oil.
		d. There is no liability.
The former owner disclosed that the tank had been replaced but not that the tank had leaked. He also did not have the tank removed properly as there was no soil testing during removal or installation. Soil must be tested and removed if oil is found. Even though it may be years later, the seller remains liable under environmental laws like the Resource Conservation and Recovery Act enforced by the EPA. Incorrect answer. Please choose another answer.

Financing and Settlement

67.	Which of the following originate loans for people buying or refinancing their realty?
		a. FHA
		b. Banks
		c. VA
		d. All of the above.
Banks (sometimes referred to as "mortgage banks") make loans to people buying or refinancing their real estate. Loan origination is loan creation. Other sources of funding include savings and loans and insurance companies. Insurance companies are typically used for large commercial loans, and the lenders may demand some equity for income-producing properties. A is incorrect.The Federal Housing Administration (FHA) is not a direct lender. The borrower must go to a lender approved by the federal government for FHA loans. The FHA will insure that, in the event of a borrower default, the lender is shielded from loss through the FHA insurance. The borrower must pay for this insurance, called “Mutual Mortgage Insurance” (MMI). C is incorrect. The U.S. Department of Veterans Affairs (VA) is not a direct lender. The borrower must go to a lender approved by the federal government for VA loans. The VA will guarantee that, in the event of borrower default, the lender is shielded from loss through the VA guarantee. Veterans do not pay for this guarantee. Incorrect answer. Please choose another answer.

68.	A buyer's total monthly obligations are $3,070. A proposed mortgage payment is $1,158 per month and his monthly gross income is $5,490. Based on the buyer's total obligations ratio, does he qualify for a conventional loan?
		a. Yes, because his ratio is less than 41%
		b. No, because his ratio is more than 45%
		c. Yes, because his ratio is under 60%
		d. No, because his ratio is over 60%
To figure out the correct answer in such questions, first you determine the buyer's ratio of obligations to income in terms of a percentage. To determine this, you take the total monthly obligations and divide that amount by the monthly gross income to find the ratio. The proposed mortgage payment is not part of the formula to determine the total obligation ratio. It is included in the question as a distractor. $3,070 ÷ $5,490 = .559 or 56% total obligations qualifying ratio Then, you must apply the correct total obligations qualifying ratio. For conventional loans, it’s 45%.For FHA loans, the total obligations qualifying ratio is 43%. For VA loans, the total obligations qualifying ratio is 41%. In this case, the qualifying ratio is 45% since the buyer is applying for a conventional loan.Since his qualifying ratio is above 45%, he does not qualify for a conventional loan. Incorrect answer. Please choose another answer.

69.	In a lien theory state, which party to a mortgage loan transaction holds legal title to the real estate over the term of the loan?
		a. Trustee
		b. Lender
		c. Underwriter
		d. Borrower
In a lien theory state, such as Pennsylvania, the borrower holds legal title over the term of the loan and the lender has a lien against the title until it is paid off. When the loan is paid off, the lender releases the lien from the title. In title theory states, a Deed of Trust is used, which appoints a trustee to hold the title for the benefit of the lender over the term of the loan.The trustee transfers the title to the borrower once the borrower pays the debt. Incorrect answer. Please choose another answer.

70.	A mortgage insurance premium (MIP) is required for which of the following types of loans?
		a. Conventional loans
		b. VA insured loans
		c. FHA loans
		d. Both b and c.
FHA loans help low-income and/or low-credit borrowers become homeowners. Persons with credit scores as low as 580 and with low down payments (at least of 3.5%) can obtain FHA backed home loans. To protect the lender, mortgage insurance is required for FHA loans. Borrowers have to pay a MIP each month, which is added to the amount they pay for their mortgage. Conventional loans sometimes require private mortgage insurance (PMI) which is similar but different than MIP.A conventional mortgage is a mortgage that is not backed by a governmental agency. PMI is usually required when a borrower cannot make a down payment of 20% of the home purchase price.The insurance benefits the lender if the borrower defaults on the loan.PMI is typically paid for by the borrower by adding an amount for PMI to the monthly mortgage payment. Incorrect answer. Please choose another answer.

71.	Which clause in a promissory note allows the lender to declare the entire loan amount due upon default or violation of the loan agreement?
		a. Defeasance Clause
		b. Condemnation Clause
		c. Alienation Clause
		d. Acceleration Clause
The acceleration clause allows the lender to call the loan balance due upon default or upon violation of the loan agreement. A Defeasance clause will render the contract void in the event of a condition in the agreement. A Condemnation Clause protects the lender of taking all or part of the insurance proceeds when the property is condemned or destroyed. The Alienation Clause allows the lender to accelerate the balance due when there is a transfer of ownership. Incorrect answer. Please choose another answer.

72.	The disclosure of the annual percentage rate (APR) on a mortgage is required under which federal regulation?
		a. The Equal Credit Opportunity Act
		b. Usury Laws
		c. The Truth in Lending Act
		d. Regulation X
All mortgage advertising and informational pieces must contain the APR, which stands for the Annual Percentage Rate as regulated by the Truth in Lending Act (TILA.) The APR reflects the interest rate, as well as the origination fees and other costs of the loan, rolled into the loan over the term and expressed as a single interest rate. These regulations were established under Regulation Z of TILA. The term of the loan is another aspect that must be disclosed prior to the extension of credit TILA helps consumers shop for loans and make informed decisions in transactions involving credit. Regulation X, under the Real Estate Settlement Procedure Act, requires the disclosure of settlement fees and costs. Incorrect answer. Please choose another answer.

73.	The TILA-RESPA Integrated Disclosure rule requires:
		a. A mandatory three business day waiting period.
		b. That the buyer and seller be present at the closing.
		c. That the first year's property taxes be paid in full.
		d. That legal representation is available to the buyer at closing.
Promulgated in 2015, by the Consumer Financial Protection Bureau, the TILA-RESPA Integrated Disclosure rule (TRID) provides a new version of the previous HUD-1 form. This rule requires the buyer to first sign the TRID form, indicating they have read it, and then return it to the lender. Once the TRID form is signed and returned, a mandatory three business day waiting period must elapse before the closing can occur. This time period is measured by days, not hours. The three days are intended to provide time for the buyer to fully consider the loan. TRID is also referred to as the Know Before You Owe rule (KBYO). Incorrect answer. Please choose another answer.

74.	Which of the following prohibits discriminatory practices in mortgages and other forms of consumer lending?
		a. RESPA
		b. ECOA
		c. TRID
		d. TILA
The Equal Credit Opportunity Act prohibits discriminatory lending practices in consumer and business loans, including federally regulated mortgages. The protected classes under the ECOA are race, color, sex, religion, disability, familial status, national origin, and age. The ECOA prohibits lenders from discriminating against credit applicants based on factors that are unrelated to their ability to pay. The Real Estate Settlement Procedures Act (RESPA) regulates closing (settlement) practices and disclosures. Under RESPA, all business arrangements between closing participants and vendors who serviced the transaction must be disclosed. All mortgage advertising and informational pieces must contain certain required disclosures under the Truth in Lending Act (TILA.)TRID is an integrated form containing the disclosures of TILA and RESPA. Incorrect answer. Please choose another answer.

75.	In a closing statement, the items debited to the buyer are:
		a. Purchase price, earnest money deposit, title insurance, new mortgage.
		b. Purchase price, title insurance, deed recording fees, mortgage recording fees.
		c. Recording of the deed, mortgage assumed security deposits.
		d. Purchase price, preparation of mortgage and note, prorated advance rent.
The items debited to a buyer in a closing statement are purchase price, title insurance (owner and lender policy), state intangible taxes on new mortgages, state documentary stamps on new and assumed notes, recording of the deed and the mortgage, preparation of the mortgage and note, buyer's attorney's fees if applicable. Earnest money deposit, security deposits (if any) and prorated advance rent (if any) are credits to the buyer at closing. Incorrect answer. Please choose another answer.

Real Estate Math Calculations

76.	Randall's land is 120 FT wide by 300 ft. deep. How many square feet does he own and how many acres?
		a. 36,000 SF; 0.82645 acres
		b. 420 SF; 0.25 acres
		c. 43,560 SF, 1.0 acres
		d. 34,350 SF; 0.7885 acres
Square footage is calculated multiplying length by width. 300 X 120 = 36,000 SF There are 43,560 SF in an acre. Divide SF by SF per Acre to determine the acreage. 36,000 ÷ 43,560 = 0.82645 acres Incorrect answer. Please choose another answer.

77.	Barton purchased his home for $325,000 ten years ago. His principal and interest balance on his mortgage is $228,253. A recent appraisal valued the home at $515,000. How much equity does Barton have in his home?
		a. $96,747
		b. $121,747
		c. $286,747
		d. $840,000
Equity value is basically the market value above the total sum of debts on the home. To determine equity, subtract the total sum of all debts, usually the amount left on the mortgage, and subtract that from the current market value. In this case $515,000 – $228,253 = $286,747 equity value Incorrect answer. Please choose another answer.

78.	A buyer purchased a home for a sales price of $250,000. He had a down payment of $50,000 and financed the rest. What is the buyer's Loan to Value Ratio at the time of purchase?
		a. 70/30
		b. 75/25
		c. 80/20
		d. 60/40
The loan-to-value ratio is the amount of the mortgage compared with the value of the property. To learn the correct ratio, first, subtract the down payment from the sales price to calculate the amount financed by the mortgage: $250,000 - $50,000 = $200,000. Then, calculate what percentage $200,000 (the loan amount) is of $250,000 (the value of the house.) x / 100 = 200,000/250,000 and cross multiply 250,000x = 20,000,000 x = 20,000,000 / 250,000 x = 80 $200,000 is 80% of $250,000. Therefore, the Loan to Value ratio is 80/20. Incorrect answer. Please choose another answer.

79.	With a sales price of $450,000, loan pay off $375,480 and closing costs of $15,780, what will be the seller's net at closing?
		a. $74,520
		b. $450,000
		c. $58,740
		d. $434,220
Net means the amount left over after all proper deductions from the gross or total sales amount, $450,000. $450,000 - $375,480 loan pay off - $15,780 closing costs = $58,740 seller’s net Incorrect answer. Please choose another answer.

80.	A property manager is trying to figure out what an apartment communities occupancy ratio is. She knows that there are 3 model units, 12 units available for lease and a total of 225 units on the property. What is her current occupancy rate?
		a. $95%
		b. 94.6%
		c. 67%
		d. 93.33%
To determine the occupancy rate, first determine the number of units occupied: 225 units – 3 models – 12 unoccupied units = 210 units occupied by tenants Next, divide the difference by the total number of units: ÷ 225 = 93.33% Incorrect answer. Please choose another answer.

81.	Jane Doe lists her property with you but she is not willing to pay a 6% commission, as is the policy of your broker. You explain how the commission rate will drive agents to work hard for the sale and after negotiating a bit longer, Jane agrees to pay 6% IF she can net $325,000, otherwise she will pay 5%. What would be the lowest price you could list for if you want the 6% commission, considering the other closing costs are paid outside of closing?
		a. $305,872
		b. $325,750
		c. $344,500
		d. $345,744
In order to arrive at the lowest acceptable offer, take the desired amount and divide by 94% (.94). The quotient will be lowest possible selling price to allow for a six percent commission. 325,000 / .94 = $345,744 $345,744 x .06 = $20,744 $345,744 - $20,744 = $325,000 Incorrect answer. Please choose another answer.

82.	Seller is selling a house in an area where property taxes are paid quarterly. The settlement date is December 2nd and the tax amount for the last quarter is $328.00. How much will the seller have to pay in taxes for the last quarter?
		a. $224.91
		b. $229.60
		c. $264.43
		d. $328.00
The seller owes October, November and the first two days of December. To determine the per diem, determine the number of days in the quarter: October (31), November (30) and December (31), which equals 92 days. Divide the total taxes due by the number of days in the quarter: $328 ÷ 92 = $3.57 per diem. Next, multiply the per diem by the number of days seller will be in possession: $3.57 x 63 days = $224.91 Incorrect answer. Please choose another answer.

83.	John works for Fabulous Realty and sells a property listed by Humble Realty. John is a very successful sales agent and based on last-years sales totals he is earning a 70% commission split with his broker. The Humble Realty listing sold for $400,000 and the commission rate was 5.5%. How much will John earn in commission for this sale?
		a. $8,400
		b. $7,700
		c. $11,000
		d. $22,000
Before you start calculating, you need to remember there are two offices involved in this sale so the first thing you do is to find the total commission and divide it by 2 - half goes to the listing office and half to the selling office. The sale price of $400,000 x the 5.5% commission = $22,000. Each office will receive $11,000, and that will be split between broker and the agent based on their agreements. John is earning 70% of the $11,000 commission (11,000 x .7) which is $7,700. The broker retains the 30%, or $3,300. Incorrect answer. Please choose another answer.

84.	You are showing an apartment building to an investor. Based on some research, the investor believes the building might yield $40,000 net profit from rentals. Using a comparable, a similar building recently sold for $250,000 and had an annual net operating income of $50,000. What is the capitalization rate and the value of the apartment building the investor is considering?
		a. 10%; $400,000
		b. 20%; $200,000
		c. 25%; $160,000
		d. 30%; $133,333
The capitalization method is a way for investors to determine the current value of a property being considered for purchase. To determine value, the method multiplies an expected net operating income by a capitalization rate. The investor can estimate the net operating income (NOI) by determining the building rent less expenses. In this scenario, the investor has determined the potential NOI to be $40,000. Next, the investor must determine what capitalization rate to use. A similar property recently sold can be used if the NOI can be determined. In this case, the comparable sold for $250,000 with a NOI of $50,000. The cap rate is determined by dividing $50,000 by $250,000, which equals 20% or .2. To find the value of the property the investor is looking at, divide $40,000 by .2 to get the value - $200,000. Incorrect answer. Please choose another answer.

85.	A closing date is June 20th. The annual property taxes are $2,300 and have not yet been paid. How much does the seller have to pay the buyer for the days the seller owned the property?
		a. $850.50
		b. $862.00
		c. $1,014.89
		d. $1,071.23
Follow these steps to find the answer: Divide the annual property taxes by 365 to find the daily rate. $2300 ÷ 365 = 6.30136986 The seller will credit the buyer for January thru June 19. Jan 31 + Feb 28 + March 31 + April 30 + May 31 + June 19 (the day of the closing belongs to the buyer) = 170 days Multiply the daily rate by the number of days the seller owned the property 6.30136986 x 170 = 1,071.23 Prorations are entered into the closing statement as a debit to the seller for $1,071.23 and credit to the buyer. Incorrect answer. Please choose another answer.

Quality starts with who wrote the material.

Our practice exam writer

Kimberly Trimmel

Kimberly is a licensed real estate broker in Illinois and a real estate instructor with the Real Estate Institute. She is a certfied instructor with the National Association of Realtors. She has worked as a broker with Century 21, Coldwell Banker and Keller Williams and was formerly the Director of Professinal Standards with the Chicago Association of Realtors.

Our material is specific to the Illinois Real Estate Broker Exam, covering both the National and State sections with these content areas:

Property Ownership
Land Use Regulations
Laws of Agency
Fiduciary Duties
Property Valuation
Financial Analysis
Financing
Transfer of Property
Disclosures
Real Estate Practice
Contracts
and more...

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