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Quiz Session - Attempts With Random Questions

National Real Estate Licensing Exam Questions

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1.

When investing in real estate, the investor will need to monitor and make decisions regarding the investment. What compensates the investor for this burden?

  • Management premium

  • Liquidity premium

  • Market premium

  • Risk premium

Correct answer: Management premium

A management premium is what compensates the investor for the burden of monitoring and making decisions regarding the real estate investment.

Market premium is incorrect because it is not a term used when considering the rate of return on real estate investments. Risk premium is incorrect because it is what compensates the investor for the chance of not making a gain on the investment and potentially losing some of the initial investment. Liquidity premium is incorrect because it is what compensates the investor for the difficulty and time required to sell the real estate investment.

2.

An alcoholic with a 550 credit score would like to rent an apartment. According to the federal Fair Housing Act, which of the following is permitted of the apartment building owner?

  • The owner can reject the application because of the applicant's poor credit score

  • The owner must lease the apartment

  • The owner may increase the rent

  • The owner may increase the security deposit

Correct answer: The owner can reject the application because of the applicant's poor credit score

The apartment building owner may reject the application of an alcoholic because of his poor credit score. The Fair Housing Act does not protect drug addicts or individuals who have been convicted of drug-related felonies. The Fair Housing Act does prohibit discrimination based on race, color, religion, sex, national origin, familial status, and disability. Alcoholism is considered a disability under the act.

The other choices are incorrect because the apartment building owner does not have to lease the apartment or increase the rent or security deposit.

3.

Who is responsible for performing due diligence to ensure the real estate’s condition is as stated?

  • Buyer

  • Seller

  • Broker

  • Lender

Correct answer: Buyer

The buyer is responsible for performing due diligence to ensure the real estate’s condition is as stated by the seller. The buyer may perform due diligence by conducting a title search and a home inspection to ensure there are no legal, physical or environmental surprises in the real estate. 

The other choices are incorrect because the buyer is responsible for performing due diligence, not the seller, broker, or lender. 

4.

Drake and Jennifer are meeting with a mortgage lender to see how much money they can borrow for a new home. They have a gross income of $12,000 per month, and the lender is pre-qualifying them for a conforming loan using a qualifying ratio of housing payments to gross income. What is the maximum monthly housing payment Drake and Jennifer can have?

  • $3,360

  • $4,320

  • $1,200

  • $2,160

Correct answer: $3,360

The maximum housing payment Drake and Jennifer can have is $3,360. The qualifying ratio of housing payments to gross income is 28% of the couple’s gross monthly income of $12,000. $12,000 x 0.28 = $3,360. The maximum housing payment amount includes the principal, interest, taxes, and insurance.

$4,320 is 36% of the couple’s gross monthly income, which is the maximum amount a couple’s total long-term debt monthly payments can be for a conforming loan (i.e., mortgage and car loans). The other choices are incorrect, as they do not represent the couple’s maximum monthly housing payment.

5.

What common law term is used to refer to the broker when describing his agency relationship to the client?

  • Fiduciary

  • Agent

  • Principal

  • Authority

Correct answer: Fiduciary

Fiduciary is the common law term used to refer to the broker when describing his agency relationship to the client. The broker is often referred to as a fiduciary in common law, although the broker's actual duties are governed by the brokerage agreement and state law.

6.

The amount of commission a broker shares with a salesperson is which of the following?

  • Negotiated between the broker and the salesperson

  • Dictated by state law

  • Split evenly between the broker and the salesperson

  • Dictated by the National Association of Realtors

Correct answer: Negotiated between the broker and the salesperson

The amount of commission a broker shares with a salesperson is negotiated between the broker and the salesperson.

The other choices are incorrect because states do not dictate what the commission split should be between brokers and salespersons. Commission are not always evenly split between brokers and salespersons, and typically depend on the experience of the agent and the individual brokerage's business model. The National Association of Realtors does not dictate what the commission split should be between brokers and salespersons.

7.

What kind of lease is a lease in which the tenant pays rent, plus real estate taxes, maintenance costs and utilities?

  • Net lease

  • Gross lease

  • Ground lease

  • Percentage lease

Correct answer: Net lease

A net lease is a lease under which the tenant pays rent, plus real estate taxes, maintenance costs and utilities.

A percentage lease is one in which the rent for a retail tenant is based in part on percentage of gross sales. A gross or fixed lease is a traditional residential lease under which the tenant pays rent and the landlord pays the operating expenses, such as maintenance, real estate taxes, and other public charges such as water and sewer. A ground lease is one under which the tenant leases the raw land and builds a building upon it.

8.

Disclosure by sellers and/or real estate agents of which of the following substances is not required by the federal government?

  • Carbon monoxide 

  • Lead paint

  • Reasonably apparent property defects 

  • Mold

Correct answer: Carbon monoxide

While carbon monoxide is potentially present in all homes if there is a defect in the heating system or stove, and its existence is deadly, there is no affirmative duty to disclose its existence.

Lead paint must be disclosed by sellers and real estate agents with knowledge of its existence. Reasonably apparent property defects must be disclosed if the seller or agent are aware of them. Mold is an organism found in nature and in homes that may cause allergic reactions and other negative health consequences to people who inhale it in their homes.

9.

Justin has an existing mortgage loan on his property, but he needs to take out an additional mortgage loan on the property. The new mortgage loan will have a lower priority than the existing mortgage loan. The lower priority of a mortgage loan is known as which of the following?

  • Subordination

  • Leverage

  • Exculpation

  • Assumption

Correct answer: Subordination

Subordination is when one mortgage loan has a lower priority than another lien on the property. Typically, home equity loans are subordinate to purchase mortgages.

An exculpation clause is used in a mortgage loan to state that the property is the sole collateral and that the borrower will not be personally liable for the debt. Assumption is when a mortgage loan is transferred to another party. Leverage is money borrowed against an asset and used to increase purchaser's real estate buying power.

10.

Alex is the exclusive agent for the sale of Owen’s house, listing price $600,000. Owen agrees to pay Alex a 6% commission on the sale if he co-brokes the sale with another agent and pays the agent half of the gross commission, and a 5% commission if Alex sells it without co-broking. Alex works for Standard Brokerage who takes 50% of Alex’s gross commissions. Billy brings a buyer and they make a deal for $575,000. What's the difference between Alex's net commission and Billy's gross commission?

  • $8,625

  • $0

  • $17,250

  • $11,500

Correct answer: $8,625

Billy's gross commission is $17,250 (($575,000 * .06) * (.5))and Alex’s net commission is $8,625 (($575,000 * .06) * (.25)). The other choices are incorrect because the gross commission is 6% of the sales price, and Billy and Standard Brokerage split it equally and then Alex gets half of Standard Brokerage's split.

11.

Angela is a buyer’s broker working with Carrie, her client, to find a home. Carrie finds a house she wants for $300,000 and enquires about mortgages with a LTV of 90. She compares a few mortgages, one of which has a very low APR with 2 points due at closing. If she chooses the one with points, how much cash will she need at closing to cover the points?

  • $6,000

  • $36,000

  • $2,000

  • $30,000

Correct answer: $6,000

Carrie will need $6,000 at closing to cover the points. A point is 1% of the principal loan amount, in this case, equal to $3,000 per point for a total of $6,000. She will need 10% of $300,000 for the down payment, or $30,000.

12.

Government National Mortgage Association (GNMA or Ginnie Mae) does which of the following?

  • Guarantees FHA or VA mortgage loan packages

  • Finances mortgages for farm operations and rural operations

  • Buys mortgages on the secondary market

  • Originates residential mortgages

Correct answer: Guarantees FHA and VA mortgage loan packages

The Government National Mortgage Association (GNMA or Ginnie Mae) guarantees FHA and VA mortgage loan packages. GNMA is a U.S. government entity.

The USDA Office of Rural Development, formerly known as the Farmers Home Administration (FmHA)  finances mortgages for farm operations and rural operations. The Federal National Mortgage Association (FNMA) and the Federal Home Loan Mortgage Corporation (FHLMC) buy mortgages on the secondary market. Mortgage companies originate residential mortgages.

13.

Any individual who feels he or she has been injured by a discriminatory housing practice may file a complaint with which of the following?

  • The Secretary of the Department of Housing and Urban Development in the Office of Fair Housing and Equal Opportunity

  • The Supreme Court of the United States

  • The United States District Courts

  • The Secretary of the Fair Housing Act in the Office of Fair Housing and Equal Opportunity

Correct answer: The Secretary of the Department of Housing and Urban Development in the Office of Fair Housing and Equal Opportunity

Any individual who feels he or she has been injured by a discriminatory housing practice may file a complaint with the Secretary of the Department of Housing and Urban Development. The complaint must be filed within one year of the incident, must be in writing, and must contain specific details of the alleged discrimination.

The other answers are incorrect because the Secretary of the Department of Housing and Urban Development is responsible for handling housing discriminatory acts, not the Supreme Court, the United States District Courts, or the Secretary of the Fair Housing Act.

14.

Greg sold his principal place of residence for $475,000, which was a gain of $315,000. How much gain may Greg exclude on his income tax as a single individual?

  • $250,000

  • $315,000

  • $475,000

  • $100,000

Correct answer: $250,000

Greg may exclude $250,000 of the gain on sale of his principal residence on his income tax. The most a single individual may exclude on the gain of sale of a principal residence is $250,000.

15.

John is a broker who is the seller’s agent. What does that make the salesperson?

  • Subagent

  • Principal

  • Realtor

  • Dual agent

Correct answer: Subagent

The salesperson would be considered the subagent since the broker is the seller’s agent.

Principal is incorrect because the seller is known as the principal. Realtor is incorrect because the salesperson must become a member of the National Association of Realtors to become a realtor. Dual agent is incorrect because the broker becomes a dual agent when he/she represents the buyer and the seller.

16.

John is Bill's real estate broker. Bill wants to sell his house. Bob the buyer has very bad credit, is self-employed, and has a lot of cash and good long-term income. Bob's mortgage balance is 30% of the sales price. How can John close the deal?

  • Advise Bill to give Bob a purchase money mortgage

  • Advise Bob to get approved for a VA loan

  • Advise Bill to do a short sale

  • Convince Bob to take out PMI

Correct answer: Advise Bill to give Bob a purchase money mortgage

Due to Bob's bad credit and self-employment, it's unlikely that he will get a mortgage. However, since Bob only owes 30% of the purchase price to the bank and Bill has 50% cash, Bill can provide Bob with seller financing (or a purchase money mortgage), pay off his mortgage and still have 20% to put in his pocket. Then Bob can pay the remaining 20% in installments payments to Bill over time. 

Bob can only apply for a VA loan if he's a veteran. A short sale, where the bank accepts a mortgage payoff for less than the value of the loan is not applicable. Convince Bob to take out PMI (Private Mortgage Insurance) is incorrect, because PMI assumes Bob will get a bank mortgage, which he won't.

17.

Which statement is true in regard to earnest money?

  • It is money provided by the buyer to the seller or broker to show good faith

  • It is money provided by the buyer to the lending agency for a down payment

  • It is money the seller gets to keep regardless if the real estate transaction closes or not

  • It is money the broker uses to advertise the listing and to hold open houses in order to sell the real estate

Correct answer: It is money provided by the buyer to the seller or broker to show good faith

Earnest money is money provided by the buyer to the seller or broker to show good faith. The amount of earnest money provided to the seller or broker by the buyer is stated in the earnest money contract. Typically, if the buyer defaults on the contract after the expiration of all contingencies that would allow the buyer to get out of the contract without penalty, the buyer loses his or her earnest money as liquidated damages to compensate the owner for their loss as a result of buyer's default.

It is false to state earnest money is money that the seller gets to keep regardless if the real estate transaction closes. If the contingencies in the contract are not met, the buyer will get the earnest money back. It is false to state earnest money is money provided to the lending agency as a down payment or that it is money provided to the broker for advertising.

18.

Dean is a salesperson who pays a broker $750 a month for office space, and he receives 75% of all commissions that he brings in. In May, Dean brought in $13,000 in commissions. What was Dean’s net for the month of May?

  • $9,000

  • $9,750

  • $2,500

  • $4,000

Correct answer: $9,000

Dean’s net worth for the month of May is $9,000. Since Dean receives 75% of all commissions he brings in, he will receive $9,750 in commissions ($13,000 x 0.75 = $9,750). Dean will then need to pay the broker $750 for office space, which will net Dean $9,000 for the month of May ($9,750 - $750 = $9,000).

19.

A property has legal restraints including zoning laws and deed restrictions. These legal restraints fall under which of the following categorizations of forces affecting real estate value?

  • Political-governmental-legal

  • Economic-financial

  • Physical and environmental

  • Sociological

Correct answer: Political-governmental-legal

Forces affecting real estate values operate on the international and national, regional, and local community levels. These forces can be categorized as:

  1. Physical and environmental
  2. Economic-financial
  3. Political-governmental-legal
  4. Sociological

Political-governmental-legal factors focus on the services provided. These include factors like utilities, spending and taxation policies, police and fire, recreation, schools, garbage collection, zoning, and subdivision regulations.

Economic-financial factors focus on the type of industry in an area, employment and unemployment rates and types, interest rates, per capita and household income, and stability.

Physical and environmental forces include dimensions, shape, area, topography, drainage, and soil conditions. They also include utilities, streets, curbs, gutters, sidewalks, and landscaping. Nuances and hazards are also considered. These include contaminated air and water and environmentally hazardous building materials (e.g., asbestos, PCBs, mold, urea formaldehyde).

Sociological factors are concerned with the characteristics of people living in an area and population density and homogeneity.

20.

The primary mortgage market consists of all except which of the following?

  • Federal National Mortgage Association

  • Savings and loan associations

  • Life insurance companies

  • Mortgage companies

Correct answer: Federal National Mortgage Association

The Federal National Mortgage Association, or Fannie Mae, operates under the secondary mortgage market, not the primary mortgage market. Lenders, investors, and government agencies that buy loans already given by someone else, or they originate new loans through someone else, make up the secondary mortgage market.

The primary mortgage market consists of lenders who originate mortgage loans. Savings and loan associations, life insurance companies, and mortgage companies are all lending institutions that operate under the primary mortgage market.

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