×

Quiz Session - Attempts With Random Questions

National Real Estate Licensing Exam Questions

Page 2 of 35

21.

For which of the properties below is it not appropriate to use the income approach when appraising its value?

  • An owner-occupied home 

  • A retail condo

  • A single-family investment property

  • A mixed-use property

Correct answer: An owner-occupied home

It is not appropriate to use the income approach when appraising the value of an owner-occupied home because the home's value is not primarily derived from its value as a rental property or a property that generates income from its location or legal use, as is the case in the other examples. 

22.

Acceleration is best defined by which of the following?

  • Mortgage clause that gives the lender the right to require an early payoff of the entire mortgage

  • Money lent using an interest rate above the legal rate

  • Debt liquidated

  • Borrowed money used to finalize an investment purchase

Correct answer: Mortgage clause that gives the lender the right to require an early payoff of the entire mortgage

Acceleration gives the lender the right to require an early payoff of the entire mortgage.

Usury refers to money lent using an interest rate above the legal rate. Amortization refers to debt liquidated. Leverage refers to borrowed money used to finalize an investment purchase.

23.

Ida is an indecisive seller. Through Bill, the listing real estate broker, Oprah submitted an offer to purchase Ida's house that was 17.5% below asking. Ida rejected the offer and came back with a one dollar reduction in price. Two weeks later, after Oprah didn't respond, and when it became that the bottom had dropped out of the real estate market due to the sudden onset of a global pandemic, Ida changed her mind and decided to accept Oprah's offer. 

What is the best explanation of why Ida's acceptance does or does not obligate Oprah to buy the house for 17.5% below asking price?

  • No obligation because Ida's counter offer invalidated the original offer

  • Yes she is obliged because there is a valid offer and acceptance

  • No obligation because there is no consideration

  • No obligation because Ida didn't accept Oprah's counter offer

Correct answer: No obligation because Ida's counter offer invalidated the original offer

Oprah is not obligated to buy the house because a counter offer invalidates the initial offer and therefore, there is no meeting of the minds. As a result, there was no acceptance of Oprah's offer. Lack of and accepted offer makes whether or not there is consideration irrelevant.

24.

Jenny recently passed away. In her will, she left her husband, Steve, the right to use, occupy, and enjoy her real estate until he passes away. Once Steve passes away, the real estate will become the property of their children, John and Diane, who will co-own the real estate without survivorship.

What type of estate did Jenny have?

  • Life estate

  • Inheritable estate

  • Fee simple estate

  • Nonfreehold estate

Correct answer: Life estate

Jenny had a life estate because Steve has the right to use, occupy, and enjoy the real estate while he is alive, but once he passes away, the ownership of the real estate goes to John and Diane. A life estate may not be inherited by the life tenant. Here, Steve, the life tenant, has the right to use to real estate until it is passed on to the remaindermen (John and Diane).

Inheritable estate is incorrect because Steve did not inherit the real estate from his wife, Jenny, because ownership interests in life estates are limited to the lifetime of the life tenant (Jenny) and thus cannot be inherited. Fee simple estate is incorrect because a fee simple estate is an inheritable estate that provides the owner with absolute ownership rights to the real estate that may be inherited. Steve did not inherit absolute rights to the real estate. Nonfreehold estate is incorrect because a nonfreehold estate is an estate that has a preset termination date. Since Steve has the right to use the property until he passes away, the termination date is unknown, which makes it a freehold estate.

25.

If real property is in more than one taxing jurisdiction, which statement is true?

  • The property owner will have to pay taxes to all taxing jurisdictions in which the property is located

  • The property owner only has to pay taxes to the jurisdiction with the highest authority

  • The property owner may spread out the payment of his taxes over several years

  • The property owner will receive a discounted rate on his taxes

Correct answer: The property owner will have to pay taxes to all taxing jurisdictions in which the property is located

If real property is in more than one taxing jurisdiction, then the property owner will have to pay taxes to all taxing jurisdictions in which the property is located. The various taxing jurisdictions may include county, city, township, village and school district.

The other statements are false because the property owner will not receive a discount, the property owner will have to pay all jurisdictions, and the property owner will not be able to spread out his payments.

26.

A real estate investor is building a four-story multi-family housing development. The Fair Housing laws require which of the following?

  • Only the ground-floor units must accommodate the handicapped

  • All units must accommodate the handicapped

  • Only 1 out of every 4 units must accommodate the handicapped

  • Only 1 unit on each floor must accommodate the handicapped

Correct answer: Only the ground-floor units must accommodate the handicapped

Fair Housing laws require new multi-story multi-family housing developments to accommodate the handicapped; however, only the ground-floor units must accommodate them.

The other choices are incorrect because only the ground-floor units must accommodate the handicapped, not all units, not 1 out of every 4 units, and not 1 unit on each floor.

27.

Andrew represents Sally in the sale of her house for a 4% broker’s commission. Sally wants to sell her house as quickly as possible and for the highest price. To accomplish this goal, Andrew lists the house at $300,000 - 10% below market value. By doing so, he plans to attract many buyers and then he anticipates a bidding war will ensue, after which, Sally will end up with a buyer at above market value. Here’s what happened: Andrew offered $275,000 and then, as a final offer, offered $295,000. Jewel’s first offer was 15% below market value and then her final offer came in at 5% above market value. To beat Jewel’s best offer, Harry placed an offer of 22% above asking price, for which he purchased it. What is Andrew’s commission on the sale?

  • $14,640

  • $21,960

  • $7,320

  • $80,520

Correct answer: $14,640

Andrew’s commission on the sale is $14,640. The purchase price is $366,000 (300,000 x 1.22) and the commission is 4% of $366,000 (366,000 x .04).

28.

Harry’s property assessed at $75,000 and his local government’s millage rate is 21.5. What will Harry’s property taxes be?

  • $1,612.50

  • $161.25

  • $16.13

  • $16,125

Correct answer: $1,612.50

Harry’s property taxes will be $1,612.50. The property tax for a property valued at $75,000 with a tax rate of 21.5 mills would be $1,612.50. If the tax rate is 21.5 mills, the annual tax is 2.15 cents per dollar value, which is 2.15% of the value: $75,000 x 0.0215 = $1,612.50.

The other choices are incorrect because the property tax for the property is $1,612.50, not $16.13, $161.25, or $16,125.

29.

JoAnn is a licensed salesperson listing a property for sale. When determining the listing price, JoAnn knows the lot is worth $50,000 and the house is worth $195,000. If JoAnn charges a 6.5% sales commission to be included in the listing price, at what price will JoAnn need to sell the property in order for the owner to clear $245,000 after paying her commission?

  • $262,032

  • $245,000

  • $260,925

  • $265,000

Correct answer: $262,032

JoAnn will need to list the property at a price that will result in a sales price of $262,032 to enable the owner to clear $245,000 after paying JoAnn's commission. The property is worth $245,000 ($50,000 + $195,000 = $245,000). The commission is 6.5% of the selling price, so the owner's share will need to be 93.5% of the total sales price ($245,000 / 93.5% = $262,032). Note that properties rarely sell for list price. So, JoAnn should price the property higher than the desired sales price. Proper pricing is very important in obtaining a property's value. If an agent over-prices a property simply in order to obtain her desired commission, the agent will likely not be acting in the best interests of her client, because the property will likely take longer to sell and may become a "stale" listing, in which case, the final sales price may be lower than it would if it was priced properly from the outset.

30.

A subject property needs a roof replacement which is estimated at about $9,000. Comparable sales have new roofs. In appraising this subject property, the price of the comparable sales should be adjusted:

  • Downward to match the subject property's characteristics

  • Upward or downward depending on the quality of the comparable property's existing roof in comparison to the subject property's proposed new roof

  • Neither upward or downward

  • Upward due to their new roofs

Correct answer: Downward to match the subject property's characteristics

Adjustments can be made for bedrooms, square footage, age, or any other variable. The idea is to use a negative adjustment on the comparable property if the comp has superior features and positive adjustments on the comparable property if the comp has inferior features to subject property.

Adjustments can be made in terms of percentages or in dollar amounts. Either the total sales price may be adjusted, or the adjustments can be applied to one or more units of comparison.

In this example, the comps have superior features (new roofs); therefore, the comps should receive negative adjustments.

31.

The highest and best use analysis tests land to determine if it is financially feasible by assessing which of the following?

  • Its residential, retail, and industrial demand levels

  • Its uses, traffic flow, visibility, access, size, and shape

  • Its existing private and public restrictions and regulations

  • Its most probable type of use and possible alternatives

Correct answer: Its residential, retail, and industrial demand levels

The highest and best use analysis tests land to determine if it is financially feasible by assessing its residential, retail, and industrial demand levels.

The highest and best use analysis tests land to determine if it is physically possible by assessing its uses, traffic flow, visibility, access, size, and shape. The highest and best use analysis tests land to determine if it is legally permissible by assessing its existing private and public restrictions and regulations. The highest and best use analysis determines how land would be maximally productive by testing its physical, legal, and financial needs and declaring the most probable type of use and possible alternatives.

32.

The Johnsons’ new mortgage has an impound or escrow account held by the lender. What is held in this account?

  • Monthly payments made by the borrower to cover real estate taxes and property insurance

  • Monthly payment based on the borrower’s income for the month

  • The Johnsons’ monthly payment plus interest, principal, and all utilities

  • The Johnsons’ bi-monthly payments that will include principal and interest

Correct answer: Monthly payments made by the borrower to cover real estate taxes and property insurance

 A lender impound or escrow is one in which the borrower will make monthly payments that will include monthly payments made by the borrower to cover real estate taxes and property insurance . The borrower will pay 1/12th of the property taxes and property insurance on a monthly basis, which will go into an escrow account. By doing this, the lender can be assured that the borrower will have the necessary funds to pay the annual taxes and insurance when they become due.

The other choices are incorrect because a lender impound or escrow mortgage does not base the borrower’s monthly payment on his monthly income, it does not include utilities in the monthly payment, and it does not require the borrower to make bi-monthly payments.

33.

An investor purchased a foreclosed house for $50,000 and resold it a few weeks later for $85,000. The percentage of gross profit for this transaction is which of the following?

  • 70%

  • 170%

  • 41%

  • 141%

Correct answer: 70%

The percentage of gross profit for this transaction is 70%. To find the percentage of gross profit, find the difference between the purchase price and the selling price and divide the difference by the purchase price.

$85,000 - $50,000 = $35,000

$35,000/$50,000 = 0.7, or 70%

34.

Dave purchased an investment property using leverage one year ago, and he initially had a tenant who leased the property. However, for the last three months, he has not been able to find a tenant for the property, and he will soon not be able to cover the debt payments on the property. This describes which type of risk?

  • Financial risk

  • Business risk

  • Interest rate risk

  • Property risk

Correct answer: Financial risk

Financial risk is a risk that occurs when there is a chance that the investor will not be able to repay the debt taken out on the investment property.

Business risk is incorrect because it occurs when there is a chance that the business workings of an investment will not perform as expected due to things like reduced income or the requirement of more capital investment than anticipated in order to support the business operations. Interest rate risk is incorrect because it occurs when there is a chance that the interest rate on a loan will increase. Property risk is incorrect because it is not associated with real estate investments.

35.

What does the Sherman Antitrust Act prevent brokers from doing?

  • Price fixing

  • Buying real estate

  • Working for both parties

  • Representing the buyer

Correct answer: Price fixing

Brokers are not permitted to price fix according to the Sherman Antitrust Act. It is illegal for brokers to agree with competing brokers to fix the commission rates they charge to clients. If a broker is found guilty of price fixing, the broker can be charged with monetary penalties and/or prison terms. The penalties can range from treble damages plus attorneys fees to a maximum of one million dollars and ten years in prison.

The other choices are incorrect because the Sherman Antitrust Act does not prevent brokers from buying real estate, working with both parties, or representing the buyer.

36.

Which portion of a real estate contract of sale lists the amount of prepaid or unpaid taxes between the buyer and the seller?

  • Prorations

  • Loss

  • Earnest money

  • Assignment

Correct answer: Prorations

Prorations within a real estate contract of sale lists the amount of prepaid or unpaid property taxes between the buyer and the seller. Other examples of prorations include insurance, rents, fuel oil sitting in an onsite oil tank. Prorated payments are typically paid at closing.

Loss is incorrect because it would list who is responsible for casualty losses until the real estate contract of sale closes. Earnest money is incorrect because it states the amount of money the buyer is giving the seller as a good-faith deposit. Assignment is incorrect because it is the area within the contract where either party can assign the contract to someone else.

37.

A real estate contract is different than other contracts in the fact that it must contain which of the following?

  • Property description

  • Contingency

  • Earnest money

  • Liquidated damages

Correct answer: Property description

A real estate contract is different than other contracts in the fact that it must contain a property description. At the minimum, the property description in a real estate contract must provide an adequate description in order to identify the property. All contracts must contain mutual agreement, consideration, legally competent parties, and lawful purpose.

Contingency, earnest money, and liquidated damages are incorrect choices, as they are items that must only be included in a real estate contract if the involved parties require them to be, but they are not mandatory.

38.

An owner of an investment property has an agreement with a property management group to pay a 6% fee on the first $100,000 of received rental income, a 5% fee on $100,001- $150,000, and a 4% fee on the excess. If the gross income received was $215,000, what was the management fee?

  • $11,100

  • $8,600

  • $12,900

  • $10,600

Correct answer: $11,100

The management fee on $215,000 of gross income is $11,100. The management fee on the first $100,000 is $6,000: ($100,000 x 6% = $6,000). The management fee on the next $50,000 is $2,500: ($50,000 x 5% = $2,500). The management fee on the remaining $65,000 is $2,600: ($65,000 x 4% = $2,600). The combined management fee is $11,100: ($6,000 + $2,500 + $2,600 = $11,100).

39.

Tax basis is determined using which of the following?

  • Original cost plus capital improvements

  • Original cost plus capital improvements minus depreciation deductions

  • Original cost minus capital improvements

  • Original cost minus depreciation deductions

Correct answer: Original cost plus capital improvements

The original cost plus capital improvements is used to determine the tax basis.

The original cost plus capital improvements minus depreciation deductions is used to determine the adjusted tax basis, which is used as the starting point for determining if there was a loss or a gain on the sale of real property. The other options are incorrect because they are not used to determine the tax basis.

40.

Which of the following liens cannot be subordinated to a first mortgage?

  • Unpaid property taxes

  • Home Equity Line of Credit

  • Mechanics lien

  • Home equity loan

Correct answer: Unpaid property taxes

Liens for unpaid property taxes always take priority over other liens and cannot be subordinated (placed in lower priority to) to other liens, not even to a first mortgage. This is not the case with the other liens.

×