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Quiz Session - Attempts With Random Questions

National Real Estate Licensing Exam Questions

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41.

If a borrower has more than one loan on his house, what determines which loan is considered the first mortgage?

  • The date the mortgage was recorded at the county courthouse

  • The dollar amount of the mortgage loan

  • The type of lending institute that originated the mortgage

  • If the loan is an FHA loan

Correct answer: The date the mortgage was recorded at the county courthouse

The date the mortgage was recorded at the county courthouse is one of the determining factors to determine which loan is considered the first mortgage and which loan is considered the junior mortgage. The mortgage that was recorded first is usually considered the first mortgage. However, other factors may come into play, such as the lien's categorization as superior or junior. The first mortgage has priority if the property enters into foreclosure.

The other choices are incorrect because they are not factors that determine which loan is considered the first mortgage.

42.

Townships are divided into one-mile squares. How many square miles are in a township?

  • 36

  • 18

  • 6

  • 72

Correct answer: 36

There are 36 square miles in a township. There are 36 sections in a township, and each section is one square mile, which makes each township 36 square miles.

The other choices are incorrect because there are 36 square miles in a township, not 6, 18, or 72.

43.

In regard to the undivided interests in common areas of condominiums, which statement is true?

  • Each condo owner owns a share of the common area and may use it in conjunction with all other condo owners

  • Each condo owner owns a share of the common area and may use it at assigned times without the interference of other condo owners

  • Each condo owner has the right to accept or reject the ownership of common areas

  • Each condo owner pays for the use of the common area based on how much they use it during the month

Correct answer: Each condo owner owns a share of the common area and may use it in conjunction with all other condo owners

In regard to the undivided interests in common areas of condominiums, it is true that each condo owner owns a share of the common area and may use it in conjunction with other condo owners. The areas considered common areas at condominiums include the exterior walls, recreational facilities, pavilions, gathering places, walkways, and elevators.

The other choices are all false because condo owners own a share of the common area and may use it whenever they wish; therefore, they are generally not assigned times, they do not pay for only the time they use it, and they do not have the right to accept or reject the ownership of common areas.

44.

The location of investment real estate is a key aspect of its success. Which type of property would be the most successful when located in high traffic areas near areas in which people live and work?

  • Stores and shopping centers

  • Residential properties

  • Office buildings

  • Industrial properties

Correct answer: Stores and shopping centers

Stores and shopping centers are investment properties that would be the most successful when located in high traffic areas near areas in which people live and work.

Residential investment properties would be the most successful when located in low traffic areas close to jobs, shopping, and good schools. Office buildings are investment properties that would be the most successful when located in downtown areas close to business activities. Industrial investment properties would be the most successful when located near highways, waterways, and rail lines because they require good transportation.

45.

Which type of special warranty deed is used to transfer a deceased individual’s property to his heirs?

  • Executor's deed

  • Referee’s deed

  • Trustee’s deed

  • Sheriff’s deed

Correct answer: Executor's deed

An executor's deed is a type of special warranty deed used to transfer a deceased individual’s property to his heirs.

A referee’s deed is a type of special warranty deed used to transfer property in foreclosure. A trustee’s deed is a type of special warranty deed used to transfer property from a trust. A sheriff’s deed is a type of special warranty deed used to transfer property sold during a sheriff’s sale.

46.

Johnson purchased a building for $500,000. How much income will Johnson’s building need to produce annually in order to give a 12% return on his money?

  • $60,000

  • $75,000

  • $30,000

  • $15,000

Correct answer: $60,000

Johnson’s building will need to produce $60,000 annually in order to give him a 12% return on his money. The building needs to produce 12% of $500,000: 0.12 x $500,000 = $60,000.

47.

Which method of measuring reproduction cost or replacement cost lumps overhead, insurance, and profit together and itemizes the cost of each type of material used in the structure?

  • Quantity survey

  • Comparative unit

  • Segregated cost

  • Unit-in-place

Correct answer: Quantity survey

Quantity survey is the method of measuring reproduction cost or replacement cost that lumps overhead, insurance, and profit together and itemizes the cost of each type of material used in the structure.

Unit comparison method is the method of measuring reproduction cost or replacement cost that lumps all components of a structure together to determine the total cost per square foot. Segregated cost is the method of measuring reproduction cost or replacement cost that lumps fixtures and equipment together and considers the components of the foundation, floor, ceiling, roof, and heating system as major functional parts. Unit-in-place is the method of measuring reproduction cost or replacement cost that lumps equipment and fixtures together and measures the installed unit cost of each component.

48.

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. If Billy brings a buyer and they make a deal for $575,000, how much less would Alex's net commission be than if he had brokered a direct deal for the same amount?

  • $5,750

  • $0

  • $8,625

  • $2,875

Correct answer: $5,750

If Billy brings a buyer and they make a deal for $575,000, Alex's net commission would be $5,750 less than if he had brokered a direct deal for the same amount. The other choices are incorrect because the gross commission if Alex did a direct deal is 5% of the sales price and Standard Brokerage gets half of that commission and then Alex gets the other half: (($575,000 * .05) * (.25)). If Billy brings a buyer then the commission is 6%: (($575,000 * .06) * (.25)).

49.

Jackie is a real estate agent hired by Dov the developer to sell his fix and flip houses. Dov’s model is to buy existing homes, renovate them quickly, adding new bathrooms and kitchens, and sell them at a profit. Most of Dov’s homes are older, and Jackie is aware that they may contain things like asbestos, buried oil tanks, and lead paint. Which of the below choices is Jackie not obligated do?

  • Call the authorities and tell them that Dov is flipping potentially hazardous homes

  • Ask Dov about the existence of environmental hazards in his houses or specific properties where she suspects they're present

  • Prepare answers to questions from potential buyers about environmental conditions of the properties

  • Research any questions she may have about potential environmental hazards on the properties

Correct answer: Call the authorities and tell them that Dov is flipping potentially hazardous homes

Jackie is not obligated to call the authorities and tell them that Dov is flipping potentially hazardous homes unless she reasonably suspects that he is doing so and he is not disclosing this information to potential buyers and not allowing her to do the same. Real estate agents must be alert to the possibility of the presence of pollution and hazardous substances in properties that they are selling. However, unless she is aware that Dov is actually doing something illegal, she should not call the authorities.

50.

What type of loans are not covered under Regulation Z of the Truth in Lending Act (TILA)?

  • Commercial real estate loans

  • Home loans over $750,000

  • Home equity lines of credit (HELOCs)

  • First time mortgages

Correct answer: Commercial real estate loans

Commercial real estate loans are not covered under Regulation Z of the Truth in Lending Act (TILA). TILA covers loans to individuals for all real estate credit transactions for personal, family and household purposes with no cap on loan amount. Commercial loans and or agricultural loans over $25,000 are not covered. The other loans are covered.

51.

Teresa is selling her home to Edward, and Edward is going to assume Teresa’s mortgage. Teresa uses a novation contract to transfer the mortgage obligation from her to Edward. Who must sign and accept the novation?

  • Teresa, Edward, and the lender

  • Teresa and Edward

  • Teresa and the lender

  • Edward and the lender

Correct answer: Teresa, Edward, and the lender

Teresa, Edward, and the lender must sign and accept the novation before Teresa’s obligation to the mortgage can be removed and Edward’s obligation to the mortgage can be added. Novation is a technique used either to substitute a new contact for an existing contract between the same parties or to replace one party for a new party in an existing contract. Novation terminates the old contract and creates a new contract.

The other choices are incorrect because all parties must sign and accept a novation.

52.

Which option best describes an exclusive agency listing?

  • The listing agent will be paid the commission even if another agent finds the buyer

  • The agent who finds a buyer will be compensated

  • The listing agent will be paid the commission even if the principal or another agent finds the buyer

  • The agent only receives commission if the real estate sells for more than what the principal asks for

Correct answer: The listing agent will be paid the commission even if another agent finds the buyer

When a principal signs an exclusive agency listing with an agent, the principal will pay the listing agent the commission even if another agent finds the buyer. In an exclusive agency listing, the principal does not have to pay a commission to the agent if the principal finds his or her own buyer. Exclusive agency listings are different from open listings in that the principal hires a single agent to represent him in the marketing of the property. Open listings allow principals to hire multiple brokers.

An open listing is one in which the agent will only be compensated when he or she finds a buyer. An exclusive-right-to-sell listing is one in which the listing agent will be paid the commission even if the principal or another agent finds the buyer. A net listing is one in which the agent only receives commission if the real estate sells for more than what the principal asks for.

53.

If a broker sells a house and receives a commission of $15,600, which is 6% of the sale price, what is the sale price?

  • $260,000

  • $225,000

  • $315,000

  • $290,000

Correct answer: $260,000

The sale price of the house was $260,000. To find the sale price, divide the commission by the commission rate: $15,600/0.06 = $260,000. As a check: $260,000 x 0.06 = $15,600, which is the commission.

54.

John signed a contract to purchase real estate from George. The contract stated that John had 30 days to obtain financing and, if he was not able to obtain financing in 30 days, he owed George one thousand dollars. This is an example of which of the following?

  • Liquidated damages

  • Earnest money

  • Specific performance

  • Due diligence

Correct answer: Liquidated damages

When a contract states that the buyer owes the seller a specified amount of money if something transpires, and that such amount is agreed upon in place of actual damages, it is an example of liquidated damages. Liquidated damages are used within contracts to define penalties for failing to satisfy specific elements of the contract. A liquidated damages clause is most common in a real estate sales contract stating the if the buyer fails to perform the contract, the buyer forfeits his earnest money as liquidated damages and the seller accepts the damages as his entire compensation for the buyer's failure to perform and will not sue for additional damages. Liquidated damages avoid the necessity to settle damages via a lawsuit. 

Earnest money is incorrect because it is money provided by the buyer to the seller or broker to show good faith. Specific performance is incorrect because it is a legal solution that the buyer seeks in order to encourage the seller to complete the contract. Due diligence is incorrect because it is the process in which the buyer verifies that the real estate is in the stated condition.

55.

An owner of an investment property has an agreement with a property management group to pay a 5.5% fee on the first $75,000 of received rental income and a 4.5% fee of the excess. If the gross income received was $125,000, what was the management fee?

  • $6,375

  • $6,875

  • $5,625

  • $4,125

Correct answer: $6,375

The management fee on $125,000 of gross income is $6,375. The management fee on the first $75,000 is $4,125 ($75,000 x 5.5% = $4,125). The management fee on the excess of $75,000 is $2,250 [($125,000 - $75,000) x 4.5% = $2,250]. The combined management fee is $6,375 ($4,125 + $2,250 = $6,375).

56.

Ashlee has a loan on her house in which she pays interest and some principal during its term, but once the loan matures, Ashlee will still have a balance that needs to be repaid. Which type of loan does this best describe?

  • Balloon payment loan

  • Term loan

  • Fully amortizing loan

  • Bridge loan

Correct answer: Balloon payment loan

Ashlee has a balloon payment loan because it is a loan that requires the borrower to pay interest and some principal during the term but, once the loan matures, the borrower will still have a balance that needs to be repaid.

Term loan is incorrect because it is a loan in which the borrower only has to pay interest until the loan matures, but once the loan matures, the borrower will owe the entire principal balance. Fully amortizing loan is incorrect because it is a loan that requires the borrower to pay monthly installments of principal and interest and, once the loan matures, the loan will be paid in full. Bridge loan is incorrect because it is a loan used to cover the time between a construction loan and a permanent loan.

57.

Under Section 1031 of the Internal Revenue Code, how long does a seller of real estate have to identify a replacement property?

  • 45 days from the closing of the old property

  • 90 days from the closing of the old property

  • 180 days from the closing of the old property

  • 30 days from the closing of the old property

Correct answer: 45 days from the closing of the old property

Section 1031 provides the seller of real estate 45 days from the closing of the old property to identify a new replacement property. Section 1031 of the Internal Revenue Code allows for taxes to be deferred on the gain from the sale of real estate.

The seller has 180 days to close on the new property. The other choices are incorrect because the seller has 45 days to identify a new replacement property, not 30 days or 90 days.

58.

Tammy purchased her house for $130,000 and sold it a few years later for $165,000. What was Tammy’s rate of profit?

  • 26.92%

  • 21.21%

  • 78.78%

  • 61.32%

Correct answer: 26.92%

Tammy’s rate of profit is 26.92%.

To find the rate of profit, you will first need to find the dollar value of profit: $165,000 - $130,000 = $35,000. Then you will need to determine what the percentage portion of the dollar value is of the purchase price: $35,000 / $130,000 = 26.92%.

59.

A rate or ratio that relates net operating income (NOI) to the value of income property is the:

  • Capitalization rate

  • Depreciated cost factor

  • Effective gross income factor

  • Equity yield rate

Correct answer: Capitalization rate

Capitalization rate (cap rate) is the rate of return used to convert anticipated future income into a capital value. The capitalization rate includes interest and principal recovery.

The capitalization rate is the ratio of Net Operating Income (NOI) to property asset value. For example, if a property was listed for $1,000,000 and generated an NOI of $100,000, then the capitalization rate would be $100,000/$1,000,000, or 10%.

60.

The Johnsons used a conforming conventional mortgage to purchase their new single-family home. Which statement is true in regard to the Johnsons' mortgage?

  • The mortgage meets FHLMC or FNMA guidelines

  • The mortgage is guaranteed by the VA

  • The mortgage is insured by the FHA

  • The mortgage was for an amount greater than $500,000

Correct answer: The mortgage meets FHLMC or FNMA guidelines

It is true a conforming conventional mortgage meets FHLMC or FNMA guidelines. A conforming conventional mortgage means the maximum loan amount for the single-family home is $510,400 (as of 2020), which follows FHLMC or FNMA guidelines. High cost areas, such as Los Angeles and New York City may have higher loan limits up to $765,000.

Conventional mortgages are not guaranteed by the VA, and they are not insured by the FHA. A conventional mortgage would be called a “jumbo” mortgage, not a “conforming” mortgage, if it was for an amount greater than $500,000.

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