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Quiz Session - Attempts With Random Questions

National Real Estate Licensing Exam Questions

Page 4 of 35

61.

Since 1980, Phil has owned farmland upon which he has been burying farm equipment, tractor tires, and fuel tanks for years. He hires Honor the real estate agent to sell his land. Before marketing the property, Honor sits Phil down and tells him that he should check with which federal law that governs the installation, maintenance, monitoring, and failure of underground storage tanks?

  • LUST

  • CERCLA

  • SARA

  • CZMA

Correct answer: LUST

Honor is referring to the Leaking Underground Storage Tank (LUST) law, established in 1984, which governs the installation, maintenance, monitoring, and failure of underground storage tanks. LUST's purpose was to protect groundwater from leakage from underground fuel storage tanks. 

The other answer choices are incorrect.

62.

A broker protection clause protects a listing broker under what circumstance?

  • When a buyer who saw the property during the listing agreement returns to buy the property after the expiration of the listing agreement

  • Holds the broker harmless in the event than someone trips and falls during a showing

  • Protects the broker from liability if he fails to disclosure the existence of an underground storage tank on the premises

  • Protects the broker from having to co-broke with another broker

Correct answer: When a buyer who saw the property during the listing agreement returns to buy the property after the expiration of the listing agreement

A broker protection clause protects a listing broker when a buyer who saw the property during the listing agreement returns to buy the property after the expiration of the listing agreement.

The other options are incorrect.

63.

The preparation of an appraisal report is an eight-step exercise. What is the sixth step in the appraisal process?

  • Application of relevant valuation approaches

  • Reconciliation

  • Estimate land value

  • Analysis of highest and best use of land

Correct answer: Application of relevant valuation approaches

The preparation of an appraisal report is an eight-step exercise. The sixth step in the appraisal process is the application of relevant valuation approaches. The three approaches to value are developed in this step.

  • Cost approach
  • Sales comparison approach (formerly known as market approach)
  • Income capitalization approach

Occasionally, one or more of the three approaches is not applicable to the given property. In this case, the appraiser should state why the approach is not applicable. This can be determined only by careful analysis of the property being appraised in relation to the analytical tools available to the appraiser.

The Appraisal Process

  1. Definition of the problem
  2. Plan of appraisal
  3. Collection and verification of data
  4. Analysis of highest and best use of land
  5. Estimate land value
  6. Application of relevant valuation approaches (income capitalization, sales comparison, cost)
  7. Reconciliation
  8. Report of final value estimate

64.

A real estate agent does not owe which duty to her customer that she owes to a client?

  • Loyalty

  • Honesty

  • Fair dealing

  • Good faith

Correct answer: Loyalty

A real estate agent does not owe a duty of loyalty to customers. 

Although an agent does not have the fiduciary relationship with a customer, the agent still owes customers the duty to be honest and fair in her dealings with the customer and to act in good faith.

65.

Jamie is applying for a home equity loan. The lender does not want to incur an appraisal fee, so he asks Jamie for the size, age, location, and number of rooms that his house has in order to determine an estimated value using statistical techniques and comparable sales. This process best describes which of the following?

  • Automated Valuation Model (AVM)

  • Comparative Market Analysis (CMA)

  • Economic Value Evaluation (EVE)

  • Comparative Residential Market Analysis (RMA)

Correct answer: Automated Valuation Model (AVM)

This process best describes an Automated Valuation Model (AVM) because an AVM provides an estimated value of real property by using property data and applying statistical techniques to comparable sales.

Comparative Market Analysis (CMA) is incorrect because it provides a reasonable indication of what a property is valued at based on recent sales in the same neighborhood. Economic Value Evaluation (EVE) is incorrect because it is not an appraisal analysis/model used. Comparative Residential Market Analysis (RMA) is incorrect because it answers how the market is by describing the current condition of the real estate market.

66.

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 seller financing for 50% of the purchase price

  • Suggest that Bob applies for a VA loan

  • Advise Bill to find another buyer because it won't work

  • Advise Bill to do a short sale

Correct answer: Advise Bill to give Bob seller financing for 50% of the purchase price

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, 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.

67.

What is the person called whose job it is to arrive at the value of properties in the municipality for real estate tax purposes?

  • Town Assessor

  • Private Appraiser

  • County Clerk

  • Town Collector

Correct answer: Town Assessor

The assessor who represents the municipality appraises property values in the municipality for real estate tax purposes.

68.

Sometimes investors put money into a REIT when they want to have diversified real estate holdings. REIT represents which of the following?

  • Real Estate Investment Trusts

  • Real Estate Interest Trades

  • Real Estate Interest Taxes

  • Real Estate Investment Trades

Correct answer: Real Estate Investment Trusts

REIT represents Real Estate Investment Trusts. A REIT is most like a mutual fund. When real estate investors invest in a REIT, they own a part of a large property or diversified real estate holdings. REIT investments are managed by professional property and investment managers.

The other choices are incorrect because REIT represents Real Estate Investment Trusts, not Real Estate Interest Trades, Real Estate Interest Taxes, or Real Estate Investment Trades.

69.

Liability that is considered strict under the Superfund means which of the following?

  • The owners of the land at the time of contamination remain liable for violations resulting from the contamination even after they sell it

  • The EPA will bear full responsibility of the clean-up expense

  • Prior owners and operators of contaminated real estate can be held liable

  • All parties involved in the contamination of real estate are liable for the full cost

Correct answer: The owners of the land at the time of contamination remain liable for violations resulting from the contamination even after they sell it

Liability that is considered strict under the Superfund means that the individual who caused contamination bears liability regardless if it was done knowingly or reasonably. The Superfund refers to the 1986 Superfund Amendment (SARA) to the 1980 Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) enforced by the Environmental Protection Agency (EPA) introduced  innocent landowner immunity, which states that entities that acquire property and had no knowledge of the contamination at the time of purchase may be eligible for the "innocent landowner" (ILO) defense to Superfund liability if they conducted all appropriate inquiries (AAI) prior to purchase and complied with other pre- and post-purchase requirements. 

The EPA will bear full responsibility for the clean-up expense is incorrect because the EPA will only pay in extreme situations and in some cases, the EPA will simply render the contaminated real estate as worthless. Prior owners and operators of contaminated real estate can be held liable is incorrect because this is considered retroactive liability. All parties involved in the contamination of real estate are liable for the full cost is incorrect because this is considered joint and several liability.

70.

A two-story home has four bedrooms which are all upstairs. The only bathroom in the home is on the first floor. This is an example of:

  • Functional obsolescence

  • Physical obsolescence

  • Environmental obsolescence

  • None of these

Correct answer: Functional obsolescence

Functional obsolescence is a loss of value due to characteristics inherent in the structures themselves. This results in a decreased capacity of the improvements to perform the functions for which they were intended, in accordance with current standards and market tastes. Functional obsolescence consists of curable and incurable items.

  • Curable functional obsolescence: A deficiency that can be remedied through addition or modernization.
  • Incurable functional obsolescence: A deficiency that cannot be remedied.

In this example, a two-story home has four bedrooms which are all upstairs. The only bathroom in the home is on the first floor. If another bathroom could be added to the second floor, this would be a curable functional obsolescence.

71.

Owen bought an investment property for $500,000 and sold it to Bruce for $800,000. Alex was the broker in the transaction and received the traditional 6% broker's fee paid by Owen upon the closing of the sale. Owen's other selling expenses were equal to 2% of the sales price. What is Owen's net profit on the deal before income taxes?

  • $236,000

  • $300,000

  • $736,000

  • $252,000

Correct answer: $236,000

Owen's net profit on the deal before income taxes is $236,000. (($800,000 * .92) - $500,000)

72.

Chance purchased an investment property using a short-term adjustable rate mortgage because a fixed-rate mortgage was not an option for him at the time of purchase. This type of mortgage exposes Chance to which type of risk?

  • Interest rate risk

  • Property risk

  • Financial risk

  • Business risk

Correct answer: Interest rate risk

Chance is exposed to an interest rate risk because it is a risk that occurs when there is a chance that the interest rate on a loan will increase.

Business risk is incorrect because it is a risk that occurs when an investment has a chance that it will not perform as expected or when it requires more capital to keep it going. Property risk is incorrect because it is not a risk associated with real estate investments. Financial risk is incorrect because it 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.

73.

Stacey is a real estate agent marketing Heather's home whose asking price is $250,000, which is 70% of its appraised value. She is also marketing John's home for the same price, which is 90% of its appraised value. When evaluating both homes, Frank decides to buy Heather's home because his monthly payments will be lower on it than on John's. Assuming the real estate taxes, utilities, and insurance costs are identical, why are the monthly payments for Heather's home less than those for John's?

  • Heather's home requires no Private Mortgage insurance (PMI)

  • The interest rate on the mortgage for Heather's home will be less 

  • The bank will provide a 30 year loan on Heather's home, but only a 15 year loan on John's

  • Heather's home must have hidden monthly costs

Correct answer: Heather's home requires no Private Mortgage insurance (PMI)

Heather's home requires no Private Mortgage insurance (PMI) because, as the property's value is below 80%, PMI may be dropped. PMI insures and protects the lender against loss on the upper 20 to 25% portion of the loan. 

The other explanations are assumptions that may or may not be true.

74.

Which one of the choices below is not a legal status of a contract?

  • Construed

  • Valid but unenforceable

  • Void

  • Voidable

Correct answer: Construed

A construed contract is not a legal term. Construe means to interpret a contract. 

Contracts may be valid but unenforceable due to a variety of reasons, including under the Statute of Frauds that requires real estate contracts to be writing in order to be enforceable. A void contract is one that does not meet test for validity. A voidable contract is one that initially may appear to be valid, but may be rescinded due to incompetence by one of the parties entering into the contract.

75.

Value in exchange is most closely related to which of the following?

  • Market value

  • Value in use

  • Going-concern value

  • Assessed value

Correct answer: Market value

Value in exchange is the value of a commodity on the open market in arms-length transactions rather than to a specific person. Value in exchange is a more objective measure and is commonly identified with market value.

Value in use is subjective and is the worth of a property to a specific person or group of people. It takes into consideration the value of the property. For example, the use of a factory where planes are assembled may have a higher value to an airplane manufacturer than a widget manufacturer. At the same time, the market value of the same property may be low because it's specialized and there are relatively few customers for an airplane manufacturing facility.

Going-concern value is the worth of a business, such as a restaurant, based on its operations. the replacement cost of the property may be much more or much less than the business is worth.

Assessed value (assessed valuation) is the value of property established for property tax purposes.

76.

What is used to determine a property’s assessed value?

  • Appraised valuation and assessment ratio

  • Appraised valuation and tax rate

  • Assessment ratio and tax rate

  • Assessment ratio and tax deductions

Correct answer: Appraised valuation and assessment ratio

To determine a property’s assessed value, the assessment ratio is applied to the appraised valuation. Once the assessed value is determined, the tax rate is applied to it to determine the tax due.

The other choices are incorrect because the property’s assessed value is determined by use of the appraised valuation and the assessment ratio, not the tax rate or tax deductions.

77.

Radon is a radioactive material found in which of the following?

  • Air and soil

  • Air only

  • Water only

  • Soil only

Correct answer: Air and soil

Radon is a radioactive material found in air and soil. Property or areas that have been subject to high concentrations of radon gas have been linked to lung cancer after long-term exposure.

Radon is found in air and soil, not only air, water, or soil.

78.

The Government National Mortgage Association (GNMA or Ginnie Mae) is classified as which of the following?

  • A U.S. government entity

  • A privately owned corporation

  • A federally chartered organization

  • A USDA rural development agency

Correct answer: A U.S. government entity

The Government National Mortgage Association (GNMA or Ginnie Mae) is a U.S. government entity. GNMA promotes low-income housing by guaranteeing FHA and VA loan packages.

Federal National Mortgage Association (FNMA or Fannie Mae) is a federally chartered organization. Federal Home Loan Mortgage Corporation (FHLMC or Freddie Mac) is classified as a privately owned corporation. Farmers Home Administration (FmHA) is a USDA rural development agency.

79.

Easements can add value to real estate in all except which of the following situations?

  • When used to indicate flood plains

  • When used to generate income

  • When used to attract desired utilities

  • When used to provide access to other properties

Correct answer: When used to indicate flood plains

When easements are used to indicate flood plains, the easement may detract from the property’s value. Easements that cause nuisances or prevent alternative profitability detract from the property’s value.

Easements can add value to real estate when they are used to generate income, attract desired utilities, and provide access to other properties.

80.

Kyle borrows $50,000 on a 15-year mortgage loan payable at 6% interest per year. Kyle’s payments are $355.75 per month. How much interest will Kyle pay in the first three months of his mortgage loan?

  • $748.41

  • $750.00

  • $500.01

  • $166.67

Correct answer: $748.41

Kyle will pay $748.41 in interest during the first three months of the mortgage loan.

To find the interest paid, you will first need to determine the monthly interest rate by dividing the annual rate of 6% by 12 to get a monthly interest rate of 0.5% (6%/12 = 0.5%).

Now you will be able to determine the interest paid for the first month, which is 0.005 x $50,000 = $250.00. After the interest is paid, there remains $355.75 - $250.00 = $105.75 to be used to reduce the loan. This means that the loan balance for the second month is $50,000.00 - $105.75 = $49,894.25. Now you will be able to determine the interest paid for the second month, which is 0.005 x $49,894.25 = $249.47. After the interest is paid, there remains $355.75 - $249.47 = $106.28 to be used to reduce the loan. This means that the loan balance for the third month is $49,894.25 - $106.28 = $49,787.97. Now you will be able to determine the interest paid for the third month, which is 0.005 x $49,787.97 = $248.94. This makes the total interest paid for the first three months of the loan $250.00 + $249.47 + $248.94 = $748.41.

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