×

Quiz Session - Attempts With Random Questions

National Real Estate Licensing Exam Questions

Page 5 of 35

81.

Dan has decided to sell his house and move closer to his work. Which statement is true in regard to Dan selling his home?

  • Dan can sell his house on his own or employ an agent

  • Dan must employ an agent to sell his house

  • Dan will be required to list his home with a realtor

  • Dan will need to find a buyer who has a buyer brokerage agreement

Correct answer: Dan can sell his house on his own or employ an agent

Dan may sell his house on his own or he may employ an agent to assist him with the sale of his house.

It is false to state that Dan must employ an agent to sell his house or Dan will be required to list his home with a realtor because it is not required to commission a broker to sell real estate. It is also false to state that Dan will need to find a buyer who has a buyer brokerage agreement because a brokerage agreement is not needed to conduct a real estate transaction.

82.

When Sandy’s house was built, the area was zoned residential. Now, the area is zoned commercial. Which statement is true?

  • Sandy may continue to live in the house because doing so constitutes a legal nonconforming use

  • Sandy will need to be granted a variance to continue living in the house

  • Sandy’s house can now only be used for commercial purposes

  • Sandy will need to sell her house and move to a residential area

Correct answer: Sandy may continue to live in the house because her use constitutes a legal nonconforming use

Sandy may continue to live in the house because her doing so is a nonconforming use. However, if she sells her house, any use post-sale must conform to the new zoning regulations.

The other choices are incorrect because Sandy will not need to be granted a variance because she is not requesting changes to the property. She is permitted to still live in her house without using it for commercial purposes, and she will not need to sell her house.

83.

Which of the following best describes investment value?

  • Present worth of anticipated future benefits

  • Value in exchange

  • Market value

  • Cost of acquiring a competitive substitute property with the same utility

Correct answer: Present worth of anticipated future benefits

Investment value is the estimated value of a specific real estate investment to an investor. The value may be greater than or less than market value depending on the investor's particular situation.

Because investment value depends on an investor’s investment objectives, investment value is unique to the investor. As such, different investors can apply the same valuation methods and still come up with different investment values for the same real estate. Investors can choose from a variety of valuation methods when determining investment value, unlike appraisers who have to adhere to strict procedural guidelines.

84.

Land must have all except which of the following completed in order to be considered a site?

  • Finished structure

  • Connected utilities

  • Cleared

  • Graded

Correct answer: Finished structure

A site does not have to have a finished structure because it is land ready to be built on.

Land must be cleared, graded, and have the utilities connected in order for it to be called a site. An appraiser will generally estimate the site’s value as part of the cost approach.

85.

Under the Truth in Lending Act (TILA), what disclosures are real estate agents required to make to home buyers?

  • Real estate agents are not covered by the TILA

  • Disclose the costs of the deal

  • Disclose who the agent is representing in the transaction

  • Disclose to buyers their right of rescission

Correct answer: Real estate agents are not covered by the TILA

Under the Truth in Lending Act, real estate agents are not required to make disclosures to home buyers, because the Truth in Lending Act applies to loans secured by a residence, not to the purchase and sale of homes. Regulation Z lenders must disclose all finance charges as well as the true APR prior to the loan closing; borrowers have the right of rescission, which is the right to cancel the loan transaction within about three days of the completion of the loan transaction. While agents have the duty to disclose which party they are representing in a transaction, this is not due to the TILA.

86.

If a broker sells a house for $412,000 and receives a commission of $22,660, what is the commission rate?

  • 5.5%

  • 18.18%

  • 7.8%

  • 9.9%

Correct answer: 5.5%

The commission rate is 5.5%. To find the commission rate, divide the commission by the sale price: $22,660/$412,000 = 0.055, or 5.5%.

87.

A buyer finds a home for a great value in an undesired area, but the buyer is willing to take the chance because the house is perfect for his needs. However, when trying to obtain financing to purchase the home, the lender refuses to lend money on the house due to the area in which it is located. This illegal practice is known as which of the following?

  • Redlining

  • Blockbusting

  • Steering

  • Gatekeeping

Correct answer: Redlining

This is an example of redlining, as redlining occurs when lenders refuse to lend money to borrowers purchasing homes in a particular area.

Steering is incorrect because it occurs when a broker or a salesperson only shows or refuses to show, homes located in particular areas due to race, color, religion, sex, national origin, familial status, or handicap. Blockbusting is incorrect because is occurs when brokers or salespersons try to profit from deliberately causing fear or panic in order to get homeowners to sell their homes at a reduced value in order for the broker or salesperson to turn around and sell them at a high price. Gatekeeping is incorrect because it is not a term used to describe illegal practices in real estate.

88.

Junior calls up Remy the real estate broker about his $75,000 property. Junior is an ambitious first-time investor. He tells Remy, "I've got $15,000 and perfect credit. I'd like to offer full price for it." "Okay. I'll submit the offer," says Remy.  In one word, why does Remy think Junior can buy the property?

  • Leverage

  • Usury

  • Underwriting

  • Equity

Correct answer: Leverage

Remy thinks Junior can buy the property because of leverage, which is the use of borrowed money to finance the bulk of an investment. In this case, (assuming he's telling the truth) because Junior has perfect credit and 20% down payment, it's likely that Junior can obtain a loan, leverage his down payment, and buy the property. 

Usury (the charging of illegally high interest rates) is incorrect. Underwriting (the process of investigating the financial capabilities and creditworthiness of a prospective borrower) is part of the process of lending. Equity is the portion of a property's value owned by the legal owner above the amount borrowed.

89.

The gross rent multiplier is an indicator used for short-term analysis when making the decision to invest in real estate. What is the formula used for the gross rent multiplier?

  • Price of the property / Gross rent

  • Gross rent x Number of months rented

  • Price of the property / Number of months rented x Gross rent

  • (Gross rent – Rent expenses) x 12

Correct answer: Price of the property / Gross rent

The formula used for the gross rent multiplier is: Price of the property / Gross rent. A lower gross rent multiplier number signifies that the investor is paying less for the gross income of the investment property.

The other choices are incorrect because they do not represent the formula used for the gross rent multiplier.

90.

Rose, the real estate agent, has a house for sale. As an experienced agent, Rose knows that it is smart to screen potential buyers before she takes the time to show them the property. Since the majority of her buyers will need a mortgage, and the majority of available mortgages are qualified mortgages, she wants to only show the house to potential buyers with how much debt? 

  • Less than 43% of their monthly pre-tax income going toward debt service

  • Less than 43% of their net monthly income going toward debt service

  • At least 28% of their monthly pre-tax income going toward debt service

  • There's no specific income to debt ratio. Other facts, like credit history and employment, are just as important.

Correct answer: Less than 43% of their monthly pre-tax income going toward debt service

A qualified mortgage is one that meets the "ability-to-repay" requirements. The monthly debt requirement of borrowers is that less than 43% of their monthly pre-tax income goes toward debt service. Qualified mortgages also disallow interest-only mortgages, negative amortization loans (where principal increases over time), balloon mortgages, loan terms of longer than 30 years and excessive upfront lender fees and points. 

The other choices are incorrect.

91.

Daisy owns her home and she decides that she wants to take out a home equity line of credit. So, she calls her bank and arranges for one. The loan agent comes to her home and Daisy signs all the mortgage paperwork on Friday, but the bank forgot to provide her with the disclosures. Until when can Daisy decide to rescind the loan?

  • At any time before she accepts the money

  • Wednesday at midnight

  • Monday at midnight

  • She can’t rescind the loan once she’s signed all the loan documents

Correct answer: At any time before she accepts the money

Daisy can decide to rescind the loan any time before she accepts the money because Regulation Z of the Truth in Lending Act gives borrowers the right to rescind a loan until midnight of the third business day after the transaction or until delivery of the disclosure statement, whichever is later. Since she did not receive the disclosure statements, her ability to rescind is not time-limited. 

92.

Adam passed away without a will and without heirs, so the state took ownership of Adam’s real estate. This is known as which of the following?

  • Escheat

  • Intestate succession

  • Eminent domain

  • Homestead

Correct answer: Escheat

When an individual passes away without a will or without heirs, his/her real estate escheats to the state.

Intestate succession is incorrect because it occurs when an individual passes away without a will but has an heir who is given the decedent’s real estate. Eminent domain is incorrect because it refers to the government’s right to take private property for public use. Homestead is incorrect because it refers to the protection of a family’s primary residence from creditors.

93.

When investing in real estate, the investor should understand that it could sometimes be difficult and require a lot of time to sell the investment. What compensates the investor for this difficulty?

  • Liquidity premium

  • Market premium

  • Management premium

  • Risk premium

Correct answer: Liquidity premium

A liquidity premium is what compensates the investor for the difficulty and time required to sell 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. Management premium is incorrect because it is what compensates the investor for the burden of monitoring and making decisions regarding the real estate investment.

94.

A municipality’s zoning information includes which of the following?

  • Zoning map and zoning ordinance

  • Zoning map and zoning variance

  • Zoning ordinance and zoning variance

  • Zoning map, zoning ordinance, and zoning variance

Correct answer: Zoning map and zoning ordinance

A municipality’s zoning information includes a zoning map and a zoning ordinance. The zoning map provides a visual of each parcel within the municipality. The zoning ordinance is a document that lists what is allowed and not allowed of each zoning category.

Zoning variance is incorrect because it does not provide information regarding a municipality’s zoning; it is what’s used to waive a minor zoning violation.

95.

David has given Roger the right to hunt on his property for one week. What is this right known as?

  • License

  • Interest

  • Prescriptive 

  • Freehold

Correct answer: License

David has given Roger a license to hunt on his property for one week. A license is the right to use someone’s land for a special purpose.

Interest is incorrect because it is when one owns the right to use land. Prescriptive is incorrect because it refers to an easement that is granted through adverse possession. Freehold is incorrect because it is when one has the right to use real estate without a predetermined termination date.

96.

A feasibility analysis is performed on investment properties for which of the following reasons?

  • To test market conditions and the financial viability of the potential investment

  • To identify and analyze the current supply and demand conditions for specific areas

  • To provide a reasonable indication of what a property is valued at based on recent sales in the same vicinity

  • To provide an estimated value of real property by using property data and applying statistical techniques on comparable sales

Correct answer: To test market conditions and the financial viability of the potential investment

A feasibility analysis is performed on investment properties to test market conditions and the financial viability of the potential investment. A feasibility analysis determines if the cost of the investment can be maintained at a price that will meet the investment goals.

A market analysis is performed to identify and analyze the current supply and demand conditions for specific areas. An Automated Valuation Model (AVM) provides an estimated value of real property by using property data and applying statistical techniques to comparable sales. Comparative Market Analysis (CMA) provides a reasonable indication of what a property is valued at based on recent comparable sales in the same vicinity.

97.

In most jurisdictions, unless it states otherwise in the listing agreement, when is a broker's fee of a residential sale due?

  • When the broker produces a ready, willing and able buyer at the listing price

  • Upon closing

  • After the buyer's funds clear the seller's bank

  • When the buyer records the deed

Correct answer: When the broker produces a ready, willing and able buyer at the listing price

In most jurisdictions, a broker's fee of a residential sale is due when the broker produces a ready, willing and able buyer at the listing price. In this case, the broker's fee is due whether or not the sale occurs. 

Unless otherwise stated in the listing agreement, the other answers are incorrect.

98.

The process in which lenders assess the risks involved with lending money to a buyer is known as which of the following?

  • Underwriting

  • Assessment

  • Approval process

  • Risk analysis

Correct answer: Underwriting

The process in which lenders assess the risks involved with lending money to a borrower is known as underwriting. During the underwriting process, the lender will look at the property and the borrower. The lender will assess the property’s value, location, and condition. Then the lender will check the borrower's credit history, employment history, salary, assets, and liabilities.

The other choices are incorrect because the term used to describe the assessment lenders perform when lending money is called underwriting, not assessment, approval process, or risk analysis.

99.

Carl sells his real estate to Jane using a contract for deed. Which statement is true in regard to the use of a contract for deed?

  • Jane does not obtain ownership of the real estate until she makes the final payment to Carl

  • Jane receives ownership of the real estate once Carl delivers the deed and she accepts it

  • Jane and Carl both have ownership in the real estate until Jane pays her mortgage in full

  • Carl maintains ownership of the real estate, and Jane is permitted to use the real estate for a specific amount of time

Correct answer: Jane does not obtain ownership of the real estate until she makes the final payment to Carl

It is true that Jane does not obtain ownership of the real estate until she makes the final payment to Carl. A contract for deed is used when the seller finances the sale of the real estate. When using a contract for deed, the seller will maintain ownership of the real estate until the buyer makes the final payment. A contract for deed is also referred to as an installment sale contract, a conditional sales contract, and an agreement for deed.

The other statements are all false in regard to the use of a contract for deed because Jane and Carl would not both have ownership, Jane would not automatically receive ownership, and Jane would not only be permitted to use the real estate for a specific amount of time.

100.

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

  • Reconciliation

  • Report of final value estimate

  • Application of relevant valuation approaches

  • Estimate land value

Correct answer: Reconciliation

The preparation of an appraisal report is an eight-step exercise. The seventh step in the appraisal process is reconciliation. All three valuation approaches from the seventh step utilize market data. Data and conclusions from one approach are often used in one or more of the other approaches. Results should fall within a narrow range if good data is available for application of all three approaches.

Accuracy, reliability, and pertinence of the information available for each approach are factors considered in the final estimate of value. The reconciliation of value includes three major considerations:

  • Which approach has the best data
  • Which is the most likely to be free of error
  • Which is the most reliable for the type of property being appraised

The Appraisal Process

  1. Define the problem
  2. Plan the appraisal
  3. Collection and verification of data
  4. Analyze and interpret data
  5. Estimate property value
  6. Application of relevant valuation approaches (income capitalization, sales comparison, cost)
  7. Reconciliation
  8. Report of final value estimate
×