×

Quiz Session - Attempts With Random Questions

National Real Estate Licensing Exam Questions

Page 6 of 35

101.

Which sector of the government enacts and enforces most zoning laws?

  • Local government

  • State government

  • Federal government

  • County government

Correct answer: Local government

Cities, towns and villages enact and enforce zoning bylaws. 

The other choices are incorrect because the state, federal and county governments do not typically enact and enforce zoning laws.

102.

Which statement is true in regard to the annual debt service of an amortized mortgage loan?

  • The annual debt service cannot be lower than the interest due on the loan’s principal balance

  • The longer the amortization term, the higher the annual debt service will be

  • The higher the annual debt service, the greater the annual cash flow an investor will have

  • The annual debt service cannot be higher than the interest due on the loan’s principal balance

Correct answer: The annual debt service cannot be lower than the interest due on the loan’s principal balance

It is true that the annual debt service cannot be lower than the interest due on the loan’s principal balance. This is true because if the annual debt service is lower than the interest due, then the mortgage loan would not amortize, which means the investor would still owe a balance at the end of the loan’s term. Due to this reason, the amortization term on a mortgage loan should not be greater than 30 years.

The other statements are all false in regard to the annual debt service of an amortized mortgage loan. The longer the amortization term, the lower (not higher) the annual debt service will be. The investor will have less annual cash flow (not more) the higher the annual debt service is. The annual debt service should be higher than the interest due on the loan’s principal balance.

103.

In order to be enforceable by law, the Statute of Frauds mandates which of the following?

  • Leases for one year or more must be in writing

  • All leases must be in writing

  • Leases must be acknowledged by a notary public

  • Leases must be witnessed by two individuals who are not parties to the lease

Correct answer: Leases for one year or more must be in writing

In order to be enforceable by law, the Statute of Frauds mandates that certain contracts must be in writing in order to be enforceable. Real estate contracts that convey an interest in real estate fall under the Statute of Frauds. Leases with a term of less than one year are an exception to the Statute. Leases for one year or more must be in writing. Some states allow leases for a period of less than a year to be verbal agreements while other states require all leases to be in writing. Regardless, it is a good idea to always have a written agreement.

The Statute of Frauds does not mandate all leases be in writing. Some states require leases to notarized or witnessed.

104.

A new housing development project has restrictive covenants, which may regulate all except which of the following?

  • Nationality of owner

  • Type of siding used

  • Number of structures

  • Height of fence

Correct answer: Nationality of owner

Restrictive covenants are restrictions in addition to the zoning law, and they are not permitted to discriminate based on nationality or other protected classes.

Restrictive covenants are permitted to regulate the type of siding used, the number of structures on a lot, and the height of the fence. Restrictive covenants can place restrictions on how the land is used.

105.

A contractor built a garage for a landowner who has yet to pay for the work completed. What type of lien may the contractor place against the property?

  • Mechanic’s lien

  • Mortgage lien

  • Contractor’s lien

  • Tax lien

Correct answer: Mechanic’s lien

A contractor may put a mechanic’s lien against a piece of real estate when the landowner hasn’t paid for services rendered by the contractor.

A mortgage lien is incorrect because it is a lien placed on real estate by a financial institute that has given the landowner money to finance the purchase of the real estate. Tax lien is incorrect because it is a lien placed on real estate by the county for property taxes owed on the real estate. Contractor’s lien is incorrect because a contractor would use a mechanic’s lien to place a lien on real estate.

106.

A Hispanic couple hires a broker to find them a house. The broker looks at the demographics of particular neighborhoods and finds two that have higher percentages of Hispanics, as he feels his clients would be more comfortable in these two neighborhoods. Which statement is true?

  • The broker is performing an illegal practice known as steering

  • The broker is performing his due diligence

  • The broker is adequately performing his duties

  • The broker is performing an illegal practice known as redlining

Correct answer: The broker is performing an illegal practice known as steering

A broker is steering if he directs clients to particular neighborhoods that they would feel more comfortable in because of demographics. Steering 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. Steering is an illegal practice.

The other choices are incorrect because the broker is guilty of steering. It is not considered due diligence or performance of duties if the broker is partaking in an illegal practice. Redlining is incorrect because it is an illegal practice that occurs when lenders refuse to lend money in a particular area.

107.

Property or areas that have been subject to high concentrations of radon gas have been linked to which of the following?

  • Lung cancer after long-term exposure

  • Migraine headaches

  • Rotten-egg odors

  • Soil erosion

Correct answer: Lung cancer after long-term exposure

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 a radioactive material found in air and soil.

Radon gas is not linked to migraine headaches, rotten-egg odors, or soil erosion.

108.

Barak, the buyer's agent, is hired by Nathalie, the first time buyer, to find her a new home to buy. They talk mortgages. Barak takes his fiduciary duties seriously and advises her to apply for only what kind of mortgage that meets the "ability-to-repay" requirements of Regulation Z?  

  • Qualified mortgage

  • First time home buyer mortgage

  • Interest-only mortgage

  • A balloon mortgage

Correct answer: Qualified mortgage

A qualified mortgage is one that meets the "ability-to-repay" requirements under Regulation Z of the Truth in Lending Act. 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 answer choices are incorrect.

109.

When interest rates are low, the lender will generally limit the loan amount by which of the following?

  • Loan-to-value ratio

  • Debt coverage ratio

  • Return rate ratio

  • Purchase rate ratio

Correct answer: Loan-to-value ratio

When interest rates are low, the lender will generally limit the loan amount by the loan-to-value ratio (LTV). Conservative lenders will generally use a loan-to-value ratio of 65-70% and other lenders may use a loan-to-value ratio of 75-80%. LTV limits vary by asset class and use. Homeowners taking out a mortgage to buy their primary residence will typically be given loans with a higher LTV than investors borrowing to buy an investment property.

Lenders will use the debt coverage ratio when interest rates are high. The other choices are incorrect because they are not ratios used to determine the degree of leverage lenders will allow.

110.

Dillon purchased a four-unit apartment building for $500,000. All four units have the same square footage, and they all have two bedrooms and two bathrooms. Dillon has decided to live in one of the units and rent the other three. If Dillon receives a total net monthly income of $3,000 from his rental investment, and assuming he does not have a mortgage, what is his annual rate of return before accounting for operating expenses?

  • 9.6%

  • 7.2%

  • 12.8%

  • 0.8%

Correct answer: 9.6%

Dillon’s annual rate of return is 9.6%. Since Dillon lives in one of the rental units and all four units are the same, you must determine the purchase price that should be allocated to the remaining three rental units: $500,000 x 3/4 = $375,000. Next, you must determine the annual net income: 12 x $3,000 = $36,000. Now, you can find the annual rate of return: $36,000/$375,000 = 0.096, or 9.6%. 

111.

The guidelines lenders use to have a marketable loan state that the lender will provide a ratio of total fixed payments to gross income of which of the following?

  • No greater than 36%

  • No greater than 28%

  • No greater than 25%

  • No greater than 42%

Correct answer: No greater than 36%

The ratio of total fixed payments to gross income is no greater than 36%. This includes the borrower’s mortgage and long-term debt such as car loans and student loans.

28% is used for the ratio of housing payments to gross income. The other choices are incorrect, as the qualifying ratio of total fixed payments to gross income is no greater than 36%, not 25% or 42%.

112.

The appraised valuation for Mandy’s property is $250,000, and her property tax is based on 20% of the appraised valuation. The city's and county's millage rate are 32 and 37 respectively. What is Mandy’s county property tax?

  • $1,850

  • $1,600

  • $3,450

  • $7,400

Correct answer: $1,850

Mandy’s county property tax is $1,850. The property tax is based on 20% of $250,000, which is $50,000. The county's millage rate 37: $50,000 x 0.037 = $1,850.

$1,600 is incorrect because it is the city tax ($50,000 x 0.032 = $1,600). $3,450 is incorrect because it is the combined property tax ($1,850 + $1,600 = $3,450). $7,400 is incorrect.

113.

Jason submitted a contract of sale for Joe’s property. Joe has yet to sign the contract. What is this contract referred to as?

  • Executory

  • Executed

  • Accepted

  • Rejected

Correct answer: Executory

A contract of sale that has not been signed yet is known as an executory contract. If the seller of the property decides not to sign or to respond to the contract of sale, it becomes void. The buyer of the property could also decide to withdraw the offer prior to the seller signing the contract of sale, which would make the contract void.

Executed is incorrect because an executed contract is one that has been signed by all parties. Accepted is incorrect because it is when the seller agrees to sell the property to the buyer and signs the contract. Rejected is incorrect because it is when the seller rejects a buyer’s offer or when a buyer rejects a seller’s counteroffer.

114.

Good location has the ability to increase the demand for real estate in which of the following manners?

  • By being situated in a well-established and desirable area

  • By having the expected standard features and bonus features the market desires

  • By being valued appropriately for the market and the location

  • By having various housing options at multiple price levels

Correct answer: By being situated in a well-established and desirable area

Good location has the ability to increase the demand for real estate by being situated in a well-established and desirable area.

Good quality property has the ability to increase the demand for real estate by having the expected standard features and bonus features the market desires. Competitive pricing has the ability to increase the demand for real estate by being valued appropriately for the market and the location. The cost of alternatives has the ability to increase the demand for real estate by having various housing options at multiple price levels.

115.

Which valuation approach takes into consideration the fact that no reasonable person would pay more for a property than it would cost to purchase an equally desirable substitute property?

  • Sales comparison approach

  • Income capitalization approach

  • Cost approach

  • None of these

Correct answer: Sales comparison approach

The sales comparison approach (formerly known as the market approach) takes into consideration the fact that no reasonable person would pay more for a property than it would cost to purchase an equally desirable substitute property (the principle of substitution). The appraiser finds closed sales of properties similar to the property being appraised (comparable sales) and provides details describing them in the appraisal report. These sale properties are then compared to the property being appraised and adjustments are made for differences between each. The reliability of this approach is related directly to the quality and quantity of the sales data.

116.

Which Title of the Civil Rights Act of 1984 prohibits real estate brokers, builders, and mortgage lenders from discriminating against individuals based on race, color, religion, sex, or national origin?

  • Title VIII

  • Title VI

  • Title III

  • Title VII

Correct answer: Title VIII

Title VIII of the Civil Rights Act of 1968 prohibits real estate brokers, builders, and mortgage lenders from discriminating against individuals based on race, color, religion, sex, or national origin.

Title VI of the Civil Rights Act of 1964 prohibits discrimination by government programs or government agencies that receive federal funds. Title VII of the Civil Rights Act of 1964 prohibits employment discrimination based on race, color, religion, sex, or national origin. Title III of the Civil Rights Act of 1964 prohibits state and municipal governments from denying access to public facilities based on race, color, religion, or national origin.

117.

Which method of measuring reproduction cost or replacement cost lumps all components of a structure together to determine the total cost per square foot?

  • Cost approach

  • Segregated cost

  • Unit-in-place

  • Quantity survey

Correct answer: Cost approach

Cost approach 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. 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.

118.

Sam the seller owned two neighboring houses, 5 and 7 Oak Street, in an upscale all-white neighborhood. Suzie the real estate agent met with Sam about selling number 5. Afraid of decreasing the value of number 7, Sam told Suzie that she could have the listing, as long as she didn't market it to "those people who would bring down the value" of number 7. If Suzie took the listing and followed Sam's instructions, what federal law would she be in danger of violating?

  • The Civil Rights Act of 1866

  • Regulation Z of the Truth in Lending Act (TILA)

  • The Fair Housing Amendments of 1988 to the Civil Rights Act of 1968

  • Title VIII of the Civil Rights Act of 1969

Correct answer: The Civil Rights Act of 1866

If Suzie took the listing and followed Sam's instructions, she would be in danger of violating the Civil Rights Act of 1866, which prohibits discrimination in housing based on race. 

Regulation Z of the TILA regulates real estate financing. The Fair Housing Amendments of 1988 to the Civil Rights Act of 1968 added the prohibition of discrimination based on sex, handicapped status, and families with children.

There is no Civil Rights Act of 1969.

119.

An agency contract can be terminated voluntarily by the parties for all except which of the following reasons?

  • Destruction of the listed real estate

  • For performance of the contract

  • When both parties mutually agree

  • The agent resigns

Correct answer: Destruction of the listed real estate

It is false to state an agency contract can be terminated voluntary by destruction of the listed real estate because an agency contract may be terminated by law if the listed real estate is destroyed.

An agency contract can be terminated by the actions of the parties for performance of the contract, when both parties mutually agree, when the agent resigns, or when the principal discharges the agent.

120.

Who is the principal in the real estate agency relationship?

  • The client 

  • The showing agent

  • The seller

  • The real estate broker

Correct answer: The client 

The client is the principal in a real estate agency relationship because the real estate broker represents the client and owes him fiduciary duties. 

The showing agent is incorrect and the real estate broker are incorrect. The seller is incorrect because not all clients are sellers; clients can be buyers, renters, landlords or sellers. 

×