mock exam iv: national section 1. a purchase and sale ... · pdf filecontract? a. void b....

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Mock Exam IV: National Section 1. A purchase and sale agreement would NOT be voidable under which of the following circumstances? A. The purchaser is 17 years old B. The seller deceives the buyer, and thus induces her to sign C. The seller is coerced into signing D. The buyer does not read entire contract and does not fully understand what is being agreed upon 2. Borrower C is approved for a 90% loan with 1.5 points. The sales price is $195,000. If C is charged no other closing costs, how much money will she need at closing? A. $2,632.50 B. $2,925 C. $22,132.50 D. $22,425 3. Broker Z enters into a property management agreement. Which of the following would be the other party to the contract? A. Landlord B. Tenant C. Building suppliers D. Janitorial company 4. A developer purchases a large tract of land and finances it with a blanket mortgage. This mortgage most likely contains which of the following clauses? A. Subordination B. Release C. Subrogation D. Contingency 5. A landlord can use all or a portion of a tenant's security deposit for any of the following, EXCEPT: A. replacing worn carpeting B. unpaid rent C. cleaning the property D. replacing a broken window 6. Under the Truth in Lending Act (Regulation Z), a lender must provide a loan applicant with which of the following? A. A copy of the credit report, upon request B. The purchase and sale agreement C. A disclosure statement D. A settlement statement


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7. S is an agent for ABC Realty, and she receives an offer to purchase one of her listings. She declines to present the offer. Under which of the following circumstances may she legally do this? A. She is a relative of the seller B. The listing expired yesterday C. The offer was well below what the seller told her he was willing to accept D. After a discussion with the selling agent, S concluded the buyer was not financially qualified to purchase the home 8. A mortgage that has not been fully amortized will call for which of the following when the last regular payment has been made? A. A release clause B. A balloon payment C. A subordination clause D. Accelerated amortization 9. A seller tells a buyer that the property is connected to the sewer when, in fact, it is not. The buyer later learns the truth and immediately consults a lawyer. The attorney advises the buyer that she has a voidable contract. From the seller's point of view, what is the status of the contract? A. Void B. Voidable C. Unenforceable D. Valid 10. An architect is designing a 10-unit apartment, with five units upstairs and five units downstairs. There is no elevator. How many of the units must be wheelchair-accessible? A. 3 B. 5 C. 9 D. 10 11. When a purchase and sale agreement has been signed by both buyer and seller, but the sale has not been completed and the deed has not been delivered, the contract is: A. unilateral B. implied C. executory D. executed 12. In the Federal Fair Housing Act, as amended in 1988, "familial status" refers to: A. families that consist of at least two adults and one child under 18 years of age B. families that consist of at least two adults and any dependent children, regardless of age C. any family with at least one dependent child under the age of 18 D. any family with a dependent child under the age of 18 or a dependent adult over the age of 55 13. If a seller has declared bankruptcy, what is the listing agent required to do? A. Keep this information confidential B. Only disclose it if it will affect the closing process C. Disclose it to the closing agent only D. Disclose it to all potential buyers


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14. One difference between FHA and VA financing is that: A. a VA buyer must provide the lender with a Certificate of Eligibility B. the VA protects the lender from loss due to foreclosure; the FHA does not C. an FHA loan can be assumed; a VA loan cannot D. the VA sets a maximum interest rate; the FHA does not 15. With the exception of sales supervised by the court, the amount of the earnest money deposited by a purchaser along with his offer is determined by: A. state law B. federal law C. MLS policy D. agreement between buyer and seller 16. A provision in a sales contract that states that a sum agreed to in advance will serve as full compensation in the event of a breach is a: A. liquidated damages provision B. compensatory damages provision C. punitive damages provision D. default damages provision 17. Which of the following is not exempt from property taxes? A. A publicly owned building B. An elementary school C. A church D. Vacant land held for development 18. One party to the contract is obligated, but the other party is not. This describes a/an: A. bilateral contract B. unilateral contract C. land contract D. lease 19. J bought a home for $95,750 and made a 20% downpayment. If the interest portion of his first monthly payment is $574.50, what is the interest rate on his loan? A. 7.75% B. 8.50% C. 9% D. 9.25% 20. Which of the following is NOT covered by the provisions of the Fair Housing Act? A. A commercial building used for retail stores that advertise to the public B. A duplex listed for sale by a real estate broker C. A vacant lot on which a house will be built D. An apartment building


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21. L is required to submit his construction plans to the city building department before he can obtain a building permit. What is the primary purpose behind the building permit requirement? A. To serve constructive notice of the building code B. To ensure compliance with local environmental laws C. To prevent the proliferation of public nuisances D. To ensure compliance with local building codes 22. Which of the following is the best description of a zoning variance? A. A legal nonconforming use B. Permission from zoning authorities to use or build on property in a way that is not authorized by current zoning laws C. Permitted use of a property that was lawfully established but which no longer conforms to existing ordinances because of a change in zoning D. An unauthorized use of the property 23. P is a salesperson for XYZ Realty. P obtains a listing on a small apartment building that belongs to Q. The legal right to collect a commission from Q belongs to: A. P B. XYZ Realty C. whoever sells the property D. either P or XYZ Realty 24. Dividing a tract of land into building lots is controlled by: A. subdivision regulations B. the law of escheat C. building codes D. the Uniform Commercial Code 25. Which of the following transactions involving single-family homes would be exempt from the Fair Housing Act? A. Sale by owner, using no discriminatory advertising B. Sale of owner's residence, when owner owns three other single-family homes C. Rental on behalf of the owner by a real estate salesperson D. Rental by owner advertised as follows: Home for rent to Christian family 26. Cities and counties have the right to divide land into zones and regulate the use of the property. This right is the result of their: A. constitutional power of eminent domain B. police power C. right of inverse condemnation D. electoral mandate 27. All of the following restrictive covenants are unenforceable, EXCEPT one that prohibits: A. sale of the property for use as anything other than a single-family dwelling B. resale of the property for ten years C. sale of the property to anyone other than a family member D. sale of the property to certain minorities


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28. F is leasing part of a building. Under the terms of the lease, F is to pay her proportionate share of the property taxes, hazard insurance, and property maintenance costs. She has signed a: A. ground lease B. straight lease C. percentage lease D. net lease 29. One of the following is a general lien recorded against Thompson's property. It is a/an: A. superior court judgment B. special assessment C. ad valorem tax D. blanket deed of trust 30. Harris is granted an easement over his neighbor's lot, and it allows him easier access to a nearby freeway. Which of the following statements about the easement is true? A. The right-of-way is an easement in gross B. Even though Harris's lot size is not increased, the value of his land is enhanced C. Harris is the servient tenant and his land is the dominant tenement D. Harris's easement could be revoked by the neighboring landowner 31. A first mortgage's priority over a second mortgage is normally determined by: A. who the lender is B. the purpose of the loan C. the date of recording D. the size of the loan 32. Who benefits the most from recording a warranty deed? A. Beneficiary B. Notary public C. Grantor D. Grantee 33. A gift of personal property by means of a will is a: A. testament B. devise C. bequest D. codicil 34. A use right for real property that does not include ownership is called: A. an appurtenance B. adverse possession C. a fixture D. an easement


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35. A recorded notice of a pending legal action is called a/an: A. abstract of judgment B. petition for alienation C. writ of execution D. lis pendens 36. Where would a cloud on the title of a particular piece of property most likely be revealed? A. Title insurance policy B. Title report C. During a physical inspection of the property D. Sales contract 37. A property owner and a tenant enter into a three-year lease. Shortly thereafter, the owner sells the property. What is the effect of the sale on the lease? A. The lease is terminated B. The new owner must honor the lease C. The lease is still in force, but some of its terms must be renegotiated D. The new owner has 30 days to cancel the lease 38. Which party is usually protected by an extended coverage title insurance policy? A. Borrower B. Lender C. Seller D. Buyer and seller 39. For the closing of a residential first mortgage, the settlement statement (HUD-1) form required by federal law will contain the name and address of the buyer, the seller, and the: A. broker B. salesperson C. lender D. clerk in the county recorder's office 40. All of the following are requirements for a valid deed, EXCEPT: A. it must be dated B. it must be signed by a competent grantor C. it must include words of conveyance D. it must be in writing 41. Title insurance premiums are paid: A. monthly B. semiannually C. annually D. once, at closing 42. The primary effect of recording a deed is to: A. confirm the validity of the grantee's title B. guarantee the grantor's title C. give constructive notice of the grantee's title D. protect the grantor from future adverse claims


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43. If a person buys an apartment in a cooperative, what kind of interest does he receive? A. Fee simple title B. A tax assessment for the percentage of the building that he owns C. Stock in the corporation that owns the building D. The absolute right to use the entire building 44. Which of the following is not a necessary component of a purchase and sale agreement that is contingent on financing? A. Purchase price B. Downpayment C. Name of lender D. Interest rate 45. If a name is misspelled on a deed, which of the following is usually used to correct the problem? A. Quitclaim deed B. Trustee's deed C. Gift deed D. General warranty deed 46. A condominium owner leased his unit to a tenant. The interest acquired by the tenant is called a/an: A. freehold estate B. leasehold estate C. life estate D. equitable estate 47. From an income tax standpoint, which of the following is an attractive feature of home ownership? The property owner can: A. claim maintenance and repair expenses as a deduction B. make annual deductions for depreciation C. claim as a deduction any loss suffered from the sale of the property D. claim mortgage interest deductions 48. The Real Estate Settlement Procedures Act applies to all of the following, EXCEPT a: A. single-family dwelling B. condominium C. four-unit residential building D. five-plex 49. M dies and wills his property to his two sons and one daughter. He stipulates that each of the sons is to receive a one-fourth interest; the daughter is to receive a one-half interest. How would they take title? A. In joint tenancy B. In severalty C. As tenancy by the entireties D. As tenants in common


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50. On a settlement statement, an earnest money deposit that will be held by the broker until closing is a: A. credit to the buyer B. credit to the seller C. debit (charge) to the buyer D. debit (charge to the seller 51. To arrive at a property's net income, an appraiser must take into account all of the following, EXCEPT: A. property taxes B. vacancies C. management expenses D. mortgage interest payments 52. A subdivider who is developing vacant land within a city will probably use which of the following methods of land description on the deeds to individual properties within the subdivision? A. Metes and bounds B. Lot and block C. Rectangular survey D. Monument system 53. An appraiser estimates that it would cost $195,000 to replace W's 10-year-old warehouse. He then estimates the building's present value to be $153,000. The difference of $42,000 is called: A. equity B. depreciation C. industrial obsolescence D. reconciliation 54. Which of the following would be the most difficult type of depreciation to cure? A. A leaky roof B. Outmoded kitchen appliances C. Economic obsolescence D. Wear and tear due to excessive use 55. A tenant rents an apartment for $800 a month. According to the lease, the tenant can move out at any time, as long as he pays a $500 fee and a prorated share of the rent for the last month he occupies the property. The tenant gives notice on March 20th that he intends to vacate the property by April 20th. How much does the tenant have to pay the landlord in April? Base your calculations on a 30-day month. A. $825.75 B. $894.52 C. $968.28 D. $1,006.73


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56. In appraising an owner-occupied single-family home, which two approaches are the most reliable? A. Sales comparison and cost B. Gross rent multiplier and income C. Capitalization and sales comparison D. Cost and gross rent multiplier 57. For federal income tax purposes, when can you depreciate a single-family dwelling? A. When it is owner-occupied B. When it is rented C. When it is sold D. When the occupant is over 55 and lived in the home for three of the past five years 58. If M transfers her leasehold interest to C for only a portion of the remainder of the lease term, it is called a/an: A. assignment B. novation C. sublease D. surrender 59. The replacement cost approach can be used to appraise all of the following properties, EXCEPT a/an: A. older home B. church C. public library D. new apartment complex 60. The buyers want to make an offer to purchase a home, but they don't want to be bound to the contract if they are unable to obtain the necessary financing. What should they do? A. Include a financing contingency B. Include an earnest money refund provision C. Make a small earnest money deposit D. Refuse to put the offer in writing until the financing is obtained 61. What is the most effective method for appraising vacant land? A. Income B. Cost/benefit C. Market data (sales comparison) D. Unit in place 62. Q offered to purchase J's home and to finance the purchase by making a $35,000 downpayment and assuming J's eight-year-old FHA loan, which has an approximate balance of $78,300. The loan bears annual interest at 8.75%. Under the circumstances, which of the following is true? A. FHA loans are not assumable B. All FHA loans are assumable without a credit check C. Only FHA loans made before 1986 are assumable D. J's loan can be assumed on approval of Q's credit


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63. The seller wants to net $104,000. He pays a 7% commission, $2,400 in discount points, and $1,500 in repairs. Approximately how much should the seller ask for the property? A. $112,500 B. $113,750 C. $116,022 D. $119,950 64. An increase in the demand for residential rental property could be caused by an increase in: A. rental rates for adjacent properties B. building permits issued C. mortgage interest rates nationwide D. Federal Reserve transactions 65. When a trustor has fully paid the debt of the trust deed, the: A. trustee gives a trustee's deed to the trustor B. trustor gives a warranty deed to the trustee C. beneficiary gives a deed of reconveyance to the trustor D. trustee gives a deed of reconveyance to the trustor 66. The owners of a house want to sell, and they recognize the value of using a broker. But they want to avoid paying a commission if they are able to find a buyer on their own. What type of listing should they sign? A. Exclusive right to sell B. Exclusive agency C. Open D. Net 67. A listing agreement creates which of the following? A. A vicarious relationship B. An adversarial relationship C. A fiduciary relationship D. An open-end agreement 68. If a couple asks a broker how they should take title to the property they are purchasing, the broker should tell them to: A. take title as joint tenants B. take title as tenants by the entirety C. take title as community property D. consult an attorney 69. Broker Z receives two offers on her listing at about the same time. What is she legally obligated to do? Submit: A. the offers in the order they were received B. both offers at the same time C. the offer that will earn her the highest commission D. the offer she thinks is best for her principal


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70. Which of the following would benefit most from, and therefore be most concerned with, recording a mortgage? A. Title company B. Grantor C. Mortgagor D. Mortgagee 71. A buyer seeking an FHA loan should apply to which of the following? A. A life insurance company B. The Federal Housing Administration C. A private investor D. A mortgage banker 72. A property's market value is described as the: A. present worth of future benefits B. ad valorem value C. price paid by a purchaser D. price accepted by the seller 73. M's brother grants her an estate in real property for her lifetime. The interest the brother retains in the property is a: A. life estate B. remainder interest C. reversionary interest D. fee simple qualified estate 74. A buyer is interested in a 2,400 square-foot house, but she sees that it is in need of repair. Interior painting will be required at a cost of $1,800. The roof must also be replaced for $6,000, and a broken window fixed for $400. Comparable homes in good condition are selling for about $95 per square foot. Approximately how much should the buyer offer for the home? A. $210,200 B. $216,000 C. $217,400 D. $219,800 75. A loan origination fee is: A. charged by the lending institution to initiate a loan B. another name for discount points C. usually charged to the seller D. paid when the initial loan application is submitted 76. The seller helps the buyer with the downpayment by extending credit, and secures the loan with a second mortgage. The seller's second mortgage is called a/an: A. open-end mortgage B. blanket mortgage C. purchase money mortgage D. shared appreciation mortgage


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77. A homeowner builds a $125,000 home in a neighborhood of $60,000 homes. The contractor does not put windows in one of the bedrooms. In addition, the home is located near a toxic waste dump. What kind of depreciation does the home suffer from? A. Functional obsolescence because of the toxic waste dump B. Physical depreciation due to the lack of a window C. Economic obsolescence due to overimprovement D. External obsolescence due to the absence of windows 78. Which of the following attachments is most likely to be treated as personal property? A. A light fixture installed by a friend of the property owner at cost B. A handrail installed by a handicapped tenant C. Wall-to-wall carpeting installed by the owner for her personal use D. An optional item installed by the builder at the request of a purchaser 79. An owner's monthly payment is $11 per $1,000 of debt. What is the annual debt service on a 25-year, $45,000 loan at 10% interest? A. $4,632 B. $5,940 C. $6,180 D. $6,744 80. A borrower offers both real property and chattels as security for his mortgage debt. What kind of mortgage is this? A. Blanket B. Collateral C. Package D. Wraparound 81. The terms utility, scarcity, and transferability relate to which of the following? A. Subjective value B. Ownership C. Deeds D. Market value 82. The gross annual income is $375,000. The operating expense ratio is 81%. The capitalization rate is 12.5%. If this information applies to a cafe, what is its estimated value? A. $324,450 B. $395,600 C. $570,000 D. $584,000 83. After a licensee takes a listing, he discovers some of the improvements are too close to the property line. What should the licensee do? A. Advise the seller to apply for a zoning change B. Not tell the seller, to protect him from liability C. Advise the seller that any prospective buyer must be told of the problem immediately D. Cancel the listing


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84. In a real estate transaction, the buyer and seller are considered: A. agents B. grantees C. grantors D. principals 85. A contract with an unlawful purpose is: A. unenforceable B. valid C. void D. voidable 86. Which of the following describes the difference between the reproduction cost method and the replacement cost method? A. Reproduction refers to a property with the same functional ability; replacement means exact duplication B. Reproduction refers to a replica property; replacement means one with equivalent utility C. Replacement cost is calculated by the sales comparison method; reproduction cost is estimated by the square foot method D. Reproduction cost and replacement cost are treated as synonymous terms 87. What is the best indication that the terms of a mortgage have been completed? A. Deed has been delivered B. Deed has been acknowledged C. Deed has been recorded D. Mortgage has been released 88. If a buyer takes out a mortgage that includes a prepayment clause, the buyer will be penalized if: A. he pays off the loan amount before the end of the loan term B. he re-borrows additional money after having paid off part of the loan amount C. he takes out a second mortgage secured by the same property D. he makes late payments 89. A seller sells his house for $128,000. He takes back a mortgage from the buyer for $63,000. He pays off the $43,000 balance on the existing loan, and pays a 5.5% brokerage fee. What are his proceeds from the sale? A. $14,600 B. $14,960 C. $77,960 D. $140,960 90. The XYZ Agency lists a property. M is the affiliated licensee who took the listing and T is the seller. What are their relationships? A. M is the agent for T and XYZ is a subagent for T B. M is the agent for T C. M is the agent for T and XYZ is the agent for M D. XYZ is the agent for T and M is a subagent for T


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Answer Key 1. D Explanation: Failure to read the contract is not an excuse for nonperformance. 2. C Explanation: Determine the loan amount and then subtract it from the sales price to get the downpayment amount. $195,000 × 90% = $175,500. $195,000 – $175,500 = $19,500 downpayment. Next multiply the loan amount by the 1.5% discount. $175,500 × 1.5% = $2,632.50. Add the downpayment and the points to get the amount the buyer needs at closing. $19,500 + $2,632.50 = $22,132.50. 3. A Explanation: The landlord (owner) is the principal; the broker (property manager) is the agent. 4. B Explanation: Blanket loans usually have a release clause that requires the lender to release certain parcels from the blanket lien when specified portions of the overall debt have been paid off. 5. A Explanation: A security deposit cannot be used for repairs or replacements that are needed as a result of ordinary wear and tear. The deposit can be applied to unpaid rent, or used to pay for cleaning or repairs (such as repairing a broken window) that were the tenant's responsibility. 6. C Explanation: The disclosure statement must include all the disclosures required by the Truth in Lending Act, including the annual percentage rate (APR) and the breakdown of finance charges. 7. B Explanation: When the listing expires S has no responsibility to present any offers, although she would probably want to. 8. B Explanation: If a loan is not fully amortized, it is either a term loan (interest-only loan) or a partially amortized loan; in either case, it will require a balloon payment at the end of the loan term. 9. C Explanation: The contract is unenforceable by the seller and voidable by the buyer. The buyer could elect to complete the purchase if she wanted to, but the seller has no contractual right to compel her to do so. 10. B Explanation: If there is no elevator, only the downstairs units must be wheelchair-accessible. (This rule has applied to all new construction since June 1991.)


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11. C Explanation: The contract is executory, which means it is in the process of being performed. (Executed means the contract has been performed.) 12. C Explanation: The requirement is at least one adult and at least one dependent under age 18. They do not have to be related by blood or by law. 13. B Explanation: A fact is a material fact that must be disclosed only if it has a substantial negative effect on the value of the property or on a party's ability to perform his or her contractual duties. Therefore, if the closing process would be affected, the bankruptcy must be disclosed. Otherwise, the bankruptcy is confidential information about the seller that the listing agent must keep confidential. 14. A Explanation: To be eligible for a VA loan, a borrower must first establish she is a qualified veteran. This is accomplished by applying for and receiving a Certificate of Eligibility from the VA. No similar step is necessary for an FHA loan. 15. D Explanation: The amount of the deposit is determined by agreement between the buyer and the seller. 16. A Explanation: Most purchase and sale agreements call for forfeiture of the earnest money if the buyer breaches the contract. This is an example of a liquidated damages provision. 17. D Explanation: Publicly owned buildings, schools, and property owned by religious organizations are exempt from ad valorem (property) taxes. Privately owned land is not. 18. B Explanation: The statement describes a unilateral contract, where the offeror has promised to perform her side of the bargain if the other party performs, but the other party has not promised to do so. An example is an option agreement. 19. C Explanation: First determine the loan amount ($95,750 × 80% = $76,600 loan). Next calculate the annual interest ($574.50 × 12 = $6,894). Divide the annual interest by the loan amount to get the interest rate ($6,894 ÷ $76,600 = .09 or 9%). 20. A Explanation: The Fair Housing Act applies to residential real estate only. It does not apply to commercial property.


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21. D Explanation: Enforcement of building codes is usually accomplished through the building permit system. 22. B Explanation: A zoning variance is also called a zoning exception. A variance usually permits a minor departure from the existing ordinance. 23. B Explanation: The broker, not the salesperson, is the seller's agent. 24. A Explanation: Subdivision regulations are state and local laws that must be complied with before land can be subdivided. (The Uniform Commercial Code is a statute that deals with commercial matters such as negotiable instruments and sales of personal property.) 25. A Explanation: The sale or rental of a single-family home by the owner is exempt from the Fair Housing Act as long as: (1) the owner owns no more than three such homes; (2) no real estate agent is employed; and (3) any advertising used is nondiscriminatory. 26. B Explanation: Zoning is a prominent example of how state and local governments enact and enforce laws for the protection of the public's health, safety, morals, and general welfare. 27. A Explanation: Any private restriction that violates the law or public policy is unenforceable. Options B and C represent unfair restrictions on the right of alienation; option D violates the Federal Fair Housing Act. Option A is acceptable. 28. D Explanation: A net lease requires the tenant to pay part or all of the building's operating expenses, such as the taxes, utilities, and insurance, in addition to the base rent. 29. A Explanation: A judgment lien is a general lien. Property taxes and special assessments are specific liens. Even a blanket deed of trust is a specific lien, because it applies only to the specific properties that are named in the deed of trust. 30. B Explanation: The easement increases the utility of the property, which increases its value. 31. C Explanation: The general rule is that the lien recorded first has higher priority.


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32. D Explanation: The grantee is the one who has acquired an interest in the land, and she is the one who benefits the most from recording the deed to provide constructive (legal) notice of that interest. 33. C Explanation: A gift of personal property, such as furniture or a car, is called a bequest. A devise is a gift of real estate through a will. 34. D Explanation: An easement is the legal right to use another's land. The right does not include ownership of the land. 35. D Explanation: A lis pendens is a recorded notice stating that there is a lawsuit pending that may affect title to the defendant's real estate. 36. B Explanation: The (preliminary) title report should reveal any clouds that would affect the marketability of the property's title. 37. B Explanation: The lease is unaffected, and the new owner must abide by its terms. 38. B Explanation: The lender will not make the loan unless the buyer pays for an extended coverage policy, naming the lender as the loss payee (beneficiary). For this reason it is often called the mortgagee's or lender's policy. 39. C Explanation: The Uniform Settlement Statement required under RESPA contains the name and address of the borrower/buyer, seller, and lender. The statement is not recorded, and does not involve the participation of the real estate salesperson or broker. 40. A Explanation: A deed does not have to be dated, because its priority is established by the date of recording, not the date of the deed. 41. D Explanation: The title insurance premium is a one-time expense that covers the purchaser for as long as he owns the property.


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42. C Explanation: When a document that affects the title to real property is recorded, it gives constructive notice (legal notice) to the world that the action brought about by the document (in this case a conveyance of title) has occurred. Once the document is recorded, nobody can claim that he or she did not have knowledge of the action. 43. C Explanation: Cooperative owners receive stock in the cooperative corporation and a long-term lease for their apartment unit. Their interest is considered an interest in personal property rather than real property. 44. C Explanation: When a purchase and sale agreement says the agreement is subject to the buyer obtaining financing, the terms that are acceptable to the buyer should be specified. The lender that will make the loan does not need to be named. 45. A Explanation: The easiest and quickest way to correct a deed that contains typographical errors is with a quitclaim deed. 46. B Explanation: A lease creates a leasehold estate. The interest of the landlord (owner) is called a leased fee. 47. D Explanation: The homeowner can claim mortgage interest deductions, but she CANNOT deduct repair expenses or depreciation. Also, a loss on the sale of a primary residence is not deductible. 48. D Explanation: RESPA applies to a residential loan transaction on property with up to four units. 49. D Explanation: They would be tenants in common. They could not be joint tenants, because the interests are not equal. Tenancy by the entireties is limited to married couples. 50. A Explanation: The earnest money has already been paid and will be applied to the purchase price at closing, so it appears on the settlement statement as a credit for the buyer. 51. D Explanation: Gross income minus vacancies and bad debts equals effective gross income; effective gross income minus operating expenses (property taxes, management, utilities, maintenance, insurance) equals net income. Mortgage payments are not operating expenses.


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52. B Explanation: Subdivision lots are virtually always described by the lot and block method of land description. 53. B Explanation: The difference between a property's replacement cost and its current value is depreciation. The replacement cost usually represents the upper limit of the property's market value, because nobody will pay more for a used property than they would have to pay for a similar property that is new. 54. C Explanation: Economic (external) obsolescence is something outside the property and usually beyond the owner's control. It is generally considered incurable. 55. D Explanation: Divide the monthly rent by 30 (days) to get the per diem rate. $800 ÷ 30 = $26.67. Multiply the daily rate by 19 days (he was out by the 20th). $26.67 × 19 = $506.73, to which you add the $500 fee for a total of $1,006.73. 56. A Explanation: The sales comparison approach is given the most weight in the appraisal of a single-family home, and the cost approach is also used. Since the property is not a rental, the appraiser is unlikely to use the gross rent multiplier method or the capitalization method. 57. B Explanation: If the property is a rental (income property), it is eligible for depreciation. Owner-occupied homes are not eligible. 58. C Explanation: Transferring a leasehold for part of the remaining lease term is called subleasing (as opposed to assignment, which is transfer of a leasehold for the entire remaining lease term). 59. A Explanation: Properties that have no market and are not income-producing, such as a church or a public building, must be appraised by the cost method. Aside from those cases, the older a property is, the less reliable the cost method, because depreciation on an older improvement is difficult to estimate. 60. A Explanation: A financing contingency in the purchase and sale agreement would say something like, "If, through no fault of the buyer, the necessary financing cannot be obtained, the earnest money shall be refunded in full and this agreement shall terminate." 61. C Explanation: The market data method (also known as the sales comparison method) is the best way to appraise vacant land.


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62. D Explanation: FHA loans are assumable, but a credit check is required. 63. C Explanation: $104,000 (desired net) + $2,400 + $1,500 = $107,900 (required net after commission but before settlement costs). $107,900 ÷ 93% (100% – 7% commission rate) = $116,021.51. 64. C Explanation: As interest rates increase, fewer home purchasers are willing or able to pay the cost of financing their purchase. The result is that they rent properties until interest rates decline. 65. D Explanation: When the debt secured by a deed of trust is paid off, the trustee gives a deed of reconveyance to the trustor. 66. B Explanation: The exclusive agency listing allows them to contract for the services of a broker but retain the right to sell the property themselves without obligation for a commission. 67. C Explanation: A fiduciary relationship is one in which one party owes the other loyalty and a higher standard of good faith than is owed to third parties. 68. D Explanation: A broker should never give legal advice, and telling someone how to take title is legal advice. 69. B Explanation: She should submit both offers at the same time. The seller decides which offer to accept. 70. D Explanation: The mortgage represents the lender's (mortgagee's) financial interest in the property. The lender would want to record it to provide constructive notice of that interest. 71. D Explanation: FHA-insured loans are made by approved lenders, so a prospective borrower should apply to an FHA-approved bank, savings and loan, or mortgage company (mortgage banker). 72. A Explanation: One concise definition of market value is "the present worth of future benefits." The price paid and accepted is equal to the value of the property only if the sale was an arm's length transaction. (For instance, if uninformed buyers paid too much for the property, the price is higher than the true market value.)


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73. C Explanation: Unless the deed specifically states that something else will happen to the property on the death of the sister, the property will revert to the brother. 74. D Explanation: This is the cost method of establishing value. Multiply the square footage by $95: 2,400 × $95 = $228,000. Subtract the repair costs: $228,000 – $8,200 ($1,800 + $6,000 + $400) = $219,800. 75. A Explanation: The loan origination fee charged by a lender to initiate a loan is ordinarily paid by the buyer at closing. 76. C Explanation: A mortgage given by a buyer to a seller is called a purchase money mortgage. 77. C Explanation: The only correct option is economic obsolescence attributable to the overimprovement. The property's value regresses because of its association with the surrounding properties. The absence of a window and the home's proximity to the dump would lower the value, but not for the reasons stated. 78. B Explanation: An item installed by a tenant is usually treated as the personal property of the tenant, who may remove it at the conclusion of the tenancy, provided that he or she repairs any damage caused by the removal. 79. B Explanation: $11 × 45 ($1,000 increments) = $495 × 12 (months) = $5,940 (annual debt service). Since the payment is $11 per $1,000 of debt, the rest of the information, such as the loan term and the interest rate, is irrelevant. 80. C Explanation: A package mortgage includes both real and personal property as collateral. (Chattels is another term for personal property.) 81. D Explanation: Nothing can have market value unless it is useful, reasonably scarce, and transferable. (For example, even though a public library is useful and reasonably scarce, it is not transferable, and therefore it has no market value.) 82. C Explanation: The operating expenses consume 81% of the earnings. The remaining 19% represents the net income. $375,000 × 19% = $71,250 (net income). Divide the net income by the capitalization rate to determine the value. $71,250 ÷ 12.5% = $570,000.


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83. C Explanation: Any prospective purchaser must be advised of the problem BEFORE an offer to purchase is written. 84. D Explanation: The seller and buyer are both principals, who authorize salespersons to represent them. 85. C Explanation: A contract that lacks one of the essential elements, such as a lawful objective, is considered void. 86. B Explanation: The reproduction cost method is concerned with what it would cost to build a replica of the subject property. The replacement cost method is concerned with what it would cost to build a suitable replacement with equivalent utility. 87. D Explanation: When the terms of a mortgage have been completed, the lender will issue a document called a satisfaction of mortgage to release the mortgage lien from the borrower's property. 88. A Explanation: A prepayment clause creates penalties for paying more than the scheduled amount. Many residential mortgages do not contain prepayment clauses. 89. B Explanation: To determine the seller's proceeds, start with the selling price ($128,000), subtract the seller financing ($63,000), subtract the existing loan balance payoff ($43,000), and subtract the brokerage fee ($128,000 × .055 = $7,040). The result is $14,960 ($128,000 – $63,000 – $43,000 – $7,040 = $14,960). 90. D Explanation: The broker is always the principal's agent. A salesperson representing the broker would be a subagent. So, in this case, XYZ would be T's agent and M would be a subagent to T.

mock exam iv: national section 1. a purchase and sale ... · pdf filecontract? a. void b....

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