Principles of Real Estate Exam Solutions
Course Introduction
Principles of Real Estate introduces students to the fundamental concepts and practices within the real estate industry. The course covers essential topics including property rights, land use regulations, real estate law, financing, valuation, and the roles of various professionals in the field. Students will gain an understanding of both residential and commercial real estate markets, the process of property transactions, and the factors that influence property values. Emphasis is placed on ethical considerations, contractual obligations, and the economic impact of real estate on society. Upon completion, students will be equipped with the foundational knowledge necessary for advanced study or entry-level careers in real estate.
Recommended Textbook
Real Estate Principles 11th Edition by Charles J. Jacobus
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Chapter 1: Nature and Description of Real Estate
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Sample Questions
Q1) Which of the following contains more than one acre of land?
A) 208' × 208'
B) 303' × 144'
C) 207' × 209'
D) 435' × 100'
Answer: B
Q2) Which of the following is personal property?
A) Utility easement
B) Fixture
C) Ceiling fan
D) Electric fan plugged in
Answer: D
Q3) A farmer owns a 60 acre farm planted in potatoes. The potatoes are always personal property.
A)True
B)False
Answer: True
Q4) If a listing agreement mentions a refrigerator as part of real estate offering it should still be mentioned in the ____________________.
Answer: sales contract
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Chapter 2: Rights and Interests in Land
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Sample Questions
Q1) A government may acquire ownership of privately held land by patent.
A)True
B)False
Answer: False
Q2) After purchasing a property, the buyers found a neighbor's fence was two feet inside of their property line. If discussion fails to resolve the problem, the buyers should consider filing suit against the A) title company.
B) neighbors to remove the encroachment.
C) neighbors for adverse possession.
D) broker even though he was not aware of the encroachment.
Answer: B
Q3) The greatest estate in real property is a fee simple estate.
A)True
B)False
Answer: True
Q4) The entitlements of fee simple ownership, which exclude those without rights from interfering, are the ____________________ of rights.
Answer: bundle
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Chapter 3: Forms of Ownership
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Q1) In a limited partnership, the partners provide the bulk of the invested capital, have little to say in the day-to-day management of the partnership, share in the profit and losses, and contract with the general partners to limit their financial liability.
A)True
B)False
Answer: True
Q2) Sylvia and Bart, sister and brother, purchased a parcel of real property. Each had an undivided one-half interest. This could be an example of A) severalty.
B) dower ownership.
C) co-ownership.
D) curtesy rights.
Answer: C
Q3) Typically an investment in a REIT requires a large amount of money. A)True
B)False
Answer: False
Q4) A ____________________ trust takes effect after death.
Answer: testamentary
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Chapter 4: Transferring Title
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Sample Questions
Q1) A deed which does not imply that the grantor owns title is a A) general warranty deed.
B) special warrant deed.
C) bargain and sale deed.
D) quitclaim deed.
Q2) The person giving up ownership is called the grantee.
A)True
B)False
Q3) The covenant, which states that the grantor is the owner and has the right to convey, is called the covenant of
A) quiet enjoyment.
B) seisen.
C) further assurance.
D) encumbrances.
Q4) A forged deed could result in a valid conveyance of title. A)True B)False
Q5) In addition to a grantor, grantee, land description, consideration and grantor signature, for a deed to convey ownership, there must be ____________________ and ____________________.
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Chapter 5: Recordation Abstracts and Title Insurance
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Sample Questions
Q1) An acknowledgement can be witnessed by a notary public
A) in person.
B) by mail.
C) by fax.
D) by proxy.
Q2) A notary public's commission expires on January 1, 2010. He may take a valid acknowledgement
A) if he applied for renewal before that date.
B) within 30 days after that date.
C) through January 1, 2010.
D) any time, because notaries are commissioned for life.
Q3) When a title defect must be removed, a quiet title suit may be the best solution.
A)True
B)False
Q4) Information regarding pending law suits would be found in the A) lis pendens index.
B) judgement roles.
C) mortgagee index.
D) grantor index.
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Chapter 6: Contract Law
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Sample Questions
Q1) A contract can be discharged by novation.
A)True
B)False
Q2) A real estate contract can be declared void if it is not signed.
A)True
B)False
Q3) If a contract is made under duress, it would be void.
A)True
B)False
Q4) A lawsuit for _________________________ is an action in court by the innocent party to force the breaching party to carry out the remainder of the contract according to the precise terms, price and conditions agreed upon.
Q5) Under certain circumstances the ____________________ evidence rule permits oral evidence to complete an otherwise incomplete or ambiguous written contract.
Q6) As a requirement of a valid contract ____________________ and ____________________ requires that one party makes an offer to another party.
Q7) A(n)____________________ contract results when a promise is exchanged for performance.
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Chapter 7: Real Estate Sales Contracts
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Sample Questions
Q1) The vendor holds legal title to real property when a land sales contract has been entered into between the seller of the property and a buyer.
A)True
B)False
Q2) If two or more parties want to express their mutual intention to buy, sell, lease, develop, or invest, and wish to do so without creating any firm, legal obligation, they may use a ______________________________.
Q3) The rejection of even the smallest portion of an offer is a rejection of the entire offer.
A)True
B)False
Q4) Under an installment sale, the seller is known as the ____________________ and the buyer is known as the ____________________.
Q5) A _________________________ allows the tenant to buy the property at a preset price for a given period of time.
Q6) The most important feature of a(n)____________________ contract is that the seller does not deliver a deed to the buyer at closing.
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Page 9
Chapter 8: Mortgage and Note
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Sample Questions
Q1) Mogan and David buy a furnished house. They assume and agree to the existing mortgage. They will need a note and mortgage.
A)True
B)False
Q2) In the United States, the instrument most commonly used to evidence a debt on real property is
A) a promissory note.
B) a mortgagee's title policy.
C) a bill of sale.
D) an earnest money agreements.
Q3) A lawsuit, filed by the lender, requesting that a borrower's interest in his property be cut off is called a defeasance suit.
A)True
B)False
Q4) A(n)____________________ foreclosure does not go to court and is not heard by a judge.
Q5) Any mortgage with a lower priority than the first mortgage is known as a ____________________ mortgage.
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Chapter 9: Deed of Trust
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Sample Questions
Q1) Regarding the non-judicial foreclosure of a deed of trust, the property is sold at auction.
A)True
B)False
Q2) One of the main differences between a regular mortgage and a deed of trust is A) the number of parties.
B) rights of possession.
C) recording.
D) ownership.
Q3) When default is declared on a loan secured by deed of trust, which of the following is true?
A) The trustee must sell the property at a private sale.
B) The successful bidder at the trustee's sale receives a trustee's deed at the time of sale.
C) The defaulting borrower has a one year period of redemption after the trustee's sale.
D) After a year, the successful bidder at the trustee's sale receives a trustee's deed.
Q4) The trustee in a deed of trust is a neutral ____________________ party.
Q5) Under a deed of trust the borrower is known as the ____________________.
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Page 11
Chapter 10: Lending Practices
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Sample Questions
Q1) A borrower can expect to pay a mortgage insurance premium for A) an FHA insured loan.
B) an 80% conventional loan.
C) a graduated payment loan.
D) an accelerated payment loan.
Q2) The expenses, which a lender incurs while processing a mortgage loan application, are recovered from the borrower as A) discount points.
B) origination fees.
C) mortgage insurance premium.
D) private mortgage insurance.
Q3) The difference between the market value of a property and the debt owed against it is called the owner's ____________________.
Q4) Using the rule of thumb, which states that each discount point raises the yield by 1/8 of 1%, two discount points raise the effective yield of a typical home loan by1/4 of 1%.
A)True
B)False
Q5) The word point means 1% of the _________________________.
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Chapter 11: The Loan and the Consumer
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Q1) When making a mortgage loan application, borrowers are protected from discrimination based on marital status by the Fair Credit Reporting Act.
A)True
B)False
Q2) As well as a borrower's assets, the lender will evaluate the borrower's ____________________.
Q3) The right of individuals to inspect their file at a credit bureau is found in the
A) Truth-in-Lending Act.
B) Fair Credit Reporting Act.
C) Regulation Z.
D) Federal Consumer Credit Protection Act.
Q4) When considering loan applications, lenders like to see good ____________________ records.
Q5) The Fair Credit Reporting Act gives individuals the right to correct any errors on their report, inspect their file at a credit bureau and delete any reference to bankruptcy.
A)True
B)False
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Page 13
Chapter 12: Sources of Financing
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Sample Questions
Q1) Loan contracts sometimes call for a ____________________ penalty in return for giving the borrower the right to repay the loan early.
Q2) To whom can a borrower turn for a direct loan for the financing of a single-family dwelling?
A) Federal Housing Administration
B) Mortgage broker
C) Insurance company
D) Savings and loan institutions
Q3) Usury laws are established by the federal statutes.
A)True
B)False
Q4) Commercial banks tend to favor long term residential lending.
A)True
B)False
Q5) From whom would a borrower obtain a VA or FHA loan?
A) Approved mortgage lender
B) VA or FHA
C) Insurance companies
D) Sale of bonds
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Chapter 13: Types of Financing
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Sample Questions
Q1) It is possible for individuals to buy second lien notes.
A)True
B)False
Q2) A mortgage taken by a seller from the buyer in part payment of the purchase price of real estate is known as
A) seller financing.
B) a conflict of interest.
C) usury.
D) a second trust deed.
Q3) The interest rate of an adjustable rate mortgage may rise or fall based on the A) interest rate cap.
B) adjustment period.
C) index.
D) margin.
Q4) An overencumbered property would be one with a market value of
A) $125,000 with a first mortgage of $75,000 and a second mortgage of $26,000.
B) $375,000 with a first mortgage of $25,000 and a second mortgage of $200,000.
C) $120,000 with a first mortgage of $110,000 and a second mortgage of $15,000.
D) $49,500 with a first mortgage of $20,000 and a second mortgage of $1,000 and a third mortgage of$2,000.
Page 15
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Chapter 14: Taxes and Assessments
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Q1) In a residential neighborhood, the assessment for installation of storm sewers, curbs, and gutters is made on a _________________________ basis.
Q2) In some states the board of equalization equalizes assessment procedures between counties.
A)True
B)False
Q3) The assessed value of all lands and buildings are made available for public inspection in what is known as the ____________________ rolls.
Q4) In calculating "basis" for income tax purposes, one must take into consideration the market value of similar properties.
A)True
B)False
Q5) A home with a cost basis of $40,800 in 2005 is resold today for $90,000. Commissions and closing expenses are $6,300. What is the gain on the sale?
A) $6,300
B) $42,900
C) $83,700
D) $82,600
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Chapter 15: Title Closing and Escrow
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Q1) In most states in which title transfers are handled in escrow, the agents must be bonded.
A)True
B)False
Q2) An accounting of funds to the buyer and the seller at the completion of a real estate transaction is called a settlement statement.
A)True
B)False
Q3) In an escrow closing, the escrow agent serves as agent for the buyer.
A)True
B)False
Q4) The division of ongoing expenses and income items between the buyer and seller is called prorating.
A)True
B)False
Q5) In a typical closing, insurance prorations will usually be a credit to the seller and an expense to the buyer.
A)True
B)False
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Chapter 16: Real Estate Leases
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Sample Questions
Q1) In any valid lease, the lessor by law gives an implied covenant of A) quiet enjoyment.
B) satisfaction.
C) reconveyance.
D) undue duress.
Q2) The lessee's right to quiet enjoyment allows the landlord no right of entry.
A)True
B)False
Q3) A lease for a definite period of time, which terminates when that time has expired, is a periodic estate.
A)True
B)False
Q4) With regard to renting one vacant apartment, advertising money is usually most effectively spent on
A) radio ads.
B) television ads.
C) newspaper.
D) billboards.
Q5) ____________________ management consists of duties that can be accomplished without being on the premises.
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Chapter 17: Real Estate Appraisal
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Sample Questions
Q1) Which appraisal method would be most useful in appraising an unusual building which has a very limited and specific use?
A) Cost approach
B) Net income
C) Capitalization
D) Market comparison
Q2) To apply the market data approach, a real estate appraiser must collect all the following data on each comparable sale EXCEPT
A) date of sale.
B) marketability of title.
C) financing terms.
D) sale price.
Q3) The value of vacant land is commonly stated in any of the following terms EXCEPT value per
A) square foot.
B) acre.
C) front foot.
D) square yard.
Q4) The property to be appraised is known as the ____________________ property.
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Chapter 18: Licensing Laws and Professional Affiliation
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Q1) Interpretations of various articles of the REALTORS® Code of Ethics is known as the ____________________ of Practice.
Q2) Property owners who want to sell their home are interested in how much it will cost to sell it.
A)True
B)False
Q3) Which of the following is NOT a real estate license category?
A) Salesperson
B) Broker
C) Attorney-in-fact
D) Both a and c
Q4) Which of the following is responsible for processing license applications, issuing real estate licenses, and collecting license fees?
A) State legislature
B) Federal Department of Real Estate Licenses
C) Attorney General
D) State Real Estate Commission or Department
Q5) A ____________________ license is required of a real estate broker in order to conduct negotiations within another state.
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Chapter 19: The Principal-Broker Relationship: Employment
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Q1) An exclusive agency listing permits the owner to sell through their own effort without liability to pay a commission to the listing broker.
A)True
B)False
Q2) A licensed salesperson has an open listing with Sara and an exclusive listing with Kelley. One week after both listings expire, Sara and Kelley sell their homes to each other. With no more information available, the licensee would claim a commission from both parties.
A)True
B)False
Q3) A licensed salesperson is paid 2% commission on all sales that he produces. How much dollar volume of real estate would she have to sell each month to make $3,500 per month?
A) $122,900
B) $135,000
C) $175,000
D) $210,000
Q4) A flat-fee broker is an example of a ____________________ broker.
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Chapter 20: The Principal-Broker Relationship: Agency
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Q1) Traditionally, in residential sales, prior to the emphasis on buyer agency, the broker considers the buyer to be
A) a client.
B) a customer.
C) a principal.
D) a fiduciary.
Q2) A buyer makes an initial deposit of $10,000 to buyer a $400,000 house. The buyer withdraws the offer before the seller accepts it. The broker should dispose of the buyer's earnest money by splitting it with the seller according to the terms of their commission agreement.
A)True
B)False
Q3) Shortly after a salesperson listed a property, there was an immediate offer through another broker. Before the salesperson could present this offer to the seller, he himself had a customer make an offer on the same property. The salesperson can properly present both offers.
A)True
B)False
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Chapter
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Q1) Showing a prospective buyer homes only in particular neighborhoods based on race, color, religion, sex, national origin, non-handicapped or adults only is known as
A) block busing.
B) redlining.
C) steering.
D) subrogation.
Q2) Comparing the 1968 Fair Housing Law and the Civil Rights Act of 1866, which is true?
A) The Act of 1968 prohibits discrimination based on sex, religion, national origin and marital status.
B) The Act of 1866 has no exceptions but it covers only racial and religious discrimination.
C) The Act of 1968, called the Fair Housing Law, exempts properties offered for commercial use.
D) Both acts prohibit steering and block busting.
Q3) Inducement of panic selling in a neighborhood for financial gain is known as blockbusting.
A)True
B)False
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Page 23
Chapter 22: Condominiums, Cooperatives, Puds, and Timeshares
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Q1) The term CC&Rs stands for
A) covenants, condominiums and restrictions.
B) conditions, chattels and regulations.
C) commission, conditions and regulations.
D) covenants, conditions and restrictions.
Q2) All states have passed condominium laws that are variously known as a state's horizontal property act, strata titles act, or condominium act.
A)True
B)False
Q3) If a condominium owner fails to pay his portion of maintenance fees, the response of the owners' association will be to
A) evict him.
B) place a lien against his unit.
C) foreclose.
D) report him to the local authorities.
Q4) The sale of timeshares is regulated in about 25 states by state legislation.
A)True
B)False
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Chapter 23: Property Insurance
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Sample Questions
Q1) As an owner of real estate, one is exposed to losses by A) damage to the property.
B) other persons being injured on the property.
C) both a and b.
D) neither a nor b.
Q2) Fire insurance is the foundation of property damage policies.
A)True
B)False
Q3) Policies that cover a large number of named perils are known as ____________________ form policies (HO-2).
Q4) "New for old" means that the policy pays replacement cost.
A)True
B)False
Q5) An agreement by the insurance company to extend coverage to perils not covered by the basic policy is called an insurable interest.
A)True
B)False
Q6) "Old for old" means that the policy pays only the depreciated cost.
A)True
B)False
Page 25
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Chapter 24: Land-Use Control
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Q1) When an existing structure does not conform with a new zoning law, it is "grandfathered-in" as a nonconforming use.
A)True
B)False
Q2) Environmental impact statements are prepared
A) before development begins.
B) during construction.
C) upon completion of construction.
D) by a homeowner.
Q3) The word variance in land use applies to
A) an open-ended use permit.
B) loan rates which raise and lower during the term of the loan.
C) property taxes.
D) zoning.
Q4) Permission to use a building for a nonconforming use may be accomplished by obtaining a zoning ordinance.
A)True
B)False
Q5) A strip of land that separates one land use from another is called a ____________________ zone.
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Chapter 25: Real Estate and the Economy
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Q1) Cost-push inflation is the result of
A) increased manufacturing costs.
B) increased demand for a product.
C) changes in the money supply.
D) changes in interest rates.
Q2) Monetary inflation can be controlled by keeping the growth in the monetary supply parallel to the growth in productivity.
A)True
B)False
Q3) The existence of a base industry is essential to the economic health of a community.
A)True
B)False
Q4) Generally, a person's peak earning years occur at ages
A) 25-35 years.
B) 35-45 years.
C) 45-55 years.
D) 60 years.
Q5) To ____________________ the debt is the creation of money by the Federal Reserve to purchase Treasury securities.
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Chapter 26: Investing in Real Estate
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Q1) Which of the following real property investments is most likely to produce the largest annual depreciation allowance expressed as a percentage of owner's equity? Assume each is newly purchased for 100% cash.
A) Large tract of land
B) Old apartment building
C) Retail business in rented space
D) New business
Q2) As a rule of thumb, for the investor to break even, the value of raw land must double every 10 years.
A)True
B)False
Q3) In contrast to straight-line depreciation, ____________________ depreciation is any method that allows depreciation at a rate faster than straight-line.
Q4) If an investor has to dip into cash reserves to keep a property going, the property has a ____________________ cash flow.
Q5) ____________________ is the increase in property value that the owner hopes will occur while owning it.
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