Real Estate National Exam #1 Complete Questions and Answers with
Explanations.
Which of the following is one of the five rights associated with the bundle of rights in
property ownership?
A. control
B. ejectment
C. freehold
D. fee simple - Correct Answer A. control
Explanation
The bundle of rights includes disposition, quiet enjoyment, exclusion, possession, and
legal control. These rights are commonly referred to as DEEP-C. Freehold and fee simple
refer to owning property permanently as opposed to leasing the property. Ejectment is
associated with evicting tenants.
Which of the following would not be included in a basic definition of real property?
A. Rights and Privileges associated with the property
B. Land
C. A split-rail fence around a cow pasture
D. The refrigerator in the kitchen - Correct Answer D. The refrigerator in the kitchen
Explanation
The refrigerator would not be considered real property as refrigerators are rarely "built-in"
to the real property. Land is specifically defined as real property. Rights and privileges that
"run with the land" are known as appurtenances and are considered real property. A split
rail fence, although not physically "attached" to the land are considered real property
because of their seemingly permanent nature as a barrier
An appurtenance is an item or a right said to "run with the land." Which of the following is an
example of an intangible appurtenance?
A. fence
B. trees
C. neighbor's encroaching driveway
D. HOA covenants - Correct Answer D. HOA covenants
Explanation
All of these are examples of appurtenances; however the trees, fence, and encroaching
driveway are tangible. They can be seen and touched. The HOA covenants are things that
cannot be seen such as height or material restrictions. HOA's may restrict the owners' use
of the property, by limiting paint colors, number of cars that can be parked in the driveway,
permitted mailbox, etc.
,Which of the following statements is FALSE with regard to an estate in real property?
A. A tenant has an estate in real property when he/she enters into a lease agreement.
B. An individual may have an estate in real property even if they do not currently have
possession of it.
C. An estate refers to an interest in property that may be possessory now or at some time in
the future.
D. An estate is an interest in property that denotes inheritability. - Correct Answer D. An
estate is an interest in property that denotes inheritability.
Explanation
Estates are not always inheritable; the "fee" estates are inheritable encumbrance against
the property. The estate is best defined as an interest in real property now or some time in
the future. A tenant has a leasehold estate in real property when they enter a lease and the
landlord has a leased fee interest.
A condominium is best defined as...
A. ownership of a property by purchasing a share of stock and receipt of a lease.
B. ownership of the airspace of the unit and co-ownership of the common area.
C. ownership of the unit itself as well as the land that it rests upon.
D. ownership of an interval unit for at least 5 years. - Correct Answer B. ownership of the
airspace of the unit and co-ownership of the common area.
Explanation
Condo ownership typically occurs in a vertically stacked building where the owner obtains
title to the airspace of the unit itself as well as co-ownership of the common areas. When a
townhouse is purchased, you typically own the unit itself as well as the land it rests upon,
with an HOA owning the common areas. A timeshare is defined as interval ownership of at
least 5 non-consecutive periods, over at least 5 years, where the buyer has 5 days to
cancel the purchase and the developer must keep sales funds in an escrow account for 10
days unless the buyer terminates.
A neighborhood is subject to restrictive covenants. The HOA has not enforced the
covenants for over 3 years. The HOA can no longer enforce the covenants :
A. through escheats.
B. through laches.
C. due to the Connor Act.
D. due to the Statute of Frauds. - Correct Answer B. through laches.
Explanation
The loss of the right to enforce covenants is known as laches. Escheats occurs when
someone dies with a will (intestate) and have no heirs which causes the property to fall
back to the state. The Statute of Frauds requires certain contracts, such as real estate
,contracts, to be in writing in order to be enforceable. The Connor Act requires a deed to be
recorded to protect against transfers to 3rd parties.
In the event a property is sold at auction due to a foreclosure, and assuming all of the
following are liens on the property, which will be paid second out of the auction proceeds?
A. First Mortgage
B. Excise tax
C. Public special assessments
D. Real property taxes - Correct Answer C. Public special assessments
Explanation
Special assessments would be paid immediately after real property taxes, as they have
precedence over other recorded liens. Excise taxes are paid by the seller when the
property is sold. A first mortgage does not always have priority over recorded liens, as it
depends on the order of recordation.
For a deed to be valid, it must include which of the following essential characteristics?
A. Deed must contain words of conveyance
B. Deed must be signed by the grantee
C. Deed must be recorded
D. Deed must be acknowledged by a notary - Correct Answer A. Deed must contain words
of conveyance
Explanation
The essential elements of a valid deed include: The deed must be in writing, must be
signed by the grantor, must have a valid legal description, must have operative words of
conveyance, and must be delivered and accepted. There are other elements that one
usually sees but are not essential for a deed to be valid, such as: Recordation,
Acknowledgement, and dated. Acknowledgement occurs when the deed is notorized by a
notary.
A couple separates and the divorce will finalize in six months. The couple would like to
resolve the interest in the marital home by conveying the property to the wife. Which deed
would most likely be used to accomplish this?
A. Trustee's Deed
B. Limited warranty deed
C. Nonwarranty Deed
D. Special Purpose Deed - Correct Answer C. Nonwarranty Deed
Explanation
Nonwarranty deeds are often referred to as "Quitclaim" deeds and would be the most likely
solution for this case. Trustee's deeds are often used to convey foreclosures as it is the
trustee who is delivering the deed, for the lender, not the actual title holder. Special
, warranty deeds are often used in commercial transactions or sale of "real estate owned" by
the bank, where the title owner. Special or limited warranty deeds warrant only the period
of time that they have owned the property. Special purpose deeds are often used when a
property is being transferred by a public official performing a function of the office; for
example a Sheriff's Deed.
When calculating the capital gain or loss on the sale of a property, the amount realized is:
A. the difference between the purchase price and the capital improvements.
B. the difference between the sales price and allowable closing costs.
C. the difference between the amount the property sold for and the amount paid.
D. the difference between the assessed value and the tax value. - Correct Answer B. the
difference between the sales price and allowable closing costs.
Explanation
The amount realized is the sales price of the property less allowable closing costs.
Adjusted basis is calculated by taking the purchase price and adding capital improvements
and allowable closing costs. The calculation of gain or loss is calculated by taking the
amount realized and subtracting adjusted basis. NOTE: The purchase price may also be
referred to as BASIS.
At the settlement meeting a buyer asks his broker about the deductibility of certain closing
expenses on his/her income tax return. Which of the following statements is TRUE?
A. The broker cannot answer the question at this time without obtaining further financial
details from the buyer.
B. The broker should ask the attorney to answer the questions as this is a matter of law.
C. The buyer should itemize rather than using the standard deduction as interest expense
is tax deductible.
D. The buyer should seek accounting advice from a licensed professional. - Correct
Answer D. The buyer should seek accounting advice from a licensed professional.
Explanation
Unless a broker is alos a CPA, he/she should refrain from giving tax advice to his/her client.
The best course of action is to advise the buyer to discuss tax issues with a tax
professional. Not all buyers will benefit from the mortgage interest deduction when the
amount of interest, property taxes and other itemized deductions do not exceed the
standard deduction.
Building codes have been established to create minimum construction standards to
assure the safety of the building's occupants. Which of the following statements is
CORRECT regarding building codes?
A. Building codes are not permissible. Enforcement of construction is done through
zoning.
B. Building codes are created and enforced at the local level.
Explanations.
Which of the following is one of the five rights associated with the bundle of rights in
property ownership?
A. control
B. ejectment
C. freehold
D. fee simple - Correct Answer A. control
Explanation
The bundle of rights includes disposition, quiet enjoyment, exclusion, possession, and
legal control. These rights are commonly referred to as DEEP-C. Freehold and fee simple
refer to owning property permanently as opposed to leasing the property. Ejectment is
associated with evicting tenants.
Which of the following would not be included in a basic definition of real property?
A. Rights and Privileges associated with the property
B. Land
C. A split-rail fence around a cow pasture
D. The refrigerator in the kitchen - Correct Answer D. The refrigerator in the kitchen
Explanation
The refrigerator would not be considered real property as refrigerators are rarely "built-in"
to the real property. Land is specifically defined as real property. Rights and privileges that
"run with the land" are known as appurtenances and are considered real property. A split
rail fence, although not physically "attached" to the land are considered real property
because of their seemingly permanent nature as a barrier
An appurtenance is an item or a right said to "run with the land." Which of the following is an
example of an intangible appurtenance?
A. fence
B. trees
C. neighbor's encroaching driveway
D. HOA covenants - Correct Answer D. HOA covenants
Explanation
All of these are examples of appurtenances; however the trees, fence, and encroaching
driveway are tangible. They can be seen and touched. The HOA covenants are things that
cannot be seen such as height or material restrictions. HOA's may restrict the owners' use
of the property, by limiting paint colors, number of cars that can be parked in the driveway,
permitted mailbox, etc.
,Which of the following statements is FALSE with regard to an estate in real property?
A. A tenant has an estate in real property when he/she enters into a lease agreement.
B. An individual may have an estate in real property even if they do not currently have
possession of it.
C. An estate refers to an interest in property that may be possessory now or at some time in
the future.
D. An estate is an interest in property that denotes inheritability. - Correct Answer D. An
estate is an interest in property that denotes inheritability.
Explanation
Estates are not always inheritable; the "fee" estates are inheritable encumbrance against
the property. The estate is best defined as an interest in real property now or some time in
the future. A tenant has a leasehold estate in real property when they enter a lease and the
landlord has a leased fee interest.
A condominium is best defined as...
A. ownership of a property by purchasing a share of stock and receipt of a lease.
B. ownership of the airspace of the unit and co-ownership of the common area.
C. ownership of the unit itself as well as the land that it rests upon.
D. ownership of an interval unit for at least 5 years. - Correct Answer B. ownership of the
airspace of the unit and co-ownership of the common area.
Explanation
Condo ownership typically occurs in a vertically stacked building where the owner obtains
title to the airspace of the unit itself as well as co-ownership of the common areas. When a
townhouse is purchased, you typically own the unit itself as well as the land it rests upon,
with an HOA owning the common areas. A timeshare is defined as interval ownership of at
least 5 non-consecutive periods, over at least 5 years, where the buyer has 5 days to
cancel the purchase and the developer must keep sales funds in an escrow account for 10
days unless the buyer terminates.
A neighborhood is subject to restrictive covenants. The HOA has not enforced the
covenants for over 3 years. The HOA can no longer enforce the covenants :
A. through escheats.
B. through laches.
C. due to the Connor Act.
D. due to the Statute of Frauds. - Correct Answer B. through laches.
Explanation
The loss of the right to enforce covenants is known as laches. Escheats occurs when
someone dies with a will (intestate) and have no heirs which causes the property to fall
back to the state. The Statute of Frauds requires certain contracts, such as real estate
,contracts, to be in writing in order to be enforceable. The Connor Act requires a deed to be
recorded to protect against transfers to 3rd parties.
In the event a property is sold at auction due to a foreclosure, and assuming all of the
following are liens on the property, which will be paid second out of the auction proceeds?
A. First Mortgage
B. Excise tax
C. Public special assessments
D. Real property taxes - Correct Answer C. Public special assessments
Explanation
Special assessments would be paid immediately after real property taxes, as they have
precedence over other recorded liens. Excise taxes are paid by the seller when the
property is sold. A first mortgage does not always have priority over recorded liens, as it
depends on the order of recordation.
For a deed to be valid, it must include which of the following essential characteristics?
A. Deed must contain words of conveyance
B. Deed must be signed by the grantee
C. Deed must be recorded
D. Deed must be acknowledged by a notary - Correct Answer A. Deed must contain words
of conveyance
Explanation
The essential elements of a valid deed include: The deed must be in writing, must be
signed by the grantor, must have a valid legal description, must have operative words of
conveyance, and must be delivered and accepted. There are other elements that one
usually sees but are not essential for a deed to be valid, such as: Recordation,
Acknowledgement, and dated. Acknowledgement occurs when the deed is notorized by a
notary.
A couple separates and the divorce will finalize in six months. The couple would like to
resolve the interest in the marital home by conveying the property to the wife. Which deed
would most likely be used to accomplish this?
A. Trustee's Deed
B. Limited warranty deed
C. Nonwarranty Deed
D. Special Purpose Deed - Correct Answer C. Nonwarranty Deed
Explanation
Nonwarranty deeds are often referred to as "Quitclaim" deeds and would be the most likely
solution for this case. Trustee's deeds are often used to convey foreclosures as it is the
trustee who is delivering the deed, for the lender, not the actual title holder. Special
, warranty deeds are often used in commercial transactions or sale of "real estate owned" by
the bank, where the title owner. Special or limited warranty deeds warrant only the period
of time that they have owned the property. Special purpose deeds are often used when a
property is being transferred by a public official performing a function of the office; for
example a Sheriff's Deed.
When calculating the capital gain or loss on the sale of a property, the amount realized is:
A. the difference between the purchase price and the capital improvements.
B. the difference between the sales price and allowable closing costs.
C. the difference between the amount the property sold for and the amount paid.
D. the difference between the assessed value and the tax value. - Correct Answer B. the
difference between the sales price and allowable closing costs.
Explanation
The amount realized is the sales price of the property less allowable closing costs.
Adjusted basis is calculated by taking the purchase price and adding capital improvements
and allowable closing costs. The calculation of gain or loss is calculated by taking the
amount realized and subtracting adjusted basis. NOTE: The purchase price may also be
referred to as BASIS.
At the settlement meeting a buyer asks his broker about the deductibility of certain closing
expenses on his/her income tax return. Which of the following statements is TRUE?
A. The broker cannot answer the question at this time without obtaining further financial
details from the buyer.
B. The broker should ask the attorney to answer the questions as this is a matter of law.
C. The buyer should itemize rather than using the standard deduction as interest expense
is tax deductible.
D. The buyer should seek accounting advice from a licensed professional. - Correct
Answer D. The buyer should seek accounting advice from a licensed professional.
Explanation
Unless a broker is alos a CPA, he/she should refrain from giving tax advice to his/her client.
The best course of action is to advise the buyer to discuss tax issues with a tax
professional. Not all buyers will benefit from the mortgage interest deduction when the
amount of interest, property taxes and other itemized deductions do not exceed the
standard deduction.
Building codes have been established to create minimum construction standards to
assure the safety of the building's occupants. Which of the following statements is
CORRECT regarding building codes?
A. Building codes are not permissible. Enforcement of construction is done through
zoning.
B. Building codes are created and enforced at the local level.
