New Jersey Real Estate Exam #1 Questions With Correct Answers

1. A real estate licensee has a buyer agency agreement. What is the seller in this situation? A. a customer B. a client C. a fiduciary D. an agent - Answer A. There's an important distinction between client and customer. Unless there is a specific agreement to the contrary, licensees represent only one side in a transaction. In this case, it's the buyer who is the client and it's the licensee's obligation to negotiate a deal that's in that person's best interests, not the one that's "fairest" to both parties. 2. An optionor and an optionee make a contract for an option on a commercial piece of property. If the optionee decides to exercise his option, when must he perform? A. He must exercise his option within 6 months under state law. B. He must exercise his option under the terms of the option contract. C. He must exercise his option when the optionor demands it. D. He can exercise his option whenever he wants. - Answer B. Options are generally concerned with only two things: time and price. Whatever the parties agree to in those regards defines the terms of the option and the obligations of the parties. 3. When can a landlord evict a disabled blind or disabled tenant from the premises? A. If the tenant gets a dog and the apartment policy does not allow pets B. If the tenant insists on a handicapped parking place C. If the tenant makes modifications to his unit at his expense D. If the tenant has loud parties and makes too much noise - Answer D. The law requires "reasonable accommodation"--for example, allowing a guide dog for a blind person even if there's a "no pets" policy. However, that does not mean that all rules are suspended. Noise, safety, and "use of premises policies" may still be enforced. 4. Broker Carr, with ABC Real Estate Company, listed the property with a seller. Broker Smith, with XYZ Real Estate Company, called Broker Carr, and disclosed that he was a Buyer Agent. Broker Smith wrote a contract with a buyer for the sale of the property. What, if any, is the relationship between the buyer's broker, the seller and the listing broker? A. There is not a relationship between the parties. Broker Carr represents the Seller and Broker Smith represents the Buyer. B. customer C. agency D. dual agency - Answer A. Since each broker represents separate sides in the transaction, no relationship exists. 5. A buyer bought a property without telling the seller of his intended purpose for the property. The contract contains no contingency clauses and it is a properly executed contract. After the closing, the buyer is unable to obtain the zoning he needs for his commercial project. What is the contract at this stage? A. void B. voidable C. breach D. enforceable - Answer D. Since there were no contingency clauses, and no restrictive covenants of record. If the buyer cannot secure a change of zoning , the contract is perfectly valid as stands and is enforceable between the parties. 6. The seller and the buyer finally agreed to a purchase price of $203,500 with the closing to occur on June 15, 2011. The taxes for the year 2011 in the amount of $2,500 have not been paid by the seller. (Taxes are paid in arrears). How much would the tax proration amount to, and how would it appear on a full settlement statement? Base your answer on a 365 day year, and the buyer is responsible for the day of settlement. A. $1,130.14 debit the seller and credit the buyer B. $1,130.14 debit the buyer and credit the seller C. $2,500 credit the seller and debit the buyer D. Nothing. The seller does not owe since the buyer is buying - Answer A. The seller would owe money, and the buyer would receive money, because the seller has not paid the taxes. $2,500 divided by 365 is $6. times the actual days of 165 is $1,130.14. 7. A seller listed his home for six months on February 26. On April 29, a buyer made an offer on the property. The listing broker presented the offer to the seller on April 30. The seller accepted the offer on May 1, with the closing to occur on June 15. Assuming the closing took place on June 15, when did the listing expire? A. 26-May-04 B. 15-Jun-04 C. 26-Aug-04 D. 15-Dec-04 - Answer B. Listing contracts set forth the terms and conditions under which a broker will sell a property for his or her client. When the closing takes place, the terms of the contract have been fulfilled and it expires automatically. 8. The sellers listed their property for six months on February 26 for $104,500. They agreed to pay the listing broker a 7% commission at closing on the agreed upon sale price. A buyer made an offer on the property on March 29 for $102,000. The seller countered the offer on April 1 at $103,500, and the buyer accepted the counter offer with the closing to occur on June 15. How much commission did the seller owe the listing broker, and how would it appear on the settlement statement? A. $3,622.50. Debit the seller. B. $7,140. Credit the seller. C. $7,315. Debit the seller. D. $7,245. Debit the seller. - Answer D. Commissions are paid based on the actual selling price, not the listing price. Additionally, since the broker represented the sellers in this transaction, the commission is debited from their side of the ledger. 9. The seller and the buyer agreed to a purchase price of $103,500 with the closing to occur on June 15. The seller's loan balance after the June 1 payment was $39,440. with an interest rate of 10%.The monthly payment was $440 principal and interest. What was the loan balance the day of closing, and how much interest did the seller owe the bank? A. loan balance $39,440; interest due $10,350 B. loan balance $39,000; interest due $3,944 C. loan balance $39,000; interest due $862.50 D. loan balance $39,440; interest due $164.33 - Answer D. Although many types of loans can become more complex in their calculations of remaining principal and interest at a particular point in time, in this case the interest portion of the payment is calculated simply by multiplying $39,440 by 10% and dividing by twelve. That results in monthly interest of $328.66, with half that amount, or $164.33 added to the principal payment at closing. 10. The buyer and seller agreed to a purchase price of $103,500. The buyer received an 80% loan. How much was the buyer's loan and how did it appear on the settlement statement? A. $103,500. Credit the buyer and debit the seller. B. $100,000. Debit both the seller and the buyer. C. $ 95,000. Credit both the seller and the buyer. D. $ 82,800. Credit the buyer only. - Answer D. Mortgage monies are credited to the buyer's side of the ledger as a portion of the funds he or she will use to complete the transaction. Once all the funds have been accounted for, the monies (less appropriate deductions) transfer to the seller. 11. A home improvement company was negotiating with a homeowner to add on two rooms to a home. The company agreed to take a second mortgage as long as the homeowner also included the rest of the property in the loan. The company and the homeowner agreed to a price and the company provided the necessary disclosure form on Monday and the homeowner signed the agreement at noon the following day. Assuming that the week had five business days, until what time could the homeowner rescind the loan? A. Tuesday, midnight B. Thursday, midnight C. Friday, midnight D. There is no rescission on a house. - Answer C. Because agreement was reached and SIGNED documents were provided on TUESDAY, Friday midnight ends the THREE-business-day period 12. The seller under a land contract is called: A. the grantor. B. the grantee. C. the vendor. D. the vendee. - Answer C. Land contracts are also known as installment contracts. In this type of arrangement, the buyer occupies the property, but the title is held in the name of the seller until some future point in time--often when the last payment is made. 13. On an 8% straight term loan of $6,071, the borrower paid total interest of $1,700. How long did he have the loan? A. 30 months B. 36 months C. 42 months D. 48 months - Answer C. Eight percent of $6,071 is $486 per year or $40.50 per month. $1,700 divided by $40.50 means the borrower held the loan for forty-two months. 14. The finance charges recorded on the Truth in Lending statements would include all of the following EXCEPT: A. loan fees charged by the lender. B. insurance premiums for mortgage insurance payment. C. discount points and service fees. D. recording fees and title insurance premiums. - Answer D. These are considered legal, not financing fees and therefore are not part of the Truth in Lending statement. 15. A mortgage broker: A. arranges loans between borrowers and investors. B. is a lender. C. buys mortgages in the secondary mortgage market. D. buys mortgages and resells them at a profit. - Answer A. Mortgage brokers function much like independent insurance agents and represent a variety of lenders. Their role is to match the circumstances of individual buyers with the mortgage program best suited to their needs. 16. The Smiths' purchased a residence for $75,000. They made a down payment of $15,000 and agreed to assume the seller's existing mortgage, which had a current balance of $23,000. The Smiths' financed the remaining $37,000 of the purchase price by executing a second mortgage whereby the seller became a mortgagee. This type of loan is called a: A. wraparound mortgage. B. package mortgage. C. balloon note. D. part purchase mortgage. - Answer D. Also known as a "purchase money second," this is a streamlined and often cost-effective financing option. 17. On a $50,000 loan the borrower is required to pay two points. How much does the borrower have to pay the lender? A. $49,000.00 B. $50,000.00 C. $51,000.00 D. $52,000.00 - Answer C. One point equals one percent; thus two points are two percent of $50,000, or $1,000, which becomes part of the buyer's total obligation to the lender. 18. The discount points charged by a lender on a federal VA or FHA loan are a percentage of the: A. sales price. B. appraised price. C. loan amount. D. down payment. - Answer C. Like points, discount points are one-time charges equal to one percent of the loan amount for each point charged. 19. An increase in the availability of money would lead to which effect? A. Interest rates would go up. B. Interest rates would go down. C. Interest rates would NOT be affected due to RESPA guidelines. D. Interest rates would NOT be affected due to TRUTH IN LENDING. - Answer B. Just like most things in a free market economy, mortgage loans are subject to the laws of supply and demand. Thus, when there is more mortgage money in the market place "looking for a home," borrowers have more choices, which leads to increased competition among lenders, which leads to lower interest rates. 20. When the amortized payment of a mortgage remains constant over the period of the loan but leaves an outstanding balance to be paid at the end, this payment is called: A. an escalation payment. B. a balloon payment. C. a satisfaction payment D. an acceleration payment. - Answer B. Typically, mortgages with balloon payments are used as a creative financing tool in which buyers plan to refinance the balance in three to five years with better terms than they can qualify for now. 21. In an installment land contract, what type of title did the seller retain? A. joint B. legal C. equitable D. record - Answer B. In this type of contract, the BUYER doesn't receive legal title to the property until the final payment is made. The BUYER receives equitable title at closing, and upon final payment to the seller receives legal title. 22. Which of the following is true of a second mortgage? A. It has priority over a first mortgage. B. It cannot be used as a security instrument. C. It is not negotiable. D. It is usually issued at a higher rate of interest. - Answer D. Second mortgages carry higher risk for lenders because they're "second" in line after the first mortgage holder. In case of foreclosure, that means the first mortgage holder is paid in full before any remaining monies are distributed. This added exposure typically results in higher interest rates. 23. Usury MOST nearly means: A. making loans without the benefit of co-signors. B. lending money at fluctuating interest rates. C. being capable of multiple usage. D. illegal interest. - Answer D. Each state sets its own ceiling for the maximum interest rate lenders may charge. Rates above that ceiling are considered usurious and illegal. No reputable lender exceeds those rates and those that make a practice of it are commonly known as loan sharks. 24. A borrower bought a $74,000 house with no down payment. The loan was probably: A. a conventional insured loan. B. a VA loan. C. an FHA loan. D. a conventional loan. - Answer B. VA loans are zero-down instruments, while FHA loans permit low down payments in the 5% range. 25. A house sold for $42,000. The buyer made a 20% down payment. Monthly interest on the loan was $252. What was the interest rate on the loan? A. 5% B. 7% C. 9% D. 11% - Answer C. With a 20% down payment of $8,400, the buyer had a mortgage of $33,600. Since interest is expressed in annual terms, multiply the monthly payment of $252 times twelve. That yields an annual interest cost of $3,024, divided by the principal balance of $33,600, yields an annual rate of 9%. 26. Which of the following describes a mortgage that requires principal and interest payments at regular intervals and is called the liquidation of debt by periodic installment until the debt is satisfied? A. amortized loan B. annuity loan C. acceleration loan D. assemblage loan - Answer A. This question is a formal description of amortized loans--the most common form of mortgage where monthly payments include both principal and interest (as opposed to balloon or interest-only seconds). Typically, monthly payment amounts remain constant, while the interest portion is higher in the earlier years, giving homeowners a larger tax deduction with higher percentages of principal paid in the later years. 27. Under RESPA, a copy of REAL ESTATE SETTLEMENT COSTS AND YOU must be given: A. within one day before closing. B. at the time of loan application, or within 3 days of application. C. within 5 days of application. D. at closing. - Answer B. he intent of RESPA--the federal Real Estate Settlement Procedures Act--is to make borrowers more aware of costs and charges. Accordingly, it should be given at the time of application and no later than three days after that. 28. The clause in a trust deed or mortgage which permits the mortgagee to declare the entire unpaid sum due upon a default by a mortgagor is called: A. a judgment clause. B. an acceleration clause. C. an escalator clause. D. a forfeiture clause. - Answer D. "Acceleration clauses" are stipulations that if certain events occur, such as not making payments, the entire amount of the mortgage can become due. Most typically, this is seen in "Due on sale" clauses that require the mortgage balance be paid in full at the time the house is sold. 29. An impound or reserve account MOST benefits whom? A. the borrower B. the lender C. the trustee D. the trustor - Answer B. Also known as escrow accounts, impound accounts accumulate funds from closing costs and monthly payments to ensure that property taxes and homeowner's insurance are kept current. 30. The lender is not insured or guaranteed against a loss, by reason of the borrower's default in repayment, under which type of loan? A. FHA B. Conventional C. VA D. GI - Answer B. Government-sponsored loan programs such as FHA are not actually loans, but guarantees to lenders to encourage them to make favorable mortgages available to qualifying individuals. 31. A VA loan may be granted for the purchase of a one-family to four-family property if: A. The veteran certifies the rent collected will equal the mortgage payments. B. The loan will be amortized for not more than 20 years. C. The down payment will be at least 10%. D. The veteran agrees to live there. - Answer D. Although the rules and terms can fluctuate, the low down payment and below market interest features of VA loans come with the condition that the borrower lives in the property. 32. Which of the following would usually occur in a sale-and-leaseback transaction? A. The seller gets a return on the purchase in the form of rental payments. B. The property is sold on the condition that the new owner lease it back to the seller at the time title passes. C. The buyer keeps capital in inventories rather than in realty. D. The rent that the seller pays is not income-tax deductible. - Answer B. A sale-leaseback is usually used for the purpose of creating cash flow from a commercial property. As the name implies, the owner transfers title to the buyer in exchange for cash, then leases the property back at a monthly rate while continuing to run his business from that location or otherwise use the property. 33. A standardized yardstick expressing the true annual cost of borrowing is expressed as the what? A. ECOA B. Regulation Z C. APR D. RESPA - Answer C. APR stands for "Annual Percentage Rate" and expresses the true cost of the loan by factoring fees such as points, recording fees, appraisal fees and such into the interest rate. For example, a mortgage that showed an interest rate of 4.85% on the promissory note might have an APR of 5% when associated costs are factored in. 34. RESPA would prohibit which of the following acts? A. steering B. paying of kickbacks C. blockbusting D. redlining - Answer B. RESPA concerns itself only with educating consumers about the true costs of borrowing and standardizing lending practices. As such, referral "fees" are prohibited.