CE SHOP REAL ESTATE PRINCIPLES
PRACTICE TEST EXAM QUESTIONS
AND ANSWERS
When a buyer breaches the real estate sale contract, the seller may file a lawsuit for
compensatory damages. Which of the following best describes compensatory
damages? - Answer-Compensation for actual loss based on the contract's value.
Compensatory damages compensate a party for actual loss based on the contract's
value.
How can a foreclosure process be temporarily stalled? - Answer-By filing for Chapter 7
bankruptcy
Hal and Sara own a 212-acre farm. Their property is landlocked, but they have
permitted water rights to use the stream located six miles away for irrigation purposes.
What kind of water rights do they hold? - Answer-Prior appropriation
The doctrine of prior appropriation grants water rights based on need, not adjacency.
Hal and Sara likely live in the western part of the U.S. where many states subscribe to
this doctrine.
First-time home buyers who've had a Roth IRA account for at least five years may
withdraw an amount that equal to the contributions they've made to use as a down
payment. After that, how much more can they withdraw to help with a home purchase
without penalty? - Answer-Up to $10,000
How long after a notice of cessation or completion is filed can a contractor file a
mechanics lien? - Answer-Within 60 days
Which of these is true about the assessed value of real estate? - Answer-It's the value
used to calculate the property taxes, and it's based on a percentage of the market
value.
Assessed value of a property is a percentage of the market value, and it's used to
calculate the amount of property tax the owner will pay.
Which of the following is the best definition of a township? - Answer-A 36-square-mile
square formed when using the rectangular survey system
The Siegels are purchasing a commercial investment property and plan to use straight-
line depreciation on their financial statements and tax calculations. Which of the
,following would NOT be included in the Siegels' depreciation basis calculations? -
Answer-The loan origination and lender fees that they paid at closing
* The depreciable basis is made up of the sales price plus any acquisition costs, such
as title insurance, and capital improvements. Loan costs aren't included in the basis, but
something like electrical system upgrades are capital improvements.
What is the danger of a seismic hazard area? - Answer-Landslides or liquefaction
* A seismic hazard area is designated as such because of the potential for landslides or
liquefaction resulting from earthquake activity
What is the starting point for any land surveyor who has been asked to perform a
survey? - Answer-A review of existing historical records
How many parties does a mortgage involve? - Answer-Two: borrower and lender
* A mortgage involves two parties: the borrower and the lender. A trustee is only used
with a deed of trust.
Tom and Jim are neighbors. Jim wants to buy Tom's rental property. In the contract they
sign, Jim is identified only as "the neighbor." Which statute or contract element does this
violate? - Answer-The statute of frauds
* The statute of frauds requires not only that a contract to convey real property be in
writing, but also that the contract identify the parties to the contract.
Loans for ______ purposes don't require TILA disclosure. - Answer-Business
One of these parties is likely to be held liable for an injury resulting from the condition of
the premises. Who is it? - Answer-A residential landlord promises to repair the exposed
wiring in the laundry room, but forgets—until someone is electrocuted.
* Residential landlords are obligated to repair defects that are reported to them.
Generally, there are covenants between the borrower and the lender within a mortgage
document. Which of the following is a mortgage covenant? - Answer-Pay any charges
and assessments against the property.
* Covenants usually include paying charges and assessments against the property,
maintaining both the property and hazard insurance, and keeping the property in good
condition.
Colleen and Judy purchased a dilapidated townhome in an estate sale. Due to their fix-
up work and the current economy, the property value has skyrocketed. They decide to
sell it to get their equity out of it. After they list it, a woman comes forward, saying she is
,an heir to the previous owner and lays claim to the property. Which general warranty
deed covenant protects Colleen and Judy? - Answer-The covenant of warranty
* The covenant of warranty assures that the grantor will warrant and defend the title
against the lawful claims of others.
Real estate licensees who want to uphold the Fair Housing Act should make a habit out
of which of the following actions? - Answer-Tell potential clients in their initial meeting
that they are committed to upholding fair housing laws.
* Telling potential clients up front is the best way to avoid finding yourself in a situation
where someone expects you to discriminate on her behalf. Promoting diversity is
another part of promoting fair housing, and while you're free to share your protected
status if you have one, it's not actually relevant.
Which of these is a type of gap financing that's used temporarily until the consumer can
obtain permanent financing? - Answer-Bridge loan
* A bridge loan is a temporary (usually 90-day) loan that provides funds in addition to an
existing loan until permanent financing can be obtained. It's often used by buyers
who've not yet sold their prior property.
At what level of government are budgeting, site plan review, and building codes
controlled? - Answer-Local
* It would be cumbersome to exert local control and planning from a state or federal
level.
Which of the following statements is true about the listing presentation? - Answer-You
should go into the presentation fully prepared with a comparative market analysis, listing
agreement, MLS listings of comparable properties, and your plan for marketing the
sellers' property.
* In a listing presentation, you should demonstrate your overall ability to sell the property
through your knowledge of the local market (using the CMA and MLS data), as well as
your marketing plan. The listing agreement is there to seal the deal.
Which of these might bring a charge of illegal steering against a licensee? - Answer-
When working with single female clients, Cassandra is careful to promote properties in
neighborhoods she considers safe.
* Licensees must take care to screen properties only on the basis of clients' expressed
housing preferences and without providing information about neighborhood
demographics that might bring a charge of steering.
, Jim decided to refinance his three-year-old mortgage that has a balance of $300,000.
He has to pay a fee of 5% of the loan amount to the original lender for paying off the
mortgage early. What is this fee called? - Answer-A prepayment penalty
Anita is a new buyer. Luckily, ______ will help her before the sale and can reimburse
her after the sale if a title issue arises. - Answer-Her title insurance
* Title insurance protects the buyer from title defects covered by the policy. If a defect is
found, and it's covered, the insurance policy will reimburse the buyer for losses, up to
the amount specified in the policy.
Jason purchased his dream home six months ago. After Jason received an inheritance
from his uncle, he decided to pay off his mortgage. What should he consider before
doing this? - Answer-Whether he will incur a prepayment penalty
* Some loan agreements call for a prepayment penalty to compensate the lender for
interest not received when the buyer pays off the loan earlier than expected.
Which zoning classification would be used solely for the development of a home? -
Answer-Residential
* Residential zoning is used for residences, particularly for single-family homes.
Martin placed all of his real estate investments in a trust, and the proceeds will be
distributed through the trust to his son Nathan. In this situation, Nathan is the ______. -
Answer-beneficiary
Positioning a house on a lot in order to take advantage of a view is called ______. -
Answer-siting
* Siting is a key concern when developing properties. A great view can increase a
property's value significantly.
Which of the following properties is considered a mobile home? - Answer-A structure
transported in two units and built in 1975 on a permanent chassis
* To be considered a mobile home, the property must be transported in one or more
units, be built on a permanent chassis, consist of no more than two dwellings, and have
been constructed before 1976
Which practice involves talking the consumer into refinancing over and over so a lender
can charge fees? - Answer-Loan flipping
Which of the following is a true statement about FHA financing? - Answer-An FHA loan
is usually more attractive to borrowers who have lower credit scores and down
payments.
PRACTICE TEST EXAM QUESTIONS
AND ANSWERS
When a buyer breaches the real estate sale contract, the seller may file a lawsuit for
compensatory damages. Which of the following best describes compensatory
damages? - Answer-Compensation for actual loss based on the contract's value.
Compensatory damages compensate a party for actual loss based on the contract's
value.
How can a foreclosure process be temporarily stalled? - Answer-By filing for Chapter 7
bankruptcy
Hal and Sara own a 212-acre farm. Their property is landlocked, but they have
permitted water rights to use the stream located six miles away for irrigation purposes.
What kind of water rights do they hold? - Answer-Prior appropriation
The doctrine of prior appropriation grants water rights based on need, not adjacency.
Hal and Sara likely live in the western part of the U.S. where many states subscribe to
this doctrine.
First-time home buyers who've had a Roth IRA account for at least five years may
withdraw an amount that equal to the contributions they've made to use as a down
payment. After that, how much more can they withdraw to help with a home purchase
without penalty? - Answer-Up to $10,000
How long after a notice of cessation or completion is filed can a contractor file a
mechanics lien? - Answer-Within 60 days
Which of these is true about the assessed value of real estate? - Answer-It's the value
used to calculate the property taxes, and it's based on a percentage of the market
value.
Assessed value of a property is a percentage of the market value, and it's used to
calculate the amount of property tax the owner will pay.
Which of the following is the best definition of a township? - Answer-A 36-square-mile
square formed when using the rectangular survey system
The Siegels are purchasing a commercial investment property and plan to use straight-
line depreciation on their financial statements and tax calculations. Which of the
,following would NOT be included in the Siegels' depreciation basis calculations? -
Answer-The loan origination and lender fees that they paid at closing
* The depreciable basis is made up of the sales price plus any acquisition costs, such
as title insurance, and capital improvements. Loan costs aren't included in the basis, but
something like electrical system upgrades are capital improvements.
What is the danger of a seismic hazard area? - Answer-Landslides or liquefaction
* A seismic hazard area is designated as such because of the potential for landslides or
liquefaction resulting from earthquake activity
What is the starting point for any land surveyor who has been asked to perform a
survey? - Answer-A review of existing historical records
How many parties does a mortgage involve? - Answer-Two: borrower and lender
* A mortgage involves two parties: the borrower and the lender. A trustee is only used
with a deed of trust.
Tom and Jim are neighbors. Jim wants to buy Tom's rental property. In the contract they
sign, Jim is identified only as "the neighbor." Which statute or contract element does this
violate? - Answer-The statute of frauds
* The statute of frauds requires not only that a contract to convey real property be in
writing, but also that the contract identify the parties to the contract.
Loans for ______ purposes don't require TILA disclosure. - Answer-Business
One of these parties is likely to be held liable for an injury resulting from the condition of
the premises. Who is it? - Answer-A residential landlord promises to repair the exposed
wiring in the laundry room, but forgets—until someone is electrocuted.
* Residential landlords are obligated to repair defects that are reported to them.
Generally, there are covenants between the borrower and the lender within a mortgage
document. Which of the following is a mortgage covenant? - Answer-Pay any charges
and assessments against the property.
* Covenants usually include paying charges and assessments against the property,
maintaining both the property and hazard insurance, and keeping the property in good
condition.
Colleen and Judy purchased a dilapidated townhome in an estate sale. Due to their fix-
up work and the current economy, the property value has skyrocketed. They decide to
sell it to get their equity out of it. After they list it, a woman comes forward, saying she is
,an heir to the previous owner and lays claim to the property. Which general warranty
deed covenant protects Colleen and Judy? - Answer-The covenant of warranty
* The covenant of warranty assures that the grantor will warrant and defend the title
against the lawful claims of others.
Real estate licensees who want to uphold the Fair Housing Act should make a habit out
of which of the following actions? - Answer-Tell potential clients in their initial meeting
that they are committed to upholding fair housing laws.
* Telling potential clients up front is the best way to avoid finding yourself in a situation
where someone expects you to discriminate on her behalf. Promoting diversity is
another part of promoting fair housing, and while you're free to share your protected
status if you have one, it's not actually relevant.
Which of these is a type of gap financing that's used temporarily until the consumer can
obtain permanent financing? - Answer-Bridge loan
* A bridge loan is a temporary (usually 90-day) loan that provides funds in addition to an
existing loan until permanent financing can be obtained. It's often used by buyers
who've not yet sold their prior property.
At what level of government are budgeting, site plan review, and building codes
controlled? - Answer-Local
* It would be cumbersome to exert local control and planning from a state or federal
level.
Which of the following statements is true about the listing presentation? - Answer-You
should go into the presentation fully prepared with a comparative market analysis, listing
agreement, MLS listings of comparable properties, and your plan for marketing the
sellers' property.
* In a listing presentation, you should demonstrate your overall ability to sell the property
through your knowledge of the local market (using the CMA and MLS data), as well as
your marketing plan. The listing agreement is there to seal the deal.
Which of these might bring a charge of illegal steering against a licensee? - Answer-
When working with single female clients, Cassandra is careful to promote properties in
neighborhoods she considers safe.
* Licensees must take care to screen properties only on the basis of clients' expressed
housing preferences and without providing information about neighborhood
demographics that might bring a charge of steering.
, Jim decided to refinance his three-year-old mortgage that has a balance of $300,000.
He has to pay a fee of 5% of the loan amount to the original lender for paying off the
mortgage early. What is this fee called? - Answer-A prepayment penalty
Anita is a new buyer. Luckily, ______ will help her before the sale and can reimburse
her after the sale if a title issue arises. - Answer-Her title insurance
* Title insurance protects the buyer from title defects covered by the policy. If a defect is
found, and it's covered, the insurance policy will reimburse the buyer for losses, up to
the amount specified in the policy.
Jason purchased his dream home six months ago. After Jason received an inheritance
from his uncle, he decided to pay off his mortgage. What should he consider before
doing this? - Answer-Whether he will incur a prepayment penalty
* Some loan agreements call for a prepayment penalty to compensate the lender for
interest not received when the buyer pays off the loan earlier than expected.
Which zoning classification would be used solely for the development of a home? -
Answer-Residential
* Residential zoning is used for residences, particularly for single-family homes.
Martin placed all of his real estate investments in a trust, and the proceeds will be
distributed through the trust to his son Nathan. In this situation, Nathan is the ______. -
Answer-beneficiary
Positioning a house on a lot in order to take advantage of a view is called ______. -
Answer-siting
* Siting is a key concern when developing properties. A great view can increase a
property's value significantly.
Which of the following properties is considered a mobile home? - Answer-A structure
transported in two units and built in 1975 on a permanent chassis
* To be considered a mobile home, the property must be transported in one or more
units, be built on a permanent chassis, consist of no more than two dwellings, and have
been constructed before 1976
Which practice involves talking the consumer into refinancing over and over so a lender
can charge fees? - Answer-Loan flipping
Which of the following is a true statement about FHA financing? - Answer-An FHA loan
is usually more attractive to borrowers who have lower credit scores and down
payments.
