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A comprehensive overview of key concepts and principles related to real estate brokerage, focusing on topics such as loan-to-value ratios, appraisal methods, and financing options. It includes multiple-choice questions with answers, offering valuable insights into the national psi broker exam.
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"A buyer is getting a new mortgage with a 95% loan-to-value ratio. The final loan amount the lender will lend the buyer is determined by the A) lower of the sales price or appraised value. B) higher of the sales price or appraised value. C) sales price only. D)
The answer is lower of the sales price or appraised value. The loan-to-value (LTV) ratio is determined by the lower of the sales price or appraised value." "A real estate broker must know what items are required to create valid agreements. All of the following are considered to be essential to the validity of a purchase agreement EXCEPT A) acceptance by the offeree and communication of the acceptance to the offeror. B) all parties have the ability and competency to enter into a legal agreement. C) consideration as agreed to between the seller and the buyer. D)
The answer is the buyer supplying earnest money. Earnest money is tied to the remedies given to the seller if the buyer is in default; it is not consideration and is not required as part of a purchase agreement." A broker is completing a CMA to determine the potential listing price of a seller's home. Which of the following is NOT part of the final CMA given to the seller? A) Highest and best use evaluation B)
Comparable sales analysis C) Adjustments to past sales D)
The answer is highest and best use evaluation. An appraiser does a highest and best use evaluation, which does not appear in a CMA." "Houses in the local area have had an increase in sales price and a decrease in days on the market. A broker who is attempting to determine the current market value for a residential listing would get the BEST estimate of value by using A) a GRM as the primary consideration to determine value. B) the cost approach with reproduction estimates. C) comparables that are no more than six months old. D)
The answer is comparables that are no more than six months old. In a changing market, the more recent the comparables, the more likely they are to reflect upward or downward price changes." "Rental rates have increased by 2% in the last six months. Which appraisal principle BEST explains this rate increase? A) Principle of substitution B) Principle of supply and demand C) Principle of contribution D)
The answer is principle of supply and demand. The principle of supply and demand states that as fewer properties become available for rent or sale, the price owners can charge will increase." "The current monthly GRM in a neighborhood is 200, and the annual income is $24,000. What is the estimated value of a property in this neighborhood? A)
"A buyer chooses a loan with an LTV ratio of 90%, which requires the purchase of PMI, instead of a loan with an 80% LTV, which would not require the insurance. The buyer MOST likely made this choice because A) if the buyer defaults, PMI will protect the buyer by paying off the full loan. B) the buyer will make a larger down payment but have smaller monthly payments, including PMI. C) paying PMI will mean that all mortgage payments and homeowners association fees are deferred in case of default. D)
The answer is the buyer wants a smaller down payment, even though the buyer will have to pay PMI. Buyers are willing to pay PMI (private mortgage insurance) in order to bring a smaller down payment to closing, which will mean a higher monthly payment. PMI protects lenders in case of default." "The difference between using a partially amortized loan or an interest-only term loan is that the partially amortized loan would result in A) smaller payments and a smaller balloon payment. B) larger payments and a smaller balloon payment. C) smaller payments and a larger balloon payment. D)
The answer is larger payments and a smaller balloon payment. In a partially amortized loan, the loan payments include a partial payment toward principal. While the payments will be larger, the balloon payment will be smaller, due to some principal payoff. With an interest-only loan, the original principal and the final balloon payment are the same because there was no payment made toward the principal." "A borrower is using leverage on a new home loan at 90% loan to value. The disadvantage of this type of leveraging is that A) the borrower is at higher risk of defaulting on the loan. B) it allows the borrower to pay less interest over the life of the loan.
a larger down payment is required. D)
The answer is the borrower is at higher risk of defaulting on the loan. Leverage is using someone else's money; the higher the leverage, the higher the risk of default. Because leveraging implies a high LTV, equity does not build faster, and the loan may require private mortgage insurance (PMI) if there is a small down payment." "A property owner has a large amount of equity in his home but does not want to sell it to gain access to his money. What type of loan could the owner use to access the equity in his home without having to make monthly loan payments? A) Contract for deed B) Purchase money mortgage C) Reverse mortgage D)
The answer is reverse mortgage. In a reverse mortgage, the lender makes payments to the borrower each month. There are requirements such as age and equity in the property for this type of loan." "A lender in first position filed documents to initiate foreclosure on a property. The borrower offered to give the lender a deed in lieu of foreclosure. If the lender accepts the deed in lieu, which of the following is TRUE? A) The lender must continue with the foreclosure. B) Upon receiving the deed, the lender acquires the property free and clear of all liens. C) The lender will take title subject to any junior liens. D)
The answer is the lender will take title subject to any junior liens. The foreclosure process removes all liens, but if a lender takes a deed in lieu of foreclosure, any junior liens are still attached and would become the obligation of the lender. There is no reason to continue the foreclosure process because the lender will become the owner and title policies find encumbrances but do not release them."
The seller has possession and equitable title. B) The buyer has legal title and possessory rights once all the contingencies have terminated. C) This stage is for the seller to determine if the buyer's offer is acceptable or if the seller should counteroffer. D)
The answer is the seller has legal title and the buyer is the equitable owner until title is conveyed at closing. The seller has possession and legal title until the deed is delivered to the buyer conveying title." "A property is under contract. During the inspection, the buyer finds major structural issues that the seller is unable to correct before closing. The buyer and the seller agree to terminate the contract, which is known as A) a valid contract which has become voidable by both parties. B) specific performance for both parties with no monetary remedy. C) mutual rescission of the contract. D)
The answer is mutual rescission of the contract. Mutual rescission is when both parties return to their original state with all things of value, such as earnest money, also returned." "A buyer has requested that the seller give him a six-month opportunity to purchase the seller's property for $400,000 with 10% down. The buyer has agreed to give the seller $4,000 to hold the offer open for the next six months, with the seller keeping the $4,000 if the buyer decides not to purchase. The contract is A) an open listing agreement. B) an option agreement. C) an implied sales agreement with both parties bound. D)
The answer is an option agreement. An option is a unilateral agreement that sets the sales price and terms but also gives the buyer the option not to buy the property. If the buyer decides not to buy, an option contract does not allow the seller to sue (recourse). In this case, the seller will keep the buyer's option money." "A minor has inherited a large old house from her father. The minor sells it to her aunt. Is the purchase contract valid? A) Yes, it is valid and enforceable. B) No, it is void. C) No, it is voidable by the minor. D)
The answer is no, it is voidable by the minor. Contracts with minors entered into by adults are always voidable by the minor." "All of the following are common law requirements for a valid listing agreement EXCEPT A) a definite termination date. B) specific performance remedies should one of the parties default. C) a negotiable commission clause. D)
The answer is specific performance remedies should one of the parties default. Listings that are employment agreements do not have specific performance remedies. Specific performance is used in purchase agreements, not in employment agreements." "Legal agreements may be valid, void, or voidable, depending on whether they contain all the required essential elements of a contract. All of the following would make a contract voidable EXCEPT A) it isn't in writing. B) a minor has signed the document. C)
an assignment. B) a new contract. C) an addendum. D)
The answer is a new contract. A novation is a new contract that forms a new agreement and removes the liability of the old agreement from the previous parties. It may be unilateral or bilateral. An assignment releases contract obligations but not liability. Addenda add to the offer." "A couple earns $4,840 per month after taxes and wants to have a mortgage payment that is no more than 25% of their monthly earnings. Using the following amortization table, which interest rate and term will give the couple a payment closest to what they are seeking? A) 5% over 15 years B) 5.75% over 30 years C) 6.25% over 20 years D)
The answer is 6.25% over 20 years. The first step is to determine the amount of the payment ($4,840 × 0.25 (25%) = $1,210). Using the amortization chart, a loan at 6.25% for 20 years with a payment of $1,206.03 is the closest." "Taxes of $2,700 are paid in arrears from January 1 to December 31. The closing is May 15. Using a 365- day year, actual months, and the buyer having the day of closing, what will be the debit and credit to the seller and the buyer at closing? A) $991.23 debit seller, credit buyer B) $1,012.50 debit seller, credit buyer C) $1,687.50 debit buyer, credit seller D)
The answer is $991.23 debit seller, credit buyer. Taxes paid in arrears are a SOB (seller owes buyer). $2,700 ÷ 365 × 134 = $991.23. Debit the seller, who owes the bill, and credit the buyer, who will pay the bill. Always prorate taxes as given in the question." "An owner bought her property 20 years ago for $190,000 and put 20% down for a loan value of $152,000. The current loan amount is $102,000 and the property recently appraised for $185,000. The owner has equity of A) $83,000. B) $88,000. C) $185,000. D)
The answer is $83,000. Equity is determined by the current value minus the current debt. In this case, $185,000 - $102,000 = $83,000 in equity." "A property has improvements valued at $390,000. Using straight-line depreciation of 39 years, how much have the improvements depreciated after 10 years? A) $8, B) $10, C) $100, D)
The answer is $100,000. Straight-line depreciation = property value ÷ useful life of the improvements. $390,000 ÷ 39 = $10,000 per year × 10 years taken = $100,000." "In a condominium, common elements such as the elevator, pool, and hallways are owned by A) the homeowners association and the current owners as joint tenants. B) each unit owner, who has an undivided share held in severalty. C) all past and present owners as tenants by the entirety. D)
the partners can lose no more than their investment. B) all partners have equal say and equal liability. C) each partner must invest at least $15,000 as seed money. D)
The answer is the partners can lose no more than their investment. In a limited partnership, the limited partners can lose no more than what they have invested, and each partner can contribute different amounts to the partnership." "As part of land surveys and legal descriptions, monuments are used to establish the property's A) lot size. B) variances. C) zoning rules. D)
The answer is boundaries. Monuments are fixed points used to mark corners and set boundaries. They are used in metes-and-bounds legal descriptions and in surveys to mark the boundaries." "A development company has a large section of land for developing housing. The property has been surveyed, and a plat map was created. The next step the development company should take in order to sell lots is to A) train a sales group to start selling lots. B) issue building permits and develop building codes. C) record the plat map with the county. D)
The answer is record the plat map with the county. Until the plat map is recorded, the section is still under one legal description. Recording will create individual lots that can be sold. The government creates building codes and issues building permits."
"A legal description states: "Commencing at the corner of Ridge Street and Maple, then east 40 degrees to Elm Ave." This type of description is known as A) metes and bounds. B) rectangular survey. C) lot, block, and subdivision. D)
method uses a beginning point (the only legal description that will state "starting at"), linear measurement, and compass degrees to describe the perimeter or boundaries of a parcel of land. No other legal description uses a starting point." "The MOST important reason for brokers and salespeople to understand title and ownership issues and the essential elements of contracts and deeds is so they will know A) how commissions are determined and who pays them. B) how to advise buyers and sellers on legal and other issues in contracts and title work. C) what requirements are needed for valid documents and who is required to sign the real estate paperwork. D)
The answer is what requirements are needed for valid documents and who is required to sign the real estate paperwork. The most important reason brokers and salespeople are trained in contracts, deeds, title, and ownership is so they will know if the documents are valid and who should sign them. Licensees may never give legal advice on real estate issues." "A broker can send the buyer or the seller to a title insurance company in which he is a partner if he A) also provides the buyer or the seller with a list of other title companies. B) gives the buyer or the seller a written disclosure of the broker's relationship with the title company. C) directs them to another real estate company. D)
seek a variance to create a special use for the business. C) apply for a special-use permit for a home office after closing. D)
The answer is check to see whether zoning will allow for the business use. The broker should suggest the buyer verify that the zoning on any property will allow for this type of use." "A retail store in a residential neighborhood is MOST likely an example of A) a zoning variance. B) special use. C) a special commercial permit. D)
The answer is nonconforming use. Commercial use in a residential area is most likely created by nonconforming use. The store was in compliance with zoning when built, but when the zoning was amended, the store no longer complies." "A requirement that all properties use only wood fencing and all garages must be at least 500 square feet would be an example of a A) building code. B) nonconforming use. C) covenant or deed restriction. D)
The answer is covenant or deed restriction. Private controls are most typical in deed condition restrictions that list exact requirements, such as the type of fencing. Building codes and zoning are examples of public controls created through police power. However, these rules are broader in scope than the items listed." "A property owner granted an easement to his neighbor 30 years ago. The owner has the property under contract. At closing, the easement
will not pass with the deed. B) is listed on the bill of sale. C) passes with title to the property. D)
The answer is passes with title to the property. Easements, which must be in writing, are encumbrances that transfer with the land. Unless an easement is released, it will automatically transfer." "A neighborhood has determined that it needs new street lighting and sidewalks. The city has told the residents that it is unable to pay for these improvements with tax dollars. In order to get the work done, the residents could A) have the city's public works department replace the lighting and sidewalks. B) seek a special assessment to cover these public improvements. C) have these costs added to the local property taxes. D)
The answer is seek a special assessment to cover these public improvements. A special assessment would allow the neighborhood to have the local government complete the improvements and then assess each individual property owner to cover the cost." "The fiduciary obligations of an agent are owed to A) the party who pays the agent. B) the individual that signs a disclosure. C) all parties involved in the transaction. D)
The answer is the person who employed the agent. Agents owe their fiduciary obligations to the person who employs them. Agents are often paid by other outside parties, such as the listing brokerage firm."
The answer is fiduciary agreements. Agency agreements are created by written fiduciary agreements. Exclusive agency is a type of fiduciary agreement. Implied agency is created by actions, and the agreement will determine whether the agent will be a special, general, or universal agent." "An agent working under an exclusive right-to-sell agreement owes the principal several fiduciary obligations. All of the following are fiduciary obligations of an agent EXCEPT A) the agent must use reasonable skill and care in selling the principal's property. B) the agent is obligated to disclose all material facts even if the principal asks the agent not to. C) the agent is obligated to be loyal to the principal and place the principal's interests ahead of the agent's own interests. D) the principal is obligated to pay the agent a certain amount of consideration in order for a valid listing
The answer is the principal is obligated to pay the agent a certain amount of consideration in order for a valid listing contract to be formed. The fiduciary obligations are obedience, loyalty, disclosure, confidentiality, accounting, and reasonable skill and care (use the memory aid OLD CAR). Consideration in the form of payment is not required in any contract or agreement." "A broker lists a property and begins marketing it. The seller sells the property to a neighbor and upon closing pays the broker a full commission. What type of listing agreement did the brokerage firm have with the seller? A) Open B) Exclusive agency with a "seller may not sell" contingency C) Exclusive right to sell D)
The answer is exclusive right to sell. Only an exclusive right-to-sell listing allows anyone to sell the property and the broker will still get paid." "A seller asked a broker how the commission the broker requested was determined. The BEST response would be for the broker to tell the seller that commissions are A) negotiable and based on the work being done.
set by the local real estate commission based on volume and sales activity. C) set by local boards of REALTORS® first and then by the broker. D)
The answer is negotiable and based on the work being done. Commissions are always negotiable." "A listing contract shows personal property items, including an antique set of fireplace tools that the seller has stated he might consider selling with the property. The purchase contract does not mention the tools but lists the buyer keeping the washer and dryer. At closing, the fireplace tools will A) be conveyed to the buyer using a bill of sale. B) be automatically conveyed by the deed. C) remain the property of the seller. D)
The answer is remain the property of the seller. Personal property is first listed in the executory contract and then conveyed by a bill of sale at closing. Because this personal property was not negotiated in the contract, the seller can take it." "The seller of a property going into foreclosure has told the broker that the seller is very motivated to sell and will consider all offers. The broker should A) tell any buyers or buyers' agents to make offers lower than the listing price. B) say nothing unless the seller gives the broker written notice to disclose motivation. C) put "motivated seller" on the MLS listing and all other advertising. D)
The answer is say nothing unless the seller gives the broker written notice to disclose motivation. Unless the broker has written permission to disclose motivation, the fiduciary obligation of confidentiality requires the broker to stay silent. The broker may not tell others to bring lower offers, advertise "motivated seller," or lower the listing price without the seller's written permission."