Colorado Real Estate Practice Exam

Colorado Real Estate Commission 

1 Which statement is false regarding the Enforcement Section of the Real Estate Commission?

a. The Real Estate Commission may only investigate complaints against real estate licensees if they are serious in nature.

b. The Real Estate Commission may investigate a licensee's activities, even if there has not been a complaint.

c. The Real Estate Commission is compelled to investigate complaints against real estate licensees, even if they are false.

d. The Real Estate Commission routinely audits licensee activities to ensure compliance and consumer protection.

Incorrect. Please choose another answer.

According to the Division of Real Estate, the commission is compelled to investigate complaints against licensees. Therefore, investigation is not a discretionary action depending on the seriousness of the complaint. Routine and investigative audits into licensee activities do happen at the discretion of the commission, but when a complaint is filed, investigation is compulsory.

Study Online Instantly

Click to Save 50% Now

2 In the case of criminal violations by a licensee, which of the following is true?

a. Disciplinary action by the Real Estate Commission may be a substitute for criminal prosecution in some circumstances.

b. The Division of Real Estate may defer to local law enforcement agencies as authorized by law, rather than imposing its own disciplinary action against the licensee.

c. The Division of Real Estate will report and provide evidence to criminal justice authorities for investigation as authorized by law.

d. Administrative fines collected by the Real Estate Commission may be posted toward the licensee's bail.

Incorrect. Please choose another answer.

While there is cooperation between the Division of Real Estate and law enforcement agencies, discipline by the Division is never a substitute for criminal liability, nor are legal ramifications necessarily a substitute for disciplinary action against one's real estate license by the Division of Real Estate. Fines collected by the Division are transmitted to the state treasurer for credit to the real estate cash fund.

3 Each of the following could be grounds for suspension of one's real estate license if that real estate broker is found guilty, except:

a. False or misleading advertising

b. Refusal to cooperate with other brokers

c. Commingling funds of others with the broker's own funds

d. Failure to maintain records for four years

Incorrect. Please choose another answer.

While cooperating with other brokers is a best practice and often required by fiduciary duty to a broker's client, failure to do so is not itself a violation of license law. Advertising, safe handling of money belonging to others, and record keeping are activities with specific guidelines outlined in Colorado license law which must be adhered to by all real estate licensees.

Colorado License Requirements 

4 Receiving a fee for negotiating, purchasing, selling, or leasing real property on another's behalf requires a real estate license. However, performance of these services is exempt from licensure for certain purposes in Colorado. Which of the following is not one of the exempt purposes?

a. Telecommunication lines

b. Water collection, distribution or storage

c. Electric generation, transmission and distribution

d. Private dwelling

Incorrect. Please choose another answer.

Telecommunication lines, water collection distribution or storage, and electric generation, transmission and distribution are all purposes for which a person may purchase, lease or sell real estate for another for a fee without a license. The sale or leasing of private dwellings for another for a fee is not exempt and requires a real estate license.

Study Online Instantly

Click to Save 50% Now

5 Which of the following is the correct quantity of Continuing Education required?

a. 12 hours of commission update credits designed by the real estate commission per 3 year period

b. 12 hours of commission update credits designed by the real estate commission per year

c. 24 hours of continuing education credits including the 12 mandatory commission update credits designed by the real estate commission per 3 year period

d. 24 hours of continuing education credits including the 12 mandatory commission update credits designed by the real estate commission per year

Incorrect. Please choose another answer.

During each 3 year cycle, a real estate broker must complete the 12 hours of mandatory commission update credits and 12 additional hours of education from approved course providers on topics such as real estate law, finance, appraisal, ethics, brokerage administration, and any other subject matter approved by the Commission.

6 There is an exception to the normal continuing education credit hours requirements for the renewal of a broker's license. Which is it?

a. If the broker has passed the real estate license examination within the previous 3 years.

b. If the broker has passed the real estate license examination within the previous 4 years.

c. If the broker has completed 12 credit hours of specialty courses in their expertise.

d. If the broker has received reciprocity for a license in any state in the past year.

Incorrect. Please choose another answer.

If the broker has passed the real estate license examination within the previous 3 years, they are exempt from additional continuing education requirements for license renewal. Real Estate license renewal requires the licensee to complete 24 continuing education credits in the previous 3 years or passage of the Colorado portion of the real estate exam.

Colorado Brokerage Administration 

7 An agent at a multiple person firm who is engaged to work with a party in a transaction must be assigned in writing by the employing broker as which of the following?

a. Temporary real estate broker

b. Transaction-broker

c. Designated broker

d. Principal officer

Incorrect. Please choose another answer.

A designated broker is the broker that has been designated by their employing broker to a transaction, either by request of the consumer or assignment by the employing broker. Brokerage firms comprised of only one person need not provide a written designated broker.

Study Online Instantly

Click to Save 50% Now

8 Which statement is false regarding an Office Policy Manual?

a. A brokerage is required to have a written office policy manual by the Division of Real Estate.

b. A written office policy manual is recommended as a best practice by the Division of Real Estate.

c. A written office policy manual is required to set forth the type of real estate relationship offered to the public by the brokers at the firm.

d. A written office policy manual must be signed by each employed associate broker.

Incorrect. Please choose another answer.

The Division of Real Estate requires real estate brokerages to maintain an office policy manual. It is not just a recommended best practice. All other possible answers describe additional provisions of the requirement.

9 The payment of commissions to a broker establishes what kind of relationship between the parties?

a. Agency representation

b. Transaction-brokerage

c. Employing Brokerage

d. None of the above

Incorrect. Please choose another answer.

Brokerage relationships and duties are established through contractual agreement between the parties. The payment or acceptance of commissions, in itself, does not establish a relationship or responsibilities between parties.

Colorado Practice of Real Estate 

10 A broker's real estate license is suspended. Going forward, that broker may still be paid commissions for which of the following?

a. Commissions earned prior to the change in status

b. Transactions that are already under contract

c. No commissions may be paid to a broker whose license is suspended.

d. Both A and B

Incorrect. Please choose another answer.

If one's license is suspended, all activities requiring a license must cease immediately regardless of whether the client was already under contract or working with the broker prior to the change. Commissions earned prior to the suspension may still be disbursed to the licensee regardless of license status.

Study Online Instantly

Click to Save 50% Now

11 Which of the following does not constitute an acceptable cause for a referral fee?

a. An actual introduction of business has been made.

b. A contractual referral relationship exists.

c. A contractual cooperative brokerage relationship exists.

d. A title company referral is explicitly requested.

Incorrect. Please choose another answer.

Referrals involving settlement services are not compensable, regardless of whether a recommendation is requested by a client, under the Real Estate Settlement Procedures Act (RESPA). Referral fees between brokers, brokerage firms and non-settlement providers are permitted when an actual introduction of businesses has been made or contractual relationship has been established between the referring parties.

12 The prohibited practice of negotiating directly with a consumer who is subject to an unexpired listing contract with another broker is referred to as which of the following?

a. Encroachment

b. Mutual Assent

c. Co-listing

d. Sign Crossing

Incorrect. Please choose another answer.

The existence of an unexpired listing contract between a consumer and a broker shall be respected by other real estate brokers. While the commission does allow for the possibility that the consumer initiates contact with other brokers to discuss next steps after the current contract has expired, under no circumstances may a broker pursue a contract with that consumer until the existing contract has expired.

13 Who must consent to the terms of a short sale transaction in order for the closing to occur?

a. Lien holder

b. Seller

c. Buyer

d. All of the above

Incorrect. Please choose another answer.

In a short sale transaction, the seller has debts secured by liens on the property which the sale price will not be enough to pay off. In addition to the buyer and seller coming to an agreement, as with any residential property transaction, the lien holder must also agree to the terms of the transaction. The lien holder may agree to release the lien against the property either by accepting less than the amount owed to repay the debt or agreeing to release the lien on the property without releasing the seller from liability for the unpaid portion. A closing cannot occur without the signatures of all three parties.

Study Online Instantly

Click to Save 50% Now

14 Which of the following is a form of seller financing?

a. Fee simple absolute

b. Installment Land Contract

c. Equity of redemption

d. Bargain and sale deed

Incorrect. Please choose another answer.

An Installment land contract is an agreement for the purchase of real estate on a payment plan to the owner rather than a mortgage lender in which the deed is withheld until the full purchase price, or a predetermined percentage, is paid by the buyer. The real estate commission has revoked its approval of the installment land contract and cautions that any use of such a contract must be drafted by an attorney and poses significant risk to all parties involved in the transaction.

15 Money belonging to others that is placed in the care of a broker is required to be held in what kind of account?

a. Checking

b. Saving

c. Escrow

d. Certificate of Deposit

Incorrect. Please choose another answer.

Also called a trust account, an escrow account is any bank account insured by the US government that is intended for the safekeeping of money belonging to others. The depository may consist of any type of bank account including checking or savings accounts which exist for the purpose of holding trust funds.

Colorado Property Management 

16 In a property management trust account, unless there is a contract outlining otherwise or another party establishes the right to the security deposit, the interest accrued on a security deposit belongs to whom?

a. Landlord

b. Property manager

c. Tenant

d. Trustee

Incorrect. Please choose another answer.

Security deposits are always refunded to the tenant unless the lessor is able to establish a right to the security deposit or there is an agreement otherwise. The only exception is the property managers of mobile home parks who may keep the interest as compensation.

Study Online Instantly

Click to Save 50% Now

17 The contract between a property owner and the brokerage firm employed for property management on behalf of the owner is known as which of the following?

a. Lease Agreement

b. Management Agreement

c. Exclusive Right-to-Lease Listing Contract

d. Exclusive Tenant Contract

Incorrect. Please choose another answer.

When a broker is hired to provide property management services, he is to provide a management agreement drafted by an attorney which outlines the duties and responsibilities of both parties. This agreement is between the licensee and landlord and may be used in conjunction with the exclusive right to lease listing contract if the licensee is offering the service to lease as well as manage the property. A lease agreement is an agreement between the tenant and landlord. Exclusive tenant contract is used when a tenant hires a broker to find a rental property and provide leasing services to the tenant.

Colorado Landlord Tenant Act 

18 A broker engaged by a landlord owes all of these obligations except for which of the following?

a. Seeking additional offers to lease the property while the property is leased

b. Advising the landlord on strategic marketing of their investment property

c. Counseling the landlord on rental market conditions

d. Accounting for rent payments received in a timely manner

Incorrect. Please choose another answer.

The duty to seek rent and terms acceptable to the landlord is owed to the landlord under agency agreement, however the broker shall not be obligated to seek additional offers to lease the property while a property is subject to a lease or letter of intent to lease. Additional duties owed to the landlord include promoting the interests of the landlord with the utmost good faith, loyalty and fidelity, counseling the landlord as to material benefits or risks known to the broker, and accounting for all money and property received in a timely manner.

Colorado Taxes 

19 In the year of a sale, who is responsible to pay property taxes levied on the home that is sold?

a. The buyer, who owns the property when taxes are due the following January.

b. The seller, as they owned the home at the time taxes are levied.

c. Taxes are prorated according to the dates of ownership.

d. The person who owned the property for a larger part of the tax year.

Incorrect. Please choose another answer.

The date of the sale and the date that taxes become due govern how to determine the prorated amount owed by the seller and buyer. The seller pays prorated taxes at closing on the date of sale and deducts that amount on Schedule A.

Study Online Instantly

Click to Save 50% Now

Colorado Contracts to Buy and Sell Real Estate 

20 Which of the following items must be named under Exclusions if the seller wishes to take it with them to their new home?

a. Wall mounted TV and mount

b. Art if attached to wall

c. Curtains

d. All personal property of the seller

Incorrect. Please choose another answer.

These items are always included in the sale unless explicitly listed as an exclusion: lighting, heating, plumbing, ventilating and air conditioning units, TV antennas, inside telephone, network and coaxial wiring and connecting blocks/jacks, mirrors, floor coverings, intercom systems, kitchen appliances, sprinkler systems and controls, built-in vacuum systems, garage door openers, storm windows, storm doors, window and porch shades, awnings, blinds, screens, window coverings and treatments, fireplace inserts, grates and screens, heating stoves, storage sheds, carbon monoxide alarms, smoke/fire detectors and all keys.

21 Which of the following is not a standard form?

a. "Commission-Approved Form"

b. "Attorney Form"

c. "Broker Form"

d. "Government/Lender Form"

Incorrect. Please choose another answer.

Brokers are not authorized to draft forms for use in real estate transactions but are permitted to complete the blanks on any approved forms. If a custom form is required for a situation that is not adequately covered by Commission Approved Forms, the broker may hire a licensed attorney to draft the document.

22 A document with the promise to pay earnest money is known as which of the following?

a. Check

b. Wire Transfer

c. Promissory Note

d. Lis Pendens

Incorrect. Please choose another answer.

The listing broker is required to deposit earnest money into their trust account by the third business day following contract acceptance. In the event that a listing has agreed to accept a promissory note and the selling broker receipts for a promissory note, it must be delivered to, held by, and payable to the listing broker. The listing broker must complete the earnest money receipt and retain a copy in compliance with record keeping regulations. Promissory notes are rarely used in practice, but are an option if the seller, usually a new construction builder, agrees and sets an alternative earnest money deadline for the payment of the note.

Study Online Instantly

Click to Save 50% Now

Closing and Settlement in Colorado 

23 Who is responsible for accurate closing statements for a closing conducted by a title company?

a. The title company's closer

b. The real estate broker

c. The broker associate's employing broker

d. All of the above

Incorrect. Please choose another answer.

Regardless of who is hired to conduct the closing proceedings, ensuring the accuracy of closing statements is always the responsibility of the broker and their employing broker if they are an associate broker.

24 Which of the following refers to the document that incorporates the terms of the contract to buy and sell real estate and from which the closing statements are prepared?

a. Bill of sale

b. Deed

c. Closing Instructions

d. Real Property Transfer Declaration

Incorrect. Please choose another answer.

The closing statements are prepared by the closing company in accordance with the written instructions which have been signed by the buyer and seller confirming their accuracy and incorporating the terms of the contract. All of these parties and the brokers who represent them must confirm the accuracy of closing statements and sign them. If any of the written instructions differ from the contract, the buyer and seller must execute an Agreement to Amend/Extend Contract.

25 A title company is permitted to provide closing services only when which of the following is true?

a. Written instructions are provided by the parties to the transaction.

b. The broker is unable to provide settlement services.

c. The broker has prepared and delivered closing documents.

d. The broker will record the closing documents.

Incorrect. Please choose another answer.

While brokers are permitted to close their own transactions, title companies are the most common provider of closing services in Colorado. If a title company is engaged to provide the closing services, it is the "Closing Company" and it is the responsibility of the title company to complete the closing instructions provided by the parties in the transaction as required by the Division of Insurance including preparation, delivery and recording of the closing documents and disbursement of funds.

Study Online Instantly

Click to Save 50% Now

26 Buyer, seller and broker signatures on closing statements do not attest to which of the following?

a. The closing statement is true and accurate.

b. The closing statement encompasses all receipts and disbursements.

c. Each party has received a copy of the closing statement.

d. Parties in the transaction shall be immune from civil liability regarding the property.

Incorrect. Please choose another answer.

The closing statement is prepared and signed by all parties to the transaction to ensure accuracy and completeness. However, no party waives their right to pursue civil action in the future should a situation come to light that would warrant arbitration, mediation or civil proceedings.