Michigan Real Estate Practice Exam

Michigan Property Ownership 

1 A property owned by one individual, with no co-owners, is an example of:

a. Tenancy in the Entireties

b. Tenancy in Severalty

c. An Estate for Years

d. Joint Tenancy

Incorrect. Please choose another answer.

Sole ownership of real estate is called tenancy in severalty. At first, the term appears confusing, as several implies many. But in this case, severalty comes from the root word, to sever, meaning to cut. Ownership in severalty implies having cut all others claims to the property. Tenancy in the Entireties may appear to be the correct answer, but this is the ownership structure for when married persons own property together. An estate for years is a lease agreement with a definite start and end date. Joint tenancy is a form of co-ownership.

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Michigan Land Use and Controls 

2 The regulation of land use, typically practiced at the township or municipal level and justified by the police powers of the state, is called?

a. Zoning

b. Surveys

c. Master Planning

d. Government Investiture Rights

Incorrect. Please choose another answer.

Zoning is typically practiced on the township or municipal level. It is a form of land use regulation aimed at promoting conformity to maintain the quality of life and the tax base. Zoning ordinances are justified via the police powers granted to the states in the US constitution. Master planning is part of the zoning process but is not the best answer.

Michigan Valuation and Market Analysis 

3 The home valuation method where similar homes recently sold or currently on the market are used to determine a market value sales price for a subject property is:

a. The Cost Approach

b. The Residential Property Pricing Method

c. The Sales Comparison Approach

d. The Capitalization Approach

Incorrect. Please choose another answer.

The sales comparison approach, often called a comparative market analysis, is the primary method for valuing resident properties. Homes are priced by comparing them to similar homes currently on the market or recently sold. Assuming conformity, the prices should align with adjustments for contribution. The cost approach is a method of pricing based on land value and the cost of building, or replacing an existing structure. The capitalization approach is a pricing method for commercial real estate.

Michigan Financing 

4 A homeowner's equity in the home is calculated:

a. By adding the total number of monthly mortgage payments made.

b. By determining the remaining principal on the mortgage loan.

c. By subtracting the mortgage loan balance from the home's current appraised value.

d. By multiplying the payments toward principal over the life of the mortgage loan.

Incorrect. Please choose another answer.

Equity means the owner's amount of value in the property at any given time. Equity can be calculated by taking the property's recent appraised value and subtracting the remaining balance on any existing mortgages. For example, a home appraised at $300,000 with a remaining mortgage principal of $240,000 would mean $60,000 equity for the owner.

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5 The function of the secondary mortgage market is to:

a. Regulate and provide liquidity for the primary mortgage market.

b. Instruct the Federal Reserve on mortgage interest rates.

c. Provide oversight for FANNIE MAE.

d. Regulate mortgage lending institutions' advertising.

Incorrect. Please choose another answer.

The secondary mortgage market is the federal reserve and various government agencies (HUD, FHA, FANNIE MAE, etc.) The secondary mortgage market regulates and provides funding for the primary mortgage market, which consists of consumers and lending institutions. The secondary mortgage market provides liquidity, or cash, for the primary mortgage market to lend to consumers.

Michigan General Principles of Agency 

6 Which is the correct list of an agent's fiduciary duties to their clients?

a. Honesty, Loyalty, Obedience, and Control

b. Loyalty, Obedience, Confidentiality, and Warranty

c. Obedience, Care, Confidentiality, and Accounting

d. Disclosure, Accounting, Care, and Due Process

Incorrect. Please choose another answer.

Agency fiduciary duties in Michigan are Loyalty, Obedience, Accounting, Confidentiality, Care, and Disclosure. Warranty, Control, and Due process are not fiduciary duties.

7 The formal agency relationship between the client and agent is created:

a. When the client asks the licensee to be their agent.

b. When the broker appoints the licensee to work with the client.

c. When the agency disclosure form is signed.

d. When a service provision contract is signed.

Incorrect. Please choose another answer.

An agency relationship can only be established by signing a written service provision agreement, typically a listing agreement or an exclusive buyers agency agreement. There is no agency relationship without a signed, written contract. The agency disclosure form is not a contract and does not establish an agency relationship.

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Michigan Property Disclosure 

8 Concerning property disclosure rules, a material fact is best described as:

a. A contractual obligation between two parties.

b. A cause of physical depreciation on a property.

c. Information concerning a property that could influence someone's decision about it.

d. Any fact related to a property's physical condition that is disclosed in writing.

Incorrect. Please choose another answer.

A material fact is any information concerning a property's condition or its situation that could influence the decision-making of a relevant party. Material facts would be the condition and age of the roof, the known presence of environmental hazards, the home's proximity to a firing range or industrial site, and other such issues.

Michigan Contracts 

9 Salesperson Ryan wrote a purchase agreement for his buyers, but he mistakenly used the wrong postal address for the property being purchased. The contract is now:

a. Illegal

b. Invalid

c. Valid as long as the legal description is correct

d. Fraudulent

Incorrect. Please choose another answer.

Any mistake in a contract invalidates that contract. A wrong postal address, even with the correct legal description, would invalidate a contract. The intentional misrepresentation of facts in a contract is typically described as fraud.

10 The process of voiding a valid contract and replacing it with another valid contract, alleviating the parties of the first contract from all contractual responsibilities is called:

a. Assignment

b. Recission

c. Novation

d. Alienation

Incorrect. Please choose another answer.

Novation is the simultaneous voiding of an existing contract and replacing it with a new contract. The terms and parties of the new contract are normally different from the previously existing contract. For example, buyer Stephen wishes to no longer be contractually obligated to purchase Olivia's home. If Stephen can find a new buyer willing to contract with Olivia, he can propose the novation of his contract.

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Michigan Transfer of Title 

11 The title of a property is considered successfully transferred when:

a. The title company provides the abstract of the title to the buyer.

b. When the buyer receives and accepts the new deed.

c. When the mortgage documents are signed and closed.

d. When the broker signs the new title.

Incorrect. Please choose another answer.

Deeds are written documents that convey or transfer the title. The title is considered transferred when a new deed is offered by the grantor and the grantee accepts it. Brokers don't sign titles and the abstract of title is a summary of the history of ownership.

Michigan Practice of Real Estate 

12 Salesperson Tony is showing houses to his clients, Mark and Janice. Janice informs Tony that she doesn't want to purchase a property in a neighborhood with black residents. Tony should:

a. Fire his clients and report this to his broker.

b. Show them houses in only white neighborhoods.

c. Have his broker explain Fair Housing laws to his clients.

d. File a complaint against his clients with the FHA.

Incorrect. Please choose another answer.

When racial animus or discrimination is expressed by a client, the agent must end the agency relationship and inform their broker of the situation. It is not the role or duty of a broker or salesperson to engage the client in conversation over the discrimination or to convince them otherwise.

13 When showing houses to potential buyers who have not yet signed an exclusive buyer agency agreement, the licensee is:

a. Acting legally

b. Violating the Occupational Code

c. A sub-agent of the sellers

d. Acting under special agency

Incorrect. Please choose another answer.

Agency can only be established by signing a service provision contract. To create an agency relationship with buyers, the exclusive buyer agency agreement is used. To create an agency relationship with sellers, a listing agreement is used. When an agent shows customers (meaning not a client) a property, they are acting as a sub-agent of the seller, and are therefore limited in the services and advice they can offer the potential buyer.

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Michigan Leasing and Property Management 

14 Attempting to evict a tenant because he or she filed a complaint against the landlord is an example of a(n):

a. Actual eviction

b. Constructive eviction

c. Retaliatory eviction

d. Self-help eviction

Incorrect. Please choose another answer.

Retaliatory eviction is when a landlord attempts to evict a tenant because the tenant has angered the landlord, but not breached the lease agreement. Leases are contracts and eviction may only happen if the tenant breaches the lease. The legal manner of eviction is called actual eviction. Constructive eviction is when a landlord attempts to make the premises uninhabitable, such as turning off the heat or water, to pressure a tenant to move. Constructive eviction is illegal.

Michigan Real Estate Calculations 

15 Randall purchased the NE 1/4 of Section 4 and the South 1/2 of Section 9 in Algoma Township, Michigan. How many acres did Randall purchase?

a. 180

b. 640

c. 320

d. 480

Incorrect. Please choose another answer.

In Michigan, a section of any township is 1 square mile, which equals 640 acres. Randall purchased a 1/4 of a section which equals 160 acres, or a quarter of 640. Randall also purchased a half section, which equals 320 acres. Added together, Randall purchased 480 acres - 320 + 160 = 480.

Michigan Duties and Power of the Dept. and Board 

16 The Department receives a complaint against licensed salesperson Todd. The Department can immediately take any of these actions except:

a. Open an investigation

b. Inform Todd's broker of the complaint

c. Subpoena Todd's business records

d. Revoke Todd's license

Incorrect. Please choose another answer.

The Department (LARA) cannot revoke someone's license without a hearing. However, they may immediately suspend a license temporarily if it is believed that a licensee is a threat to the public. In the case of our question, the Department would be required to open an investigation within 15 days of receiving the complaint. Todd's broker would be informed of the complaint and his records would likely be subpoenaed.

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Michigan Licensing Requirements 

17 Licensees must complete a minimum of _____ hours of approved continuing education on laws, regulations, and court cases during any one year of a license cycle.

a. 2 hours

b. 4 hours

c. 6 hours

d. 18 hours

Incorrect. Please choose another answer.

All licensed real estate salespersons must complete a total of 18 hours of continuing education credits over the course of their three-year licensing cycle. However, every licensed real estate salesperson must complete at least two hours of continuing education in legal updates, each year.

Michigan Statutory Rules Governing Agents 

18 The Michigan Occupational Code requires real estate brokers and salespersons to present offers to sellers:

a. As soon as received and all offers at once if there are multiple offers.

b. Three days before closing.

c. Only if they meet the sales criteria of the buyer in terms of price.

d. Once title insurance has been purchased.

Incorrect. Please choose another answer.

Sellers should be notified as soon as possible when an offer is received. All offers must be shown to sellers, and if there is more than one offer, all offers must be disclosed and shown at the same time. It is up to the seller to determine the timing and order of reviewing the offers.

Michigan Contractual Relationships 

19 Sonja is a real estate sales agent in Michigan. She is working with Tom to help him purchase vacant land. Susan has signed a buyer's service provision with Tom. Tom is Sonja's ____ and Sonja is Tom's _____ ?

a. Client and Special agent

b. Principal and Universal agent

c. Customer and Attorney-in-fact

d. Customer and General agent

Incorrect. Please choose another answer.

A special agent is one hired to complete a transaction or series of transactions aimed at achieving a single goal. Once the goal is met, the agency ends. Real estate salespersons and brokers are special agents in that the agency is aimed at buying or selling a house and once that goal is achieved, the agency ends. Tom, by signing a service provision contract with Sonja has established an agency relationship with her, making her his agent and he her principal, or client.

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Michigan Additional State Topics 

20 The Michigan Right to Farm Act relates to which activities?

a. Homeowners planting vegetable gardens

b. Farmers declaring their farm as organic

c. Permitting Farmers to farm without the need for a state license

d. The Act prevents farms from being declared a nuisance and fined when operating under standard farming practices.

Incorrect. Please choose another answer.

The Michigan Right to Farm Act protects farmers from being declared a nuisance and/or fined as long as they are operating according to standard farming practices. Occasionally, nearby residents of a farm may complain to authorities about dust, odors, or noise. As long as the farmer is conducting the farm according to acceptable farming practices, it is legal and any complaints will not be acted upon.