Real Estate Agent License Practice Test

Land is characterized as immovable because an entire parcel of real estate cannot be moved to another site. Land is considered indestructible because, in contrast to buildings, an entire parcel of real estate theoretically cannot be destroyed and/or need to be replaced. Land is considered unique because, at the very least, each parcel of real estate has its own different and distinct place on the planet. Finally, land is considered scarce because entire new parcels of real estate cannot be manufactured.

Test-Taking Tip: Because the words "unique" and "indestructible" are in each answer choice, you do not need to spend valuable exam time considering them.

B is incorrect. Land does not depreciate. Why not? Because, in contrast to a house or a building, an entire parcel of land does not wear out and need to be replaced. Test-Taking Tip: Make sure you remember this rule for your exam: Land does not depreciate. C is incorrect. Despite there being a lot of land, land is considered scarce as brand-new parcels of land cannot be created through human labor. D is incorrect. Land is not considered moveable. While topsoil or even a building can be moved, an entire parcel of real estate cannot be moved to a new location.
 

A fee simple estate is ownership that gives a person or entity complete control (subject to standard governmental restrictions). A life estate gives a person ownership or control of a property only for the duration of his/her natural life. Defeasible estates (estates which can be defeated) give a person or entity control over a property only so long as certain conditions are met or avoided.

After the woman dies, her debts will be paid and assets distributed through the probate court. When a parcel of real estate is transferred through the probate court as per the terms of a valid will, it is called a "devise." (Test-Taking Tip: An inheritance of personal property, by contrast, is called a "bequest" or a "legacy.")
B is incorrect. This answer choice reverses the woman's wishes. In order to comply with the woman's desires with a life estate, the woman should be the life tenant and measuring life, and the son should be the remainderman. C is incorrect. To alienate means to convey. A deed that has been delivered and accepted would result in an immediate transfer of the real estate from the woman to her son. D is incorrect. An estate in severalty (aka "a tenancy in severalty") is ownership by one person. When a parcel of real estate is owned in severalty, there are no other owners to consult. Test-Taking Tip: One person, one corporation, one governmental entity, one trust, one partnership can all own real estate in severalty. As long as there is only one owner, that is an estate in severalty. Examiners like to test this because of the word "several" in severalty.

A deed must be signed by the grantor (i.e., the owner conveying an interest in real estate to someone else).
B is incorrect. The grantee does not have to sign the deed. The grantee must accept delivery of the deed, but that can be achieved through possession of the deed, taking possession of the property, taking out a loan on the property, etc. C is incorrect. For most states, official records are recorded at the county level.

Equity is not directly affected by the purchase price for the property; nor is it directly affected by the amount of down payment put forth at the time of the purchase. Many owners are under the misguided belief that a high down payment will always result in high equity. This is only true if the market value of the property remains the same as it is when the down payment is given; or increases after the down payment is given. If the market value of the property decreases, the equity in the property will decrease also, regardless of the purchase price and down payment amount.

The life tenant (i.e., the aunt) can take out a loan on the property without the remainderman's signature. However, if only the life tenant life signs the loan documents, then the debt will die with her. In order to protect the lender's security interest in the event of the aunt's death, both the life tenant and the remainderman will need to sign the loan documents. The same would be true if the property were being sold: Both the life tenant and the remainderman would need to sign the deed in order to ensure that the buyer's ownership interest in the property would continue after the life tenant dies.

Test-Taking Tip: Remember a life estate is an estate of ownership (aka a "freehold" estate). With a life estate, there is a "present interest" and a "future interest." A simple way to figure out who owns each interest is to ask yourself the following two questions: "Who has the right to possess the property in the present?" Here, the aunt does: She holds a present interest in the property, and, because she is the measuring life, she will hold that interest until she dies. "Who will have the right to possess the property in the future?" Here, the nephew does: He holds a future interest in the property.

A is incorrect. Provided that both the life tenant and the remainderman sign the loan documents, the lender's security interest in the real estate will be protected if the life tenant dies during the term of the loan. B is incorrect. If the remainderman does not sign the loan documents, the lender's security interest in the real estate will terminate upon the death of the life tenant. C is incorrect. A nonfreehold estate is a leasehold estate. A life estate, by contrast, is a freehold estate (i.e., an estate of ownership).

Ownership in severalty occurs when there is only one owner of a parcel of real estate. The owner can be, for example, an individual, a corporation, a governmental entity, a trust, or a partnership. As long as it is sole ownership, it is an ownership in severalty (aka "an estate in severalty"). Test-Taking Tip: This is frequently tested because of the word "several" in "severalty."
A is incorrect. Concurrent ownership occurs when there are multiple owners of the same parcel of real estate holding title together at the same time. C is incorrect. If there are multiple owners (e.g., one owner owns 90%, a second owner owns 9%, and the third owner owns 1%), ownership is described as "fractional, but undivided." This means that--no matter how small their ownership interest is--each owner has an equal right of possession as to the entire parcel of land. D is incorrect. If two owners hold title with a right of survivorship, and one owner dies, then the survivor acquires the decedent's interest in the property automatically, through operation of law. Depending on the state, common ways to hold title with a right of survivorship include: tenancy by the entirety, joint tenancy, and/or community property with right of survivorship.
 

An easement appurtenant allows the holder of one property to benefit from another's. In this case, your property is servient because it is the one burdened by the easement while your neighbor's is dominant since it is the one that benefits. If you would have given permission to the neighbors to use your driveway, you would have effectively licensed the neighbors, not the property. (The word "license" is not typically used as an adjective for the word property.)

The easement described in the test question is an easement appurtenant. The old owner, who split his large parcel in two, created the easement by reserving it in the deed to the individual who first purchased Parcel South. In an easement appurtenant, there is a dominant tenement (i.e., the parcel that benefits from the easement) and a servient tenement (i.e., the parcel that is burdened by the easement). Here, the parcel that benefits from the easement is Parcel North because the easement allows the owner to cross over the westerly 8 feet of Parcel South to get access to the road. Parcel South is burdened with the easement because people who don't even own the land are allowed to use the westerly 8 feet of Parcel South for ingress and egress purposes. The owner of a parcel of real estate burdened with a servient tenement cannot unilaterally terminate an easement appurtenant. An easement appurtenant "runs with the land" and transfers with the deed. Therefore, by fencing in Parcel South, the new owner of Parcel South will most likely be found to have violated the easement conditions and will lose the lawsuit.

B is incorrect. An easement in gross only has one parcel of land (a servient tenement). The classic example of an easement in gross is a public utilities easement. The public utility does not need to own a contiguous parcel in order to have an easement in gross. This test question states that there are two parcels of land, a dominant and a servient tenement. Therefore, this fact pattern does not describe an easement in gross. C is incorrect. A landlocked property is one without access to a street or road. An easement by necessity is created by the courts when a property is landlocked--provided that the owner of the landlocked parcel did not create the problem. Here, when the old owner split the large parcel into two, the old owner carefully reserved an easement over Parcel South, preventing Parcel North from becoming landlocked. Because the old owner reserved an easement in the deed, there was no need to go to court and ask for an easement by necessity. D is incorrect. This answer choice states the general rule, but the owner of Parcel South purchased the property subject to the easement. Because easements appurtenant run with the land, the easement is binding on the new owner of Parcel South.
Test-Taking Tip: Pay close attention when you see answer choices that are almost identical like "A" and "B." Frequently, when two choices are so close, this is what the examiners are testing.

Redlining is the illegal denial of a loan application based upon the location of the securing property without any consideration of the employment history or creditworthiness of the loan applicant or of the condition of the property itself. This activity got its name from the maps that lenders used to have up in their offices. Certain geographic areas--usually in economically depressed or crime-filled neighborhoods--were encircled with a "red line." If the property was within these red lines, the loan application would be declined.
B is incorrect. A silent second is a loan between the buyer and the seller for part or all of the down payment. The name comes from the fact that buyer and seller do not tell the primary lender about the loan, thereby "silently" increasing the amount of debt the buyer is carrying. Silent seconds are a type of mortgage fraud and are illegal. C is incorrect. An air loan is another type of mortgage fraud perpetrated upon lenders. This involves getting a mortgage loan on a parcel of real estate that does not exist. D is incorrect. A backward application is another type of mortgage fraud committed on lenders. Here, the buyer finds a desirable property and lies about his or her income in order to qualify for a purchase money mortgage.

As stated in the Fifth Amendment to the U.S. Constitution, governmental entities have the right to "take" private property for public purposes. This power is called eminent domain. Taking private property to widen a highway is a classic example of when the government (e.g., city, county, state, or federal) would exercise its power of eminent domain. However, the Fifth Amendment to the U.S. Constitution does state that government entities exercising this power must pay the private property owners just or fair compensation.

A is incorrect. Condemnation is the name for the legal proceeding to determine what just or fair compensation is for each parcel of real estate taken by the government. It is not the name of the government power itself. B is incorrect. The government's police power is the right of the government to establish and enact laws to promote public health, public safety, public welfare, and morals. Two classic examples of police power are zoning and building codes. Test-Taking Tip: When the government exercises its police powers, typically no compensation need be paid to affected property owners. D is incorrect. In our legal system, real estate must be owned by someone. In England, if the owner abandoned a parcel of real estate or died without a will (i.e., intestate) and without heirs, the property "reverted" back to the original owner, the Crown. In the United States, this parcel of real estate would revert back to the state. This governmental power is called "escheat."

Test-Taking Tip: In addition to police power, eminent domain, and escheat, the government also has the power to tax real estate. Your memory aid for these four governmental powers over land is PETE: Police Power, Eminent Domain, Taxation, and Escheat. These are four separate powers. Be careful not to let the examiners trick you into lumping several powers into, say, police power.
 

There are no nationwide or statewide zoning ordinances but governments may regulate land use through special legislation such as national park regulations, wildlife preserves, coastal management, and environmental laws. Zoning laws, as implemented in cities and counties, identify the permitted use of each parcel of land.

Blockbusting, for the most part, is no longer a common practice, although it may happen indirectly through inappropriate conversations and statements by real estate licensees. The purpose of the blockbusting scheme is to get the homeowners to sell out at a deflated price; then sell the vacated homes to minority group members at an inflated price. Involvement in a blockbusting scheme is grounds for criminal charges.

The U.S. Constitution limits government power, and requires that governmental actions and statutory regulations cannot take away property rights without due process, unless there is a compelling government interest to do so. Protecting the health, safety and welfare of the citizens of the community has long been accepted as such a compelling government interest. Police power is the power of the state to enforce laws and rules that protect the members of the community. Since owners take title to their property subject to zoning laws, enforcement of the zoning laws is constitutional.

Specific liens are secured by a specific piece of property. General liens are secured by the collective assets of the debtor. Many borrowers are under the misguided impression that there is no collateral securing a general lien (such as a credit card lien or signature loan). While both types of liens require collateral, general liens are actually secured by more collateral than specific liens. A lienholder of a general lien is within its rights to foreclose on any of the assets of the debtor; whereas a lienholder of a specific lien may only foreclose on the specific collateral named in the lien.

The test question states that the listing agreement was formalized in writing. An express agency is one that was formalized--before the fact--either verbally or in writing. The traditional rule (in the "Statute of Frauds") states that a listing agreement cannot be enforced in court unless it is in writing and signed by the party to be charged. Test-Taking Tip: Because it is frequently tested, it is worth reviewing the other promises, agreements, and contracts that must be in writing to satisfy the Statute of Frauds.

B is incorrect. A general agency usually gives the agent a limited ability to bind the principal (e.g., a property manager has the ability to find and sign qualified tenants on behalf of the property owner). This is typically used in an ongoing business, where the agent has multiple duties to perform. In contrast, the special agent acting under the authority of the exclusive right-to-sell listing agreement typically only has the sole duty of finding a buyer. Special agency is an advisory position, and the agent traditionally lacks the authority to bind the principal (e.g., a listing agent can solicit offers, but lacks the power to accept an offer and bind the seller). C is incorrect. A universal agency gives the agent broad powers, including the authority to bind the principal. A "Power of Attorney" is an example of a document that might set up a universal agency. Test-Taking Tip: The agent created by a Power of Attorney document is called an "attorney-in-fact." This person does not need to be an attorney. D is incorrect. An implied agency is created through the actions of the two parties. Here, the test question states this listing agreement was created before the fact and is in writing, making it an express agency not an implied agency.
 

Quietly fixing brokerage firm commissions is the anti-competitive, collusive behavior that the federal Sherman Antitrust Act made illegal in 1890.
A is incorrect. Since the federal Sherman Antitrust Act of 1890 was enacted, firms (including real estate brokerage firms) have been legally prohibited from engaging in anti-competitive activity like fixing prices, fees, or commissions. Other prohibited acts include dividing up geographic territories or boycotting brokers offering cut-rate discounts. C is incorrect. There is nothing in the test question to suggest that the two brokers are engaging in housing discrimination. D is incorrect. The Statute of Frauds is not related to price fixing. The Statute of Frauds requires certain contracts and agreements be formalized in writing in order to be enforceable in a court of law.

A company dollar is what the brokerage firm has left after licensee commissions have been paid.

B is incorrect. A company dollar is what the brokerage firm has left after (not before) paying licensee commissions. C is incorrect. This answer choice describes the term "desk fee." D is incorrect. The term "company dollar" is not associated with the IRS 1031 tax-deferred exchange. Under Section 1031 of the United States Internal Revenue Code, capital gains taxes may be deferred for real estate used for business or investment purposes--if the parcel of realty is exchanged for another "like-kind" parcel. This allows property owners to defer paying federal capital gains taxes until the new parcel of real estate is sold. Note: In a 1031 exchange, "like-kind" doesn't mean identical. A like-kind parcel of real estate is one that is used for business or investment purposes, meaning an office building could be exchanged for an apartment building.