2019 Edition

Real Estate Broker Practice Test

This free practice test will give you an idea of the types of questions that will appear on a real estate broker licensing exam.  All states require real estate brokers to take an exam to get licensed.  Such subjects as operation of a brokerage, contract law and agency concepts will be tested.

This practice exam was written by Karen Bohler and Tabitha May Hasin, who are both real estate instructors.

For a more comprehensive coverage of the subject, use our 300 question Real Estate Broker Practice Exam with answers fully explained, testing tips, exam review and a real estate broker flash card study system.

 
 

General Operation of a Real Estate Brokerage

1. With regard to the general operation of a real estate brokerage, which of the following activities of ABC Brokerage, Inc. is illegal under federal law?

Statement #1: ABC Brokerage, Inc. advertises that, at the close of escrow, it will refund $500 of the commission to every buyer and seller the firm represents.

Statement #2: While golfing together, the managing licensees at ABC Brokerage, Inc. and DEF Brokerage, Inc. divide up a particular geographic area between themselves.

Statement #3: ABC Brokerage, Inc. lays off a long-term licensee who, because of illness, performed poorly during the last two fiscal quarters.
 
2. A real estate broker should educate clients to protect the client's best interests and ensure a knowledgeable negotiating position. However, client education involves a certain amount of risk, because whatever information the broker (or salesperson in the firm) conveys must be accurate and reliable. With regard to managing the risk associated with client education, all of the following statements are true EXCEPT:
3. Consider why a brokerage experiences financial difficulty even in prosperous times. One of the main reasons financial difficulty for a brokerage occurs is that the broker fails to stay abreast of the economic climate and direction of the real estate market. With regard to financial planning for a real estate brokerage, which of the following statements is (are) TRUE?

Statement #1: Even in prosperous times, the economic climate changes daily. Brokerages need to plan expenditures based on factual assessment of the economic climate.

Statement #2: The competitors may reduce commission levels, and thus to compete, a brokerage may need to reduce commission levels within the firm.

Statement #3: Advertising is vital to the success of a brokerage. A broker should take advantage of all products designed to promote real estate sales.

 

Agency Concepts and Managerial Duties

4. A _____ agency particularly exists when there is a delegation of authority to do a single act.
5. Legally, what is the nature of agency relationships between listing brokers and sellers?
6. A legally-competent, wealthy investor is selling a large commercial property. The 35-year-old investor is represented by a one of the busiest, most successful brokerage firms in the state. The closing date for the transaction coincides with an important overseas business trip the investor cannot postpone or cancel. Prior to leaving on the business trip, the investor executes a document authorizing a trusted friend to sign all documents related to the sale of the commercial property. After accepting the appointment, the investor's friend owes fiduciary duties to the investor. Of the following choices, what is the name of the document executed by the investor?

Contracts and Contract Law

7. Which of the following lists the essential elements of an enforceable real estate contract?
8. A listing agreement did not include an authorization to accept a deposit. Which of the following is correct?

Real Property Characteristics

9. Which of the following is considered personal property?
Real Estate Agent Practice Test
10. Homeowner Howard's home was foreclosed. Understandably, Howard was quite upset, and just before he was ordered to vacate the home, he removed all of the plumbing fixtures, lighting fixtures and built-in appliances from the home. When Howard's lender listed the property for sale, the listing agent realized that the fixtures had been removed. What is the act of removing the fixtures from the home called?

Water Law

11. The rights of a landowner whose property line touches on a lake or non-navigable river are called _____.
12. Which of the following correctly defines the doctrine of prior appropriation?

Freehold Estates

13. The lessee of an apartment and the owner of a condominium have many things in common. Which of the following is true for both?
14. When Evan and Camelia decided to buy a home in Deer Run subdivision, they were required to take title to the home under certain covenants, conditions and restrictions (CC&Rs). Their real estate agent explained to them that during the term of their ownership, they must comply with the CC&Rs or they would lose their ownership. Their estate was a _____.

Holding and Transferring Title

15. Severalty ownership _____.
16. Sisters Amanda, Beatrice, and Constance Smith purchased a commercial building from Steven. The deed specified as grantees simply as "Amanda Smith, Beatrice Smith, and Constance Smith" but did not specify the tenancy created. The three sisters are _____.

Environmental Law

17. A real estate licensee has out-of-town relatives come to visit. He shows them several listings, but they simply are not interested in purchasing any of the listings he shows them. Finally, after several long days of viewing listings, the licensee writes up a lease proposal with an option to purchase. The licensee should make a disclosure to _____.
18. When an environmental hazard such as mold exists on a subject property, a typical remedy to cure the defect is abatement of the defect. All of the following correctly define the term "abatement" EXCEPT:

Land Descriptions

19. Which of the following is the method of legal description that uses carefully measured distances, angles and directions to define the boundaries of a parcel of real estate?
20. Which of the following correctly defines the term "baseline"?

Development and Construction

21. Which model of city planning and development is defined by a central business district is in the middle of the model, with the city expanding in rings with different land uses?
22. Which model of land development is based on the theory that even though a city may have begun with a central business district (CBD), other smaller CBDs develop on the outskirts of the city near the more valuable housing areas to allow shorter commutes from the outskirts of the city?
23. Housing Plus, Inc. operates in multiple states and specializes in construction of Accessory Dwelling Units (ADU) as permitted by state or local law. The company primarily assists those owners of dwellings in existing subdivisions that are sufficiently spacious to qualify for the addition of an ADU. Home owners typically add an ADU for the enhanced rental potential the units add to residential real estate. But Housing Plus, Inc. also occasionally assists public entities that respond to local housing needs by building on small plots of underdeveloped land in established subdivisions. Which of the following describes the work of Housing Plus, Inc.?

Tax Implications on Real Estate

24. Mr. Carpenter, a single man age 50, sells his personal residence for $600,000. He originally purchased it 9 years ago for $550,000. What portion of the sales proceeds is taxable?
25. The adjusted basis of a taxpayer's residence would be _____.
26. Two people, an investor and a business property owner, want to sell their properties to each other in a 1031 exchange. The investor owns a 10 acre parcel improved with an office building. The business property owner owns a parcel of real estate improved with an apartment building. Here is the government survey system legal description for the realty owned by the business property owner: "The Northeast Quarter of the Northwest Quarter of the Southwest Quarter of Section 10..." The area described in this legal description is standard for the government survey system. Both properties have the same value, and neither property is encumbered with liens. Which of the following is a correct statement?

Federal Law

27. The maximum commission a broker may charge for the sale of residential property is _____.
28. _____ are agreements between competitors to divide the market geographically, by price range, type of property, or some other segmentation. These types of agreements are considered anti-competitive because they conspire to establish dominance in a particular market.

Leases and Leasehold Estates

29. If one uses the words "of definite duration" to describe a lease, it is most likely a(n) _____.
30. A month-to-month lease is considered _____.

Appraisal

31. The "Statement of Purpose" section of a narrative appraisal report would contain which of the following?
32. Where in the range of market value, from low to high end, is a listing price likely to fall?

Financing

33. With regard to lien theory versus title theory, which of the following statements is FALSE? Statement #1: In some states, the borrower who finances the purchase of property hypothecates title to a property and does not actually keep title to the property during the term of the loan. States that employ this custom are lien theory states. Statement #2: In some states, the borrower who finances the purchase of property holds both actual title and equitable title to a property during the term of the loan, and the lender's interest is secured with a deed of trust. These states are title theory states. Statement #3: In some states, the seller gives title to the buyer, and the buyer/borrower then signs a deed of trust which conveys only naked title to a trustee; and the lender is the beneficiary in the deed of trust. These states are lien theory states.
34. A lender uses an impound account to protect against non-payment of all of the following EXCEPT _____.
35. Mr. James Abioye and Mrs. Catherine Abioye have been married for 30 years. James just turned 63-years-old, and recently retired because of health issues. Catherine is 59-years-old, and is still working as a Surgical RN. Several decades ago, they jointly purchased—and currently own—a single parcel of real estate, their primary residence. There is a substantial amount of equity in the home, and it is free and clear of all liens, except current year taxes. Now that Catherine is the only spouse still working, the married couple is looking for real estate financing that will allow them to remain in their home and support their lifestyle. The Abioyes found one loan product that would support their goals, but were warned by the lender that the loan amount would be lower than they anticipated because of Catherine’s age. When, if ever, is this accurate advice on the part of a lender? 
36. The federal Truth in Lending Act (TILA), gives certain borrowers the right to cancel their new loans. This is called "a 3-day right of rescission." Which of the following borrowers has a right of rescission?
37. Seller sold buyer a single-family residence for a purchase price of $1,000,000. Buyer made a down payment of $100,000, and financed the rest of the purchase with an $800,000 purchase money mortgage from a major institutional lender, and a $100,000 seller carryback. One month after the close of escrow, buyer took out a third loan, a home equity line of credit (HELOC), for $10,000. Several years later, buyer decided to refinance the $800,000 purchase money mortgage, and found a different lender willing to refinance the property on better terms. Buyer does not want to pay off either of the two junior liens on the property (i.e., the $100,000 seller carryback and the $10,000 HELOC). There is a boilerplate clause in the recorded HELOC stating the lender's consent to remain in junior position should the primary mortgage ever be refinanced. However, there is no comparable language in the $100,000 seller carryback mortgage. What is the name of the document needed to protect the lien priority of the refinance lender, and who is required to sign this document?

Investment Real Estate

38. The monthly net income on an investment of $315,000, if the rate of return is 12 ½ percent, is _____. (Round your answer to the nearest dollar)
39. Donna Trumply, an investor, has approximately one million dollars to invest; and wants to choose an investment with at least a 12% rate of return. Donna's financial advisor tells her that based in the forecasts; she could realize a rate of return of up to 11% if she invests in gold bullion or 9% if she invests in a certain mutual funds. Donna calls real estate broker Ben to discuss the possibility of investing her money in real estate. Broker Ben knows of a 5-unit office building that is listed for $715,000; and generates an annual gross income of $79,680, with an annual operating and maintenance cost of $15,320. Ben believes he can negotiate a purchase price for Donna that, if accepted, will enable Donna to meet her desired 12% rate of return on her money over the next ten years – even if Donna must pay a 4% commission to Ben. The maximum purchase price Ben should negotiate for Donna is _____. (Round all calculations to the nearest penny.)

Settlement

40. At close of escrow, a buyer/borrower's closing costs will include interest on the loan that accrues from _____.
41. The _____ customarily pays the fees for legally recording the new note and deed of trust or mortgage.

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