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IN Real Estate practice questions

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Question 1Real Property Characteristics and Ownership

In legal terms, when real estate professionals speak of "land," the term generally includes which of the following in addition to the surface of the earth?

  1. The airspace above the surface and the minerals beneath it Correct answer.
  2. Only the soil and the buildings placed upon it
  3. Only the crops that are currently growing on it
  4. Personal property the owner has stored on the premises

Explanation

Land is a bundle of rights that reaches upward into the airspace to a reasonable height and downward to the center of the earth, together with the minerals and earth below. Buildings are improvements located on the surface, while growing crops and stored goods are generally personal property. The legal definition therefore extends beyond the physical soil.

Question 2Real Property Characteristics and Ownership

A restaurant tenant installs an oven that is bolted to the floor and connected to the building's gas line so the tenant can operate the business. When the lease ends, the oven is best characterized as:

  1. An emblement belonging to the tenant
  2. A trade fixture, which the tenant may remove before the lease ends Correct answer.
  3. A fixture that becomes the landlord's property with no right of removal
  4. Personal property, because the tenant purchased it

Explanation

Items a commercial tenant attaches to the premises to carry on business are trade fixtures, which remain the tenant's personal property and may be removed before the lease expires if the tenant repairs any damage. The business purpose of the annexation is what distinguishes a trade fixture from an ordinary fixture.

Question 3Real Property Characteristics and Ownership

When a dispute arises over whether an item such as a built-in bookcase has become part of the realty, courts weigh the method of annexation, the item's adaptation to the property, and which other factor given the greatest weight?

  1. The intention of the party who annexed the item Correct answer.
  2. Whether the item is mentioned in the deed
  3. The cost of the item compared with the value of the home
  4. The date on which the item was purchased

Explanation

The three traditional tests of a fixture are attachment, adaptation to the use of the property, and intention of the annexing party, with intention generally controlling. Attachment and adaptation are treated as evidence of what the party intended. A deed recital is not required for an item to be a fixture.

Question 4Real Property Characteristics and Ownership

A farmer with a one-year lease plants corn in the spring. The landlord sells the farm, and the new owner ends the tenancy in July before the harvest. Who is entitled to the growing corn?

  1. The new owner, because the corn is attached to the land
  2. No one, because the tenancy ended before the crop was harvested
  3. The landlord who sold the property, because the lease was with that landlord
  4. The tenant farmer, under the doctrine of emblements Correct answer.

Explanation

Emblements are crops produced by annual labor and cultivation, and a tenant whose tenancy terminates through no fault of the tenant may re-enter to harvest them. The rule protects the tenant's investment in planting and labor. The right survives a sale of the property.

Question 5Real Property Characteristics and Ownership

An owner whose parcel borders a non-navigable stream wants to use the water. Under the riparian doctrine, that owner may:

  1. Use the water only for household purposes and never for irrigation
  2. Make reasonable use of the water without unreasonably harming other riparians Correct answer.
  3. Divert the entire flow of the stream for irrigation regardless of effect on neighbors
  4. Use the water only after obtaining a permit based on first use in time

Explanation

The riparian doctrine gives owners of land bordering a watercourse the right to make reasonable use of the water, subject to the correlative rights of other riparian owners. What is reasonable depends on the use, the harm to others, and the character of the watercourse. Irrigation is permitted when it is reasonable.

Question 6Real Property Characteristics and Ownership

A river slowly and imperceptibly deposits soil along its bank, adding two acres to a riverside parcel over many years. The additional land belongs to:

  1. No one; the added soil remains part of the riverbed
  2. The state, because navigable waters are held in trust for the public
  3. The riparian owner, by accretion Correct answer.
  4. The owner's neighbor, by avulsion

Explanation

Accretion is the gradual, imperceptible addition of land by natural action of water, and the added land belongs to the owner of the adjoining parcel. The doctrine reflects the fairness of giving the owner what nature slowly attaches. Avulsion, by contrast, is a sudden change that does not move boundaries.

Question 7Real Property Characteristics and Ownership

Property owned by one person alone, whether that owner is an individual, a corporation, or a trust, is held in:

  1. Tenancy in common
  2. Severalty Correct answer.
  3. Tenancy by the entirety
  4. Joint tenancy

Explanation

Sole ownership is ownership in severalty, meaning the owner's interest is separate and undivided. Every co-tenancy form requires two or more owners who hold simultaneous interests in the same property. Severalty is the default when title names only one owner.

Question 8Real Property Characteristics and Ownership

Three friends take title to a parcel as joint tenants. One of them later sells her interest to a stranger. What is the legal result?

  1. The stranger holds a joint tenancy with the other two owners
  2. The joint tenancy is severed, and the stranger holds as a tenant in common Correct answer.
  3. The sale is void, because a joint tenant may not convey an interest without the others' consent
  4. The joint tenancy continues unchanged among all four owners

Explanation

Joint tenancy depends on the four unities, including unity of title, and one owner's conveyance destroys that unity as to the transferred share. The purchaser becomes a tenant in common with the remaining owners, who continue to hold their own shares as between themselves as joint tenants. The right of survivorship no longer applies to the conveyed share.

Question 9Real Property Characteristics and Ownership

A married couple buys a home and takes title as tenants by the entirety. Which statement best describes their ownership?

  1. The tenancy automatically terminates if the couple has children
  2. Each spouse may convey an undivided half interest without the other's consent
  3. Neither spouse may convey alone, and the survivor takes the whole Correct answer.
  4. The spouses hold unequal shares based on what each contributed to the price

Explanation

Tenancy by the entirety is a special form of joint tenancy available only to married couples; it carries a right of survivorship and bars one spouse from conveying an interest without the other's joinder. A creditor of only one spouse generally cannot reach the property while the marriage continues.

Question 10Real Property Characteristics and Ownership

In a condominium form of ownership, an individual unit owner holds which of the following?

  1. A life estate in the unit with the remainder to the owners' association
  2. Shares in a corporation that owns the whole building, plus a proprietary lease
  3. Fee simple title to the unit plus a tenancy in common in the common elements Correct answer.
  4. A time-share interval for a fixed week each year

Explanation

Condominium ownership combines fee simple title to the airspace of an individual unit with an undivided interest, as a tenant in common, in the common elements. The owner receives a deed to the unit and may sell, mortgage, or devise it. The association governs through recorded covenants rather than through stock ownership.

Question 11Real Property Characteristics and Ownership

A buyer purchases shares of stock in a corporation and receives a long-term lease to a specific apartment in the building. This arrangement is:

  1. A condominium
  2. A planned unit development
  3. A cooperative Correct answer.
  4. A condominium with a proprietary lease

Explanation

In a cooperative, a corporation holds title to the entire property and each resident owns shares of the corporation plus a proprietary lease to a unit. The resident does not receive a deed to the unit. A condominium owner, in contrast, holds fee simple title to the unit itself.

Question 12Real Property Characteristics and Ownership

O conveys land to the city "on condition that the land be used only as a park, and if it is ever used for another purpose, title shall revert to O." The city builds a parking garage on the land, and O sues. O most likely holds:

  1. No interest, because conditions on a fee simple are unenforceable
  2. An easement over the property for park purposes
  3. A remainder interest that becomes possessory when the city's estate ends
  4. A power of termination for breach of a condition subsequent Correct answer.

Explanation

Language such as "on condition that," coupled with a right of re-entry, creates a fee simple subject to a condition subsequent, and the grantor retains a power of termination (right of entry). That power is not automatic; the grantor must act to reclaim title. A fee simple determinable would instead use words such as "so long as" and end automatically, leaving the grantor a possibility of reverter.

Question 13Real Property Characteristics and Ownership

An owner conveys property "to B for life." Which statement about B's interest is correct?

  1. B may sell or lease it, but it lasts only for B's lifetime Correct answer.
  2. B's estate is measured by the grantor's life rather than B's own
  3. B may leave the property to B's heirs by will, because a life estate is inheritable
  4. B holds a fee simple subject to a condition subsequent

Explanation

A life estate is a freehold estate measured by the life of a named person; it is freely alienable and leasable, but it ends at that person's death. Because it terminates automatically, it cannot be devised by will. The grantor keeps a reversion, which passes to the grantor's successors.

Question 14Real Property Characteristics and Ownership

A owns a landlocked parcel and holds a written right to cross B's neighboring land to reach the public road. That right is best described as:

  1. An easement in gross, personal to A, that ends when A sells the parcel
  2. A license that B may revoke at any time
  3. A lien on B's property that secures the right of way
  4. An easement appurtenant that runs with A's parcel when it is sold Correct answer.

Explanation

An easement appurtenant benefits a dominant parcel and burdens a servient parcel, so it runs with the land and passes automatically when the benefited parcel is transferred. The right of access makes A's parcel the dominant tenement and B's the servient tenement. An easement in gross, by contrast, benefits a particular person rather than a parcel.

Question 15Real Property Characteristics and Ownership

C tells D that D may park in C's commercial lot "for as long as you work next door." D parks there for a year, and then C withdraws the permission. D's interest is best described as:

  1. A prescriptive easement, because D used the lot for a year
  2. A profit a prendre, because D takes something from the land
  3. A license, which is revocable and creates no land interest Correct answer.
  4. An easement by estoppel, which becomes irrevocable once it is given

Explanation

Permission to use another's land that is personal, informal, and revocable is a license; it conveys no estate or easement and ends when the owner withdraws it. A prescriptive easement requires use that is open, notorious, hostile, and continuous for the statutory period. Use by permission is not hostile and therefore cannot ripen into prescription.

Question 16Real Property Characteristics and Ownership

Which of the following is generally classified as personal property rather than real property?

  1. The seller's freestanding washer and dryer Correct answer.
  2. A wooden fence permanently attached to the ground
  3. A built-in dishwasher
  4. A mature oak tree growing in the yard

Explanation

Personal property is movable and not permanently attached to the land, so freestanding appliances remain chattels and may be removed by the seller unless the contract says otherwise. Built-in appliances, growing trees, and fences are attached to or adapted to the realty and are treated as part of it.

Question 17Real Property Characteristics and Ownership

An owner conveys all of the coal beneath her land to a mining company while keeping the surface. Which statement is correct?

  1. The surface and the minerals are now owned separately Correct answer.
  2. The mining company now owns the entire parcel, including the surface
  3. The owner has created an easement in gross in favor of the company
  4. The conveyance is void because the surface and minerals cannot be separated

Explanation

Real property may be divided horizontally, so a mineral estate can be severed from the surface estate and owned by a different party. The mineral owner ordinarily also holds an implied right to use so much of the surface as is reasonably necessary to extract the minerals. The result is two separate estates in the same parcel.

Question 18Real Property Characteristics and Ownership

A neighbor openly fences in and uses a strip of an adjoining owner's land without permission, pays the taxes on the strip, and continues for the statutory period. The neighbor's claim rests on:

  1. Adverse possession, which requires open, hostile, and continuous use Correct answer.
  2. Accretion of title by accession
  3. Eminent domain
  4. Prescription, which transfers title to land after open use for the statutory period

Explanation

Adverse possession can transfer title without payment when possession is actual, open and notorious, hostile, exclusive, and continuous for the statutory period, with the tax payment requirement where applicable. Hostility means use without the owner's permission. Prescription creates an easement rather than passing title.

Question 19Real Property Characteristics and Ownership

A deed describes a parcel as beginning at a marked oak tree, then running "north 200 feet, thence east 150 feet…" until it returns to the point of beginning. This is:

  1. A metes-and-bounds description Correct answer.
  2. A recorded plat reference
  3. A rectangular government survey description
  4. A lot-and-block description

Explanation

A metes-and-bounds description identifies a parcel by a point of beginning and then by courses (direction and distance) running along natural or artificial monuments back to the starting point. Lot-and-block, plat reference, and government survey descriptions rely instead on recorded maps or the rectangular system of townships and sections.

Question 20Real Property Characteristics and Ownership

Under the U.S. Government Survey System, a parcel described as the NW ¼ of the SE ¼ of Section 12 contains approximately how many acres?

  1. 320 acres
  2. 40 acres Correct answer.
  3. 160 acres
  4. 640 acres

Explanation

A full section contains 640 acres, and each quartering divides the area by four. The SE ¼ of the section is 160 acres, and the NW ¼ of that quarter contains 640 ÷ 4 ÷ 4 = 40 acres. Government survey descriptions are read from the smallest unit back to the largest.

Question 21Land Use Controls and Restrictions

Zoning is best described as which of the following?

  1. A federal program regulating titles
  2. An exercise of police power Correct answer.
  3. A private contract among neighbors
  4. A form of eminent domain

Explanation

Zoning is a local land-use regulation adopted under the police power delegated by the state to protect public health, safety, and welfare. It does not require compensation because it regulates use rather than taking title. Private contracts and federal title programs are separate concepts.

Question 22Land Use Controls and Restrictions

A property owner has operated a small auto repair shop on a parcel for years. The city then adopts zoning that makes auto repair a prohibited use in that district. The shop may generally continue as which of the following?

  1. A nonconforming use Correct answer.
  2. A spot zone
  3. A conditional use permit
  4. A variance

Explanation

A nonconforming use is a use that was lawful when it began but no longer complies with a later zoning ordinance. Most zoning ordinances allow such uses to continue, although they usually cannot be expanded. A variance or conditional use permit is a separate approval process.

Question 23Land Use Controls and Restrictions

A homeowner's lot is too narrow to meet the side-yard setback, and the owner seeks permission to build closer to the line because of the lot's shape. The appropriate request is for which of the following?

  1. A rezoning
  2. A special exception
  3. A variance Correct answer.
  4. A building code amendment

Explanation

A variance grants relief from a dimensional standard such as a setback when the owner shows hardship peculiar to the parcel. It does not change the zoning classification or amend the code. A special exception would apply to a use listed as conditional, not a dimensional hardship.

Question 24Land Use Controls and Restrictions

A church wants to locate in a residential district where places of worship are allowed only after review and approval by the board. This approval is called which of the following?

  1. A nonconforming use status
  2. A rezoning of the parcel
  3. A special exception Correct answer.
  4. A use variance

Explanation

A special exception, also called a conditional use permit, authorizes a use that the zoning ordinance lists as permitted only with board review and conditions. It does not change the zoning map. A variance is relief from a standard, and a nonconforming use already existed before the ordinance.

Question 25Land Use Controls and Restrictions

Restrictive covenants in a subdivision are enforced primarily by which of the following?

  1. Owners through civil action Correct answer.
  2. The county building department
  3. The state real estate commission
  4. The local zoning board

Explanation

Restrictive covenants are private agreements or equitable servitudes that run with the land and are enforced by parties with standing, such as lot owners or an owners' association. They are not enforced by zoning or building officials. Government agencies enforce public codes and ordinances, not private covenants.

Question 26Land Use Controls and Restrictions

After a new house passes required inspections, the local government issues a certificate of occupancy, which primarily confirms which of the following?

  1. The builder has paid all subcontractors
  2. The lender has recorded the mortgage
  3. The lot meets private covenants
  4. The structure may lawfully be occupied Correct answer.

Explanation

A certificate of occupancy is issued after inspections show that the structure complies with applicable building and zoning requirements and may be used or occupied. It does not prove payment of contractors, mortgage recording, or compliance with private deed restrictions.

Question 27Land Use Controls and Restrictions

A city council rezones a single small lot from residential to commercial at the request of its owner, while surrounding parcels remain residential and the change conflicts with the comprehensive plan. This is best characterized as which of the following?

  1. A nonconforming use
  2. A special exception
  3. A variance
  4. Spot zoning Correct answer.

Explanation

Spot zoning is the singling out of a small parcel for a zoning change that is inconsistent with the surrounding area or the comprehensive plan. Courts may invalidate it as arbitrary or not in the public welfare. It is not a variance, special exception, or nonconforming use because it changes the zoning map itself.

Question 28Land Use Controls and Restrictions

A strip of landscaping and open space is required between a new commercial development and an adjoining residential neighborhood. This strip is known as which of the following?

  1. A buffer zone Correct answer.
  2. An easement
  3. A bulk plane
  4. A setback requirement

Explanation

A buffer zone is a transition area used to separate incompatible uses and reduce noise, light, and visual impacts. A setback is the required distance between a structure and a lot line, not necessarily a separating strip between uses.

Question 29Land Use Controls and Restrictions

A zoning ordinance requires that a house be located at least 25 feet from the front property line. This requirement is which of the following?

  1. A front setback Correct answer.
  2. A floor area ratio
  3. A buffer requirement
  4. A lot coverage limit

Explanation

A setback is the minimum required distance between a building and a lot line; the front setback measures that distance from the front lot line. Floor area ratio and lot coverage limits control building bulk or the percentage of the lot covered, not the distance from the line.

Question 30Land Use Controls and Restrictions

A subdivider records a plat map that shows lots, streets, and easements. The primary purpose of plat approval and recording is to do which of the following?

  1. Set the sales price of each lot
  2. Guarantee the developer a profit on every lot
  3. Transfer title to buyers automatically
  4. Record the lots and show local standards Correct answer.

Explanation

Platting is the process by which a subdivision is mapped, reviewed for compliance with subdivision regulations, and recorded, creating a public record of lot boundaries, streets, and dedications. Recording a plat does not itself convey title or set prices. Those matters are handled by deeds, contracts, and the market.

Question 31Land Use Controls and Restrictions

Which statement best distinguishes a variance from a special exception?

  1. A variance relaxes a dimensional rule; a special exception allows a listed conditional use Correct answer.
  2. A variance changes the zoning map, while a special exception leaves the official map unchanged
  3. A variance is granted by the state, while a special exception is granted by the county board
  4. A variance requires compensation to neighbors, while a special exception requires no payment

Explanation

A variance grants relief from a dimensional standard such as a setback or lot size because of hardship, while a special exception permits a use that the ordinance lists as allowable with review and conditions. Neither device changes the zoning map. Both are typically heard by a local board, and neither requires compensation to neighbors.

Question 32Land Use Controls and Restrictions

Which government action requires payment of just compensation under the U.S. Constitution?

  1. Designating a historic district
  2. Denying a requested variance
  3. A taking for a public road Correct answer.
  4. Enforcing a local building code

Explanation

The Fifth Amendment takings clause requires just compensation when government takes private property for public use. Police-power regulations such as building codes, variance decisions, and historic designation generally do not require compensation unless they go so far as to deprive the owner of all economically beneficial use.

Question 33Land Use Controls and Restrictions

The primary function of a community's comprehensive plan is to do which of the following?

  1. Replace the zoning ordinance
  2. Record liens against property
  3. Set the exact tax rate for each parcel
  4. Guide long-range zoning decisions Correct answer.

Explanation

A comprehensive or master plan sets long-range goals and policies for land use, transportation, housing, and public facilities. It guides zoning and subdivision decisions but does not itself replace the zoning ordinance or set taxes.

Question 34Land Use Controls and Restrictions

A planned unit development (PUD) ordinance typically allows a developer to do which of the following?

  1. Mix uses and vary lot standards under site plan review Correct answer.
  2. Build only single-family homes on identical lots with no review
  3. Ignore all local building and fire codes
  4. Avoid recording a plat

Explanation

A PUD provides flexibility to mix uses and vary lot sizes, setbacks, and densities in exchange for detailed site plan review and public approval. It does not waive building or fire codes. The project is still reviewed and recorded according to local rules.

Question 35Land Use Controls and Restrictions

A neighbor's fence extends two feet onto another owner's lot. This is best described as which of the following?

  1. A license
  2. A restrictive covenant
  3. An easement by necessity
  4. An encroachment Correct answer.

Explanation

An encroachment is a physical intrusion by a structure or improvement onto another person's land. An easement by necessity is a right of access, a license is permission to use land, and a covenant is a promise restricting use.

Question 36Land Use Controls and Restrictions

The local board that hears requests for variances and appeals from zoning administrator decisions is usually which of the following?

  1. The board of realtors
  2. The planning commission
  3. The county recorder's office
  4. The board of zoning appeals Correct answer.

Explanation

The board of zoning appeals, sometimes called the board of adjustment, typically hears variances, special exceptions, and appeals from administrative zoning decisions. A planning commission primarily prepares plans and reviews subdivisions and rezonings.

Question 37Land Use Controls and Restrictions

A store is a lawful nonconforming use in a residential district. The owner wants to double the building's size to expand the store. Under most zoning ordinances, the owner may do which of the following?

  1. Expand after obtaining an automatic variance
  2. Expand freely because the use is grandfathered
  3. Not enlarge it, though ordinary repairs are allowed Correct answer.
  4. Expand because nonconforming uses are exempt from zoning

Explanation

A lawful nonconforming use may continue after a zoning change, but most ordinances prohibit enlarging, extending, or intensifying it; ordinary repair and maintenance are typically allowed. Grandfathering protects the existing use, not unlimited expansion. To expand, the owner generally must seek a variance or rezoning.

Question 38Land Use Controls and Restrictions

A city approves a subdivision only if the developer dedicates land for a new school. To be valid, the dedication requirement generally must do which of the following?

  1. Be voluntary and left unrecorded
  2. Be approved in advance by the state real estate commission
  3. Have a nexus and rough proportionality to the impact Correct answer.
  4. Apply only to commercial developers

Explanation

Under the Nollan and Dolan cases, development exactions must have an essential nexus to a legitimate government interest and rough proportionality to the impact of the proposed development. A school dedication may be valid if it is tied to the subdivision's impact, but it is not automatically valid. The state real estate commission does not approve local exactions.

Question 39Land Use Controls and Restrictions

A developer obtains a building permit and begins construction in good faith, then the city rezones the area to prohibit that use. The developer's best argument to continue is which of the following?

  1. The doctrine of adverse possession
  2. The rule against perpetuities
  3. The doctrine of escheat
  4. The vested-rights doctrine Correct answer.

Explanation

The vested-rights doctrine can protect a developer who has obtained permits and made substantial good-faith construction expenditures before a zoning change. Adverse possession concerns acquiring title by long use, perpetuities concerns future interests, and escheat concerns property passing to the state.

Question 40Land Use Controls and Restrictions

A subdivision covenant limits lots to single-family homes. A buyer wants to build a duplex. Which party generally has standing to enforce the covenant?

  1. Any person who owns property anywhere in the same county
  2. Only the state attorney general
  3. The original subdivider and no one else for all time
  4. A neighboring lot owner bound by the covenant Correct answer.

Explanation

Restrictive covenants run with the land and may be enforced by owners who are subject to the common scheme, often through an owners' association. A random county resident or the state generally lacks standing. The original subdivider may enforce while it retains a legal interest, but not forever and not exclusively.

Question 41Agency and Fiduciary Duties

Which fiduciary duty requires a licensee to place the principal's interests ahead of the licensee's own interests?

  1. Loyalty Correct answer.
  2. Obedience
  3. Confidentiality
  4. Accounting

Explanation

Loyalty obligates the licensee to act solely for the principal's benefit, avoiding self-dealing, secret profits, and conflicts of interest. The remaining fiduciary duties address recordkeeping, compliance with lawful instructions, and protection of private information.

Question 42Agency and Fiduciary Duties

The fiduciary duty of care requires a licensee to:

  1. Keep the principal's personal financial information secret forever
  2. Follow every instruction the principal gives, whether or not the instruction is lawful
  3. Guarantee that the property will appraise at the contract price
  4. Use reasonable skill, diligence, and competence in the transaction Correct answer.

Explanation

Care is measured by the skill and diligence a reasonably competent licensee would exercise in similar circumstances, including research, disclosure, and recommending experts when needed. It is a standard of reasonable conduct, not a promise of a particular outcome.

Question 43Agency and Fiduciary Duties

A brokerage receives a buyer's earnest money check in a pending sale. To satisfy the duty of accounting, the funds should be:

  1. Commingled with the brokerage's own operating funds to simplify bookkeeping
  2. Held in a separate trust account with accurate records of receipt Correct answer.
  3. Deposited in the brokerage's general business account and tracked informally
  4. Retained by the licensee as a deposit against future commissions

Explanation

Client funds must be segregated from the brokerage's own money and documented so the brokerage can account for every dollar on demand. Mixing trust funds with operating funds is commingling and can result in license discipline.

Question 44Agency and Fiduciary Duties

A seller signs a written listing agreement with a brokerage. The agency relationship in this situation is created by:

  1. Estoppel
  2. Ratification
  3. Operation of law
  4. Express agreement Correct answer.

Explanation

Agency may arise by express agreement, by implication from the parties' conduct, or by estoppel and ratification. A signed listing contract is the classic example of express creation of the relationship.

Question 45Agency and Fiduciary Duties

A seller instructs the licensee to advertise the home as 'newly remodeled' even though the seller knows the work was never permitted. What should the licensee do?

  1. Withdraw from the listing immediately without giving the seller any reason
  2. Advertise it as directed and add a note that the licensee has not verified the statement
  3. Follow the instruction, because obedience to the principal is an absolute fiduciary duty
  4. Refuse, because the duty of obedience extends only to lawful and ethical instructions Correct answer.

Explanation

Obedience is limited to instructions that are lawful and consistent with the licensee's ethical obligations. Publishing a statement the client knows to be misleading would violate both the license law and the duty of honesty to the public.

Question 46Agency and Fiduciary Duties

While showing a home, the seller's agent mentions that the basement flooded twice last spring and was never disclosed. What must the buyer's agent do?

  1. Say nothing, because a buyer's agent owes no duties to the seller or the seller's agent
  2. Report it to the buyer only if the buyer specifically asks whether the basement has water problems
  3. Disclose the information to the buyer because it is a material fact about the property Correct answer.
  4. Keep it confidential because the seller's agent spoke in casual conversation

Explanation

A licensee must disclose known facts that materially affect the value or desirability of the property, regardless of which side the licensee represents. Repeated flooding is a classic material fact that a reasonable buyer would want before making an offer.

Question 47Agency and Fiduciary Duties

A buyer's agent learns during the representation that the buyer is pre-approved only to $310,000 while shopping in the $340,000 range. The buyer later ends the agency agreement and buys through another brokerage. The former agent may:

  1. Tell any cooperating licensee who asks about the buyer's financial motivation
  2. Publish the pre-approval limit in the listing service to attract showings
  3. Keep the pre-approval amount confidential even after the agency ends Correct answer.
  4. Share the pre-approval amount because the agency relationship has ended

Explanation

The duty of confidentiality protects a client's private information and generally survives termination of the agency relationship. Ending the representation does not license the former agent to broadcast information obtained in confidence.

Question 48Agency and Fiduciary Duties

A brokerage represents the seller of a home, and one of its licensees wants to represent the buyer of that same home. Under Indiana agency rules, the brokerage may proceed only if:

  1. The seller gives verbal permission to the licensee before the buyer's offer is presented to the seller
  2. Both parties give informed written consent before confidential information is shared Correct answer.
  3. The managing broker of the brokerage signs a written waiver after the closing is complete
  4. The buyer and seller are each represented by a licensed attorney in the transaction

Explanation

Indiana uses a limited agency framework in which a brokerage may serve both sides only after the parties receive a written disclosure and consent to the arrangement. Consent must come before the brokerage receives confidential information from either party.

Question 49Agency and Fiduciary Duties

A licensee wants to buy a client's vacant lot at a price well below market. To comply with fiduciary duties, the licensee must:

  1. Rely on the client's general statement that all offers are welcome
  2. Wait until the listing agreement expires, then make the offer without telling the client
  3. Disclose the licensee's interest in writing and obtain the client's informed consent Correct answer.
  4. Make the offer through a relative so the client never learns of the licensee's interest

Explanation

A licensee who acquires an interest in a client's property engages in self-dealing and must make full written disclosure and obtain informed consent. Hiding the licensee's identity or interest breaches loyalty and may constitute fraud.

Question 50Agency and Fiduciary Duties

A licensee refers a client to a mortgage lender and quietly receives a $500 payment from the lender for the referral. Why is this conduct improper?

  1. The licensee must first split the payment with the managing broker before keeping it
  2. Secret compensation from a third party violates the duty of loyalty and disclosure Correct answer.
  3. Only a buyer, never a seller, may lawfully be charged a referral fee
  4. Referral payments from lenders are prohibited in every circumstance by Indiana license law

Explanation

A licensee's relationship with a client requires full disclosure of any compensation the licensee receives in connection with the transaction, including payments from third parties. Undisclosed compensation creates divided incentives and undermines the client's ability to consent.