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NC Real Estate practice questions

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Question 1National portion (general real estate principles and practices)

Which of the following estates is a freehold estate?

  1. Periodic tenancy
  2. Estate for years
  3. Fee simple absolute Correct answer.
  4. Tenancy at will

Explanation

Freehold estates are ownership interests of indefinite duration, and the fee simple absolute is the most complete form of land ownership. Estates for years, tenancies at will, and periodic tenancies are leasehold estates that give possession only for a limited term.

Question 2National portion (general real estate principles and practices)

Three investors take title to an office building as joint tenants. One of them dies without a will. What happens to that investor's interest?

  1. It passes to the deceased investor's heirs through probate.
  2. It becomes a tenancy in common between the estate and the survivors.
  3. It passes to the deceased investor's spouse by intestate succession.
  4. It is divided equally among the surviving joint tenants. Correct answer.

Explanation

Joint tenancy carries the right of survivorship, so a deceased joint tenant's share passes automatically to the surviving joint tenants and never enters the probate estate. Each survivor absorbs an equal portion of the decedent's interest, keeping the shares equal.

Question 3National portion (general real estate principles and practices)

For 25 years a landowner has openly crossed a neighbor's unpaved driveway to reach a public road, without permission and without the neighbor objecting. This use may create:

  1. an easement by necessity
  2. a revocable license
  3. an easement by estoppel
  4. an easement by prescription Correct answer.

Explanation

A prescriptive easement arises when a person uses another's land openly, notoriously, adversely, and continuously for the period set by statute. Permission defeats the claim because the use must be adverse rather than permissive.

Question 4National portion (general real estate principles and practices)

In a state that protects a subsequent purchaser who takes without notice of a prior unrecorded deed, a buyer who pays value, has no notice of the earlier deed, and records first will:

  1. lose to the earlier grantee because that deed came first
  2. be required to share title equally with the earlier grantee
  3. take title subject to the earlier grantee's interest
  4. hold title free of the earlier unrecorded deed Correct answer.

Explanation

Recording statutes protect a bona fide purchaser for value who takes without notice of a prior unrecorded conveyance, so recording first perfects that buyer's priority even though the other deed was executed earlier. Notice can be actual, constructive from the public record, or inquiry notice.

Question 5National portion (general real estate principles and practices)

A deed is properly signed, acknowledged, and delivered but states no consideration. The deed is:

  1. voidable at the grantor's election
  2. void, because every deed must state a price
  3. valid; consideration is not required for a deed Correct answer.
  4. enforceable only after consideration is paid

Explanation

A valid deed needs a competent grantor, an identifiable grantee, words of conveyance, a legal description, and delivery. Consideration is not a required element, although it can affect gift tax treatment and transfer tax calculations.

Question 6National portion (general real estate principles and practices)

Under the statute of frauds, which of these agreements must be in writing to be enforceable?

  1. An oral promise to show a buyer three houses
  2. A lease of an apartment for six months
  3. A management agreement terminable on 30 days' notice
  4. A contract for the sale of a vacant lot Correct answer.

Explanation

The statute of frauds requires a writing signed by the party to be charged for contracts involving the sale of an interest in real property and for long-term leases. Short-term leases and ordinary service agreements fall outside the rule.

Question 7National portion (general real estate principles and practices)

A broker has listed a home for $350,000. A prospective buyer privately tells the broker that she would gladly pay $375,000. The broker's duty of loyalty requires the broker to:

  1. communicate the information to the seller Correct answer.
  2. keep the buyer's comment confidential and say nothing
  3. share it with the buyer's lender
  4. withdraw from the listing

Explanation

A seller's agent owes the seller loyalty, disclosure, confidentiality, accounting, and reasonable care. Material information bearing on the seller's negotiating position, such as a buyer's willingness to pay more, must be reported to the principal.

Question 8National portion (general real estate principles and practices)

A broker has the written informed consent of both parties to serve as a dual agent. Which activity is consistent with that role?

  1. Negotiating terms only in the seller's interest
  2. Telling the buyer the lowest price the seller would accept
  3. Hiding the buyer's urgency to close from the seller
  4. Conveying every offer to both parties without advocacy Correct answer.

Explanation

A dual agent must treat both principals fairly, disclose all material facts, and account for funds, but may not advocate for one side or reveal one party's confidential negotiating position. Written consent permits the dual role; it does not permit favoritism.

Question 9National portion (general real estate principles and practices)

Which of these is a protected class under the federal Fair Housing Act?

  1. Source of income
  2. Marital status
  3. Age
  4. Familial status Correct answer.

Explanation

The federal Fair Housing Act prohibits discrimination based on race, color, religion, sex, national origin, familial status, and disability. Marital status and source of income are protected under some state and local ordinances but not under the federal statute.

Question 10National portion (general real estate principles and practices)

A licensee telephones homeowners in a changing neighborhood and warns that members of a minority group are moving in and values will collapse, urging them to list immediately. This conduct is:

  1. a lawful solicitation of listings
  2. redlining
  3. blockbusting Correct answer.
  4. steering

Explanation

Blockbusting, also called panic selling, is inducing owners to sell by suggesting that members of a protected class are entering the area. It is a violation of the federal Fair Housing Act.

Question 11National portion (general real estate principles and practices)

The federal lead-based paint disclosure rule applies to:

  1. transactions financed only by federally related loans
  2. commercial warehouses leased to retailers
  3. the sale or lease of most housing built before 1978 Correct answer.
  4. every residential sale, regardless of the building's age

Explanation

Sellers and landlords of most housing constructed before 1978 must disclose known lead-based paint hazards, provide the EPA pamphlet, and in sales allow a 10-day period to test. The obligation does not depend on how the purchase is financed.

Question 12National portion (general real estate principles and practices)

Under RESPA, a borrower obtaining a federally related mortgage loan must receive:

  1. a one-year home warranty
  2. a copy of the seller's property disclosure statement
  3. a standard estimate of settlement service charges Correct answer.
  4. an attorney's opinion of title

Explanation

RESPA requires early disclosure of estimated settlement costs through the Loan Estimate within three business days of application and the Closing Disclosure at least three business days before consummation. RESPA also prohibits kickbacks and unearned fees in settlement services.

Question 13National portion (general real estate principles and practices)

The annual percentage rate disclosed under the Truth in Lending Act is designed to:

  1. state the note rate alone without any closing costs
  2. express the total cost of credit as a yearly rate Correct answer.
  3. report the total of all payments scheduled over the loan term
  4. disclose the lender's internal profit margin on the loan

Explanation

The APR converts the finance charge and certain loan fees into a single annualized rate so borrowers can compare the true cost of credit among competing lenders. The note rate by itself understates the cost because it ignores those charges.

Question 14National portion (general real estate principles and practices)

At a local association meeting, two competing brokers agree that neither will charge less than a 6 percent commission. This agreement is:

  1. an illegal price-fixing agreement under antitrust law Correct answer.
  2. acceptable if the local board of REALTORS approves it
  3. lawful because commission rates are set by local custom
  4. permissible if both brokers disclose it to their clients

Explanation

Commissions are negotiable between each broker and client, and an agreement among competitors to fix prices is a per se violation of the Sherman Antitrust Act. Disclosure to clients or approval by a trade association does not cure the violation.

Question 15National portion (general real estate principles and practices)

A contract provides that the seller keeps the buyer's $10,000 earnest money if the buyer defaults. The provision is enforceable as liquidated damages if it was:

  1. labeled a penalty in the contract
  2. set at more than 10 percent of the purchase price
  3. a reasonable estimate of damages made when signed Correct answer.
  4. forfeited automatically without notice to the buyer

Explanation

A liquidated damages clause is enforceable when actual damages would be difficult to estimate and the stated sum is a reasonable forecast of probable loss at the time of contracting. Courts judge the substance of the clause rather than the name the parties gave it.

Question 16National portion (general real estate principles and practices)

Marketable title is best described as title that is:

  1. completely free of every lien, easement, and encumbrance
  2. insured by a lender's title policy
  3. free from reasonable doubt for an ordinary buyer Correct answer.
  4. recorded in the county registry of deeds

Explanation

Title is marketable when a reasonably prudent buyer, advised by counsel, would accept it without fear of litigation over ownership. Minor recorded easements or restrictions may exist and the title can still be marketable.

Question 17National portion (general real estate principles and practices)

A city adopts a zoning ordinance restricting a parcel to single-family use. The authority for this action comes from:

  1. escheat
  2. taxation
  3. police power Correct answer.
  4. eminent domain

Explanation

Zoning is an exercise of the police power, which is the state's authority to regulate land use for public health, safety, welfare, and morals. Eminent domain involves a taking for public use with compensation and is a different governmental power.

Question 18National portion (general real estate principles and practices)

A corner grocery store has operated lawfully for 20 years. The city then zones the area residential. The store may generally:

  1. not continue because zoning applies retroactively
  2. continue only if the owner obtains a variance within 30 days
  3. continue as a legal nonconforming use Correct answer.
  4. continue only until the current owner sells the business

Explanation

Zoning operates prospectively, so an existing use that becomes prohibited is a legal nonconforming use that may continue. Such a use usually cannot be expanded and may be lost after abandonment, but it does not require a variance.

Question 19National portion (general real estate principles and practices)

A four-unit building has potential gross income of $60,000. Vacancy and collection losses average 5 percent, and annual operating expenses are $9,000. Using a market capitalization rate of 8 percent, what is the indicated value?

  1. $637,500
  2. $600,000 Correct answer.
  3. $3,840
  4. $712,500

Explanation

Effective gross income is $60,000 less the 5 percent vacancy allowance of $3,000, or $57,000. Subtracting $9,000 in operating expenses leaves net operating income of $48,000, and $48,000 divided by the 0.08 cap rate equals $600,000.

Question 20National portion (general real estate principles and practices)

Under an exclusive right-to-sell listing, the listing broker earns a commission when:

  1. the property sells during the listing term, by anyone Correct answer.
  2. the broker personally locates the buyer who purchases the home
  3. the transaction closes and the deed is recorded
  4. a cooperating broker licensed in another state brings the buyer

Explanation

An exclusive right to sell entitles the broker to a commission if the property sells during the listing period through anyone's efforts, including the owner's own sale. An exclusive agency listing, by contrast, lets the owner avoid the fee by selling without a broker.

Question 21National portion (general real estate principles and practices)

A tenant who operates a retail shop bolts display shelving to the walls. At the end of the lease the shelving is generally:

  1. the landlord's property because it was attached
  2. removable by the tenant as a trade fixture Correct answer.
  3. the landlord's property as a permanent fixture
  4. abandoned to the landlord when the lease ends

Explanation

Trade fixtures are items a tenant attaches for business purposes; they stay the tenant's personal property and may be removed before the lease expires, with the tenant repairing any damage. Leaving them behind after the term may forfeit that right.

Question 22National portion (general real estate principles and practices)

A deed of trust differs from a traditional mortgage mainly because a deed of trust:

  1. cannot be recorded in the public land records of the county
  2. creates no enforceable security interest in the mortgaged property
  3. may not be foreclosed through a power-of-sale clause
  4. uses a trustee who holds title as security until the debt is paid Correct answer.

Explanation

In a deed of trust the borrower conveys title to a neutral trustee who holds it as security for the lender, who is the beneficiary. If the borrower defaults, the trustee may foreclose non-judicially under a power-of-sale clause, whereas a mortgage is a two-party instrument.

Question 23National portion (general real estate principles and practices)

A broker deposits a tenant's security deposit into the firm's general business account and uses part of the money to pay office bills. This conduct is:

  1. permitted for deposits of less than one month's rent
  2. conversion of trust funds Correct answer.
  3. acceptable because the deposit still belongs to the tenant
  4. acceptable if the broker restores the funds within 30 days

Explanation

Money held for others is trust funds and must be kept in a separate trust account, never commingled with the broker's own money or spent for business expenses. Misusing those funds is conversion and can lead to license discipline and criminal liability.

Question 24National portion (general real estate principles and practices)

An owner has an unpaid first mortgage and also owes two years of delinquent property taxes. Which lien generally has priority?

  1. The mortgage, because it was recorded before the taxes were assessed
  2. The mortgage, because a voluntary lien outranks an involuntary one
  3. The property tax lien, which outranks private liens Correct answer.
  4. Neither; the two liens share priority equally

Explanation

Property tax liens are generally given statutory priority over other liens regardless of recording dates because they secure public revenue. Priority among private liens is usually determined by the order of recording.

Question 25National portion (general real estate principles and practices)

A buyer pays $5,000 for a 90-day option to purchase a parcel at $200,000. Thirty days later the seller dies. The buyer's option is:

  1. void unless the price is paid immediately
  2. still binding on the seller's estate for the rest of the term Correct answer.
  3. enforceable only if the estate formally agrees to reinstate it
  4. terminated automatically by the seller's death

Explanation

An option is a binding contract supported by consideration, so the offeror cannot revoke it during the option period, and it binds the offeror's heirs, successors, and estate. Death of the offeror does not terminate an option contract.

Question 26National portion (general real estate principles and practices)

A restaurant tenant bolts a heavy commercial oven to the floor of the leased kitchen. When the lease ends, the oven is generally:

  1. a fixture that the tenant must leave because it is bolted down
  2. a permanent fixture that automatically passes to the landlord
  3. a trade fixture the tenant may remove before the lease ends Correct answer.
  4. personal property that the landlord may keep without compensation

Explanation

Trade fixtures are items a tenant attaches to leased space for business use. They remain the tenant's personal property and may be removed before the lease ends, provided removal does not cause substantial damage.

Question 27National portion (general real estate principles and practices)

In a deed of trust used to secure a real estate loan, the party who holds legal title until the debt is repaid is the:

  1. trustor
  2. beneficiary
  3. grantee
  4. trustee Correct answer.

Explanation

A deed of trust is a three-party security instrument. The borrower is the trustor, the lender is the beneficiary, and the neutral trustee holds legal title with power to foreclose if the borrower defaults.

Question 28National portion (general real estate principles and practices)

A quitclaim deed transfers:

  1. only a life estate measured by the grantor's life
  2. whatever interest, if any, the grantor may have Correct answer.
  3. title free of all recorded encumbrances
  4. a full warranty of title from the grantor

Explanation

A quitclaim deed contains no covenants of title. It conveys only the grantor's present interest, if any, without promising that the interest is valid or marketable.

Question 29National portion (general real estate principles and practices)

Under an exclusive agency listing, the seller promises to pay the broker a commission if:

  1. the property sells during the listing period no matter who finds the buyer
  2. the property is withdrawn from the market before the term ends
  3. the seller personally finds a buyer during the listing term
  4. the broker produces a ready, willing, and able buyer Correct answer.

Explanation

In an exclusive agency listing, the seller appoints one broker but keeps the right to sell the property personally without paying a commission. The broker earns a commission only by producing a ready, willing, and able buyer or through another agent.

Question 30National portion (general real estate principles and practices)

A buyer gives a licensee an earnest money check. The licensee should promptly:

  1. deposit it in the broker's general operating account
  2. hold it in the licensee's personal account until closing
  3. cash it and give the buyer a personal receipt
  4. deliver it to the broker for deposit in the trust account Correct answer.

Explanation

Earnest money belongs to others and must be handled as trust funds. The broker must deposit it in a designated trust or escrow account and maintain accurate records; commingling with business or personal funds is prohibited.

Question 31National portion (general real estate principles and practices)

Two friends own a duplex as tenants in common with equal shares. One dies without a will. That owner's share:

  1. passes to the deceased owner's heirs or estate Correct answer.
  2. must be sold at public auction within one year
  3. passes automatically to the surviving co-owner
  4. is forfeited to the state under escheat

Explanation

Tenants in common hold separate, undivided interests with no right of survivorship. On death, each owner's share passes through probate to heirs or devisees, not automatically to the co-tenant.

Question 32National portion (general real estate principles and practices)

On a fully amortizing fixed-rate mortgage, as the loan matures the portion of each payment applied to interest generally:

  1. drops to zero after the first year
  2. remains exactly the same each month
  3. decreases as the principal balance declines Correct answer.
  4. increases each month

Explanation

Interest is charged on the outstanding principal balance. As principal is gradually repaid, the balance falls, so the interest portion of a level payment declines and the principal portion grows.

Question 33National portion (general real estate principles and practices)

Private mortgage insurance is most commonly required by a lender when the loan-to-value ratio exceeds:

  1. 80 percent Correct answer.
  2. 50 percent
  3. 70 percent
  4. 60 percent

Explanation

Conventional lenders typically require private mortgage insurance when the borrower finances more than 80 percent of the property's value. PMI protects the lender against default loss, not the borrower.

Question 34National portion (general real estate principles and practices)

An appraiser values a home with a two-car garage. A comparable sale has no garage. The appraiser should:

  1. make no adjustment because garages are not considered
  2. add value to the comparable for the missing garage Correct answer.
  3. subtract value from the comparable for the missing garage
  4. reject the comparable as unusable

Explanation

In the sales comparison approach, each comparable is adjusted toward the subject. Because the subject is superior to the comparable, the appraiser adds the value of the garage to the comparable's price.

Question 35National portion (general real estate principles and practices)

A homeowner wants to add a room that would intrude into the required side-yard setback. The homeowner should seek:

  1. a nonconforming use certificate
  2. a special use permit
  3. a rezoning of the parcel
  4. a variance Correct answer.

Explanation

A variance is administrative relief from a zoning ordinance because of hardship related to the land, such as an unusual lot shape. A special use permit allows a listed conditional use, while rezoning changes the district classification.

Question 36National portion (general real estate principles and practices)

A neighbor's fence extends two feet onto an owner's parcel. This condition is best described as:

  1. an easement by necessity
  2. an encroachment Correct answer.
  3. a lien on the owner's property
  4. a restrictive covenant

Explanation

An encroachment is a physical intrusion by a structure or improvement onto another's land. It differs from an easement, which is a right to use land, and from a lien or covenant.

Question 37National portion (general real estate principles and practices)

An owner's title insurance policy typically protects the owner against:

  1. future acts of the owner that create liens
  2. loss from floods or other casualties
  3. covered title defects existing at the policy date Correct answer.
  4. physical defects discovered after closing

Explanation

An owner's policy insures against covered defects in title that existed when the policy was issued, such as forgery or undisclosed heirs. It does not insure future acts of the owner, physical conditions, or casualty losses.

Question 38National portion (general real estate principles and practices)

A licensee who has no written authority shows a home and submits a buyer's offer. If the seller accepts the offer and the commission, the agency may be created by:

  1. estoppel
  2. ratification Correct answer.
  3. novation
  4. condemnation

Explanation

Ratification occurs when a principal approves an unauthorized act after the fact. By accepting the benefits of the licensee's conduct, the seller can ratify the agency relationship.

Question 39National portion (general real estate principles and practices)

A buyer submits a written offer at the asking price. The seller signs the same form but raises the price by $5,000 and returns it to the buyer. The seller's response is:

  1. a counteroffer that rejects the original offer Correct answer.
  2. a novation
  3. an acceptance creating a binding contract
  4. an option contract

Explanation

A response that changes a material term of an offer is a counteroffer, not an acceptance. It terminates the buyer's original offer and places the new terms before the buyer for acceptance or rejection.

Question 40National portion (general real estate principles and practices)

A seller refuses to convey land after signing a valid sale contract. The buyer's best equitable remedy to compel the transfer is:

  1. novation
  2. rescission
  3. liquidated damages
  4. specific performance Correct answer.

Explanation

Because every parcel of land is unique, courts may order specific performance to force the seller to convey title. Rescission cancels the contract, and liquidated damages are a contractual money remedy.

Question 41National portion (general real estate principles and practices)

A landlord fails to repair a broken furnace, leaving the apartment uninhabitable in winter. The tenant may generally:

  1. terminate the lease only if the landlord agrees
  2. vacate and treat the lease as terminated Correct answer.
  3. continue living there and pay no rent indefinitely
  4. sue the landlord for trespass

Explanation

Constructive eviction occurs when a landlord's failure makes the premises substantially unfit for their intended purpose. The tenant may vacate within a reasonable time and treat the lease as ended.

Question 42National portion (general real estate principles and practices)

A licensee deliberately directs minority buyers away from certain neighborhoods and toward others. This practice is:

  1. steering, a fair housing violation Correct answer.
  2. lawful neighborhood marketing
  3. blockbusting, a fair housing violation
  4. redlining, a fair housing violation

Explanation

Steering is guiding buyers toward or away from neighborhoods based on protected characteristics. It violates the Fair Housing Act even when the licensee believes the buyer would prefer the area.

Question 43National portion (general real estate principles and practices)

A tenant with a disability asks to keep a service animal despite the building's no-pet policy. The landlord must:

  1. require the tenant to move to a pet-friendly building
  2. enforce the no-pet policy uniformly
  3. charge a pet deposit and refuse the animal
  4. grant a reasonable accommodation unless it causes undue hardship Correct answer.

Explanation

Fair housing law requires reasonable accommodations in rules, policies, or practices for persons with disabilities. A service animal is generally not a pet, and the landlord must waive the no-pet rule unless doing so imposes an undue hardship.

Question 44National portion (general real estate principles and practices)

The Equal Credit Opportunity Act prohibits a lender from denying credit based on:

  1. the borrower's credit score
  2. the borrower's debt-to-income ratio
  3. the borrower's marital status Correct answer.
  4. the property's appraised value

Explanation

ECOA prohibits discrimination in credit on bases such as race, color, religion, national origin, sex, marital status, age, and receipt of public assistance. Credit score, appraised value, and debt-to-income ratio are legitimate underwriting factors.

Question 45National portion (general real estate principles and practices)

A home appraises for $200,000 and the lender approves a $160,000 loan. The loan-to-value ratio is:

  1. 60 percent
  2. 20 percent
  3. 80 percent Correct answer.
  4. 75 percent

Explanation

Loan-to-value is the loan amount divided by the property's value. Here $160,000 divided by $200,000 equals 0.80, or 80 percent.

Question 46National portion (general real estate principles and practices)

A homeowner has an unpaid mortgage, a recorded mechanic's lien, and overdue real property taxes. In the usual priority scheme, which lien generally has the highest priority?

  1. the mechanic's lien
  2. the real property tax lien Correct answer.
  3. the mortgage
  4. all three share equally

Explanation

Real property tax liens generally take priority over other liens regardless of recording date because they are created by statute for public revenue. Mortgage and mechanic's lien priority then depends on recording and other rules.

Question 47National portion (general real estate principles and practices)

A mortgage contains a due-on-sale clause. If the borrower sells the property without the lender's consent, the lender may generally:

  1. increase the interest rate automatically
  2. void the buyer's deed
  3. demand immediate repayment of the loan Correct answer.
  4. record a lien on the buyer's other property

Explanation

A due-on-sale clause allows the lender to call the entire loan due if title is transferred without consent. It does not automatically change the rate, create liens on other property, or invalidate the deed.

Question 48National portion (general real estate principles and practices)

Highest and best use of a parcel is the use that, among legally permissible, physically possible, financially feasible, and maximally productive uses, produces:

  1. the lowest density allowed by zoning
  2. the greatest current income without regard to risk
  3. the use most similar to neighboring parcels
  4. the highest present value of the land Correct answer.

Explanation

Highest and best use is the reasonably probable use that yields the highest present value of the land, after satisfying legal, physical, and financial tests. It is not necessarily the most intensive use or the one matching neighbors.

Question 49National portion (general real estate principles and practices)

After a foreclosure sale, the sale proceeds are less than the debt owed. A court order holding the borrower personally liable for the shortfall is a:

  1. deficiency judgment Correct answer.
  2. writ of execution
  3. satisfaction of mortgage
  4. lis pendens

Explanation

A deficiency judgment is a personal judgment against a borrower for the amount by which the debt exceeds the foreclosure sale proceeds. Some states restrict or prohibit it, especially for purchase-money loans.

Question 50National portion (general real estate principles and practices)

A general warranty deed differs from a special warranty deed mainly because the general warranty deed:

  1. contains no covenants of title
  2. warrants against title defects whenever they arose Correct answer.
  3. conveys only the grantor's present interest
  4. warrants only against defects arising during the grantor's ownership

Explanation

A general warranty deed includes covenants that extend to the entire chain of title, covering defects created even before the grantor owned the property. A special warranty deed limits the grantor's promises to defects arising during the grantor's ownership.