Arkansas Real Estate Broker Exam — All Questions

A built-in dishwasher a homeowner installed becomes part of the real property because it is:

• a.an emblement, a crop the owner may remove before closing
• b.a chattel, which passes only if a bill of sale lists it expressly
• c.a fixture, personal property permanently annexed to the realty✓
• d.a trade fixture, which the seller may always remove at closing

A fixture is an article of personal property that has been so attached to land or a building that it is treated as part of the real estate and passes with a deed unless the contract excludes it. Courts weigh the method of annexation, the adaptation of the item to the property, and the intent of the party who attached it. An emblement is an annual cultivated crop; a trade fixture is an article a commercial tenant attaches for use in a trade or business and may remove before the lease ends; and a chattel is personal property that does not pass with a deed at all.

Two unmarried co-owners hold title as joint tenants with right of survivorship. When one dies, that owner's interest:

• a.passes to the surviving joint tenant outside of probate✓
• b.passes to the deceased owner's heirs under the will
• c.converts to a tenancy in common held by the estate
• d.is sold by the probate court and the proceeds divided

The defining feature of a joint tenancy with right of survivorship is that on the death of one joint tenant the entire interest passes by operation of law to the survivors, so the interest never enters the deceased owner's probate estate and a will cannot redirect it. A tenancy in common has no survivorship: each owner's undivided share passes by will or by intestacy. A joint tenancy can be severed during life, for example by one joint tenant conveying his interest, which converts that share to a tenancy in common.

In the rectangular survey system a section contains 640 acres. A tract described as the NW 1/4 of the SE 1/4 of a section contains:

• a.80 acres
• b.20 acres
• c.160 acres
• d.40 acres✓

Work the description from right to left, dividing at each step. The SE 1/4 of a 640-acre section is 160 acres; the NW 1/4 of that quarter is 160 divided by 4, or 40 acres. A shortcut is to multiply the denominators and divide 640 by the product: 4 times 4 is 16, and 640 divided by 16 is 40. The same tract read the other way would give the wrong answer, which is why the order matters. A section is one mile square, and thirty-six sections make up a township.

An easement appurtenant differs from an easement in gross in that an easement appurtenant:

• a.gives its holder the right to possess the servient parcel outright
• b.benefits a named person only and ends when that person moves
• c.may be created only by a written grant recorded before any sale
• d.benefits a particular parcel and passes when that parcel is sold✓

An easement appurtenant attaches to and benefits a dominant parcel and burdens a servient parcel, and because it runs with the land it passes automatically to the next owner of the dominant parcel whether or not the deed mentions it. An easement in gross benefits a person or entity rather than a parcel, which is how utility easements are usually held. Easements can arise by grant, by reservation, by necessity, by prescription, or by implication, so a recorded written grant is not the only route. And an easement is a right of use, not a right of possession.

A neighbor's new garage extends two feet across the boundary onto the seller's lot. This condition is:

• a.an easement by necessity, which arises by operation of law alone
• b.a deed restriction, enforceable by any other owner in the subdivision
• c.a license, which the seller may revoke at will and without notice
• d.an encroachment, which a current survey would ordinarily reveal✓

An encroachment is an unauthorized physical intrusion of a building, fence, driveway or other improvement onto adjoining land. It is a title and marketability problem rather than a use right, and a current survey is the standard way to find one, which is why lenders and title insurers ask for a survey and why an owner's policy generally excepts matters a survey would disclose. An easement by necessity arises when a parcel is landlocked by a division of commonly owned land; a license is revocable permission to use land; and a deed restriction is a recorded private covenant limiting use.

A lawful use that predates a new zoning ordinance and does not conform to it may usually continue as:

• a.a nonconforming use✓
• b.a conditional use permit
• c.a use variance
• d.a spot zoning grant

When a zoning ordinance is adopted or amended, an existing lawful use that the new rules would not allow is generally permitted to continue as a legal nonconforming use, often called grandfathering. Ordinances typically limit it: the use may not be expanded, and it is usually lost if it is abandoned for a stated period or if the structure is destroyed. A variance is relief granted on a showing of hardship, a conditional or special use permit authorizes a use the ordinance allows subject to conditions, and spot zoning describes rezoning a single parcel inconsistently with the surrounding plan, which courts often strike down.

When a government body takes private property for a public use through eminent domain, the owner is constitutionally entitled to:

• a.the right to repurchase the parcel later
• b.a hearing before the zoning board of appeals
• c.just compensation for the property taken✓
• d.a replacement parcel of equal acreage

The Fifth Amendment's takings clause, applied to the states through the Fourteenth, provides that private property shall not be taken for public use without just compensation, which is measured by the fair market value of what was taken. Eminent domain is the government's power to take; condemnation is the proceeding through which the power is exercised; and inverse condemnation is an owner's suit alleging a taking has occurred without a proceeding. The Constitution requires payment, not a substitute parcel, a zoning appeal, or a right of repurchase.

AREC Regulation 10.6 requires a licensee to exert reasonable efforts to ascertain facts material to the value or desirability of every property for which the licensee accepts the agency, so that the licensee:

• a.may waive the buyer's right to inspect the property before closing
• b.is informed about its condition and avoids misrepresenting it✓
• c.can guarantee the property's condition to the buyer for a year
• d.can prepare a written appraisal of the property for the seller

Regulation 10.6 states the purpose in its own words: so that "in offering the property the licensee will be informed about its condition and thus able to avoid intentional or negligent misrepresentation to the public concerning such property." This is a duty of inquiry, not a warranty, and it is separate from the licensee's duty to the client under Ark. Code Ann. § 17-42-316(b)(2)(G) to disclose material facts. Preparing an appraisal is outside a licensee's authority under Ark. Code Ann. § 17-42-110(d), which bars the words market value, appraised value and appraisal from a licensee's price opinion.

A licensee tells a buyer the roof is new when the licensee has no basis for saying so. Under Ark. Code Ann. § 17-42-311, that is:

• a.a failure to supervise, a ground for disciplinary action
• b.a substantial misrepresentation, a ground for disciplinary action✓
• c.an act of self dealing, a ground for disciplinary action
• d.an act of independent dealing, a ground for disciplinary action

Section 17-42-311(a)(4) lists "making any substantial misrepresentation" among the prohibited acts, and § 17-42-311(a)(5) separately reaches false statements or promises of a character likely to induce a person to act on them. Section 17-42-311(a)(14) is a catch-all for improper, fraudulent, or dishonest dealing. Self dealing under Regulation 10.11 concerns a licensee transacting for the licensee's own account; independent dealing under Regulation 10.1 concerns working outside the principal broker; and failure to supervise concerns a broker's duty under Regulation 10.4. Regulation 10.6 is the companion duty to find out the facts before speaking about them.

Under AREC Regulation 10.10(c), real estate forms a licensee uses in the regular course of business must, before use, be approved by:

• a.a licensed Arkansas attorney✓
• b.the Arkansas Realtors Association
• c.the Commission's staff counsel
• d.the licensee's principal broker

Regulation 10.10(c) provides that "in compliance with the Arkansas Supreme Court decision in the case of Pope County Bar Association, Inc. vs. Suggs, 624 S.W. 2d 828 (1981), real estate forms used by licensees in the regular course of business shall be approved by a licensed Arkansas attorney prior to use. The licensee shall be responsible for providing evidence of such approval by a licensed Arkansas attorney upon request of the Commission." The rule exists to keep form preparation from becoming the unauthorized practice of law, and Ark. Code Ann. §§ 17-42-317(c) and 17-42-318(c) both add that nothing in the agency sections permits a licensee to perform any act that constitutes the practice of law.

Which deed gives the grantee the broadest protection, because the grantor covenants against defects arising at any time in the property's history?

• a.A general warranty deed✓
• b.A bargain and sale deed
• c.A quitclaim deed
• d.A special warranty deed

A general warranty deed carries the full set of covenants, including seisin, right to convey, against encumbrances, quiet enjoyment and warranty forever, and the grantor stands behind title defects arising at any point in the chain, not only during the grantor's own ownership. A special warranty deed warrants only against defects arising during the grantor's ownership, which is why fiduciaries and lenders commonly use it. A bargain and sale deed implies that the grantor holds title but adds no warranty, and a quitclaim deed conveys only whatever interest the grantor may have, with no warranty at all.

An owner's title insurance policy issued at closing protects the owner against:

• a.a decline in the property's market value after the purchase
• b.title defects that already existed when the policy was issued✓
• c.damage from a fire or storm occurring after the purchase
• d.liens the owner voluntarily grants after the policy is issued

Title insurance is retrospective rather than prospective: it indemnifies against defects, liens, encumbrances and adverse claims that existed as of the policy date but were not excepted, and it also pays the cost of defending the insured title. Matters the owner creates after closing, market movements, and physical casualty losses fall outside it; casualty is what a hazard policy covers. A lender's policy protects the lender's interest and declines with the loan balance, so a buyer who wants protection for the equity buys a separate owner's policy.