Sample practice questions

A few real questions from this free bank, with full explanations. Use the practice tool above for the whole set.

1. 1. Property Ownership

   A commercial tenant bolts custom display shelving to the walls to run a retail store. Absent any agreement to the contrary, what is the usual character of that shelving?

   • a.A permanent fixture that automatically belongs to the landlord
   • b.Real property that must be conveyed with the building
   • c.A trade fixture the tenant may remove before the lease ends
   • d.An easement appurtenant to the leased space

   Answer: c

   Explanation: Items a commercial tenant installs to conduct business are trade fixtures. Even though they are attached, the law lets the tenant remove them before the lease ends (repairing any damage), because the tenant's intent was to use them in the business, not to improve the landlord's property permanently. This is an exception to the general rule that attached items become part of the realty. It is not an easement, which is a right to use another's land, not an object.

2. 2. Contracts

   A signed purchase agreement obligates the seller to convey the property and the buyer to pay the price. In contract classification, this agreement is:

   • a.Bilateral, since each party gives a promise
   • b.Unilateral, because performance occurs at closing
   • c.An implied contract created by the parties' conduct
   • d.Unilateral, since only the buyer promises to pay

   Answer: a

   Explanation: A purchase agreement is bilateral: a promise is exchanged for a promise, the seller promising to convey and the buyer promising to pay. A unilateral contract is a promise exchanged for an act, such as an option, where only the optionor is bound until the other side performs. Saying only the buyer promises misreads the seller's obligation, and the fact that performance happens later at closing affects whether the contract is executory, not whether it is bilateral. An implied contract arises from conduct rather than words, but here the parties wrote and signed express promises.

3. 3. General Principles of Agency

   An owner moving abroad signs a general power of attorney letting one trusted person handle all of the owner's legal and business affairs indefinitely. That person is best described as:

   • a.A special agent limited to one specific transaction
   • b.A general agent confined to one continuing business
   • c.A subagent appointed by the owner's listing brokerage to handle every legal and business matter
   • d.A universal agent empowered to act in all of the principal's affairs

   Answer: d

   Explanation: A universal agent has the broadest authority of the three classes and may act for the principal in all matters that can lawfully be delegated, which is what a general power of attorney creates. A general agent handles a continuing range of tasks within one business, such as a property manager running a building. A special agent is hired for one narrow assignment, such as a listing broker selling a single home. A subagent works for another agent rather than being appointed directly by the principal, so that label does not fit either.

4. 4. Practice of Real Estate

   A religious organization owns a lodge with rental units, operates it noncommercially, and gives preference to members of its own faith. How does the Fair Housing Act treat this?

   • a.The preference is unlawful under all circumstances
   • b.It is lawful only for buildings of four or fewer units
   • c.A limited exemption allows preference by religion, not by race
   • d.Religious owners may set any rental rule they choose

   Answer: c

   Explanation: A religious organization or a related nonprofit may limit or prefer persons of the same religion in noncommercial housing it owns, provided membership in the religion is not itself restricted by race, color, or national origin; private clubs have a parallel narrow exemption for lodgings they own and operate noncommercially. An absolute prohibition therefore overstates the law. There is no four-unit ceiling on this exemption, which is a different rule from the owner-occupied exemption. And the exemption is narrow rather than a license to adopt any rental rule the owner wishes.

5. 5. Financing

   A local bank originates a home loan at closing and two months later sells that loan to Fannie Mae. Which statement best describes what happened?

   • a.The loan became a government-insured mortgage
   • b.The borrower's loan terms changed at the sale
   • c.The bank acted only as a mortgage broker here
   • d.The loan moved into the secondary market

   Answer: d

   Explanation: Originating a loan to a borrower happens in the primary market; buying and selling loans already made happens in the secondary market, and that sale is what replenishes the bank's funds so it can lend again. The borrower's note rate and terms do not change when a loan is sold, although the servicer collecting payments may change. The bank funded the loan, so it acted as a lender rather than as a broker placing the loan elsewhere. And a purchase by Fannie Mae does not convert a conventional loan into a government-insured one.

6. 6. Valuation and Market Analysis

   A regional employer shuts down and a waste transfer station opens a quarter mile from a client's warehouse, cutting the building's value sharply. How should the broker characterize this loss?

   • a.External obsolescence, generally incurable because the cause is off site
   • b.Functional obsolescence, curable by redesigning the warehouse layout
   • c.Physical deterioration, curable through deferred maintenance
   • d.Economic appreciation offset by higher operating expenses

   Answer: a

   Explanation: External obsolescence, sometimes called economic obsolescence, is a loss in value caused by influences outside the property's boundaries, such as an employer leaving or a nuisance use arriving. It is generally incurable, because the owner cannot spend money on the subject to remove a cause located off the property. Functional obsolescence involves the property's own design or components, and no redesign of this warehouse relocates a transfer station. Physical deterioration is wear on the improvements, and deferred maintenance is not the issue. Nothing here is appreciation. A broker should factor incurable external influences into pricing rather than promising the owner a fix.

7. 7. Real Estate Calculations

   A buyer pays $400,000 for a home appraised at $425,000, financing it with a $300,000 first mortgage plus a $40,000 second lien. The lender measures loan-to-value against the lesser of price or appraised value. What is the combined loan-to-value ratio?

   • a.85.0%
   • b.80.0%
   • c.75.0%
   • d.10.0%

   Answer: a

   Explanation: Combined loan-to-value adds every lien and divides by the lesser of price or appraised value: ($300,000 + $40,000) / $400,000 = $340,000 / $400,000 = 0.85, or 85.0%. Dividing by the $425,000 appraisal gives 80.0%, but the lower of price and value governs when the price is less. Counting only the first mortgage gives 75.0%, which is that loan's own ratio rather than the combined figure. Measuring only the second lien gives 10.0%. Check: 85% of $400,000 = $340,000, the total debt. Brokers watch this ratio because it drives mortgage insurance and secondary-market eligibility.

8. 8. Property Disclosures

   An agent repeats the seller's statement that the room addition was fully permitted, without checking anything, and the county's records show no permit was ever issued. This conduct is best classified as:

   • a.Puffing, an opinion only
   • b.Intentional fraud, which requires proof of actual knowledge
   • c.Negligent misrepresentation of a material fact
   • d.Passive concealment of a defect the agent hid on purpose

   Answer: c

   Explanation: Asserting a material fact carelessly, with no idea whether it is true, is negligent misrepresentation, and the agent can be liable without any bad intent because permit status was verifiable in public records the agent chose not to check. Fraud sets a higher bar: a knowing or reckless false statement, or deliberate concealment, made to induce reliance, which these facts do not establish. Passive concealment means staying silent about a known problem, not repeating someone else's claim. Permit status is a verifiable fact rather than sales opinion, so puffing does not apply. The safe practice is to attribute the statement to its source and direct the buyer to verify it independently.

9. 9. Arkansas Statutory Requirements Governing Licensure

   When a licensee's association with an Arkansas principal broker ends, Regulation 7.5(a) gives the principal broker how long to notify the Commission and return the license and pocket card?

   • a.Seven days, and the notification automatically inactivates the license
   • b.Seven days, though the license stays active until the licensee transfers
   • c.Thirty days, and the notification automatically inactivates the license
   • d.Sixty days, and the notification automatically inactivates the license

   Answer: a

   Explanation: Regulation 7.5(a) provides that "within seven (7) days after the employment or association of a licensee with a principal broker ends, such principal broker shall notify the Commission of such termination and return to the Commission the license and pocket card of the terminated licensee. Such notification shall automatically inactivate the license." Ark. Code Ann. § 17-42-310(d)(1) says the same. The terminated licensee must deliver the pocket card to the principal broker immediately, and under Regulation 7.5(d) the duty falls on the licensee if the principal broker is dead, unavailable, or unwilling to act.

10. 10. Client and Customer Relationships and Agency Disclosures

    Under Ark. Code Ann. § 17-42-316(c), the duties that section imposes on a licensee:

    • a.may not be waived at all, and no exception of any kind is provided
    • b.may not be waived by a client, apart from two dual agency exceptions
    • c.may be waived by a client at any time by an oral instruction given
    • d.may be waived by the principal broker on the client's behalf in writing

    Answer: b

    Explanation: Section 17-42-316(c) provides that "except as provided in subdivisions (b)(1)(B) and (b)(2)(J)(ii) of this section, the duties required of a licensee under this section may not be waived by a client." Those two exceptions are narrow and both concern dual agency: § 17-42-316(b)(1)(B) lets multiple clients who have consented to dual agency contractually waive the primary duty of absolute fidelity, and § 17-42-316(b)(2)(J)(ii) lets the disclosure of confidential information be limited by contract when the licensee is an authorized dual agent. The separate waiver mechanism in § 17-42-319 reaches only the §§ 17-42-317 and 17-42-318 duties, and it requires a signed written statement, never an oral instruction.