Massachusetts Real Estate Broker Exam — All Questions

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

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.

Three investors want to take title so that each owner's share will pass to that owner's own heirs at death, and the shares may be unequal. Which form of co-ownership fits?

• a.Joint tenancy
• b.Tenancy in common✓
• c.Tenancy by the entirety
• d.Community property

Tenancy in common allows undivided interests that may be unequal and, critically, has no right of survivorship, so each co-owner's share passes to that owner's heirs or devisees. Joint tenancy carries survivorship, so a deceased owner's share goes to the survivors, not to heirs. Tenancy by the entirety is limited to married couples and also has survivorship. Community property is a marital regime, not a fit for three unrelated investors.

For a valid joint tenancy to exist, the co-owners must share the four unities. Which set correctly lists them?

• a.Time, title, interest, and possession✓
• b.Time, title, income, and partition
• c.Possession, profit, survivorship, and consent
• d.Interest, income, delivery, and acceptance

Joint tenancy requires the four unities, remembered as PITT: Possession (each holds an undivided right to the whole), Interest (equal shares), Time (all acquired title at the same moment), and Title (all named in the same instrument). If any unity is broken, for example by one owner conveying a share, that share becomes a tenancy in common. The other options mix in terms like income, profit, or survivorship that are not part of the four unities.

An owner grants a neighbor a life estate in a parcel 'for the life of the neighbor.' When the neighbor dies, the deed names no one to take next. What happens to the property?

• a.It escheats to the state
• b.It passes to the neighbor's heirs
• c.It becomes a tenancy in common
• d.It reverts to the original grantor or the grantor's heirs✓

A life estate lasts only for the measuring life and cannot be inherited. When no remainderman is named to receive the property afterward, the grantor has kept a reversion, so title returns to the grantor (or the grantor's heirs if the grantor has died). Escheat happens only when an owner dies with no heirs and no will, which is not the situation here. The life tenant's heirs take nothing because the estate ended at death.

A property was lawfully used as a corner grocery for years. A new zoning ordinance now designates the block strictly residential, but the grocery is allowed to keep operating. This continued use is best described as:

• a.A variance
• b.A legal nonconforming use✓
• c.A conditional use permit
• d.A regulatory taking

A use that was lawful before a zoning change but no longer complies with the new rules is a legal nonconforming use, often called 'grandfathered.' It may generally continue, though local rules often limit rebuilding or expansion. A variance is relief granted in advance for hardship; a conditional use permit authorizes a specified use within a district; and a regulatory taking is when regulation so restricts a property that compensation is owed. None of those describe simply continuing a pre-existing use.

A subdivision's recorded CC&Rs limit buildings to one story, while local zoning would permit two stories. Which limit controls a buyer's plans?

• a.Zoning always overrides private restrictions
• b.The buyer may choose whichever limit is more favorable
• c.The more restrictive of the two, so one story✓
• d.Neither applies until the buyer joins the HOA

When a public control (zoning) and a private control (deed restriction or CC&R) both apply, the more restrictive one governs. Here the CC&Rs are stricter, so the one-story limit controls even though zoning would allow two stories. Private restrictions run with the land and bind the buyer automatically upon purchase, regardless of HOA membership formalities. A broker must disclose known private restrictions that could defeat a buyer's intended use.

An apartment building produces annual net operating income of $48,000, and comparable sales indicate an 8% capitalization rate. Using the income approach, the indicated value is:

• a.$384,000
• b.$540,000
• c.$600,000✓
• d.$960,000

The income approach uses Value = Net Operating Income / capitalization rate. Here $48,000 / 0.08 = $600,000. Note that a lower cap rate would produce a higher value and a higher cap rate a lower value, so cap rate and value move inversely. Net operating income is income after operating expenses but before debt service and income taxes, which is why financing terms do not change this calculation.

A lender asks a broker to estimate the likely selling price of a home the lender may take back. The broker prepares a broker price opinion (BPO). Which statement is correct?

• a.A BPO is not a certified appraisal and must not be presented as one✓
• b.A BPO carries the same legal weight as a licensed appraisal
• c.Only a BPO, not an appraisal, may be used for a foreclosure sale
• d.A BPO must always be higher than any appraised value

A broker price opinion is an estimate of likely price that a broker may provide where state law allows, often to lenders or asset managers. It is not a certified appraisal, and a licensee must never present it as one or imply appraiser certification. A BPO does not carry the legal weight of an appraisal, is not the exclusive tool for foreclosure valuation, and has no rule requiring it to exceed an appraisal. Clear labeling protects the broker and the office from misrepresentation claims.

A home's floor plan requires walking through one bedroom to reach another, which buyers dislike. This loss in value from an outdated design is an example of:

• a.Physical deterioration
• b.Functional obsolescence✓
• c.External obsolescence
• d.Economic appreciation

Functional obsolescence is a loss in value caused by a feature or design that is outdated or poorly laid out, such as walk-through bedrooms, too few bathrooms, or an awkward floor plan. Physical deterioration is wear and tear on the improvements. External (economic) obsolescence comes from forces outside the property, such as a new highway or a declining neighborhood, and is generally incurable. Recognizing the type of depreciation guides both appraisers and brokers in adjusting value.

In the income approach, which figure represents effective gross income minus operating expenses, before deducting mortgage payments?

• a.Gross rent multiplier
• b.Effective gross income
• c.Cash flow after financing
• d.Net operating income✓

Net operating income (NOI) is effective gross income (potential income less vacancy and collection loss, plus other income) minus operating expenses, but before debt service (mortgage payments) and income taxes. NOI is the figure capitalized to estimate value. Cash flow after financing subtracts the mortgage payment from NOI and is a different measure. The gross rent multiplier is a shortcut that relates price to gross rent and ignores expenses entirely.

A borrower sells a home still subject to a mortgage that contains an alienation (due-on-sale) clause. What can the lender do?

• a.Nothing; the loan simply transfers to the buyer
• b.Increase the interest rate but not call the loan
• c.Demand the full remaining balance be paid upon the transfer✓
• d.Force the buyer to assume the loan on the original terms

An alienation clause, also called a due-on-sale clause, lets the lender accelerate the loan and demand the entire remaining balance if the property is transferred without the lender's consent. It prevents a buyer from simply taking over the seller's loan. The lender is not required to allow an assumption or merely raise the rate. Brokers structuring seller carry-backs, wraparounds, or 'subject to' deals must respect the senior lender's due-on-sale rights.

In a deed of trust, what is the role of the trustee?

• a.A neutral third party who holds bare legal title until the debt is repaid✓
• b.The lender who advances the loan funds
• c.The borrower who repays the note
• d.A government official who records the lien

A deed of trust involves three parties: the trustor (borrower), the beneficiary (lender), and the trustee, a neutral third party who holds bare legal title as security. When the loan is paid, the trustee issues a reconveyance releasing the lien; on default, the trustee may conduct a nonjudicial foreclosure where the state allows. This differs from a mortgage, which has only two parties. Knowing the roles helps a broker explain closing documents accurately.

A settlement service provider offers a broker a cash payment for each buyer the broker refers, with no service performed in return. Under RESPA this arrangement is:

• a.Permitted if disclosed in the listing agreement
• b.Permitted because referral fees are always legal
• c.Permitted only for commercial transactions
• d.Prohibited as an illegal kickback for a referral✓

RESPA prohibits kickbacks, fee-splitting, and unearned fees for referrals of settlement services on federally related mortgage loans. Paying or receiving anything of value merely for a referral, with no bona fide service rendered, is an illegal kickback, and mere disclosure does not cure it. A broker must police the office against such arrangements because a RESPA violation can expose the firm to serious penalties, making this a core risk-management duty.

A real estate advertisement states 'Only 5% down!' Under the Truth in Lending Act (Regulation Z), what does using this specific term require?

• a.Nothing further, because down payment terms are exempt
• b.Disclosure of additional credit terms such as APR and repayment terms✓
• c.Approval from the lender before the ad may run
• d.That the property be a primary residence only

Under Regulation Z, certain specific credit figures are 'trigger terms.' Stating a term such as the amount of the down payment, the number of payments, the period of repayment, or the finance charge triggers a duty to disclose additional required terms, including the annual percentage rate (APR). General statements like 'low down payment' do not trigger the rule, but a specific figure like '5% down' does. Brokers must supervise office advertising for TILA compliance.

A seller receives an offer and returns it with the price raised by $10,000 and everything else unchanged. In contract terms, the seller has made:

• a.An acceptance that binds the buyer
• b.An option contract
• c.A counteroffer that rejects the original offer✓
• d.A unilateral contract

Changing any material term, such as the price, is a counteroffer. A counteroffer rejects the original offer and becomes a new offer that the original offeror (the buyer) may accept or reject. There is no binding contract until one party accepts the other's terms exactly and communicates that acceptance. This is why a broker must train agents to track which offer is currently open, since multiple counteroffers can create confusion about the actual terms on the table.

A 16-year-old signs a contract to buy a house. How is that contract best classified?

• a.Void from the start
• b.Voidable at the minor's option✓
• c.Fully valid and enforceable
• d.Unenforceable by either party

A contract with a minor is generally voidable at the minor's option, meaning the minor may disaffirm it, while the adult party is bound unless the minor chooses to cancel. This differs from void (no legal effect at all, such as an illegal purpose) and from unenforceable (valid but barred from court enforcement, such as an oral land-sale contract). Capacity of the parties is one of the essential elements a broker should verify before funds move.

A seller signs a listing that owes the broker a commission if the property sells during the term no matter who finds the buyer, even the seller. This is a:

• a.Exclusive right-to-sell listing✓
• b.Exclusive agency listing
• c.Open listing
• d.Net listing

An exclusive right-to-sell listing pays the listing broker a commission if the property sells during the term regardless of who procures the buyer, including the owner. In an exclusive agency listing, the owner may sell it themselves without owing a commission. An open listing is nonexclusive and pays only the broker who actually procures the buyer. A net listing (banned in many states) sets the broker's pay as any amount above a net figure to the seller. The exclusive right-to-sell gives the broker the most protection.

A buyer breaches a signed purchase contract on a unique property, and the seller wants a court to force the buyer to complete the purchase. Which remedy is the seller seeking?

• a.Liquidated damages
• b.Rescission
• c.Novation
• d.Specific performance✓

Specific performance is a court order compelling a party to carry out the contract as agreed. It is available in real estate because each parcel of land is considered unique, so money damages may not be an adequate substitute. Liquidated damages is a pre-agreed sum (often the earnest money) the injured party keeps instead. Rescission cancels the contract and returns the parties to their starting positions. Novation substitutes a new contract or party for the original.

Under the statute of frauds, why must a contract for the sale of real estate generally be in writing to be enforceable?

• a.Because oral contracts are automatically void
• b.Because the statute requires certain contracts, including land sales, to be written and signed to be enforceable✓
• c.Because only written contracts contain consideration
• d.Because the buyer cannot take possession under an oral agreement

The statute of frauds requires that certain contracts, including those for the sale of an interest in real estate, be in writing and signed by the party to be charged in order to be enforceable in court. An oral land-sale contract is not automatically void; it is unenforceable, meaning a court will generally not enforce it if a party objects. Consideration can exist in oral contracts too. Written form is what makes the agreement enforceable, which is why brokers document terms carefully.

Substituting an entirely new contract for an existing one, or replacing one party with another and releasing the original party, is called:

• a.Assignment
• b.Rescission
• c.Novation✓
• d.Ratification

Novation is the substitution of a new contract or a new party for an old one, with the original obligation extinguished and the original party released. It differs from assignment, where a party transfers its rights but generally remains secondarily liable unless released. Rescission cancels the contract and restores the parties. Ratification is approving an act that was not originally authorized. Brokers see novation when a lender formally releases the original borrower and substitutes a new one on an assumed loan.

A listing agreement is signed by an agent on behalf of the brokerage. Legally, who is the seller's contract with?

• a.The brokerage (the broker), not the individual agent✓
• b.The individual agent personally
• c.Both the agent and the seller's attorney
• d.The multiple listing service

A listing agreement, like a buyer-broker agreement, is a contract between the client and the brokerage; the individual licensee signs on the broker's behalf. This is why listings belong to the broker and remain with the firm if the agent leaves, and why the broker is ultimately responsible for performing the agreement's duties. Understanding that the client contracts with the firm, not the salesperson personally, is central to how a broker supervises and stands behind the office's obligations.

A contract states that 'time is of the essence.' What is the effect of this clause?

• a.The parties may extend any deadline informally
• b.The contract has no fixed closing date
• c.Only the seller must meet deadlines
• d.The stated deadlines are strict and must be met exactly✓

A 'time is of the essence' clause makes the contract's deadlines strict, so a party who fails to perform by the stated date can be in breach even if only slightly late. It applies to both parties, not just one, and does not eliminate a closing date; it enforces it. Without such a clause, courts may allow a reasonable time to perform. Brokers should flag these clauses so clients and cooperating agents meet every date, because missing one can jeopardize the transaction.

An affiliated licensee, acting within the scope of authority, misrepresents a material fact to a buyer. Under agency law, who may also be held responsible?

• a.Only the individual licensee
• b.The supervising broker, under vicarious liability✓
• c.The buyer, for failing to investigate
• d.No one, if the misstatement was unintentional

A broker acts as a general agent of the brokerage and is responsible for supervising affiliated licensees. Under respondeat superior and agency principles, a broker can bear vicarious liability for acts a licensee commits within the scope of authority, including misrepresentation. That is why supervision, training, written policies, and file review are core broker duties. The buyer's own investigation does not erase the firm's responsibility for a licensee's material misrepresentation.

A licensee wants to represent both the buyer and the seller in the same transaction. Under general agency principles, when is this permitted?

• a.Never, under any circumstances
• b.Automatically, because the broker holds both listings
• c.Only with the informed written consent of both parties✓
• d.Only if the buyer and seller are related

Dual agency, representing both buyer and seller in one transaction, creates a conflict of interest and is permitted only with the informed written consent of both parties. A dual agent may not advocate price or terms for either side and must protect each party's confidential information. Some states instead use designated agency, where different agents in one firm each represent one party, or a non-agency transaction-broker role. A broker must ensure no licensee slips into an undisclosed dual agency.

The fiduciary duties an agent owes a client are often remembered as OLD CAR. Which duty requires the agent to keep the client's motivation and bargaining position private, even after the transaction?

• a.Confidentiality✓
• b.Obedience
• c.Accounting
• d.Disclosure

Confidentiality requires the agent to protect the client's private information, such as the client's motivation, financial position, or the highest price a buyer will pay, and this duty generally survives the end of the transaction. Obedience is following lawful instructions; accounting is properly handling the client's money and documents; and disclosure is revealing material facts to the client. A broker must train agents that leaking a client's bargaining position, even casually, breaches the fiduciary duty of confidentiality.

A brokerage classifies its agents as independent contractors for tax purposes. What does this mean for the broker's duty to supervise them?

• a.The broker has no duty to supervise independent contractors
• b.Supervision passes to the multiple listing service
• c.Only the agents' own errors-and-omissions policy applies
• d.The broker must still supervise them under real estate license law✓

The independent-contractor classification is a tax and payroll concept; it does not relieve the broker of the license-law duty to supervise affiliated licensees. Regardless of tax status, the broker must train agents, review files, maintain written policies, and correct violations. Failure to supervise is itself a frequent ground for discipline against the broker even when the underlying mistake was the agent's. This distinction is a classic broker-exam trap that separates broker-level knowledge from salesperson-level knowledge.

A property manager is hired to operate an owner's apartment building over time with broad, ongoing authority. This licensee is best described as what kind of agent?

• a.A special agent
• b.A general agent✓
• c.A subagent of the tenants
• d.A dual agent

A property manager is typically a general agent, hired to handle a range of ongoing tasks (leasing, rent collection, maintenance, recordkeeping) with continuing authority to act for the owner. A special agent, by contrast, is hired for one specific task, like a listing agent selling a single property. The manager represents the owner, not the tenants, and is not a dual agent. Recognizing the general-agent role explains why the manager can bind the owner across many routine decisions.

To whom does a listing agent owe honesty and the disclosure of known material defects, but not loyalty or confidentiality?

• a.The seller who is the client
• b.The listing broker's other agents
• c.The buyer, who is a customer✓
• d.No one outside the brokerage

In a single-agency listing the seller is the client, owed full fiduciary duties. The buyer is a customer, owed honesty, fair dealing, and disclosure of known material defects, but not loyalty or confidentiality. A licensee must not misrepresent facts to a customer or conceal known latent defects, yet must still put the client's interests first. Brokers must ensure agents understand this client-versus-customer line so they neither over-promise to customers nor under-serve clients.

A seller knows the basement floods every spring, but the problem is invisible during a normal dry-weather showing. What must the seller and listing agent do?

• a.Say nothing, because caveat emptor applies
• b.Disclose it only if the buyer specifically asks
• c.Disclose the known latent defect to the buyer✓
• d.Repair it secretly before closing

Seasonal flooding that cannot be seen on an ordinary inspection is a latent (hidden) material defect. A seller and agent who know of a latent material defect must disclose it, because the buyer has no way to discover it independently. Modern law limits the old caveat emptor rule, and staying silent or concealing the defect can be misrepresentation or fraud. A broker whose office conceals such a defect risks liability imputed to the entire firm.

The federal lead-based paint disclosure rule applies to most residential housing built:

• a.Before 1978✓
• b.Before 1950
• c.After 1978
• d.Only to commercial buildings

The federal lead-based paint rule applies to most residential housing built before 1978, the year lead-based paint was banned for residential use. Sellers and landlords must disclose known lead hazards, provide available records, deliver the EPA pamphlet, and give buyers a period to test. The rule is nationwide and does not depend on the buyer asking. A broker must ensure the office consistently uses the correct current lead-paint forms for pre-1978 homes.

An agent tells a buyer, 'This home has the best sunset view in the whole city.' The buyer later complains the statement was untrue. This kind of statement is:

• a.Actionable fraud
• b.An illegal misrepresentation
• c.A violation of fair housing law
• d.Puffing, which is a legal opinion✓

Calling a view 'the best in the city' is puffing: exaggerated opinion or sales talk that a reasonable buyer would not treat as a statement of verifiable fact. Puffing is legal. It becomes a problem only when an agent states a false material fact (for example, misstating the lot size or concealing a known defect), which can be misrepresentation or fraud. A broker should teach agents the line between harmless opinion and false factual claims to manage the firm's risk.

A managing broker collects rents and security deposits for several owners. How must these funds be handled?

• a.Deposited into the broker's operating account for convenience
• b.Held in a trust (property-management) account separate from the broker's own funds✓
• c.Kept as cash in the office safe until month end
• d.Applied first to the broker's management fee, then remitted

Rents and security deposits are trust funds belonging to others and must be held in a trust or property-management account separate from the broker's operating and personal funds. Placing them in the broker's operating account is commingling, and using them for the broker's benefit is conversion, both serious violations. The broker keeps a ledger for each owner, reconciles the account regularly, and remits per the management agreement rather than skimming fees first. Proper trust handling is a defining broker competency.

A retail store's lease sets rent as a base amount plus a percentage of the tenant's gross sales. This is a:

• a.Percentage lease✓
• b.Gross lease
• c.Net lease
• d.Ground lease

A percentage lease ties part of the rent to the tenant's sales, common in retail and shopping centers because the landlord shares in the store's success. In a gross lease the landlord pays the operating expenses out of a flat rent; in a net lease the tenant pays some expenses (taxes, insurance, maintenance) on top of base rent. A ground lease leases the land itself, often long term, so the tenant can build. Matching lease type to property type is a core property-management skill.

A tenant remains in the unit after the lease term ends, without the landlord's permission. What kind of tenancy is this?

• a.Estate for years
• b.Periodic tenancy
• c.Tenancy at sufferance✓
• d.Tenancy at will

A tenant who stays after the lease ends without the landlord's consent holds a tenancy at sufferance, the lowest leasehold interest; the former tenant is essentially a holdover the landlord may remove through lawful process. An estate for years has a fixed term; a periodic tenancy renews automatically period to period; and a tenancy at will continues only while both parties agree. A manager must know these distinctions to pursue the correct, lawful remedy rather than a wrongful self-help eviction.

Which deed gives the grantee the greatest protection by warranting title against all defects, including those that arose before the grantor owned the property?

• a.Quitclaim deed
• b.General warranty deed✓
• c.Special (limited) warranty deed
• d.Bargain and sale deed

A general warranty deed offers the most protection: the grantor warrants title against all defects, including those predating the grantor's ownership, and stands behind covenants such as seisin, quiet enjoyment, and warranty forever. A special (limited) warranty deed covers only defects arising during the grantor's ownership. A bargain and sale deed implies ownership but adds few or no warranties, and a quitclaim conveys only whatever interest the grantor has, with no warranties. A broker should know which deed a transaction requires.

What is the primary legal effect of recording a deed in the county's public records?

• a.It is required for the deed to be valid between the parties
• b.It transfers title, which delivery alone cannot do
• c.It guarantees the grantor had good title
• d.It gives constructive notice to the world and establishes priority✓

Recording gives constructive notice to the world of the owner's interest and establishes priority against later claims, which is why prompt recording matters. A deed is already valid between grantor and grantee upon delivery and acceptance, even if never recorded, and recording by itself neither transfers title (delivery does) nor guarantees the grantor had good title (that is why buyers obtain title insurance). Understanding notice and priority helps a broker explain why closings emphasize recording.

Two competing brokerages agree over lunch to both charge a 6% commission so neither undercuts the other. This agreement is:

• a.Legal, because commissions are customary
• b.Legal, if disclosed to clients
• c.Illegal price fixing under antitrust law✓
• d.Legal, because each firm sets its own policy

An agreement among competing firms to set commission rates is price fixing, a per se violation of federal antitrust law, and it is illegal regardless of custom or disclosure. Commission rates must always be negotiated independently between each broker and client and are never set by agreement among competitors. Other antitrust violations include market allocation, group boycotts, and tie-in arrangements. A broker must train agents never even to discuss setting rates with competitors, since such talk alone invites liability.

A broker discovers that earnest money was mistakenly deposited into the firm's operating account instead of the trust account. This error is an example of:

• a.Conversion
• b.Commingling✓
• c.Novation
• d.Subrogation

Commingling is mixing client or third-party trust funds with the broker's own operating or personal funds, which is exactly what happened here. Conversion is the more serious step of actually using those trust funds for the broker's own benefit. A broker must deposit trust funds into a proper trust account within the time the state requires, keep a ledger for each beneficiary, and reconcile regularly. Even an innocent commingling error is a violation, so brokers build office procedures to prevent it.

A broker directs an agent to show minority buyers homes only in certain neighborhoods and white buyers homes in others. This practice is called:

• a.Blockbusting
• b.Redlining
• c.Puffing
• d.Steering✓

Steering is directing prospective buyers toward or away from particular neighborhoods based on a protected class, and it violates the federal Fair Housing Act. Blockbusting is inducing owners to sell by suggesting a protected group is moving into the area. Redlining is denying loans or insurance in certain areas based on their composition. A broker is responsible for training and supervising agents to prevent all of these, since fair-housing violations create serious liability for the entire firm.

Two parties dispute who is entitled to the earnest money after a deal collapses. What should the broker holding the deposit generally do?

• a.Retain the funds in trust until the parties agree, a court orders release, or another lawful resolution occurs✓
• b.Release the funds to whichever party the listing agent believes is right
• c.Split the deposit evenly between the parties immediately
• d.Move the deposit into the operating account until the dispute ends

When the parties dispute a deposit, the broker must not decide the dispute or pick a side. The broker holds the funds in the trust account until the parties reach a written agreement, a court orders release, or the broker uses a lawful procedure such as interpleader where available. The broker cannot release funds on an agent's opinion, split them unilaterally, or move them to the operating account. Proper handling of disputed deposits is a classic broker-level trust-account duty.