Massachusetts Real Estate Salesperson Exam — All Questions

In the cost approach, a building has a replacement cost new of $300,000, an effective age of 10 years, and a total economic life of 50 years. Using the straight-line (age-life) method, what is the accrued depreciation?

• a.$30,000
• b.$240,000
• c.$60,000✓
• d.$6,000

Depreciation rate = effective age / economic life = 10 / 50 = 20%. Accrued depreciation = 20% x $300,000 = $60,000. The depreciated cost of the improvements would be $240,000, to which land value is then added.

A parcel contains 435,600 square feet. Given that one acre is 43,560 square feet, how many acres is the parcel?

• a.1 acre
• b.10 acres✓
• c.100 acres
• d.4.356 acres

Acres = square feet / 43,560 = 435,600 / 43,560 = 10 acres. Memorizing that an acre equals 43,560 square feet turns this into a one-step division.

Under the rectangular (government) survey system, how many acres are in the NE 1/4 of the SW 1/4 of a section?

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

A section is 640 acres. Each fraction multiplies: 640 x 1/4 x 1/4 = 640 / 16 = 40 acres. Multiply all the fractional descriptions together, then apply them to 640.

How many acres are in one-half of a section of land?

• a.320 acres✓
• b.80 acres
• c.640 acres
• d.160 acres

A full section is 640 acres, so one-half section = 640 / 2 = 320 acres. There are 640 acres in a section (one square mile).

A rectangular lot measures 90 feet by 145 feet. What is its area in square feet?

• a.13,050 square feet✓
• b.about 1,305 square feet
• c.just 235 square feet
• d.only 470 square feet

Area of a rectangle = length x width = 90 x 145 = 13,050 square feet. The 235 figure mistakenly adds the two dimensions instead of multiplying them.

A rectangular lot contains exactly 0.25 acre and has 100 feet of street frontage. What is its depth?

• a.108.9 feet✓
• b.43.56 feet
• c.10,890 feet
• d.217.8 feet

0.25 acre = 0.25 x 43,560 = 10,890 square feet. Depth = area / frontage = 10,890 / 100 = 108.9 feet. Dividing the total area by the known side gives the unknown side.

A triangular lot has a base of 200 feet and a height of 150 feet. What is its area?

• a.30,000 square feet
• b.7,500 square feet
• c.350 square feet
• d.15,000 square feet✓

Area of a triangle = 1/2 x base x height = 0.5 x 200 x 150 = 15,000 square feet. Forgetting the 1/2 factor gives the incorrect 30,000.

A builder constructs a 2,400-square-foot house at a cost of $145 per square foot. What is the total construction cost?

• a.$240,145
• b.$16.55
• c.$348,000✓
• d.$34,800

Total cost = area x cost per square foot = 2,400 x $145 = $348,000. Cost-per-unit problems are a straightforward multiplication once the units line up.

An investor bought a property for $180,000 and later sold it for $216,000. What was the percentage of profit based on the original cost?

• a.16.7%
• b.18%
• c.20%✓
• d.36%

Profit = $216,000 - $180,000 = $36,000. Percent profit = profit / cost = $36,000 / $180,000 = 0.20 = 20%. Profit percentages use the original cost (the 'made') as the base, not the sale price.

A property sold for $230,000, which represented a 15% profit over what the seller originally paid. What was the original purchase price?

• a.$200,000✓
• b.$195,500
• c.$264,500
• d.$34,500

The sale price is 115% of cost, so cost = sale price / 1.15 = $230,000 / 1.15 = $200,000. You divide by 1 plus the profit rate; subtracting 15% of the sale price would give the wrong answer because the profit was figured on the lower cost.

An owner sells a property for a 12% loss relative to the $250,000 originally paid. What is the sale price?

• a.$220,000✓
• b.$30,000
• c.$222,000
• d.$280,000

A 12% loss means the owner receives 88% of cost: $250,000 x (1 - 0.12) = $250,000 x 0.88 = $220,000. The loss is measured against the original cost.

A lot with 80 feet of frontage sold for $120,000. What was the price per front foot?

• a.$150 per front foot
• b.$1,200 per front foot
• c.$1,500 per front foot✓
• d.$9,600,000 per front foot

Price per front foot = price / frontage = $120,000 / 80 = $1,500. Front-foot pricing is common for waterfront and commercial lots where street or water frontage drives value.

A property is appraised at $320,000 and the lender will make a loan at an 80% loan-to-value (LTV) ratio. What is the maximum loan amount?

• a.$288,000
• b.$256,000✓
• c.$64,000
• d.$400,000

Loan = value x LTV = $320,000 x 0.80 = $256,000. The remaining 20% ($64,000) is the required down payment/equity.

A borrower obtains a $270,000 loan that represents a 90% loan-to-value ratio. What is the property's value?

• a.$330,000
• b.$243,000
• c.$300,000✓
• d.$297,000

Value = loan / LTV = $270,000 / 0.90 = $300,000. Dividing the loan by the LTV ratio recovers the underlying value.

A buyer agrees to a $250,000 price, but the appraisal comes in at $240,000. The lender's 80% LTV applies to the LESSER of price or appraised value. What is the maximum loan?

• a.$200,000
• b.$192,000✓
• c.$240,000
• d.$48,000

Lenders base the LTV on the lower of sale price or appraised value: 0.80 x $240,000 = $192,000. The buyer must cover the $10,000 appraisal gap plus the down payment out of pocket, because the lender will not lend against value the appraisal does not support.

A home is purchased for $360,000 with an 85% loan-to-value loan. What is the required down payment?

• a.$45,000
• b.$306,000
• c.$54,000✓
• d.$61,200

Loan = $360,000 x 0.85 = $306,000. Down payment = price - loan = $360,000 - $306,000 = $54,000, which is the 15% equity portion (0.15 x $360,000).

A property is assessed at $200,000 and the tax rate is 25 mills. (One mill equals $1 of tax per $1,000 of assessed value.) What is the annual property tax?

• a.$50,000
• b.$8,000
• c.$500
• d.$5,000✓

25 mills = $25 per $1,000. Tax = ($200,000 / $1,000) x $25 = 200 x $25 = $5,000. A mill is one-thousandth of a dollar, so 25 mills is a 2.5% effective rate on assessed value.

A jurisdiction levies property tax at $2.50 per $100 of assessed value. What is the annual tax on a property assessed at $200,000?

• a.$800
• b.$500
• c.$50,000
• d.$5,000✓

Tax = (assessed value / $100) x rate = ($200,000 / $100) x $2.50 = 2,000 x $2.50 = $5,000. Expressing the rate per $100 is just another way of stating the same effective rate.

A property has a market value of $300,000 and is assessed at 40% of market value. If the tax rate is $3.00 per $100 of assessed value, what is the annual tax?

• a.$9,000
• b.$4,000
• c.$3,600✓
• d.$1,200

First apply the assessment ratio: assessed value = $300,000 x 0.40 = $120,000. Then tax = ($120,000 / $100) x $3.00 = 1,200 x $3.00 = $3,600. Many jurisdictions tax only a fraction of market value, so applying the ratio first is essential.

A homeowner's property is worth $400,000 and the remaining mortgage balance is $250,000. How much equity does the owner have?

• a.$150,000✓
• b.$650,000
• c.$400,000
• d.$250,000

Equity = value - debt = $400,000 - $250,000 = $150,000. Equity is the portion of the property's value the owner actually holds free of the loan.

In a CMA, a comparable sold for $300,000. The subject home is 200 square feet larger, and the market supports an adjustment of $50 per square foot for size. What is the size-adjusted value of the comparable?

• a.$310,000✓
• b.$350,000
• c.$300,050
• d.$290,000

Because the SUBJECT is superior (larger), you adjust the comparable UP to reflect it: 200 sq ft x $50 = $10,000, added to $300,000 = $310,000. The rule is to adjust the comparable, never the subject, and to add value for features the subject has that the comp lacks.

On a $300,000 loan, the lender charges 2 loan-origination-related points. What is the up-front dollar cost of those points?

• a.$6,000✓
• b.$600
• c.$3,000
• d.$60,000

Points = percentage of the loan amount: 2% x $300,000 = $6,000. Whether they are origination or discount points, each point equals 1% of the loan.

A $200,000 loan at 6% closes on the 21st of a 30-day month, and the buyer prepays interest from closing through the end of the month (10 days). Using a 360-day year, how much prepaid interest is collected?

• a.$33.33
• b.$666.67
• c.$1,000.00
• d.$333.33✓

Per-diem interest = $200,000 x 0.06 / 360 = $33.333 per day. For 10 days: $33.333 x 10 = $333.33. Lenders collect interim (prepaid) interest at closing to cover the days before the first regular payment period begins.

An investment property generates $12,000 of annual pre-tax cash flow, and the investor put in $150,000 of cash. What is the cash-on-cash return?

• a.6%
• b.8%✓
• c.12.5%
• d.1.25%

Cash-on-cash return = annual cash flow / cash invested = $12,000 / $150,000 = 0.08 = 8%. Unlike the cap rate, cash-on-cash reflects the effect of financing because it uses the actual cash the investor put in.

A property purchased for $250,000 is now worth $325,000. What is the total percentage of appreciation?

• a.75%
• b.23%
• c.30%✓
• d.13%

Appreciation = ($325,000 - $250,000) / $250,000 = $75,000 / $250,000 = 0.30 = 30%. Percentage change is always measured against the original (beginning) value.

A room measures 15 feet by 18 feet and will be carpeted at $22 per square yard. What is the carpet cost? (9 square feet = 1 square yard.)

• a.$270
• b.$73.33
• c.$660✓
• d.$5,940

Area = 15 x 18 = 270 square feet. Convert to square yards: 270 / 9 = 30 square yards. Cost = 30 x $22 = $660. Carpet is priced by the square yard, so you must convert from square feet first.

An income property produces $80,000 of NOI. If the market capitalization rate rises from 8% to 10%, what happens to the indicated value?

• a.It would instead rise from $1,000,000 up to about $1,250,000
• b.It falls only slightly, from $1,000,000 to roughly $960,000
• c.It stays unchanged at exactly $1,000,000 regardless of the rate
• d.It falls from $1,000,000 to $800,000✓

At 8%: $80,000 / 0.08 = $1,000,000. At 10%: $80,000 / 0.10 = $800,000. Value and cap rate move inversely: as investors demand a higher return (higher cap rate) for the same income, the price they will pay drops.

A lender quotes a monthly payment factor of $6.00 per $1,000 of loan for a given rate and term. What is the monthly principal-and-interest payment on a $180,000 loan?

• a.$108
• b.$30,000
• c.$10,800
• d.$1,080✓

Payment = (loan / $1,000) x factor = ($180,000 / $1,000) x $6.00 = 180 x $6.00 = $1,080. Amortization factor tables give the payment per $1,000 borrowed, so you just multiply by the number of thousands.

What is the primary function of the secondary mortgage market, where entities such as Fannie Mae and Freddie Mac operate?

• a.It sets the interest rates that every lender in the country is legally required to charge
• b.It buys existing loans from lenders so they have fresh funds to originate new ones✓
• c.It makes loans directly to home buyers at the closing table and services them for the full term
• d.It provides government insurance that reimburses lenders for every borrower who defaults

The secondary market buys already-originated loans from primary lenders, restoring their liquidity so they can lend again. Fannie Mae and Freddie Mac do not lend to consumers directly (that is the primary market), do not set mandatory rates, and do not blanket-insure all defaults.

Ginnie Mae (the Government National Mortgage Association) differs from Fannie Mae and Freddie Mac primarily because Ginnie Mae:

• a.Guarantees securities backed by federally insured or guaranteed loans like FHA and VA✓
• b.Makes low-interest loans directly to qualifying first-time buyers out of the federal Treasury
• c.Sets and enforces the interest rates charged on every residential mortgage nationwide
• d.Purchases only conventional loans that private lenders originate on the open market

Ginnie Mae is a wholly government-owned corporation that guarantees mortgage-backed securities composed of government-backed loans (FHA, VA, and similar). Fannie Mae and Freddie Mac are government-sponsored enterprises that deal mainly in conventional conforming loans; none of these entities set rates for all mortgages.

A 'conforming' conventional loan is one that:

• a.Carries absolutely no cap on its interest rate and no restriction on its total loan amount
• b.Is guaranteed by the Department of Veterans Affairs for eligible service members and veterans
• c.Is insured by the Federal Housing Administration in exchange for a mortgage insurance premium
• d.Meets Fannie Mae and Freddie Mac purchase standards, including the loan-size limits✓

Conforming loans satisfy the underwriting and maximum-loan-amount guidelines that let Fannie Mae or Freddie Mac buy them. FHA-insured and VA-guaranteed loans are government-backed programs, not conventional conforming loans; loans that exceed the size limits are called jumbo (non-conforming).

In the mortgage market, what is the key difference between the primary market and the secondary market?

• a.There is no meaningful difference; the two terms describe exactly the same lending activity
• b.The primary market processes only refinances and the secondary market only new purchase loans
• c.The primary market handles only commercial loans while the secondary market handles home loans
• d.The primary market originates loans; the secondary market trades those loans among investors✓

Primary-market lenders (banks, credit unions, mortgage companies) originate loans directly with borrowers. The secondary market is where those existing loans are bought and sold to investors, which recycles capital back to the originators.

Under an FHA loan program, the federal government's role is to:

• a.Insure the lender against loss while a private approved lender makes the loan✓
• b.Lend the money directly to the borrower out of United States Treasury funds at closing
• c.Guarantee a portion of the loan, but only when the borrower is an eligible veteran
• d.Set and approve the sale price of the home that is being financed with the loan

The FHA does not lend money; it insures loans made by approved private lenders, and borrowers pay a mortgage insurance premium (MIP) for that protection. Direct veteran benefits come from the VA, and the FHA has no role in pricing the property.

A VA-guaranteed loan is designed for eligible veterans and typically allows:

• a.Any borrower at all to purchase a home with no credit review and no income verification
• b.The VA itself to purchase the home and then rent it back to the eligible veteran
• c.A guarantee that applies only if the veteran also pays for private mortgage insurance
• d.A qualified veteran to buy with little or no down payment✓

The VA guarantees a portion of the loan, reducing the lender's risk enough that eligible veterans can often buy with no down payment. Borrowers still must qualify, the VA does not buy the home, and VA loans do not use private mortgage insurance (they use a funding fee instead).

Under the federal Homeowners Protection Act, PMI on many owner-occupied residential loans must be automatically terminated when the loan balance reaches:

• a.50% of the original value, at roughly the midpoint of a standard thirty-year amortization
• b.the exact day the loan closes, so the coverage is really in effect for only a moment
• c.78% of the property's original value, if payments are current✓
• d.100% of the original value, meaning it can never actually be canceled during the loan term

The Homeowners Protection Act requires automatic PMI termination when the loan is scheduled to reach 78% of the original value (and it allows a borrower to request cancellation at 80%). This prevents lenders from charging PMI indefinitely once the equity cushion is large enough.

What is the difference between PMI and the mortgage insurance premium (MIP) charged on FHA loans?

• a.PMI is always paid by the seller at closing, while MIP is always paid later by the buyer
• b.They are two identical charges that carry different names for pure marketing purposes
• c.PMI covers conventional loans, while MIP is the insurance on FHA-insured loans✓
• d.MIP applies only to VA loans, and PMI applies only to jumbo non-conforming loans

PMI is the private mortgage insurance on conventional low-down-payment loans, whereas MIP is the government mortgage insurance premium on FHA-insured loans. Both protect the lender, but they belong to different loan programs; VA loans use neither (they charge a funding fee).

A lender that charges an interest rate higher than the maximum allowed by law is engaged in:

• a.Subordination, the voluntary lowering of one lien's priority beneath another lien
• b.Usury✓
• c.Amortization, the gradual repayment of a loan through regular periodic payments
• d.Redlining, the discriminatory refusal to lend within certain mapped neighborhoods

Usury is charging interest above the legal maximum rate. Redlining is discriminatory refusal to lend in certain areas, subordination changes lien priority, and amortization is the gradual repayment of a loan through periodic payments.

Which of the following is a hallmark of predatory lending?

• a.Steering a borrower into a needlessly costly loan with hidden fees✓
• b.Encouraging the borrower to shop around and compare competing loan estimates before deciding
• c.Fully and clearly disclosing the annual percentage rate and all finance charges to the borrower
• d.Offering the borrower the lowest interest rate and best terms for which they actually qualify

Predatory lending uses abusive tactics such as excessive hidden fees, loan flipping, equity stripping, and steering borrowers into unaffordable or overpriced loans. Clear disclosure, offering the best available rate, and encouraging comparison shopping are hallmarks of responsible, not predatory, lending.

The Home Ownership and Equity Protection Act (HOEPA), an amendment to the Truth in Lending Act, adds protections for:

• a.Every commercial real estate loan made to a business, regardless of the loan's rate or size
• b.Only borrowers using VA-guaranteed or FHA-insured government mortgage loan programs
• c.Borrowers taking out certain high-cost, high-fee mortgages✓
• d.Lenders, by shielding them from losses when a high-cost borrower ultimately defaults

HOEPA amended TILA to give borrowers of designated high-cost (high-rate, high-fee) mortgages extra disclosures and protections against abusive terms. It targets consumer high-cost loans, not commercial loans, and it protects borrowers rather than lenders.

In a typical residential transaction (subject to negotiation and local custom), which closing cost is MOST commonly the buyer's responsibility?

• a.The payoff of the existing mortgage balance that the seller still owes on the property
• b.The brokerage commission that is owed to the listing broker under the listing agreement
• c.The capital gains income tax the seller may owe on any profit realized from the sale
• d.The loan-origination and appraisal fees for the buyer's new mortgage✓

Costs tied to obtaining the buyer's loan, such as origination and appraisal fees, are ordinarily the buyer's. Paying off the seller's existing mortgage, the brokerage commission, and the seller's income taxes are seller costs. All allocations are negotiable, but these are the customary defaults.

The Real Estate Settlement Procedures Act (RESPA) makes it illegal for settlement-service providers to:

• a.Pay or receive kickbacks or unearned referral fees for steering business✓
• b.Disclose the borrower's estimated and final closing costs before the loan is consummated
• c.Charge any fee whatsoever to the borrower for services that were actually performed
• d.Offer the borrower a loan that carries an adjustable rather than a fixed interest rate

RESPA prohibits kickbacks and unearned fees among settlement-service providers (for example, paying a broker to steer buyers to a particular title company). It requires, rather than forbids, cost disclosure, and it has nothing to do with banning ARMs or legitimate fees for actual work.

Under the TRID rule (which integrated RESPA and TILA disclosures), the borrower must generally receive the Closing Disclosure:

• a.On the very day of closing, handed to the borrower at the settlement table itself
• b.Only if the borrower specifically requests a copy of it in writing from the lender
• c.No sooner than thirty days after the closing has already taken place and funded
• d.At least three business days before the loan is consummated✓

TRID requires the lender to deliver the Closing Disclosure so the borrower receives it at least three business days before consummation, giving time to review final terms and compare them to the earlier Loan Estimate. Same-day or after-the-fact delivery would defeat that review period.

A discount point paid on a mortgage loan is best described as:

• a.Prepaid interest equal to 1% of the loan that lowers the note rate✓
• b.A fee equal to one percent of the sale price that is paid directly to the listing broker
• c.A penalty the borrower owes for paying the loan off earlier than the scheduled maturity
• d.A charge that actually raises, rather than lowers, the borrower's note interest rate

Each discount point equals 1% of the loan amount and is prepaid interest the borrower pays up front to 'buy down' (lower) the interest rate. It is figured on the loan, not the sale price; a charge for early payoff is a prepayment penalty, not a point.

In a 2-1 temporary buydown, the effect on the borrower's payments is that:

• a.The lender pays the borrower two percent of the loan amount in cash each year for two years
• b.The interest rate is permanently reduced for the entire remaining life of the mortgage loan
• c.The rate and payment start lower and step up to the note rate over two years✓
• d.The outstanding loan balance is reduced by three percent of the principal at the closing table

A 2-1 buydown temporarily reduces the effective rate by 2% in year one and 1% in year two, after which the payment reaches the full note rate for the remaining term. It is a temporary payment relief, not a permanent rate cut or a principal reduction.

On a conventional loan, a borrower can typically AVOID private mortgage insurance by:

• a.Putting at least 20% down, keeping the loan-to-value at 80% or less✓
• b.Paying additional discount points to the lender up front at the time the loan is closed
• c.Choosing an adjustable-rate mortgage rather than a fixed-rate mortgage at the same price
• d.Selecting a fifteen-year repayment term instead of the more common thirty-year term

PMI is generally required only when the loan-to-value ratio exceeds 80%, so putting 20% or more down avoids it. Choosing an ARM, paying points, or shortening the term does not remove the PMI requirement, which is driven by the size of the down payment.

FHA and VA loans have historically been ASSUMABLE (with approval), whereas most modern conventional loans are NOT freely assumable because they contain:

• a.A defeasance clause that requires the lender to release its lien once the debt is fully repaid
• b.A subordination clause that voluntarily lowers this loan's priority beneath a future lien
• c.A due-on-sale (alienation) clause letting the lender call the loan on transfer✓
• d.A prepayment penalty clause that charges the borrower a fee for paying the loan off early

A due-on-sale (alienation) clause allows the lender to demand full payment when the property is sold, effectively preventing assumption. A defeasance clause releases the lien at payoff, subordination changes lien priority, and a prepayment clause concerns early payoff penalties.

A subordination clause in a loan or lien agreement:

• a.Permanently prevents the borrower from ever refinancing or paying off the loan early
• b.Lets an existing lien move to lower priority so a later loan can rank ahead of it✓
• c.Accelerates the entire remaining loan balance and makes it immediately due upon a default
• d.Requires the lender to release the lien immediately even before the debt is fully repaid

A subordination clause voluntarily lowers the priority of one lien so that a new lien (often construction or development financing) can be recorded ahead of it. Acceleration concerns default, and lien release at payoff is a defeasance function.

A single mortgage that covers TWO OR MORE parcels of land, often used by developers and containing a partial release clause, is called a:

• a.A wraparound mortgage, which includes and wraps around an existing underlying first loan
• b.Blanket mortgage✓
• c.A package mortgage, which finances real estate together with items of personal property
• d.A purchase-money mortgage, in which the seller extends credit directly to the buyer

A blanket mortgage finances several parcels under one loan and typically includes a partial release clause so individual lots can be sold and freed from the lien as they close. A package mortgage includes personal property, a wraparound includes an existing loan, and a purchase-money mortgage is seller financing.

In a wraparound mortgage, the new (junior) loan:

• a.Completely replaces the existing first loan and pays it off in full at the time of closing
• b.Wraps around and includes the balance of an existing first loan, which stays in place✓
• c.Must always be recorded ahead of the existing first loan and take first-lien priority
• d.Covers only the buyer's personal property, such as furniture and appliances, not the land

A wraparound is a junior loan whose face amount includes the balance of the existing (and still-outstanding) first loan; the wrap lender collects one payment from the borrower and keeps paying the underlying loan. It does not extinguish the first loan and remains subordinate to it.

The federal Equal Credit Opportunity Act (ECOA) prohibits discrimination in the extension of credit based on:

• a.The applicant's credit history and past record of repaying prior debts and obligations
• b.The applicant's verified income level and the total monthly debts already being carried
• c.Race, religion, national origin, sex, marital status, age, or public assistance✓
• d.The appraised market value of the real property being pledged as collateral for the loan

ECOA bars lenders from discriminating on protected personal characteristics such as race, sex, marital status, age, and receipt of public assistance. Lenders may still evaluate legitimate creditworthiness factors like credit history, income, debts, and collateral value.