Michigan Real Estate Salesperson Exam — All Questions

An owner holds property in fee simple absolute. Which statement best describes this estate?

• a.It automatically ends when the owner dies and cannot be willed
• b.It lasts only for the life of a named person
• c.It is the highest and most complete form of ownership, of potentially infinite duration✓
• d.It gives the holder only the right to use the land but not to sell it

Fee simple absolute is the greatest estate in land: it is inheritable, of indefinite duration, and freely transferable. A life estate ends at death, and lesser estates carry conditions; fee simple absolute has none.

A city adopts a zoning ordinance limiting a neighborhood to single-family homes. This power to regulate land use for public health, safety, and welfare is an example of:

• a.Eminent domain
• b.Police power✓
• c.Escheat
• d.Deed restriction

Zoning is an exercise of police power, the government's authority to regulate private activity to protect public health, safety, morals, and welfare. Eminent domain is the taking of property with compensation; escheat is reversion to the state; deed restrictions are private, not governmental.

An appraiser valuing a single-family home relies primarily on recent sales of similar nearby homes, adjusting for differences. Which approach is being used?

• a.Sales comparison approach✓
• b.Cost approach
• c.Income approach
• d.Gross rent multiplier approach

The sales comparison approach estimates value by comparing the subject to recently sold similar properties and adjusting for differences. It is the primary method for residential property. The cost and income approaches are used more for new construction and investment property.

A licensee prepares a comparative market analysis (CMA) to help a seller set a listing price. How does a CMA differ from a formal appraisal?

• a.A CMA is legally binding on the buyer
• b.A CMA can only be prepared by a licensed appraiser
• c.A CMA must use the cost approach
• d.A CMA is an informal opinion of value by a licensee, not a certified appraisal✓

A CMA is an opinion of likely selling price based on comparable listings and sales, prepared by a real estate licensee to guide pricing. It is not an appraisal, which must be performed by a licensed or certified appraiser following USPAP.

In a mortgage loan, which clause allows the lender to demand the entire unpaid balance if the borrower defaults?

• a.Defeasance clause
• b.Subordination clause
• c.Acceleration clause✓
• d.Alienation clause

An acceleration clause lets the lender call the full balance due upon default. A defeasance clause cancels the lien when the loan is paid; a subordination clause changes lien priority; an alienation (due-on-sale) clause triggers on transfer of the property.

A borrower's monthly payment includes principal, interest, taxes, and insurance. This arrangement is commonly abbreviated as:

• a.APR
• b.PITI✓
• c.LTV
• d.PMI

PITI stands for Principal, Interest, Taxes, and Insurance, the four components of a typical escrowed mortgage payment. APR is the annual percentage rate, LTV is loan-to-value, and PMI is private mortgage insurance.

Which of the following is an essential element required for a real estate contract to be valid?

• a.Mutual assent (offer and acceptance) between competent parties✓
• b.A licensed attorney's signature
• c.A notary seal on every page
• d.Payment of the full purchase price at signing

A valid contract requires competent parties, mutual assent (offer and acceptance), consideration, a lawful object, and (for real estate) a writing under the statute of frauds. Attorney signatures, notarization of every page, and full payment at signing are not required.

A buyer signs a purchase agreement and deposits earnest money, then backs out without a valid contingency. What is the most likely consequence?

• a.The buyer automatically receives triple damages
• b.The seller must still convey the property for free
• c.The listing broker keeps the entire deposit personally
• d.The seller may be entitled to the earnest money as damages under the contract✓

Earnest money shows the buyer's good faith. If the buyer defaults without a contractual escape, the seller may be entitled to retain the deposit as liquidated damages, subject to the contract's terms. The broker does not personally keep escrowed funds.

An agent owes the client the duties often summarized as OLD CAR: obedience, loyalty, disclosure, confidentiality, accounting, and reasonable care. These are known as:

• a.Ministerial duties
• b.Fiduciary duties✓
• c.Statutory nuisance duties
• d.Puffing duties

An agency relationship imposes fiduciary duties: obedience, loyalty, disclosure, confidentiality, accounting, and reasonable care/diligence. Ministerial acts are routine tasks that do not rise to representation.

A broker represents both the buyer and the seller in the same transaction. This is called:

• a.Single agency
• b.Subagency
• c.Dual agency✓
• d.Designated buyer agency

Dual agency occurs when one broker represents both parties in a single transaction. It creates a conflict of interest and generally requires informed written consent from both parties; it is prohibited in some states.

A seller knows the basement floods during heavy rain but the defect is not visible during a normal showing. Under general real estate principles, the seller should:

• a.Disclose the known material defect to prospective buyers✓
• b.Say nothing because the buyer should inspect
• c.Disclose it only if the buyer is not using an agent
• d.Repair it secretly and never mention it

Sellers and their agents must disclose known material defects that are not readily observable and that affect value or desirability. A recurring hidden flooding problem is material and must be disclosed.

Which type of deed offers the buyer the greatest protection by warranting title against all defects, even those arising before the grantor owned the property?

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

A general warranty deed contains the fullest covenants, warranting title against defects arising at any time, including before the grantor's ownership. A quitclaim conveys only whatever interest the grantor has, and a special warranty covers only the grantor's period of ownership.

Under the federal Fair Housing Act, which of the following is a protected class?

• a.Occupation
• b.Religion✓
• c.Political party
• d.Level of education

The federal Fair Housing Act protects race, color, religion, sex, national origin, familial status, and disability. Occupation, political affiliation, and education are not federally protected classes.

A salesperson deposits a client's earnest money into the salesperson's personal checking account. This improper mixing of client funds with personal funds is called:

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

Commingling is mixing client or trust funds with the licensee's own funds; conversion is using them for personal purposes. Both are serious violations. Blockbusting, steering, and redlining are prohibited discriminatory practices.

A property manager signs an agreement to operate an apartment complex for the owner. In this relationship, the property manager is generally acting as the owner's:

• a.General agent✓
• b.Special agent
• c.Universal agent
• d.Gratuitous bailee

A property manager is typically a general agent, authorized to handle a range of ongoing tasks (leasing, maintenance, rent collection) for the owner. A special agent has authority for a single transaction, such as a listing broker selling one property.

A home sells for $250,000 with a total commission rate of 6%. If the listing and selling brokers split the commission equally, how much does each brokerage receive?

• a.$15,000
• b.$7,500✓
• c.$3,750
• d.$30,000

Total commission = $250,000 x 6% = $15,000. Split equally between the two brokerages gives $15,000 / 2 = $7,500 each.

Michigan real estate licensing is governed by Article 25 of the Occupational Code and administered by which agency?

• a.The Michigan Department of Treasury
• b.The Federal Real Estate Commission
• c.The Department of Licensing and Regulatory Affairs (LARA)✓
• d.The Michigan Association of Realtors

Michigan real estate salespersons and brokers are licensed under Article 25 of the Occupational Code (P.A. 299 of 1980), administered by the Department of Licensing and Regulatory Affairs (LARA). A private trade association such as the Realtors does not license practitioners.

In Michigan, a licensed real estate salesperson may lawfully receive compensation for a completed transaction from:

• a.Only the employing broker with whom the salesperson is associated✓
• b.Any party to the transaction directly
• c.The buyer in cash at closing
• d.Another salesperson at a different brokerage

A Michigan salesperson must be associated with a licensed broker and may accept compensation only through that employing broker, not directly from buyers, sellers, or other licensees. This keeps the broker responsible for supervision.

Under Michigan law, before a licensee discloses confidential information in a prospective transaction, the licensee must provide the consumer with:

• a.A fully executed purchase agreement
• b.An agency (disclosure of relationship) statement describing the type of representation✓
• c.A property appraisal
• d.A title insurance policy

Michigan requires licensees to disclose the nature of their agency relationship using an agency disclosure statement before disclosing confidential information, so consumers understand whom the licensee represents.

A Michigan seller of a single-family home (1 to 4 units) generally must give the buyer which document about the property's known condition?

• a.A federal HUD-1 statement
• b.A zoning variance
• c.An appraisal waiver
• d.A Seller Disclosure Statement under the Michigan Seller Disclosure Act✓

The Michigan Seller Disclosure Act requires sellers of residential property of 1 to 4 units to deliver a Seller Disclosure Statement describing the known condition of the property. It is a disclosure of known facts, not a warranty.

In Michigan, a common method of financing in which the seller retains legal title while the buyer takes possession and pays in installments is called a:

• a.Land contract✓
• b.Reverse mortgage
• c.Sale-leaseback
• d.Wraparound appraisal

Land contracts (installment sales) are a traditional Michigan seller-financing tool: the buyer takes possession and pays over time while the seller keeps legal title until the contract is paid in full.

When a Michigan brokerage holds a buyer's earnest money deposit pending closing, those funds must be kept in:

• a.The broker's personal savings account
• b.The listing salesperson's account
• c.A separate broker trust or escrow account✓
• d.The seller's account immediately

Client deposits must be held in a separate broker trust/escrow account, not mixed with the broker's or salesperson's personal funds. This protects the funds and prevents commingling.

How many hours of approved prelicensure education must a Michigan real estate salesperson applicant complete before taking the state exam?

• a.24 hours
• b.40 hours✓
• c.90 hours
• d.No education is required

Michigan requires 40 clock hours of approved prelicensure real estate education for salesperson applicants, in addition to meeting the minimum age and passing the exam.

What is the minimum age to obtain a Michigan real estate salesperson license?

• a.16
• b.17
• c.21
• d.18✓

An applicant for a Michigan real estate salesperson license must be at least 18 years old, complete the required prelicensure education, and pass the licensing examination.

A Michigan real estate salesperson license is issued for a term of:

• a.3 years✓
• b.1 year
• c.6 months
• d.10 years

Michigan real estate licenses are issued on a 3-year cycle, after which the licensee must renew and meet continuing education requirements to keep the license active.