Michigan Real Estate Salesperson Exam — All Questions

The principle of contribution states that the value of a component or improvement is measured by:

• a.The raw number of square feet of floor area or land area that the improvement happens to occupy
• b.The owner's personal emotional attachment to and sentimental feelings about that improvement
• c.Its original construction or installation cost in every case, dollar for dollar, with no exception
• d.How much it adds to the overall value of the property, not its cost✓

Under contribution, an improvement is worth the amount it adds to the whole property's market value, which may be more or less than its cost. This principle explains why some renovations do not fully return their expense, a key point in over-improvement analysis.

Under Internal Revenue Code Section 121, a qualifying homeowner may generally EXCLUDE from taxable capital gain:

• a.Up to $250,000 of gain if single, or $500,000 if married filing jointly✓
• b.Up to a full one million dollars of gain on any property at all, at any time and any frequency
• c.All gain on any and every investment or rental property the taxpayer happens to own and sell
• d.Absolutely nothing, because gain on the sale of a home is always fully and entirely taxable

Section 121 lets homeowners who owned and used the home as their principal residence for at least two of the prior five years exclude up to $250,000 of gain (single) or $500,000 (married filing jointly). It applies to a primary residence, not to investment property.

Depreciation recapture on the sale of investment real estate means that:

• a.All of the depreciation deductions previously claimed are simply refunded to the investor in cash
• b.The investor is legally required to physically restore and rebuild the depreciated building itself
• c.Gain from prior depreciation may be taxed, often at a special rate✓
• d.No income tax is ever owed at all on the sale of a property that has previously been depreciated

When depreciated property is sold at a gain, the portion of gain due to depreciation deductions is 'recaptured' and taxed under special rules, reflecting the earlier tax benefit. It is a tax concept, not a requirement to rebuild, and it increases, not eliminates, tax on sale.

Which appraisal approach is generally MOST reliable for a special-purpose property, such as a church or public school, that rarely sells and earns no market income?

• a.The sales comparison approach, which depends on recent sales of similar comparable properties
• b.The income approach, which converts a property's market rental income into an indicated value
• c.The gross rent multiplier method, which relies on typical market rents that these lack entirely
• d.The cost approach✓

Special-purpose properties have few or no comparable sales and generate no market rent, so the cost approach (replacement cost new, less depreciation, plus land) is typically most reliable. Sales comparison lacks comparables and the income/GRM methods need market income these properties do not produce.

The four characteristics an item must have to possess value in the market, often remembered as DUST, are:

• a.Debt, Utility, Supply, and Taxes, a mix of unrelated financing and cost terms rather than value
• b.Demand, Utility, Scarcity, and Transferability✓
• c.Depreciation, Use, Sale, and Title, which describe stages of ownership rather than value itself
• d.Demand, Ownership, Scarcity, and Time, which swaps in two terms that are not part of the concept

For something to have market value it must have Demand (buyers who want it), Utility (usefulness), Scarcity (limited supply), and Transferability (the ability to convey it). The DUST acronym captures these four essentials of value.

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

• a.It is the highest and most complete form of ownership, of potentially infinite duration✓
• b.It automatically ends when the owner dies and cannot be willed
• c.It lasts only for the life of a named person
• 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.Escheat
• b.Police power✓
• c.Eminent domain
• 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.Gross rent multiplier approach
• d.Income 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 who sees it
• b.A CMA is required to rely on the cost approach
• c.A CMA is a licensee's opinion, not an appraisal✓
• d.A CMA may be prepared only by licensed appraisers

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.Subordination clause
• b.Alienation clause
• c.Defeasance clause
• d.Acceleration 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.PMI
• c.LTV
• d.PITI✓

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

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 recovers triple damages
• b.The seller may keep the deposit as damages✓
• c.The listing broker personally keeps the deposit
• d.The seller must still convey the property free

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.Puffing duties
• b.Ministerial duties
• c.Statutory nuisance duties
• d.Fiduciary 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.Dual agency✓
• c.Designated buyer agency
• d.Subagency

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

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.General warranty deed✓
• d.Special 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.

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

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

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

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

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

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 title insurance policy issued for the property
• b.A written appraisal prepared by a state appraiser
• c.An agency statement describing the representation✓
• d.A fully executed and delivered purchase agreement

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 signed waiver of the buyer's appraisal rights
• b.A Seller Disclosure Statement under Michigan law✓
• c.A federal HUD-1 settlement statement at listing
• d.A zoning variance issued by the local authority

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

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 listing salesperson's account
• b.The broker's personal savings 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.40 hours✓
• b.90 hours
• c.24 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.21
• b.16
• c.18✓
• d.17

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.6 months
• b.3 years✓
• c.1 year
• 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.

How many clock hours of prelicensure education does Michigan require of a real estate salesperson applicant?

• a.Sixty clock hours of approved instruction
• b.Forty clock hours of approved instruction✓
• c.Ninety clock hours of approved instruction
• d.Thirty clock hours of approved instruction

Michigan requires an approved 40-hour prelicensure course, evidenced by the course completion certificate submitted with the application. Cite: LARA, Michigan Real Estate Salesperson Licensing Guide.

How many clock hours of continuing education must a Michigan licensee complete in each licence cycle?

• a.Twelve clock hours in each three-year cycle
• b.Twenty-four clock hours in a three-year cycle
• c.Thirty clock hours in each three-year cycle
• d.Eighteen clock hours in a three-year cycle✓

Within each 3-year cycle a licensee must complete at least 18 clock hours of continuing education on subjects relevant to the management, operation and practice of real estate. Cite: LARA, Continuing Education Requirements for Renewal.

Within Michigan's 18-hour continuing education requirement, what must be completed in each calendar year?

• a.At least two hours on law, rules and court cases✓
• b.At least six hours on an approved real estate topic
• c.At least three hours on fair housing and civil rights
• d.At least one hour on brokerage trust accounting rules

At least 2 of the CE hours must be completed in EACH calendar year of the cycle and must involve law, rules, and court cases regarding real estate. A licensee who takes all 18 hours in one year still fails this requirement. Cite: LARA, Continuing Education Requirements for Renewal.

A Michigan licensee completes all 18 continuing education hours in the final year of the three-year cycle. Is the requirement met?

• a.Yes, only the eighteen-hour total is tested
• b.Yes, provided the courses were all preapproved
• c.No, two law hours are due in each calendar year✓
• d.No, at least six hours are due in each year

The 18-hour total is not the whole rule: at least 2 hours involving law, rules and court cases must fall in each calendar year of the cycle. Cramming the total into one year leaves the other two years short. Cite: LARA, Continuing Education Requirements for Renewal.

Since January 1, 2015, how does Michigan treat approval and reporting of continuing education courses?

• a.Courses need preapproval and must be reported after
• b.Courses need neither preapproval nor any reporting✓
• c.Courses need preapproval but no later reporting
• d.Courses need reporting but no prior approval

The law changed on January 1, 2015 so that CE courses no longer need to be preapproved or reported to the Department as a condition of renewal. The obligation shifted to the licensee to keep proof. Cite: LARA, Continuing Education Requirements for Renewal.

How long must a Michigan licensee retain evidence of completed continuing education?

• a.One year after the certification date
• b.Two years after the certification date
• c.Three years after the certification date
• d.Four years after the certification date✓

A licensee must retain evidence acceptable to the Department for at least 4 years after the date of that certification and must produce it at the Department's request. Cite: LARA, Continuing Education Requirements for Renewal.

Who keeps the authoritative record of a Michigan licensee's continuing education completed after 2014?

• a.The licensee, who must produce it if audited later✓
• b.The Department, which tracks every reported hour
• c.The sponsoring broker, within the office records
• d.The course provider, for a period of ten years

The Department does not maintain this information for post-2014 courses and instructs licensees not to call and ask. Documenting fulfilment is the licensee's responsibility, and proof is sent in only on audit. Cite: LARA, Continuing Education Requirements for Renewal.

A Michigan licensee lets a licence lapse and must make up continuing education. How is the shortfall measured?

• a.A flat eighteen hours regardless of time lapsed
• b.Two hours for each calendar year that was missed
• c.Six hours for each year and partial year missed✓
• d.Three hours for each full year that was missed

For relicensure the applicant submits proof of 6 hours of real estate continuing education for each year and partial year missed. A partial year counts as a full year for this calculation. Cite: LARA, Real Estate Salesperson Relicensure requirements.

How much of a Michigan broker's own money may be kept in each custodial trust or escrow account to cover bank charges and minimum balances?

• a.No money of the broker may ever be deposited
• b.Up to $500.00 in each separate trust account
• c.Not more than $2,000.00 in each trust account✓
• d.Up to one month of the office operating budget

A Michigan real estate broker may maintain more than one trust account and may deposit not more than $2,000.00 of its own money in each one to cover bank service charges and minimum balance requirements or to keep the account from closing. That money must still be accounted for in the trust records. Cite: MCL 339.2512(1)(k)(iv), Occupational Code art 25, as amended by 2024 PA 122, imd. eff. July 25, 2024.

A Michigan broker receives notice that all parties have accepted an offer to purchase. By when must the earnest money made payable to the broker be deposited in the trust account?

• a.Not later than 2 banking days after that notice✓
• b.Not later than 10 calendar days after that notice
• c.Not later than 5 business days after that notice
• d.Any time before the scheduled date of the closing

Money belonging to others and made payable to the broker must go into a separate custodial trust or escrow account not later than 2 banking days after the broker receives notice that an offer to purchase is accepted by all parties, and stays there until the transaction is consummated or terminated. Cite: MCL 339.2512(1)(k)(v), as amended by 2024 PA 122, imd. eff. July 25, 2024.

A complaint seeking a penalty against a Michigan licensee for prohibited conduct in a real estate transaction must be filed no later than:

• a.6 months after the date of the alleged violation
• b.12 months after the closing of the transaction
• c.3 years after the end of the licence cycle
• d.18 months after the violation or the closing✓

A complaint that seeks a penalty under article 5 for a violation of section 2512 must be filed not later than 18 months after the date of the alleged violation or, if the violation occurred in connection with a real estate transaction, the date that transaction was completed, whichever occurs later. Cite: MCL 339.2512(2), as amended by 2024 PA 122, imd. eff. July 25, 2024.

A Michigan salesperson gives her broker written notice that she is leaving the firm. What must the broker do with her licence?

• a.Hold it until the salesperson's renewal date
• b.Deliver or mail it to the department within 5 days✓
• c.Return it directly to the salesperson at once
• d.Destroy it and notify the new employing broker

When a salesperson is discharged or gives written notice of termination, the broker must deliver or mail the salesperson's licence to the department within 5 days, and must separately notify the salesperson in writing that the licence has been sent. Cite: MCL 339.2507(1) and (2), Occupational Code art 25, as amended by 2016 PA 502, eff. Mar. 29, 2017.

A Michigan salesperson has filed a completed application to transfer his licence to a new broker. For how long does his pocket card serve as proper evidence of licensing?

• a.Until the new wall licence actually arrives
• b.For 10 days from the date of the application
• c.For 45 days from the latest date on the back of the card✓
• d.For the remainder of the three-year licence cycle

Once the department receives a completed transfer application and the fees, the pocket card is proper evidence of licensing for 45 days from the latest date written on the back of the card. If the application is incomplete or the new broker is not licensed, the card stops being valid immediately. Cite: MCL 339.2506(5), as amended by 2016 PA 502, eff. Mar. 29, 2017.

Under Michigan's Occupational Code, a broker may pay a fee to an unlicensed person for which of the following?

• a.Buying a commercially prepared list of names✓
• b.A referral of a named ready buyer
• c.The name of a neighbour thinking of selling
• d.Information identifying a likely seller

Section 2512(1)(h) forbids paying any valuable consideration to an unlicensed person, and expressly includes paying for the name of, or other information about, a potential seller or purchaser. It excludes only payment for the purchase of a commercially prepared list of names. Cite: MCL 339.2512(1)(h), as amended by 2024 PA 122, imd. eff. July 25, 2024.

A Michigan brokerage wants to run a prize drawing among visitors to a specific listed house. Is that permitted?

• a.Yes, if the drawing is registered with the department
• b.Yes, if every entrant is told the odds of winning
• c.Yes, if the prize is worth less than $500.00
• d.No, such a scheme cannot promote a specific property✓

A plan or scheme involving a lottery, contest, game, prize or drawing may not be used by a Michigan broker or salesperson to sell or promote the sale of real estate. A game promotion complying with MCL 750.372a may be used only for purposes other than the direct promotion of a specific piece of real estate. Cite: MCL 339.2511, as amended by 2010 PA 48, imd. eff. Apr. 22, 2010.

A Michigan salesperson is selling a rental house she owns herself. What does Article 25 require of her?

• a.Nothing, because she is selling her own property
• b.Written disclosure of ownership and her licence✓
• c.An oral statement made at the open house showing
• d.Placing the listing with a disinterested brokerage

A licensee selling property she owns or has an interest in must reveal both the ownership or interest and her licensure to the purchaser in writing before an offer to purchase is signed, and must be able to show the department written proof of that disclosure on request. Cite: MCL 339.2502b(3), added by 2016 PA 502, eff. Mar. 29, 2017.

A Michigan salesperson's name appears in a newspaper advertisement for a listing. What does the law require about the employing broker's business name?

• a.It may be omitted if the broker consents
• b.It must appear somewhere in the same publication
• c.It must appear in equal or greater type size✓
• d.It must appear only in the brokerage office window

Advertising published on or after January 1, 2018 that names an associate broker, a salesperson, or a cooperating group must carry the employing broker's telephone number or street address and the broker's business name in equal or greater type size than the name of the licensee or group. Cite: MCL 339.2512e(3), added by 2016 PA 502, eff. Mar. 29, 2017.

Under Michigan's 2024 amendments, a right-to-list home sale agreement is void and unenforceable if it runs for a period of more than:

• a.2 years✓
• b.5 years
• c.10 years
• d.40 years

A right-to-list home sale agreement is void and unenforceable if it is not in writing, is not signed by every owner, runs for more than 2 years, or lacks the required early termination option and first-page explanation. Cite: MCL 339.2512g(1)(c), added by 2024 PA 122, imd. eff. July 25, 2024.

How many clock hours of approved prelicensure classroom courses must a Michigan real estate broker applicant complete?

• a.30 hours, which include the salesperson hours
• b.40 hours, the same course the salesperson takes
• c.60 hours, of which half may be taken online
• d.90 hours, in addition to the salesperson hours✓

A broker applicant, or the designated principal of a business entity applicant, must complete at least 90 clock hours of approved prelicensure classroom courses, and those 90 hours are in addition to the hours required for a salesperson licence. Cite: MCL 339.2504(1)(b), as amended by 2016 PA 502, eff. Mar. 29, 2017.

Within the 90 hours of Michigan broker prelicensure instruction, how much must be devoted to civil rights law and fair housing law?

• a.3 clock hours of the ninety
• b.At least 9 clock hours of the ninety✓
• c.At least 18 clock hours of the ninety
• d.No fixed portion is specified by statute

Of the 90 clock hours required for a broker licence, at least 9 clock hours must be instruction on civil rights law and fair housing law. Cite: MCL 339.2504(1)(b)(i), as amended by 2016 PA 502, eff. Mar. 29, 2017.

Michigan's 40 hours of salesperson prelicensure education must include a minimum amount of instruction on which subject?

• a.2 hours on brokerage trust accounting and escrow
• b.3 hours on appraisal and valuation of residences
• c.4 hours on civil rights and equal housing opportunity✓
• d.6 hours on land contracts and other seller financing tools

Before taking the salesperson examination an applicant must show proof of at least 40 clock hours of approved prelicensure classroom courses in principles of real estate, including at least 4 clock hours of instruction on civil rights law and equal opportunity in housing. Cite: MCL 339.2504(2), as amended by 2016 PA 502, eff. Mar. 29, 2017.