Montana Real Estate Salesperson Exam — All Questions

Which type of estate gives an owner the fullest bundle of rights, is of potentially unlimited duration, and passes to the owner's heirs?

• a.Life estate
• b.Estate for years
• c.Fee simple absolute✓
• d.Estate at will

A fee simple absolute is the highest and most complete estate in land: it lasts indefinitely and is freely inheritable and transferable. A life estate ends at the death of the measuring life, so it is not inheritable. An estate for years and an estate at will are leasehold (less-than-freehold) estates that give possession, not ownership, so they confer far fewer rights.

Two people own a property as joint tenants. When one owner dies, what happens to the deceased owner's interest?

• a.It passes to the deceased owner's heirs by will
• b.It passes automatically to the surviving joint tenant✓
• c.It is sold and the proceeds go to the estate
• d.It reverts to the original grantor

The defining feature of joint tenancy is the right of survivorship: on the death of one joint tenant, that interest passes automatically to the surviving joint tenant(s) outside of probate. Because of survivorship, the interest cannot be devised by will (that is the rule for a tenancy in common instead). There is no forced sale and no reversion to the grantor.

A local government's power to divide land into districts and regulate the use, height, and density of structures within each district is called:

• a.Zoning✓
• b.Escheat
• c.Eminent domain
• d.A deed restriction

Zoning is an exercise of the government's police power to promote public health, safety, and welfare by regulating land use, building height, lot size, and density within designated districts. Escheat is the reversion of property to the state when an owner dies with no heirs. Eminent domain is the power to take private property for public use with just compensation. A deed restriction is a private (not governmental) limitation placed by a prior owner.

An appraiser is valuing a single-family home in an established neighborhood. Which approach to value will the appraiser rely on most heavily?

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

The sales comparison approach, which analyzes recent sales of similar nearby properties, is the most reliable and heavily weighted method for single-family residences because such homes are bought and sold frequently, giving plenty of comparable data. The cost approach is most useful for new or special-purpose buildings, and the income approach (and gross rent multiplier) apply to income-producing property, not owner-occupied homes.

The principle that a property's maximum value tends to be set by the cost of acquiring an equally desirable substitute property is known as:

• a.Progression
• b.Substitution✓
• c.Contribution
• d.Anticipation

The principle of substitution holds that an informed buyer will pay no more for a property than the cost of an equally desirable substitute; it is the foundation of the sales comparison approach. Progression is when a lower-value property gains value from higher-value neighbors. Contribution measures how much a specific component adds to total value. Anticipation is value based on expected future benefits.

In a typical mortgage or deed of trust, which document is the borrower's personal promise to repay the debt?

• a.The deed of trust
• b.The mortgage
• c.The reconveyance
• d.The promissory note✓

The promissory note is the borrower's written promise to repay the loan and is the evidence of the debt itself. The mortgage or deed of trust is the security instrument that pledges the property as collateral; it secures the note but does not create the debt. A reconveyance is issued when the debt is fully paid to release the lien.

A clause in a loan that allows the lender to demand the entire remaining balance be paid immediately if the borrower defaults is called a(n):

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

An acceleration clause lets the lender declare the whole unpaid balance due at once upon default, which is a necessary step before foreclosure. An alienation (due-on-sale) clause lets the lender call the loan due if the property is sold or transferred. A subordination clause changes lien priority. A defeasance clause requires the lender to release the lien once the debt is paid.

Which federal law requires lenders to disclose the true cost of credit, including the annual percentage rate (APR) and finance charges, to consumer borrowers?

• a.RESPA
• b.The Fair Housing Act
• c.The Truth in Lending Act (Regulation Z)✓
• d.The Equal Credit Opportunity Act

The Truth in Lending Act, implemented by Regulation Z, requires lenders to disclose credit terms such as the APR and total finance charges so borrowers can compare loans. RESPA governs settlement-cost disclosures and prohibits kickbacks. The Fair Housing Act bars discrimination in housing. The Equal Credit Opportunity Act prohibits discrimination in lending but does not set the cost-of-credit disclosure rules.

Which of the following is NOT one of the essential elements required for a valid contract?

• a.Offer and acceptance (mutual assent)
• b.Notarization of the parties' signatures✓
• c.Consideration
• d.Legal capacity of the parties

A valid contract requires mutual assent (offer and acceptance), consideration, legal capacity of the parties, lawful object, and (for real estate) usually a writing. Notarization is not an element of validity; it is only an authentication used for recording certain documents such as deeds. The other three choices are all genuine essential elements.

A seller receives an offer and responds by changing the closing date and raising the price before signing. This response is legally best described as a:

• a.Valid acceptance
• b.Option
• c.Novation
• d.Counteroffer✓

Any change to the material terms of an offer is a counteroffer, which rejects the original offer and creates a new offer that the other party may accept or reject. It is not an acceptance because acceptance must mirror the offer exactly. An option is a separate contract giving a right to buy within a set time. A novation is the substitution of a new contract or party for an existing one.

The legal doctrine that requires contracts for the sale of real estate to be in writing to be enforceable is called the:

• a.Statute of frauds✓
• b.Statute of limitations
• c.Doctrine of laches
• d.Parol evidence rule

The statute of frauds requires certain contracts, including those for the sale of real property, to be in writing and signed to be enforceable. The statute of limitations sets the time limit for filing a lawsuit. Laches bars a claim due to unreasonable delay that prejudices the other party. The parol evidence rule limits the use of outside evidence to contradict a written contract.

A buyer and seller sign a purchase agreement, but before closing the seller changes his mind and refuses to convey title. The buyer sues to force the seller to complete the sale. The buyer is seeking:

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

Specific performance is an equitable remedy that compels a party to carry out the contract as agreed; it is available in real estate because each parcel of land is considered unique and money damages may be inadequate. Liquidated damages are a pre-agreed money amount for a breach. Rescission cancels the contract and returns the parties to their prior positions. A novation replaces the contract, which is not what the buyer wants.

A contract signed by a 15-year-old minor to purchase real estate is generally considered:

• a.Void from the start
• b.Voidable by the minor✓
• c.Fully enforceable against both parties
• d.Illegal

A contract made by a minor is voidable at the minor's option because minors lack full legal capacity; the minor may disaffirm it, but the adult party is bound unless the minor chooses to cancel. It is not void from the start (that describes contracts with an illegal purpose or missing an essential element), it is not fully enforceable against the minor, and buying real estate is a lawful object, so it is not illegal.

A real estate licensee owes a client duties of loyalty, obedience, confidentiality, disclosure, accounting, and reasonable care. These are collectively known as:

• a.Statutory rights
• b.Ministerial duties
• c.General obligations
• d.Fiduciary duties✓

An agent owes fiduciary duties to the principal (client): loyalty, obedience, confidentiality, disclosure, accounting, and reasonable care and diligence. These arise from the position of trust in an agency relationship. Ministerial duties are routine, non-advisory tasks performed for a customer. The other choices are not the recognized term for this bundle of client duties.

A licensee represents both the buyer and the seller in the same transaction with the informed written consent of both. This relationship is called:

• a.Dual agency✓
• b.Single agency
• c.Designated subagency
• d.A general agency

Dual agency occurs when one licensee (or brokerage) represents both parties in the same transaction, and it is permitted only with the informed written consent of both because of the inherent conflict of interest. Single agency is representing only one party. Subagency extends the listing broker's agency to another broker. A general agency covers a broad range of acts, unrelated to representing both sides at once.

In a typical seller-listing arrangement, when is the listing broker generally considered to have earned the commission?

• a.Only after the deed is recorded
• b.As soon as the listing agreement is signed
• c.When the broker produces a ready, willing, and able buyer who meets the seller's terms✓
• d.Only if the buyer obtains financing

Under the common-law rule, a broker earns the commission by producing a buyer who is ready, willing, and able to purchase on the seller's stated terms (or terms the seller accepts). Signing the listing alone does not earn a commission; it only creates the agency. Recording the deed and the buyer's financing are closing events, and although most agreements tie actual payment to closing, the commission is legally 'earned' when the qualified buyer is produced.

A buyer's agent learns that the buyer is willing to pay far more than the asking price. To whom does the agent owe the duty of confidentiality regarding this information?

• a.The seller
• b.The buyer✓
• c.The listing broker
• d.Both the buyer and the seller equally

As the buyer's agent, the licensee owes fiduciary duties, including confidentiality, to the buyer (the principal). Disclosing the buyer's top price to the seller or listing broker would breach loyalty and confidentiality and harm the client's negotiating position. The duty runs to the principal, not to the other party in the transaction.

Federal law requires which disclosure for the sale of most residential housing built before 1978?

• a.A radon test report
• b.A flood elevation certificate
• c.A mold inspection
• d.A lead-based paint disclosure✓

The federal Residential Lead-Based Paint Hazard Reduction Act requires sellers and landlords of most housing built before 1978 to disclose known lead-based paint hazards and provide an EPA pamphlet, because lead paint was banned for residential use in 1978. Radon, flood, and mold disclosures may be required in some states or circumstances but are not the federal pre-1978 requirement.

A seller knows the basement floods every spring but does not mention it, and the defect is not visible during a normal inspection. This is an example of a:

• a.Latent material defect that must be disclosed✓
• b.Patent defect the buyer should have found
• c.Stigmatized condition
• d.Condition protected by caveat emptor

A latent defect is a hidden, material problem not discoverable by ordinary inspection; a seller (and agent) who knows of it generally must disclose it because it affects value or desirability and safety. A patent defect is one that is obvious or readily observable. A stigmatized property involves events like a death, not a physical defect. Modern disclosure duties limit the old caveat emptor ('let the buyer beware') rule for known latent defects.

Which type of deed offers the grantee the greatest protection by warranting clear title against defects arising at any time in the property's history?

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

A general warranty deed provides the greatest protection because the grantor warrants title against all defects, including those arising before the grantor owned the property. A special warranty deed covers only defects arising during the grantor's ownership. A quitclaim deed carries no warranties and conveys only whatever interest the grantor may have. A bargain and sale deed implies ownership but offers limited or no express warranties.

For a deed to transfer title, it must be delivered to and accepted by the grantee. Recording the deed in the public records primarily serves to:

• a.Make the deed valid between the grantor and grantee
• b.Give constructive notice to the world of the grantee's ownership✓
• c.Transfer title even without delivery
• d.Satisfy the requirement of consideration

Recording gives constructive (public) notice of the grantee's interest and establishes lien and title priority against later claimants. A deed is valid between the parties upon proper execution, delivery, and acceptance even if never recorded, so recording is not needed for validity between grantor and grantee. Recording cannot substitute for delivery, and it has nothing to do with consideration.

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

• a.Occupation
• b.Level of education
• c.Source of a person's income
• d.Religion✓

The federal Fair Housing Act prohibits discrimination based on race, color, religion, sex, national origin, familial status, and disability (handicap). Religion is therefore a protected class. Occupation, education level, and source of income are not protected under the federal act, although some state or local laws add extra protected categories such as source of income.

An agent tells prospective buyers that they would be 'more comfortable' in a different neighborhood based on the racial makeup of the area, steering them away from certain homes. This illegal practice is called:

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

Steering is directing buyers toward or away from particular neighborhoods based on a protected characteristic such as race, and it violates fair housing law. Blockbusting is inducing owners to sell by suggesting that people of a particular protected class are moving in. Redlining is refusing to lend or insure in certain areas. Puffing is legal, non-factual sales exaggeration and is unrelated to discrimination.

Client funds such as earnest money deposits that a broker holds on behalf of others must be kept in a:

• a.Broker's general operating account
• b.Personal savings account of the agent
• c.Separate trust or escrow account✓
• d.Petty cash fund

Money belonging to others, such as earnest money, must be held in a separate trust (escrow) account to keep it distinct from the broker's own funds. Mixing client money with the broker's business or personal funds is commingling, and using it for the broker's own purposes is conversion, both of which are serious license-law violations. A general operating, personal, or petty cash account would all constitute commingling.

A tenant remains in possession of a leased property after the lease term ends, without the landlord's permission. This tenancy is best described as a(n):

• a.Estate for years
• b.Tenancy at sufferance✓
• c.Estate from period to period
• d.Tenancy at will

A tenancy (estate) at sufferance arises when a tenant who was lawfully in possession stays past the end of the lease without the landlord's consent, becoming a holdover tenant. An estate for years has a definite beginning and end. A periodic tenancy renews automatically for successive periods. A tenancy at will continues with the consent of both parties and can be ended by either at any time, unlike the unauthorized holdover here.

A home sells for $340,000 with a total commission of 6%. The listing brokerage receives 50% of the total commission, and the listing agent receives 60% of the listing brokerage's share. How much does the listing agent earn?

• a.$10,200
• b.$20,400
• c.$6,120✓
• d.$4,080

First find the total commission: $340,000 x 6% = $20,400. The listing brokerage's share is 50%: $20,400 x 0.50 = $10,200. The listing agent then receives 60% of that: $10,200 x 0.60 = $6,120. The $20,400 figure is the total commission and $10,200 is the brokerage's full share, not the agent's; $4,080 mistakenly takes 40% instead of 60%.

A seller wants to net $200,000 from a sale after paying a 6% commission (and no other costs). Rounded to the nearest dollar, what must the sale price be?

• a.$212,766✓
• b.$212,000
• c.$188,000
• d.$200,600

After a 6% commission the seller keeps 94% of the sale price, so Sale Price x 0.94 = $200,000, giving Sale Price = $200,000 / 0.94 = $212,765.96, which rounds to $212,766. A common error is to add 6% to $200,000 (getting $212,000), but you cannot simply add the rate back because the commission is charged on the higher sale price, not on the net.

A rectangular parcel measures 200 feet by 217.8 feet. Given that one acre equals 43,560 square feet, how many acres does the parcel contain?

• a.0.5 acre
• b.1 acre✓
• c.2 acres
• d.1.5 acres

Area = length x width = 200 ft x 217.8 ft = 43,560 square feet. Since one acre is exactly 43,560 square feet, the parcel is 43,560 / 43,560 = 1 acre. The other answers result from dividing or multiplying the area incorrectly; memorizing that an acre equals 43,560 square feet makes this a one-step conversion.

Which body licenses and regulates real estate salespersons and brokers in Montana?

• a.The Montana Association of Realtors
• b.The Montana Board of Realty Regulation✓
• c.The Montana Department of Revenue
• d.The county clerk and recorder

Real estate licensing in Montana is administered by the Board of Realty Regulation, which operates within the Department of Labor and Industry under the state's real estate license law (Title 37, Chapter 51). The Board issues, renews, and disciplines licenses and adopts rules. A trade association such as the Montana Association of Realtors is a private group with no licensing authority.

In Montana, a salesperson may perform licensed real estate activity only when:

• a.Licensed under and supervised by a licensed broker✓
• b.Operating independently once licensed
• c.Approved individually by the Board for each sale
• d.Registered with the county treasurer

A Montana salesperson's license is valid only while the salesperson is licensed under and supervised by a licensed broker. Licensed activity is conducted for the supervising broker, who is responsible for supervision and trust funds. A salesperson may not accept compensation directly from a consumer; commissions flow through the supervising broker.

The Montana Board of Realty Regulation may discipline a licensee for which of the following?

• a.Advertising a listing with the owner's consent
• b.Referring a client to a licensed inspector
• c.Commingling client trust funds with the broker's personal funds✓
• d.Belonging to a professional association

Commingling or converting client trust money is a serious violation of Montana license law and a common basis for discipline, along with fraud, misrepresentation, and dishonest dealing. The Board may reprimand, fine, suspend, or revoke a license after due process. Authorized advertising, ordinary referrals, and association membership are not violations.

Under Montana law, which relationship is a licensee presumed to have with a party unless the licensee and that party enter a written agency agreement?

• a.Seller agent
• b.Buyer agent
• c.Dual agent
• d.Statutory broker (a non-agent who assists without representing the party)✓

Montana recognizes the 'statutory broker,' a licensee who assists a party in a transaction without acting as that party's agent. Unless a written agency agreement creates a seller-agent or buyer-agent relationship, the licensee is treated as a statutory broker who owes limited duties such as honesty, disclosure of known adverse material facts, and reasonable care, but not the loyalty of an agent.

How does a Montana statutory broker differ from a seller agent or buyer agent?

• a.A statutory broker owes full fiduciary loyalty to both parties
• b.A statutory broker assists a party without representing that party as an agent and owes no duty of loyalty✓
• c.A statutory broker may never be paid a commission
• d.A statutory broker can only handle commercial leases

A seller agent or buyer agent represents a client with full agency duties, including loyalty and confidentiality. A statutory broker assists a party in the transaction without becoming that party's agent and owes no duty of loyalty, though the statutory broker must still be honest, exercise reasonable care, and disclose known adverse material facts about the property.

When must a Montana licensee provide a buyer or seller with the required disclosure describing the available brokerage relationships?

• a.Only after a buy-sell agreement is signed
• b.Only at closing
• c.At the first substantial contact, before the party discloses confidential information✓
• d.Only when the party asks for it in writing

Montana requires the licensee to provide the relationships-in-real-estate disclosure to a party at the first substantial contact, before the party shares confidential information. Early disclosure lets a buyer or seller understand whether the licensee is acting as a statutory broker or as an agent for a party before negotiating information is revealed.

When a Montana salesperson receives an earnest-money deposit, the funds must be:

• a.Delivered promptly to the supervising broker to be held in the broker's trust account✓
• b.Deposited into the salesperson's personal account
• c.Held in cash by the salesperson until closing
• d.Sent directly to the Board of Realty Regulation

Earnest money and other client funds must be handled through the supervising broker's trust (escrow) account. A salesperson who receives funds must deliver them promptly to the broker, who must keep trust money separate from personal and business funds. Mishandling trust money is one of the most serious violations of Montana license law.

Which best describes how a person becomes a licensed salesperson in Montana?

• a.Passing one exam grants a broker license for life
• b.Complete the required pre-license education, pass the licensing exam, and be licensed under a supervising broker, with continuing education required to renew✓
• c.Join a Realtor board to receive an automatic license
• d.No coursework is required if supervised

A Montana candidate must complete the required salesperson pre-license education, pass the licensing examination, and become licensed under a supervising broker to be active. Salespersons must also complete continuing education, including any required newly-licensed coursework, to renew. Advancing to a broker license requires additional education and experience.