North Dakota Real Estate Salesperson Exam — All Questions

In the secondary mortgage market, entities such as Fannie Mae and Freddie Mac:

• a.buy existing loans from lenders so those lenders have more funds to lend✓
• b.originate and close brand-new loans directly with individual home buyers
• c.insure FHA loans against default
• d.set the federal benchmark interest rates

The secondary market buys and sells existing mortgages; Fannie Mae and Freddie Mac purchase loans from primary lenders, replenishing their funds so they can make more loans. They do not lend directly to consumers, set the Federal Reserve's rates, or insure FHA loans.

A borrower's loan-to-value ratio is 90%. Compared with an 80% LTV loan, a lender generally views the 90% loan as:

• a.higher risk, so it often requires mortgage insurance✓
• b.exactly identical risk to the 80% loan
• c.substantially lower risk to the lender than the 80% loan
• d.automatically exempt from any insurance

A higher loan-to-value ratio means a smaller down payment and less borrower equity, so the lender faces greater risk and typically requires mortgage insurance above 80% LTV. A lower LTV is safer for the lender, not the same or exempt.

An open listing in which the seller promises to pay a commission only if a broker produces a buyer, with no broker obligated to act, is an example of:

• a.a bilateral contract
• b.a fully executed contract
• c.a unilateral contract✓
• d.a voidable contract

A unilateral contract is a promise exchanged for an act - only one party (the seller) is bound unless and until another performs. A bilateral contract has promises on both sides, an executed contract is fully performed, and a voidable one can be canceled by a party.

A purchase agreement has been signed by both parties, but closing has not yet occurred. This contract is best described as:

• a.a unilateral contract
• b.a void contract
• c.an executory contract✓
• d.a fully executed contract

An executory contract is signed but not yet fully performed - obligations remain because closing is still pending. Once all parties complete performance at closing, it becomes executed. It is neither void nor unilateral here.

A purchase contract states that if the buyer defaults, the seller keeps the earnest money as full compensation. This provision is an example of:

• a.a novation
• b.liquidated damages✓
• c.specific performance
• d.an option payment

Liquidated damages are a pre-agreed amount the parties set as the remedy for a breach; forfeited earnest money commonly serves this role and limits the seller to that sum. Specific performance forces completion, an option pays for a right to buy, and novation replaces a contract.

A clause stating that 'time is of the essence' means:

• a.the time limits are only suggestions
• b.the stated deadlines must be met exactly or a party is in default✓
• c.the contract no longer needs to specify any fixed closing date at all
• d.either party may freely extend any deadline

'Time is of the essence' makes the stated deadlines strictly binding, so missing a date is a breach that can end the contract. Without such a clause, courts may allow a reasonable delay. It does not make dates flexible or optional.

A financing contingency in a purchase contract:

• a.guarantees that the seller will receive a full-price, all-cash offer to buy
• b.requires the buyer to complete the purchase with cash
• c.obligates the seller to finance the buyer
• d.lets the buyer cancel and recover the deposit if the loan is not obtained✓

A contingency is a condition that must be met for the contract to proceed; a financing contingency lets the buyer void the deal and reclaim earnest money if they cannot obtain the specified loan. It does not force cash, obligate the seller to lend, or guarantee price.

Assigning a contract means:

• a.canceling the contract entirely and returning the earnest deposit
• b.forfeiting the earnest money to the seller
• c.transferring one's rights under the contract to another party✓
• d.substituting a brand-new contract for the old

Assignment transfers a party's rights (and often duties) under an existing contract to a third party, who steps into that position; most real estate contracts are assignable unless prohibited. Substituting a new contract or party is novation, not assignment.

Novation occurs when:

• a.a contract has been signed by all parties but has not yet been performed or closed at all
• b.earnest money is deposited into escrow
• c.a party transfers only its rights to another
• d.the parties replace the old contract or a party with a new one, releasing the original✓

Novation substitutes a new contract or a new party for the original, with the original obligation extinguished and the prior party released. It differs from assignment, where the original party can remain liable.

A contract whose purpose is to accomplish something illegal is:

• a.voidable
• b.void✓
• c.valid but merely unenforceable
• d.enforceable once it is put in writing

A contract with an unlawful object is void - it has no legal effect from the start and cannot be enforced by anyone. A voidable contract is valid until a party cancels it, and an illegal purpose cannot be cured by putting it in writing.

An oral agreement to sell a parcel of land is best described as:

• a.unenforceable under the statute of frauds✓
• b.automatically void from the very beginning and start
• c.illegal and therefore criminal
• d.fully enforceable by either party

The statute of frauds requires real estate sale contracts to be in writing; an oral one is generally unenforceable in court even though it is otherwise valid between the parties. It is not void or illegal - just not enforceable.

In an option to purchase, the optionee:

• a.is the party who currently owns the property
• b.has the right, but not the obligation, to buy within a set time✓
• c.automatically receives a commission at closing
• d.is legally required to purchase the property by the stated deadline

An option gives the optionee, for consideration, the right - but not the duty - to buy on set terms within a fixed period; the optionor (owner) must sell if the optionee exercises. The optionee is not obligated to purchase.

The primary purpose of earnest money is to:

• a.pay the listing broker's full sales commission in advance
• b.satisfy the entire down payment amount
• c.transfer legal title to the buyer at signing
• d.show the buyer's good-faith commitment to the purchase✓

Earnest money is a good-faith deposit showing the buyer is serious; it is typically held in trust and applied to the purchase at closing. It is not the broker's commission, is usually only part of the down payment, and does not transfer title.

When a buyer wrongfully backs out of a signed purchase contract, one common remedy available to the seller is to:

• a.pay the defaulting buyer for their moving and relocation damages in full
• b.automatically waive the sales commission owed
• c.rescind the contract and, if the terms allow, keep the earnest money✓
• d.convey title to the buyer anyway

On a buyer's breach the seller may cancel (rescind) and typically retain the earnest money as liquidated damages, sue for actual damages, or seek specific performance. The seller does not owe the defaulting buyer damages or have to convey title.

The statute of frauds requires that a contract for the sale of real estate be:

• a.filed with the county recorder to be valid
• b.in writing and signed to be enforceable✓
• c.approved in advance by a judge
• d.notarized by the buyer before closing

The statute of frauds requires that contracts for the sale of real estate (and certain others) be in writing and signed to be enforceable. Recording, notarization, and court approval are not what the statute demands for enforceability.

For a real estate contract to be valid, the parties must be:

• a.licensed real estate agents
• b.represented at all times by their own private attorneys
• c.of legal age and sound mind (legally competent)✓
• d.residents of the same state

Legal capacity requires parties who are of legal age and mentally competent; contracts with minors or mentally incapacitated persons are voidable or void. Parties need not have attorneys, hold licenses, or share a state of residence.

Mutual assent, sometimes called a 'meeting of the minds,' is shown by:

• a.the recording of the signed deed in the records
• b.the payment of the property taxes
• c.a valid offer and an unqualified acceptance✓
• d.the completion of a boundary survey

Mutual assent - offer and acceptance - is the agreement element of a valid contract, and the acceptance must mirror the offer's terms. Recording, taxes, and surveys relate to the transaction, not to the formation of agreement.

Consideration, as a required element of a contract, refers to:

• a.the broker's agreed-upon sales commission percentage rate
• b.the seller's original asking price
• c.something of legal value exchanged by the parties✓
• d.the appraised value of the home

Consideration is something of legal value (money, a promise, or an act) that each party gives, and it supports the bargain. It is a required element and is distinct from the commission, the appraised value, or the list price.

If the person who made an ordinary offer dies before the other party accepts it, the offer:

• a.terminates automatically✓
• b.becomes an option contract
• c.converts into a binding contract
• d.must still be accepted by the offeror's heirs

An unaccepted offer is personal and terminates on the death or incapacity of either party before acceptance, so there is no contract to bind the estate. It does not automatically become binding or turn into an option.

When a seller responds to an offer with a counteroffer, the original offer is:

• a.converted into an option contract
• b.automatically binding on both parties
• c.rejected, so it can no longer be accepted✓
• d.still open for the buyer to accept it later

A counteroffer rejects and terminates the original offer, replacing it with a new one, so the buyer can no longer 'go back' and accept the first offer unless the seller re-extends it. It does not create automatic binding or an option.

In an installment land contract, during the payment period:

• a.the buyer receives full legal title to the property immediately
• b.a third-party lender holds title in trust
• c.the county holds title until it is paid
• d.the seller keeps legal title while the buyer takes possession✓

In a land (installment) contract, the buyer takes possession and equitable title and makes payments, while the seller retains legal title until the balance is paid. It is a seller-financing device; no third-party lender or county holds title.

Under an exclusive-right-to-sell listing, the broker earns a commission if the property sells during the listing term:

• a.only if the listing broker personally finds the buyer
• b.no matter who procures the buyer, even the owner✓
• c.only if the seller personally finds the buyer
• d.only if a cooperating broker finds the buyer

An exclusive right to sell entitles the listing broker to a commission if the property sells during the listing period regardless of who procures the buyer - even the owner. Under exclusive agency, by contrast, an owner who sells it personally owes no commission.

In an open listing:

• a.the seller may use several brokers and pays only the one who sells✓
• b.the seller cannot sell it personally
• c.only one single broker is authorized to market the property at a time
• d.the first broker to sign is always paid

An open (non-exclusive) listing lets the seller engage several brokers at once and pay only the broker who actually produces the buyer; the seller may also sell it personally with no commission. It is unilateral and non-exclusive.

Once a buyer removes (waives) an inspection contingency, the buyer:

• a.shifts the risk of the condition to the seller
• b.automatically extends the scheduled closing date
• c.generally loses the right to cancel for that reason and risks the deposit✓
• d.may still cancel the contract for any reason whatsoever at essentially any time

Removing a contingency signals the buyer's satisfaction with that condition; afterward the buyer usually cannot back out on that ground without breaching and risking the earnest money. It does not extend closing or shift risk to the seller.

The parol evidence rule generally prevents a party from:

• a.using prior oral statements to contradict a complete written contract✓
• b.recording a deed of trust in the records
• c.signing a real estate contract using an electronic or digital signature
• d.assigning contract rights to a third party

The parol evidence rule bars earlier oral or written statements from being used to contradict or vary the terms of a final, integrated written contract, protecting the reliability of the writing. It is unrelated to e-signatures, recording, or assignment.

An agency relationship created when a principal accepts the benefit of a previously unauthorized act is agency by:

• a.estoppel
• b.ratification✓
• c.implication
• d.an express agreement

Agency by ratification arises when a principal approves or accepts the benefits of an act that was not previously authorized, adopting it as their own. Estoppel arises when a principal's conduct leads a third party to reasonably believe agency exists, and express agency is created by explicit agreement.

If a principal's words or conduct lead a third party to reasonably believe that someone is the principal's agent, a court may find agency by:

• a.subrogation
• b.estoppel✓
• c.ratification
• d.novation

Agency by estoppel (apparent authority) arises when a principal creates the appearance of agency and a third party reasonably relies on it; the principal is then estopped from denying it. Ratification is after-the-fact approval, and the other terms are unrelated.

The fiduciary duty that requires an agent to place the client's interests above the agent's own is the duty of:

• a.loyalty✓
• b.accounting
• c.disclosure
• d.obedience

Loyalty requires the agent to put the principal's interests first and avoid conflicts of interest or secret profits. Accounting concerns handling money and documents, disclosure concerns revealing material facts, and obedience concerns following lawful instructions.

An agent's duty to safeguard and report on all money and documents belonging to the client is the duty of:

• a.accounting✓
• b.obedience
• c.confidentiality
• d.loyalty

The duty of accounting requires the agent to track and promptly report all funds and property (such as earnest money) entrusted to them and to avoid commingling. The other duties address following instructions, keeping secrets, and undivided loyalty.

An agent must obey the client's instructions except when an instruction is:

• a.likely to reduce the agent's commission
• b.disliked by the other party to the deal
• c.unlawful or unethical✓
• d.merely inconvenient for the agent

The duty of obedience requires following the principal's lawful instructions, but an agent must not obey directions that are illegal or unethical, such as concealing a defect or discriminating. Inconvenience or a smaller commission does not excuse the duty.

To a customer - the party the licensee does not represent - the licensee owes:

• a.undivided loyalty and strict confidentiality maintained at all times
• b.obedience to the customer's instructions
• c.honesty, fair dealing, and disclosure of known material defects✓
• d.the full range of fiduciary duties

A customer is owed honesty, fair dealing, and disclosure of known material facts about the property, but not the fiduciary duties (loyalty, confidentiality, obedience) reserved for the client. Full fiduciary duties are owed only to the principal.

A licensee's statement that a home is 'the best value in town' is best classified as:

• a.legal puffing, which is opinion and not actionable✓
• b.an illegal misrepresentation of a material fact of the property
• c.a breach of the fiduciary duty of loyalty
• d.a violation of federal fair housing law

Puffing is an opinion or exaggerated sales talk that a reasonable person would not treat as a statement of fact, so it is generally legal. Stating a false material fact would be misrepresentation, but this statement is opinion, not a factual claim.

A licensee representing the seller knows the roof leaks badly. The licensee must:

• a.keep it confidential to protect the selling client
• b.misrepresent the condition to save the sale
• c.disclose the known material defect to the buyer✓
• d.reveal it only if the buyer asks

Even a seller's agent owes honesty and must disclose known material defects to the buyer; confidentiality protects the client's personal information, not property defects or fraud. Concealing a known defect can be misrepresentation, and the duty does not depend on being asked.

Which of the following may an agent NOT keep confidential from the other party?

• a.a known material defect that affects health or safety✓
• b.the seller's personal reason for moving
• c.the seller's minimum acceptable price for the property
• d.the seller's overall financial situation

Confidentiality protects the client's negotiating position and personal information (price flexibility, motivation, finances), but it never allows concealing a known material defect affecting value or safety, which must be disclosed. Fraud is not protected by confidentiality.

An agency relationship terminates in all of the following ways EXCEPT:

• a.the expiration of the agreement's term
• b.the full completion of the purpose of the agency relationship
• c.the agent finding a slightly better commission elsewhere✓
• d.the mutual agreement of both parties

Agency ends by performance (completion), mutual agreement, expiration, revocation, renunciation, or the death or incapacity of a party. An agent cannot simply abandon the relationship to chase a better commission without breaching the agreement.

A subagent is best described as:

• a.the client's own personal attorney who handles all of the transaction paperwork
• b.an agent of the broker who owes the same duties to the broker's principal✓
• c.a customer being served in the transaction
• d.an unrepresented buyer acting alone

A subagent works under the listing broker's authority and owes the same fiduciary duties to the seller-principal as the listing broker. A subagent is not the client's lawyer, a customer, or an unrepresented party.

A single agent represents:

• a.no party at all in the deal
• b.only the brokerage's own interests
• c.both the buyer and the seller at once
• d.only one party in the transaction✓

Single agency means representing only one side - either the buyer or the seller - with undivided loyalty. Representing both is dual agency, and representing neither while facilitating is a transaction or non-agency role.

In designated (appointed) agency:

• a.the buyer is left without any representation
• b.different agents in one brokerage represent the buyer and the seller separately✓
• c.the broker refuses to take the listing
• d.one single agent secretly represents both opposing sides of the very same transaction

Designated agency lets a broker appoint one licensee to represent the buyer and another to represent the seller within the same firm, giving each client individual representation while managing the firm-level conflict. It is not undisclosed dual agency.

Representing both the buyer and the seller in the same transaction without the informed consent of both is:

• a.illegal undisclosed dual agency✓
• b.a permitted form of single agency
• c.a lawful subagency arrangement
• d.standard designated agency

Dual agency is legal only with the informed, written consent of both parties; doing it secretly is undisclosed dual agency, a serious violation that breaches fiduciary duty. It is not single agency, subagency, or proper designated agency.

A transaction broker (facilitator):

• a.helps both parties complete the deal without representing either as a fiduciary✓
• b.represents only the seller in the deal
• c.owes the complete range of full fiduciary duties to both of the parties at once
• d.is prohibited by law in every state

A transaction broker assists both parties with the paperwork and process while owing honesty and fairness but not fiduciary loyalty to either. It is a recognized non-agency role in many states.

A listing agent hired to sell one specific property is typically:

• a.a general agent with broad, ongoing authority over affairs
• b.a universal agent authorized in all matters
• c.a subagent of the buyer in the deal
• d.a special agent with limited authority for that one task✓

A special agent is engaged for a specific, limited task, such as selling one property, and lacks authority to bind the principal generally. A general agent (such as a property manager) has broad ongoing authority, and a universal agent can act in all matters.

Most states require a licensee to disclose whom they represent:

• a.only if the client specifically asks
• b.at or before the first substantive discussion with a party✓
• c.only after the purchase contract has been completely signed by all
• d.only at the closing table itself

Agency disclosure laws generally require licensees to reveal who they represent early - at or before the first substantive contact - so the parties understand the relationship. Waiting until contract, closing, or a direct question defeats the purpose.

An agent who wishes to buy their client's listed property for themselves must:

• a.disregard fiduciary duties in a personal purchase
• b.keep their license status secret from the client
• c.avoid telling the client the property's true value
• d.disclose their licensee status and interest and obtain the client's consent✓

Loyalty and disclosure require the agent to reveal their licensee status and personal interest and obtain informed consent before buying the client's property; hidden self-dealing breaches fiduciary duty, and the agent must still deal honestly about value.

An agent who secretly earns a profit or referral fee beyond the agreed commission without telling the principal has:

• a.engaged in permitted puffing
• b.acted properly within agency law
• c.earned a lawful performance bonus
• d.breached the fiduciary duties of loyalty and disclosure✓

An agent may not make a secret profit; undisclosed fees or markups violate loyalty and disclosure and can require forfeiture of the profit and commission. Any additional compensation must be disclosed and consented to.

The legal concept under which a broker can be held responsible for the wrongful acts of an affiliated salesperson committed within the scope of the agency is:

• a.vicarious liability✓
• b.the doctrine of caveat emptor
• c.novation
• d.escheat

Vicarious liability (respondeat superior) holds a principal or employer, such as the broker, responsible for the wrongful acts an agent commits within the scope of the agency. Caveat emptor is buyer-beware, novation replaces a contract, and escheat is state reversion.

A 'material fact' in a real estate transaction is one that:

• a.could affect a reasonable buyer's decision or the property's value✓
• b.relates solely to the terms of the buyer's loan
• c.only matters to the seller of the property
• d.is always visible during an ordinary inspection

A material fact is any fact that could influence a reasonable buyer's decision or affect value or desirability, such as a structural defect or a known hazard. Materiality is judged from the buyer's perspective, not solely the seller's, and it need not be visible.

A 'stigmatized property' is one affected by:

• a.dangerously faulty wiring
• b.a cracked and settling foundation
• c.a chronically leaking roof
• d.an event such as a death or crime rather than a physical defect✓

A stigmatized property is one that buyers may shun for psychological reasons - such as a death, crime, or rumor - not a physical problem. Many states limit or exempt disclosure of stigmas, while physical defects like foundations, roofs, and wiring are material and disclosable.

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

• a.after 1978
• b.before 1978✓
• c.after 2000
• d.before 1950

Residential lead-based paint was banned for consumer use in 1978, so the federal disclosure and EPA pamphlet requirement applies to most housing built before 1978. Newer homes are exempt from the rule.

Under the federal lead-based paint rule, buyers of pre-1978 housing must be given:

• a.a 10-day period to conduct a lead inspection or risk assessment✓
• b.a free lead abatement performed by the seller
• c.a written guarantee that the home is lead-free
• d.an automatic reduction in the purchase price

The rule gives buyers of pre-1978 housing a 10-day opportunity (unless waived) to test for lead hazards, along with disclosure of known hazards and the EPA pamphlet. It does not require free abatement, a lead-free guarantee, or a price cut.

A seller instructs the listing agent to hide a known material defect. The agent should:

• a.follow the client's wish and hide the defect
• b.actively misrepresent the property's condition
• c.disclose it only after the sale has closed
• d.decline to conceal it and disclose the known defect to the buyer✓

An agent's duty of honesty to all parties overrides a client's instruction to conceal a known material defect; the agent must not participate in misrepresentation and should disclose or withdraw. Following an unlawful instruction exceeds the limits of the duty of obedience.