North Dakota 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.

Real estate salespersons in North Dakota are licensed and regulated under NDCC Chapter 43-23 by:

• a.The North Dakota Secretary of State
• b.The county recorder
• c.The North Dakota Real Estate Commission✓
• d.The North Dakota Association of Realtors

The North Dakota Real Estate Commission administers NDCC Chapter 43-23, licensing brokers and salespersons and disciplining violations. A trade association is a private membership organization and does not license practitioners.

Under North Dakota license law, a real estate salesperson must:

• a.Be licensed under and supervised by a licensed broker✓
• b.Register directly with the county where they work
• c.Hold a broker license to list property
• d.Practice independently once licensed

A North Dakota salesperson holds an entry-level license and must be licensed under and supervised by a licensed broker. The salesperson may not operate independently; the broker is responsible for supervising the salesperson and maintaining trust accounts.

A North Dakota salesperson may lawfully accept a commission for brokerage services from:

• a.The employing broker✓
• b.The seller directly upon listing
• c.Any cooperating broker in the transaction
• d.The buyer directly at closing

A North Dakota salesperson may accept compensation for brokerage services only from the employing broker, not directly from a buyer, seller, or another broker. The broker is responsible for supervision and for paying affiliated salespersons.

In North Dakota, a licensee may represent both the buyer and the seller as a dual agent in the same transaction only when:

• a.The employing broker approves verbally
• b.Both parties give informed written consent✓
• c.The purchase price exceeds a set amount
• d.The property is newly built

North Dakota permits a licensee to act as a dual agent representing both parties in the same transaction only with the informed written consent of both the buyer and the seller. A dual agent must treat both fairly and may not disclose one party's confidential information to the other.

North Dakota requires a licensee to disclose the licensee's agency relationship to a consumer:

• a.Only if the consumer requests it in writing
• b.Early in the relationship, before the consumer shares confidential information✓
• c.Only at the closing table
• d.Only after a purchase agreement is signed

North Dakota licensees must disclose their agency relationship, identifying whom they represent, early in the relationship and before the consumer shares confidential information. Early disclosure helps the consumer understand whether the licensee represents the buyer, the seller, or both.

To hold an active real estate license in North Dakota, a licensee must:

• a.Maintain membership in a trade association
• b.Carry errors and omissions (E&O) insurance✓
• c.Own a piece of real property in the state
• d.Post a surety bond with the county

North Dakota requires active real estate licensees to carry errors and omissions (E&O) insurance, and the Commission makes a group policy available to satisfy the requirement. A licensee who does not maintain the required coverage may not hold an active license.

Earnest money that a North Dakota salesperson receives from a buyer must be:

• a.Held by the salesperson in a personal account until closing
• b.Promptly delivered to the employing broker for deposit in the broker's trust account✓
• c.Sent to the Real Estate Commission for safekeeping
• d.Given directly to the seller when the offer is made

Client funds such as earnest money must be handled through the broker's trust (escrow) account and kept separate from personal and business funds. A salesperson who receives the money must promptly deliver it to the employing broker. Commingling or converting trust money is a serious violation of NDCC 43-23.

A North Dakota salesperson license authorizes brokerage activity only while the salesperson is:

• a.A resident of North Dakota for five years
• b.A member of a local board of Realtors
• c.Licensed under a broker and carrying the required E&O insurance✓
• d.Registered with the county assessor

A North Dakota salesperson may perform brokerage activity only while licensed under a broker and carrying the required errors and omissions insurance. The license is inactive for practice until placed under a broker, and the salesperson must be licensed under another broker before continuing after leaving one.

The North Dakota Real Estate Commission is made up of five members appointed by the Governor, of whom:

• a.All five members must be active real estate brokers
• b.Two of the five must be active real estate brokers
• c.None of them may hold any real estate license
• d.Three must be active real estate brokers✓

The Commission consists of five members appointed by the Governor, three of whom must be active real estate brokers; the Commission elects its own chairman. Cite: N.D.C.C. 43-23-01.

A member of the North Dakota Real Estate Commission is appointed for a term of:

• a.Five years, and may not serve more than two consecutive terms✓
• b.Four years, and may not serve more than three consecutive terms
• c.Three years, with every member's term expiring in the same year
• d.Two years, with no limit at all on reappointment

Commissioners serve five-year terms, staggered so that one term expires each year, and a commissioner may not serve more than two consecutive five-year terms. Cite: N.D.C.C. 43-23-02.

Under the North Dakota license law definitions, the term "real estate" does NOT include:

• a.Leasehold interests in land
• b.Improvements affixed to the land
• c.Oil, gas, and mineral leases and mineral interests✓
• d.Land situated outside North Dakota

The definition reaches any interest or estate in land, including leaseholds, whether situated in this state or elsewhere, but it expressly excludes oil, gas, and mineral leases and every other mineral leasehold, estate, or interest. Cite: N.D.C.C. 43-23-06.1(8).

A person may sell North Dakota real estate for another without holding a real estate license when acting as:

• a.An unlicensed assistant who negotiates the sale price
• b.A rental agent who is paid a leasing commission by the owner
• c.An auctioneer at an advertised bona fide public auction✓
• d.A finder paid a referral fee by the listing broker

The chapter's exceptions cover an auctioneer, provided the sale is advertised as a bona fide public auction, along with attorneys, banks, holders of a power of attorney, court-appointed fiduciaries, and public officers. Cite: N.D.C.C. 43-23-07(1)(c).

A person who acts as a real estate broker in North Dakota without a license is guilty of:

• a.A civil penalty of $1,000 with no criminal charge
• b.A class A felony punishable by prison
• c.An infraction and nothing more
• d.A class B misdemeanor✓

Violating the license requirement is a class B misdemeanor; by contrast, violating the broker trust-fund section is an infraction. Cite: N.D.C.C. 43-23-17.

In an order imposing discipline, the North Dakota Real Estate Commission may direct the licensee to pay a fine not to exceed:

• a.$25,000 plus treble damages awarded to the complaining consumer
• b.$500 for each separate violation charged
• c.$1,000, and no costs may be added
• d.$5,000 plus the actual costs of investigation and prosecution✓

The Commission may direct a disciplined licensee to pay a fine of up to five thousand dollars plus the actual costs, including attorney's fees, of the investigation and prosecution. All fines go to the Commission's license fee account. Cite: N.D.C.C. 43-23-11.1(4).

Two North Dakota licensees disagree about how a commission should be split. The Real Estate Commission will:

• a.Hold a contested case hearing and award the disputed fee to one side
• b.Decline the dispute; it hears no fee disputes between licensees✓
• c.Order the employing broker to escrow the disputed amount
• d.Suspend both licenses until the licensees settle privately

The Commission is not authorized by law to consider or conduct hearings on disputes over fees or commissions between licensees; that is a civil matter for the courts. Cite: N.D.A.C. 70-02-01-17.

A North Dakota broker must maintain a definite place of business in the state. The broker's own home:

• a.May qualify as that place of business✓
• b.Must instead be licensed as a branch office
• c.Is never acceptable as a place of business
• d.Qualifies only if the broker has no other office

The statute expressly allows the broker's home to qualify as the required place of business. Separately, the rules provide that if a broker does maintain a regular office, the broker's home is not treated as a branch office. Cite: N.D.C.C. 43-23-12(1).

A North Dakota salesperson who changes employing brokers must give the Commission written notice:

• a.Only at the next annual renewal
• b.Only if the former broker objects
• c.Within five days of the change✓
• d.Within sixty days of the change

Prompt written notice, within five days, must be given to the Commission of a change of broker. A change of broker without notice to the Commission automatically cancels the salesperson's license. Cite: N.D.C.C. 43-23-12(2).

Before the North Dakota Real Estate Commission may issue a salesperson license, the applicant must show completion of:

• a.One hundred eighty hours of approved study
• b.A two-year degree in real estate or finance
• c.Thirty hours of approved courses of study
• d.Ninety hours of approved courses of study✓

A salesperson applicant must furnish evidence of successfully completing at least ninety hours in courses of study approved by the Commission. Cite: N.D.C.C. 43-23-08(4).

A North Dakota salesperson who wants a broker license must complete, beyond the salesperson education:

• a.An additional one hundred twenty hours of study
• b.No further coursework whatsoever
• c.An additional sixty hours✓
• d.An additional thirty hours of approved study

A broker applicant must complete an additional sixty hours of approved coursework beyond the ninety hours required of a salesperson, and must also meet the experience requirement. Cite: N.D.C.C. 43-23-08(4).

Besides the education requirement, an applicant for a North Dakota broker license generally must have:

• a.Owned income-producing property in North Dakota
• b.Been a resident of North Dakota for at least five years
• c.Two years of experience as a licensed salesperson✓
• d.Served a year as an unlicensed office assistant

A broker applicant must have been actively engaged as a licensed real estate salesperson for at least two years before the date of application, or have equivalent experience the Commission accepts. Cite: N.D.C.C. 43-23-08(3).

A North Dakota applicant who has not yet finished the required prelicense coursework:

• a.May be issued a license conditioned on later proof
• b.May sit for the examination but cannot yet be licensed✓
• c.Is barred from registering for the licensing examination
• d.May practice under a broker for six months first

An applicant may sit for the licensing examination before fulfilling the education prerequisite, but the Commission may not issue the license until satisfactory evidence of completion is furnished. Cite: N.D.C.C. 43-23-08(4).

A North Dakota prelicense course completed by an applicant remains valid for:

• a.Five years from the date of completion
• b.Six months from the date of completion
• c.One full year from the date of completion
• d.Two years from completion✓

A prelicensure course is valid for two years from the date the applicant completed it, as shown on the certificate of completion or other official school documentation. Cite: N.D.A.C. 70-02-01-03(6).

To renew on time, a North Dakota licensee must file the renewal application on or before:

• a.January thirty-first
• b.The first business day of October
• c.November fifteenth✓
• d.December thirty-first

Persons wishing to continue in business must apply for renewal on or before November fifteenth of each year; a late application carries a late fee, and a license not renewed by the late date is cancelled. Cite: N.D.A.C. 70-02-01-04.

The continuing education a North Dakota licensee must complete for each renewal is:

• a.Six hours in Commission-approved courses
• b.Twelve hours in approved courses✓
• c.Twenty-four hours in approved courses
• d.Thirty hours in approved courses each year

Each broker or salesperson must complete twelve hours of continuing education in approved courses every continuing education period, which is the twelve months preceding the renewal application deadline. Cite: N.D.A.C. 70-02-04-02.

For North Dakota continuing education credit, one hour of instruction means:

• a.Sixty minutes, including scheduled breaks
• b.Forty-five minutes of any classroom activity
• c.Any session the sponsor calls an hour
• d.Fifty minutes, not counting break time✓

An hour of continuing education is fifty minutes, and time spent on breaks does not count toward that fifty-minute hour. Cite: N.D.A.C. 70-02-04-03.

To hold an active North Dakota license, a broker or salesperson must carry errors and omissions coverage of at least:

• a.$1,000,000 per claim and $3,000,000 in the aggregate
• b.$100,000 single-limit per claim, $500,000 aggregate✓
• c.Whatever amount the employing broker selects
• d.$50,000 per claim with no annual aggregate limit

The group policy standard the Commission sets requires not less than one hundred thousand dollars of single-limit liability coverage for each licensee per occurrence or claim, and an annual aggregate of not less than five hundred thousand dollars per licensee. Licensees holding inactive licenses are excepted from the coverage requirement. Cite: N.D.A.C. 70-02-05-03.

An applicant already licensed in another, nonreciprocal state who has passed that state's real estate examination:

• a.Need take only the state portion of the examination✓
• b.Is licensed automatically upon paying the license fee
• c.Must complete the ninety-hour course again
• d.Must repeat the entire North Dakota examination

An applicant currently licensed in a nonreciprocal state who has passed that state's licensing examination need take only the state portion in North Dakota, and the prelicensure course is not required. Cite: N.D.A.C. 70-02-01-06(5).

Under North Dakota law, dual agency does not exist unless:

• a.Both parties have written agency agreements with the same firm✓
• b.A subagency arrangement has been offered through the listing service
• c.The transaction involves more than one parcel of property
• d.The two parties are represented by two different firms

Dual agency arises only when one licensee represents both parties, or when two licensees of the same broker each represent a party, and it does not exist unless both the buyer and the seller have written agency agreements with the same brokerage firm. A subagency arrangement is not a written agency agreement. Cite: N.D.C.C. 43-23-06.1(6).

A North Dakota brokerage firm appoints one licensee to represent the seller and another to represent the buyer in the same transaction. The firm and its licensees are:

• a.Dual agents as to both clients by operation of law
• b.Not dual agents, and knowledge is not imputed among them✓
• c.Required to withdraw from one side of the transaction
• d.Permitted to continue only with a court order

When a designated broker appoints agents for clients who are or may be parties to the same transaction, the firm and its licensees are not dual agents as to those clients, and there is no imputation of knowledge or information among the clients, the firm, and the appointed agents. Cite: N.D.C.C. 43-23-12.3(2).

Toward a customer who is not represented in the transaction, a North Dakota licensee is a nonagent who must:

• a.Obtain the customer's consent before speaking to the client
• b.Owe the customer the full fiduciary duties of a client
• c.Say nothing at all about the property's condition
• d.Disclose adverse material facts the licensee knows✓

As to a customer the firm and its licensees are nonagents owing limited duties: to perform customary acts with honesty and good faith, and to disclose any adverse material facts actually known that pertain to the title, the physical condition, and defects in the property. Those duties are subordinate to duties owed a client. Cite: N.D.C.C. 43-23-12.1(2).

Unless the parties agree otherwise in writing, a North Dakota brokerage firm and its licensees are:

• a.Required to inspect the property for hidden defects
• b.Required to verify ownership before any showing
• c.Not obligated to discover defects in the property✓
• d.Liable for any error made by the seller's attorney

Unless otherwise agreed in writing, the firm and its licensees are not obligated to discover defects in the property, to verify ownership, or to independently verify the accuracy of statements made by anyone other than themselves. Cite: N.D.C.C. 43-23-12.1(3).

In a North Dakota transaction involving a one- to four-family home, the licensee's written agency disclosure must be made:

• a.At the first substantive contact with the party✓
• b.Within ten days after an offer is accepted
• c.At the closing, with the settlement statement
• d.Only when the consumer asks who is represented

The licensee must make an affirmative written disclosure identifying whom the licensee represents at the time of first substantive contact, on a separate written document offered to the party for signature, with a true copy kept in the broker's file. Cite: N.D.A.C. 70-02-03-15.1(2).

Without the informed written consent of the party represented, a North Dakota licensee may not disclose that:

• a.The seller will accept less than the asking price✓
• b.A building permit was never obtained for the deck
• c.The septic system has failed an inspection
• d.The property has a leaking basement wall

The confidentiality rule specifically protects four things: that the party will pay more than the price offered, that the party will accept less than the price asked, the party's motivating factors, and that the party will agree to other financing terms. Cite: N.D.A.C. 70-02-03-15.1(3).

A North Dakota seller tells the listing agent to keep quiet about a cracked foundation. The duty of confidentiality:

• a.Requires the agent to conceal the defect from buyers
• b.Applies until the purchase agreement is signed
• c.Does not cover known material defects in the property✓
• d.Can be waived only by the Real Estate Commission

The confidentiality provisions do not permit or require a licensee to keep confidential any material defect in the property of which the licensee is aware, or anything that would be fraudulent misrepresentation unless disclosed. Cite: N.D.A.C. 70-02-03-15.1(6).

In a North Dakota transaction involving agricultural land, commercial property, or a residential building with five or more units, the licensee:

• a.Is the seller's agent unless all parties agree otherwise✓
• b.Is always the agent of whichever party pays the commission
• c.Owes no agency duty to anyone in the transaction
• d.Must act as a dual agent for both sides of the deal

For agricultural and commercial property, residential property of five or more dwelling units, and commercial leaseholds, the rule provides that the licensee is the agent of the seller unless all parties otherwise agree in writing, and the relationship must be disclosed in writing before a written contract is signed. Cite: N.D.A.C. 70-02-03-15.

A North Dakota licensee who never made the required written agency disclosure sues the seller for the commission. The licensee:

• a.Recovers half the fee as a matter of equity
• b.May not maintain the action to recover the compensation✓
• c.Recovers only if the buyer completed the purchase
• d.Recovers the full fee, since the listing was signed

No person required to be licensed may maintain an action to recover any commission, fee, or other compensation unless the agency relationship was disclosed to the parties as the rule requires. Cite: N.D.A.C. 70-02-03-15.1(8).

One North Dakota licensee represents two buyer clients who both want to offer on the same home. That licensee must:

• a.Disclose the terms of each buyer's offer to the other
• b.Refer both buyers to a different brokerage firm
• c.Withdraw from representing one of the two buyers
• d.Tell both clients a competing written offer exists✓

A firm does not breach a duty by assisting competing buyer clients, but if one individual licensee holds written agency agreements with two or more buyers who want the same property, the licensee must disclose to those clients that a competing written offer has been submitted by another buyer client of that licensee. Cite: N.D.C.C. 43-23-12.1(5).

Before a North Dakota licensee performs any service for an unrepresented customer, the licensee must:

• a.Record an affidavit of nonagency with the county
• b.Obtain the customer's signature on a nonagency disclosure✓
• c.Notify the Real Estate Commission of the nonagency arrangement
• d.Ask the customer to sign a buyer's broker agreement

The licensee must disclose the nonagency relationship in writing to the customer, and the document must be signed by the customer before the licensee performs any services. A copy is kept in the broker's file. Cite: N.D.A.C. 70-02-03-15.2.

A North Dakota salesperson receives an earnest money check on a Tuesday. The salesperson must place it with the employing broker:

• a.Within ten days of receipt
• b.By the closing date on the contract
• c.Within twenty-four hours of receipt✓
• d.Within three business days of receipt

Failing to place real estate trust moneys with the employing broker within twenty-four hours of receipt is unprofessional conduct, and the broker in turn must deposit the money within twenty-four hours of receiving it from the salesperson. Cite: N.D.C.C. 43-23-11.1(1)(s).

A North Dakota broker's real estate trust account must be:

• a.An interest-bearing account benefiting the broker
• b.An interest-bearing account benefiting the state
• c.A noninterest-bearing account in this state✓
• d.Any account the closing agent designates

Every broker must maintain a separate, noninterest-bearing trust account, designated as such, in a federally insured financial institution in this state, and the rules repeat that all trust accounts must be noninterest bearing. Cite: N.D.C.C. 43-23-14.1.

How much of a North Dakota broker's own money may be kept in the real estate trust account?

• a.Up to $5,000 held as a general operating cushion
• b.Whatever the depository sets as a minimum balance
• c.None at all, under any circumstance whatever
• d.Up to $500 to cover service charges✓

A broker may not commingle personal funds in the trust account, except that a sum not exceeding five hundred dollars of the broker's own money may be deposited and specifically identified to cover service charges related to the account. Cite: N.D.C.C. 43-23-14.1.

North Dakota trust account records of funds and property of others must be kept for not less than:

• a.Three years from the date of receipt
• b.Six years from receipt✓
• c.Ten years from the date of receipt
• d.One year from the date of receipt

Every broker must keep permanent records of all funds and property of others received by the broker for not less than six years from the date of receipt. Cite: N.D.A.C. 70-02-01-15(3)(g).

A North Dakota seller refuses to close through no fault of the buyer. As to the buyer's earnest money, the broker:

• a.Keeps the commission portion and returns the rest
• b.Holds the deposit until the seller consents to release
• c.Has no right to any of it and must return it at once✓
• d.Splits it evenly with the cooperating brokerage

When the owner fails, refuses, neglects, or is unable to close and the buyer is not at fault, the broker has no right to any portion of the deposit even though the commission is earned; the deposit is returned to the purchaser at once and the broker looks to the owner for compensation. Cite: N.D.A.C. 70-02-03-12.

A North Dakota listing agreement on a one- to four-family home must be signed and contain a definite expiration date:

• a.Only when the seller asks for one in writing
• b.Before the property is advertised or offered for sale✓
• c.Within five days after the first showing
• d.At any time before an offer is accepted

The licensee must obtain a signed written listing agreement identifying the property and stating the price, the commission, the signatures, and a definite expiration date before the property is advertised or offered for sale. It may not require the seller to give notice of an intent to cancel after that date. Cite: N.D.A.C. 70-02-03-04.

In North Dakota advertising, the brokerage firm's licensed trade name must be:

• a.Printed somewhere on the back of the piece
• b.Equal to or greater in size than a salesperson or team name✓
• c.Smaller than the listing agent's name and number
• d.Omitted when a team name is displayed

Advertising must be done in the agency's trade name as licensed, and that trade name must be equal to or greater than, in size and visibility, the name of any salesperson, associate broker, or team appearing in the advertisement. Cite: N.D.A.C. 70-02-03-02.1(2).