CSLB General Building (B) — All Questions

Which of the following is considered real property rather than personal property?

• a.A tenant's freestanding refrigerator brought into an apartment
• b.A built-in central heating system permanently attached to the building✓
• c.A car parked in the driveway
• d.Loose furniture staged for a showing

Real property includes land and anything permanently affixed to it, such as a built-in heating system. Items that are movable and not attached, like a refrigerator brought in by a tenant, are personal property (chattel). The test of a fixture looks at attachment, adaptation, and intent.

The bundle of rights in real property ownership does NOT typically include which of the following?

• a.The right to use the property
• b.The right to violate local zoning laws✓
• c.The right to exclude others
• d.The right to sell or transfer the property

The bundle of rights includes possession, control, enjoyment, exclusion, and disposition. It never includes a right to break the law, so violating zoning ordinances is not part of ownership rights. All ownership rights remain subject to government limits such as police power.

A fee simple absolute estate is best described as:

• a.A lease that lasts for 99 years
• b.A right to use land owned by another
• c.An estate that automatically ends when the owner dies
• d.The highest and most complete form of ownership, with unlimited duration✓

Fee simple absolute is the greatest interest one can hold in real property, lasting indefinitely and freely inheritable and transferable. A life estate ends at death and an easement is only a right to use another's land. It remains subject to government powers such as taxation and eminent domain.

An easement appurtenant benefits:

• a.A specific individual regardless of land ownership
• b.Only the government
• c.The dominant tenement, and it transfers with that parcel of land✓
• d.The servient tenement exclusively

An easement appurtenant runs with the land and benefits the dominant tenement while burdening the servient tenement. When the dominant parcel is sold, the easement transfers automatically. An easement in gross, by contrast, benefits a person or entity rather than a parcel.

Which government power allows the taking of private property for public use with just compensation?

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

Eminent domain is the power to take private property for public use, exercised through condemnation, and it requires payment of just compensation. Escheat transfers property to the state when an owner dies without heirs. Police power regulates use for public welfare, such as zoning.

The process by which the state acquires property when an owner dies leaving no will and no heirs is called:

• a.Accretion
• b.Adverse possession
• c.Eminent domain
• d.Escheat✓

Escheat returns property to the state when a person dies intestate with no identifiable heirs, preventing land from being ownerless. Adverse possession is a private acquisition through hostile, open use over time. Accretion is the gradual addition of land by natural deposit of soil.

A form of co-ownership that includes the right of survivorship is:

• a.Joint tenancy✓
• b.Tenancy in common
• c.Ownership in severalty
• d.A leasehold estate

Joint tenancy carries the right of survivorship, so a deceased owner's share passes automatically to the surviving joint tenants rather than to heirs. Tenancy in common has no survivorship, and each share passes by will or inheritance. Ownership in severalty means a single owner holds title alone.

Which of the following describes an encumbrance on real property?

• a.The complete absence of any ownership interest
• b.A claim, lien, or restriction that affects the title or use of property✓
• c.A synonym for fee simple ownership
• d.The physical dimensions of a parcel

An encumbrance is any claim or liability attached to property that may affect its value or use, such as a lien, easement, or deed restriction. It does not prevent transfer of title but travels with the property. Buyers usually want title free of undisclosed encumbrances.

A physical feature of a property that reduces its value, such as an outdated floor plan, is an example of:

• a.Functional obsolescence✓
• b.Economic obsolescence
• c.Physical accretion
• d.Highest and best use

Functional obsolescence is a loss in value caused by outdated or poorly designed features within the property itself, like a bad floor plan. Economic (external) obsolescence comes from factors outside the property, such as a nearby nuisance. Both are forms of depreciation considered in the cost approach.

The principle that a property's maximum value is achieved when it is used in the way that produces the greatest return is called:

• a.Highest and best use✓
• b.Substitution
• c.Regression
• d.Contribution

Highest and best use is the legally permissible, physically possible, financially feasible, and maximally productive use of a site. Appraisers analyze it because value is tied to the most profitable reasonable use. Substitution, regression, and contribution are other valuation principles.

Under the principle of substitution, a buyer will pay no more for a property than:

• a.The cost of the most expensive comparable in the market
• b.The assessed value for tax purposes
• c.The original construction cost
• d.The cost of acquiring an equally desirable substitute property✓

The principle of substitution holds that value is set by the cost of an equally desirable alternative. This idea underlies the sales comparison approach to appraisal. A rational buyer will not overpay when a comparable substitute is available for less.

A metes and bounds legal description relies on:

• a.Lot and block numbers on a recorded plat
• b.The street address alone
• c.Township and range grid lines
• d.Distances, directions, and monuments to define boundaries✓

Metes and bounds describes a parcel by measured distances and compass directions between reference points and monuments, always returning to the point of beginning. The lot and block system uses recorded subdivision plats. The rectangular survey system uses township and range grids.

The gradual increase of land along a shoreline caused by the deposit of soil is called:

• a.Erosion
• b.Reliction
• c.Avulsion
• d.Accretion✓

Accretion is the slow buildup of land by natural deposits of soil or sediment, and the new land belongs to the adjacent owner. Erosion is the gradual loss of land. Avulsion is a sudden loss or change of land, such as from a flood.

Which type of depreciation is generally considered incurable?

• a.External (economic) obsolescence caused by a nearby factory✓
• b.Deferred maintenance such as peeling paint
• c.A broken window
• d.A worn carpet

External or economic obsolescence stems from factors outside the property, such as a neighboring nuisance, which the owner cannot fix, so it is typically incurable. Deferred maintenance and many functional issues can be corrected at reasonable cost. Curability depends on whether the fix adds value at least equal to its cost.

A private limitation placed in a deed that controls how an owner may use their property is known as a:

• a.Easement in gross
• b.Restrictive covenant✓
• c.Prescriptive easement
• d.Mechanic's lien

A restrictive covenant is a private limitation in a deed or subdivision declaration that controls land use, such as prohibiting commercial activity. It runs with the land and binds future owners. Courts will not enforce covenants that are illegal or discriminatory.

In real estate valuation, the term 'situs' refers to:

• a.A type of mortgage
• b.The soil composition of a lot
• c.The chain of title
• d.The preference or economic attractiveness of a location✓

Situs is the economic attractiveness of a location, reflecting people's preference for one area over another. It is one reason location so strongly influences value. Because land is immobile, its situs cannot be moved, only the surrounding conditions can change.

Which of the following is a physical characteristic of land?

• a.Scarcity
• b.Immobility✓
• c.Situs
• d.Permanence of investment

The physical characteristics of land are immobility, indestructibility, and uniqueness (nonhomogeneity). Scarcity, situs, permanence of investment, and improvements are economic characteristics. These traits explain why land markets are local and why no two parcels are identical.

A life estate is an ownership interest that:

• a.Lasts forever and passes to heirs
• b.Automatically converts to a lease after ten years
• c.Is always held by a corporation
• d.Lasts for the duration of a specified person's life✓

A life estate grants ownership for the lifetime of a named person, after which title passes to the remainderman or reverts to the grantor. The life tenant may use and profit from the property but cannot commit waste. It cannot be willed because it ends at death.

Riparian rights refer to a landowner's rights concerning:

• a.Mineral deposits beneath the surface
• b.The use of water in a river or stream adjacent to the land✓
• c.Air space above the property
• d.Underground utility easements

Riparian rights govern an owner's use of water from a flowing watercourse such as a river or stream bordering the land. Littoral rights apply to owners bordering large, static bodies of water like lakes or oceans. Both are appurtenant to the land.

The concept that property value tends to be maximized when there is reasonable similarity among properties in a neighborhood is called:

• a.Anticipation
• b.Conformity✓
• c.Change
• d.Competition

The principle of conformity states that homes maintain and increase value when they are reasonably similar in style, size, and quality to surrounding properties. Sharp differences can drag value through regression or lift it through progression. Anticipation ties value to expected future benefits.

When a lower-value home gains value because it is located among higher-value homes, this illustrates the principle of:

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

Progression is the increase in a lesser property's value due to the presence of better, higher-value properties nearby. Regression is the reverse, where a superior property loses value among lesser ones. Both flow from the broader principle of conformity.

An appurtenance is best defined as:

• a.A movable item of personal property
• b.A temporary license to enter land
• c.A lien recorded against the title
• d.A right or improvement that belongs to and transfers with the land✓

An appurtenance is a right, privilege, or improvement that attaches to and passes with the land when it is conveyed, such as an easement or water right. It is included in a sale unless specifically excluded. A license, by contrast, is a revocable personal permission that does not transfer.

In New York, real estate salespersons and brokers are licensed and regulated primarily by the:

• a.Federal Trade Commission
• b.Local county clerk
• c.Internal Revenue Service
• d.New York Department of State, Division of Licensing Services✓

New York real estate licenses are issued and regulated by the Department of State (DOS) through its Division of Licensing Services. The DOS enforces Article 12-A of the Real Property Law and can discipline licensees. Specific rules and fees can change, so licensees should confirm current requirements with the DOS.

The New York statute governing the licensing and conduct of real estate brokers and salespersons is:

• a.The Uniform Commercial Code
• b.Regulation Z
• c.Article 12-A of the Real Property Law✓
• d.The Statute of Frauds only

Article 12-A of the New York Real Property Law is the licensing law that defines brokers and salespersons and sets rules for their conduct. The Department of State administers it. Requirements under this article can be amended, so licensees should verify current provisions.

A New York real estate salesperson may lawfully collect a commission directly from:

• a.The buyer, at closing
• b.Their sponsoring broker only✓
• c.Any party to the transaction
• d.The Department of State

A salesperson works under and is paid only by their sponsoring broker, never directly by a buyer or seller. The broker receives the commission and then compensates the salesperson per their agreement. Accepting compensation directly from a principal can be grounds for discipline.

An agent's fiduciary duty of obedience requires the agent to:

• a.Obey the buyer even when it conflicts with the seller-principal
• b.Follow all lawful instructions of the principal✓
• c.Follow any instruction, even illegal ones
• d.Ignore the principal's wishes to maximize commission

The duty of obedience requires an agent to follow the principal's lawful instructions promptly. An agent must never obey directions that are illegal, such as instructions to discriminate. In such a case the agent should refuse and may need to withdraw from the agency.

The fiduciary duties an agent owes a principal can be remembered by the acronym OLD CAR. The 'C' stands for:

• a.Compensation
• b.Contract
• c.Compliance
• d.Confidentiality✓

OLD CAR stands for Obedience, Loyalty, Disclosure, Confidentiality, Accountability, and Reasonable care. Confidentiality requires keeping the principal's private information secret, even after the relationship ends. These duties define the agent's fiduciary relationship with the principal.

In New York, the agency disclosure form must generally be presented to a prospective buyer or seller:

• a.At the closing table
• b.Only if the client requests it
• c.At the time of first substantive contact✓
• d.After an offer is accepted

New York requires licensees to provide the statutory agency disclosure form at the time of first substantive contact with a prospective buyer or seller. This ensures consumers understand whom the agent represents before sharing confidential information. Exact timing rules and form content can change, so confirm current DOS requirements.

A dual agent in New York is a broker who:

• a.Represents two different buyers on two different properties
• b.Represents both the buyer and the seller in the same transaction✓
• c.Works for two brokerage firms at once
• d.Holds both a broker and a salesperson license

Dual agency exists when one broker represents both the buyer and the seller in the same transaction, creating a conflict of interest. New York permits it only with the informed, written consent of both parties. Because loyalty is divided, the dual agent cannot fully advocate for either side.

A designated sales agent arrangement in New York allows a supervising broker to:

• a.Represent no one in the transaction
• b.Appoint different agents to represent the buyer and the seller✓
• c.Let a salesperson work without a sponsoring broker
• d.Let the seller act as their own agent

With the written consent of both parties, a supervising broker who has dual agency may appoint one licensee to represent the seller and another to represent the buyer as designated sales agents. Each designated agent can advocate for their respective client. The supervising broker remains a dual agent overall.

Which of the following would create an agency relationship by ratification?

• a.A signed listing agreement
• b.A principal accepting the benefits of unauthorized acts after the fact✓
• c.A written buyer-broker contract
• d.A formal power of attorney

Agency by ratification arises when a principal approves or accepts the benefits of an agent's previously unauthorized actions. This retroactively creates the agency relationship. Express agency, by contrast, is created by a clear agreement such as a signed listing.

Commingling, which is prohibited for New York brokers, refers to:

• a.Representing two clients in one deal
• b.Advertising more than one listing at a time
• c.Mixing client escrow funds with the broker's own business or personal funds✓
• d.Working with multiple cooperating brokers

Commingling is the improper mixing of client trust or escrow funds with the broker's own money, and it is a violation of license law. Brokers must keep client deposits in a separate escrow or trust account. Converting those funds to personal use is the even more serious offense of conversion.

The federal Fair Housing Act prohibits discrimination based on all of the following EXCEPT:

• a.The buyer's occupation✓
• b.Religion and national origin
• c.Race and color
• d.Sex, disability, and familial status

The federal Fair Housing Act protects seven classes: race, color, religion, national origin, sex, disability, and familial status. Occupation is not a federally protected class. New York State and local laws add further protected categories, so licensees must check applicable state and local rules.

The practice of inducing owners to sell by suggesting that people of a particular protected class are moving into the neighborhood is called:

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

Blockbusting, also called panic selling, is illegal under fair housing law and involves scaring owners into selling by exploiting fears about changing neighborhood demographics. Steering is directing buyers toward or away from areas based on protected class. Redlining is denying loans or services in certain areas.

Directing prospective buyers toward or away from certain neighborhoods based on their race or religion is known as:

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

Steering is the illegal practice of channeling homebuyers to or from particular neighborhoods based on a protected characteristic, limiting their housing choices. It violates the Fair Housing Act. Agents must let clients choose freely and provide equal service to all.

Under New York law, earnest money deposits held by a broker must be:

• a.Deposited into the broker's personal account for safekeeping
• b.Placed in a separate escrow or trust account✓
• c.Given directly to the seller immediately
• d.Kept in cash in the office safe

Brokers must hold earnest money and other client funds in a separate escrow or trust account, keeping them apart from the broker's own money. This prevents commingling and protects the parties' deposit. Funds are released according to the contract terms or with proper authorization.

An agency relationship is terminated by all of the following EXCEPT:

• a.The agent being briefly unavailable for a day✓
• b.Mutual agreement of the parties
• c.Completion of the purpose of the agency
• d.Death or incapacity of either party

Agency ends by performance, expiration, mutual agreement, revocation, renunciation, or death or incapacity of a party, among other events. A brief temporary absence does not terminate the relationship. Some duties, such as confidentiality, may survive termination.

A licensee who exaggerates a property's qualities with a non-factual opinion, such as calling a view 'the most breathtaking in town,' is engaging in:

• a.Fraud
• b.Misrepresentation
• c.Puffing✓
• d.Steering

Puffing is an exaggerated opinion or sales talk that a reasonable person would not take as a statement of fact, and it is generally legal. It becomes actionable misrepresentation or fraud when it involves false statements of material fact. Agents should still be cautious to avoid crossing that line.

In New York, a real estate salesperson's license is:

• a.Held by and works under their sponsoring broker✓
• b.Displayed on the wall of every property they show
• c.Renewed every ten years automatically
• d.Kept independently, allowing solo practice

A New York salesperson's license is maintained by and works under the sponsoring broker who supervises their activity. The salesperson cannot operate independently. Licensing details, including renewal periods and continuing education, are set by the DOS and can change.

A seller's agent owes the fiduciary duty of loyalty to the:

• a.Seller (principal)✓
• b.Buyer
• c.Lender
• d.General public

The duty of loyalty requires the agent to place the principal's interests above all others, including the agent's own. A seller's agent owes that loyalty to the seller. The agent must still treat the buyer honestly and fairly and disclose known material defects.

A material defect that a seller's agent knows about the property must be:

• a.Concealed to protect the seller
• b.Reported only to the Department of State
• c.Revealed only if the buyer asks directly
• d.Disclosed to prospective buyers✓

Even while representing the seller, an agent must honestly disclose known material defects to buyers and cannot participate in active concealment or fraud. The duty of honesty to third parties coexists with loyalty to the principal. Failing to disclose can expose the agent to liability.

The relationship in which a broker represents a buyer client is known as:

• a.Seller agency
• b.Subagency to the listing broker
• c.Buyer agency✓
• d.Facilitator status

Buyer agency is created when a broker agrees to represent the buyer's interests, typically through a buyer-broker agreement. The broker then owes fiduciary duties to the buyer. This differs from a traditional arrangement where all agents represented the seller.

Which act by a licensee would most likely be grounds for revocation of a New York real estate license?

• a.Converting a client's escrow deposit for personal use✓
• b.Presenting all written offers to the seller
• c.Recommending the buyer obtain a home inspection
• d.Providing the agency disclosure form on time

Converting client escrow funds to personal use is a serious violation of trust and license law and can lead to revocation and other penalties. Presenting offers, recommending inspections, and timely disclosure are proper professional practices. The DOS enforces these standards under Article 12-A.

An agent acting under an express written listing agreement is an example of:

• a.Agency by estoppel
• b.Ostensible agency
• c.Express agency✓
• d.Agency by ratification

Express agency is created by a clear, stated agreement between principal and agent, whether written or oral, such as a signed listing contract. Implied agency arises from conduct, and agency by estoppel or ratification arise in other ways. A written listing is the classic example of express agency.

A broker who represents neither the buyer nor the seller as a client but merely helps both complete a deal may be acting as a:

• a.Dual agent
• b.Broker's agent
• c.Designated agent
• d.Facilitator or transaction broker✓

A facilitator, sometimes called a transaction broker, helps parties complete a deal without owing full fiduciary duties to either as a client. This limited role differs from single or dual agency. New York agency disclosure requirements still apply to clarify the relationship for consumers.

New York's fair housing protections extend beyond the federal classes to include additional categories such as:

• a.Occupation and education level
• b.Only race and religion
• c.Age, marital status, sexual orientation, and gender identity, among others✓
• d.Political party affiliation nationwide

New York State's Human Rights Law adds protected classes beyond the federal list, including age, marital status, sexual orientation, gender identity, military status, and more. Local laws may add further categories. Because these lists are periodically expanded, licensees should verify the current protected classes.

Under the Statute of Frauds, a contract for the sale of real estate generally must be:

• a.In writing and signed to be enforceable✓
• b.Oral and witnessed
• c.Recorded before it is valid
• d.Notarized by a judge

The Statute of Frauds requires contracts for the sale of an interest in real property to be in writing and signed by the party to be charged. An oral real estate sales contract is generally unenforceable. Recording and notarization affect other steps but are not what makes the contract enforceable.

The essential elements of a valid contract include all of the following EXCEPT:

• a.Offer and acceptance
• b.A recorded deed✓
• c.Consideration
• d.Legal capacity and lawful purpose

A valid contract requires mutual assent (offer and acceptance), consideration, legally competent parties, and a lawful objective. A recorded deed is part of transferring title, not a requirement for a contract's validity. Real estate contracts must also generally be in writing under the Statute of Frauds.

When a buyer makes a counteroffer, the original offer is:

• a.Still open for acceptance
• b.Automatically accepted
• c.Terminated and rejected✓
• d.Converted into an option

A counteroffer rejects and terminates the original offer and creates a new offer that the other party may accept or reject. The original offeror can no longer accept the terminated offer unless it is renewed. This is why negotiations proceed through successive counteroffers.

A contract that has been fully performed by both parties is described as:

• a.Executory
• b.Executed✓
• c.Voidable
• d.Unilateral

An executed contract is one in which both parties have fully performed all obligations. An executory contract still has duties left to perform, such as a signed purchase agreement before closing. Do not confuse this with an executed (signed) document, which is a different use of the word.

A contract entered into by a minor is generally:

• a.Void from the start
• b.Fully enforceable against the minor
• c.Voidable at the option of the minor✓
• d.Automatically valid once notarized

Contracts made by minors are typically voidable at the minor's option, meaning the minor may disaffirm the contract. This protects those who lack full legal capacity. A void contract, by contrast, has no legal effect at all from the beginning.

Earnest money in a purchase contract primarily serves to:

• a.Pay the listing broker's full commission
• b.Show the buyer's good-faith intent to complete the purchase✓
• c.Reduce the property taxes owed
• d.Replace the need for a down payment

Earnest money is a deposit that demonstrates the buyer's serious, good-faith commitment to the transaction. It is typically held in escrow and applied to the purchase price or closing costs at closing. If the buyer defaults without a valid contingency, the deposit may be forfeited.

A contingency in a real estate contract is:

• a.A guarantee that the sale will close
• b.A condition that must be met for the contract to proceed or become binding✓
• c.A penalty for late closing
• d.The broker's commission clause

A contingency is a condition, such as financing approval or a satisfactory inspection, that must be satisfied for the contract to move forward. If the contingency is not met, the affected party may usually cancel without penalty. Contingencies protect buyers and sometimes sellers from unforeseen problems.

The substitution of a new contract or new party for an existing one, releasing the original obligation, is called:

• a.Assignment
• b.Rescission
• c.Novation✓
• d.Ratification

Novation replaces an original contract or party with a new one, and the original obligation is discharged. In an assignment, the original party may remain secondarily liable, whereas novation fully releases them. All parties must agree to a novation.

A 'time is of the essence' clause in a contract means that:

• a.Deadlines are merely suggestions
• b.The parties may close whenever convenient
• c.The contract never expires
• d.Performance by the stated dates is a material requirement✓

A 'time is of the essence' clause makes the stated deadlines strictly binding, so failure to perform on time is a material breach. Without such a clause, courts may allow a reasonable time for performance. This clause is common in real estate closings.

If a buyer breaches a real estate contract, a liquidated damages clause typically allows the seller to:

• a.Sue for unlimited additional money
• b.Retain the earnest money deposit as the agreed remedy✓
• c.Force the buyer to buy a different property
• d.Void the listing agreement automatically

A liquidated damages clause sets an agreed amount, often the earnest money, that the seller keeps if the buyer defaults, avoiding a dispute over actual damages. It limits the seller's recovery to that sum. Both parties agree to this remedy when they sign the contract.

An option contract gives the optionee:

• a.An obligation to purchase the property
• b.The right to lease only
• c.Immediate ownership of the property
• d.The right, but not the obligation, to buy within a set period✓

An option contract grants the optionee the right to buy the property at agreed terms within a specified time, without any obligation to do so. The optionor (owner) must keep the offer open in exchange for consideration. If the option is not exercised, it simply expires.

A listing agreement in which the broker earns a commission regardless of who sells the property, even the owner, is a(n):

• a.Exclusive right to sell listing✓
• b.Open listing
• c.Exclusive agency listing
• d.Net listing

Under an exclusive right to sell listing, the listed broker earns the commission no matter who procures the buyer, including the owner. In an exclusive agency listing, the owner can sell it themselves without owing commission. An open listing lets multiple brokers compete, with only the procuring broker paid.

In an exclusive agency listing, the seller may avoid paying the broker's commission if:

• a.Another broker finds the buyer
• b.The property does not sell within a week
• c.The seller personally finds the buyer without any broker✓
• d.The buyer uses financing

In an exclusive agency listing, the seller reserves the right to sell the property themselves without owing a commission, but any sale through a broker triggers the fee. This differs from an exclusive right to sell, where the broker is paid regardless. It gives the owner one avenue to avoid commission.

A net listing, which is discouraged or restricted in many states, is one where the broker's commission is:

• a.A fixed percentage set by law
• b.Always paid by the buyer
• c.Any amount received above a price the seller specifies✓
• d.Set at zero

In a net listing, the seller sets a net amount they must receive, and the broker keeps anything above that figure as commission. This creates a conflict of interest and potential for abuse, so many jurisdictions restrict or prohibit it. Brokers must always act in the seller's best interest.

Specific performance is a legal remedy in which a court orders:

• a.Payment of monetary damages only
• b.The broker to refund the commission
• c.The immediate cancellation of the contract
• d.A defaulting party to carry out the contract as agreed✓

Specific performance compels a defaulting party to actually perform the contract, such as conveying the unique property as promised. It is available because each parcel of real estate is considered unique, so money alone may not suffice. A buyer often seeks it when a seller refuses to close.

The cancellation of a contract that returns the parties to their positions before it was formed is called:

• a.Rescission✓
• b.Novation
• c.Assignment
• d.Acceleration

Rescission cancels a contract and seeks to restore the parties to their original pre-contract positions, often with a return of deposits. It may occur by mutual agreement or as a remedy for fraud or misrepresentation. It differs from novation, which substitutes a new agreement.

In many New York residential transactions, attorneys review and negotiate the contract of sale before it becomes binding during a period informally called:

• a.The redemption period
• b.The option period
• c.The rescission window under Regulation Z
• d.Attorney review or approval✓

In many New York transactions, especially downstate, attorneys for both parties review and negotiate the contract of sale before it becomes binding, a practice sometimes called attorney review or approval. This reflects New York's attorney-centered closing custom. Practices vary by region and can change.

A void contract is one that:

• a.Can be enforced by either party
• b.Is valid until one party cancels it
• c.Has no legal effect and cannot be enforced by anyone✓
• d.Requires only oral agreement

A void contract has no legal force from the outset, often because its purpose is illegal or an essential element is missing. Neither party can enforce it. This contrasts with a voidable contract, which is valid until the protected party chooses to disaffirm it.

The transfer of a contract's rights and duties to another party, where the original party may remain secondarily liable, is:

• a.Assignment✓
• b.Novation
• c.Rescission
• d.Subordination

An assignment transfers a party's contractual rights and obligations to a third party, but the original party can remain secondarily liable if the assignee fails to perform. Novation, by contrast, fully releases the original party. Many contracts allow assignment unless expressly prohibited.

Consideration in a contract refers to:

• a.The signatures of witnesses
• b.The recording of the deed
• c.Something of legal value exchanged between the parties✓
• d.The physical inspection of the property

Consideration is the benefit, right, or value each party gives in exchange for the other's promise, such as money for a property. It is a required element of an enforceable contract. Without valid consideration, a promise is generally not binding.

In a mortgage transaction, the borrower who pledges the property as security is called the:

• a.Mortgagee
• b.Trustee
• c.Mortgagor✓
• d.Grantee

The mortgagor is the borrower who pledges the property as collateral for the loan. The mortgagee is the lender that holds the security interest. Remember that the party whose title ends in '-or' gives the security to the '-ee'.

A loan in which the interest rate remains constant for the entire term is a:

• a.Adjustable-rate mortgage
• b.Graduated payment mortgage
• c.Balloon mortgage
• d.Fixed-rate mortgage✓

A fixed-rate mortgage keeps the same interest rate and, for a fully amortized loan, the same principal-and-interest payment for the life of the loan. An adjustable-rate mortgage changes with an index. Fixed rates give borrowers predictable payments.

A borrower obtains a $300,000 loan at a 6% annual interest rate. What is the interest portion of the first monthly payment?

• a.$1,200
• b.$2,000
• c.$1,800
• d.$1,500✓

Annual interest is $300,000 x 0.06 = $18,000. Dividing by 12 months gives $1,500 of interest in the first month. In an amortized loan, interest is calculated on the outstanding balance, which is highest at the start.

A property sells for $250,000 and the buyer makes a 20% down payment. What is the loan amount?

• a.$50,000
• b.$230,000
• c.$220,000
• d.$200,000✓

A 20% down payment on $250,000 is $250,000 x 0.20 = $50,000. The loan amount is the price minus the down payment: $250,000 - $50,000 = $200,000. The 80% financed corresponds to an 80% loan-to-value ratio.

The loan-to-value (LTV) ratio is calculated as:

• a.Down payment divided by the loan amount
• b.Property value divided by the loan amount
• c.Loan amount divided by the appraised value or price✓
• d.Interest divided by principal

LTV is the loan amount divided by the lesser of the appraised value or sale price, expressed as a percentage. A $200,000 loan on a $250,000 property is an 80% LTV. Higher LTVs mean less borrower equity and generally more lender risk.

Private mortgage insurance (PMI) is typically required on a conventional loan when the:

• a.LTV is 80% or lower
• b.Down payment is at least 20%
• c.Interest rate is fixed
• d.LTV is greater than 80%✓

PMI protects the lender when the borrower makes a down payment of less than 20%, meaning the LTV exceeds 80%. It can often be removed once sufficient equity is built. A 20% or larger down payment usually avoids PMI on conventional loans.

An acceleration clause in a mortgage allows the lender to:

• a.Lower the interest rate automatically
• b.Extend the loan term indefinitely
• c.Demand the entire remaining balance if the borrower defaults✓
• d.Forgive the debt after ten years

An acceleration clause lets the lender declare the full unpaid balance immediately due upon a borrower default, such as missed payments. It is a necessary step before foreclosure. This protects the lender from having to sue for each missed installment.

In a fully amortized loan, over the life of the loan the portion of each payment going to interest:

• a.Increases while principal decreases
• b.Decreases while principal increases✓
• c.Stays exactly the same
• d.Is always zero

In a fully amortized loan, early payments are mostly interest because the balance is high, and over time the interest portion shrinks while the principal portion grows. The total payment stays level in a fixed-rate loan. By the end, nearly all of each payment reduces principal.

A buyer pays 2 discount points on a $200,000 loan. How much do the points cost?

• a.$4,000✓
• b.$2,000
• c.$400
• d.$8,000

One discount point equals 1% of the loan amount, so 2 points is 2% of $200,000 = $4,000. Points are paid at closing to lower the loan's interest rate. They effectively prepay interest to buy down the rate.

A key purpose of the secondary mortgage market, including entities like Fannie Mae and Freddie Mac, is to:

• a.Originate loans directly to consumers at branches
• b.Provide liquidity by buying loans from primary lenders✓
• c.Set property tax rates
• d.License real estate brokers

The secondary mortgage market buys existing loans from primary lenders, giving those lenders fresh funds to make more loans and thus increasing liquidity. Fannie Mae and Freddie Mac are major participants. The primary market is where borrowers get their original loans.

The Truth in Lending Act (Regulation Z) requires lenders to disclose the:

• a.Annual percentage rate (APR) and finance charges✓
• b.Seller's net proceeds
• c.Buyer's credit score to the public
• d.Broker's commission split

Regulation Z, implementing the Truth in Lending Act, requires lenders to disclose the APR, finance charges, and other credit terms so consumers can compare loans. The APR reflects the true cost of credit including certain fees. It also governs certain advertising of credit terms.

A property has a net operating income of $24,000 and sold for $300,000. What is the capitalization rate?

• a.8%✓
• b.6%
• c.10%
• d.12%

The capitalization rate equals net operating income divided by value: $24,000 / $300,000 = 0.08, or 8%. Cap rate is used to estimate value and compare income properties. A higher cap rate generally indicates higher risk or a lower price relative to income.

A conventional loan is best described as one that is:

• a.Not insured or guaranteed by a government agency✓
• b.Guaranteed by the VA
• c.Insured by the FHA
• d.Always interest-only

A conventional loan is not backed by a government program such as FHA insurance or a VA guarantee. It relies on the borrower's creditworthiness and the property as collateral. Government-backed loans have their own qualifying rules and benefits.

A prepayment penalty in a mortgage is a charge for:

• a.Refinancing with a new appraisal
• b.Making a late payment
• c.Requesting an escrow analysis
• d.Paying the loan off early✓

A prepayment penalty is a fee some loans impose when a borrower pays off all or part of the loan ahead of schedule, compensating the lender for lost interest. Not all loans have them, and some are restricted by law. Borrowers should check whether their loan includes one.

Using an annual property tax rate of $2.50 per $100 of assessed value, the annual tax on a home assessed at $180,000 is:

• a.$450
• b.$5,400
• c.$4,500✓
• d.$45,000

Divide the assessed value by 100: $180,000 / 100 = 1,800 units. Multiply by the rate: 1,800 x $2.50 = $4,500. Property taxes are calculated from the assessed value, which may differ from market value.

The account in which a lender holds a portion of a borrower's monthly payment to pay property taxes and insurance is the:

• a.Escrow (impound) account✓
• b.Acceleration account
• c.Amortization account
• d.Discount account

An escrow or impound account is where the lender collects a portion of taxes and insurance with each monthly payment and pays those bills when due. This ensures property taxes and hazard insurance stay current. The account is analyzed periodically and adjusted.

The appraisal approach that estimates value by comparing recently sold similar properties is the:

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

The sales comparison approach estimates value by analyzing recent sales of comparable properties and adjusting for differences. It is the primary method for valuing single-family homes. It rests on the principle of substitution.

The appraisal approach most appropriate for valuing an income-producing apartment building is the:

• a.Cost approach
• b.Income approach✓
• c.Sales comparison approach
• d.Assessment approach

The income approach values property based on the income it produces, often by capitalizing net operating income. It is best suited to investment and commercial properties such as apartment buildings. The cost and sales comparison approaches are more common for other property types.

A property has a gross annual rent of $30,000 and a gross rent multiplier of 9. What is the indicated value?

• a.$270,000✓
• b.$210,000
• c.$300,000
• d.$333,000

The gross rent multiplier method multiplies gross rent by the GRM: $30,000 x 9 = $270,000. The GRM is a quick screening tool derived from comparable sales. It does not account for expenses, unlike the full income approach.

In the cost approach, the appraiser estimates value by:

• a.Capitalizing the net operating income
• b.Multiplying gross rent by a factor
• c.Adding land value to the depreciated cost of improvements✓
• d.Comparing only to foreclosure sales

The cost approach estimates value as the cost to replace or reproduce the improvements, minus depreciation, plus the land value. It is especially useful for new, unique, or special-purpose properties. Depreciation accounts for physical, functional, and external loss in value.

A parcel of land measures 200 feet by 300 feet. How many square feet does it contain?

• a.60,000✓
• b.50,000
• c.6,000
• d.600,000

Area of a rectangle is length times width: 200 ft x 300 ft = 60,000 square feet. This is a basic measurement calculation used throughout real estate. For reference, one acre is 43,560 square feet.

Approximately how many acres is a parcel containing 87,120 square feet?

• a.1 acre
• b.3 acres
• c.2 acres✓
• d.4 acres

One acre equals 43,560 square feet, so divide: 87,120 / 43,560 = 2 acres. Memorizing 43,560 square feet per acre is essential for land math. Many exam problems convert between square feet and acres.

A home sells for $320,000 and the total commission rate is 6%. What is the total commission?

• a.$16,000
• b.$32,000
• c.$21,000
• d.$19,200✓

Multiply the sale price by the commission rate: $320,000 x 0.06 = $19,200. This total is typically split between the listing and selling brokerages, then between broker and salesperson. Commission rates are negotiable, not set by law.

A $19,200 total commission is split 50/50 between the listing and selling brokerages, and the listing salesperson keeps 60% of their brokerage's share. How much does that salesperson earn?

• a.$9,600
• b.$5,760✓
• c.$11,520
• d.$3,840

Each brokerage gets 50% of $19,200 = $9,600. The listing salesperson keeps 60% of $9,600 = $5,760, and the brokerage keeps the remaining 40%. Commission splits are set by the agreement between broker and salesperson.

A key responsibility of a property manager is to:

• a.Personally guarantee the owner's mortgage
• b.Appraise the property for lending purposes
• c.Set property tax rates for the county
• d.Maximize the owner's return while maintaining the property's value✓

A property manager's core duty is to protect the owner's investment by maximizing income and preserving or enhancing the property's value. This includes marketing, leasing, maintenance, and financial reporting. The manager acts as the owner's fiduciary agent.

A property owner wants a 12% annual return on a $250,000 investment. What annual net income must the property generate?

• a.$25,000
• b.$36,000
• c.$30,000✓
• d.$12,000

Multiply the investment by the desired rate: $250,000 x 0.12 = $30,000 of annual net income needed. This is the inverse of the cap rate calculation, where income divided by value gives the rate. Investors use this to test whether a property meets their return target.

A property management agreement between an owner and a property manager typically creates:

• a.A buyer agency relationship
• b.No agency relationship at all
• c.A general agency relationship✓
• d.A subagency to the tenant

A property management agreement generally makes the manager a general agent, authorized to handle a range of ongoing tasks on the owner's behalf. This is broader than the special agency of a listing broker hired for one transaction. The manager owes fiduciary duties to the owner.

The process of weighing the value estimates from multiple appraisal approaches into a final opinion of value is called:

• a.Reconciliation✓
• b.Amortization
• c.Capitalization
• d.Depreciation

Reconciliation is the final step of an appraisal where the appraiser weighs the results of the different approaches to arrive at a single value opinion. It is a judgment process, not a simple averaging. The appraiser gives most weight to the most reliable approach for that property.

A comparable property sold for $310,000 but has an extra bathroom worth $10,000 that the subject property lacks. To adjust, the appraiser would:

• a.Add $10,000 to the comparable's price
• b.Subtract $10,000 from the comparable's price✓
• c.Add $10,000 to the subject's price
• d.Make no adjustment

In the sales comparison approach, adjustments are made to the comparable, not the subject. Because the comparable is superior by one bathroom, the appraiser subtracts its $10,000 value to reflect what it would have sold for if it matched the subject. Superior features are subtracted, inferior ones added.

A tenant who remains in possession after the lease expires without the landlord's consent creates a:

• a.Tenancy at sufferance✓
• b.Tenancy at will
• c.Estate for years
• d.Periodic tenancy

A tenancy at sufferance arises when a tenant stays past the lease term without permission, becoming a holdover tenant. It gives the tenant the least protection, and the landlord may pursue eviction. If the landlord accepts rent, it may convert to a periodic tenancy.

A lease with a definite beginning and ending date, such as a one-year lease, is an:

• a.Estate for years✓
• b.Estate at will
• c.Estate at sufferance
• d.Periodic estate

An estate for years is a leasehold with a fixed, definite term that ends automatically on the stated date without notice. A periodic estate renews for successive periods until proper notice is given. Both are common residential leasing arrangements.

The Americans with Disabilities Act (ADA) most directly requires that:

• a.Public accommodations remove barriers so people with disabilities have access✓
• b.All homes be rebuilt for accessibility
• c.Landlords pay for tenants' medical care
• d.Brokers hire only licensed contractors

The ADA requires places of public accommodation, such as offices and stores, to provide access to people with disabilities by removing barriers where readily achievable. It applies to commercial facilities and public spaces. Fair housing laws separately address accessibility in housing.

A buyer's agent notices visible mold and water staining during a showing. The best practice is to:

• a.Say nothing to avoid alarming the buyer
• b.Personally guarantee the home is safe
• c.Recommend the buyer obtain a professional inspection✓
• d.Tell the buyer to ignore it since it is cosmetic

Agents are not experts on defects, so the prudent practice is to advise the client to hire a qualified inspector to evaluate potential problems like mold. This protects the buyer and limits the agent's liability. Agents should never conceal known material conditions.

A property manager prepares an operating budget mainly to:

• a.Set the sale price of the building
• b.Calculate the owner's income taxes
• c.Project income and expenses to guide financial decisions✓
• d.Determine the mortgage interest rate

An operating budget forecasts the property's expected income and expenses, helping the manager plan for maintenance, reserves, and cash flow. It is a key financial management tool. Comparing actual results to the budget reveals how the property is performing.