South Dakota Real Estate Broker Associate 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 licensees in South Dakota are licensed and regulated by:

• a.The South Dakota Association of Realtors
• b.The South Dakota Real Estate Commission✓
• c.The county register of deeds
• d.The South Dakota Secretary of State

The South Dakota Real Estate Commission licenses and disciplines real estate licensees under SDCL Chapter 36-21A. A trade association is a private membership group and does not issue licenses.

In South Dakota, a broker associate must conduct real estate activity:

• a.Only after also becoming a responsible broker
• b.Under the supervision of a responsible broker✓
• c.Independently once licensed
• d.For any broker who will pay a commission

South Dakota's entry-level broker associate must be associated with and supervised by a responsible broker and may not operate independently. The responsible broker is accountable for the associate's real estate conduct and for the brokerage's trust accounts and records.

A South Dakota broker associate may lawfully be paid a commission by:

• a.The seller directly upon listing
• b.The buyer directly at closing
• c.The responsible broker with whom the license is associated✓
• d.Any cooperating broker in the transaction

A South Dakota broker associate is compensated only through the responsible broker with whom the license is associated, not directly by a buyer, seller, or another broker. The responsible broker supervises the associate and handles client funds.

Under South Dakota rules, a licensee should disclose the brokerage relationship to a consumer:

• a.Before confidential information is shared, at the outset of the relationship✓
• b.Only after a purchase agreement is signed
• c.Within 15 days after an accepted offer
• d.At the closing

South Dakota requires licensees to disclose the brokerage relationship before confidential information is shared, generally at the outset of the working relationship. The disclosure identifies whether the licensee represents the seller, the buyer, or acts as a limited agent.

In South Dakota, when a brokerage represents both the buyer and the seller in the same transaction, the arrangement is generally treated as:

• a.Subagency that needs no consent
• b.Universal agency
• c.An automatic conflict that voids the sale
• d.Limited (dual) agency requiring the informed written consent of both parties✓

South Dakota treats representation of both the buyer and the seller by one brokerage as limited (dual) agency, which requires the informed written consent of both parties. The limited agent must treat both parties honestly and may not disclose one party's confidential information to the other.

In South Dakota, the seller of most residential real property must generally provide the buyer with:

• a.A professional home inspection report
• b.A title insurance policy
• c.A completed property condition disclosure statement✓
• d.A written guarantee that the property has no defects

South Dakota law requires the seller of most residential real property to give the buyer a completed property condition disclosure statement describing the known condition of the property before the buyer is obligated. The seller need not inspect the property but must answer honestly about known conditions.

Earnest money a South Dakota broker associate receives from a buyer must be:

• a.Delivered promptly to the responsible broker for deposit in the brokerage trust account✓
• b.Given directly to the seller when the offer is made
• c.Held by the associate in a personal account until closing
• d.Sent to the Real Estate Commission for safekeeping

Client funds such as earnest money must be handled through the brokerage's trust account, which the responsible broker maintains. A broker associate who receives money must deliver it promptly to the responsible broker, and trust funds must be kept separate from personal and business funds. Commingling or converting trust money is a serious violation.

Before taking the South Dakota broker associate licensing examination, an applicant must:

• a.Complete the Commission-approved pre-license education✓
• b.Work two years as an unlicensed assistant
• c.Already hold a responsible broker license
• d.Hold a four-year college degree

South Dakota requires an applicant to complete the Commission-approved pre-license education before taking the broker associate licensing examination. After passing the exam and meeting eligibility requirements, the licensee must associate with a responsible broker to activate the license.

The South Dakota Real Estate Commission consists of five members appointed by the Governor. Of those five:

• a.Four must be brokers and one must be a licensed state appraiser
• b.Two must be brokers and three must be sitting county officials
• c.Three must be active brokers and two must be public members✓
• d.All five must be brokers in good standing

The Commission has five members appointed by the Governor, who may not all be of the same political party; three must be active real estate brokers and two must be members of the public. Cite: SDCL 36-21A-13.

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

• a.Two years, renewable without any limit at all
• b.Three years, with a three-consecutive-term limit✓
• c.Five years, and no member may serve more than two consecutive terms
• d.Six years, with no consecutive service permitted

Members appointed after July 1, 2005 serve three-year terms, and no member may serve more than three consecutive full terms. Filling an unexpired term does not count as a full term. Cite: SDCL 36-21A-14.

Unless the conduct is punishable under the criminal code, a person who violates the South Dakota real estate licensing chapter is guilty of:

• a.A petty offense carrying no jail time
• b.A civil infraction handled by the Commission
• c.A Class 6 felony punishable by prison
• d.A Class 1 misdemeanor✓

Unless punishable under Title 22, a person violating any provision of the real estate licensing chapter is guilty of a Class 1 misdemeanor. Cite: SDCL 36-21A-87.

In a disciplinary case, the South Dakota Real Estate Commission may impose a monetary penalty of not more than:

• a.Five hundred dollars for each violation proved
• b.Two thousand five hundred dollars✓
• c.Ten thousand dollars for each violation proved
• d.Fifty thousand dollars for a pattern of conduct

On proof of unprofessional conduct the Commission may revoke a license and may also impose suspension, a reprimand, or a monetary penalty not to exceed two thousand five hundred dollars, or a combination of those. Cite: SDCL 36-21A-68.

The South Dakota real estate recovery fund exists to:

• a.Reimburse licensees for uncollected commissions
• b.Pay unsatisfied judgments obtained against licensees✓
• c.Fund the Commission's continuing education programs
• d.Cover the deductible on the group insurance policy

The Commission maintains a real estate recovery fund of one hundred thousand dollars as a source of payment for unsatisfied judgments obtained by persons aggrieved by the acts of a licensee. Cite: SDCL 36-21A-101.

The most the South Dakota real estate recovery fund will pay on account of the acts of any one licensee is:

• a.Fifty thousand dollars in total
• b.One hundred thousand dollars
• c.Five thousand dollars in total
• d.Fifteen thousand dollars✓

An aggrieved judgment creditor may recover actual and direct loss up to fifteen thousand dollars, and the fund's liability for the acts of one licensee is terminated once orders authorize payments aggregating fifteen thousand dollars on that licensee's behalf. Cite: SDCL 36-21A-104.

Which of these people may act without a South Dakota real estate license?

• a.An unlicensed assistant who negotiates price with buyers
• b.A person who lists a home for a flat fee
• c.A person paid a fee to find buyers for a neighbor's farm
• d.A person who owns a cemetery and sells burial lots✓

The chapter's exemptions include bona fide owners and lessors, public officers, court-appointed fiduciaries, attorneys who do not hold themselves out as being in the real estate business, banks, and any person owning and operating a cemetery who sells lots solely for use as burial plots. Cite: SDCL 36-21A-29.

A person who performed brokerage acts in South Dakota while unlicensed sues for the fee. That person:

• a.Recovers the reasonable value of services rendered
• b.Recovers on a theory of unjust enrichment from the client
• c.May not institute an action or recover✓
• d.Recovers if the client knew of the unlicensed status

No action or suit may be instituted, nor recovery had, in any court of this state for compensation for an act the chapter prohibits unlicensed persons from performing, unless the person was licensed when the compensation was contracted for. Cite: SDCL 36-21A-88.

A South Dakota responsible broker is accountable for the real estate activities of affiliated licensees:

• a.Whether they are employees or independent contractors✓
• b.Only for acts done inside the brokerage's own office
• c.Only when the broker personally approved the act
• d.Only when they are W-2 employees of the brokerage

A responsible broker is responsible for the real estate activities conducted by affiliated licensees, whether they are employees or independent contractors. Cite: SDCL 36-21A-79.

An applicant for a South Dakota broker associate license must complete a course of study of:

• a.Forty class hours
• b.Sixty class hours
• c.One hundred sixteen class hours✓
• d.Two hundred class hours

A broker associate applicant must complete one hundred sixteen class hours of education in a course of study approved by the Commission, given by approved instructors or as an approved independent study or distance education course. Cite: SDCL 36-21A-30.1.

After initial licensure, a South Dakota broker associate must complete postlicensing education of:

• a.Twelve hours during the first renewal cycle only
• b.Sixty class hours, thirty in each of the first two periods✓
• c.Twenty-four class hours in the first active licensing period
• d.One hundred hours before the third renewal deadline

A broker associate first licensed after June 30, 2009 must complete sixty class hours of postlicensing education by the second active renewal deadline, with thirty hours in the initial active licensing period and thirty in the second. Cite: SDCL 36-21A-30.2.

To qualify for a South Dakota responsible broker's license, an applicant must have:

• a.Two years of active service plus twenty-four class hours✓
• b.Five years of active licensed service and no coursework
• c.One year of active licensed service plus sixty class hours
• d.A bachelor's degree in business plus a year of service

The applicant must have served actively for two years as a licensed salesperson or broker associate, or a combination, and furnish evidence of twenty-four additional class hours beyond the broker associate level. The Commission may approve the license conditioned on completing those hours within six months. Cite: SDCL 36-21A-31.

A South Dakota real estate license may not be granted to an applicant whose license was revoked in this or any other state within the preceding:

• a.Five years✓
• b.Ten years
• c.One year
• d.Two years

A license is granted only to persons of reputable character who are at least eighteen, whose application has not been rejected in this or any other state within one year, and whose license has not been revoked in this or any other state within five years before the application. Cite: SDCL 36-21A-30.

South Dakota real estate licensees register with the Commission:

• a.Only once, when the license first issues
• b.Annually, by June thirtieth of each year
• c.Every two years, by November thirtieth✓
• d.Every three years, on the license anniversary date

A licensee, active or inactive, must register every two years and pay the fee set by rule. The renewal application is due by November thirtieth of the year the license expires, and failure to register means the license expires on December thirty-first. Cite: SDCL 36-21A-61.

In each two-year period, a South Dakota broker associate, salesperson or responsible broker must complete continuing education of not less than:

• a.Thirty-six hours
• b.Twelve hours
• c.Sixteen hours
• d.Twenty-four hours✓

A responsible broker, broker associate, salesperson, auctioneer or property manager must show not less than twenty-four hours of approved continuing education in the preceding two-year period; a residential rental agent must show not less than twelve. Cite: SDCL 36-21A-62.

Of the continuing education hours a South Dakota licensee must complete each cycle:

• a.At least six must be in the required subject areas
• b.None is tied to any particular subject area
• c.All of them must come from the required subject areas
• d.At least twelve must be in required subject areas✓

A licensee must complete twenty-four hours of continuing education in the prescribed subject areas, and at least twelve of the twenty-four must be in the required subject areas rather than electives. Cite: ARSD 20:69:11:02.

The passing score on the South Dakota real estate licensing examination is:

• a.Seventy
• b.Seventy-five✓
• c.Eighty
• d.Seventy-two

The passing score on the licensing examinations is 75. Cite: ARSD 20:69:03:07.

For South Dakota prelicensing credit, a classroom hour means:

• a.Any period the course provider schedules as an hour
• b.Sixty full minutes of instruction, breaks included
• c.At least fifty minutes of actual instruction per hour✓
• d.Forty-five minutes of instruction plus study assignments

A classroom hour is a period of at least 50 minutes of actual classroom instruction out of each 60-minute segment, and additional study assignments are not counted as classroom instruction. Cite: ARSD 20:69:04:14.

A South Dakota licensee must carry errors and omissions coverage with minimum limits of:

• a.$25,000 per claim and $100,000 in the annual aggregate
• b.$100,000 per claim and $500,000 annual aggregate✓
• c.$300,000 per claim and $600,000 in the annual aggregate
• d.$1,000,000 per claim and $2,000,000 aggregate

The group policy standard requires not less than $100,000 single-limit liability coverage for each licensee per occurrence or claim, and an annual aggregate limit of not less than $500,000 per licensee, with the minimum applying to each individual licensee. Cite: ARSD 20:69:15:03.

South Dakota limits a licensee performing brokerage services to which set of relationships?

• a.Single agent, limited agent, subagent, transaction broker✓
• b.Seller agent and buyer agent relationships only
• c.Universal agent, special agent, general agent, and trustee
• d.Designated agent and facilitator relationships only

A licensee is limited to the following relationships: single agent as a seller or landlord agent or a buyer or tenant agent; limited agent; subagent; and transaction broker. Cite: SDCL 36-21A-131.

A South Dakota transaction broker owes the customer several duties, but the statute expressly forbids the transaction broker from:

• a.Preparing the purchase agreement for the parties
• b.Accepting compensation from either of the parties
• c.Presenting an offer that is below the asking price
• d.Advising a party to the detriment of another party✓

A transaction broker must perform the written agreement, exercise reasonable skill and care, present all offers timely, account for money and property, comply with fair housing and other law, and disclose all adverse material facts known. No licensee acting as a transaction broker may advise any party to the detriment of another party. Cite: SDCL 36-21A-144.

A South Dakota licensee acting as a transaction broker has no duty to:

• a.Disclose adverse material facts known to the licensee
• b.Present all offers to the parties in a timely manner
• c.Verify the seller's own statements✓
• d.Account for money and property that is received

A transaction broker has no duty to conduct an independent inspection for any party's benefit, to independently verify the accuracy or completeness of statements by the seller, landlord, buyer, tenant or a qualified third-party inspector, or to investigate the buyer's financial condition. Cite: SDCL 36-21A-145.

A South Dakota licensee may act as a limited agent:

• a.Only with the informed written consent of all parties✓
• b.Only when the buyer is paying cash for the property
• c.Only after the purchase agreement has been signed
• d.Whenever the responsible broker's office policy allows it

A licensee may act as a limited agent only with the informed written consent of all parties to the transaction, and the limited agent then owes the listed duties to both the seller and the buyer. Cite: SDCL 36-21A-140.

A South Dakota responsible broker appoints one affiliated licensee to a seller client and another to a buyer client in the same deal. The responsible broker:

• a.Is not a limited agent solely because of the appointment✓
• b.Must refer one of the two clients to another brokerage
• c.Must obtain a written waiver from the Commission first
• d.Automatically becomes a limited agent for both clients

A responsible broker is not a limited agent solely because the broker makes appointments, and each client, the brokerage and any appointed licensee possess only actual knowledge, with no imputation of knowledge by operation of law. A licensee who personally represents both parties is a limited agent. Cite: SDCL 36-21A-141.1.

At first substantive contact with a South Dakota seller or buyer who has no written brokerage agreement, the licensee must:

• a.Refer the consumer to the responsible broker for disclosure
• b.Wait until the consumer asks about representation
• c.Obtain a signed agency agreement before saying anything
• d.Disclose the relationships offered and give the form✓

Every responsible broker must maintain a written office policy, and at first substantive contact the licensee must disclose in writing the types of agency and brokerage relationships the broker offers and provide a written disclosure on the form prescribed by the Commission. Cite: SDCL 36-21A-147.

A South Dakota consumer refuses to sign the brokerage relationship disclosure. The licensee must:

• a.Note the refusal on a copy and retain that copy✓
• b.Report the refusal to the Real Estate Commission
• c.Treat the consumer as a client by operation of law
• d.Stop all work until the consumer signs the form

The disclosure carries a signature block acknowledging receipt, and the acknowledgment is not a contract with the licensee. If the customer fails or refuses to sign, the licensee must note that fact on a copy of the disclosure and retain the copy. Cite: SDCL 36-21A-147.

Under South Dakota law, substantive contact occurs when the licensee and consumer discuss:

• a.The name of a lender the consumer might call
• b.The address and asking price of a listed property, in detail
• c.The consumer's financial qualifications or buying motives✓
• d.The date and time of an upcoming open house

Substantive contact is any performance beyond the listed informative acts, and includes discussion of the buyer's specific financial qualifications or the selling or buying motives and objectives in which confidential information could be divulged. Cite: SDCL 36-21A-129.

Which act by a South Dakota licensee is merely informative and does not by itself create representation?

• a.Preparing a written offer for the consumer to sign
• b.Advising the consumer what to offer for a home
• c.Negotiating price terms on the consumer's behalf
• d.Providing a one-time showing of one property✓

The statute lists informative acts that do not rise to representation, including answering phone inquiries about price or location, hosting an open house and answering questions, setting a showing appointment, making a referral, and providing a one-time showing of one property only. Cite: SDCL 36-21A-128.

In South Dakota, an "adverse material fact" includes:

• a.The seller's reason for moving out of state
• b.A material defect in the title expected to survive closing✓
• c.The number of days the home has been listed
• d.The price the seller paid for the home originally

An adverse material fact is information that negatively affects the property's value or a party's ability to perform, and includes environmental hazards required by law to be disclosed, material defects in the property, material title defects anticipated to survive closing, and material limits on a client's ability to perform. Cite: SDCL 36-21A-125.

A South Dakota buyer's agent is asked by the buyer client whether a registered sex offender lives near the property. The licensee must:

• a.Disclose any actual knowledge the licensee has✓
• b.Decline to answer under any circumstances
• c.Refer the question to the responsible broker
• d.Investigate the registry and report the findings

A licensee representing a buyer or tenant has no duty to investigate or volunteer sex offender information, but upon inquiry by the client the licensee must disclose any actual knowledge the licensee has. A seller's agent has no duty to investigate, volunteer, or disclose. Cite: SDCL 36-21A-138.1.

A South Dakota responsible broker authorized by written contract to hold the buyer's money until settlement must deposit it in a special trust account:

• a.Within five business days after the contract is accepted
• b.Within ten calendar days after the contract is accepted
• c.At any time before the scheduled closing date
• d.On the first legal banking day after acceptance✓

A responsible broker must remit money belonging to the principal immediately unless a written employment contract authorizes retention until final settlement; in that event the money goes into a special trust account in a federally insured financial institution on the first legal banking day after acceptance of the contract. Cite: SDCL 36-21A-80.

An accepted South Dakota purchase agreement fails to close. The broker may disburse the trust funds:

• a.To the buyer, after waiting thirty days for a claim
• b.On the listing broker's own determination of who was at fault
• c.Only on written instruction of all parties or a court order✓
• d.To the seller, because the buyer defaulted first

If an accepted offer and agreement to purchase does not close, a broker may not disburse any funds held in trust except pursuant to written instruction of all parties to the transaction or pursuant to a court order. Cite: SDCL 36-21A-81.

A South Dakota licensee must preserve listings, offers to purchase, closing statements and other transaction records for:

• a.Four years✓
• b.Seven years from the closing
• c.One year from the closing
• d.Two years from the closing

A licensee must preserve for four years all listings, offers to purchase, closing statements and other records relating to any real estate transaction. Cite: SDCL 36-21A-74.

A South Dakota seller refuses to close through no fault of the purchaser. The earnest money:

• a.Is applied to the broker's earned commission
• b.Is split between the broker and the seller
• c.Is returned to the purchaser at once✓
• d.Is held until the seller signs a release

If the seller fails, refuses, neglects or is unable to consummate the transaction and the purchaser is not at fault, the broker has no right to any portion of the deposit even though the commission is earned, and the deposit must be returned to the purchaser at once. Cite: SDCL 36-21A-77.

A South Dakota responsible broker becomes entitled to keep part of the money paid in a transaction as compensation:

• a.Only after the transaction is consummated or terminated✓
• b.When the buyer's loan commitment is issued
• c.When the listing agreement is signed by the seller and broker
• d.When the purchase agreement is signed by both parties

No responsible broker is entitled to any part of the money paid in a transaction as part of the broker's compensation until the transaction has been consummated or terminated, although the Commission may make reasonable exceptions by rule. Cite: SDCL 36-21A-84.

In a South Dakota sale, closing statements are furnished as follows:

• a.The closing agent alone must furnish both statements
• b.Only the buyer is entitled to a closing statement
• c.Listing broker to the seller, selling broker to the buyer✓
• d.The listing broker gives a single statement to both parties

The listing broker shall furnish a closing statement to the seller, and the selling broker shall furnish a closing statement to the buyer. Cite: SDCL 36-21A-75.

A South Dakota agency agreement between a broker and a buyer or seller:

• a.Need not state an expiration date
• b.May be oral if compensation is later confirmed
• c.May renew automatically at expiration
• d.May not include an automatic renewal provision✓

An agency agreement between a broker and a buyer, seller or lessee may not include a provision for automatic renewal at expiration. A property management agreement may renew automatically if it provides for written cancellation on terms agreeable to all parties. Cite: SDCL 36-21A-130.