New York Real Estate Salesperson — All Questions

A contract entered into by a minor is generally:

• a.Void from the start
• b.Voidable at the option of the minor✓
• c.Fully enforceable against 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.Reduce the property taxes the buyer will owe after closing
• b.Pay the listing broker's full commission at the contract signing
• c.Show the buyer's good-faith intent to complete the purchase✓
• d.Replace the need for the buyer to make any down payment at all

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 condition that must be met for the contract to proceed or become binding✓
• b.The broker's commission clause in the agreement
• c.A penalty the buyer pays for closing late
• d.A guarantee that the sale will close on the scheduled date, whatever happens

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

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

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

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.The right, but not the obligation, to buy within a set period✓
• b.A binding obligation to purchase the property at that price
• c.Immediate ownership of the property the moment the option is signed
• d.The right to lease the property but never any right to purchase it

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 agency listing
• b.Open listing
• c.Exclusive right to sell 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.Any amount received above a price the seller specifies✓
• b.Always paid by the buyer rather than the seller
• c.A fixed percentage of the sale price that is set by state law
• d.Set at zero, with the broker working without any compensation

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.The broker to refund the commission
• b.The immediate cancellation of the contract
• c.Payment of monetary damages only
• 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.Novation
• b.Assignment
• c.Acceleration
• d.Rescission✓

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 rescission window under Regulation Z
• c.The option period
• 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 one of the parties who signed it
• b.Has no legal effect and cannot be enforced by anyone✓
• c.Is valid and binding until one of the parties cancels it
• d.Requires only an oral agreement between the parties

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

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

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.Fixed-rate mortgage✓
• c.Balloon mortgage
• d.Graduated payment 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.$1,800
• b.$1,500✓
• c.$2,000
• d.$1,200

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

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

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.Forgive the remaining debt after ten years of payments
• b.Lower the interest rate automatically whenever market rates fall
• c.Extend the loan term indefinitely whenever the borrower asks for it
• d.Demand the entire remaining balance if the borrower defaults✓

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

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.$400
• c.$8,000
• d.$2,000

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.License real estate brokers
• d.Set property tax rates

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

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.10%
• c.12%
• d.6%

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.Insured by the FHA
• b.Always structured as an interest-only loan for its full term
• c.Guaranteed by the U.S. Department of Veterans Affairs
• d.Not insured or guaranteed by a government agency✓

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

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

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.Acceleration account
• b.Escrow (impound) account✓
• c.Discount account
• d.Amortization 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.Income approach
• b.Sales comparison approach✓
• c.Gross rent multiplier approach
• d.Cost 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.$333,000
• c.$300,000
• d.$210,000

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 property's net operating income at a market rate
• b.Multiplying the gross monthly rent by a market factor
• c.Adding land value to the depreciated cost of improvements✓
• d.Comparing the property only to recent foreclosure sales nearby

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.600,000
• d.6,000

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.3 acres
• b.4 acres
• c.1 acre
• d.2 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.$21,000
• c.$32,000
• 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.$11,520
• b.$3,840
• c.$9,600
• d.$5,760✓

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 payments
• b.Set the property tax rates for the county
• c.Maximize the owner's return while maintaining the property's value✓
• d.Appraise the property for the lender's mortgage underwriting purposes

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

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

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

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

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

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.

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

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

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.Determine the mortgage interest rate the lender will charge
• b.Calculate the income taxes the owner will owe that year
• c.Set the price at which the building will eventually be sold
• d.Project income and expenses to guide financial decisions✓

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.

In New York, a form of co-ownership available only to a legally married couple, carrying an automatic right of survivorship, is:

• a.Ownership in severalty
• b.Tenancy by the entirety✓
• c.Tenancy in common, which has no survivorship
• d.A tenancy at will created by the marriage

Tenancy by the entirety is a special joint ownership reserved for married spouses in New York and carries the right of survivorship. Neither spouse can unilaterally sever it or convey their interest without the other's consent, and it offers some protection from the individual creditors of one spouse.