CSLB General Building (B) — All Questions

In a general agency relationship, which duty requires a real estate licensee to place the principal's interests above the licensee's own?

• a.The duty of loyalty (obedience and putting the principal first)✓
• b.The duty of price fixing
• c.The duty to guarantee a sale
• d.The duty to appraise the property

Loyalty is a core fiduciary duty owed by an agent to a principal, requiring the agent to act in the principal's best interest. In Florida, however, most licensees work as transaction brokers rather than single agents, which changes the specific duties owed. Fiduciary-style duties are strongest in a single-agent relationship.

Under Florida law, what is the default brokerage relationship presumed when a licensee deals with a member of the public?

• a.Single agent for the buyer
• b.Transaction broker✓
• c.No brokerage relationship
• d.Dual agent

Florida's brokerage relationship law presumes a transaction broker relationship unless the parties establish another relationship in writing. A transaction broker provides limited representation to a buyer or seller but does not owe full fiduciary duties. This default was designed to reduce confusion over agency. Specific statutory details can change, so verify current Chapter 475 provisions.

Which of the following best describes 'real property'?

• a.Only the physical soil and minerals below the surface
• b.Movable items owned by a person
• c.Land and everything permanently attached to it, plus the bundle of legal rights✓
• d.A lease that lasts less than one year

Real property includes land, improvements permanently affixed to it, and the associated legal rights known as the bundle of rights. Personal property (chattel) is movable and not permanently attached. The distinction matters because different laws govern the sale of each.

The 'bundle of rights' in real property ownership includes the right to do all of the following EXCEPT:

• a.Possess the property
• b.Exclude others from the property
• c.Transfer the property to another
• d.Use the property in violation of valid zoning laws✓

The bundle of rights typically includes possession, control, enjoyment, exclusion, and disposition. However, these rights are always subject to government limitations such as zoning, so an owner cannot legally use property in violation of valid law. Ownership rights are not absolute.

An item that was once personal property but has become permanently attached to real estate is called a:

• a.Fixture✓
• b.Chattel
• c.Emblement
• d.Leasehold

A fixture is personal property that has been attached to land or a building in a way that makes it part of the real estate. Courts often use tests such as method of attachment, adaptation, and intention. Fixtures generally transfer with the property unless excluded in the contract.

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

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

Eminent domain is the government's power to take private property for public use, provided just compensation is paid to the owner. The actual process of taking is called condemnation. It is one of the four government powers (often remembered as PETE: police power, eminent domain, taxation, escheat).

When a person dies without a will and without legal heirs, ownership of the property passes to the state through:

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

Escheat is the government power by which property reverts to the state when an owner dies intestate (without a will) and leaves no legal heirs. It prevents property from being ownerless. It is one of the four basic governmental powers over real estate.

Which of the following is an example of the government's police power?

• a.Collecting property taxes to fund government
• b.Taking land to build a highway with compensation
• c.Claiming property of a person who dies with no heirs
• d.Enforcing zoning and building codes for public health and safety✓

Police power is the government's authority to regulate property to protect public health, safety, and welfare, and it includes zoning and building codes. Unlike eminent domain, no compensation is paid to the owner for these regulations. It underlies most land-use controls.

A form of co-ownership that includes the right of survivorship, meaning a deceased owner's share passes automatically to the surviving owners, is:

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

Joint tenancy includes the right of survivorship, so when one owner dies their interest passes automatically to the surviving joint tenants rather than through probate. It traditionally requires the four unities of time, title, interest, and possession. Tenancy in common, by contrast, has no survivorship right.

Ownership of real property by one individual or entity alone is called ownership in:

• a.Common
• b.Severalty✓
• c.Joint tenancy
• d.Partnership

Ownership in severalty means title is held by a single person or a single legal entity. The word derives from the idea that the owner is 'severed' from other owners. It contrasts with the various forms of concurrent (co-)ownership.

The highest and most complete form of ownership interest in real estate is:

• a.A life estate
• b.A leasehold estate
• c.Fee simple absolute✓
• d.An easement

Fee simple absolute is the most complete ownership interest, giving the holder full rights subject only to governmental powers and any private restrictions. It is of indefinite duration and freely transferable and inheritable. Most residential property is held in fee simple.

An estate that lasts only for the duration of a specified person's life is a:

• a.Fee simple determinable
• b.Periodic tenancy
• c.Tenancy at sufferance
• d.Life estate✓

A life estate is a freehold interest measured by the life of a named person, often the life tenant. When that person dies, the property passes to a remainderman or reverts to the grantor. The life tenant may use the property but cannot commit waste.

The right of one party to use another's land for a specific purpose, such as a driveway or utility line, is a(n):

• a.Easement✓
• b.Encroachment
• c.Deed restriction
• d.Lien

An easement is a nonpossessory right to use another owner's land for a specific purpose. An easement appurtenant benefits an adjacent parcel, while an easement in gross benefits a person or company such as a utility. Easements can affect a property's value and use.

A lien placed against a property as security for the repayment of a debt is best described as a(n):

• a.Physical intrusion onto neighboring land
• b.Financial encumbrance on title✓
• c.Transfer of full ownership
• d.Government zoning classification

A lien is a claim or encumbrance against property that secures payment of a debt or obligation. Common examples include mortgages, property tax liens, and mechanic's liens. Liens generally must be satisfied before clear title can transfer.

A structure or improvement that unlawfully extends over a property boundary onto a neighbor's land is called a(n):

• a.Easement in gross
• b.Emblement
• c.Encroachment✓
• d.Estoppel

An encroachment occurs when a building, fence, or other improvement intrudes onto an adjoining owner's property. It is typically discovered through a survey and can cloud title. Encroachments may lead to disputes or claims for removal or compensation.

Private restrictions on land use created by a developer and recorded to control a subdivision are commonly called:

• a.Zoning ordinances
• b.Building permits
• c.Eminent domain orders
• d.Deed restrictions or restrictive covenants✓

Deed restrictions, also called restrictive covenants or CC&Rs, are private limitations placed on land use, often by a developer for a subdivision. They run with the land and bind future owners. Unlike zoning, they are enforced by private parties rather than the government.

A homeowners' association (HOA) most commonly has the authority to:

• a.Enforce community rules and collect assessments from members✓
• b.Change state zoning laws
• c.Issue real estate licenses
• d.Set mortgage interest rates

An HOA governs a community, enforcing its covenants and rules and collecting assessments to fund shared expenses. Buyers of HOA-governed property agree to abide by its documents. Assessments and restrictions can materially affect ownership costs and use.

In Florida, a person's primary residence may qualify for a homestead exemption, which primarily provides:

• a.A guarantee that property taxes will never increase
• b.A reduction in the property's taxable assessed value and certain creditor protections✓
• c.Free title insurance
• d.Exemption from all zoning laws

Florida's homestead exemption reduces the taxable assessed value of an owner's primary residence and provides certain protections from forced sale by creditors. It also interacts with assessment-increase limits under the Save Our Homes provision. Exact amounts and rules are set by law and can change.

Which of the following is considered an example of personal property (chattel) rather than real property?

• a.An in-ground swimming pool
• b.A permanently installed central air conditioning system
• c.A freestanding refrigerator that is not built in✓
• d.The land itself

Personal property, or chattel, is movable and not permanently affixed to real estate. A freestanding refrigerator generally remains personal property, while built-in or permanently attached items are usually fixtures. Contracts should specify which items convey to avoid disputes.

A licensee who discovers a material defect that is not readily observable by the buyer generally has a duty to:

• a.Conceal it to protect the seller
• b.Ignore it because buyers should inspect
• c.Report it only to the MLS
• d.Disclose the known material defect✓

Florida law and case precedent require disclosure of known material defects that materially affect a property's value and are not readily observable to the buyer. This duty applies even in a transaction broker relationship. Failure to disclose can create liability for the licensee and seller.

The process by which soil is gradually deposited by the action of water, increasing an owner's land, is called:

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

Accretion is the gradual addition of land through the deposit of soil by natural water action, and the new soil is called alluvion. It typically increases the landowner's property. Erosion is the opposite gradual loss of land.

Which of the following would most likely be classified as a freehold estate?

• a.A one-year apartment lease
• b.Fee simple ownership of a home✓
• c.A month-to-month tenancy
• d.A tenancy at sufferance

Freehold estates involve ownership of real property for an indefinite duration, such as fee simple and life estates. Leasehold estates, by contrast, give possession for a limited time without ownership. The key distinction is ownership versus a temporary right to possess.

A married couple in Florida who take title together as a legally protected form of co-ownership with survivorship rights typically hold title as:

• a.Tenants in common
• b.Joint venturers
• c.Tenants by the entirety✓
• d.Owners in severalty

Tenancy by the entirety is a form of co-ownership available only to married couples in states such as Florida, and it includes rights of survivorship. It also offers protection from certain creditors of only one spouse. On the death of one spouse, the survivor owns the whole.

The physical characteristic of land meaning that no two parcels are exactly alike is known as:

• a.Indestructibility
• b.Immobility
• c.Scarcity
• d.Nonhomogeneity (uniqueness)✓

Nonhomogeneity, also called heterogeneity or uniqueness, means every parcel of land differs at least by location. This is one of the physical characteristics of land, along with immobility and indestructibility. Uniqueness supports the legal remedy of specific performance in real estate contracts.

Which Florida body is primarily responsible for administering and enforcing the real estate license law under Chapter 475?

• a.The Florida Real Estate Commission (FREC)✓
• b.The Florida Bar
• c.The U.S. Department of Housing and Urban Development
• d.The National Association of REALTORS

The Florida Real Estate Commission (FREC) administers and enforces Chapter 475 of the Florida Statutes, which governs real estate licensing and practice. FREC operates within the Department of Business and Professional Regulation (DBPR). Its duties include rulemaking, licensing, and discipline. Specific rules can change over time.

Under Florida law, a sales associate must perform licensed real estate activities under the supervision of:

• a.The buyer's attorney
• b.A licensed broker or owner-developer employer✓
• c.The county tax collector
• d.No one; sales associates may operate independently

A Florida sales associate must be employed by and act under the direction of a licensed broker (or a licensed owner-developer). Sales associates cannot operate independently or be paid directly by consumers. This supervisory structure is central to Chapter 475.

A real estate licensee who represents a buyer or seller with limited representation, not as a fiduciary, is acting as a:

• a.Single agent
• b.Designated sales associate
• c.Transaction broker✓
• d.Dual agent

A transaction broker provides limited representation and owes duties such as dealing honestly and fairly, accounting for funds, and disclosing known material facts, but not full fiduciary loyalty. This is Florida's default relationship. It differs from a single agent, who owes full fiduciary duties.

Which of the following is one of the duties a Florida single agent owes that a transaction broker does not?

• a.Dealing honestly and fairly
• b.Accounting for all funds
• c.Disclosing known material facts affecting value
• d.Loyalty and full confidentiality to the principal✓

A single agent owes full fiduciary duties including loyalty, confidentiality, obedience, and full disclosure to the principal. A transaction broker owes a more limited set of duties and does not owe loyalty or full confidentiality. Both relationships require honesty, accounting, and disclosure of material facts.

Escrow funds held by a broker must generally be:

• a.Kept in a separate trust or escrow account, not commingled with the broker's own funds✓
• b.Deposited into the broker's personal checking account
• c.Immediately paid to the seller upon receipt
• d.Loaned to the buyer for closing costs

Brokers must place escrowed funds, such as earnest money deposits, into a designated trust or escrow account and must not commingle them with personal or operating funds. Florida law sets specific timeframes for deposit. Improper handling of escrow funds is a common cause of discipline.

Commingling, a violation of Florida real estate law, refers to:

• a.Representing both buyer and seller
• b.Mixing client escrow funds with the broker's personal or business funds✓
• c.Advertising a property without the owner's consent
• d.Failing to renew a license on time

Commingling occurs when a broker mixes clients' trust funds with the broker's own personal or business money. It is prohibited because it endangers client funds and obscures accountability. Conversion, a related and more serious offense, is actually using those funds improperly.

To be eligible for an initial Florida sales associate license, an applicant must generally be at least:

• a.16 years old with no education requirement
• b.21 years old and a college graduate
• c.18 years old and hold a high school diploma or equivalent✓
• d.25 years old and a Florida resident for 10 years

Applicants for a Florida sales associate license generally must be at least 18 years old and hold a high school diploma or its equivalent. They must also complete required prelicensing education, pass a background check, and pass the state exam. Exact requirements are set by statute and rule and can change.

Which of the following actions by a licensee would most likely be grounds for disciplinary action by FREC?

• a.Recommending that a buyer obtain an inspection
• b.Placing an earnest money deposit in escrow promptly
• c.Providing the seller with a copy of the listing agreement
• d.Fraud, misrepresentation, or concealment in a transaction✓

Fraud, misrepresentation, concealment, dishonest dealing, and similar acts are grounds for discipline under Chapter 475. FREC may impose penalties ranging from fines to license suspension or revocation. Recommending inspections and handling escrow properly are lawful, expected practices.

A Florida broker who wishes to open a real estate office must:

• a.Maintain and register a principal office with DBPR✓
• b.Operate only from the broker's home with no registration
• c.Share a single license among multiple brokers
• d.Avoid displaying any sign or identification

A Florida broker must maintain a principal office and register it with the DBPR, and branch offices generally must also be registered. The office must meet requirements for signage and recordkeeping. These rules help ensure accountability and consumer access.

The purpose of continuing education requirements for Florida real estate licensees is primarily to:

• a.Increase state revenue from license fees
• b.Keep licensees current on law and practice for consumer protection✓
• c.Reduce the number of licensees in the market
• d.Guarantee licensees a minimum income

Continuing education requirements ensure licensees stay current on laws, ethics, and best practices, which protects consumers. Florida requires a set number of CE hours each renewal cycle, including specified core and law topics. The specific hour requirements are set by rule and can change.

If a broker's escrow account has conflicting demands from a buyer and seller over a disputed deposit, Florida law allows the broker to use several settlement procedures, including:

• a.Keeping the disputed funds as a commission
• b.Immediately giving the funds to whichever party asks first
• c.Requesting an escrow disbursement order (EDO) from FREC✓
• d.Ignoring the dispute indefinitely

When there are conflicting demands or a good-faith doubt over escrowed funds, a Florida broker must promptly notify FREC and choose a settlement procedure such as an EDO, mediation, arbitration, or interpleader. The broker may not simply keep or arbitrarily release the funds. Timely notification is required by law.

Which of the following individuals generally must hold a real estate license to be paid a commission for the activity described?

• a.An owner selling their own personal residence
• b.A licensed attorney handling a client's legal matter within their practice
• c.A salaried apartment manager renting units of their employer
• d.A person who, for another and for compensation, negotiates the sale of real estate✓

Florida law requires a license for anyone who, for another and for compensation, performs real estate services such as selling, buying, leasing, or negotiating. Certain parties are exempt, including owners selling their own property and attorneys acting within their practice. The compensation-for-another element is key to the license requirement.

An 'earnest money deposit' delivered by a buyer with an offer is typically held by the:

• a.Broker or an authorized escrow holder such as a title company✓
• b.Buyer's personal bank in the buyer's own account
• c.County property appraiser
• d.Listing sign company

Earnest money deposits are typically held in escrow by a neutral party such as the broker, a title company, or an attorney. The funds show the buyer's good faith and are credited or handled per the contract at closing. Florida sets time limits for depositing these funds into escrow.

A licensee who tells a buyer that a home 'has the best view in the county' is most likely engaging in:

• a.Fraud, which is always actionable
• b.Puffing, which is a nonactionable statement of opinion✓
• c.Commingling of funds
• d.A material misrepresentation of fact

Puffing is an exaggerated opinion or sales talk that a reasonable person would not treat as a statement of fact, and it is generally not actionable. It differs from misrepresentation, which is a false statement of material fact. Licensees should still avoid statements that could mislead a buyer.

Under Florida law, when must a single agent disclosure or transaction broker notice generally be provided?

• a.Only after closing has occurred
• b.Only if the customer specifically requests it
• c.Before or at the time of entering into a listing or before showing property, as required by statute✓
• d.Never; disclosure is optional

Florida's brokerage relationship disclosure requirements specify when and how licensees must disclose the type of relationship, historically tied to the point of entering a listing agreement or before showing property. The exact disclosure obligations have been amended over time. Licensees must follow the current statutory requirements in Chapter 475.

The Florida Real Estate Recovery Fund exists primarily to:

• a.Pay licensees when commissions go unpaid by brokers
• b.Fund advertising for the real estate industry
• c.Provide loans to first-time homebuyers
• d.Reimburse consumers who obtain a court judgment for a licensee's wrongdoing that cannot be collected✓

The Recovery Fund reimburses members of the public who have suffered monetary damages from a licensee's fraud or similar act and hold an uncollectible court judgment. Payment from the fund can lead to automatic suspension of the offending licensee. Recovery is subject to statutory limits per transaction and licensee.

A licensee's failure to renew a license before its expiration generally results in the license becoming:

• a.Involuntarily inactive, requiring action to reactivate✓
• b.Permanently and irrevocably void with no path to renewal
• c.Automatically upgraded to a broker license
• d.Transferred to another licensee

A license that is not renewed by its expiration date typically becomes involuntarily inactive, and continued practice during that period is prohibited. The licensee must complete requirements to reactivate within statutory timeframes. Failing to act for too long can lead to the license becoming null and void.

Which of the following best describes a 'designated sales associate' arrangement permitted in Florida?

• a.One associate secretly represents both buyer and seller
• b.Two associates in the same firm each represent a different party as single agents in certain nonresidential transactions✓
• c.An unlicensed assistant negotiates the deal
• d.The broker personally guarantees the sale price

In certain nonresidential transactions where both parties meet asset thresholds, a broker may appoint two designated sales associates to each represent a different party as a single agent. This allows single-agent representation within one firm. It is a specific, limited exception under Florida law.

Advertising by a Florida licensee must generally:

• a.Omit the brokerage name to focus on the property
• b.List only the sales associate's personal cell number
• c.Include the licensed name of the brokerage firm✓
• d.Guarantee a future increase in property value

Florida advertising rules generally require that a licensee's advertising include the brokerage firm's licensed name so the public can identify the responsible broker. Advertising must not be false, deceptive, or misleading. Specific advertising rules are set by FREC and can change.

A broker who improperly takes and uses a client's escrow money for the broker's own purposes has committed:

• a.Puffing
• b.Novation
• c.Subrogation
• d.Conversion✓

Conversion is the unauthorized use or appropriation of another person's funds or property, such as a broker spending client escrow money. It is more serious than commingling, which is merely mixing funds. Conversion is grounds for severe discipline and possible criminal liability.

The federal Fair Housing Act prohibits discrimination in housing based on all of the following protected classes EXCEPT:

• a.Occupation or profession✓
• b.Race and color
• c.Religion and national origin
• d.Familial status and disability

The federal Fair Housing Act protects seven classes: race, color, religion, sex, national origin, familial status, and disability. Occupation is not a federally protected class, though other laws or local ordinances may add protections. Licensees must avoid steering, blockbusting, and other discriminatory practices.

'Steering' under fair housing law refers to:

• a.Encouraging owners to sell by claiming values will fall
• b.Directing prospective buyers toward or away from neighborhoods based on protected class✓
• c.Refusing to make a mortgage loan in a defined area
• d.Charging a higher commission for luxury homes

Steering is the illegal practice of guiding buyers toward or away from certain areas based on race, national origin, or another protected class. It restricts housing choice and violates fair housing law. Blockbusting and redlining are related but distinct prohibited practices.

Which practice involves a lender refusing to lend or offering worse terms in specific geographic areas, often correlated with protected classes?

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

Redlining is the discriminatory practice of denying or pricing loans and services unfavorably based on the location of a property, often tied to the racial makeup of a neighborhood. It is prohibited under fair housing and fair lending laws. Steering and blockbusting are related discriminatory practices carried out by others.

If a Florida sales associate wants their license to remain active, they generally must:

• a.Personally register a brokerage office with DBPR
• b.Hold funds in their own personal escrow account
• c.Renew only once every ten years
• d.Keep it registered under a current employing broker and meet renewal requirements✓

For a sales associate license to remain active, it must be registered under a current employing broker and the associate must meet renewal and continuing education requirements. Without an employer of record, the license generally becomes inactive. Renewal cycles and CE requirements are set by rule.

For a real estate contract to be enforceable, the Statute of Frauds generally requires that it be:

• a.In writing and signed by the party to be charged✓
• b.Approved by the local zoning board
• c.Recorded with the county before signing
• d.Notarized by a real estate licensee

The Statute of Frauds requires contracts for the sale of real estate to be in writing and signed to be enforceable. This protects parties from fraudulent claims based on oral agreements. Certain short-term leases may be exceptions, but purchase agreements must be written.

The essential elements of a valid contract generally include offer and acceptance, consideration, legal purpose, and:

• a.A recorded deed
• b.Competent parties with legal capacity✓
• c.A real estate license held by both parties
• d.A government subsidy

A valid contract requires competent parties, mutual assent (offer and acceptance), consideration, and a lawful object. Parties must have legal capacity, meaning they are of legal age and sound mind. Missing an essential element can make a contract void or voidable.

When a seller responds to a buyer's offer by changing the price, this response is legally a:

• a.Binding acceptance of the original offer
• b.Novation of an existing contract
• c.Counteroffer, which rejects the original offer✓
• d.Unilateral contract

A counteroffer changes the terms of the original offer and thereby rejects it, creating a new offer that the other party may accept or reject. The original offer is no longer available for acceptance once countered. Negotiations often involve a series of offers and counteroffers.

A contract in which only one party makes a promise, such as an option to purchase, is a:

• a.Bilateral contract
• b.Voidable contract
• c.Executed contract
• d.Unilateral contract✓

In a unilateral contract, one party makes a promise in exchange for the other party's performance, rather than a mutual exchange of promises. An option is a common example: the seller promises to keep the offer open, but the buyer is not obligated to buy. A bilateral contract, by contrast, involves promises by both parties.

An 'executory' contract is one in which:

• a.Something remains to be done by one or both parties✓
• b.All obligations have already been fully performed
• c.The contract has been declared void by a court
• d.No consideration was ever exchanged

An executory contract is one that has been formed but not yet fully performed, such as a signed purchase agreement before closing. Once all parties complete their obligations, it becomes an executed contract. This distinction matters for determining remaining duties.

A contingency in a purchase contract, such as a financing or inspection contingency, functions to:

• a.Automatically increase the purchase price
• b.Allow a party to cancel or renegotiate if a specified condition is not met✓
• c.Transfer title before closing
• d.Waive the buyer's right to inspect

A contingency is a condition that must be satisfied for the contract to proceed, and it protects a party by allowing cancellation or renegotiation if the condition fails. Common examples include financing, appraisal, and inspection contingencies. If a contingency is not met, the protected party may usually withdraw without penalty.

The remedy of 'specific performance' in a real estate contract dispute means:

• a.The buyer receives triple the deposit as damages
• b.The contract is automatically canceled with no consequences
• c.A court orders the breaching party to complete the sale as agreed✓
• d.The broker forfeits the entire commission

Specific performance is an equitable remedy in which a court orders a party to perform the contract as agreed, often available because each parcel of real estate is unique. A buyer may seek it to compel a reluctant seller to convey title. It is an alternative to monetary damages.

'Liquidated damages' in a purchase contract typically refers to:

• a.A penalty imposed by the state on the seller
• b.The broker's guaranteed commission
• c.The buyer's mortgage interest for the year
• d.An amount, often the earnest money, agreed in advance as compensation if the buyer defaults✓

Liquidated damages are a predetermined amount the parties agree the seller may keep if the buyer defaults, commonly the earnest money deposit. This provides certainty and avoids litigation over actual damages. The amount must be a reasonable estimate, not a punitive penalty.

When a new party is substituted for an original party to a contract, with the consent of all parties, this is called:

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

Novation is the substitution of a new party or a new contract for an existing one, releasing the original party from liability, and it requires the consent of all parties. It differs from assignment, in which the original party may remain secondarily liable. Novation is common in loan assumptions where the lender releases the original borrower.

A listing agreement in which the broker earns a commission only if that broker procures the buyer, but the seller may also sell independently without owing a commission, is a(n):

• a.Exclusive right to sell listing
• b.Exclusive agency listing✓
• c.Open listing that excludes the seller
• d.Net listing guaranteed by law

In an exclusive agency listing, one broker is authorized, but the seller retains the right to sell the property themselves without paying a commission. This differs from an exclusive right to sell, where the broker earns a commission regardless of who finds the buyer. Both are common listing types.

Under an 'exclusive right to sell' listing, the listing broker earns a commission:

• a.Only if the broker personally finds the buyer
• b.Only if the seller finds the buyer
• c.Regardless of who procures the buyer during the listing period✓
• d.Never, because commissions are illegal

In an exclusive right to sell listing, the listing broker is entitled to a commission if the property sells during the listing period no matter who finds the buyer, including the seller. It offers the broker the strongest commission protection. This is the most common residential listing type.

A 'net listing,' which is discouraged or restricted in many jurisdictions, is one in which:

• a.The seller pays a flat government fee
• b.The buyer and seller split the commission
• c.The broker receives no compensation at all
• d.The broker keeps any amount above a net price the seller specifies✓

In a net listing, the seller sets a net amount they want to receive, and the broker keeps any sale proceeds above that figure as commission. This arrangement creates a conflict of interest and is prohibited or restricted in many states. Licensees should be cautious and follow state law.

If a buyer and seller mutually agree to cancel their contract and return to their pre-contract positions, this is called:

• a.Rescission✓
• b.Novation
• c.Specific performance
• d.Assignment

Rescission is the cancellation of a contract that returns the parties to their original positions, as if the contract had not been made. It can be mutual or, in some cases, granted by a court. Any consideration exchanged is typically returned.

The transfer of one's rights and obligations under a contract to another person is called:

• a.Escheat
• b.Assignment✓
• c.Foreclosure
• d.Subordination

Assignment is the transfer of contractual rights (and often duties) from one party to another. Unless the contract prohibits it, many real estate contracts are assignable. The original party may remain secondarily liable unless released through novation.

A contract signed by a minor is generally considered:

• a.Automatically void from the start in all cases
• b.Fully enforceable against the minor
• c.Voidable at the option of the minor✓
• d.A criminal offense

Contracts entered into by minors are generally 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 from the beginning.

'Time is of the essence' in a real estate contract means:

• a.The contract has no expiration
• b.Only the seller's dates matter
• c.The closing can occur at any convenient time
• d.Deadlines in the contract must be strictly met✓

A 'time is of the essence' clause makes the stated deadlines binding and strictly enforceable, so failing to perform on time can be a breach. Without such a clause, courts may allow reasonable extensions. This clause is common in purchase agreements to keep transactions on schedule.

An option contract gives the holder (optionee) the:

• a.Right, but not the obligation, to buy within a set time and price✓
• b.Obligation to purchase the property immediately
• c.Right to occupy the property rent-free forever
• d.Power to change the property's zoning

An option contract gives the optionee the right, but not the obligation, to buy (or lease) property on set terms within a specified period. The optionor (owner) is bound to keep the offer open in exchange for consideration. If the option is not exercised, it simply expires.

Which of the following typically makes a contract 'void' rather than merely voidable?

• a.One party was a minor
• b.It requires performance of an illegal act✓
• c.One party was induced by a misrepresentation
• d.One party later changes their mind

A contract with an illegal purpose or object is void, meaning it has no legal effect and cannot be enforced by either party. Voidable contracts, by contrast, are valid until one party elects to disaffirm, as with a minor's contract or one induced by fraud. The illegality of the object is a fundamental defect.

In most residential purchase contracts, the earnest money deposit is:

• a.Kept by the broker as a nonrefundable fee in all cases
• b.Paid directly to the county as a tax
• c.Applied toward the purchase price or closing costs at closing✓
• d.Returned to the buyer even after a buyer default

Earnest money is credited toward the buyer's purchase price or closing costs when the transaction closes. If the buyer defaults without a valid contingency, the seller may be entitled to keep it as liquidated damages. Its handling depends on the contract terms and whether contingencies are met.

A 'meeting of the minds,' essential to contract formation, refers to:

• a.A required in-person meeting at the courthouse
• b.The buyer and broker agreeing on commission
• c.Approval by the homeowners' association
• d.Mutual agreement by both parties to the same terms✓

A meeting of the minds, or mutual assent, means both parties understand and agree to the essential terms of the contract. It is shown through a valid offer and acceptance. Without genuine mutual agreement, no enforceable contract is formed.

In a typical mortgage, the borrower who pledges the property as security for the loan is the:

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

The mortgagor is the borrower who pledges the property as collateral, while the mortgagee is the lender. Remembering that the borrower 'gives' the mortgage helps: the party ending in '-or' gives it. This terminology is reversed from what many people initially assume.

A loan feature that requires a large final payment at the end of the term, larger than the regular payments, is called a:

• a.Fully amortized payment
• b.Negative amortization credit
• c.Prepayment penalty
• d.Balloon payment✓

A balloon payment is a large lump-sum payment due at the end of a loan whose regular payments do not fully pay off the balance. Balloon loans carry the risk that the borrower must refinance or pay the balance when due. They contrast with fully amortized loans that pay off completely.

In an amortized loan, each monthly payment is applied to:

• a.Both interest and principal, with interest typically higher early on✓
• b.Principal only for the entire term
• c.Interest only for the entire term
• d.Property taxes only

In a fully amortized loan, each payment covers accrued interest and reduces principal, gradually paying off the balance over the term. Early payments are mostly interest, and later payments are mostly principal. By the final payment, the balance reaches zero.

Which government-related program insures loans made by approved lenders to help borrowers with lower down payments?

• a.The Federal Reserve open market desk
• b.FHA (Federal Housing Administration) insurance✓
• c.The county property appraiser
• d.The MLS

The FHA insures mortgage loans made by approved lenders, which reduces lender risk and allows lower down payments for qualified borrowers. FHA does not make loans directly; it insures them. VA loans, by contrast, are guaranteed for eligible veterans.

A VA loan is designed primarily to benefit:

• a.First-time commercial developers
• b.Foreign investors
• c.Eligible veterans and certain service members✓
• d.Local governments

VA loans are guaranteed by the Department of Veterans Affairs for eligible veterans, active service members, and certain surviving spouses. The guarantee allows favorable terms, often including no down payment. The VA guarantees rather than directly makes most of these loans.

Private mortgage insurance (PMI) is typically required when a conventional borrower makes a down payment of:

• a.More than 50 percent
• b.Exactly 100 percent
• c.Any amount, regardless of down payment
• d.Less than 20 percent✓

Lenders typically require PMI on conventional loans when the down payment is less than 20 percent, protecting the lender against default. PMI can often be canceled once the borrower reaches sufficient equity. It differs from FHA mortgage insurance premiums, which have their own rules.

The clause in a mortgage that allows the lender to demand full repayment if the borrower defaults is the:

• a.Acceleration clause✓
• b.Defeasance clause
• c.Subordination clause
• d.Habendum clause

An acceleration clause lets the lender declare the entire remaining balance due upon default, such as missed payments. It is a necessary step before foreclosure. A defeasance clause, by contrast, requires the lender to release the lien once the loan is paid in full.

A 'due-on-sale' (alienation) clause in a mortgage generally:

• a.Forgives the loan when the property is sold
• b.Requires the loan to be paid off when the property is sold or transferred✓
• c.Allows unlimited free assumption by any buyer
• d.Reduces the interest rate upon sale

A due-on-sale, or alienation, clause allows the lender to require full repayment if the property is sold or transferred, preventing an unauthorized loan assumption. This lets lenders adjust to current rates on transfer. Some government-backed loans may allow qualified assumptions.

When a buyer takes over the seller's existing mortgage and becomes personally responsible for it, the buyer has:

• a.Subordinated the loan
• b.Defeased the loan
• c.Assumed the loan✓
• d.Refinanced with a new lender

Assuming a loan means the buyer takes over the seller's existing mortgage and agrees to be personally liable for the debt. Lender approval is often required, especially with a due-on-sale clause. This differs from buying 'subject to' the mortgage, where the buyer does not assume personal liability.

The interest rate on an adjustable-rate mortgage (ARM) is typically calculated as:

• a.A fixed rate that never changes
• b.The seller's asking price divided by twelve
• c.The property tax rate
• d.An index plus a margin✓

An ARM's interest rate equals a benchmark index plus a fixed margin set by the lender. As the index moves, the rate adjusts at set intervals, often within caps. This contrasts with a fixed-rate mortgage, whose rate stays constant for the loan's life.

The secondary mortgage market, including entities like Fannie Mae and Freddie Mac, primarily functions to:

• a.Buy loans from lenders, providing liquidity so lenders can make more loans✓
• b.Directly originate loans to individual borrowers at retail
• c.Set property tax rates
• d.License real estate agents

The secondary mortgage market buys existing loans from primary lenders, giving those lenders fresh capital to make new loans and improving liquidity. Fannie Mae and Freddie Mac are major participants. This market helps standardize lending and keep funds flowing.

A prepayment penalty in a loan is a charge for:

• a.Making a payment late
• b.Paying off the loan earlier than scheduled✓
• c.Requesting a payoff statement
• d.Insuring the property

A prepayment penalty is a fee some loans impose if the borrower pays off the balance early, compensating the lender for lost interest. Not all loans have them, and some loan types restrict or prohibit them. Borrowers should review loan terms for such clauses.

The federal Truth in Lending Act (TILA) primarily requires lenders to:

• a.Guarantee approval to all applicants
• b.Set a maximum home price
• c.Disclose credit terms and costs, including the annual percentage rate (APR)✓
• d.Provide free appraisals

TILA requires lenders to disclose key credit terms so borrowers can compare offers, including the finance charge and APR. The APR reflects the total yearly cost of credit as a percentage. TILA also governs certain advertising of credit terms.

A discount point paid on a mortgage loan generally equals what percentage of the loan amount, and serves to:

• a.Ten percent of the loan amount, paid to increase the rate
• b.One percent of the sale price, paid to the seller
• c.Five percent of the down payment, paid to the county
• d.One percent of the loan amount, paid to lower the interest rate✓

One discount point equals one percent of the loan amount and is prepaid interest a borrower pays to buy down (lower) the interest rate. Points can reduce long-term interest costs in exchange for higher upfront cost. Whether points are worthwhile depends on how long the borrower keeps the loan.

A mortgage is best described as which type of instrument in the financing process?

• a.A security instrument that pledges property as collateral for a debt✓
• b.The promise to repay the debt itself
• c.A deed transferring full ownership to the lender
• d.A lease of the property to the lender

A mortgage is the security instrument that pledges real property as collateral for a loan, creating a lien. The promissory note is the separate document that contains the borrower's promise to repay. Together, the note and mortgage document the loan obligation and its security.

Which document contains the borrower's actual promise to repay the loan and the repayment terms?

• a.The deed of reconveyance
• b.The promissory note✓
• c.The title commitment
• d.The estoppel certificate

The promissory note is the borrower's written promise to repay the loan and sets out the amount, interest rate, and payment terms. The mortgage or deed of trust secures that note with the property. The note is the primary evidence of the debt.

'Equity' in a property is best defined as:

• a.The total amount originally borrowed
• b.The annual property tax bill
• c.The market value of the property minus the debts secured against it✓
• d.The broker's commission

Equity is the owner's financial interest in a property, calculated as market value minus any outstanding liens or mortgage balances. Equity grows as the loan is paid down and as the property appreciates. It represents the portion of value the owner truly owns.

The Real Estate Settlement Procedures Act (RESPA) is primarily intended to:

• a.Set national property tax rates
• b.Guarantee mortgage approval
• c.License appraisers
• d.Provide consumers disclosures about settlement costs and prohibit kickbacks✓

RESPA is a federal law requiring disclosures about closing (settlement) costs and prohibiting kickbacks and referral fees that increase costs to consumers. It applies to most federally related mortgage loans on residential property. It works alongside TILA to protect borrowers.

Which approach to value estimates a property's worth by comparing it to recently sold similar properties?

• a.The sales comparison approach✓
• b.The cost approach
• c.The income approach
• d.The gross rent multiplier method only

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

The appraisal principle stating that a buyer will pay no more than the cost of an equally desirable substitute property is:

• a.The principle of anticipation
• b.The principle of substitution✓
• c.The principle of regression
• d.The principle of escheat

The principle of substitution holds that a buyer will pay no more for a property than the cost of acquiring an equally desirable substitute. It underlies the sales comparison approach. It reflects rational buyer behavior in a competitive market.

The cost approach to value is often most appropriate for:

• a.Typical existing single-family homes with many recent sales
• b.Vacant land with no improvements
• c.Newer or special-purpose properties with few comparable sales✓
• d.Rental apartment complexes valued on income

The cost approach estimates value as land value plus the depreciated cost to rebuild the improvements, and it works best for newer or special-purpose buildings such as schools or churches where comparable sales are scarce. It relies on estimating replacement or reproduction cost and deducting depreciation. It is less reliable for older properties with significant depreciation.

In the income approach, the relationship used to convert net operating income into value is the:

• a.Gross rent multiplier only
• b.Loan-to-value ratio
• c.Assessment ratio
• d.Capitalization rate✓

The income approach converts a property's net operating income (NOI) into value using a capitalization (cap) rate, where value equals NOI divided by the cap rate. It is used mainly for income-producing properties. A higher cap rate generally indicates higher risk and lower value for the same income.

An appraisal is best described as:

• a.An opinion or estimate of value as of a specific date✓
• b.A guarantee of the exact future sale price
• c.A legal transfer of title
• d.A type of mortgage loan

An appraisal is a professional, supportable opinion of value as of a particular date, not a guarantee of price. Appraisers use recognized approaches to reach their conclusion. Lenders rely on appraisals to ensure the loan is adequately secured.

Depreciation in appraisal that results from outdated design or features, such as an obsolete floor plan, is called:

• a.Physical deterioration
• b.Functional obsolescence✓
• c.External (economic) obsolescence
• d.Accrued appreciation

Functional obsolescence is a loss in value caused by outdated or poorly designed features within the property, such as an awkward floor plan or too few bathrooms. It is one of three types of depreciation. It can sometimes be cured through remodeling.

A loss in property value caused by negative factors outside the property, such as a nearby factory or declining neighborhood, is:

• a.Functional obsolescence
• b.Physical deterioration
• c.External (economic) obsolescence✓
• d.Curable depreciation

External or economic obsolescence is a loss in value caused by factors outside the property boundaries, such as adverse neighborhood conditions or nearby nuisances. Because the owner cannot control off-site factors, this type of depreciation is generally incurable. It contrasts with functional obsolescence, which stems from the property itself.

The concept of 'highest and best use' refers to the use that is:

• a.Whatever the current owner personally prefers
• b.Always the most expensive possible structure
• c.Determined solely by the listing agent
• d.Legally permissible, physically possible, financially feasible, and maximally productive✓

Highest and best use is the reasonably probable use that is legally permissible, physically possible, financially feasible, and produces the highest value. Appraisers analyze it to value land and improvements properly. It may differ from the property's current use.

An appraiser making adjustments in the sales comparison approach adjusts the:

• a.Comparable properties' prices to the subject, not the subject itself✓
• b.Subject property's price to match each comparable
• c.Buyer's mortgage rate
• d.Local property tax rate

In the sales comparison approach, the appraiser adjusts the sale prices of the comparables to account for their differences from the subject property. The subject is never adjusted because its value is unknown. If a comparable is superior, its price is adjusted downward, and if inferior, upward.

The principle of 'conformity' in appraisal suggests that a property's maximum value is generally realized when:

• a.It is far larger and more expensive than all neighbors
• b.It is similar in style and use to surrounding properties✓
• c.It is the smallest home in the area
• d.It has no relationship to nearby properties

The principle of conformity holds that properties reach their maximum value when they are reasonably similar to others in the neighborhood. Overimprovement or underimprovement relative to neighbors can reduce value. Related principles are regression and progression.

Under the principle of regression, a high-value home located among lower-value homes will tend to:

• a.Increase the value of all neighbors to its level
• b.Have no effect on its own value
• c.Be pulled downward in value by the lesser surrounding properties✓
• d.Automatically become the neighborhood standard

The principle of regression states that the value of a superior property is adversely affected by the presence of inferior surrounding properties. Conversely, progression holds that a lesser property benefits from higher-value neighbors. Both relate to conformity.

A comparative market analysis (CMA) prepared by a licensee differs from a formal appraisal because it:

• a.Is legally binding on the lender
• b.Must be prepared only by a licensed appraiser
• c.Establishes the assessed value for taxes
• d.Is an estimate to help price a listing, not a certified appraisal✓

A CMA is an informal analysis licensees prepare using comparable sales to help sellers price a home or buyers make offers. It is not a formal, certified appraisal and should not be represented as one. Lenders generally require a licensed appraiser's appraisal for financing.

Accrued depreciation in the cost approach represents:

• a.The total loss in value from all causes since construction✓
• b.The increase in land value over time
• c.The lender's required insurance
• d.The buyer's down payment

Accrued depreciation is the total loss in value of the improvements from physical deterioration, functional obsolescence, and external obsolescence since they were built. In the cost approach, it is subtracted from the reproduction or replacement cost. Land is valued separately and is not depreciated.

Market value, as used in appraisal, generally assumes:

• a.A forced sale under time pressure
• b.A willing buyer and willing seller, each acting knowledgeably and without undue pressure✓
• c.That the buyer is unaware of the property's condition
• d.The highest price any single buyer might ever pay

Market value assumes a transaction between a willing, informed buyer and seller, neither under duress, with reasonable market exposure. It differs from a distressed or forced sale price. This standard underlies most lending appraisals.

Which of the following is a form of physical deterioration in an appraisal?

• a.An outdated one-car garage in a two-car neighborhood
• b.A newly built freeway causing noise nearby
• c.A worn roof and peeling paint due to age and wear✓
• d.A declining local job market

Physical deterioration is a loss in value from wear, tear, age, and the action of the elements, such as a worn roof or peeling paint. It can be curable or incurable depending on cost. Functional and external obsolescence are the other two categories of depreciation.

The 'gross rent multiplier' (GRM) is calculated by:

• a.Multiplying net income by the cap rate
• b.Dividing the loan amount by the down payment
• c.Subtracting expenses from the sale price
• d.Dividing the sale price by the gross rental income✓

The gross rent multiplier is found by dividing a property's price by its gross rental income, giving a quick relationship between price and rent. It is a simple screening tool for income properties, often using monthly or annual rent. Unlike the cap rate, it does not account for operating expenses.

An appraiser reconciling the results of the three approaches to value will:

• a.Weigh the approaches based on reliability and the property type to reach a final opinion✓
• b.Simply average the three values together in every case
• c.Always use the highest of the three values
• d.Discard all approaches and use the asking price

Reconciliation is the process of weighing the value indications from the applicable approaches to arrive at a single, supported opinion of value. The appraiser gives more weight to the approach most reliable for the property type, rather than mechanically averaging. Judgment and data quality guide the final conclusion.

Which factor would most likely cause economic (external) obsolescence?

• a.An outdated kitchen layout inside the home
• b.Construction of a noisy airport expansion adjacent to the property✓
• c.A cracked driveway on the property
• d.Worn interior carpeting

Economic or external obsolescence results from negative influences outside the property, such as a new airport, highway, or industrial use nearby. Because these factors are beyond the owner's control, this depreciation is usually incurable. Internal issues like layout or carpeting are functional or physical in nature.

A home sells for $400,000 with a total commission rate of 6 percent. What is the total commission?

• a.$24,000✓
• b.$2,400
• c.$40,000
• d.$18,000

Total commission equals sale price times commission rate: $400,000 x 0.06 = $24,000. Percentages are converted to decimals before multiplying. This total would then be split among the brokerages and agents involved.

A property sells for $250,000 with a 6 percent commission. If the listing and selling brokerages split the commission equally, how much does each brokerage receive?

• a.$15,000
• b.$7,500✓
• c.$3,750
• d.$12,500

First find the total commission: $250,000 x 0.06 = $15,000. An equal split gives each brokerage $15,000 / 2 = $7,500. Individual agents would then split their brokerage's share per their own agreements.

A buyer makes a 20 percent down payment on a $350,000 home. How much is the down payment?

• a.$7,000
• b.$35,000
• c.$70,000✓
• d.$280,000

The down payment equals the price times the down payment percentage: $350,000 x 0.20 = $70,000. The remaining $280,000 would typically be financed. Converting 20 percent to 0.20 is the key step.

A lender requires a loan-to-value (LTV) ratio of 80 percent on a home appraised at $300,000. What is the maximum loan amount?

• a.$60,000
• b.$375,000
• c.$24,000
• d.$240,000✓

The maximum loan equals value times the LTV ratio: $300,000 x 0.80 = $240,000. The borrower would need to cover the remaining $60,000 as a down payment. LTV compares the loan amount to the property's value.

Annual property taxes are $3,600. Using a 360-day year, what is the daily proration amount?

• a.$10.00✓
• b.$100.00
• c.$1.00
• d.$30.00

Using a 360-day year, divide annual taxes by 360: $3,600 / 360 = $10.00 per day. Prorations allocate expenses like taxes between buyer and seller at closing. Many closings use a 360-day (banker's) year for simplicity.

A parcel of land measures 200 feet by 300 feet. What is its area in square feet?

• a.500 square feet
• b.60,000 square feet✓
• c.6,000 square feet
• d.1,000 square feet

Area of a rectangle equals length times width: 200 ft x 300 ft = 60,000 square feet. Area calculations are common in real estate for lots and buildings. To convert to acres, you would divide by 43,560.

One acre equals 43,560 square feet. How many acres is a lot containing 87,120 square feet?

• a.1 acre
• b.4 acres
• c.2 acres✓
• d.0.5 acre

Divide total square feet by 43,560: 87,120 / 43,560 = 2 acres. Memorizing that one acre is 43,560 square feet is essential for land math. This conversion appears frequently on real estate exams.

A home's value increased from $200,000 to $250,000. What is the percentage of increase?

• a.50 percent
• b.20 percent
• c.5 percent
• d.25 percent✓

Percentage increase equals the change divided by the original value: ($250,000 - $200,000) / $200,000 = $50,000 / $200,000 = 0.25, or 25 percent. Always divide by the original (starting) amount. The result shows growth relative to the starting value.

An investment property generates $30,000 in net operating income and is valued using an 8 percent capitalization rate. What is its indicated value?

• a.$375,000✓
• b.$240,000
• c.$2,400,000
• d.$37,500

In the income approach, value equals net operating income divided by the cap rate: $30,000 / 0.08 = $375,000. A lower cap rate produces a higher value for the same income. This formula is central to valuing income property.

A seller wants to net $188,000 after paying a 6 percent commission on the sale price. What must the sale price be (rounded)?

• a.$199,280
• b.$200,000✓
• c.$188,000
• d.$211,000

The seller keeps 94 percent of the price after a 6 percent commission, so price = $188,000 / 0.94 = $200,000. You divide the net amount by (100% minus the commission rate). Dividing rather than adding 6 percent avoids a common error.

A mortgage loan of $150,000 has an annual interest rate of 6 percent. How much interest accrues in the first month (simple interest)?

• a.$9,000
• b.$75
• c.$750✓
• d.$1,500

Annual interest is $150,000 x 0.06 = $9,000; one month is $9,000 / 12 = $750. Early in an amortized loan, most of each payment goes toward interest. Monthly interest is the annual interest divided by 12.

A buyer pays 2 discount points on a $180,000 loan. How much do the points cost?

• a.$360
• b.$1,800
• c.$36,000
• d.$3,600✓

Each point equals one percent of the loan amount, so 2 points on $180,000 = $180,000 x 0.02 = $3,600. Points are prepaid interest paid to lower the loan's interest rate. They are calculated on the loan amount, not the purchase price.

Annual property taxes of $2,400 are paid in arrears. At a closing on July 1, using a 360-day year, how much does the seller owe for the 6 months already elapsed?

• a.$1,200✓
• b.$2,400
• c.$600
• d.$400

The seller owes taxes for the portion of the year they owned the property. Six months is half the year: $2,400 x 6/12 = $1,200. In arrears means taxes are paid after the period, so the seller credits the buyer for their share.

A rectangular building is 40 feet wide and 80 feet long. At a construction cost of $120 per square foot, what is the total cost?

• a.$38,400
• b.$384,000✓
• c.$3,840
• d.$96,000

First find the area: 40 ft x 80 ft = 3,200 square feet. Then multiply by cost per square foot: 3,200 x $120 = $384,000. Cost-per-square-foot calculations are common in the cost approach and construction estimates.

An agent receives a 3 percent share of a $500,000 sale, then keeps 70 percent after a 30 percent brokerage split. What is the agent's take-home amount?

• a.$15,000
• b.$4,500
• c.$10,500✓
• d.$7,000

The agent's gross share is $500,000 x 0.03 = $15,000. Keeping 70 percent after the split gives $15,000 x 0.70 = $10,500. Commission splits are applied in sequence: first compute the share, then apply the split.

A property assessed at $250,000 is taxed at a millage rate of 20 mills. What is the annual tax?

• a.$500
• b.$50,000
• c.$2,500
• d.$5,000✓

One mill equals $1 per $1,000 of assessed value, so 20 mills is $20 per $1,000. Tax equals $250,000 / 1,000 x 20 = $5,000. Millage rates are a common way local governments express property tax rates.