Va Real Estate Exam 1

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  • 1/150 Questions

    A valid escrow requires which of the following:

    • Escrow instructions with no conditions
    • A binding contract between the buyer and seller and the conditional delivery of transfer instruments to a third party
    • The services of a licensed real estate broker
    • D) None of the above
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Va Real Estate Exam 1 - Quiz
About This Quiz

VA Real Estate Exam 1 assesses key concepts in real estate finance, law, and market operations. It evaluates understanding of mortgage yields, loan securities, escrow requirements, and implications of financial ratios and insurance policies in real estate transactions.

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  • 2. 

    Lender’s use the term “debt-income ratio” to refer to a:

    • Part of closing costs

    • Loan qualifying tool

    • Requirement of the Federal Government

    • Formula used in appraising property

    Correct Answer
    A. Loan qualifying tool
    Explanation
    Debt income ratio indicates the fraction that your loan payment on the property is in
    relation to the net income from the property. This is used by lenders when qualifying a
    person for an income property loan and measuring their margin of safety.

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  • 3. 

    The Real Estate Commissioner would be prevented from proceeding with a formal actionagainst the license of a real estate broker by the:

    • Closing of the broker’s office

    • Broker moving to another state

    • Lapse of three years from the occurrence of the grounds of complaint

    • Expiration of the broker’s license

    Correct Answer
    A. Lapse of three years from the occurrence of the grounds of complaint
    Explanation
    The accusation must be filed within three years of the occurrence of the act which is
    considered grounds for revocation or suspension of the license.

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  • 4. 

    You sell a note with a face value of $12,000 for $10,000. You are:

    • Discounting the note

    • Amortizing the note

    • Committing an act requiring a real estate license

    • Committing fraud

    Correct Answer
    A. Discounting the note
    Explanation
    Any time you sign a note or sell a note and the amount you receive is less than the account
    stated on the face of the note you are ‘discounting the note’.

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  • 5. 

    To minimize risk, a lender looks at:

    • Loan-to-value ratio

    • Divorce, personal problems, etc

    • Loan portfolio

    • None of the above

    Correct Answer
    A. Loan-to-value ratio
    Explanation
    A lender looks at the loan-to-value ratio to minimize risk. This ratio compares the amount of the loan to the appraised value of the collateral (usually a property). A higher loan-to-value ratio indicates a higher risk for the lender, as the borrower has less equity in the collateral. By considering this ratio, the lender can assess the level of risk associated with the loan and make an informed decision on whether to approve it or not.

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  • 6. 

    A minority purchaser enters your office and states they are looking for, and interested in,purchasing a particular property in a minority neighborhood. You could legally assume that:

    • This person is testing you

    • They are interested in that particular property

    • They are interested in owning a home in an all minority neighborhood

    • They cannot qualify to own property in a higher priced area

    Correct Answer
    A. They are interested in that particular property
    Explanation
    Should any prospective purchaser enter your office requesting to see a particular property,
    you would assume they were interested in that particular property.

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  • 7. 

    Which of the following phrases will best describe the nature of a broker’s duty to keep hisprincipal informed:

    • Ethical conduct

    • Continuing responsibility

    • Fiduciary obligation

    • Business practice standards

    Correct Answer
    A. Fiduciary obligation
    Explanation
    A fiduciary obligation is a relationship of trust and confidence. The broker has loyalty to
    his principal and must keep him fully informed.

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  • 8. 

    When a broker misrepresents his principal’s property to a buyer, he could cause hisprincipal to be subject to:

    • A court action for damages by the buyer

    • A rescission of the sale by the buyer

    • Civil responsibility for compensating the buyer for misrepresentation of the broker

    • Any of the above

    Correct Answer
    A. Any of the above
    Explanation
    The principal is responsible for his agent’s actions. If misrepresentation occurs, there
    should be a rescission of the sale or civil court action for damages.

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  • 9. 

    A buyer defaults on a loan, therefore the lender would be able to cause the promissory noteto become due and payable. This clause is a/an:

    • Subordination clause

    • Escalator clause

    • Acceleration clause

    • Alienation clause

    Correct Answer
    A. Acceleration clause
    Explanation
    Acceleration clauses are several different types and reasons.

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  • 10. 

    A salesman receives a deposit together with a written offer to purchase and delivers them tothe employing broker who presents it to the seller. The seller signs and accepts the offer.Without the consent of the salesman and through no fault of his own, the buyer and sellerinstruct the salesman’s employing broker to return the deposit. Which of the following is true?

    • The salesman’s employing broker may retain one-half of the deposit and must give one-half to the seller

    • The broker may sue the seller but must return the deposit

    • The broker may retain one-half of the deposit and must return only one-half to the buyer

    • The broker may retain the deposit to compensate him for his efforts

    Correct Answer
    A. The broker may sue the seller but must return the deposit
    Explanation
    Once the offer has been accepted, the deposit money belongs to the seller. If the seller
    instructs the broker to return the deposit, the broker must do so. The broker has probably
    earned a commission and may sue the seller for the amount but may not hold the deposit
    money.

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  • 11. 

    An “able buyer” means one:

    • Financially able

    • Having the ability to obtain the necessary funds to purchase real property

    • Having the ability to obtain necessary financing

    • Any of the above

    Correct Answer
    A. Any of the above
    Explanation
    Any of these would indicate an ‘able’ buyer.

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  • 12. 

    If the loan-to-value ratio is low:

    • The equity in property is high

    • The equity is not affected

    • The equity in the property is low

    • D) None of the above

    Correct Answer
    A. The equity in property is high
    Explanation
    Loan to value ratio is the ratio of the loan to the appraised value. If a 90% loan to value
    ratio is given by a lender, that indicates a 10% down payment, and a beginning equity of
    10%. If the loan to value ratio is only 60%, the down payment is 40% and the beginning
    equity is 40%. The lower the loan, the higher the equity.

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  • 13. 

    Broker Young, as an agent, showed a property to James. James signed a deposit receiptwhich contained the following words: “Buyer to accept the property in an “as is” condition”.Broker Young knew that the plumbing in the property was in a major state of disrepair withparts missing, but he did not tell James. The problem with the plumbing would not be apparentto an ordinary, prudent person. If James sued the seller for damages for fraud, the court suitwould probably be:

    • Unsuccessful because the ‘as is’ provision in the deposit receipt shows that there is a mutual understanding of possible defects

    • Unsuccessful because the deposit receipt specifically state ‘Buyer to accept the property in an ‘as is’ condition’

    • Successful because the duty to disclose a material fact cannot be avoided by an ‘as is’ provision under the stated circumstances

    • Successful because ‘as is’ refers only to obvious defects

    Correct Answer
    A. Successful because the duty to disclose a material fact cannot be avoided by an ‘as is’ provision under the stated circumstances
    Explanation
    The Real Estate Commissioner and the courts are very protective of consumers. Therefore,
    they will not allow an ‘as is’ clause to be valid except for obvious defects, which any
    reasonable and prudent person could discover.

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  • 14. 

    The mortgage loan which permits borrowing additional funds at a later date is called a/an:

    • Open end mortgage

    • Extendible mortgage

    • Junior mortgage

    • Equitable mortgage

    Correct Answer
    A. Open end mortgage
    Explanation
    A loan which permits one to add to the unpaid balance of the loan without rewriting the
    note is said to be an open end loan.

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  • 15. 

    According to the Truth-in-Lending Act, consumers must be informed of credit terms bythe:

    • Escrow company

    • Lender

    • Broker

    • Trustee

    Correct Answer
    A. Lender
    Explanation
    According to the Truth-in-Lending Act, the responsibility for informing consumers of credit terms lies with the lender. The lender is the entity that provides the credit to the consumer, and therefore, it is their duty to ensure that the consumer is fully aware of the terms and conditions associated with the credit. This includes disclosing information such as the interest rate, fees, and repayment schedule. The lender plays a crucial role in ensuring transparency and fairness in credit transactions, as mandated by the Truth-in-Lending Act.

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  • 16. 

    A second offer received on a property prior to the seller’s decision on the first offer shouldbe:

    • Evaluate by the broker against the first offer

    • Submitted immediately

    • Held pending a decision on the first offer

    • Turned back to the offeree if it doesn’t provide better terms

    Correct Answer
    A. Submitted immediately
    Explanation
    All offers must be submitted immediately.

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  • 17. 

    A buyer of a residence, prior to the close of escrow, asks the broker for permission to moveinto the property. The broker should:

    • Deny the buyer permission

    • Grant the buyer oral permission

    • Ask the buyer to sign a lease for the property

    • Obtain written consent from the owner

    Correct Answer
    A. Obtain written consent from the owner
    Explanation
    Prior to the close of escrow, the seller is still the owner, therefore, the broker should get
    written consent from the owner before allowing a buyer to take possession.

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  • 18. 

    Comparing an installment note to a straight note, the straight note will have:

    • A total effective interest rate greater than if the loan were an installment loan

    • Equal annual principal reduction payments

    • No principal payments during the term of the loan except on the last payment

    • None of the above

    Correct Answer
    A. No principal payments during the term of the loan except on the last payment
    Explanation
    The correct answer is "No principal payments during the term of the loan except on the last payment." This means that with a straight note, the borrower does not make any principal payments throughout the term of the loan, except for the final payment. In contrast, an installment note would require the borrower to make equal annual principal reduction payments, meaning that they would be paying off a portion of the principal amount each year. Additionally, the straight note will have a higher total effective interest rate compared to an installment loan.

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  • 19. 

    A primary justification for zoning ordinances is to:

    • Maintain conformity to buildings in the zoned area

    • Prevent an oversupply of certain types of businesses

    • Promote public health, safety, morals and general welfare

    • Control the quality of building construction

    Correct Answer
    A. Promote public health, safety, morals and general welfare
    Explanation
    Zoning laws are exercise of the police powers which are for the public health, safety,
    morals and general welfare. No compensation need be paid in exercise of police power,
    as they are for public protection.

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  • 20. 

    In portfolio risk management, a lender considers:

    • Diversification

    • Liquidity

    • Reserves

    • All of the above

    Correct Answer
    A. All of the above
    Explanation
    In portfolio risk management, a lender determines what type of loans to have in his
    portfolio. Factors are: How quickly can I sell these loans? What are my reserves? How
    diversified are these loans? Are they all business? Are they all residential? Are they a
    mixture of business and residential?

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  • 21. 

    An attorney drew up a contract between a buyer and a seller for the purchase of a property.The agreement included a liquidated damages clause calling for the payment of $500 in theevent the buyer should default. Prior to the close of escrow, the buyer decided that the homewould not suit his family and canceled the purchase. If the seller were to sue for specificperformance, he would most likely be:

    • Successful because of the $500 is not adequate considering the value of the property

    • Successful because the reason for canceling by the buyer was not strong

    • Unsuccessful because the seller agreed to accept the $500 as liquidated damages in the contract

    • Unsuccessful because an attorney drew the contract

    Correct Answer
    A. Unsuccessful because the seller agreed to accept the $500 as liquidated damages in the contract
    Explanation
    Since both buyer and seller agreed to the liquidated damages, the seller has agreed that if
    the buyer defaults, his sole claim will be to the $500.

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  • 22. 

    Which of the following is not a necessary element in the formation of a contract:

    • Offer

    • Acceptance

    • Consideration

    • Performance

    Correct Answer
    A. Performance
    Explanation
    Two parties may enter into a contract, but they might not fulfill (perform) their obligations.

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  • 23. 

    A lender possessing a chattel mortgage may:

    • Assess it

    • Hypothecate it

    • Alienate it

    • All of the above

    Correct Answer
    A. All of the above
    Explanation
    Re-emphasizing a prior question concerning the terms: alienate, hypothecate and assess. A
    chattel mortgage is a mortgage secured by personal property. Such a mortgage may be
    used as security for an additional loan. When the property is put up as security for a loan
    and one retains possession, it is said to be hypothecated. Personal property may be
    assessed for personal property taxes and/or federal estate taxes.

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  • 24. 

    Certain charges are prohibited by the Real Estate Settlement Procedures Act in selling ahouse. Buyer or seller may legally be charged for all of the following except:

    • Disclosure settlement statements

    • Credit reports

    • Appraisals necessary to make the loan

    • Preparation of loan documents

    Correct Answer
    A. Disclosure settlement statements
    Explanation
    Disclosure statements required by RESPA must be provided the borrower at no cost.

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  • 25. 

    Property management, appraisal, financing, and development are all examples of

    • Factors affecting demand.

    • Specializations within the real estate industry

    • Non-real estate professions.

    • Activities requiring broker management and supervision.

    Correct Answer
    A. Specializations within the real estate industry
    Explanation
    All are specializations in the field of real estate. Appraisal and financing do not require (real estate) broker supervision.

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  • 26. 

    A licensed real estate broker working under a typical exclusive listing incurs several expenses. He is not entitled to be reimbursed for these expenditures, unless:

    • The buyer has demanded that these expenses be incurred as a condition of continuing with the transaction

    • Such expenditures were authorized by the principal

    • It was necessary for him to incur the expenses in order to close the sale

    • The broker was representing the best interests of the principal in consummating the sale

    Correct Answer
    A. Such expenditures were authorized by the principal
    Explanation
    A seller is not obligated to reimburse the expenses of the broker unless those expenses are
    authorized by the seller.

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  • 27. 

    After acquired title is conveyed in any trust deed for the benefit of the beneficiary. Itconveys:

    • Personal property later affixed to the real property so as to become real property

    • Improvement built on the land after title is acquired

    • Additional land acquired afterward by the trustor

    • All of the above

    Correct Answer
    A. All of the above
    Explanation
    ‘After acquired title’ refers to title to fixtures or other real property items, that become
    part of the land that is securing the existing trust deed. If a lot serving as security for a
    loan made ten years ago has land affixed to it, that land becomes encumbered with the
    lien made ten years ago. If additional improvements, such as a swimming pool, added
    bedroom or new landscaping are added to the real property, they to become encumbered
    with a trust deed lien made ten years ago.

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  • 28. 

    During Broker Shaw’s preparation of the Exclusive Authorization and right to Sell onSeller Norman’s property, Norman asked that a clause be included which would require thebuyer to accept primary liability in connection with the existing loan is transferred to the buyer.Shaw should enter with of the following in Paragraph 2 of the Exclusive Authorization andRight to Sell from:

    • Buyer to take the property “subject to” the loan

    • Buyer to “assume” existing loan

    • Buyer to pay all cash

    • Buyer to make a large down payment to preclude possibility of a foreclosure

    Correct Answer
    A. Buyer to “assume” existing loan
    Explanation
    If a buyer assumes an existing loan, he accepts primary liability for that loan.

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  • 29. 

    Which of the following factors is most likely to influence demand for real estate?

    • The number of real estate brokers in the area.

    • The number of full-time real estate salespersons in the area.

    • The wage levels and employment opportunities.

    • The price of new homes being built in the area.

    Correct Answer
    A. The wage levels and employment opportunities.
    Explanation
    When wage levels and job expansion are increasing, workers are more likely to buy real
    estate; when wages are stagnant or declining, they hold back from making big purchasing
    commitments. Effective demand requires not only the desire to purchase a product, but
    also the financial means to do so.

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  • 30. 

    In addition to certain municipal or county regulations which apply to the construction of asubdivision, such as zoning laws and the State Map Act, other government regulations may beimposed upon the subdivision by:

    • Health, fire and building safety laws

    • The Department of Real Estate

    • Governmental lending agencies such as FHA and the VA

    • All of the above

    Correct Answer
    A. All of the above
    Explanation
    All three choices may impose additional regulations which apply to the construction of a
    subdivision.

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  • 31. 

    The cost approach used on a residence built in 1912 would require:

    • Determination of labor costs in 1912

    • Labor costs in 1912 being adjusted by an index

    • Average labor costs over the period

    • Replacement cost determined by today’s costs less depreciation

    Correct Answer
    A. Replacement cost determined by today’s costs less depreciation
    Explanation
    The cost method requires the determination of replacing the improvements ‘new’ at
    today’s costs of labor and material, then adjusting the ‘new’ estimate downward by
    estimated accrued depreciation.

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  • 32. 

    Concerning business opportunities:

    • The bulk sales law is contained in the Uniform Commercial Code

    • A bill of sale is used to convey title to business items

    • Sales tax is a tax on the sale of tangible personal property

    • All are true statements

    Correct Answer
    A. All are true statements
    Explanation
    All are true.

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  • 33. 

    A loan created with more than one borrower is usually added to the promissory note for theprotection of the lender:

    • Beneficially

    • Jointly and severally

    • Universally

    • Unconditionally

    Correct Answer
    A. Jointly and severally
    Explanation
    When there is more than one borrower on the note, the promise and obligation to pay that
    balance is the responsibility jointly of all the co-borrowers, and also each individual is
    severally liable for the full debt. Severally, in law, means individually.

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  • 34. 

    A loan for which interest-only payments are made is:

    • A straight note

    • Amortized

    • Partially amortized

    • A graduated payment note

    Correct Answer
    A. A straight note
    Explanation
    A straight note has no payment of principal on the installment basis and principal is due at
    maturity. When interest only is paid, the no principal is paid until maturity.

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  • 35. 

    A third party who takes a promissory note that is complete and regular and has noknowledge of any defects is known as a/an:

    • Endorser

    • Maker

    • Payee

    • Holder in due course

    Correct Answer
    A. Holder in due course
    Explanation
    The party that accepts the endorsed note from the original payee,without knowledge of
    any defects is known as the holder in due course.

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  • 36. 

    In general, when the supply of a certain commodity increases,

    • Price tends to rise.

    • Price tends to drop.

    • Demand for it tends to rise.

    • Demand for it tends to drop.

    Correct Answer
    A. Price tends to drop.
    Explanation
    If demand is constant and supply increases, sellers compete with each other by lowering
    prices.

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  • 37. 

    Where a broker show a client’s property to a prospective buyer that is listed with the brokerunder an open listing, the broker should:

    • Make up an office memorandum

    • Confirm the showing to the buyer

    • Notify the seller as to the prospect’s identity

    • Notify the local real estate board

    Correct Answer
    A. Notify the seller as to the prospect’s identity
    Explanation
    Notifying the seller establishes the broker’s right to collect a commission as “procuring
    cause”. Answer “c” provides the only effective way of establishing that right.

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  • 38. 

    An offer to purchase real property was signed by a prospective buyer on October 2, 1977.The terms of the offer allowed five days for acceptance by the seller. Because of an illness inthe seller’s family, the seller did not accept the offer until October 10, 1977. Which of thefollowing statements is correct?

    • The buyer may demand the return of his deposit

    • The buyer must continue with the purchase because he did not withdraw his offer prior to acceptance

    • If the buyer does not complete the purchase, the seller is entitled to the deposit

    • If the buyer does not complete the purchase, the seller and the broker will each be entitled to one-half of the deposit

    Correct Answer
    A. The buyer may demand the return of his deposit
    Explanation
    This constitutes only an offer and one method of terminating an offer is the expiration of a
    specified or reasonable length of time for the acceptance to be communicated.

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  • 39. 

    A new well and pump were installed on a parcel of land. For property tax assessmentpurposes, the county assessor would consider these as:

    • Improvements

    • Additions

    • Part of the land

    • Personal property

    Correct Answer
    A. Improvements
    Explanation
    A well and pump would be improvements to the real property.

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  • 40. 

    A clause in a trust deed providing that the rights of the beneficiary are secondary to thoseof holders of subsequently recorded trust deed is known as a/an:

    • Subordination clause

    • Alienation clause

    • Acceleration clause

    • Subrogation clause

    Correct Answer
    A. Subordination clause
    Explanation
    A subordination clause in a trust deed and a note agrees that the borrower may place an
    additional trust deed lien against the property in the future which will be prior in rights to
    this presently recorded trust deed. By agreeing to the subordination clause, the lender
    agrees that he will give up his recorded priority.

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  • 41. 

    When a legal description uses only sections, townships and ranges, the lines relate to the:

    • Government survey lines

    • Contour lines

    • Recorded tract map

    • S and bounds descriptions

    Correct Answer
    A. Government survey lines
    Explanation
    Sections, townships and ranges are used in government surveys in describing the location
    of land. Metes and bounds description outlines a certain area.

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  • 42. 

    Which of the following would normally install conduit?

    • Plumbers

    • Electricians

    • Roofers

    • Carpenters

    Correct Answer
    A. Electricians
    Explanation
    Electrical wiring is placed inside a metal pipe called a conduit.

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  • 43. 

    Which of the following loans is exempt from the Truth-in-Lending Law?

    • A $20,000 loan secured by personal property

    • A $20,000 loan from a credit union

    • A $25,000 loan secured by real property

    • An agricultural loan

    Correct Answer
    A. An agricultural loan
    Explanation
    The Truth-in-Lending Law state that an installment loan is one that is payable in four or
    more installments. Agricultural loans are not controlled by this law. Any loan for those
    properties (answers “a”, “b” and “c”) that have four or more payments would be under
    the Truth-in-Lending Law.

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  • 44. 

    Many real estate contracts are in writing on forms. Parts of these contracts are written and parts are printed. In the interpretation of such contracts:

    • Printed parts take preference over the written parts

    • The written parts and the printed parts are given equal consideration

    • The written parts take preference over the printed parts

    • Any parts copied from the form take preference over those that are purely original

    Correct Answer
    A. The written parts take preference over the printed parts
    Explanation
    As regards to contracts, the written takes preference over the printed parts and oral agreements take preference only when the written contract is incomplete or ambiguous.

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  • 45. 

    Which of the following is the classic definition of the boundaries of real property?

    • The surface area indicated on a map

    • A reasonable use of airspace and extended to the center or the earth

    • A reasonable distance down and unlimited airspace

    • A practical or reasonable use of the earth and unlimited airspace

    Correct Answer
    A. A reasonable use of airspace and extended to the center or the earth
    Explanation
    The surface of the earth and the material beneath the surface to the center of the earth is
    part of the real property. Since airways are now public domain, the ownership of airspace
    is ‘use to an enjoyable and reasonable height’.

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  • 46. 

    If a man has a freehold estate, which of the following would result in his having a lessthanfreeholdestate:

    • Sale and lease-back

    • Selling the mineral rights to a third party

    • Giving a leasehold interest for 5 years

    • Granting a life estate

    Correct Answer
    A. Sale and lease-back
    Explanation
    A less-than-freehold estate is a landlord/tenant arrangement. Of the choices offered, only a
    sale-leaseback would result in a less-than-freehold estate.

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  • 47. 

    A major manufacturer of automobiles announces that it will relocate one of its factories,along with 2,000 employees, to Smallville. What effect will this announcement likely have onSmallville’s housing market?

    • Houses will be likely to become less expensive as a result of the announcement.

    • Houses will likely become more expensive as a result of the announcement.

    • Because the announcement involves an issue of demographics, not of supply and demand, housing prices will stay the same.

    • The announcement involves an industrial property; residential housing will not be affected.

    Correct Answer
    A. Houses will likely become more expensive as a result of the announcement.
    Explanation
    The expected arrival of 2,000 employees and their families in a small town will cause
    sellers to raise their prices in expectation of the greatly increased demand and the long
    time it takes to build new housing. It becomes a “sellers’ market” and the many buyers
    will have to compete for the few houses available.

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  • 48. 

    Generally, the most important determinant of a property’s value is:

    • Age

    • Utility

    • Location

    • Income

    Correct Answer
    A. Location
    Explanation
    Location is the most important factor influencing value, the other factors being utility,
    size, shape, thoroughfare conditions, exposure, character of the business climate,
    plottage or assemblage, character of the soil, grades, obsolescence, building restrictions
    and zones.

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  • 49. 

    Mr. and Mrs. Johnson who had been shopping for a new home found one that they likedvery much but because they felt the property was overpriced, they decided not to buy it. Theirreason for not buying was probably based upon the Principle of:

    • Conformity

    • Substitution

    • Highest and best of use

    • Anticipation

    Correct Answer
    A. Substitution
    Explanation
    It must be assumed that our buyer has found another home that was equally desirable but
    at a much lower price. This is the idea behind the Principle of Substitution.

    Rate this question:

Quiz Review Timeline (Updated): Mar 20, 2023 +

Our quizzes are rigorously reviewed, monitored and continuously updated by our expert board to maintain accuracy, relevance, and timeliness.

  • Current Version
  • Mar 20, 2023
    Quiz Edited by
    ProProfs Editorial Team
  • Aug 12, 2010
    Quiz Created by
    Wilesaustin
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