Va Real Estate Exam 1

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  • 1/150 Questions

    Mortgage yield is best described as:

    • What the lender receives when a loan secured by a mortgage is paid off
    • All of the money received by a lender after deducting closing costs and loan fees
    • The effective interest return obtained from a first trust deed by an investor
    • An increase in value of a property which has a mortgage
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Real Estate Quizzes & Trivia
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. 

    Which of the following items could not be used by the owner of a hardware store as securityfor a loan, under the provisions of the Uniform Commercial Code?

    • A personal note endorsed by him

    • Accounts receivable

    • Stock for sale

    • Equipment and fixtures

    Correct Answer
    A. Stock for sale
    Explanation
    As the stock will be sold, it cannot be used to secure a loan.

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  • 3. 

    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

    Correct Answer
    A. A binding contract between the buyer and seller and the conditional delivery of transfer instruments to a third party
    Explanation
    These are required for a valid escrow.

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  • 4. 

    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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  • 5. 

    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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  • 6. 

    Sellers are usually reluctant to cancel an existing transferable fire insurance policy in theevent of a cash sale, due to the fact that:

    • The buyer may not properly cover the property

    • The higher short term cancellation rate will apply

    • It could result in cancellation of other policies

    • The elimination of a cash return in the proration

    Correct Answer
    A. The higher short term cancellation rate will apply
    Explanation
    A seller on a cash sale would be reluctant to cancel an existing transferable fire insurance
    policy because the seller would receive a short term cancellation rate. Therefore, the seller
    would prefer to transfer the existing policy to the buyer.

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  • 7. 

    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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  • 8. 

    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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  • 9. 

    A subdivider and developer purchased considerable acreage and now plans to construct atract of 40 homes. In arranging the financing for the new construction, the lender has agreedto advance part of the funds immediately and will release a set amount of additional money aseach home is completed. The funds that will be forthcoming as construction progresses areknown as:

    • Obligatory advances

    • Reconveyance funds

    • Release monies

    • Open and mortgage payments

    Correct Answer
    A. Obligatory advances
    Explanation
    This type of construction financing is referred to as obligatory advances or fixed
    disbursement schedule.

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  • 10. 

    The lender’s first line of defense in making a loan is:

    • Loan-to-value ratio

    • Borrower’s income

    • Value of the property

    • None of the above

    Correct Answer
    A. Loan-to-value ratio
    Explanation
    The lender's first line of defense in making a loan is the loan-to-value ratio. This is a financial ratio that compares the amount of the loan to the appraised value of the property being used as collateral. It helps the lender assess the risk associated with the loan and determine the amount of financing that can be provided. A lower loan-to-value ratio indicates a lower risk for the lender, as there is more equity in the property to cover potential losses. Therefore, the loan-to-value ratio is an important factor in the lender's decision-making process.

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  • 11. 

    All of the statements below are true, except:

    • A grant deed may convey “after acquired” title even when such warranty is not actually written into the contents of the deed

    • A quitclaim deed may convey any right or title including fee simple title

    • A deed is of no effect unless delivered

    • A reconveyance deed is used to convey title to a new purchaser in connection with a “trust deed sale”

    Correct Answer
    A. A reconveyance deed is used to convey title to a new purchaser in connection with a “trust deed sale”
    Explanation
    A reconveyance deed is given by a trustee to the borrower (trustor) after a loan has been
    paid in full. The borrower records his deed of reconveyance to clear the loan lien from
    the record.

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  • 12. 

    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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  • 13. 

    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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  • 14. 

    A prospective client calls you and asks you to take a listing on his property. In review hispapers you discover he is purchasing the property on a contract of sale that has no accelerationclause, and that has no provision in the contract prohibiting a resale or an assignment. Whichof the following is the most nearly correct statement? Your client could:

    • Sell his interest in the property, but only if he pays off the contract first

    • Sell or assign his rights but not his duties under the original contract unless the contract seller’s approval was obtained

    • Property give the purchaser a warranty deed to the property providing the deed recited “subject to the existing contract of sale”

    • Properly give the purchaser a grant deed to the property, providing he took back a recorded purchase money second trust deed to cover the payments due on the original contract of sale

    Correct Answer
    A. Sell or assign his rights but not his duties under the original contract unless the contract seller’s approval was obtained
    Explanation
    A party purchasing property under a land contract of sale may sell their interest without
    difficulty by assigning the contract, provided there is no prohibition on the agreement.
    The assignee would still be secondarily liable for some of the terms of the contract unless
    the seller’s approval was obtained.

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  • 15. 

    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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  • 16. 

    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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  • 17. 

    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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  • 18. 

    A real estate broker is usually:

    • A fiduciary to a person interested in buying a property the broker has listed

    • An attorney-in-fact

    • An agent serving the principal under a duly executed power-of-attorney

    • None of the above

    Correct Answer
    A. None of the above
    Explanation
    The broker is usually the agent (fiduciary) of the seller and usually does not have a powerofattorney.

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  • 19. 

    The best definition of a straight note is:

    • Sometimes secured by a trust deed

    • Sometimes used to finance real property

    • Principle is all due at one time

    • All of the above

    Correct Answer
    A. Principle is all due at one time
    Explanation
    A straight note has no principal payments and principal is due all at one time.

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  • 20. 

    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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  • 21. 

    A contract which, according to the Statute of Frauds, must be in writing in order tomaintain a court action for enforcement is:

    • The employment of a business opportunity broker to sell the stock, fixtures and goodwill of a business

    • The employment of a business opportunity broker to find a business to be purchased by his principal

    • The employment of a broker to exchange leases on properties zoned for retail business

    • Any agreement which is not to be performed within one year

    Correct Answer
    A. Any agreement which is not to be performed within one year
    Explanation
    Statement of fact.

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  • 22. 

    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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  • 23. 

    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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  • 24. 

    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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  • 25. 

    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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  • 26. 

    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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  • 27. 

    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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  • 28. 

    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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  • 29. 

    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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  • 30. 

    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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  • 31. 

    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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  • 32. 

    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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  • 33. 

    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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  • 34. 

    In appraisal practice, all of the following are accepted methods of computing the estimateof a building cost, except:

    • The development method

    • The quantity survey method

    • The unit-in-place cost method

    • The cubic foot method

    Correct Answer
    A. The development method
    Explanation
    Choices “b”, “c” and “d” are all methods of estimating the building cost; “a” is the method
    used to estimate value of vacant land.

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  • 35. 

    The right to foreclose a trust deed, under a trustee’s power of sale, outlaws:

    • In four years

    • N three years

    • In two years

    • Never

    Correct Answer
    A. Never
    Explanation
    A trust deed is not a contract, but rather a conveyance of the naked legal title with the
    power of sale from the trustor to the trustee. Therefore, the trustee retains the right to sell
    the property under the trust deed at any time for the benefit of the beneficiary. The
    conveyance has been performed and thus is not under the Statute of Limitations;
    therefore, it never ‘outlaws’.

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  • 36. 

    Broker Stiles took a listing from a seller using the standard listing form. One week beforethe listing expired, the broker informed the seller that he had a prospective buyer namedBennett. After the listing expired, the seller listed with Broker Johnson. Johnson showed theproperty to Mr. Bennett and obtained an offer that was accepted. Under these circumstances:

    • Broker Stiles gets a 6% commission

    • Broker Johnson gets a 6% commission

    • Both brokers get a 6% commission

    • Broker Stiles gets a 3% commission and broker Johnson gets a 3% commission

    Correct Answer
    A. Broker Johnson gets a 6% commission
    Explanation
    In the safety clause of the standard listing form, Broker Stiles would agree to relinquish
    his safety period if the property were listed with another broker.

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  • 37. 

    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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  • 38. 

    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.

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  • 39. 

    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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  • 40. 

    An owner of a 5 unit apartment building that is located within the city limits intends tocovert the building into 5 condominium units and offer them for sale to the public. Under thesecircumstances, the developer:

    • Must obtain a public report from the Real Estate Commissioner under the Subdivided Lands Act

    • Must file a map with the city under the provisions of the Subdivided Map Act

    • Is exempt from the Subdivided Lands Act and the Subdivision Map Act

    • Must comply with the Subdivided Lands Act and the Subdivision Map Act

    Correct Answer
    A. Must file a map with the city under the provisions of the Subdivided Map Act
    Explanation
    Any type of subdivision located within the city limits is exempt under the Subdivided
    Lands Act but a condominium conversion of 5 units or more is covered under the Map
    Act and must be filed with the local authorities.

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  • 41. 

    Option to renew a lease is a:

    • Covenant

    • Restriction

    • Limitation

    • Condition

    Correct Answer
    A. Covenant
    Explanation
    An option to renew a lease is a promise by the lessor to do so in the event the lessee
    desires it. A promise in a contract is a ‘covenant’.

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  • 42. 

    Which of the following is a legal term used to describe the entire parcel of real property andall structures on such property?

    • Condominium

    • Condominium unit

    • Condominium project

    • All of the above

    Correct Answer
    A. Condominium project
    Explanation
    When you consider the condominium units as well as the common areas, you have a
    condominium project.

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  • 43. 

    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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  • 44. 

    RESPA requires delivery of the uniform settlement statement not later than:

    • 10 calendar days after the loan commitment is made

    • 3 business days prior to the close of the transaction

    • 1 calendar day prior to the close of the transaction

    • At or before the date of settlement

    Correct Answer
    A. At or before the date of settlement
    Explanation
    Upon request, the lender must allow the borrower to inspect the uniform settlement
    statement one day prior to the close of the transaction but the statement must be delivered
    only at or before the date of settlement.

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  • 45. 

    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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  • 46. 

    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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  • 47. 

    The owner of a single family residence plans to sell and wants to obtain an FHA appraisalto permit a sale with FHA financing. He should:

    • Contact the nearest FHA office for an appraisal of this property

    • Have a lender apply for a firm commitment

    • Have a lender apply for a conditional commitment

    • Submit a recent appraisal of his home to FHA

    Correct Answer
    A. Have a lender apply for a conditional commitment
    Explanation
    The recommended process for the lender to contact FHA for a ‘conditional’ commitment;
    that is; for advance assurance that an FHA loan will be made, establishing the loan value
    for the house.

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  • 48. 

    In regards to real estate brokerage, which of the following statements is correct:

    • The commission a broker may charge for the sale of a home is limited by law

    • In an exclusive agency listing, a seller may sell without being liable for a commission

    • All agreements to divide commissions between cooperating brokers must be in writing

    • Under no circumstances may a broker collect a commission if a sale is consummated after a listing has expired

    Correct Answer
    A. In an exclusive agency listing, a seller may sell without being liable for a commission
    Explanation
    An exclusive agency listing, a seller agrees to pay a commission to the listing broker. It is
    the listing broker’s responsibility to pay any other agent who sell the property.

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  • 49. 

    A buyer defaults in making payments on a loan, therefore the lender’s action probablywould result in:

    • Subordination

    • Escalation

    • Acceleration

    • Alienation

    Correct Answer
    A. Acceleration
    Explanation
    Acceleration indicates the right to declare the entire sum of a note to be due and payable
    immediately. Most trust deeds contains several acceleration clauses. Most common states: “if you become delinquent in the payment on this note, the entire sum of the note
    becomes due and payable immediately. Another states: “The entire sum of the note is due
    upon the sale or transfer of the property”. – triggered by the sale of the property and
    therefore is a specific “acceleration clause”. The rule is: alienation clauses are types of
    acceleration clauses but not all acceleration clauses are alienation clauses.

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