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License Law and Math Practice Exam
Terms in this set (50)
John Grant, known to all as a man of integrity and honesty is 19 years old. Seven months ago, John finished and passed his salesperson examination. Why can John NOT receive a license?
John did not apply for license within six months after finishing the salesperson's class.
A salesperson working as an independent contractor for a broker may:
List and sell 10 houses a year
A property is being appraised by the cost approach. The appraiser estimates that the land is worth $33,000 and the replacement cost of the home is $110,000. A new $20,000 garage was recently added. Total depreciation from all causes is $7,000. What is the indicated value of the property?
$156,000------->Value = land value + (improvements + capital additions - depreciation), so $33,000 land value + ($110,000 home replacement cost + $20,000 garage addition - $7,000 depreciation) = $156,000.
A Missouri broker
Shall retain for a period of at least three (3) years true copies of all business books
If a sworn complaint is filed with the MREC alleging misconduct on the part of a licensee, the Commission
Shall investigate the actions of the licensee against whom the complaint is made
A property has sold for $185,000. The listing agreement calls for a commission of 6.5%. The listing broker and selling broker agree to share the commission equally. What will the listing agent receive if the agent is scheduled to get a 65% share from his broker?
Anne obtains a new loan @ 80% of her home's price of $740,000. The loan constant is 5.645. What is Anne's monthly payment?
$3,342------------------->Monthly payment = (loan amount / 1000) x loan constant. Loan amount = $740,000 x 80%, or $592,000. 592,000 / 1000 = 592 x 5.645 constant = $3,341.84, or $3,342.
A property is purchased for $480,000. The land is valued at 10% of the initial purchase price of the property. Given a 39-year depreciation term, what is the annual depreciation expense?
Annual depreciation = beginning depreciable basis (initial property value + capital improvements - land value) / depreciation term. So, ($480,000 - $48,000 land value) / 39 years = $11,076.9 or $11,077.
Salesperson Falk lists the home of Seller Spence. It has been a very rainy spring and the basement has had a considerable amount of water in it, which Seller Spence readily discloses to Salesperson Falk. Which of the following statements is true?
Salesperson Falk should inform a prospective purchaser of this fact and include the disclosure in writing with the sales contract.
Salesperson Baird was born in Finland. He moved to Missouri, went to a pre-license school, took and passed the test, and was licensed. He then sold a property. Would Baird be eligible for a commission?
Yes, since he fulfilled the legal requirements of the law.
A real estate office was located in a nice, residential neighborhood. The broker did not want to put up a large sign so he/she put up a small sign with his/her name and phone number on it. Is this permissible?
Yes, as long as it is of sufficient size to be identifiable
A new broker is considering opening his office in his home. Which is true?
It must be open to the public during regular business hours or at regular stated intervals.
Which is true when a corporation receives a broker's license?
All corporate officers involved in the management of the brokerage business must have active broker-officer licenses.
Broker Carr has taken a listing from Seller Dole, what must he do?
He must give him a copy of all documents at the time of signing.
A buyer will receive a power bill for an estimated $140 at the end of the month. At closing, the seller has used an estimated $67 in power. What should appear on the closing statement?
Credit the buyer $67 and debit the seller $67 Credit buyer and debit seller for seller's share, so buyer should be credited $67, and seller should be debited $67.
If a rectangular office space is 72 feet wide and has a 410-foot perimeter, what is its area?
9,576 square feet
A licensed agent acting as a property manager deposits current rental money received into a
Property management escrow account
A licensed broker may engage in all EXCEPT
Create and write leases without the approval of legal council
What does the salesperson have to disclose?
There is a septic system.
Phillip advised his clients they needed to paint their master bedroom before showing the property. The walls of this room were 11' high. The wall lengths were 13', 19', 13', and 17'. If a gallon of paint covers 180 SF, how many whole gallons would the home sellers have to buy?
11 x 13 = 143 SF of 1 wall x 2 = 286 SF of 2 equal walls. 11 x 19 = 209 SF of 3rd wall. 11 x 17 = 187 SF of 4th wall. 286 + 209 + 187 = 682 SF of all walls. 682 / 180 SF per gallon = 3.7 gallons, or 4 whole gallons of paint needed.
A lender offers an investor a maximum 85% LTV loan on the appraised value of a property. If the investor pays $160,000 for the property how much will the investor have to pay as a down payment?
$24,000-------->Loan = LTV ratio x price, so down payment = price - loan, or 85% x $160,000 = 136,000 loan amount. $160,000 price - $136,000 loan = $24,000 down payment.
A potential buyer asked a broker to show him/her where the property lines are located. The broker gave a partial metes and bounds description by stating that the boundaries ran from a stone wall to a stake even though he knew that his description was not necessarily accurate. When the buyer attempts to put up a fence his/her neighbors inform him/her of the correct property lines. The buyer
May file a complaint based on misrepresentation to get the broker's license suspended or revoked
A farmer wants to net at least $10,000/acre on the sale of his 80-acre property. If he allows for a total of 10% for commissions and closing costs, what should his listing price be per acre? Assume the farmer has no mortgage.
(Desired net + closing costs) / (1 = commission rate) = sale price, so $10,000 desired net / (1 - .10 commission rate =) .90 = $11,111 sale price per acre.
A developer wants to develop an 18-acre subdivision. He figures that the streets and common area will take up about 20% of this overall area. If the minimum lot size is to be 10,000 SF, how many lots can the developer have on this property?
62 lots-------->18 acres - 20% = 18 x .20 = 3.6 acres for streets and common area, leaving 14.4 acres for lots (18 - 3.6 = 14.4). 43,560 SF per acre x 14.4 acres = 627,264 SF. 627,264 SF / 10,000 SF per lot = 62.7 or 62 full lots.
A violation of Hulse vs. Criger occurs when a broker
Makes a separate charge for completing any standardized form for persons in transactions in which s/he is not acting as a broker
Upon renewal of his license, a broker must disclose certain information concerning his branch office to the MREC, which would include
The address of the branch office and the name of the licensee in charge of that office
The lender quotes closing costs of $800 plus 2 points on a $610,000 loan. How much will the borrower have to pay?
$13,000 ---------------------------------------------------------> 1 point = 1% of loan amount, so 2 points = 2% of loan amount, or $610,000 loan x 2% = $12,200 + $800 closing costs = $13,000.
The Administrative Hearing Commission will
Make a final ruling of the acts of a licensee regarding finding of facts and ruling of law
In the event of the death or incapacity of a licensed broker, the MREC may
Issue without examination or fee a temporary license to anyone the MREC wishes
An apartment complex generates $905,000 in effective rental income and $14,000 in other income. The same complex has $415,000 in operating expenses and $39,000 as reserves. What is the net operating income of the complex?
$465,000---------------------> Rent income + other income - operating expenses - reserves = NOI, so $905,000 rent + $14,000 other = $919,000 GOI - $415,000 operating expenses - $39,000 reserves = $465,000 NOI.
A broker arranges a purchase agreement with the financing being part of a "first time buyer" bond program. However, the buyer is still $2,000 short of having enough for the down payment. The broker decided to write 2 contracts. One would be taken to the lender showing the $2,000 down as part of the loan. The real contract would NOT be changed. This is
A violation of Missouri law (dual contracts) as you cannot change contracts to borrow extra money
An out of town owner, Seller Carr, writes Broker Falk asking him to sell her residential property. They communicate with several more letters. Can Broker Falk sell Seller Carr's property?
No, there must be a written listing, which contains all of the terms and conditions under which a residential property is to be sold to show or advertise the property.
Which is not true regarding listings?
Both buyer and seller must sign the listing agreement.
If a broker changes his company address, he must
Give the MREC written notice within 10 days
Natalie wants to make a 25% profit on her $70,000 land investment (there is no mortgage). She figures agents charge a 6% commission, and that closing costs will be an additional $1,200. What should she accept as a final sale price (to the nearest hundred)?
(Desired net + closing costs + investment) / (1 = commission rate) = sale price, so $70,000 x 25% = $17,500 desired net + $1,200 closing costs + $70,000 investment = $88,700 / (1 - .06 commission rate =) .94 = $94,361, or $94,400 to nearest hundred.
A building has 9 apartments generating annual potential rent of $1,500 each month. Vacancy = 6% and annual expenses are $84,000. Vending machines yield $1,800 per year. What is the NOI?
$70,080---------> NOI = potential rent - vacancy loss + other income - operating expenses, so $1,500 x 9 units = $13,500 monthly x 12 = $162,000 annual potential rent - $9,720 (6% vacancy) = $152,280 + $1,800 vending income = $154,080 - $84,000 expenses = $70,080 NOI
Dan is buying Jessica's house. The closing date (day belongs to seller) of the sale transaction is March 9th. Current year real estate taxes are $1,900 (will be billed to Dan next year). Use the 365-day method for prorating. What is Jessica's share of the real estate taxes for the current year?
$354 Annual amount / 365 days or monthly amount /length of month = daily amount. Daily amount x # days = proration. So, $1,900 / 365 = $5.21 daily amount x (31 January days + 28 February days + 9 March days =) 68 days = $354.28, or $354 Jessica's share.
Broker Carr has a 90-day listing on a property. One month after the listing began, Broker Dole contacted the seller and told him that he had a buyer moving in one month after the listing terminates and asks the seller to sign an agreement to take effect after the listing expires. This is
A violation of the state law (going behind the sign) which is a class B misdemeanor
A property sells for $140,000 two years after it was purchased. If the annual appreciation rate is 6%, how much did the original buyer pay for it?
Beginning value x (1 + annual rate ) x (1 + annual rate) = appreciated value. So, working backwards with the appreciated value, 1.06 (1 + annual rate) x 1.06 (1 + annual rate) = 1.1236. $140,000 / 1.1236 = $124,600.
A town has a tax base of $411,000,000 and a budget of $850,000. What is the tax rate in terms of mills?
2.1 mills-----------------------> Budget / tax base = tax rate, so $850,000 / $411,000,000 = .00206, or .21%, or 2.1 mills
A property's taxes are $9,540 and are paid for in arrears. The property was sold, and closing took place on March 7. The seller was responsible for the day of closing. Using the 360 day method, how will taxes be prorated?
Credit the buyer $1775.50 and Debit the Seller $1775.50----->Divide the tax bill by 360 ($9540/360 = 26.50) to get your daily rate. Add up how many days the seller is responsible for (30 in Jan, 30 in Feb, + 7 in March=67). Multiply the daily rate by the number of days ($26.50 x 67 = $1775.50).
Posting a " FOR SALE " sign on a residential property without the owner's permission could lead to
Disciplinary action by the MREC
An investor paid $43,000 for a lot and $520,000 to have a strip mall constructed on it. He has depreciated the property for the past 15 years on a 39-year straight-line schedule. If he sells the property this year and realizes $710,000 after closing expenses, what is his capital gain?
Depreciable basis/depreciation term x number years = total depreciation. Depreciable basis - total depreciation = adjusted basis. Amount realized = adjusted basis = capital gain. So, 520,000 depreciable basis / 39 term = $13,333.33 x 15 years = $200,000 total depreciation. $520,000 - $200,000 = $320,000 adjusted basis. $320,000 plus land of $43,000 = $363,000. $710,000 amount realized - $363,000 = $347,000. Depreciation (basis) : $520,000 + $43,000= 563,000-$43,000=$520,000. Note: Land does not depreciate for accounting purposes, that's why it is removed from the depreciated basis and added to the adjusted basis. The adjusted basis is the full investment in the project. Total Depreciation: $520,000*39= $13,333.33 x 15 years = $200,000. Adjusted basis: $520,000+$43,000 (beginning basis or original investment) -$200,000=$363,000. Amount realized= 710,000 (sold). Capital gain: $347,000
On which of the following written listings would the listing broker be entitled to compensation regardless of who sells the property?
An exclusive right to sell
Tyler Holdlong owns a small retail property that he inherited from his father. There are no mortgages or interest expenses connected with the property. Tyler takes an annual cost recovery expense of $3,000. The property has a monthly gross income of $3,500 and monthly operating expenses of $1,100. Tyler's taxable income from this property will be taxed at a rate of 25%. What is the tax liability for the year?
NOI - cost recovery expense - operating expenses = taxable income x tax rate = tax liability, or $3,500 NOI x 12 = $42,000 annual NOI - $3,000 cost recovery - ($1,100 x 12 =) $13,200 operating expenses = $25,800 taxable income x 25% = $6,450 tax liability.
Salesperson Dole took an offer to a seller and the seller looked it over for an hour and then signed it. What should the salesperson do at the time of final acceptance?
Note that all signatures and initials of the parties are present in the contract
A unlicensed secretary employed by a broker in a residential sales office may
Not solicit or accept listings or show listed properties
A person with a broker's license who wishes to operate as a salesperson for another broker could do all EXCEPT
Act as the broker in a corporation
A new agent obtained permission from her friends to put up "for sale" signs in their yards. When buyers called, she told them that the house was sold, but that she would be happy to help them find another. Is this permissible?
No, since the properties were not really for sale, this technique would be considered by the MREC to be a misrepresentation.
Any licensee doing business under any name other than the exact name shown on his/her license
Shall furnish the commission a copy of the registration of the fictitious name as submitted to the Secretary of State
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