Test 9: Closings, Risk Management, and Property Management Coverage

The conditions of an escrow agreement cannot be met and the related transaction cannot be

completed. In such a case, the escrow agent

a. levies a fine against the defaulting party.

b. assigns his or her fiduciary responsibilities to the seller's broker.

c. returns funds to the buyer.

d. cancels the sale contract and destroys the transaction documents.

To avoid violating the Real Estate Settlement Procedures Act, parties who are providing services to

the buyer or seller in a transaction must

a. be paid before the closing date for any service they provide.

b. inform the closing agent of the cost of their services at least one week before the closing date.

c. receive payment only from the funds held in escrow, not directly from buyer or seller.

d. disclose in writing any business relationships they have with other parties involved in the

transaction.

A certain item is to be prorated between a buyer and seller. If no outside party is concerned, which

of the following statements is true?

a. The item must be prorated and recorded as a debit to one party and a credit to the other party for

the same amount.

b. The item must be prorated and recorded as a debit to one party; the remainder is recorded as a

credit to the other party.

c. The party who is owed money receives a credit for the entire item and a debit for the prorated

amount.

d. The party who owes money receives a debit for the portion owed and a credit for the portion that

is not owed.

An item is said to be paid in arrears if it is normally paid

a. on a monthly or yearly basis.

b. at some time after the expense is incurred.

c. only after it is billed.

d. whenever it is incurred.

A seller received a rental payment of $900 in advance. At closing, the seller has earned only $320 of

this rent. What should appear on the closing statement?

a. A debit to the seller and credit to the buyer for $320.

b. A debit to the seller for $580 and a credit to the buyer for $320.

c. A debit to the seller for $320 and a credit to the buyer for $900.

d. A debit to the seller and credit to the buyer for $580.

A buyer will receive a water bill for an estimated $100 at the end of the month. At closing, the seller

has used an estimated $43 in water. What should appear on the closing statement?

a. A debit to the seller and credit to the buyer for $57.

b. A debit to the seller and credit to the buyer for $43.

c. A debit to the buyer and credit to the seller for $57.

d. A debit to the buyer and credit to the seller for $43.

A sale transaction closes on April 1, the ninety-first day of the tax year. The day of closing belongs

to the seller. Real estate taxes for the year, not yet billed, are expected to be $2,190. According to

the 365-day method, what is the seller's share of the tax bill?

a. $1,644.00.

b. $546.00.

c. $959.30

d. $1,364.66.

A sale transaction closes on July 4. The day of closing belongs to the seller. On January 1, the seller

paid a hazard insurance premium of $375 for the calendar year. According to the 12-month/30-day

method, what is the seller's share of the insurance premium?

a. $183.33.

b. $187.50.

c. $189.05.

d. $191.67.

Waldo is buying Marianne's house. The closing date (day belongs to seller) of the sale transaction is

September 1 (day 244 of the year). Current Year real estate taxes are $1,100 (will be billed to buyer

next year). Use the 365-day method for prorating. What is Marianne's share of the real estate taxes?

a. $364.66.

b. $367.67.

c. $732.33.

d. $735.34.

Christie is buying John's house. The closing date (day belongs to seller) of the sale transaction is

September 1 (day 244 of the year). Existing hazard insurance of $350 has been paid by John through

December 31. Use the 365-day method for prorating. What is Christie's share of the existing hazard

insurance already paid in full?

a. $116.03.

b. $117.99.

c. $232.01.

d. $233.97.

Julie is buying Florence's house. The closing date (day belongs to seller) of the sale transaction is

September 1 (day 244 of the year). The buyer's loan amount is $78,750 (90%; 30 years @ 8%).

The monthly payment on this loan is $577.84, with $525 going to interest in the first month. At

closing, Julie must pre-pay interest for the period of Sept. 2-Sept. 30. Use the 365-day method for

prorating. What is Julie's prepaid interest amount?

a. $507.50.

b. $525.00.

c. $543.10.

d. $558.58.

Melissa is buying Raymond's house. Melissa's loan amount is $88,750. She has agreed to pay 2

points at closing. How much will Melissa pay for points?

a. $157.50.

b. $177.50.

c. $1,775.00.

d. $887.50.

Tina is buying Terrell's house for $187,500. The broker's commission, to be paid by the seller, is

6%. How much will Terrell pay the broker?

a. $31,250.

b. $2,625.00.

c. $4,725.

d. $11,250.

A sale contract stipulates that a buyer is to pay the seller's transfer tax expenses. This practice is not

customary in the area. In this case,

a. the buyer and seller must amend the contract before closing.

b. the contract is voidable, since the seller must pay the expense.

c. the buyer may pay or not pay the expense, at his or her option.

d. the buyer must pay the expense.

What a buyer has to pay at closing is equal to

a. the excess of the buyer's debits over the buyer's credits.

b. the excess of the buyer's credits over the buyer's debits.

c. the excess of the seller's debits over the seller's credits.

d. the excess of the seller's credits over the seller's debits.

The standard E & O policy covers damages resulting from

a. failure to disclose an environmental condition.

b. antitrust violations.

c. mishandling of earnest money deposits.

d. negligence, error or omission in carrying out professional services.

Which of the following is a common risk relating to the agency relationship?

a. Failing to inform and disclose properly.

b. Failing to take a personal interest in a transaction.

c. Acting as an exclusive agent without an oral agency agreement.

d. Forgetting to record the listing agreement.

Even after giving buyer and seller the required information about property condition disclosures, the

licensee may still be subject to legal action for

a. failing to detect customer misrepresentations.

b. failing to disclose known adverse facts.

c. relying on publicly available market information.

d. advising the purchaser to exercise due diligence.

A licensee performing a comparative market analysis must be careful to

a. use the term "market value" whenever possible in the report.

b. show a low suggested selling price to avoid a complaint of misrepresenting the value.

c. include the results of a certified appraisal in the analysis.

d. avoid creating a false impression that the licensee is a certified appraiser.

One of the major risk areas in fulfilling a listing agreement is

a. finding a buyer who turns out to be unqualified.

b. exceeding the authority of the agreement.

c. showing the property without the presence of the owner.

d. cooperating with other licensees.

To reduce the risk of committing an error or omission in the contracting process, it is a good idea to

a. use a checklist of all items, contingencies, dates and responsibilities that must be met.

b. delegate some of your responsibilities to the licensee who represents the other party in the

contract.

c. call the buyer and seller daily to check on progress.

d. cut the list of necessary tasks down to a few essentials and concentrate on tracking those.

Regarding contracts and forms,

a. once written and signed they cannot be changed except by a lawyer.

b. real estate licensees may alter forms but not contracts.

c. whoever originates them can make changes without the risk of unauthorized practice of law.

d. the principals may make changes as long as they sign or initial each change.

Fair housing laws are easily violated. An effective way for agents to minimize the risk of doing so is

to

a. deal only with consumers who do not belong to a protected class.

b. obtain education in the content and intent of the laws.

c. make sure there is always a witness present at all meetings with consumers.

d. stay away from transactions involving public housing.

A licensee risks violating antitrust law by

a. being present at a conversation where the setting of commission rates is discussed.

b. being present at a discussion of antitrust laws.

c. charging a commission rate that happens to be the same as that charged by another firm.

d. cooperating with another firm to do market research.

How is an intentional misrepresentation penalized?

a. License discipline, fines, and possible incarceration.

b. License discipline and fines, but no incarceration.

c. License discipline only.

d. Fines only.

Of the following actions, the only one which avoids any risk of committing unintentional

misrepresentation is

a. measuring and reporting property dimensions.

b. describing properties and amenities.

c. stating that a client should seek legal counsel.

d. making statements about the presence or absence of hazardous substances.

To reduce risks inherent in reporting transaction progress to a client, the licensee should

a. make reports orally only, never in writing.

b. leave progress reporting to the inspectors and other experts.

c. advise the client that it is company policy to make no progress reports until the contingency

period is over.

d. avoid speculative statements in all reports

How does sharing the qualifying function with a lender protect a licensee?

a. It guarantees that a buyer will have a loan.

b. It reduces the chance of presenting an offer from an unqualified buyer.

c. It relieves the licensee of his or her due diligence responsibilities.

d. It allows the licensee to avoid asking embarrassing questions.

The area of agent activity where there is the greatest risk of failing to maintain client confidentiality

is

a. trust fund handling.

b. office management.

c. the agency relationship.

d. the closing process.

The area of agent activity where there is the greatest risk of creating a false impression that the

licensee is a certified appraiser is

a. performing a comparative market analysis.

b. writing property advertisements.

c. presenting written offers.

d. researching ownership documents

One of the major risk areas in advertising a listed property is that an advertisement will

a. describe the property in excessively glowing terms.

b. fail to appear at the same time in all available media.

c. omit any mention of the owner's main selling points.

d. make a substantial misrepresentation.

Property managers have a ______ relationship with the property owner.

a. non-binding

b. partnership

c. fiduciary

d. subagency

One of the property manager's fundamental responsibilities is

a. obtaining construction loans for the principal.

b. financial reporting to the principal.

c. finding a buyer for the property.

d. maintaining good standing in a managers' professional association.

Effective gross income is defined as

a. the total of scheduled rents.

b. the total of all rents and revenues generated by a property.

c. potential gross income minus debt service and reserves.

d. revenue from all sources minus losses from uncollected rents, vacancies, and evictions.

The efficiency of marketing activities can be measured in terms of

a. cost per tenant prospect generated per lease.

b. number of ads produced per marketing dollar.

c. dollars expended per square foot of vacant space.

d. percentage of reserves expended on marketing.

If a property's vacancy rate is significantly lower than market rates, it may be a sign that the

manager needs to

a. lower rental rates.

b. raise rental rates.

c. find better tenants.

d. improve management quality.

What are the three kinds of maintenance a manager has to carry out for a managed property?

a. Constructive, deconstructive, and reconstructive

b. Routine, preventive, and corrective

c. Scheduled, planned, and improvised

d. Emergency, elective, and optional

The Americans with Disabilities Act requires property managers to

a. ensure that disabled employees have the same level of access to facilities that all employees have.

b. hire the disabled whenever possible.

c. remove all existing barriers to the free movement of disabled persons within the property,

regardless of the cost.

d. remodel the ground floor of the property in accordance with ADA standards if it was built before

1978.

Commercial fire and hazard insurance policies usually require coverage to equal at least 80 percent

of the property's

a. replacement value.

b. reproduction value.

c. original cost.

d. depreciated basis.

Trust funds to be handled by a property manager are likely to include all of the following except

a. rents collected from tenants.

b. cash for the management firm's operating expenses.

c. security deposits.

d. capital contributions from the property owner.

What kind of agency is commonly created by a management agreement?

a. Universal

b. Specific

c. General

d. Vicarious

Which of the following describes a gross lease?

a. The tenant pays a base rent plus some or all of the operating expenses.

b. The tenant pays a fixed rent, and the landlord pays all operating expenses.

c. The tenant pays a base rent plus an amount based on income generated in the leased space.

d. The tenant pays a rent that increases at specified times over the lease term.

If an apartment contains a refrigerator that is not included in the lease,

a. the lessee is required to buy it from the landlord.

b. the landlord is required to remove it.

c. the lease is invalidated because of an incomplete property description.

d. the property manager does not have to maintain it.

A basic responsibility of a landlord is to

a. provide leased space at market rental rates.

b. deliver a habitable property.

c. keep the rental space freshly painted.

d. refrain from entering the leased space at any time during the lease term.

How does a constructive eviction occur?

a. A landlord obtains a court order to force the tenant to vacate the leased premises.

b. A court officer forcibly removes the tenant from the premises.

c. A tenant declares a landlord in default and vacates the leased premises.

d. A landlord declares a tenant in default and takes possession of the leased premises.

Among the essential elements of a management plan is consideration of

a. the competitive market for the property.

b. the property manager's career goals.

c. the property owner's net worth.

d. the management firm's income goals.