Iowa Real Estate Practice Exam.
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Answer: D
Mineral, or subsurface, rights can be severed from surface ownership and retained separately, which is exactly what the seller did by keeping the right to extract limestone. Air rights concern the space above land, riparian rights involve use of adjacent water, and a leasehold interest is a tenancy rather than a retained ownership right.

Answer: B
An unauthorized physical intrusion onto a neighbor's land, such as a misplaced fence, is called an encroachment and can typically be forced to be removed. An easement is a granted right of use rather than an unauthorized structure, eminent domain is a government taking of land for public use, and adverse possession requires years of open, hostile occupation, which a two-foot fence dispute alone does not establish.

Answer: B
A restrictive covenant, or deed restriction, is a private limitation written into deeds that runs with the land and controls how it may be used. Zoning ordinances are public regulations imposed by local government rather than private deed language, building codes govern construction standards rather than land use, and an easement grants a right of use rather than restricting one.

Answer: B
Dual agency occurs when one broker represents both principals in the same transaction, which requires informed written consent because full loyalty and confidentiality to each side become limited. Single agency means the broker represents only one party, subagency involves a cooperating broker who represents the listing broker's client without directly agreeing to represent the buyer, and designated agency assigns different individual licensees within a firm to each party to avoid one person representing both.

Answer: B
A use that was lawful when established but no longer conforms to a later zoning change is generally allowed to continue as a legal nonconforming, or grandfathered, use. A variance is a case-by-case exception an owner must request, a conditional use permit authorizes a new use under specific conditions, and spot zoning improperly singles out one parcel for different treatment and is generally disfavored rather than a basis for continuing an existing use.

Answer: A
The duty of loyalty requires an agent to place the client's interests above the agent's own, avoiding self-dealing or conflicts of interest. Disclosing a client's confidential negotiating position would actually violate the separate duty of confidentiality, while splitting attention between two interests or following instructions only when profitable both describe self-interested behavior that breaches the duty owed to the principal.

Answer: D
When a customer is unrepresented, the agent still owes basic duties of honesty, fair dealing, and disclosure but not the fiduciary duties of loyalty, obedience, and confidentiality that flow only to the client the agent actually represents. Simply assisting with paperwork does not create an agency relationship without an agreement to represent the buyer, dual agency requires an intentional agreement with informed consent rather than incidental assistance, and loyalty here is owed to the seller, not transferred to an unrepresented customer.

Answer: A
A subagent is engaged by, and owes fiduciary duties to, the same principal as the original agent — here the seller (the estate) — even though the subagent works directly with the buyer to locate a property. The buyer in a subagency relationship is a customer of the subagent rather than a client, so no fiduciary duty flows to the buyer, and because a genuine agency relationship exists with the seller, describing the duty as owed to both equally or to no one misstates how subagency functions.

Answer: A
Any change to a material term of an offer, including the length of an inspection period, constitutes a counteroffer, which legally rejects the original offer and creates a new offer for the buyer to accept or reject. Changing a term prevents true acceptance from occurring since acceptance must mirror the original offer exactly, an option contract requires separate consideration for the right to purchase, and because a material term changed, this is not a mere clarification.

Answer: B
Legal capacity of the parties is one of the elements required for an enforceable contract, and a minor lacks full capacity, so a contract signed by a minor is voidable at the minor's election rather than automatically binding. It is not void from the outset, since the minor may choose to affirm it; depositing earnest money does not cure the capacity defect; and ratification requires the minor's own affirming act after reaching majority, not an automatic effect of turning 18.

Answer: A
A financing contingency protects the buyer by making the purchase conditional on securing a loan, so if financing genuinely falls through and the buyer follows the required notice steps, the buyer can typically terminate and reclaim the earnest money without penalty. Forfeiting the deposit would defeat the purpose of the contingency the seller agreed to, specific performance is a remedy for breach that does not apply when a valid contingency was properly invoked, and nothing converts an unmet financing contingency into a lease arrangement.

Answer: C
Buying property subject to an existing mortgage means the buyer takes title while the original borrower remains personally liable for the debt, unlike a formal assumption where the buyer agrees to become personally responsible for repaying the loan. A wraparound mortgage is a separate arrangement where a new loan wraps around and includes the existing one, and a deed in lieu of foreclosure is a way for a defaulting borrower to transfer title to the lender, unrelated to this buyer's purchase.

Answer: D
A general warranty deed provides the strongest protection, with the grantor warranting clear title against claims arising both during and before their ownership and promising to defend that title. A quitclaim deed conveys only whatever interest the grantor may have with no warranties at all, a special warranty deed only warrants against defects arising during the grantor's own period of ownership, and a bargain and sale deed implies the grantor holds title but includes no express warranties defending against claims.

Answer: B
A quitclaim deed conveys only the grantor's present interest, if any, without any promises about the quality or validity of title, which makes it common for clearing up clouds on title or transferring uncertain interests. A general warranty deed and special warranty deed both include express title guarantees, contradicting the no-warranties description, and a grant deed typically implies at least a limited warranty that the grantor has not already conveyed the property to someone else.

Answer: C
When a seller acts as the lender and the buyer repays the seller directly under a note secured by the property, this is seller or owner financing. A wraparound mortgage is a more specific type of seller financing where a new loan wraps around and includes an existing loan the seller keeps in place, a blanket mortgage covers multiple properties under one loan, and a home equity line of credit is financing a homeowner draws against their own equity, unrelated to financing a buyer's purchase.

Answer: B
Each point equals one percent of the loan amount, so 4 points on a $147,000 loan equals 4% of $147,000, or $5,880. Using 3% or 5% instead of the actual 4% rate produces the other two dollar figures shown, and multiplying by 0.40 instead of 0.04 mistakenly inflates the result tenfold to $58,800.

Answer: C
LTV compares the loan amount to the property's value; the loan amount here is $145,000 minus the $29,000 down payment, or $116,000, and $116,000 divided by $145,000 equals 80%. Twenty percent is simply the down payment's share of the price rather than the loan's, twenty-five percent results from dividing the down payment by the loan amount instead of the loan amount by the value, and eighty-four percent does not correspond to any correct calculation using these figures.

Answer: C
RESPA prohibits undisclosed kickbacks and referral fees between settlement service providers because they inflate consumer costs without their knowledge. Providing a Loan Estimate of closing costs is exactly what RESPA requires rather than prohibits, charging a disclosed, reasonable fee for services actually rendered is permitted, and RESPA specifically protects a buyer's right to select their own title insurance provider rather than being steered to one.

Answer: A
An ARM's defining feature is that its interest rate adjusts periodically according to a market index, which can cause payments to rise or fall over the loan term. A rate locked for the full term describes a fixed-rate mortgage, the opposite of an ARM, prepayment penalties are a separate loan feature not inherent to ARMs specifically, and ARM payments can rise as well as fall depending on index movement, so they do not always decrease.

Answer: B
Prorating an expense like annual property tax at closing divides it fairly between buyer and seller according to how much of the tax period each party actually owned the property, so if the seller had not yet paid, the buyer is credited for the seller's unpaid share. This proration does not create a lender collection requirement by itself, it does not shift the entire liability onto the buyer's future bill beyond the seller's fair share, and transfer tax is a distinct closing cost unrelated to the ongoing property tax proration.

Answer: C
GRM is calculated by dividing the sale price by the gross monthly rent, so $222,000 divided by $1,480 equals a GRM of 150. Using annual rent of $17,760 instead of the monthly figure in the denominator produces 12.5, confusing the monthly and annual versions of the multiplier, and shifting the decimal point in the rent figure produces the 15 or 1.5 results from arithmetic slips rather than the correct monthly-rent divisor.

Answer: A
The sales comparison approach estimates value by analyzing recent sales of similar comparable properties and adjusting for differences. The cost approach instead estimates value based on the cost to reproduce or replace improvements minus depreciation plus land value, the income capitalization approach values property based on its income-producing potential rather than comparable sales, and highest and best use analysis identifies the most profitable legally permissible use of land, a distinct analytical step rather than a valuation approach based on sales data.

Answer: D
A CMA is prepared by a real estate licensee to help a seller set a realistic listing price by examining recently sold comparable properties along with current active and expired listings, but it is not a certified appraisal, which only a licensed appraiser can legally provide for lending purposes. A CMA plays no role in calculating official property tax assessments, which are performed by the county assessor, and determining a capitalization rate is an income-property valuation concept unrelated to typical CMA use.

Answer: C
For licenses expiring on December 31, Iowa's renewal period opens on November 16, giving licensees a window before the expiration date to complete renewal requirements. October 1 and December 1 are plausible-sounding dates that do not match the specific date Iowa's licensing rules establish, and January 1 of the following year would actually be after the license had already expired, defeating the purpose of a renewal window.

Answer: B
While disclosure requirements for stigmatized properties vary and licensees are not always required to volunteer such information unprompted, once a buyer asks a direct question, giving a knowingly false answer is a misrepresentation that violates a licensee's basic duty of honesty. Claiming such matters are never material oversimplifies the nuanced treatment of stigmatized-property disclosure, and refusing to answer or redirecting the buyer elsewhere avoids the honesty obligation triggered once a direct, specific question has actually been asked.

Answer: A
Licensees are generally required to affirmatively disclose their licensed status and the brokerage they represent early in dealings with the public, particularly at first contact, so consumers understand they are speaking with a professional representing a specific party's interests. The presence of signage does not substitute for the personal disclosure obligation once direct contact occurs, and waiting until a showing or only responding if asked both delay disclosure beyond the point it is generally required.

Answer: C
Describing a merely patched roof as brand-new is a false, materially misleading statement in advertising, which constitutes misrepresentation and can expose the licensee to liability and discipline. Steering involves improperly directing homebuyers toward or away from certain neighborhoods based on protected characteristics, blockbusting involves inducing panic selling by suggesting demographic change is imminent, and commingling refers to improperly mixing client funds with personal funds, none of which describe a false statement about a physical feature.

Answer: B
An agent who represents the seller owes loyalty and advocacy to the seller, so offering the unrepresented buyer negotiating advice about whether a price is fair would improperly benefit one party at the seller's expense. Honesty obligations require avoiding misrepresentation but do not require providing advocacy-level counsel to the other side, steering the buyer toward whatever closes the deal fastest could harm the buyer and breach fair-dealing duties toward a customer, and refusing to communicate at all is unnecessary since basic factual answers and honesty are still owed to an unrepresented party.

Answer: B
A material fact is information that would likely affect a reasonable buyer's decision to purchase or the price offered, and a known structural defect like a foundation problem clearly meets that standard. A seller's personal motivation for moving, their original purchase price, and their religious affiliation are generally not material facts affecting the physical condition or legal status of the property, and disclosing personal or protected-class information would raise separate fair housing concerns rather than fulfilling a disclosure duty.

Answer: A
The Fair Housing Act requires housing providers to make reasonable accommodations for tenants with disabilities, which includes waiving a no-pets policy for a service or assistance animal because such an animal is not treated as a pet. Charging extra pet rent or a pet deposit is not permitted for a service animal, and a landlord cannot condition the accommodation on approval from other residents or deny it outright.

Answer: B
Redlining refers to a lender or insurer denying or limiting services, such as favorable loan terms, to an entire area based on the racial or ethnic makeup of its residents rather than individual applicant qualifications. Steering describes an agent directing homebuyers toward or away from areas based on protected class, a brokerage practice rather than a lending practice, panic peddling is another term for blockbusting, inducing sales through fear of neighborhood change, and puffing refers to exaggerated but non-fraudulent sales talk, an unrelated advertising concept.

Answer: C
Iowa requires salesperson exam applicants to be at least 18 years of age. Twenty-one is the minimum required for some other professional licenses but not this one, sixteen is below the legal age of majority typically required for licensure, and twenty-five overstates the actual statutory minimum and would unnecessarily restrict eligible candidates.

Answer: C
Iowa requires applicants to successfully complete a Commission-approved 60-hour pre-license course within the 12 months before taking the salesperson examination, so 40 completed hours is not yet enough. Thirty hours is insufficient to meet this statutory education requirement, while ninety and one hundred twenty hours both overstate the actual required hours.

Answer: B
Iowa's post-license education requirement consists of 12 hours each of Developing Professionalism and Ethical Practices, Buying Practices, and Listing Practices, totaling 36 hours. Twenty-four hours would only account for two of the three required 12-hour components, while forty-eight and sixty hours both overstate the requirement.

Answer: A
Iowa requires candidates to apply for their salesperson license no later than the last business day of the sixth month following the date they passed the qualifying examination, or the exam results expire. A 30-day window is far shorter than the actual statutory allowance, tying the deadline to the calendar year rather than the exam date misstates how the rolling six-month period is calculated, and claiming there is no deadline ignores the clear statutory expiration tied to the exam date.

Answer: A
Revocation, the permanent termination of a license, is the most severe disciplinary tool available for serious and repeated misconduct like habitual commingling of client trust funds. A mere verbal warning would be a disproportionately lenient response to repeated, serious violations, a reduced renewal fee is not a disciplinary sanction at all, and requiring only a single continuing education class is a comparatively minor remedial measure rather than the most severe available consequence.

Answer: A
License law generally reserves activities like negotiating the price and terms of a real estate transaction on behalf of another party for compensation to licensed individuals, since these are considered licensed activities requiring the education and accountability licensure ensures. Unlicensed assistants can lawfully perform many administrative and clerical tasks, so a blanket ban on employing them in any capacity misstates the rule, insurance coverage is a separate business consideration rather than the core legal problem here, and a broker cannot retroactively cure an unlicensed person's unauthorized negotiation simply by approving it after the fact.

Answer: D
Once a license lapses due to incomplete renewal requirements, the individual is no longer authorized to perform activities requiring licensure until the license is properly reinstated or renewed. Continuing to practice simply because education will eventually be completed ignores that the license itself is not currently valid, there is no partial validity that permits unlicensed showings while barring compensation since license-required activities are treated as a unified category, and a lapsed license does not automatically transform into a different license type like inactive broker status without a separate, affirmative action.

Answer: D
An unconditional grant of ownership to a person and their heirs forever describes a fee simple absolute, the most complete form of ownership. A life estate ends automatically at someone's death, a fee simple determinable includes a condition that could end the interest, and a leasehold is a tenant's temporary right to possess property, not full ownership.

Answer: A
An easement by necessity arises when a single tract is divided and one resulting parcel is left landlocked, giving that owner a right of access across the other parcel even without express deed language. An easement in gross benefits a specific person rather than land, a prescriptive easement requires years of open, continuous, hostile use, and a license is merely revocable permission rather than a lasting property right.

Answer: A
A variance is permission to deviate from a specific zoning requirement, such as a setback, because of a unique hardship tied to the lot itself. A special use permit authorizes a use the zoning already contemplates under set conditions rather than a dimensional deviation, rezoning changes the land's entire classification, and nonconforming use status protects an existing use that predates a zoning change rather than new construction.

Answer: B
In an open listing, a seller may work with any number of brokers and owes a commission only to whichever broker actually procures the buyer, while retaining the right to sell the property personally without owing a fee to anyone. An exclusive right to sell entitles the listing broker to a commission no matter who finds the buyer, including the seller, an exclusive agency listing still requires paying a broker if any of them sells it, and a net listing bases the broker's fee on the excess over a minimum price the seller wants, which is not described here.

Answer: C
The duty of confidentiality obligates an agent to protect a client's financial information, including budget limits, from the other side unless the client authorizes disclosure. Volunteering the true maximum would undermine the buyer's negotiating position and breach loyalty, while deliberately stating a false figure could itself be misrepresentation, and a promise of secrecy from the opposing agent provides no real protection and does not cure disclosing confidential information without authorization.

Answer: C
Earnest money belongs to the parties to the transaction and must be held in a broker's trust or escrow account, never mixed with a licensee's personal funds. Commingling client money with personal funds is a serious trust-account violation regardless of any intent to save time, and this is neither a standard procedure nor a permissible commission advance since the money never belonged to the salesperson.

Answer: B
Agency disclosure is meant to ensure a consumer understands whom the licensee represents before sharing information that could compromise their interests, so it is expected early, at first substantive contact, rather than after commitments are already made. Waiting until a contract is signed, until closing, or only responding if asked would each delay disclosure past the point where it protects the consumer's ability to make an informed choice.

Answer: D
Once a seller signs a binding purchase agreement, conveying the same property to a different buyer instead breaches that first contract and denies the auction winner the property they bargained for. Rescission typically requires mutual agreement or legal grounds rather than a unilateral decision to resell elsewhere, an auction purchase agreement creates binding obligations just like any other purchase contract, and a deed conveys legal title once, so an earlier signed contract creates rights the seller cannot simply give away without liability.

Answer: A
A valid conveyance requires not just a properly executed deed but delivery to, and acceptance by, the grantee during the grantor's lifetime; without delivery, even a signed and notarized deed conveys nothing and the property remains part of the grantor's estate. Signing and notarizing alone do not transfer title, recording provides public notice and priority rather than being the act that transfers ownership, and while recording is advisable, its absence is not what defeats this conveyance — the missing delivery is.

Answer: B
With a fully amortizing fixed-rate loan, each level payment covers accruing interest first, and as the balance declines the interest portion shrinks while the principal portion grows, which is exactly the shift the homeowner is seeing. A fixed-rate loan's note rate does not periodically drop on its own, negative amortization describes a balance that grows rather than shrinks, and scheduled payments on a fixed-rate loan do not automatically increase for inflation.

Answer: B
The income capitalization approach values a property by dividing net operating income by the capitalization rate, so $31,200 divided by 0.06 yields $520,000. Using a higher cap rate of 6.5% or a lower one of 5.5% produces the other two dollar figures shown, since a small change to the rate materially shifts the result, and treating the cap rate as a whole-number multiplier (NOI × 6) instead of dividing by the decimal rate, as in the $187,200 option, reverses the correct formula and produces a value far too low for the stated income.

Answer: D
The GRM approach estimates value by multiplying the gross rent multiplier by the property's gross monthly rent, so 150 times $1,480 equals $222,000. Shifting a decimal point produces the $22,200 result, substituting a multiplier of 100 for the actual 150 produces $148,000, and applying a multiplier of 10 to the annual rent figure instead of using the correct monthly-rent formula produces $177,600.

Answer: D
The cost approach, which estimates the cost to construct a similar new structure minus depreciation plus land value, is especially useful for new construction where reliable comparable sales are scarce because depreciation is minimal and construction costs are readily estimable. The income approach is best suited to income-producing property rather than a typical owner-occupied new home, the GRM approach also depends on rental income data that would not usually apply here, and applying the sales comparison approach to dissimilar older homes would undermine the reliability the approach depends on truly comparable properties.

Answer: C
Sellers are generally required to disclose known material defects that affect a property's value or desirability, and past flooding is a classic example of a material fact a reasonable buyer would want to know. Relying on a future inspector to catch the issue does not relieve the seller of the independent duty to disclose known defects, and limiting disclosure to only when directly asked, or only after a rejected offer, both fail to meet the requirement to proactively disclose known material facts in the required disclosure statement.

Answer: B
Funds belonging to clients or tenants, such as security deposits, must be held in a separate trust or escrow account distinct from the licensee's personal or business operating funds to protect the money and maintain proper accountability. Depositing them into a personal account would constitute commingling, a serious violation, converting to cash and storing on-site creates unnecessary risk and defeats proper accounting, and forwarding the funds to the tenant's own account defeats the purpose of holding a security deposit during the tenancy.

Answer: A
Familial status, meaning the presence of children, is a protected class under the federal Fair Housing Act, and refusing to rent based on assumptions about children constitutes illegal discrimination. A generalized concern about wear and tear does not override the protected-class prohibition, the narrow owner-occupied exemption does not apply to a landlord renting out a duplex he doesn't live in, and national origin is a separate protected class not implicated here.

Answer: B
Steering occurs when an agent guides homebuyers toward or away from certain neighborhoods based on a protected characteristic like race, which matches the agent limiting one buyer's options by zip code while giving another buyer broader access. Redlining refers to lenders or insurers denying services to entire geographic areas based on the racial composition of residents rather than an agent's showing behavior, blockbusting involves inducing sales by suggesting a neighborhood's racial composition is changing, and testing is a fair-housing enforcement method where investigators pose as homeseekers to detect discrimination, not itself a form of discrimination.

Answer: D
Federal law requires sellers of housing built before 1978 to disclose known lead-based paint hazards and provide an EPA-approved information pamphlet before the buyer is obligated under a contract, and a home built in 1962 falls squarely within that requirement. A radon test, termite certificate, and energy-efficiency certification may be good practice or required by specific local rules or lender conditions, but none of them is the specific federally mandated disclosure tied to a home's pre-1978 construction date.

Answer: D
The Fair Housing Act includes a narrow exemption sometimes called the Mrs. Murphy exemption for owner-occupied buildings with a small number of units where the owner lives on-site and does not use a real estate agent or discriminatory advertising. Large brokerages, sizable apartment complexes, and mortgage lenders serving the general public do not fall within this narrow, specific exemption and remain fully subject to the Act's requirements.

Answer: A
The Iowa Real Estate Commission is the state regulatory body responsible for licensing real estate professionals and enforcing license law, including disciplinary authority. The Secretary of State handles matters like business entity filings and elections rather than real estate licensing, the Iowa Association of REALTORS is a private trade association that cannot legally discipline a license, and the Department of Revenue administers state tax matters unrelated to professional licensing discipline.

Answer: A
Voluntary compliance is a disciplinary approach where a regulatory body allows a licensee to correct a deficiency and come into conformity rather than pursuing harsher discipline, appropriate for a minor, first-time, non-harmful violation. Revocation permanently terminates the license, a disproportionate response to a corrected minor infraction, criminal prosecution involves the court system for criminal conduct rather than administrative violations of this nature, and automatic expiration relates to failing to renew a license on time, unrelated to a disciplinary finding.

Answer: C
Depositing client funds into a broker's personal or general operating account constitutes commingling, a clear violation of trust account rules requiring client funds to be kept separate. Maintaining a distinct, clearly labeled trust account is precisely what proper handling requires rather than a violation, and keeping accurate records of whose funds are held, along with promptly depositing funds within required timeframes, both describe compliant practices rather than violations.

Answer: C
A supervising broker bears responsibility for reasonably overseeing the licensed activities of affiliated salespersons conducted under the broker's license, which is a core reason brokers can face discipline for a salesperson's misconduct. The broker is not required to personally complete every document since salespersons independently handle much of their own transaction work under supervision, claiming no responsibility once someone is licensed misstates the ongoing nature of the duty, and limiting supervision only to newly licensed salespersons ignores that the duty generally continues throughout the affiliation.