Montana Real Estate Practice Exam.
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Answer: B
Metes and bounds description uses directional courses and measured distances from a point of beginning, which is common for irregular ranch parcels even when that starting point ties to a government survey corner. The rectangular survey system alone would only state section, township, and range without courses and distances, and lot and block is used for platted subdivisions rather than irregular acreage. An assessor's parcel number is only an administrative identifier, not a legal description method.

Answer: A
Commission-only pay combined with no set hours or dictated methods reflects the control-test factors typically pointing to independent contractor status, a common broker-salesperson arrangement. Employer-employee status usually implies the broker dictates schedule and methods and withholds taxes, none of which is indicated. Universal agency describes very broad authority over all of a principal's affairs, not an employment classification, and a general partnership implies shared ownership and liability of the brokerage itself, not a supervised salesperson's status.

Answer: C
An unverified specific factual claim, like a precise well flow rate, can expose an agent to negligent misrepresentation liability if it turns out to be untrue, whereas a subjective opinion about views is generally recognized as harmless puffing. Treating the view comment as riskier ignores that opinions are not usually actionable in the way specific unverified facts are. Dismissing both statements as harmless sales talk overlooks the factual, checkable nature of the well claim, and equating the risk levels of an opinion with an unverified specific figure misjudges the greater exposure created by presenting an unconfirmed fact as certain.

Answer: C
A buyer's agent represents the buyer's interests regardless of where the listing was found, including through MLS cooperation with another firm. Assuming the agent instead represents the seller confuses cooperating-broker compensation arrangements with actual client representation. Dual agency requires informed consent from both parties, which isn't described here, and MLS cooperation is simply a marketing and compensation mechanism, not proof that no agency relationship exists.

Answer: B
A financing contingency allows a buyer to cancel the contract and typically recover earnest money when the financing condition isn't met and proper notice is given to the seller. Automatic forfeiture ignores the entire purpose of including a financing contingency clause in the first place. Specific performance isn't available to a seller when a valid contingency excuses the buyer's performance, and there is no automatic conversion to a cash sale absent a brand-new agreement between the parties.

Answer: C
A quitclaim deed conveys only whatever interest the grantor may have, without any warranty of title, which suits releasing a disputed claim without making promises about title quality. General and special warranty deeds both include specific title guarantees that a grantor wouldn't want to make about a strip whose ownership is in dispute. A deed of trust is a financing security instrument used to secure a loan, not a title-transfer conveyance for resolving a boundary disagreement.

Answer: C
Proration credits the prior owner for taxes already paid that cover a period after closing, since the buyer will own the property during that time, so the buyer reimburses the prior owner through the closing statement. Saying the prior owner gets no adjustment ignores standard proration practice for prepaid expenses at closing. The taxes are not simply forgiven since they were already paid in full, and counties do not typically issue automatic refunds tied to private closings, that adjustment is handled between buyer and seller.

Answer: B
Each discount point equals one percent of the loan amount, so 3.1 points on a $173,400 loan is found by multiplying $173,400 by 0.031, which equals $5,375.40. The smallest distractor comes from calculating only a single point's value and forgetting to multiply by the full 3.1 points. The largest distractor comes from misplacing a decimal and treating 3.1 points as 31 percent instead of 3.1 percent, and the remaining distractor confuses the point charge with an unrelated flat 10-percent figure.

Answer: A
VA-guaranteed loans are available to eligible veterans and often allow financing with no down payment because the government guaranty substitutes for the lender's usual equity cushion. Conventional loans with private mortgage insurance still typically require some down payment. FHA loans are open to the general public and usually require at least a small down payment, and a home equity line of credit borrows against existing equity, which isn't useful for someone with no equity yet.

Answer: B
The gross rent multiplier is found by dividing the sale price by the monthly gross rent, so $164,300 divided by $1,270 comes to approximately 129.4. The smallest distractor comes from misplacing a decimal, effectively dividing by $12,700 instead of $1,270. The near-price distractor comes from a division error that ignores the actual rent figure, and the inverted distractor results from dividing rent by price instead of price by rent.

Answer: C
Market value reflects what a typical, informed buyer would pay in an open market, while price is simply what a seller asks or a buyer agrees to pay, and sentimental value doesn't factor into an objective market value estimate. Asking price isn't automatically market value just because a seller names it. Treating price and value as always identical ignores situations exactly like this one where they diverge, and appraisals remain relevant for lending, taxation, and negotiation regardless of any listed asking price.

Answer: A
Material facts about a property's condition, including a history of repeated equipment failures, are generally disclosable because they can affect a buyer's decision or perceived risk even after the equipment has been repaired. Confidentiality duties to the seller do not override disclosure obligations regarding material property facts owed to prospective buyers. Limiting disclosure to only currently unresolved defects ignores that a repair history itself is material information about reliability, and treating disclosure as purely optional ignores established disclosure obligations for material facts.

Answer: A
Depositing client trust funds into the same account used for ordinary operating expenses is commingling, which is prohibited because it exposes client money to the brokerage's own financial risks and obscures accountability. Conversion specifically refers to actually using the funds for an unauthorized purpose, which requires more than the mere mixing of accounts described here. Fraud requires an intentional deceptive misrepresentation not clearly shown by the deposit itself, and simply asserting the funds are eventually accounted for doesn't excuse the underlying commingling violation, which occurs at the point of deposit.

Answer: A
The federal Fair Housing Act protects familial status as one of its protected classes, prohibiting refusal to rent based on the presence of children. The Truth in Lending Act governs credit disclosure terms, not housing discrimination. RESPA governs settlement and closing cost disclosures, unrelated to rental discrimination, and the Equal Credit Opportunity Act addresses discrimination in credit transactions rather than a rental housing decision like this one.

Answer: A
The Equal Credit Opportunity Act prohibits lenders from discriminating in credit decisions based on factors including receipt of public assistance income. The Fair Housing Act addresses housing-related discrimination broadly, but ECOA is the specific credit-discrimination law covering this lending scenario. RESPA governs disclosure of settlement costs and referral practices rather than credit-decision discrimination, and the Interstate Land Sales Full Disclosure Act concerns disclosure requirements for large undeveloped land sales, unrelated to mortgage lending discrimination.

Answer: B
Montana law requires an applicant for a salesperson's license to be at least 18 years old, which this graduate has not yet reached regardless of completed coursework. A four-year college degree is not a Montana licensing requirement. While a licensee must eventually be affiliated with a supervising broker to practice, that isn't the barrier described here since the age requirement is the threshold issue, and ignoring the age requirement misstates the actual eligibility criteria.

Answer: C
Montana requires applicants to show credit for at least two years of high school curriculum or an equivalent education as a baseline eligibility requirement separate from the real estate pre-license coursework itself. Dismissing prior general schooling entirely ignores this baseline education requirement. The law allows equivalent education generally rather than requiring a GED exclusively, and criminal history is a separate licensing consideration that doesn't make the underlying education requirement irrelevant.

Answer: B
Montana requires a broker applicant to have been actively engaged as a licensed real estate salesperson for a period of 2 years, and 18 months falls short of that threshold. Treating 18 months as sufficient misapplies the actual duration required by the rule. The experience requirement applies to applicants generally, not merely to those coming from out of state, and there is in fact a defined minimum active-experience requirement, so claiming none exists is inaccurate.

Answer: C
Montana's real estate license renewal period runs from September 1 through October 31, and licensees should complete renewal within that specific fixed window rather than relying on an anniversary date. The January-February window doesn't match Montana's actual designated renewal period. An anniversary-based 90-day window and an issuance-month-based window both misdescribe Montana's fixed annual renewal window, which is set at the same calendar dates for all licensees.

Answer: D
A supervising broker generally bears responsibility for reasonably overseeing the licensed activities of salespersons working under their license, since a salesperson practices under the broker's authority rather than fully independently. Asserting that an active license alone eliminates the need for oversight misunderstands the supervisory relationship inherent to salesperson licensure. The responsibility to supervise doesn't expire after just one transaction, and salespersons, not just other brokers, are exactly who supervision requirements are meant to cover.

Answer: A
Continuing to perform licensed activities such as showing property and earning commissions after a license has lapsed exposes the individual to unlicensed-practice violations, since licensed activity requires holding a current, valid license regardless of eventual renewal. Assuming no problem exists as long as renewal happens eventually ignores the gap period of unlicensed activity. A licensing violation exists independent of whether a client happens to complain, and a lapsed license does not automatically preserve full activity rights, that isn't how licensing status functions.

Answer: B
Performing licensed real estate activities on property located in Montana generally requires holding a Montana license or otherwise being authorized under Montana licensing law, since real estate licenses are state-specific rather than automatically portable across state lines. Assuming automatic multistate validity misunderstands how state licensing systems work. Informally partnering with any resident regardless of that person's own licensure status doesn't satisfy licensing requirements, and simply filing a notice with a county clerk isn't a substitute for proper state licensure.

Answer: C
Using a trade or assumed business name in connection with licensed real estate activity generally requires proper registration or filing before advertising under that name, so that the public and regulators can identify the responsible licensed brokerage. Allowing free, unregistered use of any trade name undermines this accountability requirement. Trade names aren't prohibited outright, they're simply required to be properly registered, and the registration obligation for the brokerage's operating name falls on the broker or firm itself, not merely on individual salespersons.

Answer: C
Unlicensed assistants may generally perform clerical and administrative support tasks, such as preparing flyers and scheduling showings, as long as they don't engage in activities requiring a license. Negotiating price, advising on contract terms, and presenting offers all involve substantive licensed activities that require a real estate license to legally perform, which an unlicensed assistant may not undertake regardless of how closely they work with the broker.

Answer: A
A grant limited to the grantee's lifetime with a remainder passing automatically to a named person creates a life estate, not full ownership. Fee simple absolute is wrong because the daughter's ownership is limited in duration and cannot pass beyond her own life. A leasehold requires a rent-paying tenancy that isn't present here, and an estate at will requires ongoing consent from a landlord, which doesn't fit an inherited land grant.

Answer: A
Mineral rights can be severed from surface ownership, creating two distinct legal estates that can be owned and transferred separately. A leasehold is wrong because no rental relationship exists here, and an easement in gross is wrong because it describes a right to use land, not ownership of the minerals beneath it. A life estate is unrelated since it concerns duration tied to a person's life, not a subsurface ownership split.

Answer: A
Western prior-appropriation states follow a 'first in time, first in right' rule where a water right is tied to its priority date of beneficial use and must be separately verified or transferred, not simply assumed. Automatic attachment ignores that the right is a distinct appurtenance requiring confirmation. Equal sharing describes riparian doctrine, which prior-appropriation states do not follow, and a fixed ten-year expiration and renewal requirement is not how these rights function.

Answer: C
An easement by necessity is created to provide legal access to a landlocked parcel and runs with the land rather than depending on the landowner's continuing consent. A license is merely revocable personal permission, which doesn't fit a formal recorded access right. An encroachment describes an unauthorized structure crossing a boundary, not a granted right of passage, and a lien is a financial claim rather than a right of way.

Answer: A
Adverse possession requires open, notorious, continuous, and hostile use of another's land for a statutory period, which the long-standing fenced grazing use satisfies. Eminent domain is a government taking with compensation, not a private neighbor dispute, and escheat concerns property reverting to the state when no heirs exist, which is unrelated. Riparian doctrine addresses water rights, not boundary encroachment through use.

Answer: B
A variance is permission granted by a zoning authority to deviate from current zoning rules, typically because of a demonstrated hardship. A deed restriction release addresses private covenants rather than government zoning limits, and a subdivision plat amendment changes lot boundaries or dedications rather than granting use permission. A quiet title action resolves ownership disputes and has nothing to do with obtaining zoning permission for a new structure.

Answer: B
Dual agency exists when one agent or firm represents both principals in the same transaction with proper informed consent from each. Subagency describes a cooperating broker representing the listing principal through the listing broker, which doesn't match one agent serving both sides directly. Transaction brokerage is a non-fiduciary facilitator role that differs from the consented fiduciary dual agency described, and undisclosed dual agency is improper precisely because it lacks the disclosure and consent that are present in this scenario.

Answer: D
A broker's fiduciary duty of loyalty and confidentiality prevents revealing a client's confidential negotiating position to the other side of a transaction. The duty of disclosure to third parties concerns material property facts owed to all parties, not confidential pricing strategy. The duty of reasonable care and skill concerns competent service delivery, not secrecy, and the duty of accounting concerns proper handling of client funds, which is unrelated to this pricing question.

Answer: D
An exclusive right-to-sell listing guarantees the broker a commission regardless of who procures the buyer, even if the owner personally finds one. An open listing allows multiple brokers and pays no commission if the owner sells directly, and an exclusive agency listing still exempts the owner from paying commission when the owner personally finds the buyer, unlike this arrangement. A net listing bases commission on the amount above a set net price rather than guaranteeing payment regardless of who finds the buyer, and isn't described here.

Answer: D
Death of a principal generally terminates an agency relationship because the personal contractual relationship ends, though the estate may later choose to enter a new agreement with the broker. Automatic transfer to heirs misstates agency law, since a fresh agreement would need to be formed with the estate or heirs. Renegotiating commission with the buyer is irrelevant since the buyer was never a party to the listing agreement, and conversion to an open listing has no legal basis arising from a principal's death.

Answer: C
Salespersons must promptly turn client funds over to their supervising broker for deposit into a proper trust or escrow account, never commingling those funds with personal money. Depositing into a personal account risks commingling and violates trust-fund handling requirements. Cashing the check and personally holding the funds for the seller is improper and risks conversion of client money, and returning the check before acceptance ignores standard practice for timely, proper handling of funds while an offer is pending.

Answer: A
The Statute of Frauds generally requires contracts for the sale of real property to be in writing to be enforceable, and the handshake deal lacks that writing. Claiming verbal agreements are never binding overstates the rule, since many other contract types can be enforceable orally. Notarization is generally used for recording purposes rather than being required for a contract to exist, and there is no such fixed dollar threshold governing verbal agreements.

Answer: C
Novation substitutes a new party into a contract and fully releases the original party from further liability, which matches the landlord's formal discharge of the original tenant here. A plain assignment transfers contractual rights and duties but ordinarily leaves the original tenant still liable unless expressly released, so the complete discharge described makes this a novation instead. Escheat concerns property reverting to the state when no heirs exist, and subrogation is the substitution of one party's right to pursue a legal claim, often used in insurance, neither of which fits a lease being handed to a new tenant.

Answer: D
Recording gives constructive notice to third parties of an ownership interest, protecting the new owner against later claims from subsequent purchasers or lienholders. A deed is generally valid between grantor and grantee upon proper delivery and acceptance even before recording, so validity between the parties isn't the primary purpose. Recording itself does not provide title insurance protection, since that requires a separate policy, and title transfers upon delivery of a valid deed rather than upon the act of recording.

Answer: C
Specific performance is a court order compelling a breaching party to complete the contract as agreed, appropriate when the seller wants the sale finalized rather than accepting only monetary compensation. Liquidated damages is a pre-set damages remedy, typically forfeiting earnest money, which does not force completion of the sale. Rescission cancels the contract entirely, the opposite of what the seller wants here, and a quiet title action resolves competing ownership claims rather than contract performance disputes.

Answer: A
Contracts entered into by minors are generally voidable at the minor's election due to lack of full legal capacity, meaning the minor retains the option to affirm or disaffirm the listing agreement rather than the contract being automatically void. Calling it automatically void with no legal effect whatsoever overstates the doctrine. It is not automatically enforceable once the minor turns 18 without some affirmative act of ratification, and the broker's age has no bearing on the minor seller's own capacity issue.

Answer: D
The income approach estimates value by dividing net operating income by the capitalization rate, so $29,900 divided by 0.046 equals $650,000. Multiplying NOI by the cap rate expressed as a whole number (4.6) instead of dividing produces a nonsensical low value that misapplies the formula. Doubling the NOI without regard to the cap rate ignores the formula entirely, and misplacing a decimal in the cap rate, treating 4.6% as 0.46%, inflates the resulting value by a factor of ten.

Answer: D
Loan-to-value equals the loan amount divided by the purchase price; subtracting the $31,500 down payment from $210,000 leaves a $178,500 loan, which divided by $210,000 equals 85 percent. The 15 percent distractor mistakenly reports the down payment percentage instead of the loan percentage. Ninety percent is a plausible-sounding round figure that doesn't match the actual math, and treating the loan's dollar amount directly as a percentage produces the nonsensical over-100-percent distractor.

Answer: D
In a fully amortizing loan, each payment stays a fixed total amount, but as the outstanding balance shrinks over time, less interest accrues, so a growing share of each payment goes toward principal, which describes the standard amortization schedule. Assuming both portions stay flat ignores how amortization actually works, and reversing the trend describes an interest-only or negatively amortizing loan rather than a standard amortizing loan. Principal payments do not vanish partway through a standard fixed-term loan.

Answer: A
Nonjudicial foreclosure, often called power-of-sale foreclosure, follows contractual procedures set out in the security instrument without requiring a court lawsuit. Judicial foreclosure specifically requires filing a lawsuit in court, the opposite of what's described. Strict foreclosure is a rare process in which a court transfers title outright without any sale, and a deed in lieu of foreclosure is a voluntary transfer by the borrower to avoid foreclosure entirely, not itself a foreclosure process.

Answer: B
An escrow or impound account collects monthly portions of taxes and insurance so the lender can pay those bills on the borrower's behalf when they come due, which explains the extra amount added to this homeowner's payment. A trust account in real estate typically refers to holding client earnest money or brokerage funds, a different purpose entirely. A capital improvement reserve fund is generally an HOA or commercial-property concept for future repairs, not a lender-held tax and insurance account, and a sinking fund is a general finance term for setting aside money to repay debt rather than this specific arrangement.

Answer: A
When the subject property has a feature the comparable lacks, the appraiser adds the value of that feature to the comparable's price to make it more comparable to the subject. Subtracting from the subject's value confuses which property is being adjusted, only comparables are adjusted, not the subject itself. Ignoring a documented value difference undermines the accuracy of the comparison, and subtracting from the comparable's price instead of adding reverses the correct adjustment direction entirely.

Answer: B
Highest and best use is defined as the reasonably probable use that is physically possible, legally permissible, financially feasible, and maximally productive. Personal owner preference is not the objective appraisal standard used to determine value. Lowest construction cost alone ignores feasibility and productivity, it's only one relevant factor among several, and original zoning assigned decades ago may no longer reflect currently legally permissible and feasible uses.

Answer: D
Functional obsolescence refers to a loss in value from outdated design or features, such as insufficient bathrooms or missing closets, that reduce desirability compared to current market standards. Physical deterioration refers to actual wear and damage to the structure, not an outdated layout. External obsolescence stems from factors outside the property itself, like nearby land uses, not the home's own design, and framing it only as curable physical depreciation misclassifies a design issue as a repairable structural defect.

Answer: C
The cost approach estimates value by calculating the cost to reproduce or replace the improvements, subtracting accrued depreciation, and adding the land value separately, which suits a unique property lacking comparable sales. Dividing net operating income by a cap rate describes the income approach, better suited to income-producing property. Adjusting a comparable sale describes the sales comparison approach, which the scenario says is limited by a lack of comparables, and multiplying gross rent by a factor describes the gross rent multiplier technique, a shortcut income analysis rather than the cost approach.

Answer: B
An agent who wants to purchase their own listing must fully and clearly disclose their personal interest in writing to the seller before submitting an offer, since the seller relies on the agent's advice and needs to know the agent is not acting as a neutral advisor in this purchase. Proceeding silently violates fiduciary disclosure duties. Terminating the listing isn't strictly required if proper disclosure and consent are obtained, and using a family member as a straw purchaser to avoid disclosure would itself be a deceptive practice rather than a solution.

Answer: A
Real estate advertising rules generally require that the brokerage under which a licensee operates be identified in advertisements, and this kind of ad showing only a personal name and number without the firm's name typically fails that requirement. Personal names are commonly permitted in ads as long as the brokerage is also identified, so banning personal names outright misstates the rule. Social media posts remain advertising subject to the same disclosure requirements as other media, and the presence or absence of price has no bearing on the brokerage-identification requirement.

Answer: A
Agreements among competing brokerages to set commission rates collectively constitute price fixing, a serious antitrust violation, because commission rates must be independently and competitively determined by each firm. Framing it as a quality-standardization measure ignores that the harm lies in eliminating competitive pricing, not service quality. The illegality doesn't depend on whether the fixed rate happens to be high or low, and informing clients of the agreed rate does not cure an antitrust violation because the harm is the collusion itself.

Answer: A
Agents have a duty to present all offers to their seller client so the seller can make a fully informed decision, since the seller retains authority over which offer, if any, to accept. Screening out lower offers without the seller's knowledge deprives the seller of information relevant to their own decision. Contingencies are a normal, often negotiable part of offers and don't justify unilaterally withholding an offer, and substituting the agent's personal preference for the seller's decision-making authority breaches the agent's duty of obedience to the client.

Answer: D
A supervising broker is responsible for reviewing transaction documents prepared by salespersons under their supervision to ensure accuracy and legal compliance before the client relies on them. Letting a brand-new agent submit unreviewed, unfamiliar contract language without oversight abandons the supervising broker's core responsibility. Delegating the task entirely to the opposing buyer's agent ignores the supervising broker's own duty toward their own client and salesperson, and co-signing without actually reading the document defeats the entire purpose of supervisory review.

Answer: A
Steering occurs when an agent guides buyers toward or away from certain neighborhoods based on a protected characteristic, limiting their housing choices, exactly as described here. Redlining refers to lenders or insurers denying services to entire geographic areas rather than an agent's showing practices. Blockbusting involves inducing panic selling by suggesting protected-class buyers are moving into a neighborhood, a different tactic entirely, and restrictive covenants are historical deed provisions barring certain groups, not an agent's day-to-day showing behavior.

Answer: A
Fair housing law requires reasonable accommodations for tenants with disabilities, and a documented assistance animal is generally treated as an exception to a no-pets policy rather than as an ordinary pet. Applying the blanket no-pets policy equally ignores the legal requirement to accommodate disabilities. Charging pet deposits or fees for assistance animals is generally not permitted since they aren't treated as pets, and requiring other tenants' approval has no basis in fair housing accommodation law.

Answer: D
Advertising that expresses a preference or limitation based on a protected class, such as excluding families with children, violates fair housing advertising rules regardless of whether the landlord truly intends to enforce it. Describing an ideal tenant in these discriminatory terms is exactly what's prohibited, not a permitted personal preference. A violation exists based on the discriminatory statement itself rather than depending on whether anyone files a complaint, and using the same discriminatory wording consistently doesn't make it lawful, it just shows a consistent pattern of violation.

Answer: C
The Fair Housing Act includes a specific exemption for qualified housing for older persons, such as a properly qualifying 55-and-older community, allowing it to restrict occupancy by age despite the general familial status protection. Ordinary rental housing without this qualifying exemption cannot simply exclude children at will. Familial status is indeed a protected class generally, just subject to this narrow housing-for-older-persons exemption, and the exemption is specifically about age-restricted housing rather than requiring or permitting exclusion of unrelated protected classes like race or religion.

Answer: D
The Montana Board of Realty Regulation is the state agency with authority over real estate licensees, including investigating complaints and disciplining licenses for violations such as commingling client funds. A sheriff's department may handle separate criminal matters but doesn't govern licensure discipline. NAR is a private trade association with its own code of ethics but no authority to revoke a state license, and the Department of Revenue handles tax matters rather than real estate licensing discipline.

Answer: A
Brokers are responsible for properly maintaining and periodically reconciling trust accounts holding client funds, and a Board audit finding a year without reconciliation represents a genuine licensing violation regardless of whether funds later turn out to be missing. Treating reconciliation as merely optional misstates the regulatory expectation for handling client trust funds. Waiting to see if funds are actually missing ignores that inadequate recordkeeping itself is the violation, and there is no size-of-office exception to basic trust account recordkeeping duties.

Answer: D
Licensing boards generally consider an applicant's disciplinary history, including revocations in other states, when evaluating fitness for licensure, since character and fitness are relevant to protecting the public. Assuming out-of-state history is entirely irrelevant ignores common reciprocal reporting and fitness review practices among state licensing boards. There is no indication that a fixed passage of time automatically erases consideration of a revocation for fraud, and disciplinary history distinct from criminal convictions, such as a licensing revocation, is also relevant, not just a criminal record.