North Carolina Real Estate Broker Practice Exam.
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1. A study guide states that the passing score and the examination fee happen to be different numbers. Which statement is consistent with the published values?
- A. The passing score (75) is greater than the fee in dollars (63)
- B. The fee in dollars (63) exceeds the passing score
- C. Both equal 140
- D. The passing score equals the fee in dollars
Show answer & explanation
Answer: A
The passing score is 75 and the fee is $63, so the passing score value is greater than the fee value. This is reasoning over the two published facts, not a new standalone number.2. Which of the following correctly pairs an examination attribute with its published value?
- A. Passing score — 140
- B. Scored questions — 75
- C. Passing score — $63
- D. Examination fee — $63
Show answer & explanation
Answer: D
The published examination fee is $63; the passing score is 75 and the number of scored questions is 140, so only the fee pairing is correct.3. A landowner sells the surface of her property but separately conveys the subsurface mineral rights to a mining company by a separate deed. What has occurred?
- A. The mineral rights have been severed from the surface estate, creating two separate ownership interests
- B. The deed is void because mineral rights cannot be separated from surface ownership
- C. An easement in gross has been created
- D. A leasehold estate has been created
Show answer & explanation
Answer: A
Mineral rights can be severed from surface rights and conveyed or retained separately, producing two distinct legal estates that can be bought, sold, or leased independently. This is a common and lawful arrangement, unlike an easement, which is only a use right rather than an ownership interest.4. A life tenant occupies a home under a life estate. During her occupancy, she allows the property to fall into serious disrepair, significantly reducing its value for the remainderman who will inherit it. What legal principle has she likely violated?
- A. The statute of frauds
- B. The rule against perpetuities
- C. The doctrine of waste
- D. The doctrine of merger
Show answer & explanation
Answer: C
A life tenant owes a duty to the remainderman not to commit waste, meaning she must not act or fail to act in ways that unreasonably damage the property's value for the future interest holder. The other doctrines listed govern unrelated issues such as contract enforceability or the duration of future property interests.5. A buyer purchases a condominium unit. In addition to owning the interior of the unit itself, what other ownership interest does the buyer automatically receive?
- A. No ownership interest beyond the unit's interior walls
- B. An undivided interest in the common elements shared with other unit owners
- C. Sole ownership of the entire building
- D. A leasehold interest in the land beneath the building
Show answer & explanation
Answer: B
Condominium ownership combines fee simple title to the individual unit with an undivided percentage interest in the building's common elements, such as lobbies, roofs, land, and amenities, shared among all unit owners. The buyer does not own the whole building alone nor merely lease the underlying land.6. A deed describes a parcel by starting at an iron stake, then running specific courses and distances along boundary lines back to the point of beginning. Which method of legal description is being used?
- A. Metes and bounds
- B. Government (rectangular) survey
- C. Monument reference only
- D. Lot and block
Show answer & explanation
Answer: A
Metes and bounds describes a parcel's boundaries using a starting point, then a sequence of directions and distances back to the point of beginning, often referencing physical markers. Government survey instead uses townships, ranges, and sections, and lot and block references a recorded subdivision plat number rather than boundary courses.7. Which of the following is essential for a deed to be effective?
- A. The signature of the grantee
- B. Recording in the public land records
- C. A survey prepared by a licensed surveyor
- D. Delivery to and acceptance by the grantee
Show answer & explanation
Answer: D
A deed must be in writing, name the parties, contain a legal description, include a granting clause, and be signed by the grantor and delivered and accepted to be effective. It is the grantor, not the grantee, who must sign. Recording serves to give constructive notice and establish priority, but it is not among the requirements for the deed itself to be effective.8. During a title cleanup, an heir who may or may not hold a partial interest in a parcel agrees to release whatever claim she has, but refuses to guarantee anything about the title. Which instrument fits this situation?
- A. A quitclaim deed
- B. A general warranty deed
- C. A promissory note
- D. An easement appurtenant
Show answer & explanation
Answer: A
A quitclaim deed carries no warranties and conveys only whatever interest the grantor may have, which is exactly what the heir is willing to give. A general warranty deed would require her to warrant title against all defects, which she refuses to do.9. In State X, the lender holds legal title to mortgaged property until the borrower repays the debt in full. State X is BEST described as following which doctrine?
- A. Title theory
- B. Constructive notice theory
- C. The doctrine of substitution
- D. Lien theory
Show answer & explanation
Answer: A
In a title-theory state the lender holds legal title until the debt is paid. By contrast, in a lien-theory state the borrower holds title and the lender holds only a lien against the property.10. Lot 1 enjoys a driveway easement across neighboring Lot 2. In this arrangement, how are the two parcels classified?
- A. Both lots are servient tenements
- B. Lot 1 is the servient tenement and Lot 2 is the dominant tenement
- C. Both lots are dominant tenements
- D. Lot 1 is the dominant tenement and Lot 2 is the servient tenement
Show answer & explanation
Answer: D
An easement appurtenant benefits an adjoining dominant tenement and burdens the servient tenement. Lot 1 receives the benefit of crossing the driveway, so it is the dominant tenement; Lot 2 bears the burden, so it is the servient tenement.11. A grantor signs a document conveying land that names the parties and includes a granting clause, but the document contains no legal description of the property. Compared with the requirements for an effective deed, what is the status of this document?
- A. It is effective as a general warranty deed but not as a quitclaim deed
- B. It is effective once the grantee pays consideration
- C. It fails to satisfy the deed requirements, because a legal description is required
- D. It is effective, because a street address is never needed
Show answer & explanation
Answer: C
An effective deed must be in writing, name the parties, contain a legal description, include a granting clause, and be signed by the grantor and delivered and accepted. Because this document lacks a legal description, it does not satisfy the requirements for an effective deed, regardless of the type of deed intended.12. A title company offers a mortgage broker a cash payment for every closing the broker refers to it on federally related mortgage loans. Which federal law does this arrangement violate?
- A. The Real Estate Settlement Procedures Act
- B. The Civil Rights Act of 1866
- C. The Truth in Lending Act
- D. The Statute of Frauds
Show answer & explanation
Answer: A
RESPA governs federally related mortgage loans and prohibits kickbacks and unearned referral fees. It also requires that borrowers receive the Loan Estimate and Closing Disclosure. Paying for referrals of settlement business is exactly the conduct RESPA forbids.13. A homeowner refinances the mortgage on her principal residence and then has second thoughts. Under the Truth in Lending Act as implemented by Regulation Z, what protection may be available to her?
- A. Cancellation of the promissory note without repaying the debt
- B. A three-day right of rescission
- C. An automatic waiver of all discount points
- D. A right to demand specific performance from the lender
Show answer & explanation
Answer: B
TILA, implemented by Regulation Z, grants a three-day right of rescission on certain refinances of a principal residence. TILA also requires disclosure of the APR and total finance charge so borrowers can compare the true cost of credit.14. A purchase contract states that the buyer's obligation to close depends on the buyer obtaining a mortgage loan on specified terms. If the buyer, despite good-faith effort, cannot obtain the loan, what is the effect of this provision?
- A. The lender must accelerate the loan balance.
- B. The contract converts automatically into a lease longer than one year.
- C. The buyer is excused from performing because the financing contingency was not satisfied.
- D. The buyer must close anyway, because contingencies bind only the seller.
Show answer & explanation
Answer: C
Contingencies are conditions that must be satisfied before a party is obligated to perform, and financing contingencies are among the most common. Because the financing condition failed, the buyer's duty to perform never arose, so the buyer is excused from closing.15. Broker Ellis has a listing agreement with a seller. The buyer who tours the property asks Ellis to represent her as well in the same transaction. Under what circumstances may Ellis do so?
- A. Only with the informed written consent of both the buyer and the seller
- B. Whenever Ellis orally notifies both parties before closing
- C. Never, because representing both sides is always prohibited
- D. Only if the seller's listing has already expired
Show answer & explanation
Answer: A
Dual agency — representing both buyer and seller in the same transaction — is permitted only with the informed written consent of both parties. Oral notice is insufficient, and an outright ban is not the rule.16. Under the Statute of Frauds, which of the following agreements must be in writing and signed by the party to be charged in order to be enforceable?
- A. A two-year lease of a commercial storefront
- B. A month-to-month property management engagement
- C. A six-month residential lease
- D. An oral agreement to split a commission between two licensees
Show answer & explanation
Answer: A
The Statute of Frauds requires contracts for the sale of real estate, and leases longer than one year, to be in writing and signed by the party to be charged. A two-year lease exceeds one year, so it falls within the statute; a six-month lease does not.17. Several liens attach to the same property: a mortgage recorded first, a judgment lien recorded second, and a property tax lien that arose last. In a foreclosure distribution, which lien is generally satisfied first?
- A. All three share equally because they encumber the same parcel
- B. The judgment lien, because court-ordered liens outrank consensual liens
- C. The mortgage, because it was recorded before the others
- D. The property tax lien, because tax liens generally take priority regardless of recording date
Show answer & explanation
Answer: D
Property tax liens and special assessments generally take priority over all other liens regardless of when they were recorded, so the tax lien is paid ahead of the earlier-recorded mortgage and judgment lien. Recording ordinarily establishes priority among other liens, but tax liens are the exception.18. A borrower takes out a $250,000 loan and agrees to pay two discount points at closing to buy down the interest rate. How much will the borrower pay for the points?
- A. $25,000
- B. $2,500
- C. $5,000
- D. $2,000
Show answer & explanation
Answer: C
One discount point equals one percent of the loan amount and is prepaid interest that buys down the interest rate. Two points on a $250,000 loan is two percent of $250,000, which is $5,000.19. After a borrower misses several payments, the lender notifies the borrower that the entire outstanding loan balance is now immediately due. Which mortgage provision permits the lender to do this?
- A. The defeasance clause
- B. The subordination clause
- C. The alienation clause
- D. The acceleration clause
Show answer & explanation
Answer: D
The acceleration clause is the provision that lets the lender declare the entire balance due upon the borrower's default. Without it, the lender could only sue for missed payments as they came due.20. A loan officer explains that the borrower can lower the interest rate on her mortgage by paying additional money at closing. This prepaid interest, charged as a percentage of the loan amount, is known as:
- A. A discount point
- B. An origination contingency
- C. A liquidated damages charge
- D. Private mortgage insurance
Show answer & explanation
Answer: A
A discount point is prepaid interest that buys down the interest rate. One discount point equals one percent of the loan amount.21. A broker receives an earnest money check from a buyer-client and deposits it into the brokerage's operating account to "keep the paperwork simple." Which fiduciary duty has the broker violated?
- A. Loyalty
- B. Accounting
- C. Disclosure
- D. Obedience
Show answer & explanation
Answer: B
The duty of accounting requires depositing client funds in a separate trust or escrow account and never commingling them with the broker's own funds. Placing the earnest money in the brokerage's operating account is commingling and breaches that duty.22. A buyer obtains a loan of $300,000 and agrees to pay the lender two discount points at closing. How much will the buyer pay for the points?
- A. $6,000
- B. $1,500
- C. $3,000
- D. $12,000
Show answer & explanation
Answer: A
One discount point equals one percent of the loan amount. One percent of $300,000 is $3,000, so two points cost 2 × $3,000 = $6,000. Points are prepaid interest that buy down the interest rate.23. Which statement correctly distinguishes among the major categories of mortgage loans?
- A. FHA loans are guaranteed for eligible veterans, while VA loans are insured by the Federal Housing Administration.
- B. Conventional loans are insured by the federal government, while FHA loans are not.
- C. Conventional loans are not government-backed; FHA loans are insured by the FHA, and VA loans are guaranteed for eligible veterans.
- D. VA loans always require a larger down payment than conventional loans.
Show answer & explanation
Answer: C
Conventional loans are not government-backed. FHA loans are insured by the Federal Housing Administration and allow low down payments, while VA loans are guaranteed for eligible veterans and can permit no down payment. The other choices reverse or misstate these roles.24. A grantee receives an estate that represents the highest and most complete form of ownership recognized in real property law, one that is both freely inheritable and freely transferable. Which estate has the grantee received?
- A. An easement appurtenant
- B. A fee simple absolute
- C. A life estate
- D. A leasehold for years
Show answer & explanation
Answer: B
The fee simple absolute is the highest and most complete form of ownership, freely inheritable and transferable. A life estate is limited to the duration of a named person's life, and an easement is an interest in another's land rather than a form of ownership.25. Marta conveys her farm to her brother "for the duration of his life," naming her nephew to take title when her brother dies. What interest does the nephew hold during the brother's lifetime?
- A. No interest until he records a deed
- B. A servient tenement
- C. A fee simple absolute in possession
- D. A remainder interest as the remainderman
Show answer & explanation
Answer: D
A life estate lasts for the duration of a named person's life, after which title passes to a remainderman or reverts to the grantor. Because Marta named her nephew to take title at the brother's death, the nephew is the remainderman. He does not hold possession while the life tenant is alive, and his future interest does not depend on recording.26. A buyer wants the form of deed that gives the greatest protection against title defects, no matter when those defects arose. Which deed should the buyer request?
- A. A quitclaim deed
- B. A deed of trust
- C. An unrecorded granting clause
- D. A general warranty deed
Show answer & explanation
Answer: D
A general warranty deed offers the greatest protection because the grantor warrants title against all defects arising at any time. A quitclaim deed carries no warranties at all, and a deed of trust is a security instrument in financing, not a conveyance chosen for title protection.27. What is the primary legal effect of recording a deed in the public land records?
- A. It gives constructive notice to the world and establishes priority
- B. It eliminates any property tax liens on the parcel
- C. It transfers legal title from grantor to grantee
- D. It converts a quitclaim deed into a warranty deed
Show answer & explanation
Answer: A
Recording the deed in the public land records gives constructive notice to the world and establishes priority. Title transfers through the deed being signed by the grantor and delivered and accepted, not through recording, and recording does not change the type of deed or remove tax liens.28. A parcel is encumbered by a mortgage recorded several years ago and a property tax lien assessed this year. In a foreclosure, which lien generally takes priority?
- A. Whichever lienholder files suit first
- B. The property tax lien, regardless of when it was recorded
- C. The mortgage, because it was recorded first
- D. Neither; they share priority equally
Show answer & explanation
Answer: B
Property tax liens and special assessments generally take priority over all other liens regardless of when they were recorded. The usual first-in-time priority established by recording does not defeat a property tax lien.29. The owner of a parcel burdened by an easement appurtenant sells the parcel to a new buyer. What happens to the easement?
- A. It terminates automatically upon the sale
- B. It continues to burden the parcel because it runs with the land
- C. It converts into a lien against the sale proceeds
- D. It transfers to a different neighboring parcel
Show answer & explanation
Answer: B
An easement appurtenant runs with the land, so a sale of the servient tenement does not extinguish it; the new owner takes the parcel still subject to the easement's burden.30. A borrower signs two documents at closing: one is the borrower's personal promise to repay the debt, and the other pledges the home as collateral for the lender. Which document evidences the debt itself?
- A. The general warranty deed
- B. The promissory note
- C. The deed of trust
- D. The mortgage
Show answer & explanation
Answer: B
A mortgage loan involves two instruments: the promissory note, which evidences the debt and the borrower's promise to pay, and the mortgage or deed of trust, which pledges the property as security. The note is the debt instrument; the mortgage or deed of trust is the security instrument.31. A buyer using a conventional loan plans to make a down payment of fifteen percent of the purchase price. What additional cost should the buyer most likely expect?
- A. Private mortgage insurance, because the down payment is less than twenty percent
- B. A three-day right of rescission fee under Regulation Z
- C. An FHA insurance premium, because all conventional loans are FHA-insured
- D. No additional cost, because PMI applies only to VA loans
Show answer & explanation
Answer: A
Private mortgage insurance is typically required on conventional loans when the down payment is less than twenty percent. A fifteen percent down payment falls below that threshold, so PMI should be expected. FHA insurance applies to FHA loans, not conventional loans, and VA loans are guaranteed for veterans rather than covered by PMI.32. An agent's fiduciary duties are often summarized by the acronym OLD CAR. Which of the following is NOT one of those duties?
- A. Accounting
- B. Marketing
- C. Confidentiality
- D. Obedience
Show answer & explanation
Answer: B
OLD CAR stands for Obedience, Loyalty, Disclosure, Confidentiality, Accounting, and Reasonable care and diligence. Marketing is a service an agent may provide, but it is not a fiduciary duty in the OLD CAR framework.33. A buyer offers to purchase a home on stated terms. The seller replies, "I accept, but only if closing moves up by three weeks." The buyer refuses the new date and now wants to accept the seller's position that the original offer still stands. Which statement is correct?
- A. The buyer's original offer remains open and the seller may still accept it
- B. A binding contract formed the moment the seller said "I accept"
- C. The seller's material change was a counteroffer that rejected and extinguished the original offer
- D. The seller's reply is void because it lacked consideration
Show answer & explanation
Answer: C
Acceptance must be unqualified. Because the seller materially changed the terms, the reply operated as a counteroffer that rejected and extinguished the original offer, so no contract formed and the original offer is no longer available for acceptance.34. A grantor wishes to transfer to a relative only whatever interest she may hold in a parcel, without making any warranties about the title. Which deed accomplishes this?
- A. A deed of trust
- B. A trustee's deed
- C. A quitclaim deed
- D. A general warranty deed
Show answer & explanation
Answer: C
A quitclaim deed carries no warranties and conveys only whatever interest the grantor may have. By contrast, a general warranty deed offers the greatest protection because the grantor warrants title against all defects arising at any time.35. A licensee tells prospective buyers, "Families of your faith usually look on the other side of town — let me show you homes over there instead." This conduct is best described as which prohibited practice?
- A. Steering
- B. Commingling
- C. Blockbusting
- D. Redlining
Show answer & explanation
Answer: A
Steering is directing buyers toward or away from neighborhoods based on a protected class — here, religion, one of the seven federally protected classes. Blockbusting is inducing sales by suggesting a protected group is moving in, and redlining is denying loans in certain areas; neither matches these facts.36. A deed conveys property 'to the school district, so long as the land is used for educational purposes.' If the district ever stops using the land for education, the estate automatically ends and reverts to the grantor. What type of estate was conveyed?
- A. Leasehold estate
- B. Fee simple determinable
- C. Fee simple absolute
- D. Life estate
Show answer & explanation
Answer: B
A fee simple determinable is created by durational language such as 'so long as,' and it automatically terminates and reverts to the grantor the moment the stated condition is no longer met, without requiring any legal action. Fee simple absolute has no such condition, and a life estate is measured by a lifetime rather than a use condition.37. A borrower obtains a loan insured by the Federal Housing Administration. Compared with a conventional loan, what is a distinguishing feature of this loan type?
- A. It is only available to first-time buyers
- B. It cannot be assumed by a future buyer
- C. It requires the borrower to pay mortgage insurance regardless of loan-to-value ratio
- D. It requires a minimum 20 percent down payment
Show answer & explanation
Answer: C
FHA loans require mortgage insurance premiums as a condition of the government backing, generally for the life of the loan or a substantial period, regardless of down payment size. This differs from conventional loans, where private mortgage insurance can often be removed once sufficient equity is reached; FHA loans allow low down payments, are not limited to first-time buyers, and can be assumable.38. A qualified veteran applies for a loan guaranteed by the Department of Veterans Affairs to purchase a primary residence. What down payment feature commonly distinguishes this loan program?
- A. It requires private mortgage insurance instead of a funding fee
- B. It is limited to veterans purchasing investment property
- C. The program can allow eligible veterans to finance with no down payment
- D. A minimum 10 percent down payment is always required
Show answer & explanation
Answer: C
VA-guaranteed loans are notable for allowing eligible veterans, service members, and certain surviving spouses to finance a primary residence with no down payment, backed by a VA funding fee rather than traditional private mortgage insurance. The program is intended for owner-occupied housing, not investment property.39. Over the life of a standard fully amortizing fixed-rate mortgage, how does the portion of each payment applied to principal versus interest generally change?
- A. Payments alternate between interest-only and principal-only each month
- B. Both portions stay exactly the same for the entire term
- C. The principal portion increases while the interest portion decreases as the loan matures
- D. The interest portion increases while the principal portion decreases over time
Show answer & explanation
Answer: C
In a fully amortizing loan, the total payment stays level but its composition shifts over time: early payments are weighted heavily toward interest on the large outstanding balance, and as the balance shrinks, a growing share of each payment is applied to principal, contrary to the notion that the interest share would grow as the loan matures.40. A private lender charges a borrower an interest rate far exceeding the legally permitted maximum for that type of loan. What is this practice called?
- A. Amortization
- B. Usury
- C. Escalation
- D. Subordination
Show answer & explanation
Answer: B
Usury refers to charging an interest rate above the legal maximum allowed for a loan, which can render the excess interest unenforceable or subject the lender to penalties depending on jurisdiction. The other terms describe unrelated loan concepts such as principal paydown or lien priority arrangements.41. A buyer purchasing a home wants to take over the seller's existing mortgage, keeping its original interest rate and terms, rather than obtaining a brand-new loan. What must generally happen for this to occur?
- A. It is only possible if the seller pays off the loan first
- B. It happens automatically upon closing with no lender involvement
- C. All mortgages are freely assumable by any buyer
- D. The loan must be assumable, and the lender typically must approve and qualify the new borrower
Show answer & explanation
Answer: D
Not all loans are assumable; the original loan documents must permit assumption, and most lenders require the new borrower to be qualified and to formally assume liability, protecting the lender's risk exposure. This differs from an unrestricted transfer that would bypass lender review entirely.42. A commercial borrower takes a loan under which only interest is paid during the term, with the full original principal balance due at maturity. What type of loan is this?
- A. A fully amortizing loan
- B. A graduated payment loan
- C. A straight (term) loan
- D. A growing equity loan
Show answer & explanation
Answer: C
A straight, or term, loan requires interest-only payments throughout the term with the entire principal due in a lump sum at maturity, unlike a fully amortizing loan where each payment reduces principal. Graduated and growing equity loans instead involve scheduled payment increases over time rather than an interest-only structure.43. A borrower is offered a loan with a steep prepayment penalty stacked on top of an already high interest rate and fees disproportionate to her creditworthiness. Which practice do these features together suggest?
- A. A standard conforming loan
- B. A construction loan
- C. A government-insured loan
- D. Predatory lending
Show answer & explanation
Answer: D
Predatory lending is characterized by loan terms that disadvantage the borrower relative to their risk profile, such as excessive fees, high rates not justified by creditworthiness, and penalties that discourage refinancing away from the loan. These are red flags distinguishing it from standard conforming or government-backed loan programs.44. A seller offers to pay an upfront fee to the buyer's lender in exchange for a temporarily reduced interest rate during the early years of the buyer's loan, after which the rate returns to the note rate. What is this arrangement called?
- A. A rate lock
- B. A subordination agreement
- C. A buydown
- D. A wraparound mortgage
Show answer & explanation
Answer: C
A buydown involves paying an upfront lump sum, often by the seller as a sales incentive, to temporarily or permanently lower the borrower's effective interest rate. A rate lock instead just guarantees a quoted rate for a period before closing, and a wraparound mortgage is a distinct financing structure involving the seller retaining and adding to an existing loan.45. When does the North Carolina real estate license year end?
- A. June 30, with renewal required before that date
- B. March 31
- C. December 31
- D. The anniversary of the original license date
Show answer & explanation
Answer: A
The North Carolina license year runs July 1 through June 30, so renewal must be completed before June 30 regardless of when the license was originally issued. Continuing education must be completed by the June 10 deadline preceding renewal for it to be credited to that license year.46. A closing disclosure shows an item as a debit to the buyer and a credit to the seller. Which item behaves this way?
- A. The earnest money deposit
- B. The seller's loan payoff
- C. The purchase price
- D. The buyer's new loan proceeds
Show answer & explanation
Answer: C
The purchase price is what the buyer owes and what the seller earns, so it is debited to the buyer and credited to the seller. Earnest money and new loan proceeds are buyer credits reducing cash needed, and the seller's payoff is a seller debit reducing their proceeds.47. North Carolina uses a single license category for real estate licensees. What is a newly licensed individual called?
- A. An associate broker with full independent authority
- B. A provisional broker, who must work under the supervision of a broker-in-charge
- C. A salesperson, who may practice independently
- D. A broker-in-charge upon initial licensure
Show answer & explanation
Answer: B
North Carolina eliminated the salesperson category, so every licensee is a broker, and the entry level is provisional broker with a status that must be supervised by a broker-in-charge. Removing the provisional status requires completing postlicensing education within the prescribed window.48. How many hours of prelicensing education must a North Carolina broker candidate complete?
- A. 75 hours
- B. 90 hours
- C. 60 hours
- D. 120 hours
Show answer & explanation
Answer: A
North Carolina requires a 75-hour Broker Prelicensing Course before examination. That is separate from and much smaller than the postlicensing obligation, which totals 90 hours in three courses, so candidates should not confuse the entry requirement with the follow-on education.49. A North Carolina provisional broker must complete postlicensing education to remove the provisional status. What is required?
- A. 8 hours of continuing education only
- B. No postlicensing education is required
- C. 30 hours in a single course within one year
- D. 90 hours in three 30-hour courses, completed within eighteen months of initial licensure
Show answer & explanation
Answer: D
The postlicensing program consists of three 30-hour courses totaling 90 hours, to be completed within eighteen months of initial licensure, and completing one course per year is a common pacing approach. Failure to complete the program in time causes the license to become inactive.50. What continuing education does North Carolina require of an active broker each license year?
- A. 8 hours, comprising a mandatory update course and an elective
- B. 30 hours every three years
- C. 24 hours annually
- D. 16 hours every two years
Show answer & explanation
Answer: A
North Carolina requires 8 hours annually, split between a required update course and an elective, with brokers-in-charge taking a designated update course instead of the general one. The annual cycle is shorter than many states, so a lapse recurs quickly if not tracked.51. What is the function of a broker-in-charge in a North Carolina real estate office?
- A. To supervise the office's brokers and be responsible for trust account handling, advertising and record retention
- B. To personally negotiate every transaction in the office
- C. To act as the firm's outside auditor
- D. To hold the licenses of brokers at other firms
Show answer & explanation
Answer: A
Each office must have a designated broker-in-charge who supervises provisional brokers, controls trust funds, reviews advertising and maintains records. Eligibility requires prescribed experience and completion of the broker-in-charge course, and the designation carries personal accountability for the office's compliance.52. A North Carolina broker receives an earnest money deposit. Within what period must it generally be deposited into the trust account?
- A. Within three banking days of contract formation
- B. There is no prescribed deadline
- C. By the closing date
- D. Within thirty calendar days
Show answer & explanation
Answer: A
North Carolina requires deposit into the trust or escrow account within three banking days of contract formation. Banking days exclude weekends and holidays, so the deadline is not simply three calendar days. Late deposit of trust funds is among the most frequently cited violations in Commission disciplinary matters.53. What disclosure must a North Carolina broker provide at first substantial contact with a consumer?
- A. A copy of the listing agreement for every property in the office
- B. A settlement statement estimate
- C. The seller's Residential Property Disclosure Statement
- D. The Working With Real Estate Agents disclosure explaining the available agency relationships
Show answer & explanation
Answer: D
The Working With Real Estate Agents disclosure must be reviewed at first substantial contact, meaning before the consumer discloses confidential information, so they understand whether the broker can represent them. The Residential Property and Owners' Association Disclosure Statement is a separate seller obligation regarding property condition.54. Under North Carolina's Residential Property and Owners' Association Disclosure Statement, what may a seller do regarding a particular item?
- A. Guarantee the condition of each disclosed item
- B. Leave the entire statement blank with no consequence
- C. Answer no representation, which discloses nothing but does not permit concealment of a known material defect
- D. Delegate completion of the form to the listing broker
Show answer & explanation
Answer: C
North Carolina permits a seller to check no representation, which conveys no information about that item and is not a statement that the item is satisfactory. It does not license active concealment, and a seller or broker who hides a known material defect remains liable notwithstanding the election.55. A North Carolina broker wishes to practice dual agency. What is required?
- A. Dual agency is prohibited in North Carolina
- B. Written authority from both parties, obtained before the broker begins acting for both
- C. Consent from the seller alone
- D. Verbal consent from both parties
Show answer & explanation
Answer: B
North Carolina permits dual agency only with the written authority of both parties, and the firm may also use designated agency to assign a different broker to each party. Provisional brokers face restrictions in these arrangements, and undisclosed dual agency is a serious violation.56. A North Carolina broker maintains a trust account. How often must it be reconciled?
- A. Annually at the end of the license year
- B. Whenever the balance falls below a stated amount
- C. Only when the Commission requests it
- D. Monthly, comparing the bank statement, the journal and the ledgers of individual properties or clients
Show answer & explanation
Answer: D
Monthly three-way reconciliation ties the bank balance to the journal and to the sum of individual ledgers, which is what detects a shortage before it becomes a conversion. The broker-in-charge is responsible for the reconciliation, and records of it must be retained and available for audit.57. A broker deposits personal funds into the brokerage trust account to cover bank service charges. What is the general rule?
- A. Any deposit of broker funds into a trust account is commingling with no exception
- B. Bank charges must be paid from client funds
- C. A broker may keep unlimited personal funds in the trust account
- D. A broker may maintain a minimal amount of the broker's own funds in the trust account solely to cover service charges, but never for other purposes
Show answer & explanation
Answer: D
A narrow exception allows a minimal broker balance to absorb bank service charges so client funds are not depleted by them, which is the opposite of paying charges from client money. Beyond that narrow purpose, broker funds in a trust account constitute commingling.58. How long must a North Carolina broker retain transaction records?
- A. At least three years from the later of the successful or unsuccessful conclusion of the transaction or the closing of the trust account ledger
- B. No retention period is prescribed
- C. One year from listing expiration
- D. Ten years from closing
Show answer & explanation
Answer: A
The three-year retention period runs from the later of the transaction's conclusion, successful or not, and the closing of the relevant trust ledger, so a failed transaction still generates a retention obligation. Records must be available to the Commission, and the broker-in-charge is accountable for their maintenance.59. A broker managing rental property for an owner collects rents and pays expenses. Which additional trust accounting concern arises?
- A. Security deposits become the broker's funds when collected
- B. Only annual accounting to the owner is required
- C. Rents may be pooled with the broker's operating funds for efficiency
- D. Tenant security deposits and rent must be accounted for separately by property and owner, and may not be used to cover shortfalls elsewhere
Show answer & explanation
Answer: D
Property management multiplies the ledgers a broker must maintain, since each owner and each tenant deposit requires separate accounting within the trust account. Using one owner's funds to cover another's shortfall is conversion even if the total balance appears adequate, which is why per-ledger reconciliation matters.60. A property management agreement is silent on the manager's authority to make a 15,000 dollar capital repair. What should the manager do?
- A. Charge the expense to tenant security deposits
- B. Obtain the owner's authorization, because expenditures beyond the granted authority require the principal's consent
- C. Proceed, since maintenance is inherent in management authority
- D. Pay from another owner's account and reconcile later
Show answer & explanation
Answer: B
Agency authority is limited to what the principal granted expressly or by reasonable implication, and a large capital expenditure exceeds routine maintenance authority. Management agreements commonly set a dollar threshold above which owner approval is required, with an exception for genuine emergencies affecting safety or preventing further damage.61. A commercial lease requires the tenant to pay a base rent plus a share of the building's operating expenses based on the tenant's proportion of rentable area. What is this structure called?
- A. A percentage lease based on gross sales
- B. A modified gross or expense pass-through lease with a common area maintenance charge
- C. A pure gross lease
- D. A ground lease of unimproved land
Show answer & explanation
Answer: B
Pass-through structures allocate operating costs pro rata by rentable area, commonly as a common area maintenance charge with reconciliation against an expense stop or base year. A pure gross lease leaves those costs with the landlord, and a percentage lease adds rent tied to tenant sales, which is typical in retail.62. A residential tenant remains after the lease expires and the landlord wishes to remove them. What is the lawful process?
- A. A summary ejectment or eviction action through the court, following any required notice
- B. Physically removing the tenant personally
- C. Shutting off utilities until the tenant departs
- D. Changing the locks and removing the tenant's belongings
Show answer & explanation
Answer: A
Removal requires the statutory court process after any notice the lease or statute requires, with the sheriff executing any writ. Self-help measures such as lockouts, utility shutoffs or removing possessions are unlawful and expose the landlord and any managing broker to substantial liability.63. A landlord's building has 12 units and the landlord manages it personally without a licensee. Does fair housing law apply?
- A. No, because the landlord manages the property personally
- B. Only if the landlord accepts federal rental assistance
- C. Yes, and the advertising prohibitions apply regardless of any exemption that might otherwise be available
- D. No, because the building has fewer than 20 units
Show answer & explanation
Answer: C
The narrow owner-occupied exemption covers buildings with a very small number of units, not twelve, and no exemption reaches the advertising prohibition, so discriminatory advertising is unlawful in every case. Involvement of a licensee also removes any exemption that might otherwise apply.64. A broker prepares a comparative market analysis for a seller and includes an opinion of value. Under North Carolina rules, when may a broker do this?
- A. In connection with an actual or prospective brokerage transaction, without appraiser licensure, provided it is not represented as an appraisal
- B. Never, since any opinion of value requires appraiser licensure
- C. Only for commercial property
- D. Only if the broker also holds an appraiser license
Show answer & explanation
Answer: A
A licensed broker may provide a price opinion in connection with brokerage activity, and it must be clearly distinguished from an appraisal. Preparing an opinion of value for a fee outside a brokerage relationship, or presenting one as an appraisal, moves into appraisal practice and requires appraiser credentials.65. A lender must provide a Loan Estimate and a Closing Disclosure to a residential borrower. Which rule governs these forms?
- A. The Home Mortgage Disclosure Act
- B. The Fair Credit Reporting Act
- C. The Equal Credit Opportunity Act
- D. The integrated disclosure rule combining Truth in Lending and settlement procedure requirements
Show answer & explanation
Answer: D
The integrated disclosure framework replaced the older good faith estimate and settlement statement with a Loan Estimate delivered shortly after application and a Closing Disclosure delivered a prescribed number of business days before consummation. Certain changes trigger a new waiting period, which affects closing scheduling.66. A borrower's loan has an interest rate that adjusts annually after a five-year fixed period. What is the principal risk to the borrower?
- A. Payment shock if rates rise substantially when the adjustment period begins
- B. That the property must be reappraised annually
- C. That the lender may demand full payment at the end of the fixed period
- D. That the loan balance cannot be prepaid
Show answer & explanation
Answer: A
A hybrid adjustable loan trades a lower initial rate for post-adjustment uncertainty, and caps limit but do not eliminate the increase. A balloon loan is the structure that requires full payment of the remaining balance at a set date, which is a different risk that borrowers frequently confuse with adjustment.67. An older homeowner obtains a loan that pays them monthly, requires no repayment while they occupy the home, and accrues interest against the equity. What product is this?
- A. A home equity line of credit requiring monthly payments
- B. A blanket mortgage
- C. A wraparound mortgage
- D. A reverse mortgage, where the balance grows and is repaid when the borrower no longer occupies the home
Show answer & explanation
Answer: D
A reverse mortgage converts equity to income with no required monthly principal and interest while the borrower occupies the home, and the growing balance is satisfied on sale, move-out or death. Borrowers remain responsible for taxes, insurance and maintenance, and failure there can trigger default despite the absence of loan payments.68. An appraisal for a residential mortgage comes in below the contract price. What is the practical consequence for the buyer?
- A. The lender must lend against the contract price
- B. The seller is legally required to reduce the price
- C. The lender will lend against the lower value, so the buyer must bring additional cash, renegotiate, or exercise a contract contingency
- D. The transaction is void by operation of law
Show answer & explanation
Answer: C
Loan-to-value is computed on the lesser of price or appraised value, so a low appraisal reduces the loan amount and increases the required down payment. Neither party is compelled to change the price; the buyer's options depend on whether the contract contains an appraisal contingency.69. A commercial lender requires a minimum debt service coverage ratio of 1.25. A property generates 150,000 dollars of net operating income. What is the maximum annual debt service the lender would permit?
- A. 93,750 dollars
- B. 150,000 dollars
- C. 120,000 dollars
- D. 187,500 dollars
Show answer & explanation
Answer: C
Maximum debt service is net operating income divided by the required coverage ratio: 150,000 divided by 1.25 equals 120,000 dollars. Multiplying instead gives 187,500, which would leave the property unable to cover its debt. Coverage requirements constrain commercial loan size independently of loan-to-value, so both tests must be satisfied.70. A North Carolina broker is asked to complete a contract form by filling in the negotiated terms the parties agreed to. Is this permitted?
- A. Yes, and brokers may also draft any custom clause the parties request
- B. Only an attorney may deliver a completed form to the parties
- C. No, brokers may never handle contract forms
- D. Yes, completing a preprinted form with the parties' agreed terms is within brokerage practice, but drafting custom provisions may constitute unauthorized practice of law
Show answer & explanation
Answer: D
Filling standard blanks with terms the parties negotiated is ordinary brokerage service, while composing original legal provisions crosses into practicing law. When a transaction requires bespoke language, the broker refers the parties to counsel, which protects both the parties and the broker's license.71. A listing expires and the seller then sells directly to a buyer the listing broker had introduced during the listing period. What contract provision commonly addresses this?
- A. A liquidated damages clause
- B. An escalation clause
- C. A subordination clause
- D. A protection or carryover clause entitling the broker to compensation for a sale to a named prospect within a stated period after expiration
Show answer & explanation
Answer: D
A protection clause preserves the broker's claim where a buyer introduced during the term purchases shortly after expiration, typically requiring the prospects to be identified in writing to the seller. Without such a clause and identification, the broker's claim after expiration is difficult to sustain.72. A buyer's offer states that it is contingent on the buyer selling their current home. What risk does this create for the seller?
- A. Closing depends on a transaction the seller does not control, so sellers commonly add a kick-out provision permitting them to continue marketing
- B. The seller becomes obligated to purchase the buyer's home
- C. No risk, because contingencies bind only the buyer
- D. The contingency automatically expires within seven days
Show answer & explanation
Answer: A
A sale-of-buyer's-home contingency ties the seller's transaction to an event outside their control and can take the property off the market for weeks with no assurance of closing. A kick-out or right-of-first-refusal provision lets the seller keep marketing and require the buyer to remove the contingency or release the contract.73. A buyer wants the right to purchase a property at a fixed price at any time during the next six months, without being obligated to buy. What instrument accomplishes this?
- A. A land installment contract
- B. A bilateral purchase contract
- C. An option, which requires consideration to be enforceable and binds only the optionor
- D. A right of first refusal
Show answer & explanation
Answer: C
An option is a unilateral contract in which the optionor is bound to sell if the optionee elects to buy, supported by separate consideration. A right of first refusal is weaker, giving only the chance to match a price the owner is otherwise prepared to accept, and it is triggered by the owner's decision to sell.74. A seller conveys property by a deed warranting title only against defects arising during the seller's own period of ownership. What deed is this?
- A. A special warranty deed
- B. A general warranty deed
- C. A bargain and sale deed with no covenants
- D. A quitclaim deed
Show answer & explanation
Answer: A
A special warranty deed limits the grantor's warranty to the period they held title, leaving earlier defects uncovered. A general warranty deed warrants against defects from any time in the property's history, and a quitclaim conveys whatever interest exists with no warranty at all, which is why it is common in divorce and clearing-title contexts.75. A North Carolina property conveys for 347,000 dollars. The state imposes an excise tax on the conveyance at a rate of one dollar per five hundred dollars of consideration or fraction thereof. What is the excise tax, and who customarily pays it?
- A. 347 dollars, customarily paid by the seller
- B. 694 dollars, customarily paid by the seller
- C. 1,388 dollars, customarily paid by the buyer
- D. 694 dollars, customarily paid by the buyer
Show answer & explanation
Answer: B
347,000 divided by 500 equals 694 increments, so the tax is 694 dollars, and North Carolina's excise tax on conveyances is customarily a seller expense appearing as a seller debit on the settlement statement. Because the statute charges the tax on each fraction of an increment, a price that does not divide evenly rounds the count upward.76. A buyer takes title and later discovers a recorded easement that the title search should have found but the title company missed. What recourse exists?
- A. No recourse, since recorded documents give constructive notice
- B. A claim against the seller's homeowner's insurance
- C. A claim under the owner's title insurance policy, subject to its exceptions and conditions
- D. Rescission of the deed as a matter of right
Show answer & explanation
Answer: C
Title insurance covers loss from defects in the record that existed at closing and were not excepted in the policy, which is precisely the missed-easement scenario. Constructive notice affects priority between claimants rather than eliminating the insurer's obligation, and the schedule of exceptions determines whether the claim is covered.77. A North Carolina broker learns of a material fact about a property after the contract is signed but before closing. What must the broker do?
- A. Disclose only to the broker's own client
- B. Disclose it to the parties, because the duty to disclose material facts continues through closing
- C. Disclose only if a party specifically asks
- D. Say nothing, since the contract has already been signed
Show answer & explanation
Answer: B
The material fact disclosure duty runs to all parties and continues until the transaction concludes, so information learned after contract must still be disclosed. Withholding it because a contract exists is a common and serious error, and the obligation does not depend on being asked.78. A North Carolina broker's license expires because renewal was not completed. What is the effect on the broker's ability to practice?
- A. The license is expired and the broker may not engage in brokerage activity until it is reinstated
- B. The license converts automatically to inactive status permitting continued practice
- C. The broker may practice if supervised by a broker-in-charge
- D. The broker may continue practicing during a grace period of one year
Show answer & explanation
Answer: A
An expired license confers no authority, so any brokerage activity during the lapse is unlicensed practice regardless of supervision, and compensation earned during it is generally unrecoverable. Reinstatement requirements escalate the longer the license remains expired, which is why the June 30 deadline matters.79. Under the federal Fair Housing Act, discrimination in the sale or rental of housing is prohibited based on several protected classes. Which of the following is one of those protected classes?
- A. Familial status
- B. Income level
- C. Marital status alone without children
- D. Employment status
Show answer & explanation
Answer: A
The federal Fair Housing Act's protected classes include race, color, national origin, religion, sex, familial status, and disability. Familial status, meaning having children under 18 in the household including pregnant women, is expressly protected, while income level and employment status are not federally protected classes under this law.80. A property owner dies without a will and without any identifiable heirs. What ultimately happens to the property under common law doctrine?
- A. It reverts, or escheats, to the state
- B. It becomes permanently unowned
- C. It is held in trust indefinitely by the county recorder
- D. It automatically transfers to the deceased owner's neighbors
Show answer & explanation
Answer: A
Escheat is the doctrine under which property reverts to the state when an owner dies intestate, meaning without a will, and no legally identifiable heirs can be found, ensuring property does not remain permanently unowned. It does not pass automatically to neighbors or sit indefinitely with a local recorder's office.81. A broker intentionally uses client trust funds for the broker's own personal expenses, intending to replace the money later. Beyond commingling, what more serious violation does this describe?
- A. Conversion
- B. Subordination
- C. Escheat
- D. Novation
Show answer & explanation
Answer: A
Conversion is the unauthorized use of client trust funds for purposes other than those intended by the client, such as personal expenses, and is treated as a more serious violation than mere commingling because it involves actually using the money rather than just improperly mixing accounts. The other terms describe unrelated legal concepts involving lien priority, property reversion, or contract substitution.82. A landlord fails to make essential repairs after repeated notice, rendering a rental unit so uninhabitable that the tenant is forced to move out before the lease term ends. What is this situation called?
- A. Retaliatory eviction
- B. Actual eviction
- C. Constructive eviction
- D. Self-help eviction
Show answer & explanation
Answer: C
Constructive eviction occurs when a landlord's failure to maintain the premises, or other substantial interference, makes the unit uninhabitable to the point that a tenant is effectively forced to vacate, even though the landlord never physically removed the tenant. This differs from actual eviction, which involves a formal legal removal process.83. Two unmarried co-owners hold title as joint tenants with right of survivorship. One joint tenant dies. What happens to that owner's interest in the property?
- A. It passes according to the deceased owner's will
- B. It passes automatically to the surviving joint tenant, bypassing probate
- C. It is divided equally among the deceased owner's heirs regardless of the surviving owner
- D. It reverts to the original grantor
Show answer & explanation
Answer: B
Joint tenancy includes a right of survivorship that transfers title automatically to the surviving joint tenant by operation of law, outside of probate. A will controls only property held in tenancy in common or owned solely by the deceased, since the survivorship feature overrides any testamentary transfer for jointly held property.84. A married couple in North Carolina takes title to their home as tenants by the entirety. A creditor of only the husband obtains a judgment against him. Can the creditor force a sale of the home to satisfy the debt?
- A. No, because married couples cannot hold real property together
- B. Yes, because either spouse's individual creditors may reach the whole property
- C. No, because tenancy by the entirety protects the property from the separate creditors of only one spouse
- D. Yes, but only after the couple divorces
Show answer & explanation
Answer: C
Tenancy by the entirety is a form of co-ownership available to married couples that includes survivorship rights and requires joint action to convey or encumber the property. Because the creditor's judgment runs against only one spouse individually, this form of ownership shields the property from that separate debt while the marriage continues.85. A neighbor has openly, continuously, and without permission used and occupied a strip of a rancher's land for many years, treating it as his own. The neighbor now claims ownership. Which legal doctrine allows this claim?
- A. Riparian rights
- B. Escheat
- C. Eminent domain
- D. Adverse possession
Show answer & explanation
Answer: D
Adverse possession lets someone acquire title to land through open, notorious, continuous, hostile, and exclusive possession for a required statutory period without the owner's permission. Eminent domain is a government taking with compensation, escheat is reversion to the state when no heirs exist, and riparian rights concern water-adjacent use rather than a possession claim.86. A homeowner's lot borders a non-navigable stream. Under common water-rights doctrine, what is this owner's right to use the water called?
- A. Prior appropriation rights
- B. Littoral rights
- C. Riparian rights
- D. Avulsion rights
Show answer & explanation
Answer: C
Riparian rights attach to land bordering flowing waters like streams and rivers, giving the owner reasonable use rights. Littoral rights instead apply to land bordering non-flowing bodies such as lakes and oceans, and prior appropriation is a separate doctrine used mainly in water-scarce states based on first use rather than land adjacency.87. A commercial tenant installs custom display shelving that is bolted to the wall of a rented retail space in order to conduct her business. When the lease ends, who is generally entitled to remove the shelving?
- A. The tenant, because trade fixtures installed for business purposes remain the tenant's personal property and may be removed
- B. Neither party; the shelving must stay permanently attached
- C. The landlord, because anything attached to the building becomes a fixture
- D. The tenant, but only with the landlord's separate written permission
Show answer & explanation
Answer: A
Trade fixtures are items a commercial tenant attaches to conduct business, and they remain the tenant's personal property despite attachment, meaning the tenant may remove them before the lease ends as long as removal does not cause significant damage. This differs from ordinary fixtures, which pass to the landlord upon attachment.88. A new survey obtained before closing reveals that a neighbor's fence sits three feet onto the seller's property. What is this situation called, and what should the parties do?
- A. An easement appurtenant; the survey should be ignored
- B. Adverse possession that automatically transfers the strip to the neighbor
- C. An encroachment; the issue should be resolved, such as through a boundary line agreement, before closing
- D. A riparian rights dispute requiring court action
Show answer & explanation
Answer: C
An encroachment occurs when a structure improperly extends onto a neighboring parcel. Because it can cloud title and affect insurability, prudent practice is to resolve it before closing, such as through a boundary line agreement, rather than assume it self-resolves or immediately triggers a full adverse possession transfer, which requires years of specific conduct.89. The 'bundle of rights' concept describes ownership of real property as a collection of individual rights. Which of the following is a limitation imposed on this bundle by government authority, rather than a right held by the owner?
- A. The right to use
- B. The right to possess
- C. The right to exclude others
- D. The power of eminent domain
Show answer & explanation
Answer: D
Eminent domain, along with taxation, police power, and escheat, is a power the government holds over private property, not a right within the private owner's bundle. Possession, use, and the right to exclude others are core rights the owner holds as part of that bundle.90. A homeowner facing a civil judgment learns that certain protections may shield some equity in her primary residence from general unsecured creditors. What is this type of protection generally called?
- A. An easement in gross
- B. A deed restriction
- C. A homestead exemption
- D. A mechanic's lien
Show answer & explanation
Answer: C
A homestead exemption is a legal protection that shields a defined amount of equity in an owner's primary residence from many general unsecured creditors. A mechanic's lien instead secures a contractor's claim for unpaid work, and the other listed terms describe unrelated property concepts.91. Three unrelated investors buy a property together, each contributing different amounts and taking unequal ownership percentages, with no right of survivorship. What form of co-ownership have they created?
- A. Community property
- B. Tenancy by the entirety
- C. Joint tenancy
- D. Tenancy in common
Show answer & explanation
Answer: D
Tenancy in common permits co-owners to hold unequal ownership shares with no automatic right of survivorship, meaning each owner's interest passes to their own heirs or as directed by will. Joint tenancy requires equal shares and includes survivorship, and tenancy by the entirety is limited to married couples.92. A parcel is completely surrounded by other privately owned land, with no access to a public road. The owner has no recorded easement. What kind of easement might a court grant to provide road access?
- A. Easement in gross
- B. Negative easement
- C. Easement by prescription
- D. Easement by necessity
Show answer & explanation
Answer: D
An easement by necessity may be granted when a parcel is landlocked and has no legal access to a public road, typically arising when a larger tract was subdivided and one resulting parcel lost access. An easement by prescription instead requires years of open, continuous, unauthorized use, which is not implied merely by landlocked status.93. A borrower takes a loan structured so that monthly payments are lower than a fully amortizing loan, with a large remaining balance due in a single payment at the end of the term. What is the primary risk of this loan structure?
- A. The loan automatically converts to a 30-year term at maturity
- B. The borrower may be unable to pay off or refinance the large final balloon payment when it comes due
- C. The interest rate is guaranteed to decrease over time
- D. The lender cannot legally collect the final payment
Show answer & explanation
Answer: B
Balloon loans carry lower periodic payments but leave a substantial lump sum due at maturity. If the borrower's finances, property value, or the refinance market are unfavorable at that time, the borrower may face default or forced sale, which is the central risk this structure carries.94. In a deed of trust arrangement, title is conveyed to a neutral third party to hold as security for the loan. If the borrower defaults, what power does this arrangement typically give the trustee?
- A. The trustee automatically becomes the new owner of the property
- B. The trustee must forgive the remaining debt
- C. The trustee has no role once the loan is disbursed
- D. The trustee may exercise a power of sale to foreclose without a lengthy court process, depending on the instrument and state procedure
Show answer & explanation
Answer: D
A deed of trust involves three parties, the borrower, lender, and a trustee holding title as security, and commonly includes a power-of-sale clause allowing the trustee to conduct a foreclosure sale upon default following required notice, often faster than a judicial foreclosure. The trustee does not become owner outright nor forgive the debt.95. A homeowner already has a first mortgage and takes out a home equity loan secured by the same property. If the home is later foreclosed and sold, how is the home equity loan generally treated relative to the first mortgage?
- A. It is paid before the first mortgage because it was originated more recently
- B. It has no claim on the property at all
- C. It is automatically forgiven upon foreclosure
- D. It is a junior lien and is paid from sale proceeds only after the first mortgage is satisfied
Show answer & explanation
Answer: D
Liens are generally paid in the order they were recorded, so a home equity loan recorded after the first mortgage is a junior, or subordinate, lien and is satisfied from remaining proceeds only after the senior first mortgage is paid in full. Priority is based on recording order, not which loan is newer in purpose.96. A property appraises for 400,000 dollars and the buyer is approved for a loan of 320,000 dollars against that value. What is the loan-to-value ratio?
- A. 70 percent
- B. 60 percent
- C. 90 percent
- D. 80 percent
Show answer & explanation
Answer: D
Loan-to-value ratio is calculated by dividing the loan amount by the property's appraised value. Here, 320,000 divided by 400,000 equals 0.80, or 80 percent, a standard calculation lenders use to assess risk and determine whether mortgage insurance will be required.97. A conventional loan borrower has been paying private mortgage insurance. As the borrower's equity in the home grows through payments and appreciation, what generally happens to the PMI requirement?
- A. PMI must continue for the entire life of the loan regardless of equity
- B. PMI can generally be cancelled once the borrower reaches a sufficient equity threshold in the property
- C. PMI increases proportionally as equity increases
- D. PMI converts automatically into a second mortgage
Show answer & explanation
Answer: B
Unlike FHA mortgage insurance, private mortgage insurance on conventional loans is generally tied to the loan-to-value ratio and can be cancelled once the borrower's equity reaches a sufficient level, either by borrower request or automatically under federal requirements, rather than persisting for the full loan term.98. A tenant with a documented disability asks a landlord with a strict no-pets policy to allow a service animal in her unit. Under fair housing law, how should the landlord generally respond?
- A. Deny the request because the policy applies uniformly to all tenants
- B. Charge the tenant a special pet deposit before allowing the animal
- C. Require the tenant to move to a different unit that allows pets
- D. Grant a reasonable accommodation, since disability-related exceptions to a no-pets policy are generally required
Show answer & explanation
Answer: D
Fair housing law generally requires landlords to make reasonable accommodations for tenants with disabilities, including waiving a no-pets policy for a service or assistance animal, since such an animal is treated as a disability accommodation rather than an ordinary pet. Landlords generally cannot charge extra pet fees for legitimate assistance animals or force a unit transfer instead of accommodating.99. A rental community advertises that it prefers tenants without young children, steering families with kids to a different section of the property. Absent a qualifying senior housing exemption, what fair housing violation does this describe?
- A. Redlining
- B. Steering based on national origin
- C. Familial status discrimination
- D. Blockbusting
Show answer & explanation
Answer: C
Steering families with children to certain sections or discouraging them from renting altogether is discrimination based on familial status, a federally protected class, unless the property qualifies for a specific housing-for-older-persons exemption. Redlining involves geographic denial of services like lending, and blockbusting involves inducing panic selling based on a protected class entering a neighborhood.100. An agent tells homeowners in a neighborhood that property values will decline because families of a particular protected class are moving in, encouraging them to sell quickly and below market value. What illegal practice does this describe?
- A. Redlining
- B. Steering
- C. Net listing
- D. Blockbusting
Show answer & explanation
Answer: D
Blockbusting is the illegal practice of inducing owners to sell by suggesting that the entry of persons of a particular protected class into the neighborhood will lower property values, exploiting fear for profit. Steering instead involves directing buyers toward or away from areas based on protected class, and redlining is the denial of services like lending based on demographics.101. A lender consistently denies mortgage applications and avoids marketing loans in certain neighborhoods based largely on the racial composition of those areas, rather than on individual applicant creditworthiness. What is this practice called?
- A. Blockbusting
- B. Steering
- C. Puffing
- D. Redlining
Show answer & explanation
Answer: D
Redlining is the discriminatory practice of denying or limiting financial services, such as loans or insurance, to residents of certain areas based on the racial or ethnic composition of those areas rather than individual risk assessment. Steering and blockbusting involve different discriminatory conduct directed at buyers or sellers rather than lending patterns.102. A small retail building open to the public has stairs as its only means of entry, making it inaccessible to wheelchair users. Which law primarily addresses accessibility requirements for this type of commercial building?
- A. The Truth in Lending Act
- B. The Real Estate Settlement Procedures Act
- C. The Fair Housing Act
- D. The Americans with Disabilities Act
Show answer & explanation
Answer: D
The Americans with Disabilities Act governs accessibility requirements for places of public accommodation such as retail stores and commercial buildings open to the public, while the Fair Housing Act addresses discrimination in housing transactions rather than general public building access. The other two laws govern lending disclosures and mortgage settlement procedures.103. A seller is preparing to list a home built in 1965 for sale. Regarding federal lead-based paint disclosure requirements, what applies to this transaction?
- A. Disclosure is required because the home was built before 1978, when lead-based paint was commonly used
- B. Disclosure is only required for rental properties, not sales
- C. No disclosure is required because the home was built before 1978
- D. Disclosure is required only if the buyer specifically asks about paint
Show answer & explanation
Answer: A
Federal law requires sellers of housing built before 1978, when lead-based paint was banned for residential use, to disclose known lead-based paint hazards and provide an EPA-approved pamphlet to buyers. This applies automatically to qualifying sales without needing to be prompted by a buyer's specific inquiry, and a home built in 1965 falls within this pre-1978 disclosure requirement.104. A buyer is concerned about a naturally occurring radioactive gas that can accumulate in basements and pose a health risk. What is this substance generally referred to as, and what is a common practice regarding it in real estate transactions?
- A. Asbestos; it must always be removed before any sale
- B. Methane; it is regulated exclusively by local zoning boards
- C. Formaldehyde; it is only a concern in mobile homes
- D. Radon; testing is commonly recommended, and disclosure of known test results may be advisable
Show answer & explanation
Answer: D
Radon is a naturally occurring radioactive gas that can seep into homes, particularly basements, and elevated levels pose health risks. While requirements vary, testing for radon is a common practice, and sellers who have relevant knowledge or test results should generally address the issue rather than leaving it undisclosed.105. A property has operated as a small auto repair shop for decades in an area that was later rezoned exclusively residential. The use predates the zoning change. What is this existing use generally called?
- A. A variance
- B. A special exception
- C. Spot zoning
- D. A nonconforming use
Show answer & explanation
Answer: D
A legal nonconforming use is one that lawfully existed before a zoning change and is generally permitted to continue despite no longer complying with current zoning, subject to certain limits such as restrictions on expansion or rebuilding after destruction. A variance is instead a case-specific permitted deviation granted going forward, not an existing legacy use.106. A city government takes a portion of a private owner's land to widen a public road, using its power of eminent domain. What is the government constitutionally required to provide the owner?
- A. Double the assessed tax value of the land
- B. Nothing, since eminent domain is an unconditional government power
- C. A replacement property of the owner's choosing anywhere in the city
- D. Just compensation for the value of the property taken
Show answer & explanation
Answer: D
The takings clause requires that when government exercises eminent domain to take private property for public use, it must pay the owner just compensation, generally reflecting fair market value. It does not require providing a substitute property of the owner's choosing or a fixed multiple of assessed value.107. A city adopts an ordinance dividing the municipality into districts and restricting the types of structures and uses allowed in each. Under what government power does the city enact this ordinance?
- A. Eminent domain
- B. Police power
- C. Taxation
- D. Escheat
Show answer & explanation
Answer: B
Police power is the government's authority to regulate land use, health, safety, and welfare through mechanisms like zoning ordinances. Eminent domain instead involves taking property with compensation, escheat is reversion of property to the state absent heirs, and taxation is the power to levy taxes, none of which describe enacting zoning regulations.108. A brokerage firm that has operated from a single office decides to open a second, separate branch office location. Regarding supervision at the new office, what does license law generally require?
- A. No additional supervision is required beyond what exists at the main office
- B. A qualifying broker-in-charge must be designated to supervise activity at the new office location
- C. The new office may operate for up to one year without any designated supervisor
- D. Only provisional brokers may staff the new office
Show answer & explanation
Answer: B
Each active real estate office generally must have a broker-in-charge responsible for supervising the licensees and the office's records and trust funds. Opening a second location typically triggers the need to designate a qualifying broker-in-charge there rather than relying solely on oversight at the original office.109. A newly licensed provisional broker begins working with buyer clients. Under license law, what supervisory relationship must exist while the broker holds provisional status?
- A. The provisional broker may supervise other provisional brokers instead
- B. Supervision is only required if the provisional broker handles trust funds
- C. The provisional broker must work under the direct supervision of a broker-in-charge
- D. The provisional broker may work entirely independently once licensed
Show answer & explanation
Answer: C
A provisional broker holds a conditional license status that requires direct supervision by a broker-in-charge until the provisional broker satisfies additional requirements to practice independently. This supervision applies broadly to the provisional broker's licensed activity, not only to trust fund handling.110. A broker employs an unlicensed personal assistant to help with paperwork and marketing tasks. Which of the following activities would the assistant be prohibited from performing without a license?
- A. Negotiating contract terms or discussing commission amounts with a prospective client
- B. Distributing flyers prepared by the broker
- C. Scheduling showing appointments
- D. Placing signage on a listed property at the broker's direction
Show answer & explanation
Answer: A
Unlicensed assistants may generally perform clerical and administrative support tasks such as distributing marketing materials or scheduling appointments, but activities requiring a license, such as negotiating on behalf of a party or discussing commission terms with clients, cross into practicing real estate brokerage and are prohibited without a license.111. A broker holds earnest money on behalf of a buyer client in a pending transaction. Which of the following actions would violate the broker's obligations regarding these funds?
- A. Maintaining records showing the source and disposition of the funds
- B. Depositing the funds into a separate trust or escrow account designated for client funds
- C. Depositing the funds into the brokerage's general operating account alongside company funds
- D. Disbursing the funds only according to the terms of the contract or with proper authorization
Show answer & explanation
Answer: C
Trust or client funds must be kept in a dedicated trust account separate from the brokerage's own operating funds. Commingling client money with company operating funds is a serious violation because it exposes client funds to the brokerage's business risks and obscures accountability, unlike the other listed practices, which reflect proper handling of client funds.112. A broker creates online advertising for a listed property. Which practice would most likely violate license law's advertising requirements?
- A. Including the brokerage firm's name in the advertisement
- B. Listing the property's accurate square footage
- C. Advertising the property without disclosing that the ad is placed by a licensed brokerage firm, implying it is a private owner sale
- D. Including accurate photographs of the property
Show answer & explanation
Answer: C
License law advertising requirements generally require that advertisements clearly identify the brokerage firm responsible, preventing licensees from disguising brokered listings as private 'for sale by owner' advertisements, which can mislead consumers about who they are dealing with. The other listed practices are standard, compliant advertising elements.113. An individual performs licensed real estate brokerage activities for a client but allowed her license to lapse into inactive status before doing so. Under license law, is she entitled to receive compensation for that work?
- A. Yes, but only if she reactivates her license within 30 days
- B. No, but only if the client complains to the licensing commission
- C. No, compensation for activities requiring a license generally cannot be collected by someone without an active license at the time the activity was performed
- D. Yes, as long as the work was performed competently
Show answer & explanation
Answer: C
Real estate license law generally ties the right to compensation for brokerage activity to holding an active license at the time the licensed activity is performed. Performing such activity while inactive can bar recovery of a commission regardless of the quality of work performed or whether a complaint is ever filed.114. A broker helping parties complete a standard, board-approved sales contract fills in the negotiated business terms the parties provide. If the broker instead drafts custom legal clauses altering the parties' legal rights beyond simply filling in blanks, what risk does this create?
- A. It is required whenever a contract involves financing
- B. No risk, because brokers are always permitted to draft custom legal language
- C. It may constitute the unauthorized practice of law, which brokers are generally not permitted to engage in
- D. It automatically voids the entire contract
Show answer & explanation
Answer: C
Brokers are generally permitted to fill in blanks on approved standard contract forms with the terms the parties negotiate, but drafting original legal clauses that alter legal rights and obligations crosses into the unauthorized practice of law, which is reserved for licensed attorneys. This risk exists even though it would not typically void the underlying contract itself.115. A licensed broker is convicted in criminal court of fraud in connection with a real estate transaction. What is a likely consequence for the broker's real estate license?
- A. The conviction only affects the broker's ability to hold public office
- B. No consequence, since criminal and licensing matters are entirely unrelated
- C. The licensing commission may pursue disciplinary action, including possible suspension or revocation of the license
- D. The broker automatically becomes a broker-in-charge
Show answer & explanation
Answer: C
Real estate licensing commissions generally have authority to discipline licensees for conduct including fraud, and a criminal fraud conviction connected to real estate activity is grounds for licensing sanctions up to revocation. This is because license law aims to protect the public from dishonest practitioners regardless of separate criminal penalties already imposed.116. A listing broker discovers a material defect in a property that could reduce its value, but the seller instructs the broker not to mention it to prospective buyers. What is the broker's obligation regarding this known material fact?
- A. Follow the seller's instruction, since the seller is the broker's client
- B. Disclose the known material fact regardless of the seller's instruction, because brokers generally may not conceal material facts from other parties to a transaction
- C. Disclose the fact only if a buyer specifically asks about it
- D. Report the matter only to the licensing commission, not to buyers
Show answer & explanation
Answer: B
While a listing broker owes fiduciary duties to the seller, the duty of honesty and disclosure of known material facts to other parties generally overrides an instruction to conceal such facts. Brokers cannot lawfully participate in withholding information that would affect a buyer's decision, regardless of whether the buyer happens to ask directly.117. A broker wants to pay a referral fee to a friend who is not a licensed real estate agent for sending a buyer client. Under license law, is this generally permitted?
- A. Yes, as long as the fee is reasonable in amount
- B. Yes, if the friend signs a waiver
- C. Yes, but only for commercial transactions
- D. No, referral fees for real estate brokerage activity generally may not be paid to unlicensed individuals
Show answer & explanation
Answer: D
License law generally restricts the payment of compensation for real estate brokerage activity, including client referrals, to licensed individuals, in order to prevent unlicensed persons from being incentivized to steer business without regulatory accountability. A private waiver or the transaction type does not change this general restriction.118. A broker receives a security deposit from a tenant on behalf of a property owner client. Where should the broker place these funds?
- A. In a dedicated trust or escrow account maintained for client funds
- B. It may be given directly to the broker-in-charge to hold personally
- C. In the same account used to pay the brokerage's marketing expenses
- D. In the broker's personal bank account for safekeeping
Show answer & explanation
Answer: A
Funds a broker holds on behalf of a client, including tenant security deposits collected as part of property management, must be maintained in a dedicated trust or escrow account separate from personal or operating funds. This ensures accountability and protects the client's money from the brokerage's own financial risks, unlike personal handling or commingling.119. A provisional broker working under a broker-in-charge makes a significant error in handling a client's transaction. Regarding supervisory responsibility, what is generally true?
- A. The broker-in-charge has ongoing supervisory responsibility for provisional brokers under their direction and may share accountability
- B. Responsibility shifts entirely to the brokerage's unlicensed office manager
- C. The broker-in-charge bears no responsibility since the provisional broker acted independently
- D. Only the client bears responsibility for selecting that agent
Show answer & explanation
Answer: A
Because provisional brokers are required to work under direct supervision, the supervising broker-in-charge carries an ongoing duty to oversee their transactions and conduct, meaning supervisory failures can create shared accountability. Responsibility does not fall solely on the client or on unlicensed staff who lack that supervisory role.120. A provisional broker successfully completes the required postlicensing education while working under supervision. What is the typical effect on the broker's license status?
- A. The broker must restart the entire licensing process from the beginning
- B. The provisional status may be removed, allowing the broker to work without the direct supervision requirement
- C. The broker becomes automatically qualified to serve as a broker-in-charge for any office
- D. The license is immediately revoked pending a new background check
Show answer & explanation
Answer: B
Completing the required postlicensing education is generally the path for a provisional broker to have the supervision requirement lifted, allowing independent practice as a full broker. It does not require restarting licensure, and it does not automatically confer broker-in-charge qualifications, which typically require additional separate eligibility criteria.121. A group of licensees within a brokerage markets themselves under a distinctive team name in their advertising. What does license law generally require regarding this team branding?
- A. The team name may be used with no reference to the brokerage firm at all
- B. Team advertising is prohibited entirely under license law
- C. The team name must be formally licensed as a separate brokerage entity
- D. The advertising must still clearly disclose the affiliated brokerage firm's name, since a team is not an independent brokerage
Show answer & explanation
Answer: D
A sales team operating under a distinctive name is still part of, and must be advertised as affiliated with, its brokerage firm, since a team is not itself a licensed brokerage entity. Advertising that omits the firm's name risks misleading consumers about who is actually responsible for the transaction, so disclosure of the affiliated firm remains generally required.122. A broker steers a client toward a particular home inspector in exchange for an undisclosed kickback from that inspector for every referral. What concern does this arrangement raise?
- A. It is required practice to ensure quality inspections
- B. None, since brokers may freely choose which vendors to recommend
- C. It only matters if the inspection later reveals a defect
- D. It raises a conflict of interest and disclosure concern, since undisclosed compensation for referrals can violate license law and related regulations
Show answer & explanation
Answer: D
Accepting undisclosed compensation for referring a service provider creates a conflict of interest, since the broker's recommendation may be influenced by personal financial gain rather than the client's best interest. Such arrangements can violate license law's disclosure requirements and related regulations regardless of the substantive quality of the inspection performed.123. A listing broker receives multiple competing offers on a property at the same time. Regarding the broker's duty to the parties involved, what is generally expected?
- A. The broker may disclose one buyer's confidential financial information to a competing buyer to encourage a higher bid
- B. The broker may secretly favor a buyer represented by the same brokerage without disclosure
- C. The broker must automatically accept the highest offer without consulting the seller
- D. The broker must treat all parties honestly and may not fabricate or misrepresent the terms of competing offers to gain leverage
Show answer & explanation
Answer: D
Brokers owe a duty of honesty and fair dealing to all parties in a transaction, which prohibits fabricating or misrepresenting competing offer terms to manipulate negotiations, and prohibits disclosing one party's confidential information to another without authorization. Ultimately, the seller, not the broker, decides which offer to accept.124. A home sale closes on June 15. The seller has already paid the full year's property taxes for the calendar year. At closing, how are these prepaid taxes typically handled between the parties?
- A. The seller absorbs the entire cost with no adjustment
- B. The real estate commission covers the prorated amount
- C. The taxing authority refunds the buyer directly
- D. The buyer reimburses the seller, through a proration, for the portion of prepaid taxes covering the period after closing
Show answer & explanation
Answer: D
Because the seller already paid taxes covering the full year but will only own the property until closing, the buyer generally reimburses the seller at closing for the prepaid taxes attributable to the period the buyer will own the property, a standard proration. The taxing authority and the broker's commission are not involved in this adjustment.125. On a residential closing disclosure, a real estate commission owed to the listing brokerage is typically shown as which kind of entry for the seller?
- A. A credit to the buyer
- B. A credit to the lender
- C. A debit to the seller
- D. A debit to the buyer
Show answer & explanation
Answer: C
The seller is the party who owes the commission out of sale proceeds, so it appears as a debit, a cost charged, to the seller on the closing disclosure, reducing the seller's net proceeds. It is not charged to the buyer, nor credited to the lender, who is not a party receiving commission funds.126. A contract calls for the buyer's funds and the signed deed to be held by a neutral third party until all closing conditions, such as loan funding, are satisfied. What role is being described?
- A. Title insurer
- B. Escrow agent
- C. Broker-in-charge
- D. Grantor
Show answer & explanation
Answer: B
An escrow agent acts as a neutral third party that holds funds and documents pending satisfaction of contractual conditions, releasing them once all requirements, such as loan funding, are met, providing security to both buyer and seller. This role is distinct from the broker-in-charge's supervisory function or the title insurer's role of insuring against title defects.127. A grantor signs a deed conveying property to a buyer but locks it in a desk drawer without ever handing it over or otherwise making it effective to the buyer. Has a valid conveyance occurred?
- A. Yes, as long as the deed is eventually recorded, regardless of delivery
- B. No, because deeds must always be delivered in person at a closing table
- C. Yes, signing alone is sufficient to convey title
- D. No, because valid conveyance requires both delivery and acceptance of the deed, not signature alone
Show answer & explanation
Answer: D
A valid conveyance requires that the deed be delivered by the grantor with the intent to transfer title, and accepted by the grantee. A signed but undelivered deed sitting in a drawer has not been legally conveyed, since signature alone does not complete the transfer, though delivery can occur in various forms, not exclusively an in-person closing handoff.128. A buyer's attorney explains that the property has 'marketable title' but the buyer is still encouraged to purchase title insurance. What is the practical difference between marketable title and insurable title?
- A. Marketable title only applies to commercial property
- B. Marketable title means title reasonably free of defects that a court would enforce a buyer to accept, while insurable title means a title company is willing to insure against loss from title defects, even ones that may exist
- C. Insurable title guarantees there are no defects of any kind
- D. They are identical concepts with no meaningful difference
Show answer & explanation
Answer: B
Marketable title refers to title reasonably free from doubt or defect such that a buyer could be compelled to accept it under contract law, while insurable title reflects a title company's business decision to insure against certain title risks, which may include known minor defects the insurer is willing to accept the risk on. The two concepts overlap but are not identical, and neither guarantees complete absence of defects.129. A property owner grants a prospective buyer the right, but not the obligation, to purchase a parcel at a fixed price within a set period, in exchange for the buyer paying the owner a sum of money for that right. Which type of contract is this?
- A. A lease with purchase obligation
- B. A bilateral contract
- C. A listing agreement
- D. A unilateral option contract
Show answer & explanation
Answer: D
An option contract is generally unilateral in the sense that only the property owner is obligated to sell if the option is exercised, while the holder of the option retains the right but no obligation to buy. This differs from a bilateral contract, where both parties are mutually obligated to perform once the agreement is formed.130. A purchase contract includes a contingency allowing the buyer to have the property professionally inspected within a specified period. If the inspection reveals significant defects, what does this contingency typically allow the buyer to do?
- A. Negotiate repairs or credits with the seller, or potentially withdraw from the contract, depending on the contingency's terms
- B. Automatically forfeit the earnest money regardless of the findings
- C. Nothing; inspection contingencies are purely informational with no rights attached
- D. Require the seller to personally perform all repairs found
Show answer & explanation
Answer: A
An inspection contingency generally gives the buyer defined rights based on the inspection results, such as requesting repairs or price credits from the seller, or terminating the contract and recovering earnest money if the parties cannot agree. It is not purely informational, nor does it force the seller into a specific remedy like personally completing repairs.131. Two different brokers separately show the same property to the eventual buyer, but only one of them was the efficient, direct cause of bringing about the completed sale. Which doctrine determines which broker is entitled to the commission?
- A. Estoppel
- B. Statute of frauds
- C. Puffing
- D. Procuring cause
Show answer & explanation
Answer: D
Procuring cause analysis determines which broker's efforts were the direct, uninterrupted cause leading to the successful transaction when multiple brokers are involved, and that broker is generally entitled to the commission rather than one who showed the property but was not the effective cause of the sale being completed. The other listed terms concern unrelated legal doctrines.132. Within the same brokerage firm, one licensee is formally assigned to represent the buyer exclusively, and a different licensee is formally assigned to represent the seller exclusively in the same transaction, each owing full fiduciary duties only to their own client. What is this arrangement called?
- A. Dual agency
- B. Subagency
- C. Transaction brokerage
- D. Designated agency
Show answer & explanation
Answer: D
Designated agency assigns different licensees within the same firm to represent the buyer and seller separately, with each designated agent owing full fiduciary duties solely to their own assigned client. This contrasts with dual agency, where a single agent, or the firm acting as one, represents both parties with divided loyalty in the same transaction.133. In a real estate transaction, a cooperating broker works with a buyer but, under a subagency arrangement, actually owes fiduciary duties to the seller rather than the buyer. What must this broker disclose to the buyer?
- A. Only the amount of commission being paid
- B. Nothing, since the buyer does not need to know who the broker represents
- C. The seller's minimum acceptable price
- D. That the broker represents the seller's interests, not the buyer's, despite working directly with the buyer
Show answer & explanation
Answer: D
Subagency creates a fiduciary relationship running to the seller even though the subagent may be working hands-on with the buyer, so the subagent must disclose this representation to the buyer to avoid the buyer mistakenly believing the agent represents their interests. Disclosing confidential information like the seller's minimum price would itself breach fiduciary duty to the seller.134. A purchase contract includes a clause stating that if the buyer defaults without legal excuse, the seller may retain the buyer's earnest money as a set, predetermined remedy rather than suing for actual damages. What is this type of clause called?
- A. A liquidated damages clause
- B. A subordination clause
- C. A habendum clause
- D. An acceleration clause
Show answer & explanation
Answer: A
A liquidated damages clause sets a predetermined amount, often the earnest money, as the agreed remedy for a party's default, providing certainty and avoiding the need to prove actual damages in court. The other named clauses address unrelated matters such as lien priority, loan default, or the scope of an estate conveyed by a deed.135. A buyer under contract to purchase a property wants to transfer his rights and obligations under that contract to a different party before closing. Absent a contract clause prohibiting it, what is this transfer generally called?
- A. Rescission
- B. Ratification
- C. Assignment
- D. Novation
Show answer & explanation
Answer: C
Assignment is the transfer of contractual rights and obligations to a third party, generally permitted unless the contract specifically prohibits it. Novation instead involves substituting a new party in place of an original one with the other party's consent and release of the original party's liability, which is a distinct and separate concept.136. A landlord agrees to release an original tenant from a lease entirely and substitute a new tenant in the original tenant's place, with the landlord's consent to the substitution. What is this arrangement called?
- A. Assignment
- B. Novation
- C. Estoppel
- D. Sublease
Show answer & explanation
Answer: B
Novation occurs when all parties agree to substitute a new party into a contract in place of an original party, with the original party fully released from further liability. This differs from an assignment or sublease, where the original tenant may still remain liable if the new party defaults, since novation requires the other party's consent to release that liability entirely.137. A property manager holds a single pooled trust account containing security deposits collected from several different tenants across multiple rental units. What recordkeeping practice must the manager maintain regarding these pooled funds?
- A. An individual ledger or record must be kept showing each tenant's deposit amount and status separately within the pooled account
- B. No individual records are needed as long as the total account balance is accurate
- C. Only the property owner's total balance needs to be tracked, not each tenant's individual amount
- D. Records may be destroyed once each tenant moves in, since the deposit itself is proof enough
Show answer & explanation
Answer: A
When multiple tenants' security deposits are pooled in a single trust account, the manager must still maintain an individual ledger or record for each tenant showing that tenant's specific deposit amount and its status, so that funds can be properly accounted for and returned to the correct tenant. A single aggregate balance, without per-tenant detail, does not satisfy this recordkeeping obligation.138. A tenant complains that a rental unit's heating system has been broken for weeks despite repeated requests to the landlord for repair. Which legal concept obligates the landlord to address this kind of issue?
- A. The doctrine of laches
- B. The statute of frauds
- C. The rule against perpetuities
- D. The implied warranty of habitability
Show answer & explanation
Answer: D
The implied warranty of habitability obligates a landlord to maintain rental premises in a condition fit for human habitation, covering essential systems such as heating, and a landlord's ongoing failure to repair a serious defect after notice can constitute a breach of this obligation. The other listed doctrines concern unrelated legal topics such as contract formality or the duration of future property interests.139. A property manager screening rental applicants sets criteria based on income and credit history that are applied consistently to every applicant regardless of protected class. Is this screening approach generally permissible under fair housing law?
- A. Yes, but only for commercial rather than residential properties
- B. No, any screening criteria at all are prohibited
- C. No, landlords must accept every applicant who applies
- D. Yes, objective criteria applied uniformly to all applicants are generally permissible, as long as they do not function to disproportionately exclude a protected class without legitimate justification
Show answer & explanation
Answer: D
Fair housing law does not prohibit legitimate, objective screening criteria like income and credit history applied consistently to all applicants, but such criteria must be applied uniformly and should not be designed or used in a way that disproportionately screens out a protected class without a legitimate, justified business reason. Landlords are not required to accept every applicant regardless of qualification.140. A property management agreement is silent on whether the manager may initiate eviction proceedings against a nonpaying tenant without first consulting the owner. What is the prudent course of action for the manager?
- A. Seek the owner's guidance or authorization, since the agreement does not clearly grant this authority
- B. Wait indefinitely and take no action of any kind
- C. Terminate the management agreement immediately
- D. Proceed with eviction unilaterally, since silence implies authority
Show answer & explanation
Answer: A
When a management agreement does not clearly address a significant decision such as initiating legal eviction proceedings, a prudent manager seeks the owner's direction rather than assuming unilateral authority the agreement does not clearly grant. Acting beyond one's actual authority can expose the manager to liability, while doing nothing indefinitely could also breach the manager's duty to competently manage the property.141. A property owner hires a manager to collect rent and pay operating expenses on the owner's behalf. What accounting practice should the manager follow regarding these transactions?
- A. No records are required as long as the owner trusts the manager
- B. The manager should maintain accurate records and provide the owner with regular accountings of rents collected and expenses paid
- C. The manager should deposit rental income directly into the manager's personal account for convenience
- D. The manager may keep all financial records confidential from the owner
Show answer & explanation
Answer: B
A property manager acting as a fiduciary for the owner has a duty to maintain accurate records of income and expenses handled on the owner's behalf and to provide regular accountings, ensuring transparency and enabling the owner to verify proper handling of funds. This duty rules out withholding records or mixing rental income with the manager's personal finances.142. An appraiser is valuing a typical single-family home in an active residential neighborhood with many recent nearby sales. Which appraisal approach is generally considered most reliable for this type of property?
- A. The income approach
- B. The sales comparison approach
- C. The gross rent multiplier approach alone
- D. The cost approach
Show answer & explanation
Answer: B
The sales comparison approach, which analyzes recent sales of similar nearby properties and adjusts for differences, is generally considered the most reliable method for typical owner-occupied single-family homes because ample comparable sales data is usually available. The cost approach is more useful for new or unique properties, and the income approach is primarily suited to income-producing property.143. An investment property generates 60,000 dollars of annual net operating income. Comparable properties in the market are selling at capitalization rates of 6 percent. Using the income approach, what is the property's indicated value?
- A. $600,000
- B. $1,000,000
- C. $3,600,000
- D. $60,000
Show answer & explanation
Answer: B
Under the income approach, value equals net operating income divided by the capitalization rate; 60,000 divided by 0.06 equals 1,000,000 dollars. This illustrates how the same income stream is worth more at a lower cap rate and less at a higher one, since cap rate and value move inversely.144. An appraiser is valuing a newly constructed, special-purpose building with few comparable sales and no rental income data available. Which appraisal approach is generally best suited to this situation?
- A. The gross rent multiplier approach
- B. The income approach
- C. The cost approach
- D. The sales comparison approach
Show answer & explanation
Answer: C
The cost approach, which estimates land value plus the current cost to construct a replacement structure minus depreciation, is generally best suited for new or unique special-purpose properties that lack comparable sales or income data, since the other approaches depend on market sales or rental data that may not exist for such properties.145. A small rental property sells for 240,000 dollars and generates 2,000 dollars in monthly gross rent. What is the property's gross rent multiplier?
- A. 100
- B. 120
- C. 12
- D. 20
Show answer & explanation
Answer: B
Gross rent multiplier is calculated by dividing the sale price by the monthly gross rent; 240,000 divided by 2,000 equals 120, a simple ratio investors and appraisers use to quickly compare relative pricing of income-producing properties in a market, though it does not account for operating expenses the way a capitalization rate does.146. A mortgage loan officer pressures an appraiser to inflate a property's valuation so a pending loan will meet underwriting requirements. What concern does this scenario raise?
- A. None, since appraisers work for the lender and must follow instructions
- B. It is a normal and encouraged part of the underwriting process
- C. It only matters if the loan later defaults
- D. A violation of appraiser independence requirements, which prohibit improperly influencing an appraiser's professional judgment
Show answer & explanation
Answer: D
Appraiser independence requirements are designed to prevent lenders, loan officers, brokers, and other interested parties from improperly pressuring or influencing an appraiser's professional judgment about a property's value. An accurate, unbiased appraisal protects both the lender's collateral position and the broader mortgage market, regardless of whether the loan ultimately defaults.147. An appraiser notes that a home's value is reduced because of an outdated floor plan with a bedroom accessible only by walking through another bedroom. What category of depreciation does this design flaw represent?
- A. Physical deterioration
- B. External (economic) obsolescence
- C. Curable physical depreciation
- D. Functional obsolescence
Show answer & explanation
Answer: D
Functional obsolescence refers to a loss in value caused by outdated or undesirable design features inherent to the property itself, such as an awkward floor plan. This differs from physical deterioration, which involves wear and tear on physical components, and external obsolescence, which stems from negative factors outside the property's boundaries, such as nearby land uses.148. An appraiser analyzes a vacant infill lot zoned for either single-family or multifamily development to determine which use would maximize the site's value, considering what is legally allowed, physically possible, and financially feasible. What appraisal concept is being applied?
- A. Progression
- B. Substitution
- C. Highest and best use
- D. Anticipation
Show answer & explanation
Answer: C
Highest and best use analysis identifies the reasonably probable use of a property that is legally permissible, physically possible, financially feasible, and maximally productive, guiding an appraiser's value conclusion. The other listed terms are separate valuation principles concerning comparable substitutes, expected future benefits, or the effect of nearby higher-value properties.
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Key facts: North Carolina Real Estate Broker exam
The North Carolina Real Estate Broker is administered by North Carolina Real Estate Commission, with 140 scored questions, a 4 hours 30 minutes time limit and a 75 (each section) result.
This free North Carolina Real Estate Broker practice test has 148 original questions written to North Carolina Real Estate Commission's official content outline, last checked against it on July 18, 2026. Every question shows a worked explanation, and nothing here requires a signup.
As of 2026, the North Carolina Real Estate Broker exam fee is $63.
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Official sources
Primary documents used to verify the exam details shown on this page.
- Real Estate Licensing in North Carolina (Candidate Booklet, April 2026)North Carolina Real Estate Commissionpearsonvue.com
- North Carolina Real Estate Broker ExamNorth Carolina Real Estate Commission / Pearson VUEpearsonvue.com
- Housing Discrimination Under the Fair Housing ActU.S. Department of Housing and Urban Developmenthud.gov
- NCREC Bulletins — Continuing Education RequirementsNorth Carolina Real Estate Commissionbulletins.ncrec.gov
- Real Estate Licensing in North Carolina — Examination Eligibility & FeesNorth Carolina Real Estate Commissionpearsonvue.com
Last verified against the official exam content outline:
Frequently asked questions
Do these practice questions match the real NC Broker exam?
They are written in the same multiple-choice style as the real exam and cover the same core topics: agency and fiduciary duties, contracts, finance, property ownership, fair housing, and valuation. The goal is to make the phrasing and difficulty feel familiar on test day. They are a study tool, not actual exam questions, so treat them as preparation rather than a preview of the exact items you will see.
Are these NC Broker practice questions really free?
Yes — the practice questions are free and you can start immediately with no signup, no email, and no credit card. Answer as many as you like and come back as often as you want. Free access removes the excuse to put off studying, so start with a short set today.
How many practice questions should I do before the exam?
Aim to work through several hundred questions over your study period, in short daily sessions rather than one marathon. Since the real exam has 140 scored questions, build up to full-length timed sets so your focus lasts the whole test. Daily practice of 20 to 40 questions with review is more effective than cramming everything into the final week.
How should I use the answer explanations?
Read the explanation for every question, including the ones you got right. Explanations tell you why the correct answer is correct and why the tempting wrong choices fail, which is exactly the reasoning the exam tests. When you miss a question, write down the underlying rule — not just the answer — and retest yourself on that topic a few days later.
How do I know when I'm ready to sit the NC Broker exam?
You are in good shape when you consistently score comfortably above the passing standard on full-length practice sets — remember the real exam requires a score of 75 on each section, so check your national and state results separately. Readiness also shows up as speed: you should finish timed sets with time to spare and rarely feel surprised by a question's wording. If one topic area keeps dragging your score down, drill that area before booking your appointment.