North Dakota Real Estate Practice Exam.
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Answer: B
Long-term, continuous, and open use of another's land for access, without permission being formally granted or revoked, is the classic basis for a court to recognize an easement acquired through prescription. An easement in gross would benefit a person or entity rather than an adjoining parcel, a license is merely permissive and revocable at will rather than a durable property interest, and an encroachment describes an unauthorized structure crossing a boundary rather than a right of passage.

Answer: A
Items that are permanently affixed to the structure, such as shelving screwed directly into the wall studs, generally become fixtures and transfer with the real property to the buyer unless the contract states otherwise. Trade fixtures apply to items a commercial tenant installs for business use and typically may remove, and treating the shelving as personal property or requiring a separate bill of sale ignores how attachment to the structure changes its legal classification.

Answer: A
The fiduciary duty of loyalty obligates an agent to act in the client's best interest above her own, avoiding self-dealing or favoring a competing interest during negotiations. Accounting concerns properly handling client funds and documents, disclosure requires sharing material facts, and obedience means following the client's lawful instructions, but none of those duties specifically address prioritizing the client's interests over the agent's own during a negotiation.

Answer: C
When a cooperating salesperson from an outside firm works with a buyer but still owes fiduciary duties to the listing seller under the brokerage relationship established through the MLS, that salesperson is acting as a subagent of the seller. A buyer's agent instead owes fiduciary duties to the buyer, a dual agent represents both parties simultaneously with consent, and a facilitator represents neither party as a fiduciary, so none of those match a cooperating agent still bound to the seller.

Answer: D
A written agreement naming a single brokerage as the buyer's sole representative for a home search establishes an exclusive buyer agency relationship. An open listing and a net listing are both seller-side listing arrangements rather than buyer representation agreements, and a cooperating broker relationship describes how two different firms work together on a transaction, not an exclusive buyer-agent arrangement.

Answer: B
A valid contract requires that every signing party have the legal capacity to understand and consent to the agreement, and a person who is mentally incapacitated at signing lacks that capacity, making the contract voidable. Legality of object concerns whether the contract's purpose is lawful, mutual consent concerns a genuine meeting of the minds free of fraud or duress, and consideration concerns an exchange of value, but the facts given specifically point to a capacity problem rather than any of those other elements.

Answer: A
A special warranty deed limits the seller's title guarantees to the period during which she personally owned the property, rather than covering the property's entire history. A general warranty deed would cover defects from any prior period, a quitclaim deed provides no warranties whatsoever, and a sheriff's deed is issued through a judicial sale process rather than reflecting a negotiated limited warranty, so none of those match the seller's specific, limited promise here.

Answer: C
Dividing prepaid or accrued expenses like property taxes between buyer and seller based on how long each party owned the property during the tax period is called proration, and it ensures each party pays only for their actual time of ownership. Amortization instead describes the gradual repayment of a loan, subordination concerns the priority ranking of liens, and recapture generally refers to reclaiming previously allowed tax benefits, none of which describe splitting a shared closing expense.

Answer: C
Each point equals one percent of the loan amount, so multiplying $149,800 by 3.6% correctly yields $5,392.80 in points due at closing. Dividing by ten instead of multiplying by the decimal produces a figure that is off by a factor of ten, calculating at a flat 3% rate ignores the actual 3.6-point charge, and shifting the decimal the wrong direction inflates the result tenfold, all of which reflect common arithmetic missteps rather than the correct point calculation.

Answer: B
A deed of trust involves a third-party trustee holding legal title on behalf of the lender as security for the loan, distinguishing it from a mortgage, where title stays with the borrower and the lender simply holds a lien. A land contract instead involves the seller financing the sale directly and retaining title until the buyer pays in full, and a promissory note is merely the borrower's written promise to repay, not the security instrument itself, so neither matches a trustee-held arrangement.

Answer: C
Subtracting the $58,500 down payment from the $390,000 purchase price leaves a loan amount of $331,500, and dividing that loan amount by the $390,000 purchase price produces a loan-to-value ratio of 85%. Fifteen percent is actually the down payment percentage rather than the LTV, eighteen percent results from dividing the down payment by the loan amount instead of the price, and one hundred fifteen percent results from adding the down payment to the price instead of subtracting it.

Answer: D
The income approach values a property by dividing net operating income by the capitalization rate, and $33,800 divided by 6.5% correctly produces a value of $520,000. Misplacing the decimal in the capitalization rate produces $52,000 or $5,200,000, and multiplying the net operating income by 0.065 instead of dividing by it produces $2,197, but capitalization value calculations always require dividing income by the rate rather than multiplying or mis-scaling it.

Answer: C
The gross rent multiplier is found by dividing the sale price by the monthly rental income, and $197,600 divided by $1,520 correctly equals 130. Shifting the decimal produces 13 or 1,300, and dividing the sale price by the annualized rent instead of the monthly figure produces roughly 10.83, but the standard gross rent multiplier formula always uses the monthly rent figure.

Answer: A
Highest and best use analysis specifically evaluates whether a use is legally permissible, physically possible, financially feasible, and maximally productive to determine the most valuable use for a site. Curable depreciation refers to a fixable loss in value on an existing structure, plottage value refers to the value gain from combining adjoining lots, and assemblage describes the act of combining those lots, none of which describe the four-part test for identifying a site's optimal use.

Answer: C
A seller who knows about a material defect, such as recurring basement flooding, should proactively disclose it in writing regardless of whether the buyer specifically asks, since known material facts generally must be disclosed to avoid liability for misrepresentation. Waiting to be asked, staying silent, or delaying disclosure until after closing all risk exposing the seller to claims of concealment or fraud once the defect is discovered by the buyer.

Answer: A
Earnest money and other client funds must be deposited into a separate trust or escrow account and never commingled with the brokerage's own operating funds or held as loose cash, protecting the money from misuse or from claims by the brokerage's creditors. Keeping the funds in an office safe, depositing them into the general operating account, or forwarding them to the seller before closing all violate the fundamental duty to safeguard client funds in a properly maintained trust account.

Answer: A
A licensee who personally observes an obvious, visible defect such as a large foundation crack has a duty to disclose that observed condition to prospective buyers, rather than relying solely on the buyer's own inspector to catch it. Ignoring the crack, attempting a personal repair, or waiting for seller permission before disclosing all fall short of the licensee's independent duty to disclose visibly apparent material conditions.

Answer: D
Directing homebuyers toward or away from particular neighborhoods based on a protected characteristic is the defining feature of steering, a form of illegal discrimination under fair housing law. Blockbusting involves inducing panic selling by suggesting a protected class is moving into an area, redlining involves lenders denying services to entire areas based on demographics, and puffing is simply exaggerated but honest sales talk, none of which describe limiting which neighborhoods a buyer is shown.

Answer: C
Denying loans or services to an entire geographic area based on the racial or ethnic makeup of its residents, rather than individual creditworthiness, is redlining, an illegal lending practice under fair housing and lending laws. Steering concerns directing individual buyers rather than denying an entire area lending services, blockbusting concerns pressuring homeowners to sell, and underwriting is simply the legitimate process of evaluating individual loan risk, which this committee's blanket policy explicitly bypasses.

Answer: A
North Dakota's real estate license reciprocity arrangement currently extends to a specific small group of states, which include Iowa and Georgia alongside Minnesota, allowing qualifying licensees from those states an alternate path into ND licensure. The other listed state pairings are neighboring or nearby states that are not part of this particular reciprocity arrangement, making them a plausible but incorrect guess for someone assuming reciprocity follows geographic proximity.

Answer: C
Nonresident applicants coming from a state without a reciprocity agreement with North Dakota are required to take and pass only the state portion of the examination, since they are presumed to have already demonstrated national-level competency through their home state's licensing process. Requiring only the national portion, both portions, or neither portion would misstate how North Dakota structures its exam requirements for this specific category of nonresident applicant.

Answer: C
North Dakota residents applying for an initial salesperson license must take and pass both the state and national portions of the examination, since residency doesn't carry the same exemption that applies to certain reciprocal or nonresident applicants. Requiring only one portion, or leaving the choice to random assignment by the testing vendor, misrepresents the standard two-part requirement that applies to resident applicants.

Answer: C
North Dakota license law looks at whether an applicant has had a real estate license revoked in any state within a defined period before the application, so a revocation from only fourteen months earlier falls inside that lookback window and creates a genuine eligibility concern for the Commission to evaluate. Claiming the revocation is irrelevant, limiting the concern only to in-state revocations, or treating it as a permanent, unconditional bar all misstate how this eligibility factor actually operates under license law.

Answer: D
North Dakota sets a minimum age that an applicant must have reached at the time of application, and a 17-year-old has simply not yet reached that threshold, regardless of how much coursework has been completed. Working as an unlicensed assistant, obtaining a parental co-signature, or assuming there is no age requirement at all are not accurate descriptions of how the state's minimum age requirement for licensure actually functions.

Answer: D
North Dakota requires applicants to submit their license application within a defined period after completing their certified pre-licensure coursework, so an applicant approaching that outer boundary should be concerned about whether her completed coursework will still count toward licensure. Concerns about the course provider's business status, retaking only a portion of the coursework, or credit transferability to another state are not the actual issue raised by nearing the end of this validity window.

Answer: D
North Dakota requires broker applicants to have been actively engaged full-time as a licensed salesperson for a defined minimum period, and eighteen months falls short of that required duration, meaning she is not yet eligible to apply. A letter from her current broker, first becoming a designated broker, or assuming there is no experience requirement at all do not accurately reflect the actual full-time experience prerequisite that governs broker eligibility.

Answer: D
The North Dakota Real Estate Commission issues licenses to salespersons, to brokers who may serve either as a designated broker or a broker associate, and to firms, covering the full range of licensed real estate business participants. Limiting the categories to only salespersons and appraisers, only brokers and property managers, or salespersons and title agents all omit or misstate the actual license categories the Commission oversees.

Answer: C
North Dakota's Real Estate Education, Research and Recovery Fund is designed to provide a source of consumer compensation and to support education and research related to the real estate profession, funded in part through licensee contributions. An errors and omissions trust, a general state revenue fund, and a broker indemnity reserve are all plausible-sounding but incorrect names that do not correspond to North Dakota's actual named recovery fund.

Answer: D
The North Dakota Real Estate Commission is the state agency with statutory authority over licensees, including the power to investigate complaints and impose discipline such as suspension or revocation of a license. A county sheriff's office, a local Realtor board, and the exam testing vendor all serve different functions entirely and have no statutory disciplinary authority over real estate licensees in the state.

Answer: B
Mishandling client trust funds is a violation of the statutory requirements governing the activities of licensees, the category of state law that addresses how licensees must conduct themselves in handling client money and other transaction responsibilities. Land use control statutes, federal fair housing statutes, and property tax statutes each address entirely different subject matter and would not be the primary basis for disciplining this kind of trust fund violation.

Answer: A
North Dakota's state law outline includes an 'Additional Topics' area that specifically addresses subdivided and out-of-state land sales, reflecting the unique disclosure and regulatory issues that arise when marketing this kind of property to local buyers. Federal truth-in-lending disclosures, national agency law, and national real estate calculations are all separate content areas that don't correspond to the specific state-law topic covering subdivided or out-of-state land.

Answer: C
Severing the subsurface oil and gas rights from the surface creates a mineral estate that can be owned, leased, and conveyed separately from the land above it, which is common in North Dakota's oil-patch region. A leasehold or life estate involves a different kind of possessory interest in the surface itself, and an easement in gross grants only a usage right rather than ownership of the resource, so those terms don't describe what the landowner retained here.

Answer: B
Rights tied to ownership of land bordering a flowing waterway, such as a river, are classified as riparian rights and govern access to and reasonable use of that water. Littoral rights instead apply to land bordering non-flowing bodies of water like lakes or oceans, while subsurface and air rights concern what lies below and above the parcel rather than the adjoining water itself.

Answer: A
Joint tenancy includes the right of survivorship, meaning that when one owner dies, their interest passes directly and automatically to the surviving joint tenant outside of probate. Tenancy in common lacks survivorship and instead passes each owner's share through their estate, tenancy in severalty describes ownership by a single individual rather than a couple, and describing community property as tenancy in common misstates how that form of ownership actually works.

Answer: C
Zoning is a regulatory tool that local governments use under their police power, which allows them to control land use in the interest of public health, safety, and welfare. Eminent domain instead involves the government taking private property for public use with compensation, escheat concerns property reverting to the state when an owner dies without heirs or a will, and taxation is a separate power used to raise government revenue, none of which describe a rezoning decision.

Answer: B
A structure that physically crosses over onto an adjoining owner's land, even by a small margin, is an encroachment and can create a boundary dispute requiring resolution. An easement appurtenant instead involves a granted right to use another's land for a specific purpose, a variance is a permitted exception to a zoning rule, and a deed restriction is a contractual limitation on use recorded against the property, none of which match a physical boundary intrusion.

Answer: C
When one brokerage represents both sides of a single transaction and both parties have given informed consent, that arrangement is dual agency. Subagency instead involves a second brokerage representing the same principal through a cooperating relationship, designated agency assigns different individual licensees within the same firm to each side, and transaction brokerage describes a non-fiduciary facilitation role rather than representing both parties as full agency clients.

Answer: D
Representing both parties to a transaction without disclosing that dual role and obtaining consent is undisclosed dual agency, which breaches the duty of disclosure and can expose the agent to liability. Designated agency and implied agency describe recognized and typically disclosed representation structures, and ratified agency refers to a principal later approving an agent's unauthorized act, none of which describe secretly representing both sides.

Answer: B
When a listing agreement simply runs out on its stated end date without renewal, the agency relationship ends through expiration of the agreement's term, a natural and automatic method of termination. Mutual rescission requires both parties to actively agree to cancel the contract early, revocation involves the principal unilaterally ending the agency before its term ends, and renunciation involves the agent walking away early, none of which describe a contract simply reaching its expiration date.

Answer: C
Confidentiality obligates an agent to protect sensitive client information, such as a buyer's top offer amount, from being shared with the other side of the transaction without consent. Reasonable care concerns competent performance of tasks, accounting concerns handling of funds and documents, and disclosure of material facts concerns sharing property-related information, none of which specifically govern protecting a client's negotiating position from disclosure.

Answer: D
When a principal knowingly accepts the benefits of an agent's act that exceeded the agent's original authority, the principal has ratified that conduct, effectively adopting it after the fact. Revocation and renunciation both involve actively ending the agency relationship rather than accepting an outcome, and estoppel against the buyer would concern a completely different party's conduct, not the seller's acceptance of her own agent's work.

Answer: C
Under the statute of frauds, contracts for the sale of an interest in real property generally must be in writing and signed to be enforceable, so a purely verbal handshake deal is not legally binding. There is no general requirement that a real estate contract be witnessed by three people or notarized simply to exist, and consideration does not need to be stated to the exact penny to be legally sufficient, so those requirements don't explain the unenforceability here.

Answer: B
A financing contingency is designed to protect the buyer, so if financing cannot be secured within the stated period, the buyer is typically entitled to cancel the contract and have the earnest money returned. Automatic forfeiture of all earnest money, a lawsuit for double the sale price, and automatic conversion to a lease-option are not standard consequences of an unmet financing contingency and would contradict the very purpose of including that protective clause.

Answer: A
A general warranty deed provides the broadest protection, warranting against title defects arising at any point in the property's history, including periods before the current seller's ownership. A quitclaim deed offers no warranties at all, a special warranty deed limits guarantees only to the seller's own period of ownership, and a bargain and sale deed typically implies limited or no covenants of title, so none of those provide the comprehensive protection the seller wants to offer.

Answer: A
When a new party is substituted into a contract and all parties agree that the original party is fully released from further obligation, that complete substitution is a novation. A simple assignment transfers rights to a new party but does not automatically release the original party from liability unless the other party agrees, escrow refers to a neutral third-party holding of funds or documents, and subrogation involves one party stepping into another's legal rights after paying a claim, none of which fully describe a complete release-and-substitute arrangement.

Answer: C
Marketable title is title that is reasonably free of defects, liens, and encumbrances that would cause a reasonable buyer to doubt its validity, and an unreleased lien clouding the chain of ownership prevents the seller from delivering that standard. Equitable title instead refers to a buyer's interest under a contract before closing, color of title describes a defective claim that appears valid on its face, and constructive title is not a recognized standard of title quality, so none of those describe what the unresolved lien is preventing.

Answer: D
In a fully amortizing loan, the payment amount stays level, but the portion applied to principal gradually increases over time while the portion applied to interest gradually decreases, because interest is calculated on a shrinking outstanding balance. Interest does not increase every month, the ratio between principal and interest does not stay fixed, and lenders do not apply the entire payment to interest until only the final year, all of which misdescribe how a level-payment amortization schedule actually behaves.

Answer: A
Conventional lenders typically require private mortgage insurance whenever the down payment is below 20%, since it protects the lender against losses if the borrower defaults on a loan with lower initial equity. A second promissory note, a subordinate deed of trust, and an interest rate buydown are all financing tools used in other contexts, but none of them are the standard risk-mitigation requirement lenders impose specifically for low-down-payment conventional loans.

Answer: D
VA-guaranteed loans are available to eligible veterans and typically allow financing with no down payment and without private mortgage insurance, making them a strong fit for the scenario described. Conventional loans generally require a down payment or PMI when equity is low, FHA loans require an upfront and ongoing mortgage insurance premium rather than none at all, and an adjustable-rate jumbo loan carries neither of those specific veteran benefits.

Answer: D
The settlement statement itemizes every charge and credit allocated to the buyer and seller at closing, giving both parties a clear accounting of the transaction's finances. A deed of conveyance transfers title but doesn't itemize financial debits and credits, an abstract of title summarizes the property's ownership history, and a loan estimate is provided earlier in the loan process to preview anticipated costs, none of which serves as the final closing accounting document.

Answer: D
Adjusting the sale prices of comparable nearby properties for differences in features is the defining method of the sales comparison approach, which is the most commonly used approach for valuing single-family residences. The cost approach instead estimates the cost to rebuild the structure, the income approach values a property based on its earning potential, and the gross rent multiplier method uses a simple ratio of price to rent rather than detailed feature-by-feature adjustments.

Answer: A
Calculating reproduction or replacement cost, subtracting depreciation, and adding site value is the defining procedure of the cost approach, which works especially well for unusual or one-of-a-kind construction lacking comparable sales. The sales comparison approach instead relies on adjusting comparable sale prices, the income approach relies on a property's earning potential, and the gross income multiplier is a simplified ratio, none of which match a cost-based build-up calculation.

Answer: B
Loss in value caused by external, off-site conditions beyond the owner's control, such as a nearby truck depot, is classified as external or economic obsolescence and is generally considered incurable by the property owner. Functional obsolescence instead concerns outdated features within the property itself, and physical deterioration, whether curable or incurable, refers to wear and tear on the structure rather than an external neighborhood factor, so none of those categories fit a loss caused entirely by a nearby land use.

Answer: B
Federal law requires that buyers of homes built before lead-based paint was banned receive a specific disclosure form and an informational pamphlet about the hazards of lead-based paint, and licensees are responsible for helping ensure that requirement is met. Waiving the issue as purely federal rather than a practical duty, waiting for the buyer to ask, or physically removing painted surfaces before closing all fail to satisfy the actual disclosure obligation that applies to pre-ban housing.

Answer: A
Exaggerated, subjective opinion statements like calling a view 'stunning' are generally treated as puffing, a normal part of sales talk that is not actionable as misrepresentation because reasonable buyers understand it as opinion rather than a factual claim. Fraud and negligent misrepresentation both require a false statement of fact made with some degree of fault, and a material fact requiring disclosure involves objective, verifiable information, none of which describe purely subjective sales enthusiasm.

Answer: C
Real estate advertising rules generally require that any advertisement clearly identify the brokerage firm the salesperson is affiliated with, preventing consumers from being misled about who is actually responsible for the listing. Price history, internal commission splits, and a buyer's loan approval status are either irrelevant to advertising compliance or involve confidential information that would never appear in a public advertisement.

Answer: A
A listing agent's fiduciary duty to the seller requires presenting every offer received so the seller can make a fully informed decision, without secretly favoring one buyer's agent over another. Selectively informing only certain buyer's agents about competing offers, automatically discarding later offers, or improperly blending multiple offers into one contract would all undermine the seller's right to consider every legitimate offer on its own terms.

Answer: C
The Fair Housing Act protects families with children under the age of 18 as a class known as familial status, so rejecting an otherwise-qualified applicant because she has young children violates that protection even if the rejection is dressed up as a preference for a quiet, professional atmosphere. National origin, disability, and religion are each separate protected classes under the same law, but none of them describe discrimination based specifically on the presence of children in the household.

Answer: A
Deliberately inducing homeowners to sell by suggesting that a protected class moving into the area will cause property values to decline is the classic definition of blockbusting, an illegal practice under fair housing law. Steering involves directing buyers to or away from certain areas rather than pressuring current owners to sell, redlining involves lenders denying services based on area demographics, and there is no separate concept called panic peddling disclosure in fair housing law.

Answer: A
Fair housing law generally requires landlords to allow tenants with disabilities to make reasonable modifications to a unit at the tenant's own expense, since restricting such modifications would deny equal access to housing. Refusing the modification outright, charging punitive extra rent for it, or forcing a unit transfer instead of allowing the modification would all conflict with the landlord's obligation to permit reasonable, tenant-funded accessibility changes.

Answer: B
The Real Estate Settlement Procedures Act generally prohibits undisclosed kickbacks and referral fees between settlement service providers in residential mortgage transactions, aiming to keep closing costs transparent and competitive. The Truth in Lending Act instead focuses on disclosing credit terms and costs to borrowers, the Fair Housing Act addresses discrimination rather than referral fees, and the Equal Credit Opportunity Act addresses discrimination in credit decisions, none of which specifically target settlement-service kickbacks.