Free National Broker Exam — National Portion (Real Estate Principles and Practices) Practice Questions

Sample Practice Questions

Try these 10 sample questions from the National Broker Exam — National Portion (Real Estate Principles and Practices) practice bank. Each includes the answer and explanation. Continue with the interactive practice above to review the full question set.

1. 1A buyer is purchasing a manufactured home that sits on a rented lot and has never been permanently affixed to a foundation. According to the FTC's Real Estate Marketplace Glossary, how is a home in this condition generally classified?

   1. A. As personal property, usually financed with a retail installment sales agreement
   2. B. As real property, usually financed with a mortgage recorded against the lot
   3. C. As real property, because the factory built it under a federal building code
   4. D. As a fixture to the rented lot, usually financed as part of the land lease

   Answer: A

   Explanation: The FTC glossary explains that "Homes that are not permanently affixed to a foundation generally are classified as personal property" and are financed with a retail installment sales agreement, while "Homes that are permanently affixed to a foundation often may be classified as real property under applicable state law" and may be financed with a mortgage. This home was never affixed to a foundation, so it is generally personal property. Being built under the federal HUD code applies to all manufactured homes and does not by itself make the home real property.

   Reference: FTC, The Real Estate Marketplace Glossary: How to Talk the Talk — Glossary entry "Manufactured Housing" (letter M)

2. 2A city bills the owners on one street for the cost of constructing new sidewalks and a new sewer line that serve their lots. For federal income tax purposes, how does IRS Publication 530 treat this kind of assessment for a local benefit?

   1. A. It is deductible as a real estate tax in the year the owner pays it
   2. B. It is not deductible and is added to the basis of the property
   3. C. It is deductible because a city, not a private party, imposes it
   4. D. It is deductible because it appears as an item on the tax bill

   Answer: B

   Explanation: IRS Publication 530 states: "You can’t deduct amounts you pay for local benefits that tend to increase the value of your property. Local benefits include the construction of streets, sidewalks, or water and sewer systems. You must add these amounts to the basis of your property." A special assessment for new sidewalks and sewers is therefore capitalized into basis. Only assessments for maintenance, repair, or interest charges are deductible, and listing the assessment on the real estate tax bill does not change its character.

   Reference: IRS Publication 530, Tax Information for Homeowners — What You Can and Can't Deduct, Assessments for local benefits

3. 3A national bank is making a $350,000 loan secured by a single-family home that it will keep in its own portfolio, and the only appraisal exemption that applies is the one based on transaction size. Under the OCC's appraisal regulation, what valuation must the bank obtain?

   1. A. An appraisal by a State certified appraiser, because the loan is residential
   2. B. No valuation at all, because the loan is under the residential threshold
   3. C. An appropriate evaluation of the collateral consistent with safe banking
   4. D. A broker price opinion from a local listing agent in place of an appraisal

   Answer: C

   Explanation: 12 CFR 34.43(a)(1) exempts from the appraisal requirement a residential transaction where "The transaction is a residential real estate transaction that has a transaction value of $400,000 or less;" but 34.43(b) provides that for a transaction exempt under that paragraph "the institution shall obtain an appropriate evaluation of real property collateral that is consistent with safe and sound banking practices." The bank therefore needs an evaluation, not an appraisal by a certified appraiser, and it cannot skip valuation altogether.

   Reference: 12 CFR Part 34, Subpart C - Appraisals (eCFR) — 12 CFR 34.43(a)(1) and (b)

4. 4At closing, a buyer pays two discount points on a $250,000 mortgage. What do the discount points accomplish, and how much do they cost?

   1. A. They reduce the loan principal, costing $5,000
   2. B. They pay for the lender's title policy, costing $2,500
   3. C. They lower the interest rate, costing $5,000
   4. D. They buy private mortgage insurance, costing $2,500

   Answer: C

   Explanation: The FTC glossary defines a discount point as a fee paid by the borrower "at closing to reduce the interest rate. A point equals one percent of the loan amount." Two points on $250,000 cost 2 x $2,500 = $5,000 and buy a lower interest rate. Points do not reduce principal and are not a charge for title insurance or mortgage insurance; $2,500 would be only one point.

   Reference: FTC, The Real Estate Marketplace Glossary: How to Talk the Talk — Glossary entry "Discount Point" (letter D)

5. 5A seller orally agrees to sell a vacant lot to a neighbor for $40,000 and they shake hands, but nothing is written or signed. The seller later backs out. Why is the neighbor generally unable to enforce the agreement?

   1. A. Because an oral contract becomes enforceable only after the deed is recorded
   2. B. Because the statute of frauds requires a signed writing for a land sale
   3. C. Because a land sale contract is enforceable only if earnest money was deposited
   4. D. Because no consideration existed, since no money had changed hands yet

   Answer: B

   Explanation: BLM's title training defines the "Statute of frauds: State law requiring that certain contracts must be in writing, such as a contract for the sale of land, and signed in order to be binding." It also explains that the statute requires that an interest in real property be conveyed only by written instrument in order to be enforceable. An unwritten, unsigned agreement to sell land is therefore generally unenforceable, regardless of whether a deposit was paid or a deed recorded; the missing signed writing, not missing consideration, is what defeats enforcement.

   Reference: BLM National Training Center, Lands and Realty Title Training, Module 2: Methods of Property Conveyance — Module 2, "Deeds" and definition of statute of frauds (slide 4)

6. 6A first-time buyer using FHA financing tells her agent she will skip a home inspection because the FHA appraiser will check the home's condition. According to HUD's required notice "For Your Protection: Get a Home Inspection," what should the agent explain?

   1. A. The FHA appraisal guarantees the home's condition for one year after closing
   2. B. An appraisal estimates value for the lender and does not replace an inspection
   3. C. FHA will lend money for any repairs that the appraiser failed to identify
   4. D. FHA buys the home back if major defects are discovered after closing

   Answer: B

   Explanation: HUD's notice states: "An appraisal is required to estimate the home’s value for your lender and does not replace a home inspection." It adds that "FHA does not guarantee the value or condition of your new home" and that if problems are found after closing, FHA cannot give or lend money for repairs or buy the home back. The buyer's condition concerns call for an independent home inspection.

   Reference: HUD, For Your Protection: Get a Home Inspection (form HUD-92564-CN) — Section "Appraisals are NOT Home Inspections!"

7. 7A tenant with a mobility disability asks the property manager for permission to install grab bars in the apartment bathroom at the tenant's own expense, which requires reinforcing the wall. Under HUD's Fair Housing Act regulations, how may the manager respond?

   1. A. Deny the request, because tenants may not alter the landlord's property
   2. B. Approve it only if the landlord pays for the installation and removal
   3. C. Permit it, and may require restoring the interior when the tenancy ends
   4. D. Permit it, and must itself pay to restore the interior when the tenancy ends

   Answer: C

   Explanation: 24 CFR 100.203(a) makes it unlawful to refuse to permit, at the disabled person's expense, reasonable modifications needed for full enjoyment of the premises. It adds: "In the case of a rental, the landlord may, where it is reasonable to do so, condition permission for a modification on the renter agreeing to restore the interior of the premises to the condition that existed before the modification, reasonable wear and tear excepted." The regulation's grab bar example confirms the landlord may require removal and wall repair at the end of the tenancy.

   Reference: 24 CFR Part 100 - Discriminatory Conduct Under the Fair Housing Act (eCFR) — 24 CFR 100.203(a) and (c) Example (1)

8. 8A buyer wants the deed that gives the greatest protection, with the grantor promising clear title, no undisclosed encumbrances, quiet enjoyment, and defense of the title. Which type of deed provides these covenants?

   1. A. Quitclaim deed
   2. B. Deed of trust
   3. C. General warranty deed
   4. D. Tax deed

   Answer: C

   Explanation: BLM's title training explains: "A warranty deed expressly guarantees the grantor’s good and marketable title to the property and offers the best protection for the buyer." Its warranties of title usually include that the grantor has clear title, that there are no encumbrances except as disclosed, that the grantee will have quiet enjoyment, and "That the grantor will defend the title." A quitclaim deed carries no warranties, and a deed of trust is a security instrument.

   Reference: BLM National Training Center, Lands and Realty Title Training, Module 2: Methods of Property Conveyance — Module 2, "Two Common Types of Deeds: Warranty and Quit Claim Deed" (slide 5)

9. 9A buyer's agent is showing homes to a family that recently relocated from abroad. Without being asked, the agent tells them they would probably feel more comfortable in a different subdivision where many residents share their national origin, and stops suggesting listings in the subdivision the family originally requested. Under HUD's Fair Housing Act regulations, what prohibited practice does this conduct describe?

   1. A. Steering
   2. B. Blockbusting
   3. C. Redlining
   4. D. Discriminatory advertising

   Answer: A

   Explanation: 24 CFR 100.70(c) states that restricting a person's housing choices by word or conduct is "generally referred to as unlawful steering practices," and lists "Communicating to any prospective purchaser that he or she would not be comfortable or compatible with existing residents of a community, neighborhood or development because of race, color, religion, sex, handicap, familial status, or national origin." The agent's comment and narrowing of listings fit that description. Blockbusting (24 CFR 100.85) involves inducing owners to sell for profit by representations about the entry of protected groups; redlining concerns lending or insurance decisions based on an area; discriminatory advertising concerns published notices or statements.

   Reference: 24 CFR Part 100 - Discriminatory Conduct Under the Fair Housing Act (eCFR) — 24 CFR 100.70(c)(3)

10. 10A seller's home sells for $400,000. The seller pays a 6% sales commission and $3,000 of other selling expenses, and the existing mortgage payoff is $250,000. Estimate the seller's net cash proceeds at closing.

    1. A. $147,000
    2. B. $150,000
    3. C. $373,000
    4. D. $123,000

    Answer: D

    Explanation: IRS Publication 523 explains how to "Figure your “amount realized” (sale price minus selling expenses)." Selling expenses include "Any sales commissions (for example, a real estate agent’s sales commission)". Amount realized = $400,000 - $24,000 - $3,000 = $373,000. Liens customarily must be paid in full when the property is sold, so the $250,000 payoff is deducted: $373,000 - $250,000 = $123,000. $147,000 omits the commission, $150,000 omits all selling expenses, and $373,000 ignores the payoff.

    Reference: IRS Publication 523, Selling Your Home — Worksheet 2, Gain/Exclusion and Taxable Gain on Sale of Home, lines 2-3