Question 1

[Compliance with Laws and Regulations – Valuation: Income Approach] Which is the correct formula for finding the value of a property using a capitalization rate?

Accepted Answer

B

Explanation: The income capitalization approach is a valuation method used to estimate the value of an income-producing property. The core formula for the direct capitalization method is Value = Net Operating Income (NOI) / Capitalization Rate (Rate). Net Operating Income represents the property's annual income after deducting all operating expenses but before debt service and income taxes. The capitalization rate is the rate of return that the market indicates is appropriate for this type of property. Dividing the NOI by the capitalization rate converts the property's income stream into an estimate of its market value.

Question 2

A North Carolina broker with RealtyOne is working for a buyer client to find a home. They find a
home listed with RealtyTwo and submit an offer on Wednesday afternoon. The listing agent presents
the offer to the seller on Thursday. The seller signs the offer with no changes and returns it to the
listing agent on Thursday evening. Friday morning, the listing agent calls the RealtyOne broker and
states the seller has signed and accepted the buyer's offer. The RealtyOne broker receives the signed
documents on Saturday. On Sunday morning, the RealtyOne broker meets with their buyer client,
informs them of the acceptance, and delivers the signed documents to them. When did the parties
form a valid and binding contract?

Accepted Answer

C

Explanation: In North Carolina, a legally binding real estate contract is formed at the moment the offeree's (seller's) acceptance is communicated to the offeror (buyer) or the offeror's agent. The seller's signature on Thursday signifies acceptance, but it is not legally effective until that acceptance is communicated. The communication occurred on Friday morning when the listing agent, acting on behalf of the seller, informed the buyer's agent of the signed acceptance. At that instant, all essential elements of a contract—offer, acceptance, and communication of acceptance—were met, creating a binding agreement. The subsequent delivery of physical documents is a formality that does not alter the time of contract formation.

Question 3

[Broker’s Authority and Duties – Trust Account Rules]
When submitting an offer, a buyer handed their broker an earnest money deposit in cash. To comply
with the North Carolina Real Estate Commission Rules, what must the broker do?

Accepted Answer

C

Explanation: According to the North Carolina Real Estate Commission (NCREC) Rules, a broker who receives trust money, including a cash earnest money deposit, must deposit it into a trust or escrow account within three banking days of receipt. The clock starts from the moment the broker receives the funds, not upon the acceptance of the offer. This rule is designed to safeguard consumer funds by ensuring they are promptly placed in a secure, designated account. The high-risk nature of cash makes this immediate deposit requirement critical, and it cannot be altered by any agreement between the parties to the transaction.

Question 4

Which of the following statements regarding the proper handling of multiple offers in North Carolina is TRUE?

Accepted Answer

B

Explanation: Under North Carolina Real Estate Commission (NCREC) rules, a broker has a fiduciary duty to present all offers to their seller-client as soon as is practical, and this duty continues until the transaction is closed. Even after a seller has accepted an offer and the property is under contract, the listing broker must continue to present any subsequent offers received. The seller may wish to consider these as potential backup offers in case the primary contract fails to close.

Question 5

[Listing Price and Terms – Personal Property Transfer]
The buyer of a farm wants to separately purchase a tractor from the seller. What document would
MOST likely be required at closing to transfer ownership of the tractor?

Accepted Answer

D

Explanation: A tractor is classified as personal property (chattel), not real property. The legal instrument used to transfer ownership or title of personal property from a seller to a buyer is a bill of sale. While a purchase agreement or a personal property addendum would outline the contractual terms for the tractor's sale, the bill of sale is the actual document of conveyance executed at closing to legally transfer ownership. A deed is used exclusively for the transfer of real property, such as the farm itself.

Question 6

What principle states that the value of the best home in a neighborhood will be lowered by the existence of inferior homes?

Accepted Answer

D

Explanation: The principle of regression states that the value of a superior property is adversely affected by its association with properties of lesser quality. In essence, the market value of the "best" home in a neighborhood is pulled down toward the value of the surrounding, inferior homes. This occurs because the overall desirability and market perception of the location are influenced by the lower-quality properties, thus limiting the value potential of the superior property. This is a fundamental concept in real estate appraisal, emphasizing the importance of conformity within a neighborhood.

Question 7

A seller wants to net $200,000 from a transaction but will have to pay off a home loan and other
fees, at a total cost of $288,800. The seller will also need to pay a 6% commission. What will the
property need to sell for?

Accepted Answer

C

Explanation: To determine the required selling price, first sum the seller's desired net profit and all fixed costs. This total represents the amount the seller must receive after the commission is paid. This amount is then divided by the percentage of the sale price the seller will retain (100% minus the commission rate). Calculation: 1. Seller's Desired Net + Fixed Costs = $200,000 + $288,800 = $488,800 2. Seller's Retained Percentage = 100% - 6% (commission) = 94% or 0.94 3. Required Sale Price = $488,800 / 0.94 = $520,000

Question 8

Which statement about an option contract is TRUE?

Accepted Answer

B

Explanation: An option contract is a unilateral agreement where the property owner (optionor) grants a prospective buyer (optionee) the exclusive right to purchase a property at a fixed price within a specified period. In exchange for a non-refundable option fee (consideration), the seller is legally obligated to sell if the buyer chooses to exercise the option. However, the buyer is not obligated to purchase, making the obligation one-sided on the part of the seller.

Question 9

[Broker’s Agency Relationships and Disclosures – Misrepresentation] Which of the following actions by a listing broker is an example of willful misrepresentation?

Accepted Answer

B

Explanation: Willful misrepresentation occurs when a broker knowingly makes a false statement about a material fact or deliberately conceals a material fact (willful omission) with the intent to deceive a party. Deliberately hiding known structural damage is an intentional act of concealment of a material fact, which directly constitutes willful misrepresentation/omission. The broker is aware of the defect and intentionally withholds this crucial information from the buyer, which is a serious violation of their duty to disclose.

Question 10

A lease with a simple exchange of rent for occupancy, under which the tenant pays none of the costs of ownership, is known as a(n):

Accepted Answer

B

Explanation: A gross lease, also known as a fixed or flat lease, is an agreement where the tenant pays a fixed, periodic rent, and the landlord (lessor) pays all the property's operating expenses. These expenses typically include property taxes, insurance, and maintenance (often abbreviated as TIM). This arrangement creates a simple exchange where the tenant's single payment covers the right of occupancy without any additional, variable pass-through costs related to property ownership. This lease type is most common in residential and multi-tenant office building rentals.

Question 11

[Offers and Negotiations – Ethics and Disclosures]
In North Carolina, if a listing broker is tempted to disclose the terms of an offer to get another buyer
to submit a higher offer, what must the broker do?

Accepted Answer

B

Explanation: According to North Carolina Real Estate Commission (NCREC) rules, the price and other material terms of an offer are the confidential property of the party who made the offer (the buyer/offeror). A listing broker, despite their fiduciary duty to the seller, is prohibited from disclosing these terms to a competing party to solicit a better offer unless they have received the express authority of the offering party. The seller's permission is insufficient as they do not own the confidential information contained within the buyer's offer. This rule maintains fairness and protects the buyer's negotiating position.

Question 12

[Broker’s Authority and Duties – Record Retention Requirements] A North Carolina broker must maintain copies of all transaction files for at least _____ after the conclusion of a transaction?

Accepted Answer

C

Explanation: The North Carolina Real Estate Commission (NCREC) Rule 21 NCAC 58A .0108 explicitly requires brokers to retain all records related to a real estate transaction for a minimum of three years. This retention period begins from the successful or unsuccessful conclusion of the transaction or from the date of the last disbursement of any trust funds associated with the transaction, whichever is later. This rule ensures that a complete and accurate history of the transaction is available for potential audits or investigations by the Commission to verify compliance with license law.

Question 13

[Broker’s Authority and Duties – Postlicensing Requirements] Which statement about postlicensing education requirements for North Carolina provisional brokers is TRUE?

Accepted Answer

C

Explanation: The North Carolina Real Estate Commission (NCREC) mandates that all provisional brokers complete a 90-hour postlicensing education program to remove the provisional status from their license. This program is specifically structured into three 30-hour courses: Post 301 (Broker Relationships and Responsibilities), Post 302 (Contracts and Closing), and Post 303 (NC Law, Rules, and Legal Concepts). This requirement must be fulfilled within 18 months of initial licensure to maintain an active license.

Question 14

[Broker’s Agency Relationships and Disclosures – Buyer Agency] In North Carolina, which type of buyer agency agreement may be oral or written?

Accepted Answer

D

Explanation: According to North Carolina Real Estate Commission (NCREC) rules, a buyer agency agreement must be in writing before a broker presents an offer on behalf of the buyer. However, the rules permit a nonexclusive buyer agency agreement to be established orally at the beginning of the relationship. This oral agreement does not bind the buyer to a specific broker for a fixed period and allows the buyer to work with multiple agents. The agreement must be reduced to writing at the point an offer to purchase is prepared. Exclusive buyer agency agreements, by contrast, must be in writing from their inception.

Question 15

[Offers and Negotiations – Contract Remedies]
If a buyer defaults on a purchase agreement just prior to settlement, what clause in the contract
would likely allow the seller to keep the earnest money deposit?

Accepted Answer

C

Explanation: A liquidated damages clause is a provision in a contract that specifies a predetermined amount of money to be paid as damages for a specific breach. In North Carolina real estate transactions, the earnest money deposit is typically designated as liquidated damages. If the buyer defaults, this clause allows the seller to retain the earnest money as their sole remedy, compensating them for the breach without having to prove the extent of their actual financial losses in court. This provides certainty for both parties regarding the consequences of a buyer's default.

Free Actual Estate Licensing NCREC-Broker-N Actual Exam Questions