Massachusetts License Simulated Exam

Trade fixtures that are personal property.

Trade fixtures are items of a tenant’s personal property that the tenant has temporarily affixed to a landlord’s real property in order to conduct business. Trade fixtures may be detached and removed before or upon surrender of the leased premises. Should the tenant fail to remove a trade fixture, it may become the property of the landlord through accession. Thereafter, the fixture is considered real property.

Severance and affixing.

Severance is the conversion of real property to personal property by detaching it from the real estate; affixing, or attachment, is the act of converting personal property to real property by attaching it to the real estate, such as by assembling a pile of bricks into a barbecue pit, or constructing a boat dock from wood planks.

absolute fee simple estate.

The fee simple freehold estate is the highest form of ownership interest one can acquire in real estate. It includes the complete bundle of rights, and the tenancy is unlimited, with certain exceptions. The fee simple absolute estate is a perpetual estate that is not conditioned by stipulated or restricted uses.

the estate may revert to a grantor or heirs if the prescribed use changes.

The defeasible fee estate is perpetual, provided the usage conforms to stated conditions. Essential characteristics are: the property must be used for a certain purpose or under certain conditions; and, if the use changes or if prohibited conditions are present, the estate reverts to the previous grantor of the estate.

conventional life estate.

A conventional life estate is a freehold estate that is limited in duration to the life of the owner or other named person. Upon the death of the owner or other named individual, the estate passes to the original owner or another named party. A legal life estate is created by law as opposed to a property owner’s choice.

a condominium owner owns a unit of air space whereas the co-op owner owns a proprietary lease.

The owner of a condominium has a fee-simple ownership interest in his/her unit and its air space. Whereas, a co-op owner has a leasehold, not fee-simple, interest with the property’s corporation. Since the corporation owns an undivided interest in the cooperative property, debts and financial obligations apply to the property as a whole, not to individual units as in a condominium.

Trustor, trustee and beneficiary.

In an estate in trust, a fee owner– the grantor or trustor– transfers legal title to a fiduciary– the trustee– who holds and manages the estate for the benefit of another party, the beneficiary.

fee simple ownership of the airspace in a unit and an undivided share of the entire property’s common areas.

A condominium is a hybrid form of ownership of multi-unit residential or commercial properties. It combines ownership of a fee simple interest in the airspace within a unit with ownership of an undivided share, as a tenant in common, of the entire property’s common elements, such as lobbies, swimming pools, and hallways.

the date of recordation.

Among junior liens, date of recording determines priority. The rule is: the earlier the recording date of the lien, the higher its priority. For example, if a judgment lien is recorded against a property on Friday, and a mortgage lien is recorded on the following Tuesday, the judgment lien has priority and must be satisfied in a foreclosure ahead of the mortgage lien.

A state in which a mortgagor retains title to the property when a mortgage lien is created.

In lien-theory states, laws give a lender on a mortgaged property equitable title rather than legal title. The mortgagor in a lien theory state retains legal title.

transfers with the property.

The term appurtenant means ‘attaching to.’ An easement appurtenant attaches to the estate and transfers with it unless specifically stated otherwise in the transaction documents.

Giving constructive notice of one’s rights and interests in the property.

Recorded instruments may include deeds, mortgages, liens, easements, sale contracts, and marriage, probate and tax records. The primary purpose of recording and maintaining records of these instruments is to provide constructive notice of the conditions of a property’s title– who owns it, who maintains claims against it.

A chronology of successive owners of record of a parcel of real estate.

Chain of title refers to the succession of owners of record dating back to the original grant of title from the state to a private party. It is thus more than a mere list; it is a chronological list as reflected in title records.

Title insurance.

A title insurance policy indemnifies the policy holder against losses arising from defects in the title and is thus generally accepted as the best evidence of marketability after a Torrens certificate, which is not available in every jurisdiction. A signed deed is no evidence of marketability, only of an intent to convey title. An attorney’s opinion and a title certificate, while forms of evidence of marketability, do not guarantee clear title or offer any protection against a defective title.

percentage lease

A percentage lease allows the landlord to share in the income generated from the use of the property. A tenant pays percentage rent, or an amount of rent equal to a percentage of the tenant’s periodic gross sales.

net lease.

A net lease requires a tenant to pay for utilities, internal repairs, and a proportionate share of taxes, insurance, and operating expenses in addition to rent.

The leased property is foreclosed.

A foreclosure extinguishes all prior interests in a property, including a leasehold.

the construction conforms with applicable building codes.

Building inspectors inspect a new development or improvement for code compliance. If the work complies, the municipality or county issues a certificate of occupancy which officially clears the property for occupation and use.

takes title subject to the same restriction.

Deed restrictions attach to the title of the property. Therefore, the restriction passes to the new buyer.

She has the right to re-possess the property because the grantee has violated the condition.

A deed condition may restrict certain uses of a property, much like a deed restriction. However, violation of a deed condition gives the grantor the right to re-take possession of the property and file suit for legal title.

To create a consistent, unchanging standard for identifying a property’s unique location.

A legal description of real property is one which accurately locates and identifies the boundaries of the subject parcel to a degree acceptable by courts of law in the state where the property is located. The general criterion for a legal description is that it alone provides sufficient data for a surveyor to locate the parcel. A legal description identifies the property as unique and distinct from all other properties.

They identify an enclosed area, beginning and ending at the same point.

The metes and bounds description always identifies an enclosed area by starting at an origination point, called point of beginning, or POB, and returning to the POB at the end of the description.

is void.

By changing any of the terms of an offer, the offeree creates a counteroffer, and the original offer is void. At this point, the offeree becomes the offeror, and the new offeree gains the right of acceptance. If accepted, the counteroffer becomes a valid contract provided all other requirements are met.

may be assigned.

A real estate contract that is not a personal contract for services can be assigned to another party unless the terms of the agreement specifically prohibit assignment. Listing agreements, for example, are not assignable, since they are personal service agreements between agent and principal. Sales contracts, however, are assignable, because they involve the purchase of real property rather than a personal service.

A two-year lease.

A contract may be in writing or it may be an oral, or parol, contract. Certain oral contracts are valid and enforceable, others are not enforceable, even if valid. For example, most states require listing agreements, sales contracts, and leases exceeding one year to be in writing to be enforceable.

a dual agent.

Dual agency occurs whenever a single broker represents both principal parties to a transaction. Here, since Bob and Sue work for Bill, Bill is the dual agent.

upon first substantive communication.

The agent must provide written notice to all parties or their agents as soon as substantive communication occurs, which can include initial face-to-face contact.

neither seller nor buyer.

In recent years, the brokerage industry has striven to clear up the question of who works for whom, and who owes fiduciary duties to whom. One solution allows a broker to represent no one in a transaction. That is, the broker acts as a transaction broker, or facilitator, and has no allegiance to buyer or seller.

the principal has proposed an illegal act, which should not be obeyed.

An agent must comply with the client’s directions and instructions, provided they are legal. If the directive is illegal, the agent must also immediately withdraw.

negotiated with clients.

The amount of a broker’s commission is whatever amount the client and broker have agreed to.

the client may be liable for a commission and marketing expenses.

With an exclusive right-to-sell listing, if the property sells during the term of the revoked listing, the client is liable for the commission. If the property does not sell, the client is liable for the broker’s actual costs.

the agent has a claim to a commission if the owner sells or leases to a party within a certain time following the listing’s expiration.

Many listings include a protection clause stating that, for a certain period after expiration, the owner is liable for the commission if the property sells to a party that the broker procured, unless the seller has since listed the property with another broker.

the advertising must not be deceptive.

Advertising may not be misleading or deceptive in promoting the brokerage or listed properties. Blind ads are also prohibited without exception. Sales agents, moreover, must identify their employer.

collusion.

Collusion is the illegal practice of two or more businesses joining forces or making joint decisions which have the effect of putting another business at a competitive disadvantage.

The brokers have illegally fixed prices.

Price fixing is the practice of two or more brokers agreeing to charge certain commission rates or fees for their services, regardless of market conditions or competitors.

The seller may cancel the contract, since it can be ruled invalid.

A contingency that is too broad, vague, or excessive in duration may invalidate the entire contract on the grounds of insufficiency of mutual agreement. To avoid problems, the statement of a contingency should be explicit and clear, have an expiration date, and expressly require diligence in the effort to fulfill the requirement.

claim the deposit as compensated damages for the buyer’s failure to perform.

If a buyer fails to perform under the terms of a sale contract, the breach entitles the seller to legal recourse for damages. The usual remedy is forfeiture of the buyer’s deposit as liquidated damages, provided the deposit is not grossly in excess of the seller’s actual damages.

The optionor must perform if the optionee takes the option, but the optionee is under no obligation to do so.

An option-to-buy places the optionee under no obligation to purchase the property. However, the seller must perform under the terms of the contract if the buyer exercises the option. An option is thus a unilateral agreement. Exercise of the option creates a bilateral sale contract where both parties are bound to perform.

a decline in demand for all types of real estate in the real estate market.

Businesses that support the departing company will lay off or fire new employees, causing some to leave town in search of work. Some of these businesses may also have to cease operations. Hence the demand for residential real estate, as well as for commercial and industrial, will decline, and new construction will probably also halt until some other factor increases demand again.

rental prices in that market will rise

An undersupply of commercial properties in relation to demand will most likely increase prices, as renters have fewer choices and less bargaining power.

absorption.

Absorption is the amount of available property that becomes occupied over a period of time, usually measured in square feet.

$17,000.

First derive the annual depreciation, which is the cost divided by the economic life. Then multiply annual depreciation times the number of years to identify total depreciation. Remember to subtract depreciation from the original cost if the question asks for the ending value. Thus, ($20,000 ÷ 20 years x 3 years) = $3,000 total depreciation. The ending value is $20,000 – 3,000, or $17,000.

Apartment buildings.

The income capitalization approach, or income approach, is used for income properties and sometimes for other properties in a rental market where the appraiser can find rental data. The approach is based on the principle of anticipation: the expected future income stream of a property underlies what an investor will pay for the property.

estimates net income and applies a capitalization rate to it.

The steps are: estimate potential gross income; estimate effective gross income (potential minus vacancy and credit losses); estimate net operating income (effective minus total operating expenses); select a capitalization rate; and apply the capitalization rate. Use the formula: income ÷ cap rate = value.

potential gross income minus vacancy and credit loss minus expenses.

Net operating income, or NOI, is always income after vacancy, credit loss and expenses. It does not, however, include debt service.

$400,000.

Value = Income ÷ Cap rate. Thus, V= $40,000 ÷ .10 = $400,000.

the interest rate may vary.

Adjustable rate mortgages (ARMs) allow the lender to change the interest rate at specified intervals and by a specified amount. Federal regulations place limits on incremental interest rate increases and on the total amount by which the rate may be increased over the loan term.

A wraparound lender can profit when the interest rate of the wraparound exceeds that of the underlying mortgage.

In a wraparound loan arrangement, the seller receives a junior mortgage from the buyer, and uses the buyer’s payments to make the payments on the original first mortgage. This potentially enables the seller to profit from any difference between a lower interest rate on the senior loan and a higher rate on the wraparound loan.

a blanket mortgage loan.

A blanket mortgage is secured by more than one property, such as multiple parcels of real estate in a development.

Payments are not sufficient to retire the loan.

Negative amortization causes the loan balance to increase over the term. This occurs if the borrower’s periodic payment is insufficient to cover the interest owed for the period. The lender adds the amount of unpaid interest to the borrower’s loan balance.

the loan amount needs to be less than the property’s value.

Lenders must have a margin of borrower equity to protect against falling real estate values which increase the risk of the loan. Without this margin, a lender can incur a loan loss in a foreclosure sale since the proceeds may be less than the loan amount.

Truth-in-Lending laws

Truth-in-Lending Laws, implemented by the Federal Reserve’s Regulation Z, regulate the disclosure of costs, the right to rescind the credit transaction, advertising credit offers, and penalties for non-compliance with the act.

Participants sell mortgage-backed securities in order to buy pools of loans.

Secondary mortgage market organizations buy pools of mortgages from primary lenders and sell securities backed by these pooled mortgages to investors. By selling securities, the secondary market brings investor money into the mortgage market. By purchasing loans from primary lenders, the secondary market returns funds to the primary lenders, thereby enabling the primary lender to originate more mortgage loans.

cost recovery expense.

Cash flow is the difference between the amount of actual cash flowing into the investment as revenue and out of the investment for expenses, debt service, and all other items. Cash flow concerns cash items only, and therefore excludes depreciation (cost recovery), which is not a cash expense.

dividing net income by the price paid for the property.

The investment return measure known as return on investment (ROI) is calculated by dividing net income by the value of the investment. This yields a rate of return on investment.

Installing a higher capacity air conditioning and purifying system.

Basis is increased by the cost of capital improvements made to the property. Examples of capital improvements are: putting on an addition, paving a driveway, replacing a roof, adding central air conditioning, and rewiring the home. Repairs, maintenance, and redecorating are not generally considered capital improvements.

There are no federal ad valorem taxes on real property.

There are no federal taxes on real property. The Constitution of the United States specifically prohibits such taxes. The federal government does, however, tax income derived from real property and gains realized on the sale of real property.

the assessed value of property.

General property taxes are levied on an ad valorem basis, meaning that they are based on the assessed value of the property. Assessed value is determined according to state law, usually by a county or township assessor or appraiser.

The prohibition may be legal if performed correctly.

The condominium association may be exempt from fair housing prohibitions against age discrimination if it is established as a retirement community in which 80 % of the dwellings have one person who is 55 years of age or older and it has amenities for elderly residents.

The agent and the owner.

The owner has illegally discriminated, and the agent, by going along with the owner, is equally guilty of violating fair housing laws.

Inspection fees.

Prorated items are expenses that both parties must share. Non-prorated items are one-time individual charges such as sale commissions, recording fees, and title insurance.

A lender paying a fee to a broker for referring a borrower to the lender.

RESPA prohibits the payment of fees as part of a real estate settlement when no services are actually rendered. This prohibition includes referral fees for such services as title searches, title insurance, mortgage loans, appraisals, credit reports, inspections, surveys, and legal services.

Copies of required communications to principals.

Some communications with transaction parties are good and necessary for business. Others are required by law, and records of them must be maintained for a statutory period. Required records typically include listing agreements, offers, contracts, closing statements, agency agreements, disclosure documents, correspondence and other communication records, notes and any other relevant information.

refuse to use terms that refer to or describe any of the classes of persons protected by the laws.

Before entering into a listing agreement, a licensee should explain that it is necessary to comply with fair housing laws and obtain the potential client’s acknowledgment and agreement. The agent should make it clear that the agent will reject the use of terms indicating race, religion, creed, color, national origin, sex, handicap, age or familial status to describe prospective buyers. Such terms should be avoided in conversation as well as in advertising.

Alterations to a rental space made to fit a particular tenant

Alterations made specifically for certain tenants are called build-outs or tenant improvements. The work may involve merely painting and re-carpeting a rental space, or erecting new walls and installing special electrical or other systems.

maintain a special trust account in a qualified financial depository.

State laws and real estate commission rules specify how a property manager is to manage trust funds. In general, the agent is to maintain a separate bank account for these funds, with special accounting, in a qualified depository institution. The rules for how long an agent may hold trust funds before depositing them, and how the funds are to be disbursed, are spelled out. The fundamental requirements are that the owners of all funds must be identified, and there must be no commingling or conversion of client funds and agent funds.

3

The total area of the living room is (8’ x 14’ + 8’ x 18’ + 8’ x 16’ + 8’ x 18’) = 528 SF. They will therefore need 528 / 200 SF, or 3 whole gallons.

218’

Since the investor paid $100,000 total, and that equals $250 per frontage foot, there are 400 frontage feet (100,000 / 250). If the property is two acres, it totals 87,120 SF. Dividing this by 400 produces a lot depth of 217.8’.

Yes with $360 left over.

The loan she can get amounts to ($240,000 x 80%), or $192,000. The points charge is ($192,000 x .02), or $3,840. Total closing costs are then $3,840 + 800, or $4640. Thus she has $360 to spare.

$90,000

First, the sale price is 115% of the appraised value, so the appraised value is $230,000 / 115%, or $200,000. The lender will lend $140,000 (70% of appraised value), so the investor will have to come up with $90,000 ($230,000 – 140,000).

$96,000.

Since the comparable has an extra half-bath, it is adjusted downward to equalize with the subject. Conversely, since it has no patio, the appraiser adds value to the comparable. Thus, $100,000 minus $5,000 plus $1,000 equals $96,000.

$508

The total assessed value is ($84,550 + 235,000), or $319,550. The annual tax is based on ($319,550 / 100) = 3195.5 100’s. Round up to 3196. To derive the annual tax, multiply 3,196 x 1.91, or $6,104.36. Divide this by 12 for the monthly escrow: ($6,104 / 12) = $508.

$92,000

The formula for equity is (current value – indebtedness). The current value is ($180,000 + 25% x 180,000), or ($180,000 x 125%), or $225,000. The current debt is ($180,000 x 80%) – $11,000, or $133,000. Their equity is therefore $92,000.

$166,150

Use the formula: Gain = (Net selling price – adjusted basis) where adjusted basis = (beginning cost – depreciation). The selling price is $240,000 x 5% annual appreciation x 10 years, or ($240,000 + 50% x 240,000), or $360,000. Since land cannot be depreciated, the depreciable basis is ($240,000 total cost – 60,000 land value), or $180,000 (land = 25% total value). Annual depreciation = ($180,000 / 39 years), or $4,615. Thus total depreciation is ($4,615 x 10 years), or $46,150. The adjusted basis is therefore ($240,000 – 46,150), or $193,850. The total gain is therefore ($360,000 – 193,850), or $166,150.

$80,000

Applying the formula (percent of insurable property value carried / 80% replacement cost) x claim = recovery), divide the amount of coverage carried ($160,000) by 80% of the insurable property value ($250,000) to get the percent of the claim the company will pay (80%). Multiply this percentage by the claim amount to get $80,000, what the company will pay.

five members.

The Massachusetts Board of Registration of Real Estate Brokers has five members who are appointed by the Governor.

A person licensed as an auctioneer

A person licensed as an auctioneer does not need a real estate license for real estate auctions. All other activities listed require a real estate license to operate legally.

Two, broker and salesperson

There are only two types of licenses broker and salesperson. Someone acting as a facilitator or designated agent is either a licensed broker or licensed salesperson.

specifies the amount of damages to which the seller is entitled in the event of a buyer default.

In a real estate purchase contract, a liquidated damages clause specifies the amount of damages to which the seller is entitled in the event of a buyer default. Buyer damages are not generally liquidated so they can preserve a right to specific performance.

A social security number

Applicants must have a social security number. Forty hours of prelicense education is required but a high school degree is not.

Barry violated the law by performing the home inspection.

Home inspections require a separate license in Massachusetts. Barry, for a fee, performed an activity not authorized by a real estate license. The amount of the fee doesn’t matter.

The address of the property

It might be useful, at times, to include the address of property for sale, but it is not a legal requirement.

Only a broker

Only a broker can set up and maintain a trust account. Money received by a salesperson must be delivered to the broker.

time share license.

A time share license is a right to the occupancy of a unit during five or more separate periods but not coupled with a freehold estate or estate for years. A time share estate is a right to the occupancy of a unit during five or more separate periods of time during a 5-year or more period that is coupled with a freehold estate or estate for years in the time share property.

All parties must agree to conduct the transaction electronically.

Pursuant to MUETA and the federal law E-Sign, a party cannot be required to conduct a transaction electronically. To be valid the parties must agree to conduct the transaction electronically. Note, agreement can be implied. For example, a buyer uses email to make an offer and the seller uses email to accept.

the Federal Trade Commission Act.

The Massachusetts Consumer Protection Act is based on the Federal Trade Commission Act. One of the stated purposes of the Consumer Protection Act is to acknowledge and incorporate any and all unfair and deceptive practices as interpreted in the Federal Trade Commission Act.

Broker Brad is legally required to disclose the previously aborted transaction.

Broker Brad is legally required to disclose the previously aborted transaction and he does not need Seller Sam’s permission.

That there was a suicide on the subject property

That there was a suicide on the property is legally not considered a material fact and does not have to be disclosed.

The agent owes limited fiduciary duties to both parties.

In a dual agency the agent owes limited fiduciary duties to both parties. Full fiduciary duties are not owed because the dual agency creates a conflict of interest. Written informed consent is required from both parties but not the Board.

at the first personal meeting with the licensee and tenant.

A real estate licensee cannot charge a fee for helping someone rent property unless the licensee provides the prospective tenant with a written notice that states the tenant will pay a fee for the licensee’s service. The notice must be provided at the first personal meeting with the licensee and tenant.

Pet deposit

Many states allow a landlord to collect a pet deposit, but it is not allowed in Massachusetts. The three other items mentioned and a security deposit are allowed.

14 days

A 14-day notice is required to evict a tenant at will for non-payment of rent. Other lease violations require a 30-day notice to evict.

required in all Massachusetts residences.

All Massachusetts residences must have carbon monoxide detectors. The exact specifications depend on the construction date.

Property Transfer Lead Paint Notification.

The disclosure required by sellers and real estate licensees for homes built before 1978 is called the Property Transfer Lead Paint Notification.

federal law.

Although Massachusetts has several strict state requirements for asbestos handling and removal, the state’s practices related to asbestos are generally governed by federal law.

If the mold has rendered the unit uninhabitable the tenant may withhold rent.

Courts have held that a tenant may withhold rent if mold has rendered the unit uninhabitable. A tenant may also sue for damages but there is no provision for an award of treble damages.

State Fire Marshall.

Before constructing an AST a permit must be obtained from the State Fire Marshall. The tanks must also have a use permit issued every 5 years and must be inspected at least annually by a qualified inspector

community’s conservation commission.

Approval of a project in an area designated as a protected wetland is done on the local level by the community’s conservation commission.

Students

Students are not a protected class under Massachusetts fair housing law. The protected classes are race, religious creed, color, national origin, sex, gender identity, sexual orientation, age, children, genetic information, ancestry, marital status, veteran or member of the armed forces, blind, hearing impaired, any other handicap, or receipt of public assistance. Sexual orientation does not include those who engage with minor children as sex objects.

Dogs and miniature horses

Only dogs and miniature horses that meet size and training requirements are identified in the ADA as service animals.