Real Estate Practice Tests

All real estate is unique. No two parcels are the same. Even if two parcels were the exact same size, and contained the exact same improvements, the two parcels could not be situated in the same physical location. Scarcity is an economic characteristic of real estate, but not all real estate parcels are scarce. Furthermore, real estate parcels do not always increase or decrease in value with the addition of improvements.

A covenant is a promise by the land owner to do or not do some action on the property or to the property. A covenant that runs with the land may also be called a "covenant appurtenant", which means it imposes duties and restrictions upon the land regardless of the owner. (Covenants that impose duties and restrictions upon a particular owner are called "covenants in gross".) Since covenants appurtenant affect title to real property, and are essentially binding promises that land owners make, they must be in writing to satisfy the Statute of Frauds. Also, because these covenants bind successive owners, the original parties to the agreement must have intended that successors be bound by the agreement.

The fence is encroaching on the adjacent property. The adjacent property owner would do well not to ignore the encroachment, because after a certain period of time (as determined by statute), the owners of the fence might be able to persuade a court to grant a prescriptive easement for the fence, and the fence will remain. One course of action the adjacent property owner might take is to physically remove the fence, although that will likely cause a feud with the fence owner. Perhaps the best course of action is to give the fence owner written permission to use that portion of this property. Such written permission precludes a future prescriptive easement because it effectively negates the hostile use of the land, which is a condition required for prescriptive easement.

Specific agency (or special agency) means that a licensee may act on a principal's behalf only in limited ways for a limited time; generally, for only one transaction. General agency is an agency whereby the agent is given authorization to act as agent for a range of activities. Universal agency is unlimited rights to act on the principal's behalf. A limited power of attorney grants authority to act on the principal's behalf, but limits the authorization to only those acts that are named.

Liquidated damages are monetary damages for breach of contract, where the parties agreed at the time of contracting on a reasonable figure for compensation to be paid in the event of a breach. The dollar amount of the liquidated damages must be reasonable in light of the anticipated or actual harm caused by the breach. If the parties agree on a figure, but that figure is found to be unreasonable, then in the interest of public policy, the clause will not be enforced.

A person who receives a commission that is based on the sale of real property must be licensed as a real estate broker. Some states have provisions that unlicensed person may receive a commission, if that person lives in an apartment complex and refers a prospective tenant who ultimately signs a lease. However, in every state that allows this practice, the payment cannot be in cash. It must be in the form of a credit on the monthly rent.

A broker owes a duty to all buyers and sellers to carefully account for and monitor all of the funds (no matter the form of the funds) associated with any transaction. Misplacing earnest money checks, failure to promptly deposit trust funds checks or failure to maintain proper accounting records are breaches of the duty of accounting. Furthermore, a broker has a continuing duty to advise the customer of foreseeable expenditures associated with the transaction.

A contract is only fully executed (carried out) when all of the terms of the contract have been completed. Up until that point, the contract is considered executory, which means that both parties are bound to the agreement, and the terms are being carried out. NOTE: There are actually two definitions of the word "executed" as it relates to contracts. The words "executed contract" can also refer to a contract that has been signed by all parties.

Easements in gross are the common method of granting use rights to utility companies when it is necessary for water lines or electrical lines to be located on land that does not belong to the utility company. Although property owner's ownership of the land designated as a gross easement remains intact, the owner's use rights within the boundaries of the easement are encumbered by the existence of the water lines.

The ALTA policy protects lenders. It expands the standard policy to include rights of parties in possession, unrecorded liens, easements, claims that a correct survey or inspection would show, mining claims, and water rights.