The CE Shop Real Estate Exam
Questions With Verified Answers
1031 Tax Deferred Exchange - Answer -Section 1031 of the Internal Revenue Code
allows the owner of real property to sell that property and then reinvest in a "like-kind"
property and defer paying any capital gains taxes; strict IRS rules regulate this type of
exchange
Ex. Real estate investors can take advantage of the 1031 tax-deferred exchange to
defer capital gains taxes when selling a property, provided the money is rolled into
another "like" purchase
.abutting - Answer -Land parcels that share a common border
.acceleration clause - Answer -Allows a lender to demand immediate and full payment
of all debt owed if a buyer defaults or fails to meet certain conditions that apply to the lo
.accession - Answer -The addition of value to property through labor or the addition of
new materials, including an increase in land through natural processes
Ex. Jonathan's property borders a bay. The bay receded, and Jonathan gained an extra
10 feet of property to his land through accession; also, Chris built a fence on his
neighbor's property with no agreement allowing Chris to remove the fence. The
neighbor now owns the fence.
.Accessory Use - Answer -"An incidental or subordinate use to the primary use of the
property
Ex. Andy's military bunker in his back yard constituted an accessory use of the property.
.Accounting - Answer -One of the fiduciary duties, accounting means an agent is
accountable for any funds or properties entrusted to the agent. This is a duty that
survives termination of an agency agreement
Ex. Cameron accepted an earnest money deposit from his buyer. His duty of accounting
means that he must safeguard the funds and handle them according to the agreement
with his client and the policies of his firm
.accretion - Answer -The gradual growth in the size of a land parcel due to water-
deposited sand, silt, or gravel
Ex. Jillian's property grew through accretion when the creek flow created a long
sandbar.
.accrued items - Answer -Expenses that have been incurred but aren't due yet, e.g.
property taxes
,Ex. At closing, accrued items must be accounted for on the settlement statement. If the
seller has accrued expenses not yet payable, the amount accrued will be a seller debit
and buyer credit.
.acknowledgment - Answer -A requirement for deed transfer; a public official must
acknowledge, usually by a notary public, the grantor's signature
Ex. Gary purchased a duplex. The grantor signed the deed; a notary public
acknowledged his signature.
.acre - Answer -unit of land that is equal to 43,560 square feet
Ex. The Jones farmhouse was on 10 acres. Their parcel had 435,600 square feet.
.Act of Waste - Answer -Abuse of a property by a person who holds possession through
a life estate
Ex. Minerva inherited a life estate to a historic mansion and turned it into an illegal video
gaming parlor. Also, Charles, who is in possession of real property as a life estate,
failed to maintain the property.
.Active Fraud - Answer -Intentional misstatement of a material fact; action taken by one
party to deceive a second party in an attempt to consummate a contract or transaction
Ex. "Sure, the foundation is perfectly safe!" Lisa said, even though she knew full well
that there was a crack the size of Toledo in it.
.Actual Notice - Answer -Express notice given directly to a person or actual knowledge
that is known
.ad valorem - Answer -Related to the concept of property taxes; a Latin term that means
"according to value"
Ex. Ad valorem is a method of charging a tax according to the value of the property
instead of by a fixed rate.
.Adjustable Rate Mortgage (ARM) - Answer -A mortgage with a rate that adjusts based
on changes in a market index
.Adjusted Basis - Answer -The final basis for taxing purposes, computed by taking
acquisition costs plus capital improvements and less certain deductions such as
depreciation
Ex. When Mark computed the adjusted basis in his property, he had to subtract $10,000
in depreciation he had taken over the years.
.adjustment - Answer -In appraisals or CMAs, the dollar value or percentage added to or
subtracted from the sales price of a comparable to arrive at an indicated value for the
subject; in closings, the credits and debits made to a settlement statement for accrued
or prepaid expenses
Ex. The appraiser adjusted the price of the comparable property because it had a three-
car garage and the subject property had a two-car garage.
,.adjustment (loan) - Answer -"A debit or credit at closing to coincide with appropriate
closing costs
Ex. When the document preparation fees were more than anticipated, both sides
received an adjustment at closing.
.adjustment date - Answer -The date on which the interest rate changes on an
adjustable rate mortgage
Ex. Karey made sure to refinance before her adjustment date. Rates had dropped and
she could get a better rate than the one she'd face once her ARM adjusted.
.Administrative Law - Answer -Law related to the legal process; enacted by
administrative agencies, which are governmental bodies of the city, county, state, or
federal government
Ex. Administrative law dictated that Gerald file a petition prior to having his case heard
by the courts.
.Administrative Procedure Act - Answer -Helps to ensure that no governmental entity
acts without an opportunity for public input by requiring public disclosure and discourse
before rulemaking
Ex. The Administrative Procedure Act was partially enacted in response to FDR's New
Deal, in an effort to prevent the federal government from having too much power.
.Adverse material fact - Answer -A fact that might cause the buyer to change his mind
about purchasing the property
.Adverse Possession - Answer -A person actually and visibly possesses someone else's
real property for a statutory length of time and then claims it as his or her own; openly
hostile to another's ownership claim
Ex. Ralph had been using Kimo's land for nearly two decades before they realized the
land actually belong to Kimo. Ralph was able to claim the land through adverse
possession.
.Aesthetic Zoning - Answer -Specifies style or architecture of buildings in an area in
order to preserve charm, feel, etc.
Ex. Aesthetic zoning required that all homes in Ocean City be either Victorian or Tudor
in design, and no taller than three stories.
.Affidavit of Title - Answer -A sworn statement assuring that no title defects have
occurred since the date of the last title search
Ex. An affidavit of title is often a part of a bring down, a title search performed after
closing and before any new documents are filed.
.affiliated business arrangement (AfBA) - Answer -A shared ownership among
settlement service providers (such as a real estate firm and a mortgage brokerage) that
, must be disclosed to clients whenever more than 1% is owned by the other company, if
both service providers are used by the same client in the same transaction.
Ex. Before Clarisse could refer her clients to her mortgage broker (who was partially
owned by Clarisse's brokerage, RESPA requires her to disclose the affiliated business
arrangement.
.After-tax cash flow - Answer -The amount of money left over after a property's
operating expenses, debt service, and taxes have been paid
Ex. The after-tax cash flow on the property can be negative, especially if there is a
large, unexpended expense.
.agency coupled with interest - Answer -A situation in which the agent has a financial
stake in the transaction beyond the anticipated commission
Ex. Jose's listing agreement with his seller clients involved agency coupled with interest
because he had loaned them $2,000 to forestall their foreclosure and expected to be
paid back after the sale went through.
.Air Rights - Answer -Rights to use the airspace above the land may be sold or leased
independently of the land itself
.Alienation Clause - Answer -A provision in a mortgage that requires the loan to be paid
in full by the mortgagor if a transfer of ownership takes place. This is also called a due-
on-sale clause.
Ex. An alienation clause protects a lender by preventing a borrower from assigning debt
without the lender's approval. Alienation may be either voluntary or involuntary.
.Alluvion - Answer -The material that creates an increase of soil and thus land parcel
size due to accretion
Ex. Water flowing from a creek bordering Jillian's property created a sandbar, and she
was able to use the alluvion—the new land mass that formed—as her own property.
.Amendment - Answer -A change to an existing contract
.Americans with Disabilities Act of 1990 (ADA) - Answer -A federal anti-discrimination
law to protect persons with disabilities from discrimination in public accommodations
and commercial facilities
Ex. John's brokerage firm was required to provide reasonable accommodations in the
office building where Terry, who uses a wheelchair, works.
.Amortization - Answer -The paying off of a debt with regular installments over a fixed
repayment schedule
Ex. A 30-year fixed rate loan provides amortization for the debt—in 30 years it is fully
paid off.
