PSI Real Estate Practice Exam

Every question above, answered

Every question above with its correct answer and the reasoning behind it. Read the explanations for the ones you answered correctly too. A lucky guess and knowing the rule look identical on a score report. These are sample questions from our larger bank.

1. 1. A home sale contingency stated that the buyer's existing home must close by May 15 or the seller could cancel on written notice. The buyer's home closed May 20, and on May 22 the seller signed an addendum extending closing to June 5. The seller then tried to cancel on May 25 citing the missed May 15 date. The seller's cancellation will most likely:

   • ASucceed, because the deadline was clearly missed
   • BFail, because home sale contingencies are unenforceable
   • CSucceed, because an expired contingency can never be revived by a later signed written addendum
   • DFail, because signing the extension addendum waived the right to cancel for that lapsecorrect

   Why: The cancellation will fail, because signing the extension addendum waived the right to cancel for that lapse; a party who elects to proceed with knowledge of the breach gives up that remedy. Arguing it will succeed, because the deadline was clearly missed ignores the seller's intervening conduct affirming the contract.

   Contracts

2. 2. A house under contract burns down before closing through no one's fault, and the jurisdiction follows the traditional doctrine of equitable conversion with no contrary contract clause. The traditional result is that:

   • AThe buyer bears the risk of loss and must still closecorrect
   • BThe seller bears the risk of loss and must repair or refund
   • CThe contract is void and both parties walk away with no obligations
   • DThe escrow agent absorbs the loss from the escrow account

   Why: Under the traditional doctrine the buyer bears the risk of loss and must still close, because equitable ownership passed at contract signing. The idea that the seller bears the risk of loss and must repair or refund reflects modern statutory or contractual allocations rather than the traditional common law rule.

   Contracts

3. 3. Broker Deane introduced the Larkins to a home and toured it with them three times. After a falling-out with Deane, the Larkins wrote their offer through Broker Ilsa, who had never shown them the property. In the resulting commission dispute, the decisive question will be:

   • AWhich broker first advertised the property publicly
   • BWhich broker's name appears on the purchase contract
   • CWhich broker was a member of the listing office's MLS
   • DWhich broker began and sustained the unbroken chain of events leading to the salecorrect

   Why: Procuring cause disputes are decided on the continuity of the effort that produced the sale, not on whose name got typed onto the contract. A broker who merely writes up a buyer another broker cultivated often loses the arbitration.

   Agency

4. 4. Two brokerages agree that one will solicit business only on the north side of town and the other only on the south side. This is:

   • Aa tie-in arrangement
   • Bmarket allocationcorrect
   • Ca group boycott
   • Da lawful marketing plan judged under the rule of reason

   Why: Dividing territory between competitors is market allocation, and it is condemned without inquiry into its effects. Calling it a marketing plan does not help, because the customers in each territory lost the choice competition would have given them.

   Practice of real estate

5. 5. Littoral rights typically give the owner:

   • AOwnership of the entire lake bed
   • BThe right to divert the entire flow for crop irrigation
   • CA permit priority based on first use
   • DUse of the water and title to the high-water markcorrect

   Why: Littoral owners may use the adjacent water and own the land to the average high-water mark, with the state holding what lies below it. Claiming the entire lake bed overstates the rights of a littoral owner.

   Property ownership

6. 6. RESPA applies to:

   • ACommercial loans only
   • BCash purchases of residential property
   • CAll real estate transactions without exception
   • DFederally related mortgage loans on residential propertycorrect

   Why: RESPA governs federally related mortgage loans secured by residential property. A cash purchase involves no loan, so RESPA does not reach it.

   Financing

7. 7. A noisy industrial operation opens next to a residence and reduces demand for it. Which depreciation category is most relevant?

   • AExternal obsolescencecorrect
   • BPhysical deterioration of the residence
   • CFunctional obsolescence from its internal layout
   • DA difference between actual and effective age

   Why: The negative influence originates outside the property. Repairing the residence itself may not remove that external value loss.

   Valuation

8. 8. A licensee tells a prospect, "This is the most charming kitchen on the whole street." This statement is best characterized as:

   • Apuffing, a non-factual opinion that is generally not actionablecorrect
   • Ban implied warranty of habitability
   • Cactionable fraud, because the comparison to other homes on the street cannot be objectively proven
   • Da latent defect disclosure

   Why: Non-factual sales talk that no reasonable buyer would rely on as a statement of fact is puffing and is generally not actionable. A false statement about a verifiable fact, such as the age of the roof, would instead be misrepresentation.

   Property disclosures

9. 9. A home listed at $450,000 sells for 4% below list. The listing agent’s brokerage keeps half of a 5.5% commission. What does the listing brokerage receive?

   • A$11,880correct
   • B$12,375
   • C$23,760
   • D$24,750

   Why: Sale price is $450,000 × 0.96 = $432,000. Commission is $432,000 × 0.055 = $23,760; half is $11,880. Using the list price instead of the sale price gives $12,375.

   Real estate math (calculations)

10. 10. A bargain and sale deed without covenants:

    • AImplies that the grantor holds title but contains no warranties of titlecorrect
    • BWarrants the title against all claims from any source whatsoever
    • CConveys only whatever interest the grantor may have, implying no ownership at all
    • DMay be executed only by a court-appointed officer or fiduciary

    Why: This deed "Implies that the grantor holds title but contains no warranties of title", placing it between a warranty deed and a quitclaim. Conveying only a possible interest with no implication of ownership describes a quitclaim deed.

    Transfer of title