To avoid violating the Real Estate Settlement Procedures Act, parties who are providing services to the buyer or seller in a transaction must

Business relationships and affiliations among real estate firms, mortgage brokers, title insurance firms and other such companies that are involved in a transaction are permitted, provided the relationships are disclosed in writing to the consumer, the consumer is free to go elsewhere for the relevant service, and the companies do not exchange fees for referrals. RESPA allows business relationships among settlement service providers to continue, but requires that consumers receive written disclosure of those affiliations, remain free to shop elsewhere, and that no fees are exchanged merely for referrals.

be paid before the closing date for any service they provide.

inform the closing agent of the cost of their services at least one week before the closing date.

receive payment only from the funds held in escrow, not directly from buyer or seller.

A sale transaction closes on April 1, the ninety-first day of the tax year. The day of closing belongs to the seller. Real estate taxes for the year, not yet billed, are expected to be $2,190. According to the 365-day method, what is the seller's share of the tax bill?

The daily tax expense, first, is ($2,190 ÷ 365) or $6.00. Since the buyer will pay the taxes after closing, the seller will owe the buyer his or her portion of the tax bill, which is the 91 days from the beginning of the year through closing. Therefore, credit the buyer and debit the seller ($6.00 x 91), or $546.00. In a 365-day proration, annual taxes are divided by 365 to get a daily rate, then multiplied by the number of days each party owns the property. The seller is debited for days up to and including closing when closing day belongs to the seller.

Melissa is buying Raymond's house. Melissa's loan amount is $887,500. She has agreed to pay 2 points at closing. How much will Melissa pay for points?

$887,500 x .02 = $17,750. Remember, one point = 1% of the loan amount. A discount point equals one percent of the loan amount, paid at closing to lower the interest rate. To solve, multiply the loan principal by the number of points expressed as a percentage, here $887,500 times 0.02.

Which of the following is a common risk relating to the agency relationship?

Agency risks commonly concern the requirement to inform and disclose. Most states require agency relationships to be in writing and to be disclosed to all parties to a transaction. In states that do not use agency, there is still the obligation to explain and disclose the nature of the relationship. Agency risk centers on the duty to inform and disclose. Most states require agency relationships to be documented in writing and disclosed to all parties, and even where agency is not used, the licensee must explain the nature of the working relationship.

Failing to take a personal interest in a transaction.

Acting as an exclusive agent without an oral agency agreement.

Forgetting to record the listing agreement.

Regarding contracts and forms,

Real estate professionals who are not attorneys are usually limited to filling in blanks or making deletions on a preprinted contract form prepared by a lawyer. While a licensee may make deletions, additions to a form should be drafted by an attorney. The principals themselves can make changes as long as each change is signed or initialed by all signers. Licensees who are not attorneys are limited to filling blanks and making deletions on preprinted forms prepared by a lawyer; drafting additions is attorney work. The principals to a contract may amend it themselves as long as every change is signed or initialed by all parties.

once written and signed they cannot be changed except by a lawyer.

real estate licensees may alter forms but not contracts.

whoever originates them can make changes without the risk of unauthorized practice of law.

Of the following actions, the only one which avoids any risk of committing unintentional misrepresentation is

Unintentional misrepresentation occurs when a licensee unknowingly gives a consumer inaccurate information concerning a property, financing or agency service. Information that the licensee, as a professional, should have known to be false or inaccurate may be included in the definition. Telling a client that legal counsel would be advisable is not misrepresentation and, in fact, is often an important risk management technique. Unintentional misrepresentation happens when a licensee gives a consumer inaccurate information about a property, financing, or agency service, even without intent to deceive. Advising a client to obtain legal counsel is sound risk management and cannot be misrepresentation.

measuring and reporting property dimensions.

describing properties and amenities.

making statements about the presence or absence of hazardous substances.

One of the major risk areas in advertising a listed property is that an advertisement will

The license laws of most states list as illegal advertising activities subject to discipline such actions as making any substantial and intentional misrepresentation, making false promises, and making misleading or untruthful statements in any advertising. State license laws discipline advertising that contains substantial and intentional misrepresentation, false promises, or misleading and untruthful statements. The legal risk in advertising a listing is making a material false claim, not the tone or timing of the marketing.

describe the property in excessively glowing terms.

fail to appear at the same time in all available media.

omit any mention of the owner's main selling points.

If a property's vacancy rate is significantly lower than market rates, it may be a sign that the manager needs to

Vacancy rates are directly related to demand and competitive supply in the market. If vacancy rates in the managed property are too high, the manager may have to lower rates or identify problems in the property or its management that are contributing to vacancy level. On the other hand, if the property's vacancy rate is significantly lower than market rates, the manager may conclude that higher rental rates are called for. Vacancy rates reflect demand versus competitive supply. When a property's vacancy is far below the market average, units are filling too easily, which suggests rents are set below what tenants would pay, so the manager can raise rates.

What kind of agency is commonly created by a management agreement?

Property managers are usually considered to be general agents empowered to perform some or all of the ongoing tasks and duties of operating the property, including the authority to enter into contracts. Property managers act as general agents, empowered to perform the ongoing tasks of operating a property, including entering into contracts on the owner's behalf. A management agreement sets out those duties, the compensation, and the limits of authority.

Which of the following is a major risk factor for a property manager in the tenant selection process?

A property manager must adhere to fair housing laws throughout the tenant selection process to avoid discrimination claims and liability. In tenant selection, the manager's greatest liability is discrimination. Fair housing law requires the same objective screening criteria, such as credit and employment, be applied to every applicant, and questions about protected characteristics such as family status must be avoided.

Performing tenant background checks

Refusing to rent to applicants with a poor credit history

Negotiating lease terms with potential tenants

Michael is selling a property and has agreed to cover the buyer’s closing costs up to $2,000. How will this appear on the closing statement?

The seller covering the buyer's closing costs is recorded as a credit to the buyer and a debit to the seller on the closing statement, showing the seller is paying this amount on behalf of the buyer. On a closing statement, a seller concession that covers the buyer's costs is a seller debit because the seller is paying out, and a buyer credit because the buyer receives the benefit. Every entry is mirrored so debits and credits stay in balance.

A $2,000 debit to the buyer and credit to the seller

A $2,000 credit to both the buyer and seller

A $2,000 debit to both the buyer and seller

The amount a buyer must bring to closing is calculated by

To determine the funds a buyer must bring to closing, the buyer’s credits are subtracted from the buyer’s debits. The result is the net amount due from the buyer at closing. To find the cash a buyer needs at closing, total all of the buyer's debits and total all of the buyer's credits, then subtract the credits from the debits. The result is the net amount due from the buyer.

adding the seller’s debits and credits.

subtracting the seller’s credits from the buyer’s credits.

adding the seller’s credits and buyer’s debits.

Rachel, a property manager, is assessing tenant applications for a multi-family building. To minimize liability and ensure fairness, which of the following should she avoid?

Asking applicants about family status can be discriminatory and is against fair housing laws. Instead, Rachel should focus on objective criteria like credit history and employment status, applied consistently to all applicants. Fair housing law bars the use of protected characteristics, including family status, in screening tenants. A manager should rely on objective, business-related criteria such as credit, income, and employment, and apply the same standards to every applicant to reduce liability.

Using a consistent set of criteria for all applicants

Making credit checks a standard part of the application process

Reviewing employment history for all applicants

Adam has hired Megan as his property manager. To formally establish the agency relationship, they should sign a

A management agreement formally establishes the agency relationship between a property owner and a property manager, outlining duties, compensation, and authority. A management agreement is the written contract that creates the agency relationship between a property owner and a property manager. It defines the manager's duties, the scope of authority, and how the manager is compensated.

Stephanie is purchasing a home with a closing date set for June 15. The property tax for the year is $3,650, and the day of closing belongs to the buyer. Using the 365-day proration method, what will be Stephanie’s prorated tax credit?

The daily tax is $3,650 ÷ 365 = $10.00. Since the seller is responsible for January 1–June 14 (164 days), Stephanie's prorated credit is $10.00 x 164 = $1,763.56. Under 365-day proration, divide the annual tax by 365 for a daily amount, then multiply by the days the seller owned the property. When closing day belongs to the buyer, the seller is charged through the day before closing, and the buyer receives that amount as a credit.

Justin, a property manager, notices that insurance premiums for a building he manages have increased significantly. Which strategy would be most effective in reducing this cost?

Increasing the deductible can lower premium costs, as it means the insurer is responsible for less at the outset of a claim. This can reduce annual insurance expenses without compromising overall coverage. Insurance premiums reflect the risk an insurer carries. Raising the deductible shifts more of the early loss back to the owner, so the insurer assumes less exposure and charges a lower premium while overall coverage stays in place.

Requesting tenants to increase their liability coverage

Reducing preventive maintenance to minimize expense

Cancelling coverage for non-essential areas

Daniel is preparing to lease space in a commercial building and his lease requires that he pay the base rent plus all property taxes, insurance, and maintenance. This type of lease is known as a

In a net lease, the tenant pays not only the base rent but also some or all of the property’s operating expenses, such as taxes, insurance, and maintenance. In a net lease, the tenant pays base rent plus some or all of the property's operating expenses, such as taxes, insurance, and maintenance. A lease passing all three of those costs to the tenant is often called a triple net lease.

Brittany is a tenant in an apartment complex and has reported a broken heating system in her unit. Under the implied warranty of habitability, the landlord

The implied warranty of habitability requires landlords to maintain essential services, such as heating, to ensure a safe and livable environment for tenants. The implied warranty of habitability requires a landlord to keep residential premises safe and livable, including maintaining essential services such as heat, water, and working utilities. A failure to repair a broken heating system breaches that duty.

must offer a rent reduction until the issue is resolved.

may require the tenant to handle repairs and deduct the cost from rent.

can wait until convenient to address the issue.

Amanda, a property manager, needs to account for a vacancy loss on her financial statement. Which of the following would be categorized as a vacancy loss?

Vacancy loss represents the income lost due to unoccupied units. Other expenses, like advertising and maintenance, are operational but not vacancy-related losses. Vacancy loss is the rent income a property forgoes because units sit empty. It is distinct from operating expenses such as advertising, maintenance, and concessions, which are recorded separately on the operating statement.

Funds spent on advertising for new tenants

Lower rent collected from a long-term tenant

Increased maintenance costs for common areas

Elizabeth, a property manager, observes that a significant portion of the property is unoccupied, resulting in lower income than projected. What action should she take to address this vacancy issue?

Implementing targeted marketing is an effective way to attract new tenants and reduce vacancies. Increasing rates or surcharging current tenants may worsen occupancy rates. When occupancy falls and income lags the projection, the manager's first response is to fill empty units through targeted marketing and realistic pricing. Raising rents or cutting services on occupied units usually reduces demand and makes the vacancy worse.

Increase rental rates for the remaining tenants

Cancel all property maintenance contracts to reduce costs

Require current tenants to pay an additional vacancy surcharge

ApexAgent Practice Questions

Closings, Risk Management and Property Management

Closing, risk management and property management questions cover the operational side of the business: prorations, settlement statements, agency disclosure, insurance, and management agreements. The 20 questions below span that section of the national exam. Every answer shows the rule and the reasoning that rules out the other options.

20 practice questions with answers and explanations. Written and reviewed by the ApexAgent team against the national exam content outline, updated 2026-10-04.

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What this topic tests

Prorate taxes and other items using the 365-day method unless the question specifies otherwise.
Buyer funds at closing equal buyer debits minus buyer credits; seller proceeds are seller credits minus seller debits.
One discount point equals one percent of the loan amount, charged at closing.
Licensees may fill blanks and delete on preprinted forms but cannot draft contract language.
A management agreement creates the agency relationship and typically makes the manager a general agent.
Fair housing law requires identical objective screening criteria for every tenant applicant.

Jump to a question

1. To avoid violating the Real Estate Settlement Procedures Act,
2. A sale transaction closes on April 1, the ninety-first
3. Melissa is buying Raymond's house. Melissa's loan amount is
4. Which of the following is a common risk relating
5. Regarding contracts and forms,
6. Of the following actions, the only one which avoids
7. One of the major risk areas in advertising a
8. If a property's vacancy rate is significantly lower than
9. What kind of agency is commonly created by a
10. Which of the following is a major risk factor
11. Michael is selling a property and has agreed to
12. The amount a buyer must bring to closing is
13. Rachel, a property manager, is assessing tenant applications for
14. Adam has hired Megan as his property manager. To
15. Stephanie is purchasing a home with a closing date
16. Justin, a property manager, notices that insurance premiums for
17. Daniel is preparing to lease space in a commercial
18. Brittany is a tenant in an apartment complex and
19. Amanda, a property manager, needs to account for a
20. Elizabeth, a property manager, observes that a significant portion

20 real estate exam questions on this topic

Question 1 of 20
To avoid violating the Real Estate Settlement Procedures Act, parties who are providing services to the buyer or seller in a transaction must
- be paid before the closing date for any service they provide.
- inform the closing agent of the cost of their services at least one week before the closing date.
- receive payment only from the funds held in escrow, not directly from buyer or seller.
- disclose in writing any business relationships they have with other parties involved in the transaction.Correct answer
Correct answer: D. disclose in writing any business relationships they have with other parties involved in the transaction.
Why: Business relationships and affiliations among real estate firms, mortgage brokers, title insurance firms and other such companies that are involved in a transaction are permitted, provided the relationships are disclosed in writing to the consumer, the consumer is free to go elsewhere for the relevant service, and the companies do not exchange fees for referrals.
The rule: RESPA allows business relationships among settlement service providers to continue, but requires that consumers receive written disclosure of those affiliations, remain free to shop elsewhere, and that no fees are exchanged merely for referrals.
Why the other options are wrong
- RESPA does not require prepayment timing; it governs disclosures of affiliated business relationships, not payment deadlines.
- There is no one-week cost notice rule; RESPA instead requires written disclosure of affiliations and no referral fee exchanges.
- RESPA does not bar direct payment; providers may be paid directly, but business relationships must be disclosed in writing.
Question 2 of 20
A sale transaction closes on April 1, the ninety-first day of the tax year. The day of closing belongs to the seller. Real estate taxes for the year, not yet billed, are expected to be $2,190. According to the 365-day method, what is the seller's share of the tax bill?
- $1,644.00.
- $546.00.Correct answer
- $959.30
- $1,364.66.
Correct answer: B. $546.00.
Why: The daily tax expense, first, is ($2,190 ÷ 365) or $6.00. Since the buyer will pay the taxes after closing, the seller will owe the buyer his or her portion of the tax bill, which is the 91 days from the beginning of the year through closing. Therefore, credit the buyer and debit the seller ($6.00 x 91), or $546.00.
The rule: In a 365-day proration, annual taxes are divided by 365 to get a daily rate, then multiplied by the number of days each party owns the property. The seller is debited for days up to and including closing when closing day belongs to the seller.
Why the other options are wrong
- This is the buyer's portion (274 days); the seller owes only 91 days before closing, so the number is reversed.
- This reflects a different proration method or day count; at $6.00 daily for 91 days the seller owes exactly $546.00.
- This uses the wrong daily rate or day span; the correct daily tax is $2,190 divided by 365, or $6.00.
Question 3 of 20
Melissa is buying Raymond's house. Melissa's loan amount is $887,500. She has agreed to pay 2 points at closing. How much will Melissa pay for points?
- $1,575
- $1,775
- $17,750Correct answer
- $8,875
Correct answer: C. $17,750
Why: $887,500 x .02 = $17,750. Remember, one point = 1% of the loan amount.
The rule: A discount point equals one percent of the loan amount, paid at closing to lower the interest rate. To solve, multiply the loan principal by the number of points expressed as a percentage, here $887,500 times 0.02.
Why the other options are wrong
- $1,575 uses a wrong percentage; a point is one percent of the loan, so two points equal $17,750.
- $1,775 miscounts the point rate; two points on $887,500 is two percent, not a fraction of that.
- $8,875 equals one point, but the loan carries two points, which doubles that amount to $17,750.
Question 4 of 20
Which of the following is a common risk relating to the agency relationship?
- Failing to inform and disclose properly.Correct answer
- Failing to take a personal interest in a transaction.
- Acting as an exclusive agent without an oral agency agreement.
- Forgetting to record the listing agreement.
Correct answer: A. Failing to inform and disclose properly.
Why: Agency risks commonly concern the requirement to inform and disclose. Most states require agency relationships to be in writing and to be disclosed to all parties to a transaction. In states that do not use agency, there is still the obligation to explain and disclose the nature of the relationship.
The rule: Agency risk centers on the duty to inform and disclose. Most states require agency relationships to be documented in writing and disclosed to all parties, and even where agency is not used, the licensee must explain the nature of the working relationship.
Why the other options are wrong
- Taking a personal interest is not a recognized agency risk; the core risk is failing to inform and disclose properly.
- Agency agreements generally must be written, so this reverses the rule; the real risk is failing to disclose the relationship.
- Recording is not the agency concern; listing agreements need not be recorded, and the key duty is informing and disclosing.
Question 5 of 20
Regarding contracts and forms,
- once written and signed they cannot be changed except by a lawyer.
- real estate licensees may alter forms but not contracts.
- whoever originates them can make changes without the risk of unauthorized practice of law.
- the principals may make changes as long as they sign or initial each change.Correct answer
Correct answer: D. the principals may make changes as long as they sign or initial each change.
Why: Real estate professionals who are not attorneys are usually limited to filling in blanks or making deletions on a preprinted contract form prepared by a lawyer. While a licensee may make deletions, additions to a form should be drafted by an attorney. The principals themselves can make changes as long as each change is signed or initialed by all signers.
The rule: Licensees who are not attorneys are limited to filling blanks and making deletions on preprinted forms prepared by a lawyer; drafting additions is attorney work. The principals to a contract may amend it themselves as long as every change is signed or initialed by all parties.
Why the other options are wrong
- Signed contracts can be changed by the principals themselves; attorney involvement is not required for every amendment.
- This reverses the rule: licensees may fill blanks on preprinted forms but cannot draft contract changes, which is attorney work.
- Originating a form does not authorize legal changes; drafting substantive language can constitute the unauthorized practice of law.
Question 6 of 20
Of the following actions, the only one which avoids any risk of committing unintentional misrepresentation is
- measuring and reporting property dimensions.
- describing properties and amenities.
- stating that a client should seek legal counsel.Correct answer
- making statements about the presence or absence of hazardous substances.
Correct answer: C. stating that a client should seek legal counsel.
Why: Unintentional misrepresentation occurs when a licensee unknowingly gives a consumer inaccurate information concerning a property, financing or agency service. Information that the licensee, as a professional, should have known to be false or inaccurate may be included in the definition. Telling a client that legal counsel would be advisable is not misrepresentation and, in fact, is often an important risk management technique.
The rule: Unintentional misrepresentation happens when a licensee gives a consumer inaccurate information about a property, financing, or agency service, even without intent to deceive. Advising a client to obtain legal counsel is sound risk management and cannot be misrepresentation.
Why the other options are wrong
- Reporting measurements can still be misrepresentation if the figures are inaccurate or outdated, so it is not risk free.
- Describing amenities risks unintentional misrepresentation if the property does not actually match the description.
- Statements about hazardous substances can be inaccurate and expose the licensee, so this carries real misrepresentation risk.
Question 7 of 20
One of the major risk areas in advertising a listed property is that an advertisement will
- describe the property in excessively glowing terms.
- fail to appear at the same time in all available media.
- omit any mention of the owner's main selling points.
- make a substantial misrepresentation.Correct answer
Correct answer: D. make a substantial misrepresentation.
Why: The license laws of most states list as illegal advertising activities subject to discipline such actions as making any substantial and intentional misrepresentation, making false promises, and making misleading or untruthful statements in any advertising.
The rule: State license laws discipline advertising that contains substantial and intentional misrepresentation, false promises, or misleading and untruthful statements. The legal risk in advertising a listing is making a material false claim, not the tone or timing of the marketing.
Why the other options are wrong
- Glowing but truthful puffery is not itself illegal; advertising law targets substantial, intentional misrepresentations, not enthusiasm.
- Timing across media is not a legal risk; there is no duty to advertise simultaneously in every channel.
- Omitting selling points may weaken a listing but only knowingly misleading or false statements create legal exposure.
Question 8 of 20
If a property's vacancy rate is significantly lower than market rates, it may be a sign that the manager needs to
- lower rental rates.
- raise rental rates.Correct answer
- find better tenants.
- improve management quality.
Correct answer: B. raise rental rates.
Why: Vacancy rates are directly related to demand and competitive supply in the market. If vacancy rates in the managed property are too high, the manager may have to lower rates or identify problems in the property or its management that are contributing to vacancy level. On the other hand, if the property's vacancy rate is significantly lower than market rates, the manager may conclude that higher rental rates are called for.
The rule: Vacancy rates reflect demand versus competitive supply. When a property's vacancy is far below the market average, units are filling too easily, which suggests rents are set below what tenants would pay, so the manager can raise rates.
Why the other options are wrong
- Lowering rates is the remedy for high vacancies, not low ones; strong demand signals room to raise rents.
- Tenant quality is unrelated to a below-market vacancy rate; the signal is that demand exceeds supply at current pricing.
- Management quality does not explain low vacancies; filled units mean rents are priced below what the market will pay.
Question 9 of 20
What kind of agency is commonly created by a management agreement?
- Universal
- Specific
- GeneralCorrect answer
- Vicarious
Correct answer: C. General
Why: Property managers are usually considered to be general agents empowered to perform some or all of the ongoing tasks and duties of operating the property, including the authority to enter into contracts.
The rule: Property managers act as general agents, empowered to perform the ongoing tasks of operating a property, including entering into contracts on the owner's behalf. A management agreement sets out those duties, the compensation, and the limits of authority.
Why the other options are wrong
- A universal agent handles all of a principal's affairs; a property manager has authority only over the managed property.
- A specific agent is authorized for one defined act, while management involves ongoing operation of a property.
- Vicarious is not an agency category; it describes liability, not the scope of authority a manager receives.
Question 10 of 20
Which of the following is a major risk factor for a property manager in the tenant selection process?
- Performing tenant background checks
- Refusing to rent to applicants with a poor credit history
- Failing to comply with fair housing lawsCorrect answer
- Negotiating lease terms with potential tenants
Correct answer: C. Failing to comply with fair housing laws
Why: A property manager must adhere to fair housing laws throughout the tenant selection process to avoid discrimination claims and liability.
The rule: In tenant selection, the manager's greatest liability is discrimination. Fair housing law requires the same objective screening criteria, such as credit and employment, be applied to every applicant, and questions about protected characteristics such as family status must be avoided.
Why the other options are wrong
- Running background checks is standard and lawful when criteria are applied consistently to every applicant.
- Denying an applicant for poor credit is permitted when the same objective standard is used for all applicants.
- Negotiating lease terms is a normal management duty and carries no fair housing exposure on its own.
Question 11 of 20
Michael is selling a property and has agreed to cover the buyer’s closing costs up to $2,000. How will this appear on the closing statement?
- A $2,000 debit to the buyer and credit to the seller
- A $2,000 credit to the buyer and debit to the sellerCorrect answer
- A $2,000 credit to both the buyer and seller
- A $2,000 debit to both the buyer and seller
Correct answer: B. A $2,000 credit to the buyer and debit to the seller
Why: The seller covering the buyer's closing costs is recorded as a credit to the buyer and a debit to the seller on the closing statement, showing the seller is paying this amount on behalf of the buyer.
The rule: On a closing statement, a seller concession that covers the buyer's costs is a seller debit because the seller is paying out, and a buyer credit because the buyer receives the benefit. Every entry is mirrored so debits and credits stay in balance.
Why the other options are wrong
- This reverses the entries; a seller paying a buyer's cost is debited, and the buyer receiving the benefit is credited.
- Both parties cannot be credited for one payment; a credit to one side requires a matching debit to the other.
- Crediting neither party is wrong; the amount must be shown as a seller debit and a buyer credit to balance.
Question 12 of 20
The amount a buyer must bring to closing is calculated by
- adding the seller’s debits and credits.
- subtracting the buyer’s credits from the buyer’s debits.Correct answer
- subtracting the seller’s credits from the buyer’s credits.
- adding the seller’s credits and buyer’s debits.
Correct answer: B. subtracting the buyer’s credits from the buyer’s debits.
Why: To determine the funds a buyer must bring to closing, the buyer’s credits are subtracted from the buyer’s debits. The result is the net amount due from the buyer at closing.
The rule: To find the cash a buyer needs at closing, total all of the buyer's debits and total all of the buyer's credits, then subtract the credits from the debits. The result is the net amount due from the buyer.
Why the other options are wrong
- Mixing the seller's figures does not produce the buyer's funds; the buyer's own debits and credits determine the amount.
- Comparing seller and buyer credits answers nothing; the buyer's net is debits minus credits for the buyer alone.
- Adding unrelated totals confuses the sides; the buyer brings the difference between the buyer's debits and credits.
Question 13 of 20
Rachel, a property manager, is assessing tenant applications for a multi-family building. To minimize liability and ensure fairness, which of the following should she avoid?
- Using a consistent set of criteria for all applicants
- Making credit checks a standard part of the application process
- Asking applicants to explain their family statusCorrect answer
- Reviewing employment history for all applicants
Correct answer: C. Asking applicants to explain their family status
Why: Asking applicants about family status can be discriminatory and is against fair housing laws. Instead, Rachel should focus on objective criteria like credit history and employment status, applied consistently to all applicants.
The rule: Fair housing law bars the use of protected characteristics, including family status, in screening tenants. A manager should rely on objective, business-related criteria such as credit, income, and employment, and apply the same standards to every applicant to reduce liability.
Why the other options are wrong
- Using consistent criteria for everyone is required and protects against discrimination claims, so it should not be avoided.
- Standard credit checks are lawful, objective screening tools and help show that applicants were treated equally.
- Reviewing employment history is a normal, non-discriminatory part of screening and should be applied to all applicants.
Question 14 of 20
Adam has hired Megan as his property manager. To formally establish the agency relationship, they should sign a
- listing agreement.
- purchase agreement.
- management agreement.Correct answer
- lease contract.
Correct answer: C. management agreement.
Why: A management agreement formally establishes the agency relationship between a property owner and a property manager, outlining duties, compensation, and authority.
The rule: A management agreement is the written contract that creates the agency relationship between a property owner and a property manager. It defines the manager's duties, the scope of authority, and how the manager is compensated.
Why the other options are wrong
- A listing agreement hires a broker to sell property; it does not establish an ongoing property management relationship.
- A purchase agreement is the buyer's contract to acquire the property, not the owner's contract to manage it.
- A lease contract binds a tenant to occupy space; it does not appoint a manager to act for the owner.
Question 15 of 20
Stephanie is purchasing a home with a closing date set for June 15. The property tax for the year is $3,650, and the day of closing belongs to the buyer. Using the 365-day proration method, what will be Stephanie’s prorated tax credit?
- $1,763.56Correct answer
- $1,886.57
- $2,023.29
- $1,825.12
Correct answer: A. $1,763.56
Why: The daily tax is $3,650 ÷ 365 = $10.00. Since the seller is responsible for January 1–June 14 (164 days), Stephanie's prorated credit is $10.00 x 164 = $1,763.56.
The rule: Under 365-day proration, divide the annual tax by 365 for a daily amount, then multiply by the days the seller owned the property. When closing day belongs to the buyer, the seller is charged through the day before closing, and the buyer receives that amount as a credit.
Why the other options are wrong
- $1,886.57 comes from a wrong day count; the seller owns 164 days, so the buyer's credit is $1,763.56.
- $2,023.29 misstates the daily rate or period; $3,650 divided by 365 is $10.00 per day for 164 days.
- $1,825.12 does not match $10.00 daily times 164 days, which equals $1,763.56 credited to the buyer.
Question 16 of 20
Justin, a property manager, notices that insurance premiums for a building he manages have increased significantly. Which strategy would be most effective in reducing this cost?
- Requesting tenants to increase their liability coverage
- Increasing the building’s deductible to lower premium costsCorrect answer
- Reducing preventive maintenance to minimize expense
- Cancelling coverage for non-essential areas
Correct answer: B. Increasing the building’s deductible to lower premium costs
Why: Increasing the deductible can lower premium costs, as it means the insurer is responsible for less at the outset of a claim. This can reduce annual insurance expenses without compromising overall coverage.
The rule: Insurance premiums reflect the risk an insurer carries. Raising the deductible shifts more of the early loss back to the owner, so the insurer assumes less exposure and charges a lower premium while overall coverage stays in place.
Why the other options are wrong
- Tenant liability coverage is a separate policy and does not lower the owner's own premium for the building.
- Cutting preventive maintenance raises risk and claims, which typically drives insurance premiums higher, not lower.
- Dropping coverage reduces protection but is not a cost control strategy and can expose the owner to large losses.
Question 17 of 20
Daniel is preparing to lease space in a commercial building and his lease requires that he pay the base rent plus all property taxes, insurance, and maintenance. This type of lease is known as a
- gross lease.
- percentage lease.
- net lease.Correct answer
- graduated lease.
Correct answer: C. net lease.
Why: In a net lease, the tenant pays not only the base rent but also some or all of the property’s operating expenses, such as taxes, insurance, and maintenance.
The rule: In a net lease, the tenant pays base rent plus some or all of the property's operating expenses, such as taxes, insurance, and maintenance. A lease passing all three of those costs to the tenant is often called a triple net lease.
Why the other options are wrong
- In a gross lease the landlord pays operating expenses; here the tenant covers taxes, insurance, and maintenance.
- A percentage lease ties rent to the tenant's sales volume, not to the building's operating expenses.
- A graduated lease steps the rent up on a schedule; it does not shift operating expenses to the tenant.
Question 18 of 20
Brittany is a tenant in an apartment complex and has reported a broken heating system in her unit. Under the implied warranty of habitability, the landlord
- must offer a rent reduction until the issue is resolved.
- is required to repair the heating to maintain livable conditions.Correct answer
- may require the tenant to handle repairs and deduct the cost from rent.
- can wait until convenient to address the issue.
Correct answer: B. is required to repair the heating to maintain livable conditions.
Why: The implied warranty of habitability requires landlords to maintain essential services, such as heating, to ensure a safe and livable environment for tenants.
The rule: The implied warranty of habitability requires a landlord to keep residential premises safe and livable, including maintaining essential services such as heat, water, and working utilities. A failure to repair a broken heating system breaches that duty.
Why the other options are wrong
- A rent reduction is not automatic; the landlord's primary duty is to restore the essential service, not simply cut rent.
- The warranty requires the landlord to repair; letting the tenant deduct is not the general rule it imposes.
- Waiting for convenience ignores the duty; habitability failures like lost heat demand prompt repair to keep the unit livable.
Question 19 of 20
Amanda, a property manager, needs to account for a vacancy loss on her financial statement. Which of the following would be categorized as a vacancy loss?
- Income lost from an unoccupied unitCorrect answer
- Funds spent on advertising for new tenants
- Lower rent collected from a long-term tenant
- Increased maintenance costs for common areas
Correct answer: A. Income lost from an unoccupied unit
Why: Vacancy loss represents the income lost due to unoccupied units. Other expenses, like advertising and maintenance, are operational but not vacancy-related losses.
The rule: Vacancy loss is the rent income a property forgoes because units sit empty. It is distinct from operating expenses such as advertising, maintenance, and concessions, which are recorded separately on the operating statement.
Why the other options are wrong
- Advertising is an operating expense, not lost income; vacancy loss measures rent never collected from empty units.
- Reduced rent from an occupied unit is a rent concession or loss to lease, not vacancy loss.
- Higher common area maintenance is an operating cost and has no connection to unoccupied units.
Question 20 of 20
Elizabeth, a property manager, observes that a significant portion of the property is unoccupied, resulting in lower income than projected. What action should she take to address this vacancy issue?
- Increase rental rates for the remaining tenants
- Implement targeted marketing efforts to attract new tenantsCorrect answer
- Cancel all property maintenance contracts to reduce costs
- Require current tenants to pay an additional vacancy surcharge
Correct answer: B. Implement targeted marketing efforts to attract new tenants
Why: Implementing targeted marketing is an effective way to attract new tenants and reduce vacancies. Increasing rates or surcharging current tenants may worsen occupancy rates.
The rule: When occupancy falls and income lags the projection, the manager's first response is to fill empty units through targeted marketing and realistic pricing. Raising rents or cutting services on occupied units usually reduces demand and makes the vacancy worse.
Why the other options are wrong
- Raising rents on remaining tenants worsens demand and can push occupancy even lower, not solve the vacancy.
- Cancelling maintenance contracts saves little and hurts the property's condition, making it harder to lease units.
- Surcharging current tenants is not a lawful remedy and would drive good tenants away, deepening the vacancy problem.

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Closings, Risk Management and Property Management: frequently asked

How do I prorate property taxes at closing on the exam?

Divide the annual tax bill by 365 to get a daily rate, then multiply by the number of days one party owned the property. Check whether closing day belongs to the buyer or seller, because that day changes the split slightly.

What is a net lease in commercial property?

A net lease makes the tenant pay base rent plus some or all operating expenses, such as property taxes, insurance, and maintenance. When the tenant covers all three, it is often called a triple net lease. A gross lease, by contrast, leaves those costs with the landlord.

What creates an agency relationship between a property owner and manager?

A written management agreement creates the agency relationship. It names the parties, describes the manager's duties and scope of authority, sets the term, and states how the manager is paid. Because the manager can sign contracts for ongoing operations, the manager acts as a general agent.

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Each definition includes the mnemonic, the trap the exam sets and a few practice questions of its own.

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