REA Legal, Regulatory & Ethical Standards 3 — Questions and Answers
Question 1: Which of the following best describes 'steering' as a prohibited practice under fair housing laws?
- Directing prospective buyers toward or away from neighborhoods based on their protected class (Correct answer)
- Offering financial incentives to buyers who close quickly
- Advising investors on the best performing submarkets
- Prioritizing listings by price range to match buyer budgets
Correct answer: Directing prospective buyers toward or away from neighborhoods based on their protected class
Steering is the illegal practice of guiding homebuyers toward or away from certain neighborhoods based on their race, religion, national origin, or other protected characteristics.
Question 2: A Qualified Opportunity Zone (QOZ) investment under the Tax Cuts and Jobs Act of 2017 allows investors to defer capital gains taxes by investing in:
- Treasury bonds designated by the IRS
- Low-income communities certified by state governors and the Treasury (Correct answer)
- Any commercial real estate in rural counties
- Federal housing authority-approved multifamily projects
Correct answer: Low-income communities certified by state governors and the Treasury
QOZs are low-income census tracts nominated by governors and certified by the U.S. Treasury; investments through Qualified Opportunity Funds in these zones receive capital gains tax deferral.
Question 3: Which environmental law requires sellers of pre-1978 residential properties to disclose known lead-based paint hazards?
- CERCLA
- RCRA
- Title X of the Housing and Community Development Act (Correct answer)
- NEPA
Correct answer: Title X of the Housing and Community Development Act
Title X requires sellers and landlords of pre-1978 housing to disclose known lead-based paint and lead-based paint hazards before sale or lease.
Question 4: An analyst who holds the CFA designation is primarily bound by ethics standards set by:
- The National Association of Realtors (NAR)
- The Appraisal Institute
- CFA Institute (Correct answer)
- FINRA
Correct answer: CFA Institute
CFA charterholders must adhere to the CFA Institute Code of Ethics and Standards of Professional Conduct.
Question 5: Under FIRPTA (Foreign Investment in Real Property Tax Act), when a foreign person sells U.S. real property, the buyer is required to:
- File a disclosure statement with HUD within 30 days
- Withhold 15% of the amount realized and remit it to the IRS (Correct answer)
- Pay an additional transfer tax of 10% to the state
- Obtain a special license from the Treasury Department
Correct answer: Withhold 15% of the amount realized and remit it to the IRS
FIRPTA requires buyers to withhold 15% of the amount realized on the sale of U.S. real property by a foreign person and remit it to the IRS.
Question 6: Blockbusting in real estate is an illegal practice that involves:
- Acquiring a large block of properties to corner a local market
- Inducing property owners to sell by exploiting fears about demographic changes in a neighborhood (Correct answer)
- Bundling multiple mortgages into a single securitized instrument
- Consolidating parcels through eminent domain for urban renewal
Correct answer: Inducing property owners to sell by exploiting fears about demographic changes in a neighborhood
Blockbusting is the illegal practice of inducing panic selling by suggesting that members of a protected class are moving into a neighborhood, causing property values to decline.
Question 7: Which of the following is the correct description of a 'fiduciary duty' owed by a real estate agent to their client?
- An obligation to maximize the number of transactions closed regardless of client outcome
- A legal obligation to act in the best interest of the client, including duties of loyalty, disclosure, confidentiality, obedience, and accounting (Correct answer)
- A duty to share client information with cooperating brokers to close deals faster
- A requirement to recommend only properties listed by the agent's own brokerage
Correct answer: A legal obligation to act in the best interest of the client, including duties of loyalty, disclosure, confidentiality, obedience, and accounting
A fiduciary duty in real estate encompasses loyalty, confidentiality, disclosure, obedience, reasonable care, and accounting — all prioritizing the client's best interest.
REA Legal, Regulatory & Ethical Standards 3
Which of the following best describes 'steering' as a prohibited practice under fair housing laws?