MI Real Estate Exam Flashcards

Q: How is the Michigan real estate salesperson exam structured?

The PSI-administered exam has 115 questions: an 80-question national portion and a 35-question Michigan state portion, with 70% required on each. Michigan requires 40 hours of pre-license education—including 4 hours specifically on civil rights law and equal opportunity—before testing.

Q: What is Proposal A and why does it matter for the exam?

Proposal A (1994) caps annual increases in a property's taxable value at the lesser of 5% or the rate of inflation while the same owner holds it. When the property sells, the taxable value 'uncaps' and resets to the State Equalized Value (SEV), about 50% of market value, often raising the buyer's taxes significantly.

Q: How do Michigan transfer taxes work?

Michigan imposes two transfer taxes at closing: a county transfer tax of $0.55 per $500 of value and a state transfer tax of $3.75 per $500, combining to $8.60 per $1,000 of the sale price. The seller customarily pays the transfer taxes unless the contract states otherwise.

Q: What is the Elliott-Larsen Civil Rights Act?

The Elliott-Larsen Civil Rights Act is Michigan's anti-discrimination law. It prohibits housing discrimination on the federal protected classes and adds protections including age, marital status, and—following a 2023 amendment—sexual orientation and gender identity. It is heavily tested on the Michigan state portion.

Q: Which Michigan law governs real estate licensing?

The Michigan Occupational Code (Public Act 299 of 1980), administered by the Department of Licensing and Regulatory Affairs (LARA), governs real estate licensing, conduct, agency disclosure, escrow rules, and discipline. The Code and LARA rules dominate the Michigan state portion of the exam.

Q: What continuing education does Michigan require to renew?

Michigan salespersons must complete 18 hours of continuing education each 3-year renewal cycle, including required legal-update hours each year. CE must be from LARA-approved providers, and a license cannot renew until the CE requirement is satisfied.

Question 1

Fee Simple Absolute

Accepted Answer

The most complete ownership estate—indefinite duration with full rights to use, sell, lease, and devise. Lesser estates such as life estates and leaseholds are defined by how they limit this ownership.

Question 2

Joint Tenancy vs. Tenancy in Common

Accepted Answer

Joint tenancy carries the right of survivorship—a deceased owner's share passes to surviving joint tenants. Tenancy in common has no survivorship and allows unequal, separately inheritable shares.

Question 3

Tenancy by the Entirety (MI)

Accepted Answer

Co-ownership available only to married couples in Michigan, with survivorship. The property is generally shielded from a creditor of only one spouse, and neither spouse can convey their interest alone.

Question 4

Appurtenant Easement

Accepted Answer

A right to use neighboring land that benefits the dominant estate and burdens the servient estate. It runs with the land and transfers with the property, unlike an easement in gross tied to a person or company.

Question 5

Land Contract (MI)

Accepted Answer

A Michigan seller-financing instrument where the seller keeps legal title until the buyer completes payments while the buyer takes possession and equitable title. Common in Michigan and tested on the state portion.

Question 6

Encumbrance

Accepted Answer

A claim or restriction limiting title—liens, easements, deed restrictions, encroachments. Encumbrances do not block a sale but affect marketability and must be resolved or disclosed at closing.

Question 7

Listing Agreement Types

Accepted Answer

Exclusive right-to-sell pays the broker regardless of who sells. Exclusive agency lets the owner sell commission-free. Open listing pays only the broker who procures the buyer.

Question 8

Fiduciary Duties

Accepted Answer

An agent owes the client loyalty, obedience, disclosure, confidentiality, accounting, and reasonable care. Confidentiality continues even after the agency relationship ends.

Question 9

Agency Disclosure Timing (MI)

Accepted Answer

Michigan requires the agency disclosure form to be provided at the first meaningful contact, before any confidential information is disclosed and before showing property, so the consumer understands the representation offered.

Question 10

Dual Agency (MI)

Accepted Answer

Representing both buyer and seller in one transaction. Permitted in Michigan only with the informed written consent of both parties; the dual agent must stay neutral and protect each party's confidential information.

Question 11

Transaction Coordinator (MI)

Accepted Answer

A Michigan limited-service role assisting a transaction without representing either party as an agent. The coordinator owes honesty and disclosure of known material facts but not fiduciary duties.

Question 12

Designated Agency (MI)

Accepted Answer

The broker assigns separate licensees within the firm to represent the buyer and the seller, giving each client individual representation while the brokerage works both sides of the transaction.

Question 13

Michigan Occupational Code

Accepted Answer

Public Act 299 of 1980—the Michigan statute governing real estate licensing, conduct, agency, escrow, and discipline. It is the foundation of the Michigan state portion of the exam.

Question 14

LARA

Accepted Answer

The Michigan Department of Licensing and Regulatory Affairs, which administers the Occupational Code, issues real estate licenses, investigates complaints, and imposes discipline including suspension and revocation.

Question 15

MI Pre-License Education

Accepted Answer

Michigan requires 40 hours of LARA-approved salesperson pre-license education, including a mandatory 4 hours on civil rights law and equal opportunity in housing.

Question 16

Employing Broker Requirement (MI)

Accepted Answer

A Michigan salesperson license is inactive until the licensee affiliates with an employing broker who supervises their work. All compensation flows through the employing broker, never directly from a client.

Question 17

MI Continuing Education

Accepted Answer

Michigan salespersons must complete 18 hours of CE every 3-year renewal cycle, including required annual legal-update hours, from LARA-approved providers before the license can renew.

Question 18

Trust/Escrow Account (MI)

Accepted Answer

Client deposits must be held in a broker trust account separate from operating funds. Michigan requires the broker's authorization on disbursements; commingling client funds with personal money is prohibited.

Question 19

Good Moral Character (MI)

Accepted Answer

Michigan applicants must demonstrate the ability to serve the public fairly, honestly, and openly. LARA may deny or discipline a license for conduct showing a lack of good moral character.

Question 20

Education Exemption (MI)

Accepted Answer

Michigan may waive pre-license education for applicants with a law degree or certain finance/business degrees. The exemption removes the course requirement but not the licensing exam.

Question 21

Statute of Frauds

Accepted Answer

Real estate sale contracts must be in writing and signed to be enforceable. An oral agreement to convey land generally cannot be enforced in court even if both parties acknowledge it.

Question 22

Purchase Agreement (MI)

Accepted Answer

Michigan's binding sales contract setting price, contingencies, deposit handling, and closing terms. It becomes enforceable when both parties sign—Michigan has no statutory attorney review period.

Question 23

Earnest Money & Escrow (MI)

Accepted Answer

The buyer's good-faith deposit, held in the broker's trust account. Michigan prohibits commingling with broker funds; disputed deposits are released only per the contract or both parties' written agreement.

Question 24

Contingency

Accepted Answer

A condition (financing, inspection, appraisal) that must be satisfied for the contract to proceed. If unmet within its deadline, the protected party may cancel and typically recover the deposit.

Question 25

Specific Performance

Accepted Answer

A court remedy compelling a defaulting seller to complete the sale instead of paying damages, available because each parcel of real estate is treated as legally unique.

Question 26

Land Contract Forfeiture vs. Foreclosure (MI)

Accepted Answer

On land contract default, Michigan allows forfeiture (faster summary proceeding to recover possession) or judicial foreclosure (which can yield a deficiency judgment). The remedy chosen affects the buyer's redemption rights.

Question 27

MI Seller Disclosure Act

Accepted Answer

Act 92 of 1993 requires sellers of 1-4 unit residential property to give buyers a Seller's Disclosure Statement of known conditions before a binding purchase agreement. Limited exemptions apply (e.g., certain transfers).

Question 28

Lead-Based Paint Disclosure

Accepted Answer

Federal law requires sellers of pre-1978 housing to disclose known lead hazards, provide the EPA pamphlet, and allow a 10-day inspection period. Applies to Michigan residential sales.

Question 29

Disclosure of Known Defects (MI)

Accepted Answer

Michigan sellers and agents must disclose known material defects affecting value or safety. The disclosure obligation covers latent defects a buyer could not readily discover, not merely obvious conditions.

Question 30

Stigmatized Property (MI)

Accepted Answer

Michigan does not require disclosure of psychological stigmas such as a death or crime on the property; these are not material defects. A licensee still may not knowingly misstate facts if directly asked.

Question 31

Proposal A (MI)

Accepted Answer

A 1994 amendment capping annual increases in a property's taxable value at the lesser of 5% or inflation while the same owner holds it. It separates taxable value from market-driven assessed value.

Question 32

State Equalized Value (SEV)

Accepted Answer

Approximately 50% of a property's true cash (market) value, set annually by the local assessor. SEV represents market-based value before Proposal A's taxable-value cap is applied.

Question 33

Taxable Value Uncapping (MI)

Accepted Answer

When ownership transfers, the taxable value 'uncaps' the following year and resets to the SEV. A buyer's property tax can jump sharply if the prior owner held the property a long time.

Question 34

Principal Residence Exemption (MI)

Accepted Answer

Michigan's homestead exemption removes a qualifying owner-occupied home from the local school operating millage, lowering the tax bill. The property must be the owner's principal residence to qualify.

Question 35

MI Transfer Taxes

Accepted Answer

Two taxes at closing: county transfer tax of $0.55 per $500 and state transfer tax of $3.75 per $500, totaling $8.60 per $1,000 of sale price. The seller customarily pays unless the contract states otherwise.

Question 36

Recording & Foreclosure (MI)

Accepted Answer

Deeds and mortgages are recorded with the county Register of Deeds, giving constructive notice and lien priority. Michigan commonly uses foreclosure by advertisement (non-judicial) with a statutory redemption period.

Question 37

Elliott-Larsen Civil Rights Act

Accepted Answer

Michigan's anti-discrimination law. It prohibits housing discrimination on the federal classes and adds protections including age, marital status, and sexual orientation and gender identity (2023 amendment).

Question 38

Federal Protected Classes

Accepted Answer

The federal Fair Housing Act prohibits discrimination based on race, color, religion, national origin, sex, familial status, and disability. Michigan's Elliott-Larsen Act adds further protected categories.

Question 39

Steering

Accepted Answer

Directing prospects toward or away from areas based on a protected class. Illegal even when intended to match assumed client preference, because it limits housing choice along protected lines.

Question 40

Blockbusting

Accepted Answer

Inducing owners to sell by claiming protected-class neighbors will lower values or change the area. A prohibited fair housing practice, also called panic peddling.

Question 41

Persons with Disabilities Civil Rights Act (MI)

Accepted Answer

A Michigan law prohibiting discrimination based on disability in housing and requiring reasonable accommodations and modifications, complementing the Elliott-Larsen Act and federal fair housing law.

Question 42

Reasonable Accommodation vs. Modification

Accepted Answer

An accommodation changes rules or policies for a person with a disability (e.g., a service animal despite a no-pet rule). A modification is a physical change to the unit. Both must be allowed under fair housing law.

Question 43

Promissory Note vs. Mortgage

Accepted Answer

The promissory note is the borrower's personal promise to repay. The mortgage pledges the property as collateral and allows foreclosure if the note is not paid.

Question 44

Loan-to-Value Ratio (LTV)

Accepted Answer

Loan amount divided by the lesser of price or appraised value. Higher LTV means greater lender risk; conventional loans below 20% equity typically require private mortgage insurance.

Question 45

Sales Comparison Approach

Accepted Answer

Estimates value by adjusting recent comparable sales for differences from the subject property. It is the primary appraisal method for residential property because it reflects actual buyer behavior.

Question 46

Income Approach

Accepted Answer

Values income property by dividing net operating income by a capitalization rate (NOI ÷ cap rate = value). A lower cap rate signals lower perceived risk and a higher value.

Question 47

Conventional vs. FHA Loan

Accepted Answer

A conventional loan is not government-insured and usually needs stronger credit and a larger down payment. An FHA loan is government-insured, allowing lower down payments with mortgage insurance premiums.

Question 48

Title Insurance

Accepted Answer

Protects against losses from title defects, liens, or encumbrances existing before the policy date. The owner's policy protects the buyer; the lender's policy protects the mortgagee.

Question 49

Commingling

Accepted Answer

Mixing client trust funds with the broker's personal or business money. A prohibited practice under the Occupational Code and grounds for discipline even without a client loss.

Question 50

Antitrust: Price Fixing

Accepted Answer

Competing brokerages agreeing to set commission rates or allocate markets violates antitrust law. Each broker must set and negotiate fees independently with clients, never in coordination with rivals.

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