1) Mini-Course Flashcards
[OMIT MATH} Which of the following would be the largest area?
a. 5280 feet by 5280 feet
b. one mile by one mile
c. 10% of a township
d. two sections
- c. 10% of 36 miles (a township) = 3.6 square miles.
a. 5280 feet (1 mile) by 5280 feet (1 mile) = 1 square mile
b. 1 mile by 1 mile = 1 square mile
d. 2 sections (1 square mile per section) = 2 square miles
[OMIT MATH] Which of the following would be the largest area?
a. 5280 feet by 5280 feet
b. one mile by one mile
c. 10% of a township
d. two sections square
- d. Two sections square would be two sections by two sections, which would equal four sections (1 mile square per section) = 4 square miles.
a, b, and c (see answers in number 1 for areas)
[OMIT MATH] Mr. Able owns an income property having a current market value of $285,000, which is free of any liens, and that has a current book value of $198,000. He is exchanging his property for Mr. Baker’s income property, which is presently worth $259,000 and that also is free of any liens. As part of the exchange agreement Mr. Baker gives Mr. Able $17,000 in cash. Concerning this transaction. Which of the following would be correct regarding Mr. Able’s tax consequences?
a. $26,000 taxable
b. $17,000 taxable, $61,000 deferred
c. $26,000 taxable, $61,000 deferred
d. $17,000 taxable
c. Process to work-out answer: =-| MARKET VALUE $285,000 $259,000 LIENS -0- -0- EQUITY $285,000 $259,000 AMOUNT NEEDED TO BALANCE $ 26,000 (Boot)
Determine Mr. Able’s profit!
MARKET VALUE $285,000 (Value)
- -$198,000 (Basis)
$ 87,000 (Realized Gain)
Determine taxable amount of Mr. Able’s profit….
$87,000 REALIZED GAIN
$26,000 (BOOT) RECOGNIZED GAIN
$61,000 EQUITY TRADED IN PROPERTY
EQUITY TRADED…………………………..………………… $61,000
BOOT received is taxable……………………………………. $26,000
($17,000 in cash and $9.000 in some other form of compensation)
[OMIT MATH] Lender Johnson loans borrower Brown a sum of $1,400 and takes back a note and deed of trust. The note was set up to be fully amortized over a 1-year period, interest at 9% per year, payable a $122 per month. When the note was drawn, it was immediately sold to an investor for a 15% discount. If the loan were fully paid off at the end of the year, what percent return would the investor make on this investment? 9% 24% 23% 19%
c. Process to work-out answer…..
TOTAL AMOUNT RECEIVED ON NOTE…
12 monthly payments x $122 per month (includes principal and interest) = $1464 total amount received
COST TO INVESTOR
$1400 NOTE X 15% (discount) = $210 $1400 - $210 = $1190
TOTAL AMOUNT RECEIVED BY INVESTOR $1464
COST TO INVESTOR $1190
PROFIT MADE $ 274
$274 profit on an $1190 investment = 274/1190
$274 is what percent of $1190?
$274 divided by $1190 = .23 (23%)
[OMIT MATH] Mr. White owns a home on 4th street in Modesto, California. The home is “free and clear.” He recently purchased a new home in Stockton, California. The contract to purchase the new home has a contingency that Mr. White’s home in Modesto be sold within 60 days and that Mr. White net $18,600 from the sale after all expenses have been deducted. Mr. White employs Broker Green to assist him in the sale of the property. The broker is to receive a 6% commission and there will be an escrow fee of $200. How much must the home in Modesto sell for in order to net Mr. White $18,600?
$19,916
$19,928
$20,000
$31,700
c. Determine the total amount of cash the owner needed to receive…
$18,600 CASH (net to owner after all expenses)
200 CASH (to cover cost of escrow fee)
$18,800 Total needed except for the cash needed to pay the 6% commission
+6% Of the selling price needed to pay broker’s commission
SELLING PRICE
We know the selling price minus the 6% commission (after paying the 6%) is equal to $18,800. Therefore 18,800
must represent 94% of the selling price.
Question…$18,800 is 94% of what?
Solution…$18,800 divided by 94% = $20,000
[OMIT MATH] What is the distance between the Range lines as relates to the U.S. Government Rectangular Survey System? one mile six miles twenty-four miles thirty-six miles
b. Statement of fact. TOWNSHIP LINES are always 6 miles apart as are Range Lines.
[OMIT MATH] An income property has a value of $200,000 and returns a net of 6% to its owner. What would the value of this property be to a new purchaser who wished to receive an 8% return on their money? $200,000 266,667 $150,000 $160,000
c. The trick is getting the NET INCOME. The net income is determined by recognizing that the property nets its present
owner 6% of $200,000 which is $12,000 ($200,000 x 6% = $12,000). Now knowing the net income is $12,000 and
that the investor wants an 8% return on a property with a $12,000 net…you divide the $12,000 (net income) by 8%
(the cap rate) to get $150,000 (the appraised value).
[OMIT MATH] A property was sold with a $1,000 cash down payment. The buyer is to assume the existing first loan now held on the property. The balance of the first loan was not known, however, this information was available…"The last monthly payment made by the owner showed that of the total payment that $90 had been applied toward the interest and that the annual interest rate on the loan was 9% per year. It was also determined that the loan balance on the first loan was 80% of the total purchase price. The seller in order to help the buyers purchase the property agreed to carry back a purchase money second deed of trust for the balance of the purchase price. What would the amount of the second deed of trust be? $2,000 $200 $250 $3,000
8. a. Process to work out answer… DETERMINING BALANCE OF FIRST LOAN $90 (1 months interest) x 12 months = $1080 interest that would have been due for one full years worth of interest. $1080 interest for one-year divided by 9% yearly interest rate equals loan balance of $12,000 ($1080 divided by 9% = $12,000) FIRST LOAN IS $12,000 FINDING PURCHASE PRICE The first loan equals 80% of the purchase price. Therefore the math question here is $12,000 (first loan) equals 80% of what? ($12,000 divided by 80% = $15,000) PURCHASE PRICE $15,000 FINDING AMOUNT OF THE SECOND LOAN Purchase Price $15,000 Down payment - 1,000 Balance $14,000 First Loan -$12,000 SECOND LOAN $ 2,000
[OMIT MATH] If the inside measurements of a building were 24 feet by 30 feet and the building had six-inch walls, how many square feet of ground does the building cover? 775 square feet 750 square feet 720 square feet 747.5 square feet
- a The trick to working out this problem is that when adding the 6-inch walls to both sides of a building it would increase
the overall width by (2 x 6-inches) 12 inches and the depth by (2 x 6-inches) 12 inches. Thus making the outside
measurements 31 feet by 25 feet (31 x 25 = 775) or 775 SQUARE FEET.
[OMIT MATH] A road runs across the entire southern boundary of a section of land. The road contains three acres of land. The approximate width of the road would be: 20 feet 30 feet 40 feet 50 feet
- a. Information: We have a rectangular figure which is 5280 feet in length and contains 3 acres
Solution: Change the 3 acres into square feet. 43,560 sq. ft.( in 1 acre) x 3 acres = 130,680 sq. ft.
Then divide the area of the road 130,680 sq. ft. by 5280 ft. to arrive at the road width.
Which is 24.75 feet Wide
[OMIT MATH] A 40-foot wide road runs midway between sections six and seven. Of the following, which would most nearly be the area contained in the road in section six? three acres two acres five acres six acres
- b. Information: The road is 40 ft. wide. 20 ft. of the width is in Section 6. The road is 20 FEET WIDE.
Solution: 20 FEET X 5280 FEET = 105,600 SQUARE FEET
105,600 SQUARE FEET (area of road in the square) is then divided by 43,560
SQUARE FEET (sq. ft. in one acre of land) equals 2.42 ACRES
[OMIT MATH] The NW1/4 of the NW1/4 of the NW1/4 of a section would contain how many acres? 100 acres 10 acres 40 acres 20 acres
- b. A whole section contains 640 ACRES
WHOLE SECTION 640 Acres
(NW1/4) A 1/4 of 640 acres is 160 Acres
(NW1/4) A 1/4 of 160 acres is 40 Acres
(NW1/4) a 1/4 of 40 acres is 10 ACRES
The trick is the answer is looking to find the AREA described, not where the described parcel is located. Therefore the locations
described such as Northwest 1/4 are not pertinent. All that is necessary to find the answer is determining the fractional portion of
the section (640 acres). The fractional portion of the section is 1/4 of a 1/4 of a 1/4 of 640 acres. 1/4 x 1/4 = 1/16. 1/16 x 1/4 =
1/64. Therefore we’re looking for how many acres in 1/64 of 640. 640 Acres divided by 64 (1/64) = 10 ACRES
[OMIT MATH] The cost to construct a building is $160,000. It is estimated that the property will produce an income of $2,400 per month with expenses estimated at $6,000 per year. If the owner wishes to receive a return of 12% on their investment, what would be the most the owner could afford to pay for the land? $ 30,000 $240,000 $210,000 $190,000
- a. BUILDING COST $160,000
GROSS INCOME 2,400 per month x 12 months = $28,800 Annual Gross Income
ANNUAL GROSS $ 28,800
ANNUAL EXPENSES 6,000
ANNUAL NET $ 22,800
Divide the NET INCOME OF $22,800 by the CAP RATE (Capitalization Rate) of 12%, which equals an APPRAISED VALUE of $190,000.
If the investor will pay $190,000 for the entire property (which includes land and improvements) and the improvements by
themselves will cost $160,000, then the most they would pay for the LAND would be $30,000.
[OMIT MATH] Mr. Johnson wishes to receive an income of $75 per month. What would be the total sum that he must invest so that a 5% return would net him this sum? $18,000 $ 1,500 $15,000 $ 1,800
- a. $75 per month income required x 12 months equals $900 per year. If a person requires $900 per year income and their
money invested is returning 5% yearly, then $900 must equal 5% of the amount of money that must be invested. The math
question therefore being asked is: $900 equals 5% of what amount of money?
$900 divided by 5% = $18,000
(verify: $18,000 invested at 5% annual return = $900 per year. $900 per year divided by 12 months = $75 per month)
[OMIT MATH] A parcel of land that measures 1/2 mile by 1/2 mile contains how many acres? 640 acres 160 acres 40 acres 320 acres
15. b. FULL SECTION = 640 ACRES 1/2 mile x 1/2 mile = 1/4 of a section 1/4 of 640 Acres = 160 ACRES 1 Mile
[OMIT MATH] A borrower procures a loan paying the lender four points. The lender immediately sells that loan to an investor for $34,740, which represented a 3-1/2 point discount. What was the face amount of the loan? $37,345.50 $36,000.00 $34,913.70 $36,187.50
- b. One of the key areas in this question is that we are NOT looking for any percentage of profit just the original loan amount.
Therefore the 4-POINT FEE paid by the borrower is not pertinent to answering the question.
The important figures are the 3-1/2 POINT DISCOUNT and the $34,740 SELLING PRICE OF THE LOAN.
If the $34,740 represents 3-1/2% LESS than what the original amount was, then the $34,740 would represent the original
loan amount that we are trying to find MINUS 3-1/2% (discount). Or we could say that the $34,740 therefore represents
96-1/2% of the original loan amount. The math question being asked then is: $34,740 is or represents 96-1/2% of the
original loan amount. $34,740 divided by 96-1/2% = $36,000.
Check Answer: $36,000 x 3-1/2% = $1260 discount. $36,000 minus $1260 discount equals $34,740
[OMIT MATH] The value of an unimproved lot held for investment was $22,500. The total value of the property when an improvement was placed on it was $131,000. If the estimated economic life is set at 50 years, what would the adjusted book value be after 17 years? $ 2,170 $94,110 $86,460 $36,890
- b. STEPS: ORIGNIAL BOOK VALUE (Cost Basis) - $131,000
Land cannot be depreciated therefore we must determine the value of the improvement (ALLOCATION)
$131,000 Land & Improvements
-22,500 Land Only
$108,500 Value Attributed to the Improvements Only
Determine Annual Depreciation…$108,500 divided by 50 year life = $2170 per year
$2170 per year x 17 years = $36,890 which is the total (accrued) Depreciation
SOLUTION: $131,000 Original Book Value
36,890 Accrued Depreciation
$ 94,110 ADJUSTED BOOK VALUE AFTER 17 YEARS
[OMIT MATH] A property was purchased for $10,000 and showed an 8% return. The existing lien was $9,000 with a 6% interest bearing straight note. What was the percentage of profit on the owner's equity? 26% 8% 12% 10%
- a. STEPS: $10,000 Purchase Price
$10,000 x 8% = $800 Net Return
$ 9,000 Promissory Note costing 6% interest = $540 Annual Interest Charge
$800 Net Income
- $540 Interest Paid
- $260 CASH FLOW
If there is an existing lien or loan balance of $9,000 the equity is $1,000 ($10,000 minus the $9,000 debt)
$260 RETURN on $1,000 EQUITY
Math question posed is $260 is what % of $1,000
$260 divided by $1,000 = .26 (26%)
[OMIT MATH] A piece of property was faced on two sides by two roads, which ran perpendicular to each other. One road was 2640 feet long and the other was 1320 feet long. A third boundary, which ran parallel to the shorter of the two roads, was 2640 feet. The fourth boundary ran from the last point of the third boundary to the shorter road. How many square feet did this parcel contain? 10,454,400 6,969,600 3,484,800 none of the above
- d. STEPS: Perpendicular means meeting at a 90% Angle.
Third Boundary added - Parallel (runs in the same direction)
Fourth Boundary
We’ve formed a TRAPAZOID. Formula for area of trapezoid is: ADD THE TOP & BOTTOM WIDTHS X THE DEPTH
Divided by 2
2640 ft. + 1320 ft. = 3960 ft. 3960 ft. x 2640 ft. = 10,454,400. 10,454,400 divided by 2 = 5,227,200 square ft.
[OMIT MATH] Mr. Green and Mr. Brown were both interested in purchasing the same income property that showed a net income of $10,000. However, Mr. Green wanted a 10% return and Mr. Brown wanted an 11% return. The amount Mr. Green would be willing to pay compared to Mr. Brown would be: 1% higher 10% lower 1% lower $9,090.91 higher
- d. STEPS: Mr. Green - $10,000 divided by 10% = $100,000.00 Value
Mr. Brown - $10,000 divided by 11% = $ 90,909.09 Value
$ 9,090.91 DIFFERENCE (More than Brown)
[OMIT MATH] Mr. Smith owns a 10-unit apartment building. In 1973, he received $85 per month per apartment with no vacancies. In 1974, he raised the rents 10% but suffered a 10% vacancy factor that year. What was the percentage return difference between 1973 and 1974? gained 1% lost 1% gained 10% lost 10%
- b. STEPS: $85 x 10 = $850 monthly income x 12 = $10,200 ANNUAL INCOME
Raise rent by 10% ($85 x 10% = $8.50) $85 + $8.50 = $93.50
$93.50 x 10 = $935 Monthly Income
$935 x 12 Months = $11,220 ANNUAL INCOME
Lose 10% of the income ($11,220 x 10% = $1122)
$11,220 - $1122 = $10,098
OUTCOME: $10,200 - $10,098 = $102 Loss
$102 divided by $10,200 = 1% LOSS
[OMIT MATH] A property has a capitalized value of $85,000. The expenses are 15% of the yearly gross income. If the net income is capitalized at 6%, what is the monthly gross income? $6,000 $ 500 $ 850 $5,000
- b. STEPS: $85,000 Market Value x 6% = $5,100 Net Income
$ 5,100 Net Income equals the yearly gross minus15%.
Therefore $5,100 equals15% less than the annual gross income.
$5,100 is 15% less or 85% of the yearly gross. $5,100 divided by 85% = $6,000 yearly gross income
$6,000 annual gross income divided by 12 months = $500 Monthly Gross.
[OMIT MATH] How many acres would be contained in a parcel of land that is triangular in shape having a bottom width of 1320 feet and a depth of 2640 feet? 20 acres 30 acres 40 acres 50 acres
- c. FORMULA for the area of a TRIANGLE
WIDTH x DEPTH
———————– = AREA
2
STEPS: 1320 feet x 2640 feet = 3,484,800 square feet
3,484,800 divided by 2 = 1,742,400 square feet
Determining Acres. 1,742,400 divided by 43,560 (sq. ft. per acre) = 40 ACRES
[OMIT MATH] A property is listed for sale for $35,000 with the owner to pay a 6% commission. The broker presents an offer of 10% less. The owner agrees to sell if the broker will take a 20% cut in the commission. If the broker accepted those terms and the property sold, how much would the broker receive? $2,100 $1,512 $1,680 $1,890
- b. STEPS: $35,000 listing Price and sells for 10% LESS
$35,000 by 10% (less) = $3,500 LESS
$35,000 minus $3,500 = $31,500 SELLING PRICE
To arrive at the amount of the commission…
$31,5000 x 6% commission = $1,890
Agreed to reduce commission by 20%…$1,890 x 20% = $378 Reduction
$1,890 - $378 = $1,512 COMMISSION
[OMIT MATH] Mr. Able bought a lot for $6,500. He then listed it with an agent for 30% more than he paid. He accepted an offer, which was 25% less than the listing price. The commission was 6% of the selling price. How much did he gain or lose? lost more than $500 less than $550 gained more than $25 less than $100 lost more than $550 less than $1000 lost 1% of purchase price
- a. STEPS: $6,500 Purchase Price, property listed 30% Higher
$6,500 x 30% =$1,950 Higher or listing price is $6,500 + $1,950 = $8,450 LISTING PRICE
Offer is for 25% Less than the Listing Price
$8,450 x 25% = $2112.50 Less
$8450 minus $2,112.50 = $6337.50 SELLING PRICE
Commission is 6% of the selling Price
$6337.50 x 6% = $380.25
Net Amount to the Seller
$6337.50 - $380.25 = $5,957.25 NET AMOUNT TO THE SELLER
Determining the Loss
$6,500 (Purchase Price) minimum $5,957.25 (Net from Sale) = $542.75 LOSS
[OMIT MATH] Mr. Smith owns a 10-unit apartment building. Each unit rents for $250 per month. The State builds a freeway directly behind his property. Due to this change he finds it necessary to reduce the rents by 10%. The rate of return expected by investors in this area is currently 10%. The property lost how much value? $ 2,500 $ 3,000 $25,000 $30,000
- d. STEPS: Determining Total Gross Income from Rents
$250 per month x 10 units = $2,500 Gross Income per month
$2,500 per month x 12 months = $30,000 Gross Income per year
Determining Lost Income
10% reduction in rents
$30,000 annual gross x 10% reduction = $3,000 Reduction
$30,000 annual gross - minus $3,000 =$27,000 ANNUAL GROSS
Determining Value
Capitalized value before reduction…$30,000 divided by 10% Cap Rate = $300,000 Value
Capitalized value after reduction……$27,000 divided by 10% Cap Rate = $270,000 Value
$30,000 LOSS IN VALUE
Upon passing the State License Examination the applicant has how long to apply for their real estate license?
a. one year from the date they received notification of passing in the mail
b. one year from the test date
c. one year from the date of applying for the test
d. nine months from receiving notice of passing the test
- b. The Department of Real Estate gives a person who has successfully passed the qualification examination ONE YEAR from the date of TAKING THEIR STATE EXAM to apply for the license.
Upon a salesperson going to work for a real estate broker an agreement must be drawn up between them and signed. Concerning this written agreement:
broker only must keep a copy for 3 years from date contract was signed
broker and salesperson each must keep a copy for 3 years from date the contract was signed
broker only must keep copy for 3 years from date of salespersons termination
broker and salesperson must each keep a copy for 3 years from date of the termination of the contract
- d. According to the Real Estate Commissioner’s Regulations a real estate broker must have a written agreement with each salesperson. The broker and salesperson both must sign the agreement and each is required to retain a copy for a minimum of 3-Years from the date the agreement terminates between them.
Concerning the real estate brokers and salesperson license, when they expire:
you lose your license immediately
you must apply and retake the examination
you may take up to 2-years to send in your renewal fee
you would have to send in double the normal rate as a penalty
- c. Upon a real estate license expiring the person holding the expired license cannot do anything for which a license is required. However the State allows up to two years additional time for the late renewal of a license before the holder would forfeit all rights to the license. The late penalty for renewing is not double the normal fee, but currently a 50% penalty.
Which of the following is a true statement regarding a brokers duties:
a. broker must maintain a trust account
b. broker must have books audited annually
c. broker must have a separate trust account for each client
b. broker must maintain sufficient and proper records on each client’s deposits funds
- d. There are no legal nor regulatory requirements that a real estate broker maintain a trust account. Although a broker’s records may be audited there is no requirement that they must be. The broker does not have to open a separate account for each client’s funds, but would make a separate entry in the trust account ledger for each transaction of funds.
A broker was showing several houses in the same development. He hired an unlicensed woman for a flat fee of $15 per day to act as a hostess. The hostess quoted only prices and sale terms but did not prepare or sign any papers involving sales or deposits.
The broker is in violation of the Real Estate Law as the hostess was not licensed as a salesperson
It was alright for the hostess to quote prices and terms as long as no contracts were handled by her
The hostess was in violation of the law for acting without a license, however the broker would not incur any responsibility
The hostess did not violate the law, but the broker did
- a. Quoting of prices and terms for a fee or compensation or in the expectation of a fee or compensation requires a real estate license. Therefore the hostess is in violation by doing so and the broker has also violated the law by compensating an
unlicensed person.
For which of the following would a permit not be required by the Real Estate Commissioner? For the sale of:
a. promotional notes
b. one guaranteed trust deed sold to the general public
c. an out-of-state subdivision
d. California land
- d. More than likely a subdivision final public report would be necessary, but not a permit. Answers “a,” “b” and “c” are all considered securities under Article 6 of the Real Estate Law. In order to offer a security for sale in California one must first acquire a PERMIT to do so from the real estate commissioner.
A real estate broker receives a commission from both parties in a transaction. The broker most likely helped negotiate a:
a. tax-deferred exchange
b. short-term lease
c. long-term lease
d. any or all of the above
- a. An exchange agreement involves two exchangers (sellers) both normally willing to pay a fee to an agent to set -up the exchange. Generally only the lessor or owner of a business pays the agent a compensation not the lessee or buyer of the business also.
A salesperson who uses misrepresentation in the sale of a property may be subject to:
civil action
criminal action
Real Estate Commissioner’s discipline
any or all of the above
- d. Misrepresentation could be grounds for a criminal action, a civil suit for recovery of damages and possible suspension or
revocation of a license by the Real Estate Commissioner.
The main purpose of the Department of Real Estate’s Recovery Fund is:
to develop education in the real estate field
for brokers to receive uncollectable commissions
for the public to collect damages against a licensee
for the public to collect a limited amount of damages from insolvent licensees
- d. This answer identifies the purpose of the Recovery Fund and of the four is the most complete. The current protections are $20,000 per claim and $100,000 coverage per licensee. The claimant must have filed an action against the licensee, have been rendered a judgment, had attempted to collect and then had proven the judgment was uncollectable due to insolvency of the licensee. Then the claimant must have filed a proper claim with the proper department.
It is possible to create an estate in real property by:
an easement
a lease
a trust deed
a bill of sale
- b. A LEASE (an estate for years) is a type of LESS-THAN-FREEHOLD ESTATE. An EASEMENT is a RIGHT in real property. A TRUST DEED creates a lien interest not an estate. A BILL OF SALE evidences the conveyance of personal property.
A Fee Simple Estate is also known as an “Estate:
of Inheritance
in Fee
in Reversion
in Remainder
- b. The question is looking for an alternate name to describe a FEE SIMPLE ESTATE.
Should the question have read…”A fee simple estate is?” The answer would have been an “Estate of Inheritance” (an estate capable of being passed by will).
A parcel of land was deeded to Mr. “A” for the life of “X”. “A” dies and thus the parcel would:
become the property of “X”
revert back to the original grantor
become the property of the heirs of “A”
become a Remainder Estate
- c. Logically follow the situation described….
“A” receives a LIFE ESTATE for the life of “X” (the estate exists until “X” dies). As “X” did not die, the estate still vests in “A” or “A’s” heirs.
Answer (a) is incorrect as “X” was granted no property rights. “X’s” only purpose is to determine the length of time the life estate will exist. Answers (b) and (d) are incorrect due to the fact that the estate has not terminated therefore there could be no REVERSION (the estate going or reverting back to the original grantor) and there could for the same reason be no REMAINDER (the estate vesting in someone named to receive it other than the original grantor or the original grantors heirs).
When one speaks of “Indefinite Duration.” This is a characteristic of:
a Periodic Tenancy
an Estate for Years
an Estate of Inheritance
a Less-Than-Freehold Estate
- c. An “Estate of Inheritance’ is another way of identifying a FEE ESTATE, which is a type of FREEHOLD ESTATE. One of the characteristics of a Freehold Estate is “Indefinite Duration.” Answers (a), (b) and (d) all describe LESS-THAN-FREEHOLD ESTATES.
“X” receives a Life Estate for the life of “C”. The Life Estate holder dies. The estate:
reverts to the grantor automatically
vests in “C” as a remainder
goes on existing
automatically becomes an Estate for Years
- c. “X” receives the estate (is the holder of the estate) for as long as “C” is alive. If “X” (the holder of the estate) dies and not “C,” then the estate goes on existing.
A five-year lease was drawn up. The lessee moves in without signing the lease agreement, which has been signed by the lessor only. The lessee pays the first two months rent and then moves away.
the lease is valid because the lessor need only sign
the lease is void because only the lessor signed
the lease is void because the lessor’s signature was not acknowledged
the lease was void because it was not recorded
- a. A Lessor is the only party required to sign a written lease agreement. Should the lessee not sign the agreement it is presumed that the lessee has accepted the terms of the lease if they either “Pay the Rent” or “Take Possession of the Premises.” Leases do not have to be recorded to be valid or enforceable. If the lease is recorded, prior to the recording, the Lessors signature would have to be acknowledged.
The terms Quiet Enjoyment and Possession would be most closely related to which of the following:
title to real property
trust deeds
leaseholds
mortgages
- c. QUIET ENJOYMENT AND POSSESSION is an implied (existing even though not written or spoken) covenant (promise) granted by State Law to anyone who leases or rents property from another, which would relate to a “Leasehold” also known as a “Less Than Freehold Estate.”
A lessee leases to another party. This action would create a:
freehold estate
fee simple estate
less-than-freehold estate
any of the above
- c. A SUBLEASE is created, which is a form of “Less-Than-Freehold Estate.” FEE SIMPLE is a type of “Freehold Estate.”
The word Demise refers to:
the passing on of a right
a will
the right to cancel an insurance policy
real property left by will
- a. Although one would commonly associate the word “Demise” with a deceased party, which is one of the defined meanings of this word, the word itself is very seldom found in a will. One of it’s most common uses is in lease agreements where it may state: “I, the Lessor, hereby let and DEMISE (pass on these rights) the following described property to the following
described person.
Title to real property is transferred by grant deed from grantor to grantee, whereupon the former grantor becomes the lessee and the grantee the lessor. This action would create a:
conditional sales contract
sale-leaseback
fee simple title in the original grantor
less-than-freehold interest in the new lessor
- b. In analyzing the question, the seller (GRANTOR) sells the property to a buyer (GRANTEE). Then the seller (grantor) leases it back thus becoming a LESSEE and the buyer (grantee) becomes the LESSOR/LANDLORD. What has then transacted is described as a “SALE-LEASEBACK.” (c) is incorrect, as it would vest a “FEE SIMPLE TITLE” in the Grantee, not the Grantor as stated in the answer. (d) is incorrect, as it would create a “LESS-THAN-FREEHOLD ESTATE” interest in the Lessee, not the Lessor as stated in the answer.
A lease based on Gross Sales is called a:
net lease
percentage lease
gross lease
straight lease
- b. A “PERCENTAGE LEASE,” bases the rent to be paid on GROSS SALES.
(a) A “NET LEASE” is where the landlord receives a NET SUM and the tenant pays all the expenses.
(c) GROSS LEASE is another way of describing a “Straight,” “Fixed” or “Flat” Lease.
(d) A “STRAIGHT, FIXED or FLAT LEASE is where the
tenant pays a fixed amount for rent and the landlord pays all the expenses.
The lessor and lessee mutually agree to release each other from the contract. This would best describe:
recission
release
revocation
surrender
- d. This is the definition of a SURRENDER. A Surrender describes where each party to the agreement gives up (surrenders) their rights. This action is accomplished through a mutual rescission.
What constitutes a Sublease?
assigning the rights and duties for the unexpired term of the lease
transferring the rights but not the duties with the right of return if the terms are breached
assigning and recording a short-form lease
assigning the rights to another who accepts these duties
- b. The key to this answer is the word “ASSIGN” - An ASSIGNMENT is the transferring of the “entire rights, obligations and duties to another party.”
A SUBLEASE is the “passing on to another party of anything less than the entire rights, obligation s
and duties.” Therefore we can eliminate answers (a), (c) and (d).
What is not an estate in real property?
unextracted crude oil
uncultivated grove of trees
an easement appurtenant
leasehold interest in residential property
- c. An EASEMENT is not an ESTATE in real property, it is a “RIGHT” held in real property. LEASEHOLDS, OIL in the ground (unextracted) and TREES attached by roots identify Estates held in REAL PROPERTY.
An estate in real property:
will always run on into perpetuity
can come into being through a grant
must always carry right to immediate possession
may exist along with other estates in the same property
- d. It is possible to have, for example, an ESTATE FOR YEARS (leasehold estate) in a property owned by another that holds a FEE ESTATE interest. (a) is incorrect as leases and periodic tenancies do not run on in to perpetuity (indefinitely). (b) i s incorrect as leases are not created by a grant and (c) is incorrect as immediate possession is not necessary to create an estate in real property. Estates in real property can be either FREEHOLD (Fee Estates or Life Estates, which are deeded interests) or LESSTHAN- FREEHOLD ESTATES (leasehold interests).
Real Property is:
crops before harvest
fruit on trees already sold by contract
minerals or gas removed from the ground
stock in a mutual water company
- d. STOCK IN A MUTUAL WATER COMPANY refers to the “RIGHT to the water and water rights are considered REAL PROPERTY. The STOCK CERTIFICATE (a piece of paper) in the Mutual Water Company would itself be considered PERSONAL PROPERTY but the rights it would convey would be that of Real Property.
The classic definition of boundaries of real property is:
a reasonable distance down, unlimited airspace practical or reasonable use of the earth and unlimited airspace
surface area indicated on a map
reasonable use of airspace and extended to center of the Earth
- d. This is the best description of the four answers. None are complete. Prior to the invention of the airplane, the definition included indefinite ownership of the airspace into infinity. The airways are now a public domain. Therefore today’s ownership of airspace has limited the use to “A Reasonable and Enjoyable Height.” Also owned as part of the real property is the surface of the earth and the material beneath the surface to the center of the earth.
Property is:
personal if a lease agreement
real if not personal
real if a fixture
all of the above
- d. LEASES are PERSONAL PROPERTY. Property is either PERSONAL or REAL. Therefore, if it is not PERSONAL it must be REAL. FIXTURES were property that had been personal but that have become so attached to the real property as to now become a part of that real property. FIXTURES ARE REAL PROPERTY.
Which of the following cannot contract to hold title to real property?
a felon
an alien
an emancipated minor
a child who is a ward of the court
- d. A child that is a ward of the court will have appointed by the court a Guardian or Trustee to act for, and to sign contract agreements on the minors behalf (the minor child would not sign). A FELON if not incarcerated (imprisoned) may sign binding contract agreements. An ALIEN can sign a binding agreement as long as they are considered an adult according to California Law. An EMANCIPATED MINOR is treated as an adult for the purpose of contracting.
A non-riparian landowner was allowed by local authorities to take water from a nearby lake and river. Such a privilege is called:
percolation
appropriation
accretion
alluvium
- b. APPROPRIATION – A right granted through governmental action allowing the taking or diversion of water from the public domain for personal and private use. PERCOLATION – The ability of water to enter the ground. ACCRETION – The
depositing or build-up of soil. ALLUVIUM – The name for the soil built-up or deposited through accretion.
Which of the following would refer to the use of riparian rights?
rivers and streams
oceans, seas or bays
subterranean cavities
all of the above
- a. RIPARIAN RIGHTS refer to rights of persons or entities that own property on non-navigable RIVERS and/or STREAMS.
Littoral relates to rights on lakes or ocean shorelines.
A small dam used for irrigation purposes in a local community breaks during a heavy rain storm and washes away a substantial portion of farmer Jones’ apple orchard. This would best describe:
erosion
accretion
alluvium
avulsion
- d. AVULSION is the sudden ripping or tearing away of the land. EROSION is the gradual wearing away of the land. ACCRETION is the process of depositing or building-up of soil that has been moved through erosion, and ALLUVIUM is the name of the soil that is deposited or built-up during the process of accretion.
Personal property which is permanently attached so as to become part of the real property is known as a:
attachment
appurtenance
fixture
trade fixture
- c. This is the definition of a FIXTURE. An ATTACHMENT relates to a type of “Lien.” An APPURTENCE is a real property right (such as an easement or water rights). A TRADE FIXURE is always considered to be personal property.
A Metes and Bounds description denotes:
description of only government land
outside boundaries
area of the parcel described
all of the above
- b. METES (measurements) around the outside BOUNDS (boundaries) of the property. It is not essential that the area of the parcel be shown for it to be considered a legal description.
All of the following statements are true about Metes and Bounds except:
a metes and bounds description is legal even when other methods of describing properties are available
metes and bounds are chiefly used because of their clarity and easily interpreted descriptions
metes and bounds are used primarily with land that has no other legal descriptions
metes and bounds are used primarily with odd-shaped parcels
- b. The question is looking for the “Incorrect Answer.” All of the answers are true except (b), which is INCORRECT.
Land descriptions identified by metes and bounds are measure by bearing:
east or west
north or south
north or east
south or west
- a. Minutes, degrees and seconds are measure either EAST or WEST from a North/South Line.
Land descriptions by U. S. Rectangular Survey would show base lines running:
east and west
north and south
north and east
south and west
- a. BASE LINES run EAST and WEST. Meridian lines run NORTH and SOUTH.
Which is not a form of land measurement?
square foot
acre
metes and bounds
front foot
- c. METES and BOUNDS is a method of describing land as opposed to SQUARE FOOT, ACRE and FRONT FOOT, which are methods of measuring land.
A married-couple want to take title to a property in a way, which will allow each spouse to will his or her share. But in the event of either of their deaths, if he or she does not have a written will, their interest will go to the surviving spouse. How will they take title?
joint tenancy
community property
tenancy in common
severalty
- b. COMMUNITY PROPERTY may be willed by either spouse (their 1/2 interest only). However, if no will is left their half interest, as a result of intestate succession (dying leaving no will), based now on the State’s will, which would then prevail, will automatically go to the surviving spouse.
Community Property would be that property which was:
bought prior to marriage
acquired with joint income
bought with separate incomes
acquired by will
- b. This answer is a statement of fact. Answers (a), (c) and (d) all describe separate property.
Regarding a wife’s separate property. The estate would without a will be distributed:
all to the surviving spouse
half to the children and half to the surviving spouse
all to the children
one-third to the surviving spouse and two-thirds to the children if more than one child
- d. This is the most accurate answer of the four. (a) is incorrect as half would go to the surviving spouse, but the heirs are entitled to the other half. (b) is incorrect as if there were more than one child it would be divided 1/3 of the estate to the surviving spouse and 2/3 to the children. (c) is incorrect as the spouse is entitled to either ½ or 2/3 of the estate depending on how many children there are. DEPOSITION OF SEPARATE PROPERTY, IF NO WILL: (if no children) 1/2 to the spouse, 1/2 to the heirs…(if one child) 1/2 to the spouse-1/2 to the child…(if two or more children) 1/3 to the spouse , 2/3 to the children.
If “A”, “B” and “C” hold a property as Joint Tenants. “B” sells his share to “W” and “A” dies leaving an heir “S”:
2/3 of the estate vests with “C” and “W” with “S” holding
1/3, all as Tenants in Common
1/3 goes to “C”, 1/3 to “W” and 1/3 to “S” after court decision
“C” and “W” have a Tenancy in Common
it would be necessary to wait for a probate proceeding to establish each parties’ interest
- c. Initially “A,” “B” and “C” hold 1/3 interests as Joint Tenants. After “B” sells to “W,” “A” and “C” still hold 1/3 interests as Joint Tenants between each other, as the four unities of Joint Tenancy still exist between them and “W” becomes a Tenant in Common between themselves and “A” and “C.” (as “W” took title on a different deed at a different time). When “A” dies
their 1/3 interest goes to the surviving Joint Tenant “C” who now holds a 2/3 interest. Therefore “W” holds a 1/3 interest and “C” holds a 2/3 interest, and as the interests are unequal, and taken on different deeds at different dates they would hold title between each other as TENANTS IN COMMON.
A corporation may not hold title as a: partnership limited partnership joint tenant tenant in common
- c. Due to the fact that a corporation is a LEGAL PERSON and not a real or natural person (living/breathing) it CANNOT DIE. As Joint Tenancy ownership carries with it the “Right of Survivorship,” there could be no survivor if one cannot die. Corporations also would not be capable of holding title as Community Property.
If a brother and sister acquire title to a property as joint tenants and the sister deeds half of her share of the property to her husband, this would:
create a joint tenancy between all three parties
leave the brother as the only one being a joint tenant
be a clear example of a partition action
leave all parties as tenants in common
- d. The brother and sister originally shared a ½ interest each as Joint Tenants. The sister deeded half of her ½ interest (a ¼ interest in the property) to her husband. Therefore she retained a ¼ interest in the property. The division of the interest s after this took place would be: The Brother ½ interest, the sister ¼ interest and the sister’s husband ¼ interest all holding
title as TENANTS IN COMMON. The Tenancy in Common was created due to the fact that all parties did not appear on the SAME DEED, drawn on the SAME DATE and they do not all hold EQUAL INTERESTS. (a) Is incorrect as they all do not hold equal interests and therefore a Joint Tenancy could not exist between ALL tenants. (b) Is incorrect as a Joint Tenancy is a co-tenancy, which means there must be at least two persons holding as Joint Tenants in order for it to exist. (c) Is incorrect as this is not an example of a PARTITION ACTION (a court action instituted to sever the tenancy of disputing cotenants).
The only Unity required for the existence of a tenancy in common is:
possession
interest
time
title
- a. Equal rights of POSSESSION is necessary in a Tenancy in Common. However (b) EQUAL INTERESTS are not necessary to create a Tenancy in Common, nor is (c) Taking title at the same time (UNITY OF TIME) nor (d) Being shown on the same document (UNITY OF TITLE).
A Mechanic’s Lien can be filed by:
a plumber
an architect
a land engineer
any of the above
- d. All are considered MECHANICS for the purpose of being able to file a MECHANIC’S LIEN.
What type of lien would a contractor have against a property for which he built a swimming pool?
general lien
assigned lien
mechanic’s lien
attachment lien
- c. The type of lien created would be a Mechanic’s Lien, which is also considered to be a “SPECIFIC LIEN.”
The last payment by the lender in a construction loan is generally made:
when the building is completed
before the house is sold
after the lien period has expired
upon proof of recording of the Notice of Completion
- c. Obviously the lenders feel it is more important to wait until all lien rights of mechanics have passed on the project prior to releasing the final payment. (a), (b) and (d) would still allow the mechanics time to file their liens as they have 30 DAYS FOR SUBCONTRACTORS and 60 DAYS FOR GENERAL CONTRACTORS if a NOTICE OF COMPLETION were filed and 90 DAYS for ALL CONTRACTORS AND SUPPLY PERSONS if no Notice of Completion were filed.
An owner hired a contractor to install a swimming pool. Upon completion the owner refused to pay the contractor. The recourse of the contractor would be to file a: general lien specific lien attachment lien notice of non-responsibility
- b. A MECHANIC’S LIEN would be filed, which is a type of “SPECIFIC LIEN” not a General Lien.
Which of the following could take place before a judgment was issued?
attachment lien
lis pendens notice
issuance of a subpoena
any or all of the above
- d. ATTACHMENT LIEN – Holds property for a pending judgment. LIS PENDENS - Is recorded to notify the public of a pending litigation against the property regarding an ownership interest. SUBPEONA - Calls for an appearance at a court hearing All of the above occur before a final judgment is rendered.
Mary Jane after being injured in Mr. Jones’ swimming pool recorded an Abstract of Judgment. This is ______________ on the property of Mr. Jones.
a general lien
a specific lien
a voluntary lien
none of the above
- a. ABSTRACTS OF JUDGMENT rendered in personal injury suits give the Plaintiff a “GENERAL LIEN” not a specific lien. Obviously the lien created would be an “INVOLUNTARY LIEN” not a voluntary lien.
A court order to sell property to satisfy a judgment is called:
a Certificate of Sale
a Writ of Execution
a Writ of Possession
a Trustees Sale
- b. Statement of Fact. A CERTIFICATE OF SALE is issued to the highest bidder at a Mortgage Foreclosure. A WRIT OF POSSESSION is issued to the landlord after successfully obtaining judgment through an Unlawful Detainer Action. A TRUSTEE’S SALE is an out-of-court foreclosure.
Mr. Anthony offered a property for sale. Mr. Brewer made an offer which was accepted by Mr. Anthony. During the escrow Mr. Anthony discovers a freeway is coming through and refuses to sell as this would greatly increase the value of his property. Which of the following actions would Mr. Brewer be least likely to take?
suit for actual damages
suit for specific performance
unilateral rescission
force the sale of the property
- c. The least likely action would be to simply forget the whole thing, which would describe a “UNILATERAL RESCISSION.” The most likely actions would be through court for relief, which would require a suit for either “Specific Performance” or for
“Actual Damages.”
When property is purchased subject to an easement, the easement is:
appurtenant thereto
an encumbrance
an encroachment
a lien
- b. A property when subjected to an easement (SERVIENT TENEMENT) is ENCUMBERED.
The easement is APPURTENANT to the property that benefits from the use of the easement (DOMINENT TENEMENT). EASEMENTS are not liens (encumbered for money) nor are they considered to be ENCROACHMENTS (a trespass on the property of
another).
Concerning an easement appurtenant, all of the following are true, except:
the easement would transfer with the land
there must be adjoining parcels
the easement would encumber the servient tenement and be an appurtenance to the dominant tenement
an easement appurtenant is not considered to be a lien
- b. (a), (c) and (d) are all correct statements regarding easements. The question is looking for the incorrect answer. (b) is incorrect as parcels do not necessarily have to actually touch or adjoin to create an APPURTENANT EASEMENT. As shown in this example “A” has An APPURTENANT EASEMENT across
Parcels “B” and “C.” However, parcel “A” does not touch nor adjoin parcel “C” Street 81.
All of the following are considered to be liens, except:
a trust deed
an easement appurtenant
a mortgage
an attachment
- b. An easement is an ENCUMBRANCE. But because it was not created to lien real property do to the owing of money, it is considered a NON-MONEY ENCUMBRANCE. (a), (c) and (d) are all MONEY ENCUMBRANCES known as LIENS.
The owner of property “A” was using an adjoining neighbor’s property with the express permission of the owner of the property. This act:
would be known as a license
if allowed to continue for five-years would allow the owner of property “A” to claim under Adverse Possession
if allowed to continue for five-years would allow the owner of property “A” to claim under Prescription
would create an easement appurtenant as the parcels were adjoining
- a. A LICENSE grants PERMISSION to the licensee to do certain things.
As an example; A License grants permission to cross another’s land. A license that grants permissive use may be REVOKED by the person granting it. An EASEMENT grants a PERMENENT RIGHT to use or cross the land of another and is IRREVOCABLE. (b), (c) and (d) are incorrect, as if permission had been granted, then ADVERSE POSSESSION could not be acquired. One of the elements to acquire Adverse Possession is “Hostile to the true owner.” There is no hostility if permission has been granted.
Prescription is:
legal title
the right of use on the land
a grant
equitable title
- b. PRESCRIPTION relates to an EASEMENT (a real property right) acquired through court action providing for the RIGHT TO USE the land of another, not to OWN the land of another. Because there is no actual ownership of the land itself and there is no agreement to acquire future ownership, there would be no LEGAL TITLE and no EQUITABLE TITLE (contract of sale). Remember that PRESCRIPTION provides one with a RIGHT and not an ESTATE in real property and as a result there would be no GRANT.
A legal contract which gives the holder rights to enjoyment and use of another’s property short of an estate is an example of:
an estate for years
a less-than-freehold estate
an easement
a life estate
- c. An EASEMENT is not an ESTATE in real property, but a real property RIGHT. Answers (a), (b) and (d) are all FREEHOLD and LESS-THAN-FREEHOLD ESTATES in real property.
The existence of an appurtenant easement would require all of the following, except:
a benefit to one tract of land and a burden to the other
at least two tracts of land under separate ownership
adjoining at their borders by Dominant and Servient Tenements
transferability with the land as an appurtenance thereto
- c. It is not necessary that parcels adjoin to create an APPURTENANT EASEMENT. (a), (b) and (d) are all true statements. See explanation to question 80.
“A” is the Dominant Tenement in an easement to which “B” is the Servient Tenement. “A” sells to “C” thus:
“C” hold a Dominant Tenancy
“C” holds nothing as easement terminates upon sale
“B” holds as a Dominant Tenement
“C” holds as a Servient Tenement
- a. An EASEMENT (created by other than prescription) is an APPURTENANT RIGHT, which exists indefinitely until the DOMINANT TENEMENT terminates it. Once an easement is created it is not necessary that it be specifically mentioned in the deed that is used to transfer the title. A deed by its nature conveys all real property within the boundaries of the
described parcel, which includes the REAL PROPERTY, ALL IMPROVEMENTS THEREON and ALL APPURTENANCES THERETO. The easement being an APPURTENANCE automatically transfers even though it is not specifically mentioned in the deed. Therefore, in the situation presented in this problem, “A” was the DOMINENT TENEMENT and when “C” purchases “A,” “C” takes over the same DOMINENT position that “A” held and “B” remains SERVIENT as before.
If a zoning ordinance permits a use of construction that are restrictions in a deed. Which would prevail?
local zoning ordinance
deed restriction
master planning commission plan
whichever recorded first
- b. In regards to RESTRICTIONS relating to real property…The RULE is: WHEN IN CONFLICT, THE MOST STRINGENT RESTRICTION PREVAILS! Therefore the DEED RESTRICTION, which prohibited the use would be the most stringent.
What is the maximum allowable Homestead Exemption for any person other than married?
$175,000
$ 75,000
$ 100,000
$ 60,000
- a. This is the correct answer. Age 65 or older and disabled persons are granted a $175,000 homestead exemption.
A husband and wife jointly hold an interest in a piece of real property which is currently their residence. Could the wife homestead this property without her husbands consent?
No! Both must file if title is in both names
Yes! But only is she obtains a valid Power of Attorney to do so
Yes! Only if they do not have an existing homestead on another property
No! Only a husband may file a homestead in the State of California
- c. Either spouse may file a homestead on a property as a MARRIED PERSON and it is not essential that they have their spouses CONSENT nor SIGNATURE to do so. If there were an existing homestead that had already been filed on another property, then answer ( c) would have been incorrect.
Which of the following would not be a requirement for a valid Declaration of Homestead?
description of the premises to be homesteaded
a declaration that the claimant is residing on the property
the current market value of the property
the name of the claimants spouse if claiming a married persons exemption
- c. The value of the property being homesteaded is only necessary when establishing the value at the time a foreclosure is pending by an unpaid creditor. There is no need to establish this in advance, as it makes no difference what the property is worth when it is homesteaded. It is important to establish when a creditor is asking for an execution sale of the property to
determine whether or not there is sufficient equity to force the sale.
A man sells his home but failed to file a Declaration of Abandonment. He now wishes to file a Declaration of Homestead on the new property. Which of the following would be true?
the new homestead would be void as homesteading rights can only be used once
the new homestead would be valid
the new homestead would be void as only one homestead can exist
the old homestead is not effective, however a new homestead cannot be recorded until the old one is cleared from the public record
- b. The first five words are the key to this answer…”A man sells his home” Sale of a property automatically terminates a homestead created on that property. (a) would be incorrect as you can have MORE THAN ONE HOMESTEAD, but ONLY ONE AT A TIME. (c) is incorrect as the first homestead automatically terminated, which allowed for recording on the new property to be valid. (d) is incorrect as the old homestead would not have to be formerly cleared by a recorded DECLARATION OF ABANDONMENT as the recording of the deed in the name of the new owner or other evidence of title
transfer would AUTOMATICALLY TERMINATE the first homestead.
Mr. Johnson had added a room to his home using the services of a contractor. Upon completion he refused to pay for the work. Having a $20,000 equity in his home he subsequently file a Declaration of Homestead on the property to protect himself in case of a suit. However, upon checking the public record he noticed that the Homestead had been recorded with only his wife’s signature. Therefore:
the homestead was not valid as both signatures would be required
the homestead would be valid, but would not be effective against the mechanic’s lien
the homestead is valid and would protect the property for up to $45,000 in equity, therefore the property would be protected against the mechanic’s lien
the homestead was valid, however, it would only protect the property for up to $30,000 in equity as only the wife had signed
- b. It is not necessary to have your spouse’s signature nor consent to record a valid homestead as a married person. Therefore, the homestead is VALID. However a homestead, although valid, will not protect a property against a SECURED LIEN such as a MECHANIC’S LIEN.
Of the following, which could automatically invalidate a Homestead?
moving from the property
move from California
house partially destroyed by fire
prior homestead recorded
- d. Only one property at a time can be homesteaded! A prior homestead would invalidate a second one recorded, unless the first one should be released prior through a DECLARATION OF ABANDONMENT. Moving from the property does not terminate a homestead as long as you have the intention of returning to the property to use it some time in the future. Destruction of the improvements also does not terminate a homestead. However, selling (transfer of ownership) DOES TERMINATE THE HOMESTEAD.
Mr. Jones and his wife purchased a home and in order to protect it against a forced sale filed a Declaration of Homestead. Mr. Jones was transferred out of the State, therefore the homestead would be:
valid
invalid because he had moved out within 30 days
invalid because he moved out of state
valid, but would terminate if he does not move back within five years
- a. Once a property has a valid homestead properly recorded in the county where the property is located, the claimant may move from the premises and as long as they have the intention of returning in the future the homestead would remain effective.
A broker submits an offer to a seller on March 10th. The sellers tell the broker they want until March 20th to considered the offer. On March 15th an agent from another office brings in two offers on the same property. The sellers’ broker under these circumstances should:
wait until the 20th to submit the offers to the owner
submit one offer now, one later
submit both offers simultaneously as soon as possible
return the offers to the buyers’ broker with instructions to resubmit them at a later date
- c. ALL OFFERS must be SUBMITTED to the agent’s principal (Seller) IMMEDIATELY. The Seller must also be advised if other offers have been made or are being drawn-up. The agent MUST DISCLOSE ALL INFORMATION regarding the transaction to their principal.
A real estate broker after showing a home listed by him to a prospective buyer discovers in a closet afterwards extensive termite damage that had not been known prior. Concerning this situation. The broker should:
keep his mouth shut as this may blow any chance of an offer
notify the Structural Pest Control Board immediately
advise both the prospective buyer and seller as soon as possible
notify the seller only, as soon as possible
- c. An agent must disclose all information, other than information that would be considered “discriminatory” in nature (a violation of the law) to the principal. The agent is also charged with a responsibility to disclose to third parties (on the exam the buyer or prospective buyers) ALL KNOWN MATERIAL FACTS regarding the property being purchased.
In a listing agreement the clause pertaining to the broker accepting a deposit on behalf of the owner states “Broker shall not accept a deposit.” If the broker does take a deposit from a buyer, which of the following would be true:
the broker would be accepting the deposit as an agent of
the seller as the seller is always liable for the acts of the agent
the broker cannot take a deposit
if the broker takes a deposit he would be accepting it as an agent of the buyer
the broker would have no liability should the deposit be lost
- c. The authority from the owner that allows the broker to accept a deposit simply establishes if the owner is willing to take th e liability for the money taken. If the seller authorizes the acceptance of a deposit the deposit is then tied to the contract
performance. At that point the money cannot be released without the mutual consent of both the buyer and the seller. Therefore if the broker receives the authority to accept the deposit by the seller, when taking the deposit, the broker would
be holding the buyer’s money under the authority of the seller. As such, the broker and the seller would have the liability if anything should happen to the money. If the authority is not granted to the broker to accept a deposit, then the broker may still take a deposit, but would then be holding the buyer’s money for and on behalf of the buyer and the seller would then
have no liability for any mishandling of those funds by the broker.
A real estate broker procures an Open Listing for the sale of a home. The owner tells the broker the roof if fine, but in fact knows that it is in poor condition and may leak. The home is sold and the roof leaks during a heavy rainstorm. Who would be liable?
the broker and the seller
the broker only as he is the agent of the seller
the seller only as the broker had no knowledge of the defect
neither would be liable as it was an Open Listing
- c. An agent is not liable for representations accepted from the principal in good faith and passed on to the buyer as long as the defect is not one that would be obvious to the broker upon making a due diligent “visual inspection” of the principal’s
property.
What is the responsibility of a broker to the buyer when representing the seller?
honesty and goodwill
no responsibility
only must answer questions concerning sales price
must disclose all material information
- d. State of Fact. (c) is incorrect as an agent must disclose all information that would affect the buyer’s decision to purchase, even if not questioned or asked about that information by the buyer. (a) is a good answer, but not as complete as answer (d).
Broker Jones as an agent of Mr. Brown solicits an offer to purchase from Mr. Green. Mr. Green purchases the property and later discovers there is an encroachment on the property that was not disclosed as neither Broker Jones nor Mr. Brown were aware of the encroachment. Mr. Green should file a suit against the: broker for nondisclosure neighbor for Adverse Possession neighbor for trespass (encroachment) seller for nondisclosure
- c. Due to the fact that the broker and the seller were not aware of the encroachment, there would be no apparent case for non-disclosure or misrepresentation. The buyer should sue the neighbor who is currently trespassing on their property (encroaching).
A principal employs an agent. This action would create:
an agency relationship
a fiduciary relationship
both (a) and (b)
neither (a) nor (b)
- c. The action of employing an agent creates an “Agency Relationship.” Within the agency relationship that has been created the agent owes the principal a FIDUCIARY RESPONSIBILITY (Trust). Therefore, both relationships are created as a result of this employment agreement.
Owner tells broker that he must sell his house. He wants $24,000. Broker tells buyer that owner is insolvent and will accept $18,000 offer. Broker is guilty of:
unethical behavior
violating fiduciary responsibility to owner
unethical behavior and violation of fiduciary responsibility, but OK because owner accepted offer
unethical behavior and violated fiduciary responsibility
- d. This action would be considered a ETHICAL VIOLATION by the broker in accordance with the Department of Real Estate and the National Association of Realtors. It would also be a violation of the agent’s Fiduciary Responsibilities in accordance with the Laws of Agency.
(NOTE: A deposit receipt is shown on the exam. The clause that states that in case of default by the buyer that the broker is entitled to part of the buyers forfeited deposit is not a part of the contract.)
According to the above contract should the buyer default, the broker would be entitled to:
his full commission
half of the normal commission
no commission
half of the forfeited deposit
- c. Should the buyer who is a party to an accepted contract to purchase, which was presented through a broker, DEFAULT on their obligation to carry-out the purchase, then in accordance with the stated LISING AGREEMENT the broker would not be entitled to a commission. Generally it is stated in the Deposit Receipt that in the event of a buyer default that “The broke r
would be entitled to half of any forfeited deposit or damages received by the seller, but not to exceed the amount of the commission contracted for. However, it stated that this agreement had no such stipulation.
A real estate broker working under an Exclusive Right to Sell Listing finds a buyer for the owners property. A Deposit Receipt is drawn up showing a $1,000 deposit being given by the buyer with the Liquidated Damages Clause initialed by both the buyer and seller. The broker was instructed by the seller to hold the deposit and to deposit it in escrow. Prior to the opening of the escrow the buyer and seller mutually agree to cancel the contract. Under these circumstances what should the broker do with the deposit?
split it with the seller
keep it as his commission as damages for default
return it to the buyer and collect his commission from the seller by suit or otherwise
keep it and hold for court decision
- c. The broker is acting as an agent of the seller, and as regards the deposit could not release it without the mutual consent of the buyer and seller. As a result of the buyer and seller mutually agreeing to RESCIND THE CONTRACT (return it to the point that the contract never existed), the broker would have to return the deposit in full back to the buyer. However, the broker would still be entitled to the commission as the broker had still lived-up to the terms of the agreement with the seller and had procured a “Ready, Willing and Able Buyer,” and after a binding agreement was made, acted voluntarily to released the buyer from that agreement. (a) is incorrect as the buyer did not breach (there was a mutual rescission) and therefore there would be no deposit forfeiture to be split. (b) is incorrect as the deposit does not belong to the broker, it was the buyer’s money and as a result must have been returned to the buyer. (d) is incorrect for the same reason as (b).
A person buys “As Is.” Most of the plumbing is missing, but the broker and owner say nothing! After purchasing the buyer sues!
suit is valid because of lack of disclosure
suit is invalid because of Caveat Emptor (let the buyer beware!)
suit would only be valid if filed against broker
suit would only be valid if filed against seller
- a. Both the broker and the owner would be liable due to the lack of disclosure of material facts to the buyer. The law regarding “Caveat Emptor” (Let the Buyer Beware) where the seller would not be liable for undisclosed defects if the property were sold in an “AS IS” condition is no longer legally applicable in California. Even if the property is today sold in an “AS IS” condition, the seller or their agent must disclose all known “material facts.” If not, they are held liable for those not
disclosed.
A buyer made an offer, which was accepted by the seller. Prior to the broker advising the buyer that the offer had been accepted, the buyer died. Therefore the contract would be:
valid and binding on the broker
valid and binding on the Executor of the estate
void
voidable
- c. Although an offer is signed by both the buyer and seller, the acceptance of the offer MUST BE COMMUNICATED back to the party that made the offer in order to create a “Binding Agreement.” In this question it would have to be communicated to
the buyer. Because the buyer died prior to the communication, the contract was VOID as it lacked the essential of “Mutual Consent.” Should the acceptance have been communicated in the stipulated manner and then the buyer had died, the contract would have been binding and the buyer’s estate could be petitioned requesting full performance of the contract.
On June 10th a buyer made a written offer to purchase a sellers home. On June 11th the buyer called the broker to say that he was canceling his offer to purchase. As the seller was out of town, the broker has been unable to give the offer to the seller. In the Deposit Receipt the language “Irrevocable for 5-days” was stated:
the broker had until June 15th to make the offer to the seller
the broker had until June 16th to make the offer to the seller
the offer was withdrawn and acceptance by the seller would not be binding
the broker had 5-days from the time the seller returned to submit the offer and communicate the acceptance
- c. The buyer has the legal right to withdraw an offer ANYTIME BEFORE THE ACCEPTANCE IS MADE AND COMMUNICATED to them. Although the contract stated the buyer’s offer was IRREVOCABLE FOR 5 DAYS, which would lead you to believe that they could not withdraw for the 5 day period, the 5 day clause means “nothing (is unenforceable) due to the fact that a contract where there is an agreement to hold an offer open is known as an OPTION. The 5-day right of the seller to be able to accept the buyer’s offer would then constitute an “Option.” The key to this answer is that in order for an option right to be binding and enforceable it is required that a CONSIDERATION be paid for that right and must have passed to the OPTIONOR, which in this question was the buyer. As the seller did not pay the buyer to hold the offer open, there was no option right created and therefore the buyer had the right to withdraw anytime before the acceptance had been made and properly communicated to them.
Mr. and Mrs. “A” own several properties. One that was located at 411 Maple Street is now being sold and is in escrow. Mr. And Mrs. “A” are interested in purchasing another property and draw up an offer conditional upon the sale of the above mentioned property. Which of the following clauses would be most satisfactory to the sellers?
“On condition the escrow closes”
“On condition the sales escrow is completed”
“On condition the sales escrow concerning the property at 411 Maple Street is closed”
“On condition the sales escrow concerning the property at 411 Maple Street is closed within 20 days”
- d. Conditions or contingencies should be as complete as possible and should have time limitations for performance. Without a limitation the seller may have to wait an undetermined period of time, which could be short or unreasonably long. With the 20-Day stipulation, the seller will be released from their obligation to sell and would have the options of extending or granting additional time to the buyers Mr. and Mrs. “A” or to find another buyer. (a), (b) and (c) are not satisfactory as they
do not show a time limitation.
Broker Mann was employed by Mr. “A” under a Standard Listing Agreement. The broker procured an offer to which Mr. “A” accepted. It was later discovered by the seller that broker Mann was paid a $2,000 fee for procuring this property for the buyer.
this would indicate a dual agency existed which is perfectly legal and ethical
this would indicate a divided agency existed which is illegal and unethical
this would have best described an exchange agreement
this would have been perfectly alright if the buyer had been informed of the broker’s commission paid by the seller
- b. Representing both parties in a transaction without any violation of the law is known as a DUAL AGENCY, which is perfectly legal as long as the agent had the FULL CONSENT AND KNOWLEDGE OF ALL PARTIES TO THE AGENCY. Should the full consent and knowledge not be present then the broker is “Representing More Than One Party” in the agency without full consent and knowledge and this is a violation of the law and is known as a DIVIDED AGENCY. Even in an exchange agreement, where it is common for an agent to represent both parties, the agent must be careful to see that both parties are
aware of the dual agency. (d) is incorrect as it was the seller that would have to be informed of the broker representing the buyer. The buyer is charged with the responsibility of knowing that the broker represents the seller as an agent, which is apparent, as they (the buyer) are not buying the property from the broker, but from the seller.
Broker Able accepts a deposit from a buyer with no authority to do so from the owner. The buyer by written instruction had instructed the broker to hold their check “uncashed” until their offer was accepted.
the broker must immediately place deposit in their trust account
the broker must return the check to the buyer
the broker holds the deposit as agent of the buyer
the broker and the seller would both be held liable should the money not be returned to the buyer if the offer was not accepted
- c. In the event the broker had no authority granted to them by the owner to accept a deposit, should the broker receive a deposit from the buyer they would be holding the buyer’s deposit money for the buyer as an AGENT OF THE BUYER, but only for handling the buyer’s money, not an agent for the buyer for the entire transaction. However, should the broker have a written authority from the owner to accept a deposit, then if a deposit were taken, the deposit would be held by the broker as an AGENT OF THE SELLER. In the event of any loss of the deposit money, in the first case, only the broker would be liable to the buyer for the loss as they (the broker) were acting outside the authority granted them by the owner, as the Principal/owner is only liable for actions they authorize or ratify. In the second case both the owner and the broker could be held liable as the broker was then acting within the authority granted by the owner. The check would not (in the example
presented in the question) have to be placed in a trust account as it would have been perfectly alright to hold per the buyer’s written instructions.
Mary Jones owned a real estate agency and she had 50 real property listings. Mary died and her daughter who held a real estate broker license took over her mother’s business. Concerning these listing contracts:
it would be necessary for the daughter to re-list the properties in order to continue working on them
the daughter could call and advise the clients that she would now be handling their transactions
it would not be necessary for Mary’s daughter to contact
the property owners as she has a broker license
the daughter would have the first right to re-list the properties as she is the closest blood relative to Mary. If she refuses the listing, the owners may then list with any broker of their choice
- a. LISTINGS are EMPLOYMENT CONTRACTS and are regarded as PERSONAL SERVICE AGREEMENTS. The death or
incompetency of a natural person (living/breathing) would automatically terminate the contract due to “Impossibility of
Performance” and as a result, in order to continue to work on them, it would be necessary for the agreements to be rewritten employing, in this case, Mary’s daughter. Should Mary Jones have been the Broker/Officer (natural broker
responsible for the activities of the brokerage) of a real estate corporation, which was not the case in this question, but if so, then as corporations are not living/breathing persons, but legal persons and as a result cannot die, then the listings would not have terminated and the corporation could have continued to work on the listings for the balance of the contract terms.
A real estate broker is employed through a verbal agreement to procure a buyer for a piece of real property. The broker procured a buyer and the offer was accepted. At the close of escrow the broker received the commission from the seller. Concerning the contract requiring the payment of the commission. It would be:
illegal
void
voidable
valid
- d. A “Valid” Listing Agreement for the “Sale,” “Purchase” or “Exchange of Real Property, according to the Statute of Frauds, is
ENFORCEABLE if in writing…UNENFORCEABLE if verbal/oral. Answer (a) is incorrect as there is nothing illegal about a verbal listing if it is valid and the fee has been paid. If the fee has not yet been paid the court would be unable to render a judgment for enforcement of the payment. Answer (b) is incorrect as it is not lacking any of the four essentials that are necessary to create a valid contract, therefore it is not Void. Answer (c) is incorrect as there are no weaknesses in any of
the four essentials that would give either party the option to cancel if proven, therefore it is not Voidable.
112a a. This would be the correct answer if the question had read as above and the commission had been paid.
b. This would be the correct answer if the question had stated that the commission was not paid.
In order to create an enforceable listing agreement for the sale of real property five essentials would be necessary. They would be:
mutual consent, offer and acceptance, legal objective, consideration and competent parties
mutual consent, legality, legal objective, consideration and competent parties
mutual consent, legal objective, competent parties, consideration and in writing
mutual consent, mutuality, legal objective, competent parties and in writing.
- c. According to the Statute of Frauds, not only must the contract be VALID (contain all four essential elements to create it) but to be ENFORCEABLE (the court able to act on the agreement) it must be in WRITING.
A real estate broker agreed to accept the commission in the form of acres of land which had been appraised by two independent appraisers at $200 per acre. After the close of escrow the real estate broker was contacted by a potential buyer interested in purchasing the land for $500 per acre to which the broker had never had any previous contact. Should the sale be consummated to this buyer:
this would indicate no legal or ethical violation
this action would not be considered illegal, but would be unethical
this action would be illegal and unethical
this would constitute a violation of the California Real Estate Commissioner’s Regulations
- a. The appraisal verified the value at $200 per acre, thusly relieving the broker of any possible accusation of taking unfair advantage of the seller.
In a listing agreement the property is described as “Mr. Lelands’s personal residence at 10th and Jackson Street, in Modesto, California.”
the listing is void if this description was used
this description would only be adequate if Mr. Leland owned this one property on that street
this description would be adequate even if Mr. Leland owned other properties on that same street
the title would be uninsurable should the listing contain this description
- c. A property described as a “Personal Residence” is considered adequate even if other properties are owned on the same street. However, this would not also be true if it were described as the owner’s “Residential Property.” RESIDENCE – Zoned for residential use and owner-occupied. RESIDENTIAL – Property zoned for, and located in a residential area.
Where a real estate broker takes his commission when negotiating a business opportunity transaction as part in cash and part in the ownership of the business, this would be:
illegal
considered a package deal
legal
unethical
- c. A broker may accept a commission in any manner they choose as long as it is legal in nature.
A home was listed for sale for $35,000. The broker was instructed by the owner to accept a deposit on the purchase price of “No less than $1,000” and drew up an offer on a standard deposit receipt form. The broker could only get the buyer to submit a $500 deposit. Should the contract later be defaulted by an act of the buyer, the broker would be entitled to:
6% of the listing price
up to one-half of the forfeited deposit
one-half of the normal commission
nothing
- b. The key words are “SHOULD THE CONTRACT LATER BE DEFAULTED!” Meaning it had been accepted. In the Standard Deposit Receipt Form it specifies; “If the buyer defaults, the broker is entitled to half the forfeited deposit, but not to exceed the amount of commission contracted for and only after the owner deducts any expenses of collecting the damages.”
Although the owner only authorized acceptance of “NO LESS THAN A $1,000 DEPOSIT,” acceptance of the offer by the owner ratified the procuring of the $500 deposit by the broker. Therefore in the event of a legal action by the owner to dispute any liability for the deposit should it be lost by the broker, the owner would be ESTOPPED (legally blocked) from using non-authorization as a defense as the act of acceptance of the offer served to ratify the procuring of the smaller
deposit.
NOTE: Occasionally on the exam a Deposit Receipt is shown and under the acceptance clause, the clause indicating “The broker would be entitled to half of the forfeited deposit,” is not shown. In this event the answer to the question would be broker would then receive “Nothing!” The Deposit Receipt is an agreement between the buyer and the seller. Should there be a forfeiture of the deposit, the seller only would be entitled to it unless there were a stipulation that it would be split with the broker (which there would not be in this instance). Regarding the LISTING AGREEMENT (Employment Contract). In neither situation above would it have entitled the broker to any
commission if the buyer had defaulted, as the broker would not have procured a READY, WILLING AND ABLE BUYER.
An owner of a house lists it for sale with a broker under an Exclusive Right to Sell Listing. Halfway through the listing period the owner because of personal reasons decides to back-out of the agreement. The owner:
could do so with no liability for damages
can possible be sued for damages by the broker
cannot as it is a binding contract
cannot as this is an irrevocable contract
- b. EXCLUSIVE RIGHT TO SELL LISTING specify that the owner agrees not to REVOKE (withdraw). However, if owner does, which is an action they may elect to take, it would be considered a BREACH OF CONTRACT. The broker’s recourses would then be…UNITATERAL RESCISSION – Releasing them with no liability. SUIT FOR DAMAGES – Legal action requesting reimbursement for any costs sustained in performance of their duties or SPECIFIC PERFORMANCE. (a) is
incorrect as liability for damages is a possible remedy. (c) is incorrect as anyone can breach a contract. (d) is incorrect as even though it specifies it is Irrevocable, that is only a promise not to revoke, the owner simply “Breaks their promise (revokes).”
An owner lists a property with a broker asking for a $1,000 deposit. The broker finds an all-cash buyer who is willing to present a purchase agreement, but will only agree to submitting a $500 good-faith deposit. The broker should under these circumstances:
take the offer and change the terms of the listing
ask for $1,000 or refuse the offer
turn-down the offer
accept the $500 and submit the offer to the owner
- d. “ALL OFFERS MUST BE SUBMITTD TO THE PRINCIPAL!” It would be up to the owner to accept or reject this offer. If owner rejects the broker would not be entitled to the commission, as it was not an offer under the “Exact terms of the listing agreement.” Should the owner accept the offer, and the buyer not default, the broker would be entitled to the commission. REGARDING THE LIABILITY FOR THE DEPOSIT Should the offer be rejected, only the broker would be responsible for any damages arising from the mishandling of the deposit, as the broker would have been acting outside of the authority granted them by the owner under the terms of the Listing Agreement. However, should the owner accept the offer, the acceptance is viewed a ratification of the owner by
allowing the acceptance of the deposit in their behalf and in the event of any mishandling of the deposit BOTH the OWNER and the BROKER could be held liable.
The statement of “Broker will use diligence” in a listing agreement serves the purpose of making a:
unilateral contract
bilateral contract
voidable contract
open listing
- b. A “BILATERAL AGREEMENT” is one in which a “Promise or promises are made in exchange for another person’s promise or promises.” In the Listing Agreement an owner promises to pay a commission….the broker doesn’t have to promise to make a diligent effort to procure a purchaser, but if they do, it creates a promise now also made by the broker, which would then create a BILATERAL AGREEMENT.
