CA Real Estate Principles

Question 1

A real estate salesperson is supervised by

any licensed broker.
the seller.
the buyer or seller.
the employing broker only.

Answer 1

the employing broker only.

The employing broker is held accountable for the salesperson’s conduct in performing business activities.
Pages 5-6

Question 2

Every real estate broker must be licensed by the Bureau of

Corporations.
Real Estate.
State.
Housing.

Answer 2

Real Estate

Question 3

When a real estate license expires, licensed activity must cease but the license may be renewed up to

two years later.
one year later.
three years late

Answer 3

Two years

A license that is not renewed before it expires may be renewed at any time up to two years from the expiration date. All licensed activity must cease before the license is renewed and a late renewal fee will be required.
(Page 21)

Question 4

Under the Real Estate Law, a real estate salesperson works for a broker as an

agent.
associate broker.
independent contractor.
employee.

Answer 4

Employee

Question 5

The applicant for a real estate salesperson’s license must complete how many college-level courses before taking the licensing examination?

Five
One
Three

Answer 5

Three

Question 6

The Real Estate Law allows a business opportunity to be sold

with a special endorsement.
by a real estate licensee.
by a financial planner.
by a PRLS licensee.

Answer 6

By a Real Estate Licensee

Question 7

Which of the following does NOT require a real estate license?

Negotiating a lease
Taking a listing
Presenting an offer
Selling your own property

Answer 7

Selling your own property

Question 8

Real estate licenses are renewable for a period of

three years.
one year.
four years.
two years.

Answer 8

Four years

Question 9

A real estate broker’s license may be obtained by any of the following except a

sole proprietorship.
partnership.
corporation.
limited liability company.

Answer 9

Limited liability company

Question 10

California’s Real Estate Law is found in the

Financial Code.
Business and Professions Code.
Civil Code.
Government Code.

Answer 10

Business and Professions Code

Question 11

There are three principal baselines and meridians in California. The intersection of the Humboldt Baseline and Meridian is in

southern California.
a state other than California.
northern California.
central California.

Answer 11

Northern California

The Humboldt Baseline and Meridian were established on Mt. Pierre in Humboldt County in 1853. The other two baseline and meridians were established a few years earlier.
(Page 52)

Question 12

The rectangular survey system is also known as the

Torrens system.
lot, block, and tract system.
U.S. government survey system.
metes and bounds system.

Answer 12

U.S. government survey system.

The rectangular survey system is also called the section and township system, or the U.S. government survey system, and is used by the United States Surveyor General to survey public lands.
(Page 51)

Question 13

The term real estate means the same thing as

real property.
intangible personal property.
ownership.
Personal property.

Answer 13

Real Property

Question 14

Something that is used with the land for its benefit, such as a roadway or a waterway, is known as

personal property.
an encumbrance.
an appurtenance.
a fixture.

Answer 14

an appurtenance.

An appurtenance to land is anything used with the land for the benefit of its owners, such as a roadway, an easement, right of way, or condominium parking space.
(Page 45)

Question 15

How many sections are in a township?

24
36
6
18

Answer 15

36

In the rectangular survey system, land is measured, divided, and numbered in each direction from the point of intersection of the baseline and the meridian in townships, each of which is an area of six miles square (36 square miles) made up of 36 townships of one square mile each.
(Pages 52-53)

Question 16

Real property includes

all of these.
land.
appurtenances to land.
fixtures.

Answer 16

All of these

The California Civil Code definition of real property includes land, fixtures, anything incidental or appurtenant to land, and anything immovable by law.
(Page 43)

Question 17

Today, more than 50 percent of California land is owned by the

state government.
municipalities.
federal government.
private sector.

Answer 17

Private Sector

Of the more than 100 million acres of California’s total area, government entities own about 49%, leaving the majority of ownership in the private sector.
(Page 41)

Question 18

Personal property is usually transferred by a

purchase contract.
will.
bill of sale.
Deed.

Answer 18

Bill of Sale

Ownership of real property is usually transferred by an instrument called a deed. Personal property is usually transferred by a bill of sale.
(Page 48)

Question 19

Under Spanish rule, land was owned primarily by the

missions.
king.
peasants.
Conquistadors.

Answer 19

King

In 1513, Balboa claimed all lands “washed by the Pacific Ocean” for the King of Spain.
Page 38

Question 20

The test for a fixture does NOT include

relationship of the parties.
origin of manufacture.
method of attachment.
intent of the parties.

Answer 20

origin of manufacture.

The test for a fixture (MARIA) includes the method by which the thing is affixed; adaptability of the thing for another use; relationship of the parties, intent in using the thing, and agreement of the parties.
(Pages 46-47)

Question 21

The right of possession is restricted under a

life estate with a right of reversion.
freehold estate.
fee simple qualified.
fee simple subject to power of termination.

Answer 21

fee simple subject to power of termination.

Fee simple subject to a power of termination is ownership in which the right of possession is restricted in some way by some limitation or condition.
(page 63)

Question 22

Community property is

all property acquired during marriage.
the only form of ownership during marriage.
all property acquired by the husband during marriage.
all property acquired during marriage that is not separate.

Answer 22

all property acquired during marriage that is not separate.

Community property is real or personal property acquired by either spouse during marriage or by registered domestic partners during that relationship. Community property cannot be sold, mortgaged, or leased for one year or longer without agreement of both spouses or registered domestic partners.
(page 69)

Question 23

The right of the future holder of what is currently a life estate is a

fee simple conditional.
remainder.
fee simple subject to a power of termination.
fee simple defensible.

Answer 23

Remainder

The owner of a life estate has the right to possession and use of property but only as long as the life of an identified person(s). If the right of possession and use goes to a third person when the life estate ends, rather than returning to the grantor of the life estate, that person has a remainder interest while the life estate is in existence and a fee simple estate on termination of the life estate.
(page 64)

Question 24

A holder of which of the following ownership interests can devise her share of the property to someone else?

Tenancy in partnership
Community property with right of survivorship
Joint tenancy
Tenancy in Common

Answer 24

Tenancy in common

A tenant in common can give away, sell, or devise (will) her share of the property to someone else. The recipient receives the share of the tenant in common and full right of possession.
(Page 67)

Question 25

Ownership in severalty is

community property.
concurrent ownership.
a joint tenancy.
separate ownership.

Answer 25

Separate Ownership

Ownership in severalty, also called separate ownership or sole ownership, is ownership by one person. The property owner is the only person to receive the benefits (and responsibilities) of ownership.
(page 66)

Question 26

The highest form of modern land ownership is known as

a fee simple absolute.
an estate for years.
a real estate trust.
A life estate.

Answer 26

A fee simple absolute

The highest (most complete) form of ownership is a fee simple absolute, in which right of possession is not restricted.
(page 63)

Question 27

Someone who receives real property is known as the

mortgagee.
devisor.
Grantor.
Grantee.

Answer 27

A grantee

A conveyance of real estate is called a grant; the person conveying the property is the grantor, and the person receiving the property is the grantee.
(page 65)

Question 28

The four unities of joint tenancy do NOT include

interest.
severance.
time.
possession.

Answer 28

Severance

The four unities of joint tenancy (TTIP) are: unity of time, title, interest, and possession.
page 68

Question 29

In medieval England, the highest form of ownership was the

life estate.
freehold estate.
estate for years.
Leasehold estate

Answer 29

Freehold Estate

In medieval England, the freehold estate was the highest form of land ownership and the owner could use the property in any way without being subject to the demands of an overlord.
(page 62)

Question 30

Which of the following is NOT considered concurrent ownership?

Community property
Joint tenancy
Ownership in severalty
Tenancy in common

Answer 30

Ownership in severalty

Concurrent ownership is ownership by more than one person at the same time. Ownership in severalty is ownership by only one person.
(page 66)

Question 31

If a person dies without leaving a will, that person dies

statutorily.
administratively.
testate.
intestate.

Answer 31

Intestate

A person who dies without having made a will is said to have died intestate. All states make provision by law for distribution of the property of intestate persons.
(Page 81)

Question 32

Which type of deed would be used when the purchaser pays off a loan secured by the real estate?

Grant deed
Reconveyance deed
Quitclaim deed
Trust deed

Answer 32

Reconveyance Deed

A reconveyance deed executed by the trustee is the means by which the trustee returns title to the trustor when the debt secured by the deed of trust is paid off. The beneficiary notifies the trustee that the debt has been cleared by sending the trustee a document called a request for reconveyance.
(Page 98)

Question 33

A holographic will does NOT have to be

signed.
dated.
witnessed.
entirely handwritten.

Answer 33

Witnessed

A holographic will is one written by hand, dated, and signed by the testator. It does not need to be witnessed, but it must be entirely handwritten; there can be no printed or typewritten parts of the will.
(Page 82)

Question 34

In order to be valid, a grant deed does NOT require

a proper writing.
recording.
a granting clause.
the signature of the grantor.

Answer 34

Recording

There is no legal requirement that a deed be witnessed, that the grantor’s signature be verified, or that the deed be recorded in the county recorder’s office; nevertheless, such steps are practical necessities to prevent problems. (Page 92)

Question 35

The right of a government agency to take private property for a public use is called

a quiet title action.
a partition action.
escheat.
eminent domain.

Answer 35

Eminent Domain

Governmental entities have the right to acquire title to property by eminent domain.
Page 89

Question 36

Private land can be conveyed for public use or ownership by all of these methods EXCEPT

adverse possession.
deed.
common law dedication.
statutory dedication.

Answer 36

Adverse Possession

Private land can be transferred for public use or ownership by common law dedication, in which a landowner devotes land to a public use (such as a roadway); by statutory dedication, in which certain areas (such as an easement) are set aside for intended public use; or by transfer of fee simple ownership by deed (the preferred method of public acquisition as it preserves the public character of the land). Land cannot be acquired for public use by adverse possession.
(Pages 87-88)

Question 37

Land is torn away by the action of water in the process called

accretion.
reliction.
evolution.
avulsion.

Answer 37

avulsion

The natural force of a moving body of water acting gradually or suddenly may tear away land in the process called avulsion; it is distinct from erosion, in which rainfall wears away the surface of the soil.
(Page 84)

Question 38

If an owner devotes land to a public use, such as a roadway, a transfer occurs by

common law dedication.
partition.
escheat.
condemnation.

Answer 38

Common Law Dedication

A common law dedication occurs when a landowner devotes land to a public use, as when a roadway is opened to public use or described as such in the deeds to adjoining parcels.
(Pages 87-88)

Question 39

Accretion is the process of accumulating new soil

along a flowing body of water.
close to a baseline.
next to a lake.
adjacent to an ocean.

Answer 39

Along a flowing body of water

Land area can be increased by forces of nature; accretion is the process by which land adjacent to a flowing body of water accumulates new soil. (Page 84)

Question 40

Which of the following deeds is a security instrument?

Trust deed
Grant deed
Quitclaim deed
Sheriff’s deed

Answer 40

Trust deed

The trust deed, also called a deed of trust, can be used when property serves as security for a debt, typically the loan used to purchase the property, but it can be any loan using the property as collateral to guarantee payment of the amount borrowed.
(Page 97)

Question 41

When a landowner has the right to travel over the property of an adjoining landowner, the property that benefits from the easement right is called the

servient tenement.
tenant at will.
life tenant.
dominant tenement.

Answer 41

Dominant Tenement

The land benefited by the easement is the dominant tenement. The land over which the easement runs is called the servient tenement.
(Page 110)

Question 42

Liens are classified as

encumbrances.
writs of attachment.
easements.
encroachments.

Answer 42

encumbrances

An encumbrance is anything that has an effect on the fee simple title to real estate or the use of the property. A lien is an encumbrance that makes property security for the payment of a debt or discharge of an obligation.
(Pages 104-105)

Question 43

A mechanic’s lien requires

preliminary notice.
a servient tenement.
a promissory note.
a deed.

Answer 43

Preliminary Notice

If a mechanic’s lien will be filed, preliminary notice of intent to file the lien must be hand-delivered or sent by first-class registered or certified mail to the property owner, general contractor (if any), and construction lender (if any).
(Pages 106-107)

Question 44

A notice of nonresponsibility would protect an owner from

a mechanic’s lien.
trespassers.
a foreclosure.
an eviction.

Answer 44

A mechanic’s lien

The owner of real estate has protection if unauthorized work is begun on the property by posting a notice of nonresponsibility in a conspicuous place on the land and recording a copy of the notice with the county recorder within ten days of learning of the construction, repair, or other work. The notice must include a property description; the name, address, and property interest of the owner or other person giving notice; and a brief statement that the person giving notice is not responsible for any claims arising from the work.
(Page 107)

Question 45

The right of an owner of a parcel of land to travel over an adjoining parcel of land is known as

a restriction.
an encroachment.
a covenant.
an easement.

Answer 45

An easement

The right of use for a particular purpose or to travel over someone else’s land is called an easement. An easement usually is the right of the owner of a parcel of land to travel over an adjoining parcel.
(Page 110)

Question 46

A prohibition in a deed against a property use is known as

an easement.
a restriction.
a condition.
an encroachment.

Answer 46

A restriction

Any form of restriction is a limitation on the use of land. The most common private restrictions are the covenants, conditions, and restrictions found in a deed. Subdivision developers frequently make use of deed restrictions to ensure that the uniform appearance of the homes in a subdivision is maintained.
(Page 117)

Question 47

A promise by a property owner NOT to do something is called a

prescription.
restraint on alienation.
covenant.
restriction.

Answer 47

A covenant

A covenant is a promise to do something or to refrain from doing something. Covenants are often used in leases (e.g., a tenant might promise to use the property only for a specified purpose). The remedy available when a covenant must be enforced will be an injunction or money damages.
(Page 116)

Question 48

An improvement that extends onto an adjacent property without permission is an

easement.
avulsion.
encumbrance.
encroachment.

Answer 48

Encroachment

An encroachment occurs when part of an improvement extends over the boundary line between properties without permission. Fences and buildings are typical forms of encroachment. Even the roof eave of a building can be an encroachment if it extends into the airspace of a neighboring lot.
(Page 119)

Question 49

Which of the following could NOT file a mechanic’s lien?

Architect
Equipment lessor
Home improvement lender
Contractor

Answer 49

Home Improvement Lender

A mechanic is anyone who performs work on real property or an improvement to real property or furnishes the material used in the work. Persons entitled to a mechanic’s lien include all those who work or supply materials at the request of the property owner, or any contractor, subcontractor, architect, builder, or other person placed in charge of all or part of a project.
(Page 105)

Question 50

A condition that would prohibit a property owner from transferring title to the property is known as a

restriction.
restraint on alienation.
judgment.
writ of attachment.

Answer 50

Restraint on Alienation

A restraint on alienation is any condition that prohibits a property owner from transferring title to the property and is not legally recognized. An example would be a condition that the grantor’s consent be obtained before the grantee could sell the property. Such a restraint is void—totally ineffective—and the grantee holds the property free of the restraint.
(Page 116)

Question 51

For tax purposes, a salesperson can work for the broker as

a dual agent.
a partner.
an independent contractor.
a subagent.

Answer 51

Independent Contractor

An independent contractor usually has great flexibility in accomplishing the task undertaken and will receive a commission based on completed transactions, instead of a salary, with no payroll deductions.
(Page 131)

Question 52

When an agent represents both the buyer and seller in the same transaction, this action is

prohibited by the MLS.
an example of subagency.
against the law.
known as dual agency.

Answer 52

Known as a dual agency

In a dual agency, the same agent represents two principals in the same transaction. A dual agency places the agent in the precarious position of carrying out agency responsibilities to two principals whose interests are in opposition. Any agent who acts on behalf of both parties to a transaction is required by law to inform both parties and obtain their written consent to the dual representation.
(Pages 132-133)

Question 53

An agent owes which of the following to a third party?

Duty of disclosure
Fiduciary duties
Duty of representation
Duty of trust

Answer 53

Duty of Disclosure

A real estate agent owes to a third person a duty of full disclosure of material facts that the agent knows regarding the property, unless prohibited by law from doing so. The agent bears this responsibility independent of any instruction received from the property owner. If the property owner tells the agent not to reveal certain defects, the agent must inform the principal that the agent cannot hide such information. To do otherwise would make the agent liable for money damages, and place the agent’s license in jeopardy.
(Page 162)

Question 54

Real estate commission rates are

always 4 percent.
subject to cancellation.
fixed by law.
negotiable.

Answer 54

Negotiable

In California, real estate commissions are negotiable. There is no predetermined commission rate, and the seller and broker are free to set whatever rate they agree on.
(Page 141)

Question 55

An agent is authorized to act in place of the principal by a

multiple listing clause.
power of attorney.
purchase contract.
listing agreement.

Answer 55

Power of attorney

An attorney-in-fact is an agent who has been granted a power of attorney by a principal. A power of attorney authorizes an agent to act in the capacity of the principal.
(Page 134)

Question 56

One of the MOST important duties of agent to principal is the duty of

salesmanship.
beneficial conduct.
hard work.
loyalty.

Answer 56

Loyalty

One of the most important duties the agent owes the principal is the duty of loyalty. The agent’s role in the transaction is to consider the interests of the principal first and foremost.
(Page 159)

Question 57

A real estate broker works for the

principal.
Bureau of Real Estate.
third party.
real estate board.

Answer 57

Principal

An agency agreement is a form of employment contract and can be structured in several ways. The principal is the employer, but the agent may act as either an employee or an independent contractor. The main difference is in the type of control the principal exercises over the agent.
(Page 131)

Question 58

The Real Estate Law treats a salesperson as

an independent contractor.
an employee of the broker.
a general agent.
a dual agent.

Answer 58

An employee of the broker

A real estate salesperson can conduct business only as the agent of a broker and must have a written employment agreement with the broker. The Real Estate License Law always considers a salesperson to be an employee acting under the direct supervision and control of the broker. This is true even when the salesperson is treated by the broker as an independent contractor for compensation, work assignment, and tax purposes.
(Page 132)

Question 59

The MOST commonly used form of listing agreement is the

open agreement.
exclusive agency.
exclusive right to sell.
net agreement.

Answer 59

Exclusive Right to Sell

The most commonly used form of agreement is the exclusive authorization and right-to-sell listing, by which the broker is entitled to a commission no matter who sells the property, even if the owner finds a buyer without the broker’s assistance.
(Page 145).

Question 60

A nonexclusive listing agreement is also known as

an option listing.
an open listing.
an agency listing.
a net listing.

Answer 60

An open listing

An open listing is nonexclusive and a commission is earned only if the listing broker is the procuring cause of sale. To be the procuring cause of a sale, the agent must be the one who initiates a continuing series of events that result in a completed transaction.
(Page 144)

Question 61

Performance of a contract may be excused if a party can prove which of the following?

Novation
A better deal elsewhere
Impracticability of performance
Lack of negotiating skill

Answer 61

Impracticality of performance

Performance may be excused in the event of impracticability of performance (commercial frustration). If changed circumstances make a purchase uneconomic, there may be an excuse for nonperformance (e.g., a buyer’s financial downturn such as an extreme drop in market value of the buyer’s company’s stock), so that the purchase, although not impossible, would impose extreme financial hardship.
(Page 185)

Question 62

The typical real estate purchase agreement is

a voidable contract.
a unilateral contract.
an implied contract.
a bilateral contract.

Answer 62

The typical real estate purchase contract is bilateral. One party promises to transfer the right of ownership or use of real estate, and the other party promises to pay some form of compensation for that right.
(Page 176)

Question 63

A contract that has no legal effect from its inception is a

void contract.
voidable contract.
valid contract.
quasi contract.

Answer 63

A void contract is one that has no legal effect from its inception. An agreement to do something that is illegal is void.
(Page 176)

Question 64

A contract that has yet to be performed is known as an

implied contract.
executory contract.
executed contract.
express contract.

Answer 64

A contract is said to be executory when some future contract obligation is yet to be performed. A listing agreement is executory, because the real estate broker must find a buyer for the listed property in order to earn the compensation promised by the seller. Until the sale is closed, a real estate purchase contract also is executory.
(Page 175)

Question 65

To be enforceable, real estate sales agreements must

contain a granting clause.
be recorded.
be acknowledged.
be in writing.

Answer 65

A valid contract for the sale of real estate must be written. An oral contract to purchase real estate is unenforceable, no matter what its terms, because it is oral and not written.
(Page 176)

Question 66

Both parties agree to cancel a contract in the process of

reformation.
release.
rescission.
novation.

Answer 66

If both parties agree, they may take back (rescind) the contract in the process called rescission.
(Page 185)

Question 67

Failure to perform a contract obligation is known as a

breach.
rescission.
release.
novation.

Answer 67

A contract may be discharged by a breach of contract. A breach occurs when one of the parties fails to perform all or part of the obligations required by the contract. The nonbreaching party who is injured by the breach is entitled to legal relief.
(Page 186)

Question 68

Which of the following is NOT a way to terminate a contract?

Novation
Rescission
Release
Verification

Answer 68

Verification

Rescission, release, and novation are all methods to terminate a contract. Verification is a method of confirming the accuracy of a description of a property or contract elements.
(Page 187)

Question 69

When both parties to a contract agree to substitute a new agreement for the present one, this is known as a

novation.
release.
rescission.
breach.

Answer 69

By a novation, the parties substitute a new agreement for the original one, discharging the original agreement. If the new agreement falls within the statute of frauds, it must be written.
(Page 185)

Question 70

A contract that is a promise for a promise is known as a

void contract.
unilateral contract.
bilateral contract.
voidable contract.

Answer 70

In a bilateral contract, both parties make a promise to do something or to refrain from doing something and both are obligated to perform.
(Page 175)

Question 71

The security instrument of choice in California is the

grant deed.
mortgage.
quitclaim deed.
deed of trust.

Answer 71

The deed of trust is the preferred security instrument in California.
(Page 230)

Question 72

Real estate loans generally include a promissory note and a

purchase contract.
settlement statement.
grant deed.
security instrument.

Answer 72

Real estate loans in California generally are made using two instruments. The promissory note is the borrower’s promise to pay the amount borrowed and is evidence of the debt. The security instrument, typically a deed of trust, transfers title to the real estate to a third party until the loan is repaid.
(Page 224)

Question 73

The repayment of a loan in equal installments that includes both interest and principal reduction is referred to as

a mortgage loan.
a straight loan.
a hard money loan.
an amortized loan.

Answer 73

In an amortized loan, payment is by installments that include both interest and principal.
(Page 243)

Question 74

A provision that gives the lender the right to demand full payment of a mortgage upon a sale of the property is

a notice-of-sale
a due-on-sale clause.
an escalator clause.
a partition clause.

Answer 74

A due-on-sale clause is an acceleration clause in a real estate financing instrument granting the lender the right to demand full payment of the remaining indebtedness upon a sale of the property.
(Pages 263-264)

Question 75

“The cost of using money” BEST describes

an open market.
credit.
interest.
a free market.

Answer 75

interest

A purchaser of real estate who defers part or all of the purchase price uses some form of credit. When the purchaser receives credit from the seller, the cost of that credit is usually the rate of interest charged to the purchaser.
(Page 218)

Question 76

The federal agency that insures savings accounts is the

FDIC.
FHA.
FNMA.
FHLMC.

Answer 76

FDIC

The Federal Deposit Insurance Corporation (FDIC) was created by Congress in 1933 to insure individual accounts in participating banks and (as of 1989) savings and loan associations, up to $250,000 per depositor, per insured bank, for each ownership category.
(Pages 220-221)

Question 77

Which of the following is NOT an institutional lender?

insurance company.
savings and loan.
mortgage company.
thrift.

Answer 77

Mortgage Company

In California, a mortgage company is a mortgage banker licensed by the California Department of Business Oversight and subject to the California Residential Mortgage Lending Act.
(Page 246)

Question 78

An instrument by which property is hypothecated to secure the payment of a debt or obligation is known as

a reconveyance deed.
a sheriff’s deed.
a mortgage.
an encroachment.

Answer 78

The security instrument by which real estate serves as assurance that a debt will be repaid usually is referred to as a mortgage, even when it is a deed of trust.
(Page 230)

Question 79

Money is a medium of exchange as well as a measure of

investment potential.
credit.
value.
intrinsic worth.

Answer 79

Money is a medium of exchange as well as a measure of value. In exchange for our work efforts, we earn income in the form of money.
(Page 218)

Question 80

RESPA regulates loans for which of the following?

Multiple family dwellings
Commercial property.
Land subdivisions
One- to four-unit family dwellings

Answer 80

The Real Estate Settlement Procedures Act (RESPA) requires certain disclosures by lenders in federally related mortgage loans involving the sale or transfer of residences of one to four dwelling units.
(Page 256)

Question 81

The transfer of existing mortgages between investors is the

secondary mortgage market.
growing equity program.
extended credit program.
primary mortgage market.

Answer 81

The sale and purchase of mortgages secured by real estate take place on the secondary mortgage market.
(Page 288)

Question 82

An installment sales contract is also called a

land contract.
terminable contract.
temporary contract.
voidable contract.

Answer 82

The land contract (also referred to as a contract for deed or installment sales contract) is a form of seller financing in which the buyer takes possession of property and makes payments on its purchase but does not receive legal title to the property for at least one year from the date of possession.
(Page 286)

Question 83

The credit extended by seller to buyer is a

conventional loan.
secondary market loan.
purchase money mortgage.
mechanic’s lien.

Answer 83

Purchase money mortgage

The purchase money trust deed or purchase money mortgage is given by buyer to seller at the time of purchase to secure all or part of the purchase price. The purchase money may come from a third party (such as an institutional lender) or take the form of credit from the seller.
(Page 286)

Question 84

The interest rate on CalVet loans

may change annually.
depends on the CPI.
changes monthly.
never changes.

Answer 84

May change annually

The interest rate on all loans may change annually, depending on the cost of bonds to fund the program. Monthly loan installments will increase to cover additional interest charges.
(Page 277)

Question 85

Which of the following documents is used with a CalVet loan?

Sheriff’s deed.
Grant deed.
Trust deed.
Land contract.

Answer 85

Land contract

CalVet loans are administered by the California Department of Veterans Affairs (CDVA), which authorizes, processes, funds, and services the loans. No outside lenders are involved, because the program is totally self-supporting. CDVA buys the selected property from the seller and resells the property to the veteran on a land contract. CDVA holds title until the veteran has repaid the amount owed, although the veteran has the right to possession of the property as her personal residence.
(Pages 282-283)

Question 86

RESPA requirements do NOT apply to

commercial loans.
VA-guaranteed loans.
conventional loans.
FHA-insured loans.

Answer 86

commercial loans

Settlement statements detailing transaction costs to buyers and sellers of dwellings of one to four units are required by the Real Estate Settlement Procedures Act (RESPA). Commercial (non-residential) loans are not subject to RESPA.
(Page 282)

Question 87

Which of the following generally does NOT require a down payment?

Loan from a conventional lender.
VA-guaranteed loan.
FHA-insured loan.
CalVet 97 loan.

Answer 87

VA- Guaranteed Loans

As long as the estimate of reasonable value does not exceed the amount of the VA loan guarantee, the VA does not require a down payment, although the lender may. The VA loan guarantee can never be more than the estimate of reasonable value, but a higher purchase price may be negotiated if the veteran pays the difference between the reasonable value and the purchase price in cash at the closing.
(Page 280)

Question 88

On default of a VA-guaranteed loan, the VA will pay the

property’s market value.
lender’s loss on the amount guaranteed.
remaining mortgage balance.
down payment.

Answer 88

Lender’s loss is on the amount guaranteed.

The Department of Veterans Affairs (VA) guarantees payment of remaining mortgage indebtedness, up to a maximum amount. If the borrower defaults, the VA will pay the lender’s net loss up to the amount of the guarantee, which is decreased proportionately as the loan amount is repaid.
(Page 278)

Question 89

A payment to FHA at closing is the

loan interest rate.
mortgage insurance premium.
recording fee.
escrow fee.

Answer 89

mortgage insurance premium

The FHA up-front mortgage insurance premium is paid to FHA at closing. It is not considered an acquisition cost in computing down payment. The premium may be paid by the borrower or someone else, or it may be included in the loan amount.
(Page 273)

Question 90

The Federal Housing Administration insures payment of

a discount.
loan points for the lender.
loan principal.
a broker’s commission.

Answer 90

Loan principal

The Federal Housing Administration (FHA), a division of the Department of Housing and Urban Development (HUD), does not make loans, but it insures loans made by approved lending institutions.
(Page 272)

Question 91

Which of the following provides the BEST protection?

Guarantee of title
Title insurance policy
Certificate of title
Abstract of title

Answer 91

Title insurance can be for the benefit of either property owner or lender and takes effect as of the day of closing.
(Page 311)

Question 92

For a valid escrow, there must be a binding agreement and conditional delivery of the

instruments of transfer.
home warranty.
title insurance.
property insurance.

Answer 92

To create a valid escrow, there must be a binding contract and conditional delivery of instruments of transfer to the escrow holder.
(Page 299)

Question 93

With title insurance, the buyer ALWAYS receives

a preliminary report.
an abstract of title.
an extended coverage policy.
a regular coverage policy.

Answer 93

After the title insurance policy is ordered and before the sale closes, the title insurer submits a preliminary report of the condition of the property title to the purchaser through the escrow holder.
(Page 330)

Question 94

In northern California, escrows are typically held by

title insurance companies.
banks.
escrow companies.
real estate brokers.

Answer 94

In Northern California, escrow typically is handled by a title insurance company. In Southern California, separately licensed escrow companies often are used, and financial institutions also perform many escrows.
(Page 300)

Question 95

A real estate broker can handle an escrow when the broker

is acting for another broker.
is not a party to the sale.
is the agent or a party to the transaction.
charges a fee.

Answer 95

A real estate broker can act as an escrow only in transactions in which the broker acts as an agent or party and is subject to special rules.
(Page 301)

Question 96

Escrow officers usually base their prorations on

business days.
a full calendar year.
a 30-day month.
a monthly basis.

Answer 96

In most prorations as part of the closing of a transaction, a 30-day month is used.

Question 97

What does the escrow officer file when the buyer and seller are unable to resolve a dispute which prevents the closing of escrow?

A quiet title action
A writ of possession
An interpleader action
An estoppel agreement

Answer 97

If the parties cannot agree on terms, the escrow holder can bring a legal action known as interpleader to have a court determine the rights of the parties.
(Page 302)

Question 98

One of the main responsibilities of the seller is to

review the title report.
obtain a new loan.
order fire insurance.
sign escrow instructions.

Answer 98

One of the main responsibilities of the seller is to sign the escrow instructions.
(Page 304)

Question 99

The escrow officer is a neutral third party who alternately represents both the buyer and seller in

a limited agency capacity
an advisory capacity
negotiations
no agency capacity

Answer 99

The answer is a limited agency. The escrow officer represents the buyer when receiving and transferring funds to the seller, and the escrow officer represents the seller when receiving and transmitting documents to the buyer. Even though the escrow should be a neutral party, there are still responsibilities owed to each party. Unless an exception applies, the escrow holder should not give advice on any part of the transaction and should remain impartial.
(Page 300)

Question 100

Which of the following could NOT be an escrow holder?

Selling broker
Listing broker
Escrow corporation
Escrow partnership

Answer 100

In California, an escrow company must be a corporation licensed to perform escrow services. An escrow company cannot be a partnership.
(Page 309)

Question 101

A principal residence must be occupied for how long to take advantage of the maximum exclusion of profit from taxable income?

Five years
18 months
One year
Two years

Answer 101

As of August 5, 1997, homeowners are allowed an exclusion from federal income taxation of up to $250,000 (for single taxpayers) or $500,000 (for a couple married at the time of sale) of the profit on the sale of the principal residence. The exemption is allowed if the home was owned and occupied for two of the last five years prior to the sale.
(Page 350)

Question 102

The second property tax installment is delinquent after

May 16.
April 10.
February 1.
December 10.

Answer 102

The property tax year runs from July 1 through the following June 30. Property tax is payable in two installments due November 1 and February 1. The February payment is delinquent after 5:00 pm on April 10.
(Page 340)

Question 103

In California, the inheritance and gift taxes have been

increased.
abolished.
combined.
reduced.

Answer 103

Proposition 6 repealed the California inheritance and gift taxes.
(Page 347)

Question 104

Unless an extension is given, a federal income tax return must be filed for the preceding tax year by

October 15.
April 15.
May 15.
August 15.

Answer 104

A federal income tax return must be filed by April 15 for the preceding calendar year if adjusted gross income is high enough or federal income tax has been withheld and a refund is due. Both individuals and corporations are taxed.
(Page 347)

Question 105

The purpose of the property tax assessed value is to

equalize property taxes.
establish the base value.
ensure all counties are equal.
create the transfer tax rate.

Answer 105

Establish the base value

The base value of a property is its full cash value (market value) as of February 28, 1975, or the date of a subsequent reassessment event. Assessed value, for property tax purposes, is the property value to which the tax rate is applied.
(Page 336)

Question 106

The person responsible for determining assessed values is the

sheriff.
county tax collector.
county supervisor.
county assessor.

Answer 106

The county assessor is the elected official responsible for determining assessed values and preparing the tax roll.
(Page 338)

Question 107

Taxes charged in direct relation to property value are

ad valorem taxes.
illegal.
paid annually.
paid upon a sale only.

Answer 107

Property taxes usually are ad valorem taxes, which means they are charged in relation to the value of the property taxed.
(Page 336)

Question 108

A personal residence and business equipment are considered

intangible property.
capital assets.
real property.
personal property.

Answer 108

Capital assets

A capital asset is all property except business inventory or other property held for sale in the ordinary course of one’s business.
(Pages 349-350)

Question 109

The first property tax installment of the tax year is due on

July 1.
February 1.
November 1.
April 1.

Answer 109

November 1

The property tax year runs from July 1 through the following June 30. Property tax is payable in two installments due November 1 and February 1.
(Page 340)

Question 110

Real property taxes become a lien on

February 1.
November 1.
July 1.
January 1.

Answer 110

On January 1, when the assessment roll takes effect for the next tax year, a lien is placed on all assessed real property in the amount of the tax due.
(Page 341)

Question 111

Which of the following is NOT considered a valid reason for the landlord to enter the tenant’s unit?

There is a gas or water leak.
The landlord needs to make agreed-on repairs.
A person needs help.
The landlord wants to leave a gift for the tenant.

Answer 111

The California Civil Code permits the landlord a right of entry in an emergency; when the tenant has abandoned the premises; pursuant to a court order; so that the landlord can make necessary or agreed-on repairs or perform other required services; and so that the landlord can show the property to prospective tenants, mortgagees, purchasers, workers, or contractors.
(Page 374)

Question 112

If a landlord’s interest in leased property is transferred, the security deposit paid by the present tenant

must be transferred to the new owner.
may be kept by the landlord.
is returned to the tenant along with a notice of eviction.
is returned to the tenant immediately.

Answer 112

The security deposit paid by a tenant is transferred to a new owner of the leased property.
(Page 372)

Question 113

To transfer use of an entire property, but not ownership, the property owner would use

a quitclaim deed.
an easement.
a lease.
a trust deed.

Answer 113

a lease

A lease is a contract that conveys an interest in real property from one person to another. Most frequently, a lease transfers the use of property without transferring outright ownership.
(Page 362)

Question 114

The legal proceeding to evict a tenant is

a notice to vacate.
a quiet title action.
a 30-day notice.
an unlawful detainer.

Answer 114

Unlawful detainer

If the tenant fails to comply after notice to pay or quit has been given, the landlord can request an order of eviction from the court by a legal proceeding called unlawful detainer.
(Page 385)

Question 115

What is the maximum amount of security deposit a landlord can collect in advance for an unfurnished residential unit?

One month’s rent
Any amount the owner justifies
Three months’ rent
Two months’ rent

Answer 115

The maximum amount of a security deposit is two months’ rent for an unfurnished residential property or three months’ rent for a furnished residential property.
(Page 372)

Question 116

When a residential tenant vacates, the landlord must mail the tenant either the entire security deposit or an itemized list of deductions, plus a check for any remaining balance within

21 days.
14 days.
7 days.
30 days.

Answer 116

Within 21 days after the tenant has vacated the premises, the landlord must mail the tenant the amount of the security deposit or a written itemized statement of the basis for the disposition of the security deposit and any remaining amount.
(Page 372)

Question 117

Which of the following is NOT considered a tenant?

Lessee
Hotel guest
Lodger
Boarder

Answer 117

Hotel Guest

The California Civil Code, beginning at Section 1940, governs situations in which a person hires real property. Tenants, lessees, boarders, lodgers, and others (but not guests at hotels) are included in those provisions.
(Page 362)

Question 118

An estate which has a definite termination date is known as

an estate at will.
an estate for years.
a freehold estate.
a periodic estate.

Answer 118

An estate for years is a leasehold created by landlord and tenant for a particular period of time.
(Page 363)

Question 119

Historically, a leasehold was considered a

real property interest.
life estate.
fee simple interest.
personal property interest.

Answer 119

Historically, a leasehold estate was considered personal property. Today, for certain purposes a leasehold estate is considered real estate.
(Page 363)

Question 120

A rent control ordinance that allows market rent to be charged a new tenant has

voluntary rent control.
vacancy decontrol.
vacancy control.
base rent stabilization.

Answer 120

If an ordinance contains a vacancy decontrol provision, when a unit becomes vacant, there is no restriction on the rent set for a new tenant.
(Page 391)

Question 121

An important step at the beginning of the appraisal process is to

identify the scope of work.
determine highest and best use.
estimate land value.
gather the data.

Answer 121

The appraisal process begins by identifying the scope of work necessary to perform the appraisal.
(Page 409)

Question 122

A loss in value from any cause is known as

capitalization.
equity loss.
inherent loss.
depreciation.

Answer 122

Depreciation is a loss in value from any cause.

Page 416

Question 123

By which principle will the value of a nonconforming building be enhanced if surrounding buildings are of a higher value?

Contribution
Regression
Competition
Progression

Answer 123

Progression

The value of a building is enhanced if buildings around it have a higher value, typically because they are better maintained, better quality construction, larger, or a combination of such factors.
(Page 407)

Question 124

The BEST method for valuing residential property is usually the

sales comparison approach.
income approach.
capitalization approach.
cost approach.

Answer 124

The method that usually is the most significant in appraising residential property is the sales comparison approach.
(Page 411)

Question 125

The MOST profitable, physically possible, and legally permissible use of real property is referred to by appraisers as its

capitalization.
inherent value.
subjective value.
highest and best use.

Answer 125

The highest and best use of real estate is its most profitable, physically possible, and legally permissible use. A highest and best use study can be made of a vacant site or a site to be redeveloped.
(Page 406)

Question 126

A property’s most probable price on the open market under normal circumstances in an arm’s-length sale is known as its

book value.
selling price.
market value.
actual price.

Answer 126

The market value of real estate is the most probable price it would bring in an arm’s-length transaction under normal conditions on the open market.
(Page 405)

Question 127

The basis of MOST residential real estate appraisals is the principle of

change.
substitution.
conformity.
contribution.

Answer 127

The principle of substitution states that value tends to be determined by the cost of acquiring an equally desirable property.
(Page 408)

Question 128

A real estate appraiser’s opinion of property value is usually valid only for

six months.
a lender.
the tax assessor.
the date given.

Answer 128

The date given

Most often, the value conclusion is the appraiser’s opinion of the property’s market value as of the date of the property inspection. An appraisal can provide an opinion of value as of some other date, however, such as the date property was taken in a condemnation proceeding.
(Page 405)

Question 129

An exact replica of a structure being appraised determines

replacement cost.
reproduction cost.
objective review.
subjective review.

Answer 129

Reproduction cost is the cost of a new building of the same design and materials as the subject property.
(Page 414)

Question 130

The unit-in-place method is used

by lenders only.
to find highest and best use.
to calculate reproduction cost.
as an appraisal method.

Answer 130

To calculate reproduction costs

The unit-in-place method makes use of the construction cost per unit of measure of each of the component parts of the subject property, such as walls, plumbing units, and heating units.
(Page 415)

Question 131

The effectiveness of various kinds of insulation is measured by

heat control.
their R-value.
the thickness of the drywall.
environmental controls.

Answer 131

The effectiveness of various kinds of insulation is expressed by their R-value.
(Page 450)

Question 132

The MOST luxurious floor plan gives each bedroom

an outside door.
ceramic tile flooring.
its own adjoining bathroom.
direct access to the kitchen.

Answer 132

The most luxurious plan gives each bedroom its own adjoining (en suite) bathroom.
(Page 443)

Question 133

Most California houses are built without

a rear yard.
an attic.
a garage.
a basement.

Answer 133

Most California single-family dwellings do not have basements (rooms that are partly or entirely below ground level).
(Page 444)

Question 134

The highest point of construction of a wood frame building is the

frieze board.
ceiling joist.
ridge board.
bridging.

Answer 134

Ridge Board

The rafters of a roof meet at the ridge board, the highest point of construction of a frame building.
Page 450

Question 135

For earthquake safety, California building codes require that the foundation be connected to the sill using

girders.
posts and beams.
anchor bolts.
joists.

Answer 135

anchor bolts

Since 1931 California building codes have required the use of anchor bolts through the sill and into the foundation wall as an earthquake safety measure (the sill is the wood member that is placed directly on the foundation wall).
(Page 447)

Question 136

Interior walls can be finished with plasterboard, also called

drywall.
wallpaper.
filler.
building paper.

Answer 136

Interior walls can be finished with plasterboard, also referred to as drywall or wallboard.
(Page 452)

Question 137

Parallel wooden members that support floors and ceilings are

ridge boards.
baseboards.
studs.
joists.

Answer 137

Joists, along with girders, are parallel wood beams that are part of the foundation and support the floor and ceiling of a wood-frame house.
(Page 446)

Question 138

The placement of a house on a site is called its

design.
footing.
orientation.
foundation.

Answer 138

The placement of a house on a site is called its orientation. Depending on geographic location, orientation is generally best when the greatest window expanse faces south.
(Page 443)

Question 139

An architectural style that features a distinctive gambrel roof and dormers, and has 1½ or 2½ stories is

French Colonial.
Spanish.
Dutch Colonial.
Victorian.

Answer 139

The Dutch Colonial architectural style has 1½ or 2½ stories, distinctive gambrel roof, and dormers.
(Page 439)

Question 140

When you divide the capacity of an air conditioner in BTUs by the number of watts of electricity required to run it, you get its

conservation ratio.
EER.
heat ratio.
120 v. 220 watt ratio.

Answer 140

The energy-efficiency ratio (EER) is found by dividing an air conditioning unit’s capacity measured in British Thermal Units (BTUs) by the number of watts of electricity needed to run it.
(Page 454)

Question 141

Minimum parcel size, building height limitations, and required setbacks are covered in a

zoning ordinance.
general plan.
specific plan.
master plan.

Answer 141

A zoning ordinance typically covers permitted land uses, minimum parcel size, building height and lot coverage limitations, required setbacks, and maximum density.
(Page 471)

Question 142

The Subdivided Lands Law can be found in the

Civil Code.
Business and Professions Code.
Health and Safety Code.
Penal Code.

Answer 142

The Subdivided Lands Law (found in the Business and Professions Code) describes the forms of ownership allowed in a subdivision of five or more parcels on up to 160 acres of land.
(Page 475)

Question 143

The government’s police power can be used for all of the following purposes EXCEPT

taxation.
public health.
safety.
general welfare.

Answer 143

Taxation is not a police power. Police power enables government bodies to regulate private activity by enacting laws that benefit the public health, safety, and general welfare.
(Pages 468-469)

Question 144

The federal Fair Housing Act provides for age-restricted housing when all residents of an adult community are at LEAST age

55.
62.
50.
65.

Answer 144

The act exempts adult communities in which all residents are at least age 62.
(Page 485)

Question 145

A long-range plan for local development is commonly known as

the design plan.
zoning.
the general plan.
CC&Rs.

Answer 145

Community development goals are set out in the general plan, which is required by state law for every city and county within California.
(Page 470)

Question 146

Federal fair housing protections do NOT include the category of

familial status.
economic status.
handicap.
sex.

Answer 146

Economic Status

The federal Fair Housing Act (Title VIII of the Civil Rights Act of 1968), as amended, prohibits discrimination based on race, color, religion, sex, national origin, ancestry, handicap, or familial status.
(Page 484)

Question 147

Rejecting real estate loans because of location is called

blockbusting.
distortion.
redlining.
steering.

Answer 147

Redlining is the illegal practice of rejecting real estate loan applications because of the location of the property involved.
(Page 486)

Question 148

The Federal Fair Housing Act is enforced by an individual acting through

state agencies.
HUD’s Office of Equal Opportunity.
FHA.
the Justice Department, through the Attorney General.

Answer 148

An individual has one year in which to file a complaint alleging discrimination with HUD’s Office of Equal Opportunity (OEO) or two years in which to file a lawsuit in federal or state court.
(Page 484)

Question 149

Land use controls that benefit the public health, safety, and general welfare are possible because of the government’s

regulations.
police power.
health and safety laws.
restrictions.

Answer 149

Land-use controls are possible because of the government’s police power, which enables governing bodies to regulate private activity by enacting laws that benefit the public health, safety, and general welfare.
(Page 468)

Question 150

The procedure for filing a subdivision plan when property is divided into two or more parcels is found in the

Subdivision Map Act.
zoning regulations.
building codes.
Subdivided Lands Law.

Answer 150

The Subdivision Map Act (found in the Government Code) establishes a statewide procedure for filing a subdivision plan when property is divided into two or more parcels.
(Page 479)