Quick Quiz 2

Question 1

A residential property is reassessed

Answer 1

every time the property is sold.
A residential property will always be reassessed when the property is sold. A property damaged or destroyed by fire can be restored to original condition without a reassessment.

Question 2

Annual percentage rate is defined as
A) direct loan costs only.
B) direct and indirect costs plus taxes and closing costs.
C) all loan costs, direct or indirect, expressed as a percentage rate.
D) relative amount of credit costs expressed as a dollar total.

Answer 2

C) all loan costs, direct or indirect, expressed as a percentage rate.
The annual percentage rate represents the relationship of the total finance charge to the total amount financed. The total finance charge includes the total of all costs paid directly or indirectly by the borrower. However, there are certain costs that are exempt including, but not limited to, appraisal fees and credit reports.

Question 3

Usefulness of the cost approach is limited when appraising
A) a new structure on an appropriate site.
B) in an unusually active real estate market.
C) an older property with many functional deficiencies.
D) for construction.

Answer 3

C) an older property with many functional deficiencies.
The usefulness of the cost approach method of appraisal is limited when appraising an older property with many functional deficiencies because of the difficulty in determining all of the accrued depreciation. Appraising a new structure or for construction would probably have little, if any, functional deficiencies. In an unusually active real estate market the comparison approach would be the most significant approach to use, but the cost approach could still be useful.

Question 4

A man purchased a lot for $100,000 cash. In order to construct a building valued at $500,000, he took out a loan of $400,000 at 11% per annum and put down $100,000 in cash. For income tax purposes, what amount could he depreciate over the life of the building?
A) $600,000
B) $400,000
C) $100,000
D) $500,000

Answer 4

D) $500,000

$500,000 building cost is the depreciable asset regardless of the amount financed.

Question 5

What essential element is necessary between a broker and a principal when dealing with the title, right, or interest in real property?
A) Establishment of the rights of commission between the parties by law
B) Broker’s right to accept a deposit
C) Broker’s right to draw up a purchase offer
D) Written contract of employment

Answer 5

D) Written contract of employment
The statute of frauds (Civil Code Section 1624) requires that a contract employing an agent to purchase or sell real estate, or to lease real estate for a longer period than one year, must be in writing to be enforceable.

Question 6

The Real Estate Settlement Procedures Act lists services a lender may charge for as settlement-connected costs. Accordingly, as appropriate, the buyer and seller may be charged for all of these EXCEPT
A) appraisals.
B) uniform disclosure/settlement statements.
C) loan documents.
D) credit reports.

Answer 6

B) uniform disclosure/settlement statements.
Under RESPA, a lender cannot charge a fee for any services performed in connection with the dissemination of information required under this law. This would include the truth-in-lending statement and the uniform disclosure/settlement statement.

Question 7

f the Federal Reserve Board wanted to create a tight money market, it would
A) raise discount rates and buy bonds.
B) lower discount rates and sell bonds.
C) lower discount rates.
D) raise discount rates.

Answer 7

D) raise discount rates.
The Federal Reserve Board could create a tight money market by restricting the flow of money and credit. It could use one or a combination of any of these three methods: (1) Raise the reserve requirement of its member banks (not in any of the choices); (2) Sell U.S. government bonds through its Federal Open Market Committee; (3) Raise the discount rate on short term loans made to its member banks.

Question 8

In the sales comparison approach, the adjusted sales price of the comparable property is
A) indicated by agreement between the buyer and the seller.
B) the only indication of the market value.
C) a direct relationship to market value.
D) an estimate of value of the comparable property with similar prominent characteristics to the subject property.

Answer 8

D) an estimate of value of the comparable property with similar prominent characteristics to the subject property.
Sales prices of “comps” are adjusted to reflect what the comparable property might have sold for had it been more nearly identical to the subject property-or had similar prominent characteristics to the subject property.

Question 9

The Jacksons bought a residence with a first trust deed loan from a savings and loan. The Londons bought a residence with a first trust deed loan from a bank. The Londons refinanced, obtaining a first trust deed loan from a savings and loan, to get money for a business opportunity. Which statement is correct?
A) The Jacksons do not have the right of rescission, the Londons do.
B) Both have the right of rescission.
C) The Londons do not have the right of rescission, the Jacksons do.
D) Neither has the right of rescission.

Answer 9

D) Neither has the right of rescission.
The Truth in Lending Act applies only to refinance loans and for personal, family, or household purposes, never for business loans regardless of what collateral is put up. Therefore, the Londons have no right of rescission.

Question 10

The legal term laches is best described as
A) a writ of attachment.
B) inexcusable delay in asserting a legal right.
C) a court with no jurisdiction.
D) a deficiency judgment.

Answer 10

B) inexcusable delay in asserting a legal right.

Laches means delay or negligence in asserting one’s legal rights. Such a delay can make a contract unenforceable.

Question 11

Joint tenancy and community property interests have what in common?
A) Survivorship
B) Equal interests
C) Same conveyance
D) Both involve the husband and wife

Answer 11

B) Equal interests
In order to create a joint tenancy and community property, there must always be equal interest. In community property, the interests are equal but without the right of survivorship, unless it is specifically indicated as “community property with right of survivorship.” A joint tenancy may or may not involve a husband and wife.

Question 12

According to the Government Code, a person discriminated against when buying a home may

Answer 12

• purchase the home if it is still available.
• be awarded punitive and actual damages.
• purchase a similar home from the owner if one is available.
  Government Code Section 12987 provides that a person who has been discriminated against in the sale or rental of housing accommodations may be entitled to the sale or rental of the home if it is still available, or to the sale or rental of a like housing accommodation if one is available. Punitive damages of up to $1,000 may be awarded, as well as actual damages.

Question 13

In the absence of a special agreement to the contrary, a trust deed normally having highest priority is one that was
A) a construction mortgage.
B) recorded first.
C) executed first.
D) executed and delivered first.

Answer 13

B) recorded first.
Generally, recording establishes the priority of a trust deed. “First to record is first in right.” An exception would result from the existence of a subordination clause. Other exceptions may exist in relation to mechanics’ liens and judgment liens.

Question 14

An escrow company received two termite reports in which the estimates of cost of the work differed. Under these circumstances
A) the most expensive report should be used.
B) the seller and broker must decide which report to use.
C) the least expensive report should be used.
D) the seller and broker should present both reports to the buyer.

Answer 14

D) the seller and broker should present both reports to the buyer.
The results of a pest control inspection report, including the cost of corrective work, would be material facts to a buyer and must be disclosed. If two or more inspections are made, all reports must be disclosed.

Question 15

What is the difference between real property taxes and assessment bonds?
A) Special assessments are levied by special improvement districts only.
B) Special assessments are used for local improvements.
C) Assessments are subordinate to real estate taxes.
D) Assessments have superiority over property taxes.

Answer 15

B) Special assessments are used for local improvements.
Property taxes are charged in relation to the value of the property being taxed. Special assessments are imposed on real property for a specific local purpose, which requires approval of 2/3 of the voters. Taxes and assessments are said to be on parity, meaning they have equal footing. Neither is subordinate to the other.

Question 16

Riparian rights refer to

Answer 16

rivers and streams.
Riparian rights refer to flowing water as in rivers or streams or in other watercourses (waters flowing in a fixed or defined channel).

Question 17

Rights associated with tidal or standing waters like lakes, oceans, and bays are called

Answer 17

littoral rights.

Question 18

A real estate licensee negotiated the sale of a farm for a seller. The agent’s commission can be paid in which form?
A) Assignment of funds from buyer to seller
B) Check or cash
C) Assignment of existing note
D) Any of these

Answer 18

D) Any of these
Under normal circumstances, a commission is paid by check. However, as long as the principal and the broker agree, the commission may be paid in any of the forms listed.

Question 19

Which is a freehold estate?
A) Estate for years
B) Estate in fee
C) Estate at sufferance
D) Estate at will

Answer 19

B) Estate in fee
Freehold estates are either (1) fee simple estates or (2) life estates. The wrong answer choices here are all less-than-freehold estates: (1) Estates for years (2) Periodic tenancies (3) Estates at will (4) Estates at sufferance.

Question 20

When referring to real estate finance, the term impounds most nearly means
A) penalty.
B) moratorium.
C) reserves.
D) attachment.

Answer 20

C) reserves.
In real estate finance, the term impounds means reserves, which is a trust-type account established by lenders for the accumulation of a borrower’s funds to meet periodic payment of taxes and insurance as they become due.

Question 21

A due-on-sale clause, whether it is enforceable or not, contained in a mortgage or trust deed is a type of
A) acceleration clause.
B) defeasible clause.
C) legally enforceable clause.
D) executed clause.

Answer 21

A) acceleration clause.
A “due-on-sale” clause, also called an alienation clause, is a form of an acceleration clause found in some mortgages or trust deeds authorizing the lender to call the loan when the property is conveyed. This clause eliminates the new buyer’s assuming the mortgage unless the mortgagee permits the assumption, in which case the mortgagee could increase the interest rate and/or charge an assumption fee.

Question 22

In a real estate office, worker’s compensation should be carried on

Answer 22

Legally, employees need to be covered by worker’s compensation. As the law is not clear on the relationship between a broker and a salesperson, the broker would be prudent to cover their salespersons also.

Question 23

A brother and sister owned property in joint tenancy. All his other affairs were separate. The brother died penniless, leaving many unsecured debts. The creditor could
A) obtain no satisfaction since the property is owned by the sister.
B) place a lien against the sister’s property.
C) attach the property that was owned in joint tenancy.
D) appeal to the probate court, which would be able to pay creditors out of the sale of the sister’s proper

Answer 23

A) obtain no satisfaction since the property is owned by the sister.
Upon the death of one joint tenant, the interest passes to the survivor free and clear of claims by the creditors. Since the brother’s creditors did not institute court action to sell the property and satisfy their lien prior to his death, they have no right to the title now held in severalty by the sister.

Question 24

When property tax increases and all other items remain the same, an income property

Answer 24

decreases in value by more than the amount of the taxes.
The property will decrease in value by more than the amount of the taxes based on the reduced annual net income (assume a $500 tax increase and a 10% capitalization rate; loss of value would be $5,000).

Question 25

A 17-year-old divorced woman wants to list her part of what had been community property with a broker. With regard to the listing, the broker
A) may not take the listing because the divorced woman is a minor.
B) should wait for court approval.
C) may take the listing when she becomes 18 years old.
D) can proceed with the listing request.

Answer 25

D) can proceed with the listing request.
Since the divorced woman is emancipated she need not seek court approval. If she is divorced, it doesn’t matter whether she is a minor because she is emancipated. Her age is also immaterial because she is emancipated. Therefore, indicating the broker can proceed with the listing request is correct. Once a person has been married the person is emancipated and continues to be even if later divorced. On the exam, a “single person” is someone who has never been married.

Question 26

James, an 11-year-old minor, owned a farm and asked his father to contract a broker to sell the farm. The father listed the property with a broker. The farm was sold and the deed was signed. James later changed his mind and wanted the farm. This transaction was
A) valid because the father was acting for his son.
B) void because the father arranged the sale through a broker.
C) void because James was a minor.
D) rescinded simply because James changed his mind.

Answer 26

C) void because James was a minor.

Since the grantor was a minor, the deed is void at inception.

Question 27

What binds buyer and seller in a contract?
A) Title insurance
B) Acknowledgment
C) Recording
D) Offer, acceptance, and communication

Answer 27

D) Offer, acceptance, and communication
Mutual consent (offer and acceptance) is one of the four essential elements of a valid contract. The other three requirements are capacity of the parties, consideration, and lawful object.

Question 28

What would contribute to the functional obsolescence of a building?
A) Declining neighborhood
B) Adverse zoning across the street from the property
C) Massive cornices on a building
D) Rotten mud sills

Answer 28

C) Massive cornices on a building
Functional obsolescence is inherent within the building and arises from poor or outdated architecture. A declining neighborhood and adverse zoning across the street from the property are economic obsolescence. Rotten mud sills are physical deterioration.

Question 29

At 10:00 AM a broker receives an offer that meets full price and all terms of the listing. At noon, before he or she could submit the first offer, he or she receives a second offer on the same property for less money but all cash. The broker decides to submit the first offer and, if it is rejected, to submit the second offer. Which statement is TRUE?
A) This is proper since one should submit offers in the order received.
B) This is improper since the broker owes a fiduciary relationship to both buyers.
C) This is proper since the second offer was for less than the listed price.
D) The broker could be disciplined by the real estate commissioner.

Answer 29

D) The broker could be disciplined by the real estate commissioner.
All offers should be submitted. For withholding material facts, a broker could be disciplined by the real estate commissioner. While it is correct in that the action is improper, the listing broker owes fiduciary duties to the seller, not to the buyer.

Question 30

Police power is a governmental right and would result in
A) deed restrictions in a subdivision.
B) judgments.
C) zoning standards.
D) the taking of private property for the construction of a highway.

Answer 30

C) zoning standards.

The government’s police power is the basis for zoning ordinances.

Question 31

The taking of private property is based on the government’s rights of

Answer 31

eminent domain.

Question 32

Judgments result from the power

Answer 32

of the judicial branch of government.

Question 33

Deed restrictions are

Answer 33

private restrictions.

Question 34

In an advertisement, only the annual percentage rate is mentioned. What else must also be disclosed in the ad?
A) Amount of down payment required
B) Monthly payments required
C) Amount of loan
D) No further disclosures necessary

Answer 34

D) No further disclosures necessary

If only the APR is given, no additional disclosures are required. Don’t confuse that with the following rule:

Question 35

If any one of the following is given:
- Amount or percentage of any down payment
- Number of payments or period of repayment
- Amount of any payment
- Amount of any finance charge
Then, the ad must disclose:

Answer 35

• Amount or percentage of the down payment
• Terms of repayment
• APR, and if the rate may be increased, that fact

Question 36

The term associated with urban renewal programs, when existing structures are demolished and new ones built, is
A) redevelopment.
B) reclamation.
C) relocation.
D) renovation.

Answer 36

A) redevelopment.

Redevelopment is a term associated with clearing and rebuilding a slum or blighted area.

Question 37

The federal Fair Housing Law contains provisions to prevent discrimination due to race, color, religion, sex, or national origin. A violation of this law would be considered
A) illegal.
B) against public policy.
C) unlawful.
D) All of these.

Answer 37

D) All of these.

Discrimination is illegal, unlawful, and against public policy.

Question 38

What best describes an attorney-in-fact?

Answer 38

A legally competent person appointed to represent another person through a power of attorney.
A power of attorney is a written instrument giving authority to an agent, called an attorney-in-fact. Don’t confuse with attorney-at-law.

Question 39

Johnson, who owns a ranch, gave Broker Otis an exclusive listing to sell the property. Johnson also advanced Otis $100 to advertise the sale of this ranch in a brochure published by Otis. The real estate law requires that brokers must account for such funds by placing the $100
A) in the broker’s trust account in order that the money may be returned to the seller if the property is not sold.
B) in the broker’s personal office account and spend it only for advertising the property.
C) in the broker’s trust account in case the seller defaults.
D) in the broker’s trust account, expend from the trust account only for advertising the property, and provide a report to the seller that will itemize all expenditures made.

Answer 39

D) in the broker’s trust account, expend from the trust account only for advertising the property, and provide a report to the seller that will itemize all expenditures made.
The $100 collected by the broker is an “advance fee” because the money to pay for it is collected from the principal in advance, distinguished from advertising in a newspaper and paying for the advertising after the fact out of the commission collected. By law, in order to avoid possible misuse or errors, such advance fees must be placed in the broker’s trust account and expended only for advertising the property, and brokers must provide a report to the seller itemizing all expenditures made.

Question 40

George Greedy owns a subdivision in Roughacres and intends to mail a promotional brochure to 1,000 persons. The brochure will offer gifts and prizes and state that winners will be property owners. The brochure does not state that a person must attend a sales seminar and tour the subdivision in order to be eligible for a gift or prize. Would this brochure be in violation of any law?
A) Yes, it is unlawful since he did not disclose that a person must be present and attend a sales seminar to be eligible for a gift or prize
B) No, it is not unlawful since each person who wins a prize is also a property owner
C) Yes, it is unlawful since you cannot win a prize and be a property owner
D) No, it is not unlawful since he is not required to disclose that a person must attend a sales seminar in order to become eligible for a gift or prize

Answer 40

A) Yes, it is unlawful since he did not disclose that a person must be present and attend a sales seminar to be eligible for a gift or prize
Commissioner’s Regulation 2799.1(3a) states: “Complete rules and procedures for any contest or drawing advertised in connection with the marketing of subdivision interests shall be included in the advertisement…”

Question 41

Which is considered real property?
A) Fruit that was to be picked after the sale, as agreed upon by both the buyer and seller
B) Shrubs to be planted around a yard
C) A stud in the wall of a house
D) Fixtures removable by a tenant

Answer 41

C) A stud in the wall of a house
Of the four choices given in this question, only a stud in the wall of a house is real property. A stud is a vertical framing member of a wall to which horizontal boards are attached. They are the supporting elements in walls or partitions.

Question 42

A property is sold in accordance with the listing terms and conditions. After the transaction is in escrow, the seller decides that he doesn't wish to complete the transaction and refuses to complete the sale. Under the Statute of Limitations, the buyer must bring any action against the seller for failure to perform under the deposit receipt within
A) two years.
B) one year.
C) four years.
D) 90 days.

Answer 42

C) four years.

The statute of limitations requires any legal action to commence within four years on any written contract.

Question 43

Broker Hardy received a listing from Watson to sell Watson’s commercial property, along with an option for Hardy to purchase within 30 days. After 27 days, Hardy decided to exercise his option and purchase the property. Hardy must
A) disclose his potential profit and obtain the written consent of the principal approving the amount of such profit.
B) do all of these.
C) inform Watson of all material facts concerning the property.
D) present all outstanding offers to Watson.

Answer 43

B) do all of these.
The Real Estate Law (B & P Code Section 10176 [h]) requires that a broker who holds both a listing on and an option to buy the same property must, before he exercises the option to buy, “reveal in writing to the employer [owner/principal] the full amount of licensee’s profit and obtain the written consent of the employer approving the amount of such profit.”

Question 44

An estate in real property consisting of an undivided interest in common in a portion of a parcel of real property, together with a separate interest in space in a residential, industrial, or commercial building is a partial definition of a
A) community apartment.
B) stock cooperative.
C) condominium.
D) planned development.

Answer 44

C) condominium.

Question 45

Which would NOT be covered by a CLTA policy but would be covered by an ALTA policy?
A) Property lines accurately established by a survey
B) Mistakes in liens and documents of record
C) Capacity of the grantee of a deed of reconveyance
D) Discrepancies found in documents of record

Answer 45

A) Property lines accurately established by a survey

Facts appearing in a correct survey would be one of many risks covered by an ALTA policy not covered in a CLTA policy.

Question 46

Which does NOT constitute an estate in real property?
A) Reversion
B) Leasehold
C) Remainder
D) Deed of trust

Answer 46

D) Deed of trust
An estate in real property is a possessory interest. A deed of trust conveys only a security interest, not a possessory interest. Estates in remainder and in reversion are both future possessory interests. A leasehold estate is a present possessory interest.

Question 47

A leasehold estate

Answer 47

is a present possessory interest.

Question 48

Estates in remainder and in reversion are both

Answer 48

future possessory interests

Question 49

An estate in real property is a

Answer 49

possessory interest.

Question 50

A deed was given by "A" to "B" with oral instructions not to record the deed until "A's" death. The deed was
A) voidable.
B) valid.
C) void.
D) illegal.

Answer 50

C) void.
As stated in the DRE Reference Book, “A deed is of no effect unless delivered. But delivery in this context means more than a turning over of the physical possession of the document. The grantor must have the intention to pass title immediately. It is possible in some cases to have a legal delivery without the instrument actually being handed to the grantee, if the grantor has the requisite intent to transfer title.

That intention is not present if A gives B a deed but tells B not to record it until A’s death, both parties believing the deed is ineffective until recorded. Nor is such intention present in the typical case of cross-deeds between husband and wife placed in a joint safe-deposit box with the understanding that the survivor will record his or her deed.”

Question 51

An appraiser is employed to advise an apartment owner of the economic feasibility of construction of a swimming pool. The appraiser would be most concerned with which valuation principle?
A) Regression
B) Integration
C) Contribution
D) Substitution

Answer 51

C) Contribution
The principle of contribution is applied to a portion of the property (in this case the added swimming pool) and affirms that the value of an additional improvement is measured by its contribution to the net return of the combined enterprise.

Question 52

Mr. Jones owned two pieces of property and sold the front property to Mr. Smith, reserving an easement in the deed for access to the rear property. Jones was gone for 31 years. When he returned, Smith claimed Jones no longer had an easement because of nonuse. The easement is
A) invalid because of nonuse for over 30 years.
B) valid because easements created by deed do not terminate.
C) invalid because an owner cannot grant himself an easement.
D)invalid because of nonuse for over 20 years.

Answer 52

B) valid because easements created by deed do not terminate.
Jones created an easement by reservation in the deed at the time title was conveyed to Smith. Since this easement was created by a deed, it is not lost through nonuse. Only an easement acquired by prescription is lost by nonuse.

Question 53

The real estate commissioner may require impounding of a purchaser's deposit in a subdivision when the blanket mortgage does not contain an unconditional release clause. This is for the benefit of the
A) purchaser.
B) mortgage holder.
C) lender.
D) owner of the subdivision.

Answer 53

A) purchaser.
In the event there is no release clause in a subdivision that is subject to a blanket encumbrance, one alternative for the real estate commissioner is to require an escrow for all or a part of the purchaser’s money as indicated in Section 11032 (a) of the Business and Professions Code.

Question 54

A planned development could be
A) commercial.
B) residential.
C) any of these.
D) industrial.

Answer 54

C) any of these.
A planned development is a subdivision of five or more lots, including areas owned in common, and could be residential, commercial, or industrial.

Question 55

All of these may be negotiable instruments EXCEPT
A) installment note.
B) bank draft.
C) check.
D) mortgage securing a promissory note.

Answer 55

D) mortgage securing a promissory note.
The mortgage contract is the security for the debt but not a negotiable instrument as defined by law. Common examples of negotiable instruments are checks, publicly traded stocks, and promissory notes. Negotiability is the quality that allows the instrument to circulate as money does.

Question 56

A trustor, under a deed of trust, defaults on a note and refuses to reinstate the loan. The most expedient thing for the beneficiary to do is to institute a
A) judicial foreclosure.
B) lien sale.
C) sheriff's sale.
D) foreclosure sale.

Answer 56

D) foreclosure sale.
A trustee’s foreclosure takes approximately four months and is referred to as foreclosure sale. A sheriff’s sale would be a court foreclosure known as a judicial foreclosure and could take up to four years.

Question 57

The clause that provides that the broker is eligible for a commission after the termination of an authorization to sell is the
A) probate clause.
B) anti-theft clause.
C) liquidated damages clause.
D) protection clause.

Answer 57

D) protection clause.
A protection clause (also called a safety clause) in a listing agreement binds the seller to the payment of a commission to the broker if the property is sold within a period of so many days after the expiration of the listing to a person with whom the broker negotiated during the listing period.