Simulated Exam 1 Flashcards
Real estate investments may include:
A. Reduced unemployment.
B. A stable economy.
C. Debt and equity funds.
D. Proposition 13.
C. Answer choice C is correct since debt and equity funds are forms of real estate investments. Answer choices A and B may represent the benefits of real estate investments, but are not real estate investments themselves.
The federal truth in lending act (TILA) defines the annual percentage rate (APR) as:
A. The total of only the direct costs of credit paid by a borrower.
B. The total of all costs which the borrower needs to pay in order to get the loan.
C. The relative cost of credit expressed in percentage terms.
D. The difference between the 10 year treasury note and a three month treasury bill.
C. The annual percentage rate (APR) is stated as a percentage and represents the total cost of credit including the prepaid interest costs (points).
In the buyers closing statement, the selling price is listed as:
A. A debit to the buyer.
B. A credit to the buyer.
C. A debit to the seller.
D. A debit to the lender.
A. The seller is credited for the sales price in the buyers closing statement; the buyer is debited. The credit to the buyer comes from how the sales price is paid, typically a cash down payment and purchase assist financing.
Which of the following deed provisions are enforceable?
A. The property may not be sold to minorities.
B. The property may not be used for religious purposes.
C. The property may be occupied only by females.
D. The property needs to remain with the grantor and their heirs in perpetuity.
B. A deed restriction can prohibit religious use of a property but not discriminate against minorities or females.
A mortgage broker’s fee is customarily paid by the:
A. Lender.
B. Seller.
C. Borrower.
D. Under writer.
C. Mortgage broker fees are customarily, though not exclusively, paid by the borrower.
For a sales person to be given the authority to review purchase agreements and contracts by their broker, the sales person granted supervisory powers needs to have:
A. Accumulated two full years experience within the last five years.
B. Accumulated two full years experience within the last 10 years.
C. Accumulated two full years experience as well as two years college education.
D. Been employed by the broker for a minimum of two years.
A. This is a required experience question. For a sales person to be given the authority to review documents by their broker, they need to have accumulated two full years experience within the last five years. This is true for broker license fees as well.
A group of competing brokers who collectively set commissions based upon an agreed to minimum commission schedule are:
A. In violation of antitrust law.
B. Conducting an aggressive business practices.
C. Not in violation of ethics laws.
D. In violation of trust fund accounting requirements.
A. A conspiracy such as the one described in this question is a clear violation of antitrust laws. The laws are designed to prevent the formation of monopolies and encourage competition in the market.
The physical loss of land due to the change in location of a body of water is an example of:
A. Correlated users.
B. Avulsion.
C. Ponding.
D.Reliction .
B. Avulsion is the loss of land through natural forces. Reliction is the gaining of land area.
When representing their client to third persons in a sale, a licensed real estate broker is operating under the law of:
A. Real estate.
B. Agency.
C. Power of attorney.
D. Licensure.
B. In the context of representing their client to third person in a sale, the law of agency exists for the purpose of clarifying the conduct of an agent when dealing with a third-party for the benefit of their client.
Agency relationships may not be solely created by:
A. Voluntary offer by the agent.
B. Implied contract.
C. Ratification.
D. Necessity or emergency.
A. An agency relationship cannot be created solely by the voluntary act of only the agent. The formation of an agency relationship requires a written or oral agreement between both the principal and the agent. Both an implied agency and agency created by emergency needs to be ratified by the principal.
A bank loans Lauren $850,000. Part of the loan agreement calls for Lauren to keep $20,000 of the loan funds on deposit with the bank for the life of the loan. This is an example of:
A. Prepaid charges.
B. Yield enhancement.
C. Risk management.
D. Compensating balance.
D. This question illustrates the need to select the best answer available. The correct term for what the bank has required is a compensating balance- leaving enough money with the bank to offset potential forclosure costs. It can also be said to improve the yield and reduce the lender’s risk.
The term “kiosk” refers to a(n):
A. commercial warehouse.
B. Dome frequently found on churches.
C. storage warehouse.
D. open sided booth.
D. Kiosks are the small stands in the promenade of a shopping mall
The physical age of the house can be determined best by inspecting:
A. The architectural style
B. County records.
C. The physical condition of the property.
D. The original recorded subdivision map.
B. County records are clearly the most accurate way to determine the physical age of the house.
A real estate agent needs to elect their agency relationship:
A. As soon as escrow opens.
B. Before escrow closes.
C. As soon as practical.
D. Whenever asked by either principal.
C. The election of an agency role needs to be chosen as soon as possible and then confirmed with all participants.
Assemblage is closest to:
A. Residual value.
B. Plottage.
C. Contribution.
D. Substitution.
B. Assemblage is the act of combining parcels of land to derive an increase in value, called plottage
A brokers receipt of any deposit towards marketing costs from the seller is documented:
A. In the broker’s bank statements.
B. And reported to the California Bureau of real estate.
C. In a subaccount ledger.
D. And accounted to the seller.
D. Monies advanced to the broker for future marketing costs need to be accounted to the seller.
All real estate brokers and sales agents are required to complete _____ hours of continuing education every four years to renew their California Bureau of real estate (CalBRE) license.
A. 15.
B. 30.
C. 45.
D. 50.
C. A licensee needs to complete 45 hours of continuing education every four years. Noticed that this question contains an answer to another state question regarding how often a licensee needs to be renewed- every four years.
The form style of an appraisal report includes all of the following information, except:
A. A site analysis.
B. A description of the improvements.
C. A market analysis.
D. Loan and financing data.
D. Appraisals state factual data about the property and surrounding area, not the financial and loan data.
Which of the following is not considered ethical behavior?
A. A broker who approves of a pocket listing policy among their staff that is done for personal gain, not to benefit the client.
B. Keeping complete records of all sales and listings.
C. Resolving disputes between brokers through mediation.
D. Disclosing agency relationships to all interested parties.
A. The pocket listing is inappropriate since, for the agents personal gain, the property is not being exposed in the multiple listing service (MLS). The alternative answer selections are all positive ethical decisions, and thus cannot be correct. If the “not” in the question was missed, it may be difficult to choose between the mania remaining incorrect answers.
All of the following are essential to creating a valid contract, except:
A. Lawful object.
B. Mutual consent.
C. Capable parties.
D. Written documentation.
D. This is an EXCEPT question. An oral contract may be valid, and thus D. Written documentation is the correct answer. A valid contract requires four elements be present: capable parties, consideration, legal object and mutual consent.
Who may withdrawl trust funds?
A. And unlicensed person.
B. Any employee of the broker.
C. Any employee authorized by the broker.
D. A notary public administering an oath or affirmation.
C. The broker may authorize any employee to be responsible for trust fund withdrawls.
Most real estate sales lawsuits are heard in:
A. The Court of Appeals.
B. Small claims court.
C. The state Supreme Court.
D. The state superior court.
D. The state superior court is where most real estate lawsuits are heard. Generally real estate cases are too large for small claims court to settle. The Court of Appeals and the state Supreme Court will only hear those cases not settled by a lower court.
Mineral and water rights are included in the ____________ which are transferred with the sale of a property.
A. Tenant rights
B. Government rights
C. Bundle of rights
D. Emblements
C. Mineral and water rights are transferred with the sale of the property.
A buyer purchased a home without being informed the house was on a septic tank system.
The buyer has the right to:
A. Rescind the contract.
B. Have the broker disbarred.
C. See you the escrow company for malfeasance.
D. Report the seller to the California Bureau of real estate (CalBRE) for failure to disclose.
A. Only answer selection A. Rescind the agreement is appropriate. This is an excellent example of arriving at the correct answer by eliminating the incorrect answer choices. Choice D fails since the seller doesn’t answer to the real estate commissioner. Choice C fails since the escrow officer is not responsible for disclosures. Choice B fails since most brokers are not members of the State Bar.
A fully amortized loan has equal monthly payments. The portion of the payment applied to principle:
A. Goes down each month.
B. Goes up each month.
C. Remains unchanged.
D. Goes up but equal amounts each month.
B. With a fully amortized mortgage, the interest expense is subtracted from the payment first. As a portion of principle is paid each month, the loan balance is reduced and therefore interest portion of the payment goes down. This in turn causes the principal portion to rise.
The federal loan estimate is to be delivered to a borrower:
A. Within three business days of receipt of a consumer mortgage application.
B. Within three business days of closing.
C. No more than one calendar day before the close of escrow.
D. At least 10 business days from the date of the loan commitment.
A. The federal loan estimate needs to be delivered to a borrower within three business days of the lenders receipt of a consumer mortgage application.
Peter sold his home to Matt. Matt didn’t record the grant deed, but moved into the house. Peter then sold the same property to Isabella, who reviewed the county recorder’s records but did not look at the house. Peter gave Isabella a deed, which she recorded. Which of the following is true concerning title to the property?
A. Matt maintains title.
B. Isabella now owns the property since she reported her deed and Matt did not.
C. Isabella has recourse against Matt for his failure to record.
D. Matt and Isabella are co-owners of the property.
A. Since Isabella failed to look at the property and determine whether it was occupied, Matt retains title. Constructive notice requires that the buyer (Isabella) look at the property as well as the county records.
A seller entered into an oral listing agreement to sell real estate with a broker without a follow up written verification.
The payment of a commission to the broker under the circumstances is:
A. Unenforceable.
B. Enforceable.
C. Violation of the regulations of the real estate commissioner.
D. Regarded as contrary to public policy.
A. The only issue regarding an oral listing is that it fails the conditions of statute of frauds which requires the listing to be in writing to be enforceable. As such, the brokers fee is unenforceable in a court action.
The relationship between a vendor and vendee under a land sales contract is most similar to the relationship between a(n):
A. Trustor and trustee.
B. Broker and seller.
C. Escrow office and principle.
D. Seller and buyer.
D. In a land sales contract, the seller acts as lender and retains title to the property until paid in full. The relationship most similar to this would be that of the borrower and lender i.e. mortgagor and mortgagee
A real estate broker wrote an offer on a property for their buyer that was contingent on the approval of the home by the buyers father. The buyer informed the broker their father was out of the country for an unknown duration. The broker presented the offer to the seller without disclosing that the buyers father was out of the country. The seller excepted the offer. In this example, the brokers conduct was:
A. Unethical
B. Unlawful.
C. Misleading.
D. Acceptable.
B. The misleading nature of the undisclosed factor rises to the level of unlawful conduct as it places the seller in a position in which they can neither sell the property to someone else nor complete the transaction. As with puffing, it is the belief and trust bestowed by the principle that causes the act to move beyond a matter of ethics and become unlawful.
Acme development sent postcards to 25,000 AARP members offering prices without disclosing the requirement to visit the retirement community and attend a sales presentation in order to win. Is this legal?
A. Yes, prices are always offered.
B. No, since the developer failed to disclose the need to visit the property and attend a sales presentation.
C. Yes, so long as the offer is open to anyone. D. No, because prices might be used as an encouragement to buy the property.
B. The issue raised by this question is one of disclosure. Prizes and gifts are allowable so long as there is a full disclosure of all the terms and conditions associated with the promotional event.
An individual who has been delegated agency duties by an agent of the client, not the client directly, is known as a(n):
A. Principal
B. Amanuensis
C. Subagent.
D. Subtenant.
C. An individual who has been delegated agency duties by the primary agent of the client, not the client themselves, is a subagent. For example, when another broker acts on behalf of a seller at the request of the sellers broker, a sudagency with the seller has been established by the brokers.
Compliance with the agency law is required in which of the following transactions?
A. A duplex sold by an owner.
B. Trustee’s sale.
C. A transfer between parent and child.
D. A residential lease with the two-year term.
D. The agency law disclosure is only required on transactions involving a licensed agent and is delivered to all parties in sale transactions or leases exceeding one year on other than five or more unit residential properties.
If homes in an area represent the highest and best use of the land and are similar in architectural design, which of the following principles of appraisal apply?
A. Anticipation.
B. Contribution.
C. Conformity.
D. Substitution.
C. There are several principles to real estate value. The principle of conformity holds that the maximum value is realized when a reasonable degree of homogeneity of improvements is present. Use conformity is desirable, creating and maintaining higher values.
It is unethical for a property manager’s compensation to be structured as:
A. Payment for significant property repairs performed by the manager.
B. A percentage of gross receipts.
C. A commission on new leases entered into on the premises.
D. Kickbacks or discounts on goods and supplies.
D. A property manager’s compensation may take several forms. However, kickbacks from suppliers or service companies are unethical as those savings rightfully belong to the client.
Under the real estate law, a real estate sales person is:
A. An independent contractor.
B. An employee of the broker.
C. And employee of the seller.
D. Self employed.
B. This question requires us to except a dichotomy unique to real estate. A sales person is an employee an agent of the broker for the purpose of the real estate law. However, they are generally classified as an independent contractor for tax purposes.
Insulation values are rated as “R.” What does this represent?
A. Resistance to heat flow.
B. Cost.
C. Thickness.
D. Material used.
A. Insulation is designed to avoid the transfer of heat. The higher the installations R factor, the greater the resistance to heat loss.
Broker Gary sold a property to Sarah that was marked “as is”. Broker Gary knew that the properties plumbing was in a major state of disrepair but did not tell Sarah. The problem with the plumbing is not apparent to an ordinary, prudent person. If Sarah sued the seller for damages, the court action would likely be:
A. Successful since the duty to disclose a material fact cannot be avoided by an “as is” provision under the state circumstances.
B. Successful since as is refers only to obvious defects.
C. Unsuccessful since the buyer agreed to buy the property in its current condition.
D. Unsuccessful since the “as is” status of the sale shows there is a mutual understanding of possible defects.
A. An “as is” defense by the seller requires full disclosure of all material facts known about a property. “As is” is not synonymous with “no disclosure required”.
To make a formal declaration that a statement is true without giving an oath is a(n):
A. Acknowledgment.
B. Affirmation.
C. Affidavit.
D. Deception.
B. Both answer selection A and C are formal declarations that require an oath. Only an affirmation stops short of the oath.
A “turnkey” project is:
A. Construction of a property from groundbreaking to completion.
B. A subdivision whose design has been approved by the local planning commission.
C. A franchise sale.
D. A purchase and resale.
A. The term “turnkey“ implies a property is complete and ready for immediate occupancy, requiring nothing more of the property to for fill its intended purpose.
Harold wills the family estate to his son Patrick on the condition Patrick marry before title will be transferred. This is an example of a:
A. Covenant.
B. Restriction.
C. Condition precedent.
D. Condition subsequent.
C. A condition precedent is a provision in an arrangement calling for the occurrence of an event or performance of an act before title is transferred.
Information about the thickness and material used for the foundation footing of the property are contained in:
A. Elevation plans.
B. Plot plans.
C. Foundation plans.
D. County records.
C. The foundation plans speak to questions related to the building foundation in the same manner that a framing plan illustrates the framing of the property.
Amelia deeds a property to Buster which is never recorded. How would Buster transfer title back to Amelia?
A. By destroying the deed.
B. By handing the deed back to Amelia as a reconveyance.
C. By writing “canceled” across the face of the deed and returning it to Amelia.
D. Creating a new deed.
D. A deed becomes valid once it is delivered. To transfer a property to another individual or back to the previous owner, a new deed is to be executed and delivered. Failure to do so may render the ownership and big US and create a cloud on title.
Why is the replacement cost appraisal approach generally easier to apply to a new property than an old property?
A. Historic costs are hard to obtain and verify for older properties.
B. It’s difficult to value the land on which the property is situated.
C. Depreciation is more difficult to estimate on an older property.
D. Different building codes may have been in effect when an older property was built.
C. A new property requires no adjustment for depreciation. Under the replacement cost approach, the appraiser determines the dollar amount required to replace an improvement at its current cost. As the property ages, the depreciation is greater. The effective age of a property, which is what depreciation is based on, is affected by remodeling and maintenance variation unique to each property. Thus, replacement cost appraisal approach is generally easier to apply to a new property and than an old property.
Unless fraud is involved, an action against a licensee by the real estate commissioner needs to be initiated within ___________ of the occurrence of the alleged violation.
A. Two years
B. Three years
C. Four years
D. Five years
B. The statute of limitations allows a three year. After the alleged violation for the real estate commissioner to initiate an action against a licensee, except in the case of fraud where the limit is three years from the occurrence or one year of the discovery.
Fee amounts are always:
A. 6% of the price received for the property.
B. 2% to 8% of the price received for a property.
C. Nonnegotiable and set by law.
D. Negotiable and not fixed by law.
D. Though commonly 6% of the price received for a property, the amounts are always negotiable and not fixed by law
A buyers agent prepares an offer for a buyer of the home. When is the buyers agent to give the buyer the agency law disclosure form?
A. As soon as practicable.
B. Before showing the buyer the house.
C. Before preparing the offer for the buyer.
D. At opening of escrow.
A. The three steps in the creation of an agency relationship or to first disclose, then elect who is represented, then confirm that decision. Disclosure is to be made as soon as practicable.
The organization responsible for the enforcement of proper sewage and sanitation construction practices in a subdivision is the:
A. State sewage department.
B. Real estate commissioner.
C. Local health department.
D. Department of housing and urban development (HUD).
C. Neither the real estate commissioner nor the federal department of housing and urban development (HUD) have a direct concerned with local sewage management. Further, there is no state sewage department. This, by elimination, that leaves only answer selection C. Local health department.
A metropolitan area where the cities with in it have a grown together is known as a(n):
A. Megalopolis.
B. Suburb.
C. Planned unit development.
D. Matrix sprawl.
A. When a metropolitan area grows by the connection of various cities with it it it becomes an megalopolis
The employment agreement between a broker and a sales person needs to be retained by the broker and the sales person for:
A. Three years from the date of the execution of the contract.
B. Three years from the date of the termination of the sales person’s employment.
C. Four years from the date of the termination of the sales person’s employment.
D. Five years from the date of the termination of the sales person’s employment.
B. Employment records between a broker and a sales person need to be kept for three years. The three year timeperiod begins to run on the termination of the employment.
In the instance of condominium ownership, which of the following may be held in fee title?
A. The outside yard.
B. The public hallways.
C. The individual units.
D. All of the above.
D. Any condominium complex, an individual owner owns their own condo as well as a proportional share of all common areas. They can own both in fee title.
A broker relayed property information they received from their seller to a buyer. Upon discovering the information to be false, the broker is to:
A. Inform the seller of the error.
B. Inform the buyer.
C. Informed the escrow officer.
D. Keep silent.
B. If a broker has already communicated false information to the buyer that was not known to the broker to be incorrect, they need to clarify the information with the buyer once they discover it’s inaccuracy. Informing the seller will not resolve the earlier missinformation given to the buyer and the escrow officer is not the person he would duty bound to pass along the correct information to the buyer.
A 60‘ x 45‘ building is to be carpeted. 60% of the square footage will be covered at a cost of $6 per square yard.
The total cost of the carpeting will be:
A. $1,080
B. $1,6,200
C. $1,800
D. $9,720
A. $1,080
Mark purchased an apartment building for $2 million. The list price was $2,500,000. Mark put $500,000 down and acquired a new first trust deed for the difference. Marks cost basis for income tax purposes is:
A. $500,000.
B. $1,500,000.
C. $2,000,000.
D. $2,500,000.
C. Cost basis is the cost incurred to acquire and improved property and is used primarily for tax reporting and recovery of capital. Loans have no effect on the properties cost basis, and neither does a sellers list price.
When a sales person’s employing broker dies, the sales person needs to:
A. Stop all the real estate activity immediately until they find a new employing broker.
B. Continue working for up to 30 days.
C. Continue working if there is an office manager appointed by the broker with two years experience within the last five years.
D. Continue working for up to 60 days or until another broker takes over the office or the office is closed.
A. A sales person needs to work under the supervision of a broker. If their employing broker dies, the sales person may not conduct licensed activity until a new employing broker is named.
A real estate broker generally acts from a position of trust for the seller or buyer. This is described legally as a(n):
A. Fiduciary relationship
B. Ostensible alliance.
C. Dual agency.
D. Independent contractor relationship.
A. This protected relationship between the client and the agent is called fiduciary. It is a position of trust that exists between the agent and their client.
State licensing of contractors protects the public against:
A. Dishonesty.
B. Incompetence.
C. Fraud.
D. Felonious behavior.
B. State licensing of contractors requires experience and other qualifying requirements to protect the public from incompetent. The skills can be tested to acquire a license. Dishonesty, felonious behavior and fraud are legal concerns dealt with by the district attorney, not the licensing authority.
A property was sold netting $410,000 for the seller after a 6% commission was paid. How much was the property sold for?
A. $434,370
B. $386,400
C. $439,180
D. $436,170
D. This is an example of a simple math problem that requires calculation since only answer selection B is clearly wrong. The equation is: $410,000 equals 94% of X. 410,000/94=4361.70. Then $4361.70 x 100 = 436,170.
In a 1031 Real estate exchange, “boot” does not refer to:
A. Unlike property received.
B. Cash received.
C. Mortgage relief.
D. Like kind consideration.
D. Boot refers to any consideration in a 1031 exchange of an in like kind. Once again, the answer choices offer the reader important information regarding the subject of this and related questions.
A property owner lost their job. The owners loan payments were made for them since they had a:
A. Federal housing administration (FHA)- insured loan.
B. US department of Veterans Affairs (VA)-guaranteed loan.
C. California housing financing agency (CalHFA) loan.
D. CalVET home loan.
C. Under a California housing financing agency loan, the CalHFA will make loan payments for a borrower during a period of unemployment.
