Simulated Exam 4 Flashcards
1
Q
May a street address be used as a legal description on documents used in a real estate sale
transaction?
a. Yes, a street address is acceptable, but it may make it difficult to get a loan on the
property.
b. No, a street address is not a legal description of the property.
c. A street address is acceptable for most purposes, but title insurers may choose not to
insure the property.
d. It is always an adequate means of description.
A
b – A street address is not a legal description and thus cannot be used in lieu of a more specific
legal description. A legal description of a property is either a lot, block and tract description
based on a recorded subdivision map, or a metes and bounds description that states the
measurement and angles of the perimeter of the property.
2
Q
Which of the following is not personal property?
a. An appurtenant easement.
b. A leasehold interest in real estate.
c. A trade fixture.
d. An automobile or boat.
A
a – This is a NOT question. An easement appurtenant is a right held by one property owner
to use the land of another for a specific purpose, such as ingress and egress to the owner’s
property. As an easement appurtenant goes with the land, it is classified as real property, not
personal property. Leases, trade fixtures, automobiles and boats are also personal property.
3
Q
Which of the following normally installs conduits over the course of their professional practice?
a. Roofers.
b. Carpenters.
c. Electricians.
d. Plumbers.
A
c – As conduits house electrical wiring, electricians generally install conduits over the course
of their professional practice.
4
Q
An example of involuntary alienation is a(n):
a. zoning restriction.
b. easement by reservation.
c. eminent domain action.
d. escheat.
A
c – Alienation refers to the transfer of an interest in a property. An involuntary transfer is
one that was not by choice. Eminent domain is the power of the state to seize private property,
and thus is an involuntary transfer. Alternatively, answer selection A. zoning restriction
is not a transfer of a property interest but is a limit on a property’s use. Answer selection B.
easement by reservation is voluntary. Answer selection D. escheat, the reverting of
property to the state, is voluntary as no other provision for transfer was made.
5
Q
The SW 1/4 of the N 1/2 of section 12 contains how many acres?
a. 160.
b. 80.
c. 40.
d. 320
A
b – A section contains 640 acres. The formula is: 1/2 of 640 = 320; 1/4 of 320 = 80.
6
Q
A listing broker may be the sole agent of the seller or:
a. the sole agent of the buyer.
b. a dual agent of both the seller and the buyer.
c. a dual agent of both the lender and the buyer.
d. a dual agent of the both the seller and the buyer’s broker.
A
b – The seller’s listing broker will either represent the seller under a single agency or represent
both the seller and the buyer as a dual agent.
7
Q
A broker represents only the lessee in a commercial lease.
This is an example of a(n):
a. general agency.
b. implied agency.
c. dual agency.
d. single agency.
A
d – When the broker represents only one participant in a transaction (the lessee in this question),
they are acting as a single agent.
8
Q
The appraisal method that estimates the cost of all labor and materials in construction is the:
a. comparison method.
b. unit-in-place method.
c. quantity survey method.
d. capitalization method.
A
c – The quantity survey method used in the cost approach of property appraisal totals the
cost of all materials and labor. Answer choices A and B are also cost approach methods but are
not the best answers since they do not factor in the same degree of information as the quantity
survey method. Answer selection D. capitalization is an income approach method.
9
Q
If the eventual highest and best use of a parcel of real estate cannot be realized for a period of
time, the current use is referred to as the:
a. temporary use.
b. current use.
c. less than highest and best use.
d. interim use.
A
d – When the highest and best use of a property will not be available for a period of time, the
current use of a property is referred to as its interim use. For help remembering this naming
convention, think of an intermission between two acts in the life of the property.
10
Q
When appraising a building which operates as a restaurant, an appraiser likely uses the:
a. market data approach.
b. replacement cost approach.
c. reproduction cost approach.
d. income approach.
A
d – Appraising income-generating commercial property generally requires placing the greatest
emphasis on the income approach.
11
Q
In estimating the value of Fran’s single family residence (SFR), the appraiser uses the same
gross rent multiplier (GRM) that has been computed for comparable properties in the same
neighborhood. The comparable properties generate a rental amount of $3,000 per month and
were recently sold for an average of $450,000. The owner’s property currently generates $3,200
per month in rent. The estimated value of the subject property is:
a. $450,000.
b. $480,000.
c. $510,000.
d. $540,000.
A
b – To use the gross rent multiplier (GRM) method of the income approach, you need to
first determine the value of the multiplier by using the figures for the comparable property.
As the rent increases, so will the property’s value when the same multiplier is used. In this
example, solve by using the comparable rent and sales price: $3000 x GRM = $450,000. Thus,
$450,000/$3,000 = 150 (GRM). Then, apply the GRM to the subject property using the subject
property rent: $3,200 X 150 (GRM) = $480,000 (value).
12
Q
Rental schedules for apartments are realistically established on what basis?
a. The cost to build the property.
b. The number of occupants a property can house.
c. A market comparison of similar apartments.
d. Rental data published in the local newspaper
A
c – Apartment rental rates are competitive within a marketplace. Thus, rent schedules for
apartments are realistically established under a market comparison of similar properties.
13
Q
What is the maximum fee a Real Estate Settlement Procedures Act (RESPA)-controlled lender
may charge to a borrower for the preparation of mandatory disclosures?
a. 0.5% of loan amount.
b. $25.00.
c. $100.00 for jumbo loans.
d. Nothing.
A
d – Mandatory disclosures are just that — mandatory. Thus, a lender cannot charge a
borrower a separate fee for the preparation of these required mortgage forms.
14
Q
A large down payment on real estate generally does not:
a. reduce the risk of default for the lender.
b. improve the terms of the loan for the borrower.
c. promote more stable ownership.
d. reduce the amount of equity an owner holds in their property.
A
d – With a higher down payment, there is less risk to the lender that the borrower will default
since the borrower has a greater equity stake in the property. A higher down payment will
lower the overall expense of mortgage interest for the buyer as the principal amount borrowed
will be lower. Further, higher down payments tend to promote more stable home ownership
as owners have “greater skin in the game” and more impetus to avoid default
15
Q
Who pays mortgage insurance premiums (MIPs)?
a. The buyer under a U.S. Department of Veterans Administration (VA)-guaranteed loan.
b. The buyer under a Fannie Mae, Ginnie Mae or Freddie Mac approved loan.
c. The buyer under a Federal Housing Administration (FHA)-insured loan.
d. The buyer under a private mortgage insurer.
A
c – Mortgage insurance premiums (MIPs) refer to default insurance premiums required
on a Federal Housing Administration (FHA)-insured mortgage, paid both up-front and
annually. The U.S. Department of Veterans Affairs (VA) loans are guaranteed. The Federal
National Mortgage Association (Fannie Mae) loans require the payment of private mortgage
insurance (PMI).
16
Q
The Federal Housing Administration (FHA) loan fee can be paid by the:
a. Escrow officer.
b. seller.
c. buyer.
d. Either b. or c.
A
d – The Federal Housing Administration (FHA) loan fee can be paid by either the buyer or
the seller. Market conditions and the agreement of the principals will dictate who pays.
17
Q
The relationship between an escrow officer and the parties to a real estate transaction is usually
described as which of the following?
a. An employee.
b. A facilitator.
c. A mediator.
d. A neutral agent.
A
d – The escrow officer is a neutral agent to the two principals during escrow.
18
Q
Which of the following positions requires the most advanced knowledge of accounting
procedures?
a. An escrow officer. c. A real estate broker.
b. A real estate salesperson. d. An appraiser.
A
a – Escrow officers are most similar to accountants in the nature of their assignment in a
transaction. Appraisal work is more analytical and brokerage practice is more concerned with
selling, people and relationships
19
Q
The Escrow Law is contained in the:
a. Real Estate Law. c. Civil Code.
b. Business and Professions Code. d. California Financial Code.
A
d – Escrow is guided by the California Financial Code. It is often an ancillary service of
banks and title insurance companies
20
Q
If a prior occupant died on the real estate more than prior to a buyer’s
purchase, the seller’s agent has no affirmative duty to voluntarily disclose the death to the
buyer.
a. six months c. three years
b. one year d. five years
A
c – The time element for which a real estate agent has an affirmative duty to disclose a death
on the property is three years
21
Q
In which of the following years did the U.S. Supreme Court prohibit all racial discrimination in
the sale or lease of real property?
a. 1968. c. 1959.
b. 1964. d. 1955.
A
a – The 1968 Civil Rights Act is a federal law which provides broad protections to numerous
classes of individuals in the United States against discriminatory activities. The only other
answer selection that cites a date applicable to real estate is B. 1964, which was the enactment
of the Civil Rights Act primarily concerning voters’ rights.
22
Q
The U.S. Attorney General acts to enforce federal open housing laws whenever:
a. state regulations are not properly upheld by state officials.
b. a conspiracy exists to undermine federal open housing laws.
c. a complaint filed involves more than four units.
d. a complaint filed involves less than four units.
A
b – The U.S. Attorney General becomes involved in enforcing Federal Open Housing Laws
when a conspiracy exists to undermine the laws. Answer selection C is too restrictive as it
is limited to complaints involving greater than four units (and thus D also cannot be correct).
Answer selection A fails since it calls for state regulations and the question concerns actions of
the federal government.
23
Q
When renting residential property, the amount of a deposit a lessor may legally receive from a
lessee is determined in part by which of the following:
a. the size of the rental.
b. whether the unit is furnished.
c. competition from other apartment buildings in the area.
d. the number of tenants who will occupy the rental.
A
b – The only variation in the maximum security deposit allowable by law is whether the
apartment is furnished. A landlord may demand two months’ rent as a security deposit for
unfurnished and three months’ rent for furnished units.
24
Q
The total security deposit allowable for an unfurnished residential unit may not exceed:
a. one month’s rent. c. three months’ rent.
b. two months’ rent. d. $1,000.
A
b – Two months’ rent is the maximum security deposit allowable for unfurnished residential
rentals.
25
In May, 2018, Wayne leased a unit in his apartment complex to a tenant under a two-year
lease. The tenant prepaid the last two months’ rent when they entered into the lease. For
federal income tax purposes, the prepaid rent is considered as income for Wayne:
a. in May, 2018.
b. in May, 2020.
c. that is “held in trust” until it is due.
d. only when it is used as current rent
a – Rental income is taxable when received.
26
Property manager duties do not include:
a. collecting rents. c. arranging repairs.
b. showing vacant units. d. preparing
d – This is a NOT question. Answer choice D. preparing depreciation schedules for owners
is more appropriate for an accountant and does not fall under the employment duties of a
property manager.
27
The Real Estate Law is part of:
a. the Corporation Code. c. the Statute of Limitations.
b. the Business and Professions Code. d. Code of Civil Procedures.
b – Real estate brokerage is considered a profession. Therefore, real estate law is found in the
Business and Professions Code. Not all brokerage offices are corporations, eliminating
answer selection A. the Corporations Code. Further, answer selection C. the Statue of
Limitations is a state law specifying which contracts are to be written and signed before they
will be enforced by a court.
28
A subdivider needs to give a copy of the final public report to a buyer and obtain a receipt from
the buyer before entering into a binding contract. How long does the subdivider or their agent
need to keep a copy of the receipt for the final public report?
a. One year. c. Five years.
b. Three years. d. Eight years.
b – The receipt for delivery of a subdivider’s final public report needs to be kept by the developer
for three years. This is the same record retention requirement that applies to all contracts and
documents related to a real estate transaction held by a broker.
29
A voidable contract remains binding upon the parties until the contract is:
a. voided. c. determined to be legal.
b. rescinded. d. unqualified.
b – A voidable contract is valid until it is rescinded. One principal has the option of completing
the transaction or rescinding the contract due to a defect caused by the other principal.
30
When coercion or duress are applied to a party in a contract, the contract is:
a. void. c. illegal.
b. voidable. d. unenforceable.
b – Coercion or duress are one example of how a principal is given the option of rescinding
the contract. Elements of either condition will make the contract voidable at the discretion of
the aggrieved party.
31
The effective date for a residential purchase agreement is the date:
a. the deposit was given to the seller by the buyer.
b. the contract was written.
c. the buyer signed the contract.
d. the seller’s acceptance of the offer was properly communicated to the buyer.
d – When an offer is made and the seller accepts the offer, the effective date of the contract
will be when the acceptance has been communicated to the buyer.
32
A contract for the sale of rural property requires a:
a. rural mailing address. c. legal description.
b. county assessor parcel number. d. reference to the size of the parcel.
c – All real estate sales contracts require the use of the legal description of the property (versus
just the street address). This is necessary to properly create documents, such as the deed, and to
issue a title insurance policy.
33
An offer to purchase real property was signed by a prospective buyer on November 12 and
submitted to the seller. The terms of the offer allow five days for acceptance by the seller. Due
to a medical emergency in the seller’s family, the seller did not accept the offer until November
20. Which of the following statements is true?
a. The buyer may demand a return of their deposit.
b. The buyer is required to continue with the purchase since they did not withdraw their
offer prior to acceptance.
c. The buyer is in breach of the contract if they refuse to continue with the purchase.
d. If the buyer does not complete the purchase as agreed, the seller and the broker are each
entitled to one-half of the deposit.
a – Based on the facts in the question, the best answer choice is that the buyer can demand the
return of their deposit when the seller fails to communicate their acceptance in the stated
time. Until the buyer has been informed of the seller’s acceptance, they may rescind their offer
34
Which of the following is not true in a sale-leaseback transaction?
a. The seller stays in physical possession of the property.
b. The seller guarantees the buyer’s performance of the loan.
c. The seller receives a capital contribution for their business.
d. The seller becomes a tenant in the property.
b – This is a NOT question. In a sale-leaseback transaction, the seller does not guarantee the
buyer’s performance on a loan. Answer choices A, C and D are all true of seller leaseback
transactions.
35
When a buyer purchases property without being informed it is on a septic system, the buyer
may:
a. report the seller to the Department of Real Estate (DRE).
b. rescind the contract.
c. demand the sewer be connected to the property.
d. file a complaint with the local utilities.
b – When a buyer purchases a property without the disclosure that it is on a septic system,
the buyer may rescind the contract. The alternative answer choices can be easily refuted.
The DRE has no authority over the seller and is thus not involved. One principal to an escrow
cannot unilaterally insist on something that has not been agreed to by both principals, such as
the demand that the property be connected to the sewer. Further, the utility company has no
capacity to address complaints on this nature.
36
Which of the following is not an example of a void deed?
a. A forged deed.
b. A deed signed and delivered by a seller under the age of 18.
c. A deed obtained through undue influence or threat.
d. A deed materially altered without the grantor’s consent.
c – A deed obtained through undue influence or threat is an example of a voidable deed. A
voidable deed is valid and enforceable after delivery until it is challenged due to a defect and
a court order declares it to be invalid. Void deeds are unenforceable at all times and never
convey an interest in real estate
37
A real estate license was issued for only 150 days. The reason for this shortened license period
was that the licensee:
a. was in arrears for child support payments.
b. did not fulfill all of their educational requirements.
c. is in a divorce suit.
d. is a foreign national.
a – When a license renewal is submitted, the Department of Real Estate (DRE) is obliged to
review arrearages on child support payments. If it is found that the licensee is delinquent,
they are given 150 days to make up the past due payments before the full term of the license
will be granted.
38
A property management agreement does not authorize a property manager to:
a. locate tenants. c. collect rents.
b. enter into rental and lease agreements. d. oversee costly repair projects.
d – Property managers who oversee maintenance or repair projects costing $500 or more
are subject to contractor licensing requirements issued by the California Department of
Consumer Affairs Contractors State Licensing Board (CSLB)
39
Consider a seller who carries back a note secured by a deed of trust. If a loan broker takes on the
duty of collection, state law requires them to:
a. deliver a broker’s loan statement to the note holder.
b. post a bond.
c. have written authorization from the holder of the note to service the loan.
d. deposit the funds in a separate trust account
c – A loan broker is a licensed agent. They can service a private note so long as they have
written authority from the holder of the note to do so.
40
A(n) __________ is a statement made by a broker concerning a possible condition which has
not yet occurred based on readily available facts.
a. fact c. guarantee
b. opinion d. assurance
b – An opinion is a statement by an agent concerning an event or condition which has not
yet occurred based on readily available facts. When a statement is worded as an assurance the
events and conditions will occur, the statement reaches the level of a guarantee.
41
A shoe factory is being built that will employ mostly women. A broker who manages nearby
apartment buildings instructs their employees to direct their advertising to married women
without children and charge more rent to certain minority groups. Are either of these practices
in violation of the fair housing laws?
a. Directing advertising to married women without children is a violation of fair housing
laws.
b. Charging certain ethnic groups a higher rate is a violation of fair housing laws.
c. Both a. and b.
d. Neither a. nor b.
c – Any effort by a property manager to single out one demographic group is a violation of
fair housing laws.
42
Under the provisions of the federal Fair Housing Law, aggrieved persons who have been
discriminated against in their acquisition of housing may file a:
a. civil action in federal courts.
b. civil action in state or local courts.
c. complaint with the Department of Housing and Urban Development (HUD).
d. Any of the above.
d – When a member of a protected group has been discriminated against, they have
numerous remedies, including filing a civil action in state and federal courts, and filing a
complaint with HUD.
43
If a dispute arises during escrow between the buyer and seller preventing the close of escrow,
the escrow agent may:
a. cancel the escrow. c. arbitrate the dispute.
b. file an interpleader action. d. use their discretion to resolve the issue.
b – When a dispute arises in escrow, the escrow agent can file an interpleader action with
the courts asking for judicial resolution. The escrow officer is a neutral agent and cannot
make decisions for the parties. Further, they have no authority to cancel an escrow or arbitrate
on behalf of the principals.
44
If the state acquires title to an owner’s property by escheat, how long must it wait before
disposing it?
a. No holding period is required. c. Five years.
b. One year. d. Seven years.
a – Once the state has acquired property through escheat, there is no requirement to delay
disposing of the property.
45
. Rental housing loans can be insured or guaranteed through:
a. the Federal Housing Administration (FHA).
b. CalVET.
c. California Housing Finance Agency (CALHFA).
d. the American Land Title Association.
a – Of the choices offered, only the Federal Housing Administration (FHA) will insure rental
property loans. CalVET and CalHFA properties require owner occupancy. The American
Land Title Association provides title insurance
46
Rental income minus operating expenses, debt service and income tax payments equals:
a. gross operating income. c. net spendable income.
b. net operating income. d. the return of investment.
c – After all expenses of an income-producing property, including debt service and income tax
payments, have been paid, the resulting income from rental properties is called net spendable
income.
47
By dividing the net operating income (NOI) generated by an income-producing property by
the price paid or offered for a property, a buyer can determine the:
a. capitalization rate (cap rate). c. gross rent multiplier (GRM).
b. net spendable income. d. capital basis
a – Dividing the net operating income (NOI) by the sales price yields the capitalization
rate (cap rate). The gross rent multiplier (GRM) uses the gross rent in the calculation.
48
When using the replacement cost method of appraisal, the appraiser calculates all of the
following, except:
a. the land value.
b. the cost to build the improvements on the property.
c. the capitalization rate (cap rate).
d. accrued depreciation.
c – This is an EXCEPT question. The capitalization rate (cap rate) is used in the income
approach, not the replacement cost method. The replacement cost method of appraisal is one
alternative of developing a value under the cost approach.
49
A salesperson who works for a broker who dies:
a. may continue working for up to 60 days or until another broker takes over the office.
b. needs to close escrow on all pending transactions.
c. may continue working if there is an office manager appointed by the broker with two
years of management experience within the last five years.
d. needs to stop real estate activity immediately.
. d – When an employing broker dies, all real estate activity needs to stop until a new broker
has been authorized to be responsible for the clients’ welfare.
50
Compliance with the agency law is required on which of the following transactions?
a. The sale of a single family residence sold independently by the owner.
b. Upon the entry into a three-year lease arranged by a broker on a residential property.
c. On the sale of a four-unit residential building that is sold by a licensed broker.
d. Both b. and c
d – Agency law is activated when a transaction involves an agent working on behalf of a
principal. Therefore, answer selection A does not apply as no agents are involved.
51
The selling agent presents their buyer’s offer to the seller. When is the best time for the agent to
give the seller the Agency Law Disclosure form?
a. On the opening of escrow. c. After presenting the offer to the seller.
b. Before the seller signs the offer. d. As soon as practicable.
d – The Agency Law Disclosure is always to be delivered as soon as practicable.
52
In addition to a fiduciary duty owed to the client in a transaction, a salesperson owes a(n)
to act with good faith and honesty towards the opposing party.
a. partial duty c. legislative duty
b. general duty d. gratuitous duty
b – A salesperson owes a general non-fiduciary duty to third parties in a transaction. Each
of the alternative answer selections is inappropriate and nonexistent.
53
A real estate agent needs to confirm their agency relationship:
a. as soon as practicable.
b. before escrow closes.
c. as soon as escrow opens.
d. whenever asked by either party in the transaction
a – Confirmation of agency, as with disclosure of the agency law, is to be delivered as soon
as practicable.
54
Which of the following is not an example of a possible agency relationship in California?
a. Single agent. c. Dual agent.
b. Implicit agent. d. Secret agent.
. d – All of the answer selections except D are possible forms of agency in California — single
agent, dual agent and implicit agent.
55
The creation of an agency requires:
a. express agreement. c. subornation.
b. consideration. d. None of the above
d – None of these conditions are required to create an agency relationship. An ostensible or
implicit agency has none of these conditions.
56
Which of the following is not an encumbrance?
a. A lease. c. A mechanic’s lien.
b. A homestead. d. A mortgage.
b – This is a NOT question. A homestead declaration protects a portion of the owner’s equity
in the property from seizure from creditors. An encumbrance is something that reduces the
property owner’s rights or equity.
57
Which of the following is not a lien?
a. Conditions, covenants and restrictions (CC&Rs).
b. Property taxes.
c. Trust deeds and notes.
d. Judgments.
a – This is a NOT question. All liens have a specific dollar value. Of the answer choices, only
A. conditions, covenants, and restrictions (CC&Rs) has no dollar value.
58
A(n) belongs to an individual and is their personal right.
a. easement in gross c. easement running with the land
b. appurtenant easement d. encroachment
a – Easements generally run with the land and are real property. The only exception is an
easement in gross, which is usually held by an individual, typically a public utility company.
Encroachment is a form of trespass
59
Which of the following is not a true statement about easements?
a. An easement is owned by the dominant tenement.
b. An easement in gross is a right in another’s land created for the benefit of adjacent land.
c. An owner cannot have an easement over their own land.
d. An easement limits the use of the land by the owner.
b – This is a NOT question. Answer selection B is not true since an easement in gross is not for
the benefit of an adjacent property owner, but frequently for a utility company.
60
The parallel wooden beams used to support ceiling loads and floors in home construction are
called:
a. studs. c. joists.
b. rafters. d. headers.
c – Joists are horizontal wooden beams which support floors and ceilings. Headers are above
windows and doors. Studs are vertical elements. Rafters are diagonal beams reaching to
the roof beam. This question provides a good opportunity to become familiar with framing
terminology.
61
An appurtenant easement granted to a neighboring property owner fails to state the term of
the easement. How long does the easement last?
a. Perpetuity. c. The lifetime of the dominant tenement.
b. 99 years. d. 55 years.
a – When no termination date or length of time is stated, an easement exists in perpetuity.
62
It is essential that every party to a real estate transaction receives a full and complete disclosure
of who is representing whom because of:
a. the federal law of agency.
b. the mandate from private real estate associations.
c. the doctrine of imputed notice.
d. the good neighbor principle.
c – Imputed notice requires the full and complete disclosure of who is representing whom in
a transaction. Agency is not federal law and therefore both answer choice A cannot be right.
Answer selection B is wrong because private trade associations have no such authority over
agency law. Answer selection D is an unrelated concept.
63
A real estate broker acts from a position of trust for the seller or buyer they have been contracted
to represent. This relationship is legally described as a(n):
a. attorney-in-fact. c. fiduciary relationship.
b. ostensible agent. d. independent contractor relationship.
c – The name of the agency relationship between the broker and the client is called fiduciary.
64
Failure to provide the Agency Law Disclosure form:
a. exposes the agent to criminal penalties. c. exposes the agent to license penalties.
b. puts the agent’s fee at risk of loss. d. forfeits the agent’s license.
b – When the Agency Law Disclosure is not provided in a targeted transaction, the client may
refuse to pay the commission earned by the broker. There is no criminal or license penalties
when an agent fails to properly provide the Agency Law Disclosure and confirmation. It also
does not automatically result the forfeiture of the broker’s license.
65
The simplest method of estimating the replacement cost of an improvement is the:
a. quantity survey method. c. unit-in-place method.
b. index method. d. comparative method.
d – The replacement cost of a property can most easily be determined under the comparative
method, which uses a private costing service that provides generic pricing for property
types based on quality and regional differences. Answer selections C. unit-in-place and A.
quantity survey are more detailed and precise, while the index method is used for historic
appraisals
66
Surplus utility is an example of:
a. substitution. c. functional obsolescence.
b. contribution. d. economic obsolescence.
c – Surplus utility is an example of functional obsolescence. Functional obsolescence
is created by items on the property that are either outdated or over-improved. Economic
obsolescence refers to conditions off the property. The other alternative choices are principles
of value.
67
The first thing an appraiser does when appraising vacant land is determine:
a. the fertility of the soil under the property.
b. zoning laws which affect the use of the property.
c. comparable sales prices of other vacant land.
d. the highest and best use of the land.
d – The first thing an appraiser does when appraising vacant land is determine the highest
and best use of the subject property. This determination is needed before the appraiser can
determine what properties are comparable.
68
The time period during which a building produces income that can be attributed to the building
itself is known as:
a. physical life. c. actual age.
b. economic life. d. effective age
b – Economic life is the length of time a property produces an income attributable to the
building. Physical life refers to how long the physical building is anticipated to exist. The
actual age is the chronological age of the building based on when it was build. The effective
age is the age of the property based on its physical condition.
69
Which of the following is not required when a trust deed is paid in full?
a. The trustor’s signature. c. A deed of reconveyance.
b. The trustee’s signature. d. Both a. and b.
a – This is a NOT question. There is no need for a signature from the borrower (trustor) when
the loan is paid in full.
70
The interest rate on a Federal Housing Administration (FHA)-insured loan is set by:
a. Fannie Mae. c. Ginnie Mae.
b. FHA. d. negotiation between the lender and
borrower.
d – The Federal Housing Administration (FHA) insures loans and does not originate
them. The loan is made by a lender and FHA provides insurance to the lender in the event of
borrower default. As with other loans, the interest rate is negotiated between the lender and
the borrower.
71
Which of these is not a method by which an individual may take title to real property?
a. Deed. c. Escheat.
b. Prescription. d. Intestate succession.
c – This is a NOT question. Individuals cannot acquire property by escheat, which is possible
only by the state government.
72
Escrow can legally prepare or do which of the following activities?
a. Act as a mediator when there is a dispute between the buyer and the seller.
b. Draft escrow instructions and the grant deed.
c. Decide when escrow will close without the consent of the buyer and seller.
d. Structure a wraparound trust deed.
b – Escrow officers can draft escrow instructions and the grant deed. They are neutral
agents for the principals to the escrow. Thus, they are not permitted to make decisions for the
principals nor mediate between them.
73
An escrow officer may do which of the following when real property is being escrowed?
a. Settle a disagreement regarding the escrow instructions between the buyer and seller.
b. Accept written instructions from the seller and buyer to change the price and terms
without the approval of any broker.
c. Cancel the escrow if the buyer doesn’t perform in a timely manner.
d. Recommend amended escrow instructions which contain a blank to be filled in after
signing.
b – When an escrow office is given instructions written and signed by both principals, the
escrow officer does not need approval from the broker. Escrow officers cannot make decisions
themselves nor resolve issues between the principals.
74
Which of the following is not legally proper for a licensee to do?
a. Puffing.
b. Enter into a pocket listing with the seller’s approval.
c. To show a property only when its flaw would not be obvious.
d. Keep a client’s secret that the roof leaks.
d – This is a NOT question. Material facts that may affect the buyer’s decision to buy need
to be disclosed. Thus, the licensee’s concealment of a roof leak is not legally proper. Answer
choice A. Puffing is not illegal unless it reaches the level of fact in the mind of the buyer.
Answer selection B is acceptable because it was at the seller’s request. Answer selection C is
permissible as long as the defect is disclosed on the Transfer Disclosure Statement (TDS).
75
A real estate broker may legally negotiate the sale of any:
a. new mobile home.
b. registered mobile home.
c. mobile home that is 32 feet in length or longer.
d. mobile home that is situated in a mobile home park.
b – An agent may negotiate the sale of a mobile home once it has been registered. New
mobile homes can only be sold by licensed agents when they are attached to the land, making
them real estate versus personal property.
76
The inside of a building is 60 ft. by 90 ft. and the walls on each side are 6 inches thick. What is
the external total square footage?
a. 5,400 sq. ft. c. 4,951 sq. ft.
b. 5,551 sq. ft. d. 4,800 sq. ft.
b – Since the walls are 6” thick, the outside measurement is 61’ x 91’ = 5,551 sq. ft.
77
On January 1, 1987, which of the following real estate disclosure laws went into effect?
a. The Agency Law Disclosure.
b. The Seller Financing Disclosure.
c. The Transfer Disclosure Statement (TDS).
d. The Real Estate Settlement Procedures Act (RESPA).
c – The Transfer Disclosure Statement (TDS) became effective January 1, 1987. The TDS is
a mandatory disclosure prepared by a seller and given to prospective buyers setting forth any
property defects known or suspected to exist by the seller.
78
Which of the following needs to be in writing to be enforceable under the Statute of Frauds?
a. A lease with a one-year term.
b. A lease listing agreement with a one-year term.
c. A partnership agreement.
d. A contract which is to be performed greater than one year after it is entered into
d – The Statute of Frauds mandates certain contracts be in writing when the time element
exceeds one year or when involved in the sale of real estate
79
Under the Statute of Limitations, a buyer needs to bring a lawsuit for breach of written contract
against a seller within:
a. six months. c. four years.
b. three years. d. five years.
c – The Statute of Limitations allows a buyer four years to bring suit for a breach of written
contract against a seller.
80
A seller accepts a written offer to purchase their property. Later, the seller refuses to perform to
complete the transaction. Under the Statute of Limitations, the buyer needs to file a civil action
due to the seller’s breach of a written contract within:
a. one year from the seller’s breach. c. four years from the seller’s breach.
b. one year from when the buyer signs. d. four years from when the buyer signs.
c – The Statute of Limitations allows a buyer four years to bring suit against the seller for
failure to perform and close escrow.
81
Broker Francis shows multiple houses he is listing to Buyer Marc and Sally Taylor, a married
couple. The buyers do not like any of the properties. When Buyer Marc is away, Broker Francis
shows a different house to Buyer Sally individually. Buyer Sally likes the property and submits
an offer to the seller with a deposit. Who is the purchase offer submitted from?
a. Sally Taylor.
b. Marc and Sally Taylor.
c. Marc Taylor himself as head of household.
d. None of the above as the offer is invalid since a married person cannot make an offer
individually.
a – When making an offer on a home, since only Sally is available to sign the offer, it is
made in her name rather than both Sally and Marc Taylor. However, if the offer is accepted,
Mark can be added to the title during escrow. Ordinarily, property purchased during marriage
is treated as community property.
82
Syndi owns a 50 unit apartment building managed by Scott, a licensed real estate broker.
Angela lives in the building and has been designated as the resident property manager. Who
has the ultimate responsibility for the inspection and maintenance of the building?
a. Angela. c. Scott.
b. Syndi. d. All parties are equally responsible.
b – The owner of an apartment building is ultimately responsible for inspections and
maintenance of the building, even if they employ a property manager and resident manager.
83
A tenant leases a unit in an apartment complex. The owner later sells the building to a new
owner. The new owner:
a. may force an immediate payoff of the lease.
b. may increase the security deposit.
c. may raise the rent.
d. needs to honor the existing lease contract.
d – An existing lease must be honored when a building is purchased by a new owner.
84
May a broker’s transaction records be kept electronically?
a. No.
b. Yes, but the broker has to provide hard copies to the Department of Real Estate
(DRE) upon request.
c. Yes, but the broker needs to also keep hard copy backups.
d. No, the broker needs to retain all the signed original paper documents for a minimum
of three years
b – Electronic records of a broker’s transactions are legal provided the broker can deliver
hard copies to DRE upon request.
85
A licensee who designates how title is to be vested without any discussion with their buyer
while filling out the purchase agreement may be guilty of:
a. giving legal advice. c. potential discrimination violations.
b. giving tax advice. d. All of the above
d – The method used to vest title to a property has legal and tax consequences. The act of
deciding for the buyer may be construed as being discriminatory as well.
86
A lender who finances 100% of a property without government guarantees depends on what
to function as security for the loan?
a. Monetary policy. c. Appreciation of the value of the property.
b. Deflationary pressures. d. The borrower’s good intentions.
c – Lending 100% of the value of a property without government guarantees requires property
appreciation to overcome the risk of loan default. Thus, this type of no down payment loan
is highly uncommon.
87
Condominium ownership is least applicable to:
a. industrial properties. c. commercial properties.
b. residential properties. d. properties built prior to 1978.
d – Condominium is a form of ownership, not a building style or purpose. It has no relation
to when a property was built. A condominium is an estate in real property in which an owner
holds an undivided interest in common in a portion of real property, coupled with a separate
interest in their individual space. One can create condominiums in industrial and commercial
buildings, as well as residential properties
88
Which of the following is not required for obtaining an easement by prescription?
a. Payment of taxes and assessments for a period of five years.
b. A confrontation with the owner.
c. Open and notorious use which is continuous for five years.
d. Both a. and b.
d – This is a NOT question. Payment of taxes and assessments are required only in the
instance of adverse possession, but are not required for obtaining an easement by prescription.
Confronting the owner is never required of either adverse possession or an easement by
prescription. Open and notorious use of the easement for five years is all that is required to
establish a prescriptive easement.
89
An easement over real property can be terminated by:
a. a deed issued from the servient tenement.
b. revocation by the servient tenement.
c. a release signed by the servient tenement.
d. a release signed by the dominant tenement.
d – An easement is terminated on the release of the dominant tenement (the party that
benefits from the easement).
90
An easement may be acquired by prescription in a manner similar to acquisition of land by:
a. escheat. c. adverse possession.
b. eminent domain. d. testate transfer.
c – The answer selection that is most similar to acquisition of an easement by prescription
is adverse possession as both involve the adverse use of a property. None of the other answer
selections relate to this premise
91
Upon moving into the home he had just purchased, Lewis discovered his neighbor’s garage
encroached four feet over onto his property. lf a friendly settlement cannot be negotiated,
Lewis may sue:
a. the escrow company.
b. the title company.
c. the seller’s agent for failure to disclose the encroachment.
d. the neighbor since the encroachment is a trespass.
d – Encroachment is a form of trespass. If a settlement cannot be reached between an
owner and a neighbor who encroaches on their property, the owner is to sue the neighbor and
allow the judicial system to resolve the matter. The escrow company and title company have
no liability under normal conditions. The seller’s agent is liable only if they knew or ought to
have known the encroachment existed.
92
Which of the following will terminate an agency relationship?
a. Mutual consent. c. Estoppel.
b. Death of a third party. d. Dispute.
a – Among the choices, only mutual consent will terminate an agency relationship. Death
of a third party will have no relation to an existing agency relationship. Further, estoppel is a
legal theory barring a person from later asserting or denying a condition based on the person’s
previous acts or statements, and thus has little relevance to the question. A dispute does not
terminate an agency relationship.
93
A real estate commission is normally calculated as a percentage of the:
a. asking price.
b. sales price.
c. owner’s equity in the property being sold.
d. fair market value (FMV) of the property being sold.
b – Real estate commissions are based on a percentage of the sales price mutually agreed to
by the participants.
94
The real estate Agency Disclosure Law became effective on January 1st:
a. 1968. c. 1988.
b. 1978. d. 1998.
c – The Agency Law Disclosure became effective on January 1, 1988
95
When representing their client to third persons in the sale of a residential duplex, a licensed
real estate broker is operating under the law of:
a. corporations. c. agency.
b. transactions. d. torts.
c – The law under which agents represent their client to third persons falls under the law of
agency. Stated more broadly, the agency relationship is the scope of activities imposed on the
broker by law as arising out of the representation authorized by the employment.
96
In the appraisal of a residential property, when is the cost approach most appropriate?
a. For a new property.
b. For a property constructed 15 years ago.
c. For a property constructed over 30 years ago.
d. For an income-producing multi-family property
a – New properties are the most appropriate for cost approach appraisals due to the challenge
of calculating accrued depreciation on older properties.
97
ln the cost approach to appraisal, the phrase “reproduction cost” differs from “replacement
cost.” “Reproduction cost” measures the:
a. original cost to replace the building.
b. present value of the property based on its economic utility.
c. present cost to build an exact replica of the property.
d. original cost to build the property.
c – Reproduction cost measures the present cost to build an exact replica of the property.
Replacement cost is the present cost to build a structure with similar utility using modern
methods and materials.
98
To estimate the value of rental property using the gross rent multiplier (GRM) method, an
investor first determined that the monthly gross income generated by a property is $7,500.
They then applied a GRM of 15. The estimated value of the property is most nearly:
a. $1,125,000. c. $1,350,000.
b. $112,500. d. $135,000.
c – The calculation is $7,500 (rent) x 12 (months) = $90,000 (annual rent); $90,000 (annual rent)
x 15 (GRM) = $1,350,000 (value). Note the rent given was monthly, but the multiplier was
annual. A helpful tip: a higher GRM (e.g. 150) in a question denotes use of the monthly rent for
calculations, while a lower GRM (as in this question) indicates annual rent will be used
99
The appraisal method used most often to value raw land or sites is the:
a. land development method. c. subdivision method.
b. land residual method. d. comparative method.
d – The comparative method is the most common appraisal method used for valuing raw
land or sites. Answer selections C. subdivision method and A. land development method
are the same, both of which are used for valuing a large parcel intended for subdivisions.
Answer selection B. land residual method is only used when the property is improved by a
building.
100
A buyer purchasing a property with Federal Housing Administration (FHA)-insured
financing normally does each of the following, except:
a. apply to the mortgage lender.
b. apply directly through the FHA.
c. choose an Federal Housing Administration (FHA)-approved property.
d. pay mortgage insurance premiums (MIPs).
b – This is an EXCEPT question. Homebuyers do not apply directly to the Federal Housing
Administration (FHA) for a mortgage. The FHA insures mortgages but does not fund them.
101
The broker’s commission is typically paid when:
a. the broker obtains a ready, willing, and able buyer.
b. funds are deposited in escrow.
c. escrow closes.
d. the buyer attends at least five open houses.
c – Real estate commissions are typically paid when the sale is complete, i.e., when escrow
closes.
102
Escrow instructions can be executed by:
a. buyers. c. third parties.
b. sellers. d. Any of the above.
d – A buyer, seller or third persons may execute escrow instructions.
103
Paul, a salesperson, presents an offer from their minority buyer to the seller for the exact
listing amount and on the same terms. Unknown to Paul, his broker later brings the seller a
less advantageous offer from a Caucasian buyer. The seller rejects both offers. Soon after, the
seller’s Caucasian neighbor hires Paul and submits an offer to the seller at the listing price,
stating they want to keep the neighborhood white. Who is not in violation of fair housing
laws?
a. Paul. c. The first Caucasian buyer.
b. Paul’s broker. d. The seller.
c – The Caucasian buyer who made a valid offer without consideration of neighborhood
demographics is blameless. Any licensed agent or seller who purposefully discriminates
against an individual is acting illegally. The public policy goal behind fair housing laws is to
be color blind.
104
Certified copies of inspection reports filed with the Structural Pest Control Board (SPCB)
within the preceding two years may be requested and obtained by the:
a. seller in the transaction. c. broker or escrow officer.
b. buyer in the transaction. d. Any person
d – Anyone has a right to a copy of pest control reports filed within the previous two years.
105
A residential tenant has a duty to care for and maintain a leased premises. This duty includes:
a. disposing of all rubbish, garbage and waste in a sanitary manner.
b. allowing no person who is on the premises with the tenant’s permission to intentionally
damage any part of the premises or the facilities, equipment or appurtenances.
c. occupying and using the premises for the purpose it is intended to be used.
d. All of the above.
d – A residential tenant has an obligation to maintain and care for the property, ensuring
trash and waste are disposed of, visitors do not damage the premises, and the tenant uses the
property only for the purpose intended.
106
A Uniform Commercial Code Financing Statement (UCC-1) is removed from record by:
a. filing a termination statement. c. a notice of adjudication.
b. a notice of abandonment. d. a reconveyance deed.
. a – A UCC-1 Financing Statement (UCC-1) is used to put the public on notice of a lien
created by a security agreement on personal property. A UCC-1 is removed from record by
filing a termination statement with the secretary of state (SOS).
107
Who is responsible for giving a pest control report to the buyer?
a. The pest control company.
b. The escrow company handling the transaction.
c. The seller or their broker.
d. The buyer’s broker.
. c – As with all other disclosures, the seller is the person ultimately responsible for delivering
the pest control report to the buyer.
108
The phrase “company dollar” most nearly means:
a. capital funds invested in a new company.
b. profit after expenses have been deducted.
c. the broker’s share of the commission received.
d. total fees received by all employees at an office.
c – The company dollar is that which remains after paying the salesperson their split of the
commission earned on a closed transaction.
109
If apartments are converted to condominiums, an existing tenant needs to be given a period
of to either buy the condo or vacate.
a. 30 days from public report issuance
b. 90 days from public report issuance
c. six months from public report issuance
d. six months after notice of intent
b – Once the public report is issued on an apartment conversion to condominiums, the tenant
needs to be given 90 days to buy the unit or vacate the property.
110
All of the following provide constructive notice, except:
a. telephone poles across a property.
b. knowledge of an unrecorded deed to a stranger.
c. a recorded deed to a stranger.
d. a stranger in possession of a property.
b – This is an EXCEPT question. Knowledge of an unrecorded deed to a stranger does not
constitute constructive notice. Constructive notice is either a recorded document or anything that is clearly observable by inspecting the property, including the existence of a
physical feature such as telephone poles (as may be used to indicate the general location of
property lines, for example) or a stranger in possession.
111
Recording a deed provides:
a. actual notice. c. contingent notice.
b. constructive notice. d. personal notice
b – Recording a deed provides constructive notice of the ownership of a property. Constructive
notice is also that which is observable by visual inspection. Answer selection A. actual notice
has a similar premise but requires personal delivery, which is not stated in the question and
thus is not the best answer. The other answer selections do not exist
112
In the context of the relationship between the listing broker and the seller, the broker is a(n):
a. agent of the seller. c. employer of the seller.
b. dual agent. d. subagent of the seller.
a – A listing broker is the agent of the seller.
113
Appurtenant rights include the right of across adjoining properties.
a. ingress c. Both a. and b.
b. egress d. Neither a. nor b
c – Appurtenant rights include the ability to access property. The legal terminology for this is
ingress and egress (enter and exit).
114
What is not essential to the creation of an agency relationship?
a. Consent of the principal.
b. Competency of the principal.
c. A written agreement confirming the agency relationship.
d. A fiduciary relationship that exists prior to creating the agency
c – This is a NOT question. A written agreement is not necessary to create an agency
relationship.
115
Agency relationships may not be created:
a. by ratification. c. by implied contract.
b. without the consent of the principal. d. when necessitated by emergency.
b – This is a NOT question. An agency relationship cannot be created without the consent
of the principal. It may be created by ratification after the fact, be implied by the actions of the
agent or be created out of necessity in the event of an emergency.
116
Obsolescence does not relate to a:
a. neighborhood that is deteriorating.
b. property that has too few closets.
c. property that suffers from a bad architectural design.
d. property that needs to be painted.
d – This is a NOT question. Obsolescence is a loss in value due to reduced desirability and
usefulness of a structure because its design and construction become obsolete. Obsolescence is
unrelated to the maintenance of a property. Physical wear and tear and the need for paint are
not examples of obsolescence
117
The income approach of appraisal is inappropriate when appraising:
a. office properties.
b. residences in an owner-occupied subdivision.
c. industrial buildings under a long-term lease.
d. shopping malls.
b – The income approach of appraisal is inappropriate when appraising residences in an
owner-occupied subdivision as they do not generate revenue. The income approach is
appropriate for an income-generating rental property whose value is based on the income it
produces.
118
When the Federal Reserve (the Fed) raises the discount rate charged to its member banks, this
raises interest rates and:
a. increases the supply of money in circulation.
b. encourages mortgage borrowing.
c. reduces the supply of money in circulation.
d. promotes an increase in the homeownership rate.
c – When member banks are charged a higher interest rate by the Federal Reserve (Fed), they
charge a higher interest rate to their customers. This in turn reduces the amount of money in
circulation.
119
Which of the following is not required in a lease?
a. Advance rent.
b. The length of the lease term.
c. A description of the rental with reference to its location.
d. The amount of the monthly rent and when it is to be paid.
a – This is a NOT question. Advance rents are not required when entering into a lease. The
alternative answer selections are all necessary.
120
The commission of a leasing agent is generally based upon a percentage of:
a. the total operating costs incurred running the property.
b. the cash paid by a lessee at the time of signing the lease.
c. the total rent collected by the lessor over the term of the lease.
d. the prevailing commission rates commanded by similar brokers
c – A leasing agent generally receives a percentage of the total lease payment over the
term of the lease as their fee.
121
What is the maximum amount that may be paid from the Real Estate Recovery Fund?
a. $20,000. c. $100,000.
b. $40,000. d. $250,000.
d – The maximum amount recoverable from the Real Estate Recovery Fund is $250,000
122
When a counteroffer is made:
a. the original offer is void.
b. the original offeree is still the offeree.
c. the original offeror is still the offeror.
d. the original offer is considered accepted with the exceptions noted in the counteroffer.
a – Submission of a counteroffer voids the original offer. The roles of the offeree and offeror
are reversed when a counteroffer is written.
123
The is the primary enforcer of anti-discrimination law in California.
a. Department of Housing and Urban Development (HUD)
b. Department of Fair Employment and Housing
c. Labor Commission.
d. Department of Business Oversight (DBO)
b – The Department of Fair Employment and Housing is the California state agency
primarily responsible for enforcement of anti-discrimination law. The United States
Department of Housing and Urban Development (HUD) is the federal agency.
124
Which of the following is least likely to appear as a debit on a buyer’s closing statement?
a. Proration of property taxes.
b. Interest on a loan assumed by the buyer.
c. Discount points for a new Federal Housing Administration (FHA)-insured loan.
d. Homeowner’s insurance premiums
b – This is a LEAST likely question. Answer selection B. may seem like a tempting red-herring.
Interest on an assumed loan will be a credit on a buyer’s closing statement. The transaction
didn’t require new financing, but rather the assumption of an existing loan. Loan interest
is paid in arrears. Thus, when escrow closes, the buyer will be credited for however many days
there were between the due date of the previous payment and the close of escrow. All other
answer selections will likely appear as a debit on the buyer’s closing statement.
125
Which of the following is not a dangerous gas?
a. Carbon dioxide. c. Formaldehyde.
b. Carbon monoxide. d. Radon.
a – Carbon dioxide is what we exhale. Carbon monoxide, formaldehyde and radon are all
potentially dangerous gasses.
126
Mr. and Mrs. Hartford are denied a home loan due to a credit report which contained incorrect
negative information. They sent corrective documentation into the credit reporting agency
which issued the report. If the credit reporting agency fails to correct the credit report, the
Hartfords may file a court action and seek:
a. attorney’s fees. c. court costs.
b. actual and punitive damages. d. All of the above.
d – When filing a lawsuit against a credit reporting agency for the failure to correct a reported
error in a credit report, the injured party may request attorney fees and court costs, as well as
actual and punitive damages
127
The Federal National Mortgage Association (Fannie Mae) is active in
by securitizing mortgages into mortgage-backed securities.
a. the primary mortgage market c. CalVET financing
b. the secondary mortgage market d. low income housing
128. One year after the expiration of their real estate license, the licensee wish
b – The Federal National Mortgage Association (Fannie Mae) is a government-sponsored
entity that buys, owns and sells mortgages in the secondary mortgage market.
128
One year after the expiration of their real estate license, the licensee wishes to renew their
license. Which of the following statements is not correct?
a. They need to retake the state license examination.
b. They are required to fulfill the continuing education (CE) requirements.
c. The late renewal fee is higher than the on-time renewal fee.
d. They have a two-year grace period in which to renew their license.
a – Real estate licensees are granted a two-year grace period during which their license is
suspended and they cannot conduct real estate-related activities. If they choose to renew their
license during this time, they will need to complete the state-mandated continuing education
and pay a higher late renewal fee
129
Buyer Martin agreed in writing to purchase Seller William’s property for $365,000. The offer
was conditioned on Buyer Martin being able to obtain a U.S. Department of Veterans Affairs
(VA)-guaranteed loan for the purchase price secured by the subject property. Of the following,
which best represents Buyer Martin’s option under this purchase transaction?
a. If the $365,000 VA-guaranteed loan is not obtainable, Buyer Martin may renegotiate
the purchase contract on terms mutually agreeable to Buyer Martin and Seller William.
b. If the Certificate of Reasonable Value (CRV) is less than $365,000, Buyer Martin is
entitled to cancel the transaction.
c. If the CRV on the property is $350,000, the buyer may complete the purchase by making
an additional $15,000 down payment.
d. All of the above.
d – All these options are correct. The purchaser under the U.S. Department of Veterans
Affairs (VA) loan program has the option to cancel for a variety of reasons including a low
appraisal. The buyer may also choose to purchase the property by paying the difference
between the appraised value and the sales price as a cash down payment.
130
The sequential steps of the Agency Law Disclosure are:
a. disclose, elect, confirm. c. disclose, confirm, dissolve.
b. confirm, elect, disclose. d. disclose, confirm, elect
a – The agency disclosure law requires the agent to first disclose the existence of the law at
the earliest possible moment to the prospective client. Then, the agent needs to elect who they
will represent and confirm that election.
131
A real estate agent may not represent all of the principals in a transaction if:
a. they have not obtained the consent of all parties to this agency relationship.
b. they have informed all principals they are acting as a dual agent.
c. they are collecting a commission from each principal with the knowledge of the others.
d. they also represent other clients in other unrelated transactions.
a – This is a NOT question. To represent both principals in a dual agency capacity, the agent
needs to obtain the consent of all principals at the earliest possible moment.
132
Which of these is false regarding easements?
a. Easements need to be recorded to be enforceable.
b. All easements are encumbrances, yet not all encumbrances are easements.
c. An easement doesn’t necessarily run forever.
d. All of the above.
a – This is a FALSE question. Easements do not need to be recorded to be enforceable.
133
In appraising a property with two bathrooms, the appraiser used a comparable property with
2 1/2 baths. The appraiser should:
a. add the cost of the half bath to the subject property.
b. deduct the cost of the half bath from the sale price of the comparable property.
c. disregard the difference since it is insignificant.
d. add the cost of the half bath to the comparable property
b – Appraisers always adjust the comparable, not the subject property. When a comparable
has an extra amenity (such as the 1/2 bath in the question), it needs to be removed by adjusting
an estimate of its worth in the market.
134
The Federal Reserve’s (the Fed’s) monetary tools include all of the following, except:
a. raising interest rates on government-insured mortgages.
b. raising and lowering the discount rates to member banks.
c. adjusting the reserve requirements for banks.
d. buying and selling U.S. government bonds
a – This is an EXCEPT question. The Federal Reserve (Fed) does not raise interest rates on
government-insured mortgages as part of its monetary policy. Government-insured
mortgages are originated by lenders. The interest rate charged on these loans is established
in the marketplace between the lender and the borrower. The alternative choices are all
appropriate monetary tools for the Fed.
135
Which of the following is least likely to be a benefit of using Federal Housing
Administration (FHA)-insured financing?
a. A low down payment.
b. Minimum property requirements.
c. A long loan term which yields lower monthly payments.
d. Title does not transfer until the loan is fully repaid.
d – The benefits of a Federal Housing Administration (FHA)-insured loan includes
a lower down payment requirement, lower monthly payments, and minimum building
standards.
136
Which of the following statements is true concerning typical escrow procedures?
a. Once escrow has closed, the escrow agency changes from a dual agency to a separate
agency of each principal.
b. The escrow officer may be an advocate for the best interests of both principals.
c. Once the escrow officer is in possession of a binding contract between the buyer and
seller, it is said to be a “complete escrow.”
d. The escrow officer can be an advisor to both the buyer and the seller
a – Escrow officers act as dual agents during the escrow process and become a single agent to
both after the close of escrow. While the escrow office owes an agency duty to both participants
in the transaction, they are neutral and thus cannot act as an advocate or advisor for either.
137
Which of the following landlord requirements is a violation of fair housing laws?
a. Every tenant is to have a good credit rating and a steady source of income.
b. Every tenant is to provide positive references from their previous landlords.
c. Every unmarried tenant is to have a cosigner on the lease.
d. Every tenant is to pay the first and last month’s rent in advance.
c – A landlord may not single out the need of a co-signer for a specific group of prospective
tenants. So long as the requirements are consistently applied to all prospective tenants,
the landlord may require a high credit score, payment of the last month’s rent and positive
references.
138
A real estate salesperson maintained an active presence in a target community in an effort
to obtain listings. The salesperson told members of the community that property values in the
area were decreasing due to the entry of minority buyers into the neighborhood. This conduct
is:
a. not a violation of any legal or ethical standards.
b. permissible if the representations are true.
c. standard practice and acceptable behavior.
d. grounds for disciplinary action.
d – Panic selling is the prohibited discriminatory practice of a real estate licensee inducing a
property owner to list a property for sale by suggesting a change in neighborhood demographics
will cause a loss in property values. Panic selling is a quintessential fair housing violation and
is grounds for disciplinary action.
139
Appraising a multi-million dollar home in Beverly Hills requires a(n):
a. Certified Residential License. c. Certified General License.
b. Residential License. d. Either a. or c
d – Appraising residential properties valued over $1 million requires a certified license. The
license can be either a certified residential license or a certified general license.
140
A(n) is a broker who simultaneously represents the best interest of opposing
parties in a transaction, e.g., both the buyer and the seller.
a. dual agent c. subagent
b. secret agent d. finder
a – The dual agent is a broker who concurrently represents both principals in a single
transaction, such as the buyer and seller, lessee and lessor, or borrower and lender.
141
The gross rent multiplier (GRM) is calculated by dividing the:
a. asking price of a residence by the adjusted gross rent.
b. listing price of a neighboring property by its operating expenses.
c. cost of the property amenities by the value of the raw land.
d. sales price by the gross monthly income
d – The gross rent multiplier (GRM) is used to quickly calculate the value of a property. To
determine the value of a property under the income approach, the gross rent is multiplied by
the GRM. Thus, to find the GRM, the sales price is divided by the rent (either the monthly or
annual rent may be used)
142
The maximum potential income an income-producing property is capable of generating is
known as:
a. gross operating income. c. net operating income.
b. gross scheduled income. d. net spendable income
b – The maximum potential income an income-producing property can generate is referred to
as the gross scheduled income. Gross is always greater than net and the question is asking
for the “maximum potential income.” Therefore, the answer choices can be narrowed down to
A and B. However, answer selection A. gross operating income refers to the income after the
vacancy and credit losses have been deducted.
143
When ordinary repairs are made to broken equipment in an income-producing property,
these repairs are classified as:
a. deferred maintenance. c. corrective maintenance.
b. preventive maintenance. d. property upgrades.
c – Corrective maintenance is done when equipment in an income-producing property is
broken. Alternatively, answer selection A. deferred maintenance is the habit of postponing
the implementation of maintenance. Answer selection B. preventive maintenance is
maintenance performed in advance of equipment breaking down
144
A window on hinges is most likely a:
a. double-hung window. c. bay window.
b. casement window. d. dormer window
b – Casement windows have a crank that swings the window out on its hinges. Doublehung windows have an upper and lower pane, which can be raised and lowered to open. Bay
windows have multiple panes of glass and project out from the wall. Dormer windows have a
separate roof and are commonly seen as projecting from a gable or gambrel roof.
145
Sally grants an easement over her land to Bill so he can access his land. The easement is
recorded. Bill then buys Sally’s land and later sells it to Martha without disclosing the existence
of the easement. Bill ceases to use the easement for a period greater than five years. When Bill
later attempts to use the easement, Martha objects. What is the outcome of this scenario?
a. The easement was lost when Bill purchased Sally’s land.
b. The easement was lost by five years’ nonuse.
c. Martha must allow Bill access his property.
d. Bill may occupy the property under the theory of adverse possession
. a – An easement is terminated when the parcels are combined under one ownership
146
Which of the following transactions is exempt from use of the Agency Law Disclosure?
a. The sale of an industrial building.
b. The sale of agricultural land.
c. Upon the entry into a two-year lease of a residence.
d. The sale of a property that is five or more residential units
d – The Agency Law Disclosure is required on the sale of any type of real estate other than
five or more residential units. It is also required on any lease that exceeds one year.
147
A seller listed their house for sale with a broker for $700,000. The seller informed their broker
the property needed to be sold quickly. The broker showed the property to a buyer and told
them that the seller was desperate and would accept $600,000. Based on the broker’s statement,
the buyer offered $600,000 for the seller’s property. The seller accepted the offer. Concerning
the broker’s actions, which of the following is true?
a. The broker interpreted the seller’s wishes and produced a sale. Their ratification of the
offer made the broker’s actions acceptable.
b. The broker’s actions were reasonable since the seller accepted the offer and was able to
sell quickly.
c. The broker’s actions were proper because the seller stated they wanted an immediate
sale.
d. The broker violated their fiduciary obligation to the seller since they acted in excess of
their authority.
d – A broker cannot disclose a client’s personal financial information or acceptable price and
terms other than what the listing states. In this question, the broker violated their fiduciary
duty owed to the seller by exceeding their authority.
148
The Closing Disclosure published by the Consumer Financial Protection Bureau (CFPB)
summarizes the final mortgage terms and details for the buyer. It needs to be delivered to the
buyer:
a. one week prior to the closing of the transaction.
b. three business days after the buyer submits a loan application.
c. at least three business days before the buyer closes on the mortgage.
d. on the day of settlement.
. c – The Closing Disclosure replaces both the Truth-in-Lending Disclosure and the HUD-1
Settlement Statement under the TILA-RESPA Integrated Disclosure (TRID) rules. The
Closing Disclosure summarizes the final mortgage terms and details for the buyer and is to be
delivered to the buyer at least three business days before the buyer closes on the mortgage.
149
Most of California real estate laws originally come from:
a. Napoleonic Law. c. Spanish Civil Law.
b. Mexican Law. d. English Common Law.
d – The source of most of California’s real estate law is English common law. After California
was acquired by the United States in 1848, all real property rights held under Spanish Civil
Law were resolved through federal courts, which eventually granted federal patents for land
ownership. Today, the most obvious vestige of Spanish Civil Law is the concept of community
property.
150
All of the following terminates an existing offer to purchase real estate except:
a. when the buyer revokes the offer after the seller’s acceptance has been communicated.
b. the lapse of time as written in the offer.
c. submission of a counteroffer.
d. the death of the buyer before the seller’s acceptance has been communicated.
a – This is an EXCEPT question. When the buyer attempts to revoke the offer after the seller
accepts it — with the presumption acceptance was already communicated to the buyer — this
will NOT terminate the offer. The alternative answer selections will all terminate an offer.
