Simulated Exam 5

Question 1

The holder of a life estate designated as the named life cannot:

a. lease the property.
b. sell their interest in the property.
c. will their rights to an heir.
d. borrow against their ownership interest.

Answer 1

c – The named life and holder of a life estate cannot will their interest to another since the ownership of the property reverts to the previous fee owner or will be granted to others as a remainder interest when the life estate ends.

Question 2

A fee simple absolute estate is defined as:
a. an estate based on a condition precedent.
b. an estate for years.
c. the highest interest one can have in real property.
d. a life estate.

Answer 2

c – Fee title to real estate which occurs in a fee simple absolute estate is held in perpetuity and affords the owner full, absolute ownership of property free from any limitations or conditions. Thus, it is the highest interest in real property.

Question 3

Land created by a river or lake that recedes permanently belongs to the owner of the bank or
shore through the process of:
a. alluvium. c. appropriation.
b. reliction. d. escheat.

Answer 3

b – Reliction is the exposure of land that has been covered by water which occurs when the water recedes. Answer selections A. alluvium and C. appropriation also relate to water and water rights, but are different from the process described in the question. Answer selection D. escheat is an unrelated topic

Question 4

Property improvements that do not become part of the underlying real estate at the end of a lease term include:

a. a stairwell.
b. a wall.
c. attached carpeting.
d. large pieces of furniture

Answer 4

d – When personal property is attached to land, it becomes real estate. This includes carpeting, stairwells and walls.

Question 5

. In the order in which they are to occur, the three steps of agency disclosure are:
a. elect, confirm, disclose. c. disclose, elect, confirm.
b. disclose, confirm, disclose. d. confirm, elect, disclose.

Answer 5

c – 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.

Question 6

When a broker represents the best interests of opposing parties in a transaction with full
disclosure to both parties, the broker is known as a(n):
a. unethical agent. c. dual agent.
b. subagent. d. finder.

Answer 6

c – Dual agency occurs when one broker represents both principals in the same transaction.

Question 7

Agency Law prohibits which of the following brokerage activities?
a. Accepting commissions from both the buyer and the seller.
b. Acting as an escrow.
c. Selling property they own.
d. Accepting kickbacks from the lender.

Answer 7

d – A kickback is a fee improperly paid to a transaction agent who renders no service beyond
the act of referring in exchange for a referral fee when the agent is already providing another
service in the transaction for a fee. Accepting kickbacks from a lender is illegal. Both agency
law and the Real Estate Settlement Procedures Act (RESPA) prohibit kickbacks

Question 8

______ must remain the undisclosed knowledge of the dual agent, unless authorized
to release the information in a writing signed by the principal in question.
a. Confidential pricing information
b. Material facts regarding the property’s condition
c. The square foot measurements of the property
d. The proximity of military ordinance

Answer 8

a – Confidential pricing information is a matter of fiduciary responsibility. Thus, a dual
agent cannot release confidential pricing information to the other party in a dual agency
situation without the consent from the principal in question. The alternative answer choices
are disclosures that are either required (material facts and proximity of a military ordinance) or
anticipated (the square footage of the property).

Question 9

An individual who has been delegated agency duties by an agent of the client, but is not
employed by the client, is referred to as a(n):
a. multiple listing partner. c. subcontractor.
b. subagent. d. tandem agent.

Answer 9

b – Subagency is a delegated position in which the broker has been given agent responsibilities
by the agent of the seller, but is not employed by the seller.

Question 10

A(n) ______ may be made to an offer received consisting of terms different from
those of the offer rejected.
a. waiver c. ratification
b. counteroffer d. novation

Answer 10

b – A counteroffer is an offer which differs from the original offer. Any change from the
original offer causes the original offer to be void.

Question 11

When a purchase agreement requires the seller to pay for a structural pest control inspection
and perform any necessary corrective work, the buyer needs to receive a copy of the structural
pest control report:
a. within five days of opening escrow.
b. within five working days of the date of the pest report.
c. as soon as practicable before the close of escrow.
d. no more than three business days after the close of escrow.

Answer 11

c – As with most disclosures, when a purchase agreement requires the seller to pay for a
structural pest control inspection and perform corrective work, the buyer is to receive a copy of
the report as soon as practicable. At the very latest, it needs to be delivered prior to the close
of escrow.

Question 12

Which of the following is the most correct statement about an option to purchase contained in
a lease agreement?
a. The option to purchase will generally pass with an assignment of the lease.
b. The lease creates restrictions upon the optionee.
c. An option needs to provide mutual benefits and obligations.
d. An option creates a fiduciary relationship between the optionor and the optionee.

Answer 12

a – When a lease containing an option to purchase is assigned, the option will typically pass
with the assignment.

Question 13

A broker enters into an oral listing agreement with a seller and locates a suitable buyer who
purchases the property. Payment of a commission to the broker is:
a. a violation of the Real Estate Commissioner’s regulations.
b. regarded as a violation of the Statute of Frauds.
c. a civil violation of the law.
d. unenforceable and at the option of the seller.

Answer 13

d – If an employment agreement is not in writing, the broker cannot enforce the payment of
their fee. The Statute of Frauds applies to real estate listings, as well as any contract that will
require more than one year to fulfill or which involves the transfer of real estate.

Question 14

When one party is substituted for another party in a contract, it is called:
a. novation. c. subordination.
b. assignment. d. redaction

Answer 14

a – A novation is an exchange or substitution of one contract, person or obligation for
another. The alternative answer selections are inapplicable to the question. Answer selection
B. assignment comes closest, but is not the best selection as it relates more closely to leases
rather than contracts. Answer selection C. subordination is the rearrangement of mortgage
lien priorities on title in which a mortgage lien takes a lesser or junior position to another
mortgage lien on a property, and is not a substitution. Answer selection D. redaction is an
editing or removal of text from a document.

Question 15

All records of an agent’s activities during the listing period need to be retained for:
a. four years. c. two years.
b. three years. d. one year.

Answer 15

b – All records of an agent’s activity need to be kept for a minimum of three years. This includes
listing contracts, disclosures, employment contracts, periodic reports of solicitation efforts, and
paper trails for properties sold.

Question 16

If a principal no longer wants to employ a broker to act on their behalf after entering into an
exclusive right to sell listing, they may:
a. switch the listing to a different broker without the consent of the original broker.
b. revoke the listing contract and not be liable for damages.
c. choose not to cooperate in the marketing effort and risk liability for damages.
d. sue the broker for damages if the home didn’t sell.

Answer 16

c – When a property owner no longer wants to work with a broker after signing an exclusive
right to sell listing, they can either unilaterally revoke the listing or refuse to cooperate in the
marketing effort. However, in either case, they will risk being liable for money losses to the
broker.

Question 17

As the first step in developing a risk reduction program for their office, a broker:
a. identifies all the activities agents perform which could result in a claim of liability
against the broker.
b. monitors ongoing agent compliance with established risk management protocol.
c. requires all their agents to take a driving test through an obstacle course.
d. requires licensees to provide proof of health insurance.

Answer 17

a – The first step in a risk reduction program is to identify the activities that create potential
liability. Answer selection B is the only other answer that is close to correct, though it is not
the best answer available as it involves monitoring agent activities after the activities that
create potential liability have been identified. Thus, it is not the first step in developing a risk
reduction program.

Question 18

If a water heater meets safety requirements, the seller notes the compliance by marking the
box next to “anchored, braced or strapped” on the:
a. purchase agreement. c. Transfer Disclosure Statement (TDS).
b. Environmental Impact Report (EIR). d. Paolo Safety Disclosure.

Answer 18

c – The Transfer Disclosure Statement (TDS) is the appropriate disclosure form to reference
the compliant installation of a water heater

Question 19

A broker has a listing on a property and locates a buyer who is willing to purchase the property
for greater than the listing price. The broker does not disclose the existence of the offer to the
seller and purchases the property themselves, later selling it to the original buyer. Here, the
broker is guilty of:
a. breaching their fiduciary duty to the seller.
b. extracting an improper secret profit.
c. improperly converting the profits from the sale.
d. Both a. and b.

Answer 19

d – By not disclosing the existence of an offer to their client seller, the broker has violated their
fiduciary responsibility. Further, when the broker subsequently purchased the property
themselves and resold the property to the original buyer, they were guilty of receiving a secret
profit.

Question 20

…………… are allowed between two brokers if the broker receiving it is not providing
another service in the transaction, such as financing, insurance or escrow.
a. Referral fees c. Secret profits
b. Hidden fees d. Duplicate fees

Answer 20

a – Referral fees between brokers are legitimate and acceptable provided the broker receiving
the fee is not also collecting other monies for services rendered in the same transaction. Hidden
fees, secret profits and duplicate fees are never proper.

Question 21

Broker fees deposited with a broker by a client prior to being earned by the broker are known
as:
a. duplicate charges. c. advance fees.
b. advance costs. d. kickbacks.

Answer 21

c – Advance fees are monies received by a broker for services not yet rendered, and are
regulated by the Department of Real Estate (DRE). Alternatively, advance costs are deposits
handed to a broker to cover out-of-pocket costs incurred on behalf of the depositor while
performing brokerage services.

Question 22

The Natural Hazard Disclosure Statement (NHD) requires the seller’s agent to disclose to a
prospective buyer whether they have knowledge the property:
a. has a roof more than three years old.
b. is located in a fault zone.
c. is located in an area with a high crime rate.
d. has an outdoor pool.

Answer 22

b – The Natural Hazard Disclosure Statement (NHD) is a disclosure of natural hazards,
such as a fault zone — not manmade, environmental hazards. All three alternative answer
selections are manmade.

Question 23

The federal Lead-Based Paint Disclosure (LBP) is required on all ____ residential
construction.
a. pre-1978 c. pre-1995
b. post-1978 d. post-1995

Answer 23

a – Lead-based paint was outlawed in 1978. Thus, the need to disclose the existence of leadbased paint is applicable to residences that were built before lead-based paint was outlawed.

Question 24

Commingling is the opposite of:
a. subrogation. c. subordination.
b. mixing d. separation.

Answer 24

d – Commingling is the mixing of client funds with those of other clients, the brokerage firm
or the individual agent. Therefore, separation is the opposite.

Question 25

A broker maintains a _________ for each owner of trust funds held in a trust account.
a. subaccount ledger c. marketing package
b. carbon record d. deposit receipt

Answer 25

a – A broker maintains a subaccount ledger for each client whose monies are held in a trust
account. None of the other answer selections apply to a trust account.

Question 26

An unlicensed assistant can properly:
a. show property to prospective buyers.
b. enter into a listing agreement on behalf of their employing broker.
c. discuss the terms and conditions of a possible sale.
d. prepare a Competitive Market Analysis (CMA) for a prospect.

Answer 26

d – An unlicensed assistant may create a Competitive Market Analysis (CMA) for a
prospective client. An unlicensed assistant cannot do anything that requires a license, such as
show property to prospective buyers, enter into a listing agreement on behalf of their employing
broker or discuss the terms and conditions of a possible sale. An unlicensed assistant’s work is
clerical in nature.

Question 27

A broker may use funds in a company trust account to:
a. make mortgage payments on behalf of the owners of properties managed by the broker.
b. to pay office salaries.
c. provide advances to salespeople.
d. pay for personal items, so long as the trust account is reimbursed.

Answer 27

a – Trust fund monies are held for the benefit of the client and may only be used exclusively
for the client. Therefore, making mortgage payments on behalf of the owners of properties
managed by the broker is acceptable

Question 28

A brother and sister held title to a duplex as joint tenants. All their other business and personal
properties were held separately. The sister, who was insolvent, died with outstanding debts
owed to creditors. After her death, title to the duplex is held by the brother:
a. free and clear.
b. as a tenant in common with the sister’s creditors.
c. as a tenant in common with the tenants of the duplex.
d. subject to probate procedures

Answer 28

a – Joint tenancy properties are transferred to the surviving tenant free and clear of any debt
owed by the deceased joint tenant.

Question 29

Although title to an income-producing property held by co-owners for profit is vested in the
names of all the co-owners, it is collectively called a(n):
a. trust c. partnership
b. sole ownership d. fiduciary

Answer 29

c – An investment property owned by several people is described as a partnership.

Question 30

An abstract of title issued by a title insurance company is:
a. a boilerplate industry form.
b. functions as a preliminary title report.
c. defines the physical borders of the property.
d. a written summary of documents shown in the title history of the property

Answer 30

d – An abstract of title is a summary or digest of all transfers, conveyances, legal proceedings,
and any other facts relied on as evidence of title, showing continuity of ownership and any
elements of record which may impair title. It does not define the borders of a property or replicate
the function of a preliminary title report. Further, as the abstract provides a written summary
of documents related to the history of a specific property, it is not a generic, boilerplate form.

Question 31

Which type of title insurance policy insures against all title risks?
a. American Land Title Association (ALTA).
b. Extended coverage policy.
c. California Land Title Association (CLTA).
d. No title policy covers all risks.

Answer 31

d – No title insurance policy can insure against all risk. Exceptions are included in all
policies of title insurance.

Question 32

When a loan is secured collaterally, the loan is a(n):
a. chattel mortgage. c. all-inclusive loan.
b. loan secured by another loan. d. piggyback loan.

Answer 32

b – A collateralized loan is one secured by another loan, rather than a property

Question 33

. The promissory note and mortgage are signed by:
a. the mortgagee. c. the trustee.
b. the lender. d. the mortgagor

Answer 33

d – Real estate mortgages are secured by property. Thus, the property owner (mortgagor)
signs the promissory note and mortgage.

Question 34

The Real Estate Settlement Procedures Act (RESPA) prohibited __________ in 1974.
a. kickbacks c. adjustable rate mortgages (ARMs)
b. subprime loans d. piggyback loans

Answer 34

a – The Real Estate Settlement Procedures Act (RESPA) outlawed kickbacks in 1974

Question 35

Which of the following is most important to a lender when determining whether to fund a
loan?
a. The amount of liquid funds it has on reserve to originate other loans.
b. Its relative risk of funding the loan.
c. Its profit margin on the loan.
d. The appraised value of the property securing the loan.

Answer 35

b – The most important consideration of a lender when determining whether to originate a
loan is the level of risk it is exposed to. While the other answer selections are valid concerns,
lenders are primarily motivated by the avoidance of risk. For instance, a high profit margin
would be of lesser importance if the risky loan promptly goes into default.

Question 36

. Changes in mortgage financing terms will affect the:
a. price and value of the property. c. value only.
b. price only. d. use of the property.

Answer 36

b – Changes in mortgage financing terms affect real estate prices. Value is a matter of worth
and perception, and is therefore not affected by financing costs. The use of a property is also
unaffected.

Question 37

When deciding whether to fund a real estate loan, institutional lenders generally avoid:
a. a high risk yield. c. borrowers with multiple jobs.
b. high income borrowers. d. subprime loans within their portfolio.

Answer 37

d – Lenders generally avoid holding a large volume of subprime loans in their portfolio as
these types of loans are more likely to result in borrower default. High risk yield is the lender’s
method of balancing risk by demanding a greater return when a higher risk is identified.

Question 38

The ethics and standards of practice for appraisers are described in:
a. State Real Estate Law.
b. Member of the Appraisal Institute (MAI) Reference Manual.
c. Uniform Standards of Professional Appraisal Practice (USPAP).
d. Fannie Mae (FNMA) Guidelines.

Answer 38

c – The Uniform Standards of Professional Appraisal Practice is the code of ethics for
appraisers.

Question 39

In real property, the major loss of value comes from:
a. deterioration. c. old age.
b. obsolescence. d. lack of maintenance.

Answer 39

b – Obsolescence is the greatest loss in value for real estate as it affects the utility of the
structure, and thus its value and marketability. Deterioration and lack of maintenance are less
damaging and may be remedied. The age of a property has little to do with its value, provided
it is properly maintained.

Question 40

While building a new home, a developer received several offers to purchase the property. Prior
to completion, the city announced it was taking 15 feet from the front of the property for a new
bicycle lane. Afterwards, all additional offers to purchase the property were for 20% less. Which
of the following types of depreciation apply?
a. Physical wear and tear. c. Social dissatisfaction.
b. Functional obsolescence. d. Economic obsolescence.

Answer 40

d – Governmental actions, such as a partial taking, are an example of economic obsolescence.

Question 41

The basis of the market data approach to appraisal is found in the:
a. principle of balance. c. principle of conformity.
b. principle of substitution. d. principle of contribution.

Answer 41

b – The principle of substitution is the basis of all appraisal including the market data
approach. The principle of substitution holds that a buyer will pay no more for a property than
the cost of a similar property. Similarly, a seller will accept no less than a similar property sold
for.

Question 42

When two properties are perceived as comparable, buyers tend to concentrate on price. This
principle is called:
a. contribution. c. balance.
b. anticipation. d. substitution

Answer 42

d – The principle of substitution states that the value of a property is equal in amount to
the amount that would be paid to buy an equivalent property available in the open market.
Alternatively, the principle of contribution holds that an improvement to a property is only
worth what it adds to the value, not what it costs. The principle of anticipation holds that a
perceived change in the future will have an effect on the present worth of the property. The
principle of balance refers to the ratio of land and improvement value that will maximize the
overall value of the property.

Question 43

Under the market comparison approach, if a comparable property lacks a feature that is present
in the subject property, the value that feature will contribute is:
a. ignored since it has no effect on the sales price.
b. identified in the appraisal report for comparison purposes.
c. added to the sales price of the comparable property.
d. subtracted from the sales price of the subject property.

Answer 43

c – An appraiser adjusts the value of the comparable property, not the subject property. The
value is adjusted in the direction of the subject. Since the subject property has an added feature,
the value of the feature in the marketplace will be added to the comparable property to
make the two more similar.

Question 44

The appraisal method most commonly used to value land or sites is the:
a. cost approach. c. the land development approach.
b. income approach. d. sales comparison approach.

Answer 44

d – The sales comparison approach is the most commonly used appraisal method to value
raw land since it has neither an improvement cost nor an income generated.

Question 45

Which of the following does not describe excess land?
a. Land which does not add to the total value of the property.
b. Land in excess of that used by comparable properties.
c. Land that is not sufficiently utilized by the improvements on it.
d. Land that is used to store unused property fixtures.

Answer 45

d – All of the answer selections correctly describe the condition of excess land except answer
selection D, as the land is being used for a practical purpose, i.e., storage.

Question 46

For a retailer, the most important factor when choosing the site for a commercial property is:
a. visibility. c. traffic flow.
b. easy access. d. the purchasing power of the area.

Answer 46

d – Purchasing power is the most critical issue when choosing a site for a commercial
retailer. When the neighborhood the business is located in has discretionary income, there is a
greater possibility of profit for the business. Hence, purchasing power is inextricably linked to
an advantageous location.

Question 47

A broker acting as an agent on behalf of both the landlord and tenant is a(n):
a. single agent. c. double agent.
b. dual agent. d. subagent.

Answer 47

b – Whenever an agent concurrently acts on behalf of both participants, they are acting as a
dual agent.

Question 48

A broker on any type of real estate transaction who fails to promptly disclose their dual agency
is subject to:
a. liability for their clients’ money losses.
b. a $25,000 penalty.
c. disciplinary action by the Internal Revenue Service (IRS).
d. deportation.

Answer 48

a – The broker will be liable for any client financial losses when they fail to disclose their dual
agency status.

Question 49

After a broker enters into a listing agreement for an apartment building with a corporation, the
officers of the corporation die in an accident. What happens to the listing?
a. The listing is withdrawn from the market until new corporate officers ratify the
agreement.
b. The listing is automatically voided as the employing party has died.
c. The listing is unaffected and enforceable.
d. The listing converts to a debt obligation against the corporation in the amount of the
broker’s commission.

Answer 49

c – When a broker enters into a listing agreement for a property owned by a corporation, the
listing contract is unaffected by the death of the corporate officers. Here, the broker is employed
by the corporation, not the individual corporate officers.

Question 50

The Real Estate Commissioner, under the Subdivided Lands Law, deals primarily with the _____
court.
a. Municipal c. Federal Supreme
b. Superior d. State Appeals

Answer 50

b – Any legal action initiated by the Real Estate Commissioner in relation to their duties under
the Subdivided Lands Law is handled through the superior court system.

Question 51

In a general plan, what is the method of enforcement used by the planning commission?
a. Escheat. c. Eminent domain.
b. Prescriptive easement. d. Zoning.

Answer 51

d – Enforcement of the general plan by the planning commission is accomplished through
zoning laws.

Question 52

Riparian rights:
a. grant ownership of adjacent water ways to a neighboring real estate owner.
b. include the right to reasonably appropriate water from a river, stream or brook as
needed.
c. need to be expressed in the mortgage or note and trust deed.
d. may be discovered through a thorough examination of public records

Answer 52

b – Riparian rights have to do with water and include an owner’s reasonable appropriation
of water from a stream or river contiguous to their land.

Question 53

When population growth causes real estate values to increase, this is classified as:
a. substitution. c. excess profit.
b. economic advantage. d. an unearned incremental increase.

Answer 53

d – Appreciation through population increase is considered an unearned incremental
increase as it is obtained without any expenditure on the part of the owner. While answer
selection B. economic advantage is potentially correct, it is not the answer selection which
best addresses the question.

Question 54

Which of the following is an example of a subdivision?
a. Six row houses.
b. A triplex converted to condos.
c. A condo converted to six timeshare properties.
d. Eight timeshare properties.

Answer 54

a – A subdivision consists of five or more units, with the exception of timeshares which are
twelve or more.

Question 55

A soil pipe is a(n):
a. drainage pipe. c. electrical conduit.
b. sewer pipe. d. any clay or adobe pipe.

Answer 55

b – A soil pipe is a sewer pipe. Of the alternative answer choices, only C. electrical conduit
is easy to eliminate since the question refers to a pipe, while electrical wires use a conduit.
Answer selection A. drainage pipe may be eliminated on the basis that drainage isn’t usually
dispersed in the soil, but rather sent to a waterway. Answer choice D may be the most difficult
to eliminate if the answer is unknown since clay or adobe may sound similar to soil; however,
this is not material used in modern piping.

Question 56

When one broker authorizes another broker to act as a subagent on the seller’s approval, the
subagent is primarily responsible to:
a. the Department of Real Estate c. the original broker.
(DRE).
b. the seller. d. both the buyer and the seller.

Answer 56

b – When a subagency is created with the seller’s approval, the subagent is primarily
responsible to the seller, not the original broker.

Question 57

An agency relationship requires all of the following, except:
a. consideration. c. a competent principal.
b. mutual consent. d. Both b. and c.

Answer 57

a – This is an EXCEPT question. An agency relationship does not require consideration to
be valid. However, it needs to have mutual consent and a legally competent principal.

Question 58

. Broker Stan acts as a dual agent for both Buyer Esmerelda and Seller Geoffrey. At no point does
Broker Stan reveal their dual agency status. Which is the least likely outcome?
a. The broker is forced to forfeit their broker fee.
b. The broker is disciplined by the Department of Real Estate (DRE).
c. The broker is liable for their principals’ money losses.
d. The broker faces a criminal conviction.

Answer 58

d – When a broker fails to disclose their dual agency status, the seller does not have to pay the
broker’s fee on a closed transaction. Further, the broker may be liable for the financial losses
suffered by the client (though not more than triple the client’s losses). However, there is no
criminal liability for the failure to disclose a dual agency relationship.

Question 59

A(n) occurs when a broker provides services to both a buyer and a seller in
a transaction without disclosure, and is unaware the buyer and seller both consider them their
agent.
a. deniable agency c. ostensible agency
b. intuitive agency d. agency confirmation

Answer 59

c – An ostensible agency occurs when both principals believe the agent represents them, but
the relationship has not been formally disclosed. Answer choices A and B may be eliminated
as nonexistent terminology.

Question 60

When listing agents improperly delete or strike through terms or provisions in a signed
purchase agreement, this act is known as:
a. interlineation. c. forgery.
b. rearrangement. d. defacing.

Answer 60

d – Defacing occurs when a provision in a signed document is struck out or deleted. Answer
selection C. forgery only applies if the entire document was falsely created. Answer selection. B. rearrangement can be similarly dismissed as this would involve the relocation of a
provision, not the deletion. Choice A. interlineation means to add alternative or additional
statements to a contract.

Question 61

Without a liquidated damages provision in the purchase agreement, the seller is entitled to
recover:
a. only 3% of their money losses caused by the buyer’s breach.
b. only 10% of their money losses caused by the buyer’s breach.
c. the entire amount of their money losses caused by the buyer’s breach.
d. none of their money losses caused by the buyer’s breach.

Answer 61

c – A liquidated damages clause in a purchase agreement sets the maximum dollar amount
a seller may recover from the buyer on the buyer’s breach. It is limited by statute to 3% of the
purchase price. Without the clause, the buyer may be liable for the entire amount of financial
loss suffered by the seller due to the buyer’s breach

Question 62

A broker under an exclusive listing also holds an option to purchase the property. If the broker
intends to exercise the option, the broker:
a. has a conflict of interest which needs to be disclosed.
b. needs to obtain the seller’s approval of the broker’s exercise of the purchase option in
writing.
c. needs to obtain the approval of the Department of Real Estate (DRE).
d. needs to avoid receiving other offers before exercising the option.

Answer 62

b – An exclusive listing with an option to purchase may cause potential conflict of interest
issues. Answer choices C and D can be easily eliminated as the DRE is not directly involved
and the broker would breach their fiduciary duty if they avoid receiving offers. The difference
between choices A and B is a matter of recognizing that choice A is possible, but not necessarily
true. Alternatively, choice B is always the best course of action.

Question 63

Which of the following statements regarding an option is false?
a. An option may not be exercised after the expiration of the option term.
b. Consideration needs to be provided in exchange for granting the option.
c. The option binds the optionee to performance.
d. An option does not provide the optionee the right to use the land during the option
period.

Answer 63

c – This is a FALSE question. Here, it is important to identify who the optionee is. The optionee
is the one who receives the option, which they may exercise at their discretion. Therefore, it is
false to state the optionee is bound to perform (although the optionor is bound to perform if the
optionee chooses to exercise the option).

Question 64

A seller signs three open listing agreements. Which of the following is correct?
a. The listing contract is voidable by any of the brokers.
b. The listings are illegal.
c. The payment of a commission is unenforceable.
d. The broker who delivers an acceptable offer receives the full commission.

Answer 64

d – An open listing is a unilateral contract. There may be any number of open listings
concurrently in effect. Whichever broker produces the buyer will receive the full commission.

Question 65

A listing broker needs to present all offers received on a listing property until:
a. an offer is accepted. c. all contingencies are removed.
b. escrow is opened. d. escrow is closed.

Answer 65

d – A sale is not complete until escrow closes. Thus, any offer received by the seller’s broker
prior to the close of escrow needs to be presented to the seller for consideration.

Question 66

A seller of a property is not bound by the acts and representations of the following, except:
a. the escrow officer performing escrow for the transaction.
b. the listing broker employed by the seller.
c. the mortgage broker who funds the buyer’s loan.
d. the buyer’s broker.

Answer 66

b – This is an EXCEPT question. The only person for whom the seller is responsible is the listing
broker employed by the seller. The other participants identified in the answer selections do not
impose a liability on the seller. Similarly, a buyer is bound by the acts of their agent, but not
the acts of the seller’s agent.

Question 67

When asked by the prospective buyer about any aspect of a property, the seller’s agent:
a. is duty-bound to respond fully and fairly to the inquiry.
b. only needs to respond if the question addresses a material fact about the property.
c. is to refer the buyer to address the question to the buyer’s agent.
d. is duty-bound to answer only as authorized by the seller

Answer 67

a – A seller’s agent owes a general non-fiduciary duty of honesty and fair dealing to the
buyer and all other third parties in a transaction. As such, they are to answer all questions fully
and fairly, unless the question concerns confidential information about the seller.

Question 68

A preprinted disclaimer contained in the statutory Transfer Disclosure Statement (TDS) states
the disclosures made by the seller on the form:
a. may be relied on by a buyer as a warranty of the actual condition of the property.
b. are not part of the terms of the purchase agreement.
c. Both a. and b.
d. Neither a. nor b.

Answer 68

b – The Transfer Disclosure Statement (TDS) and other disclosures are not part of the terms
of the purchase agreement. The statutory language written into the boilerplate of the disclosure
states that the disclosure is not a warranty of the property’s actual condition, as it represents
only what the seller knows and observes about the property’s condition.

Question 69

A property manager must deposit all funds collected on behalf of a landlord into a
within three business days of receipt.
a. trust account c. general brokerage account
b. personal account d. savings account

Answer 69

a – Monies held for a client need to be deposited into a trust fund account within three
business days of receipt.

Question 70

Which of the following appraisal reports provide the greatest degree of detail about a property?
a. Uniform Residential Appraisal Report. c. Fannie Mae Form 1004.
b. Appraisal letter. d. Narrative appraisal report.

Answer 70

d – A narrative report, also known as a self-contained appraisal report, is the most
detailed type of property appraisal report. Unlike the other answer selections, a narrative report
contains detailed descriptions. The reports listed in answer selections A and C are different
names for the same generic report that only summarizes facts, and an appraisal letter reduces
the report to a statement

Question 71

The value of unimproved property is best estimated by which of the following appraisal
approaches?
a. The income approach. c. The cost approach.
b. The sales comparison approach. d. Capitalization rate (cap rate).

Answer 71

b – The sales comparison is always the preferred appraisal approach when comparable sales
are available. For unimproved property, the cost approach is not possible as the property does
not contain existing improvements. Answer choices A and D both require a rental income
stream which is not stated in the question and unlikely for an unimproved property.

Question 72

The unit of comparison when appraising land is:
a. cost per square foot. c. cost per acre.
b. cost per front foot. d. Any of the above

Answer 72

d – The unit of comparison when appraising land depends on the size and use of the subject
parcel. Other than rural properties, land is generally priced by the square foot. Parcels with a
specific frontage, such as a beach, golf course or property for commercial usage, may have the
highest and best value based on the front foot comparison.

Question 73

When a dual agency relationship is established in a targeted sales transaction, the broker and
their agents may not pass on any information from one party to the other relating to:
a. the price the buyer may be willing to pay.
b. the terms of payment the seller may be willing to accept.
c. confidential financial information of the parties.
d. All of the above.

Answer 73

d – Under a dual agency, the agent may not express any information from one party to the
other regarding the price the buyer may be willing to pay, the terms of payment the seller may
be willing to accept, or confidential financial information of either party.

Question 74

The price a reasonable, unpressured buyer would pay for a property on the open market as set
by an appraisal is known as the:
a. mark-to-management value. c. value in use.
b. fair market value (FMV). d. assessed value

Answer 74

b – The fair market value (FMV) of a property is the price a reasonable, unpressured buyer
would pay for the property on the open market. It represents the amount paid and received
with no duress between principals that are an arm’s length apart (i.e., they are not related by
blood or marriage, or have another affiliation that would influence their behavior).

Question 75

The referral of a client to a financially controlled business owned by the broker is required to
be disclosed by use of a(n):
a. Agency Law Disclosure.
b. Affiliated Business Arrangement Disclosure Statement.
c. home inspection report.
d. Conflict of Interest Disclosure

Answer 75

b – Referral of a client to a financially controlled business whose earnings are shared with the
broker requires the broker to provide the client a written affiliated business arrangement
disclosure. While answer choice D is similar, the conflict of interest disclosure is used when the
broker has a personal or professional bias that may interfere with their fiduciary duty, as exists
when the broker is related to the other party in the transaction or has an ownership interest in
a property.

Question 76

The , —– contained in all purchase agreements, states the existence or
nonexistence of each broker’s fiduciary agency with the various parties to the transaction.
a. agency confirmation provision c. hold harmless agreement
b. broker liability agreement d. attorney fee provision

Answer 76

a – The agency confirmation provision contained in all purchase agreements states
the existence and nonexistence of each broker’s fiduciary duty owed to the parties of the
transaction. The word “agency,” as appears in the question, is only present in answer choice A.
Confirmation is the third step in the agency disclosure process: disclose, elect and confirm.

Question 77

A listing broker enters into negotiations to sell an office building to a limited partnership in
which the broker is a limited partner. The broker does not disclose their interest in the limited
partnership to the seller. Before closing, the seller discovers the broker’s interest and refuses to
sell. What is the likely outcome of a civil suit to collect a commission?
a. The case is transferred to the Real Estate Commissioner.
b. The case is sent to criminal court.
c. No commission would be due to the broker.
d. The broker would likely be awarded their full commission

Answer 77

c – The failure to disclose the fact that the broker is also a partner in the partnership buying
the property allows the seller to withdraw from the sale with no obligation to pay the brokerage
commission. This scenario presents a conflict of interest that needs to be disclosed by the
broker at the moment the conflict arises.

Question 78

Accretion results in the acquisition of title to real estate by which of the following methods?
a. Eminent domain.
b. Acquisition through natural causes.
c. Transfer through a valid will or intestate succession.
d. Acquisition of title by adverse possession.

Answer 78

b – Accretion is the acquisition of property through natural causes such as a change in a
watercourse. This terminology is related to riparian rights.

Question 79

An unearned incremental increase in the value of real property does not result from:
a. added amenities to the property.
b. change of zoning.
c. increased density of population.
d. advantageous methods for measuring depreciation.

Answer 79

. a – This is a NOT question. An unearned incremental increase does not come from any direct
action by the owner, such as adding an amenity to the property. An unearned incremental
increase is an increase in value that results from factors off the property and out of the owner’s
control.

Question 80

A person who owns an undivided interest in a parcel of real property together with a separate
interest in communal space has an interest in a(n):
a. subdivision. c. commune.
b. condominium project. d. corporation.

Answer 80

b – Condominium ownership combines an undivided interest in the actual condo unit,
plus a proportionate interest in the common areas.

Question 81

A property owner dies testate, leaving a spouse and three children. The owner’s estate is
distributed:
a. to their heirs by right of reversion.
b. one-half to their spouse and one-half divided among the three children.
c. equally among the heirs.
d. in accordance with their will.

Answer 81

d – To die testate is to die with a will. The terms of the will dictate how the inheritance is
divided.

Question 82

The right to use, enjoy and alienate real estate to the exclusion of all others most accurately
describes:
a. a possessory right. c. ownership.
b. a tenancy. d. an estate for years.

Answer 82

c – To alienate is to transfer an interest in real estate from one person to another. Thus, while a
tenancy, possessory right and an estate for years may grant the right to use and enjoy property,
they do not grant the right to alienate real estate.

Question 83

Which of the following may also be called an estate of inheritance?
a. Fee simple. c. Condition subsequent.
b. Remainder interest. d. Future life estate.

Answer 83

a – An estate of inheritance is ownership. Fee simple refers to current ownership. A fee
estate grants an indefinite, exclusive and absolute ownership interest in a parcel of real estate
and is the largest bundle of rights to be held in real estate.

Question 84

A residential neighborhood suffers economic obsolescence from which of the following?
a. Functional inadequacies.
b. Airplanes landing at a nearby local airport.
c. Physical wear and tear.
d. Obsolete heating and cooling systems.

Answer 84

b – Economic obsolescence occurs off the property. In this question, the existence of airplanes
landing at a local airport refers to a neighborhood effect. All the other answer selections refer to
conditions which exist on the property

Question 85

Which of the following is an example of economic obsolescence?
a. A leaking roof. c. An oversupply of like-kind properties.
b. No off-street parking. d. A deteriorated bearing wall.

Answer 85

c – Economic obsolescence is a loss in value of a property due to external factors and not the
condition of the property itself. Thus, an oversupply of like-kind properties in the immediate
vicinity of the subject property is a type of economic obsolescence.

Question 86

If multiple lenders participate in the same loan but in different portions, the loan is a(n):
a. 80/20 mortgage. c. participation loan.
b. piggyback loan. d. apportioned loan

Answer 86

c – When multiple lenders participate in the same loan it is called a participation loan. Note
that a form of the word appears in the question and the correct answer choice.

Question 87

When a broker’s unlicensed assistant prepares marketing material, the Business and Professions
Code requires:
a. the broker to be the original source of all content for the advertisements.
b. the broker to read and approve all material before it is used.
c. the broker’s approval to be in writing before the material is used.
d. the broker to ensure the assistant is provided with accurate information.

Answer 87

b – The real estate law requires the broker to read and approve all marketing material
prepared by an unlicensed assistant before it is used.

Question 88

It is unnecessary for a broker to maintain trust records in which of the following transactions?
a. A check immediately handed to escrow.
b. A deposit check delivered to the seller.
c. A rent check quickly delivered to the lessor.
d. None of the above.

Answer 88

d – This is an UNNECESSARY question. Trust records need to be kept regardless of how the
monies are handled.

Question 89

Which of the following is the most important reason for a broker to maintain a trust fund
account separate from the business account?
a. To impress clients.
b. To satisfy Department of Real Estate (DRE) auditors.
c. To avoid the commingling and converting the funds.
d. For ease of accounting.

Answer 89

c – A broker is to maintain a trust fund account separate from their business account to avoid
commingling and converting funds. Here, both answer selections B and D are reasonable
alternatives, although they are not the most precise and best option available.

Question 90

A buyer wishing to recover losses caused by a listing agent’s negligent failure to disclose known
material defects has .______. to pursue their losses.
a. one month c. one year
b. six months d. two years

Answer 90

d – A buyer has a statutory two-year period to pursue a seller’s agent for money losses for their
failure to disclose material facts.

Question 91

Apartment buildings with or more units are required to have a landlord, resident
manager or responsible caretaker living on the premises to manage the property.
a. 8 c. 16
b. 12 d. 24

Answer 91

c – A resident manager or caretaker is required for apartment complexes of 16 units or more.

Question 92

A broker is assured a fee under a safety clause in a listing agreement if:
a. information about the property is provided to prospective buyers during the listing
period by the listing agent.
b. the seller is notified of the identification of the prospective buyers who later purchases
the property as soon as possible after termination of the listing.
c. a prospective buyer located during the term of the listing acquires the property as a
result of negotiations commenced during the safety period.
d. All of the above.

Answer 92

d – The safety clause in an exclusive listing affirms the agent’s right to a fee when any of the
conditions provided as answer selections occur.

Question 93

Which of the following is the maximum term of an exclusive right to sell listing on real
property?
a. One year. c. 90 days.
b. Six months. d. Whatever time period is agreed to by the
seller and broker.

Answer 93

d – An exclusive right to sell listing may last for whatever period of time is agreed to by
the seller and broker. There is no specified length of time that sets a threshold for an exclusive
listing. Different property types, locations or market condition may affect the mutually agreedto length of time.

Question 94

Any exclusive right to sell listing needs to contain a(n):
a. definite termination date.
b. commission rate below the state maximum.
c. definite listing price.
d. authorization to accept a deposit from a buyer

Answer 94

a – An exclusive right to sell listing is required to have a specified termination date that
is agreed to by the participants

Question 95

An irrevocable right to purchase property within a specific time period is called a(n):
a. option to buy. c. subrogation.
b. novation. d. right of first refusal

Answer 95

a – An irrevocable right to purchase a property for a specific price during a specified period of
time is an option to buy. Answer selection D. right of first refusal, though similar, refers to
an opportunity held by someone (often a tenant or neighbor) to purchase the property under
the same price and terms offered by a third party.

Question 96

Which of the following does not terminate an offer to purchase real property?
a. A counteroffer.
b. When the offeror revokes the offer after the offeree notified them of their acceptance.
c. Death of the offeree prior to acceptance.
d. When the stated period given by the offeror is exceeded prior to acceptance by the
offeree.

Answer 96

b – This is a NOT question. Once the offeree (seller) has notified the offeror (buyer) that the offer
has been accepted, it cannot be revoked.

Question 97

Brokers and agents are required to complete ______ hours of continuing education (CE) every
four years to renew a license issued by the Department of Real Estate (DRE).
a. 50 c. 30
b. 45 d. 15

Answer 97

7. b – Brokers and agents are required to complete 45 hours of CE every four years in order to
   maintain their DRE license.

Question 98

Commission splits between a broker and a salesperson are determined by:
a. an implied contract. c. local custom.
b. an express contract. d. a written contract.

Answer 98

d – A salesperson has a written contract with their broker that specifies what the commission
split will be. The commission split is not set by law but through negotiations between the agent
and employing broker. Answer selection B. an express agreement is applicable in some
cases, but may be either written or verbal and is thus not the best answer

Question 99

The Transfer Disclosure Statement (TDS) requires a broker to:
a. visually inspect the property and inform the buyer of any material facts.
b. inspect the common areas in a condominium community.
c. inspect the inaccessible areas of the property.
d. pay for a mold and radon gas inspection.

Answer 99

a – Brokers are obligated to perform a competent visual inspection when completing the
mandated Transfer Disclosure Statement (TDS) form and disclose any known material facts
that may affect the buyer’s decision to buy the property. A broker is not required to perform
any of the activities described in the other answer selections

Question 100

A Transfer Disclosure Statement (TDS) needs to be delivered to buyers on targeted transaction
by the:
a. court assignee. c. beneficiary.
b. trustee. d. seller.

Answer 100

d – It is ultimately the seller’s responsibility to deliver the Transfer Disclosure Statement
(TDS) to the buyer.

Question 101

The holding of the Easton v. Strassburger court case requires brokers to:
a. explain economic conditions to the buyer.
b. notify the buyer of their right to property inspections.
c. explain the meaning of “as is” in regards to a property.
d. reveal all known material facts about a property.

Answer 101

d – The holding of the Easton v. Strassburger court case requires sellers and their agents to
disclose all material facts about a property to a buyer as soon as practicable. This is the case
which prompted the creation and implementation of the Transfer Disclosure Statement
(TDS) form.

Question 102

Use of the Natural Hazard Disclosure (NHD) statement is required by sellers on:
a. court-ordered transfers or sales and transfers to or by governmental entities.
b. transfers between co-owners and transfers to relatives or spouses.
c. Both a. and b.
d. Neither a. nor b.

Answer 102

d – Sellers in certain transactions do not need to use the statutory Natural Hazard Disclosure
(NHD) statement to make their property disclosures.

Question 103

Senior citizen housing is restricted to housing for persons or older.
a. 52 or 55 c. 55 or 62
b. 55 or 60 d. 65 or 72

Answer 103

c – There are two protected types of senior housing. The minimum age limit is either 55 or 62.
The occupancy requirements are also different between the two types.

Question 104

Broker Stella, who is not a Realtor, uses a sign which says “Realtor” at her home office. She
pays a 17 year-old high school student $10 for each listing they bring into her office. She keeps
her client’s money in her safe at home. Which of the following is not a violation of the real
estate law?
a. Paying an unlicensed person to solicit listings.
b. Improper office location.
c. Using the term “Realtor” when she is not a member of the National Association of
Realtors (NAR).
d. Commingling the client’s money with her own money in the home safe.

Answer 104

b – This is a NOT question. The only answer choice that is not a violation of real estate law is
the location of her office in her home. All other identified activities are impermissible.

Question 105

When a broker deposits a client check into the company general account, the broker has
committed:
a. conversion. c. commingling.
b. reconciliation. d. puffing.

Answer 105

c – Commingling is the mixing of personal funds with client or third-party funds, which
includes holding a deposit check uncashed at the broker’s discretion. Answer selection A.
Conversion requires the broker’s personal use of client monies. The other answer selections
have nothing to do with the question

Question 106

When a property is vested with “alienable title,” this means it:
a. cannot be conveyed. c. can be conveyed.
b. is encumbered. d. is restricted as to who the property can
be transferred to.

Answer 106

c – Alienation refers to the ability to transfer property. Therefore, alienable title is one that
can be conveyed

Question 107

Title insurance is the means by which the title insurance company a person
who acquires an interest in real estate against a monetary loss caused by an encumbrance on
title.
a. holds harmless c. indemnifies
b. reimburses d. All of the above.

Answer 107

d – Title insurance is a form of indemnity insurance by which a title insurance company
holds harmless a person who acquires an interest in real estate against a monetary loss
caused by an encumbrance on title that is not listed in the policy and the insured was unaware
of when the policy was issued. The title insurance company then reimburses the insured for
a later claim.

Question 108

Which of the following is excluded from any policy of title insurance?
a. Defects in the chain of title.
b. Lack of capacity of a previous title holder.
c. Legal fees and expenses incurred to defend title.
d. A zoning or regulation dispute.

Answer 108

d – This is an EXCLUDED question. There are no title insurance policies that will insure
against zoning or regulation disputes.

Question 109

When the market turns from a seller’s market to a buyer’s market, which of the following is
true?
a. Interest rates go down. c. Prices fall.
b. Prices rise. d. There is no change in price.

Answer 109

c – The changing of the market from being advantageous to a seller or buyer will only affect
price. In a buyer’s market, buyers maintain the competitive advantage as prices historically
will go down.

Question 110

The value of the nicest home on the block will be reduced by the existence of inferior properties
on the same block. This is known as the principle of:
a. regression. c. highest and best use.
b. progression. d. substitution.

Answer 110

a – The principle of conformity states that highest values are achieved by a degree of
similarity in the style, size and quality of a property. Those properties that are more improved
than the conforming level suffer a loss of value. This is called regression.

Question 111

All of the following are examples of functional obsolescence, except:
a. an over improvement. c. a one car garage.
b. a swimming pool in cold climate. d. deferred maintenance.

Answer 111

d – This is an EXCEPT question. Functional obsolescence is either out-of-date, inadequate
amenities that do not meet market standards, or over improvements for which the market refuses
to pay the full cost as an amenity. Functional obsolescence is not a matter of maintenance.

Question 112

The Agency Law Disclosure is not required to be attached to a(n):
a. exchange arrangement.
b. purchase agreement for single family residential property.
c. purchase agreement for commercial property.
d. month-to-month rental agreement.

Answer 112

d – The Agency Law Disclosure is to be attached to a purchase agreement, or exchange
agreement and a lease for greater than one year. It is not required on a month-to-month rental
agreement.

Question 113

When showing a listed property to potential buyers, what is the listing broker required to
disclose?
a. Only what they have been authorized by the seller to disclose.
b. All facts about the seller’s motivation that might cause the buyer to make an offer.
c. Anything that encourages the buyer to buy quickly.
d. All known material facts about the property.

Answer 113

d – A listing broker is to disclose all known material facts regarding the property to potential
buyers when showing a listed property. The only exception is confidential personal or financial
information about the seller, or other legal limits placed by the seller.

Question 114

All of the following statements are true concerning an in-house sale, except:
a. the listing broker can buy the property themselves.
b. the listing broker can act as an agent for the seller only.
c. the listing broker can act as a dual agent.
d. the listing broker can act as an agent for the buyer only.

Answer 114

d – This is an EXCEPT question. For an in-house sale, the listing broker cannot represent only
the buyer. An in-house sale refers to one in which the broker or their salespersons are working
with the seller and the buyer.

Question 115

Which of the following zoning designations is suitable for land used as the site of multifamily residential developments?
a. I-3. c. R-4.
b. R-1. d. MU-4.

Answer 115

. c – Residential use zoning is labeled with an R. Multiple units will have a number following
the R other than 1, the precise number determined by each city or county.

Question 116

Which of the following creates an agency relationship?
a. Subornation. c. Ratification.
b. Voluntary action of the broker. d. Interlineation.

Answer 116

c – Ratification is the adoption or approval of an act performed on behalf of a person without
previous authorization after the acts have been performed, such as the approval by a principal
of previously unauthorized acts of an agent. Agency requires mutual consent.

Question 117

A valid agency relationship does not require a(n):
a. written agreement. c. attorney-in-fact.
b. express agreement. d. Any of the above.

Answer 117

d – None of the provided answer selections are required to create a valid agency relationship.
For example, an ostensible agency is neither written nor express. Further, an agency
relationship may be implied or created by a verbal agreement

Question 118

“Agency” includes relationships between licensed sales agents and their brokers as well as:
a. escrow officers and real estate licensees.
b. lenders and the agents who recommend them.
c. finders and the brokers who employ them.
d. real estate licensees and the Department of Real Estate (DRE).

Answer 118

c – Finders and brokers, as well as brokers and the public, are capable of being in agency
relationships.

Question 119

All of the following terminate an easement, except:
a. merger of the tenements.
b. release by the owner of the servient tenement.
c. abandonment.
d. destruction of the servient tenement.

Answer 119

b – This is an EXCEPT question. The termination of an easement may occur for any of the
reasons cited in the answer selections, except the release by the servient tenement. The
servient tenement is the party burdened by the easement and they cannot unilaterally
terminate the easement.

Question 120

The is responsible for installation of off-site improvements in a new subdivision.
a. developer c. city or county
b. homeowners’ association (HOA) d. individual property owner

Answer 120

a – The developer is responsible for the installation of off-site improvements, such as roads,
curbs, gutters and sidewalks, as well as utility hook-ups, fire hydrants and parks in a subdivision.

Question 121

Martin needs $25,000 to buy a new car. He owns a note secured by a $50,000 trust deed. A
friend will lend Martin the money if Martin gives him his note and trust deed as security.
Martin would use which document to complete this transaction?
a. A chattel mortgage. c. A hypothecation agreement.
b. A security agreement. d. A pledge agreement.

Answer 121

. d – A pledge agreement is the document used to secure a loan using another loan as security
where possession is relinquished. This is similar to hypothecation, which also pledges a loan
or property as security, yet possession is retained.

Question 122

A lender is required to provide a buyer with a copy of the _________ within three business
days of the lender’s receipt of the loan application which provides the mortgage terms and
details quoted by the lender.
a. Truth-in-Lending Waiver c. Loan Estimate
b. Closing Disclosure d. Settlement Statement

Answer 122

c – A lender is required to provide buyers a Loan Estimate within three business days of
the lender’s receipt of the application. The Loan Estimate, which became effective October 3,
2015 under the TILA-RESPA Integrated Disclosure (TRID) rules, states the mortgage terms and
details quoted by the lender.

Question 123

When a married person dies intestate leaving a spouse and two children, their separate
property is delivered:
a. equally among the children.
b. only to the current spouse.
c. one-third to the spouse and two-thirds to the children.
d. by escheat to the state.

Answer 123

c – To die intestate means to pass away without a will. If a property owner dies intestate, the
probate court will award the estate to the spouse and any children once all creditors have been
paid.

Question 124

Real Estate Settlement Procedures Act (RESPA) underwriting requirements apply to:
a. one unit properties only.
b. one-to-four unit residences.
c. an apartment complex with less than twenty residential units.
d. the purchase of 40 or more acres of raw land.

Answer 124

b – The Real Estate Settlement Procedures Act (RESPA) regulations apply to one-to-four
unit residential properties. Most disclosure and consumer protection laws are written for
this specific type of targeted property.

Question 125

Why do brokers establish client trust fund accounts?
a. To convert client funds for company use. c. To earn interest on client money.
b. In order to impress clients. d. To separate the client’s money from
broker’s money.

Answer 125

d – Trust accounts are designed to separate client monies from brokerage business funds.
Commingling, the mixing of client monies with other funds, is the act most frequently
disciplined by the Department of Real Estate (DRE).

Question 126

Balancing a bank statement with a client’s account is known as:
a. auditing. c. statement adjustment.
b. reconciliation. d. commingling.

Answer 126

. b – As with a personal checking account, reconciliation refers to a broker balancing a bank
statement with the account ledger. Accounts are generally reconciled on a monthly basis

Question 127

The buyer of a duplex does not receive a Transfer Disclosure Statement (TDS) prior to closing. The
buyer can:
a. do nothing, since they are still obligated to proceed with the transaction.
b. cancel the transaction.
c. cancel the transaction only if title has not formally transferred.
d. file a criminal suit against both the seller and listing broker.

Answer 127

b – The failure to deliver the statutory Transfer Disclosure Statement (TDS) form to a buyer
prior to the close of escrow gives the buyer the right to cancel the transaction.

Question 128

The characteristic(s) of a tenancy-at-will include all of the following, except:
a. no provision for the payment of rent.
b. possession of a property for an indefinite and unspecified period.
c. possession of a property delivered to the tenant with the landlord’s knowledge and
consent.
d. the tenancy is limited to a specific duration of time no greater than one year.

Answer 128

d – Answer choices A through C describe a tenancy-at-will. A tenancy-at-will, unlike
tenancy-at-sufferance, is done with the owner’s permission. Typically, this follows the
termination of a lease and will evolve into a periodic tenancy if continued beyond a short
duration. However, the tenancy is not limited to a specific duration of time no greater than
one year

Question 129

The seller of a one-to-four unit residential property is required to complete and deliver a
, generically called a Condition of Property Disclosure Statement, to all buyers in
targeted transactions.
a. mechanic’s lien c. Transfer Disclosure Statement (TDS)
b. Notice of Delinquency (NODq) d. Sellers Financial Disclosure

Answer 129

c – The Transfer Disclosure Statement (TDS) is required on the sale of all one-to-four
residential unit properties. 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.
It is generically called a condition of property disclosure.

Question 130

A broker has a listing on a property which grants them an option to purchase the property.
If the broker arranges a later sale of the property with a buyer, then exercises the option and
resells the property at a profit without disclosing to the seller the second transaction with the
buyer, the broker has:
a. received an improper secret profit.
b. committed a federal crime.
c. acted as a dual agent without proper disclosure.
d. performed a smart business practice.

Answer 130

a – When a broker exercises an option to buy they hold during the listing period in order to
resell the property to an existing buyer, the broker violates their fiduciary responsibility to
their client. In this circumstance, the broker has received an improper secret profit.

Question 131

An option granted to a buyer:
a. functions as an offer to enter into a contract with the seller.
b. prevents the seller from selling the property to another buyer for the term of the option
period.
c. creates a voluntary lien on the seller’s real estate.
d. creates a relationship identical to that of a vendee/vendor under a land contract.

Answer 131

b – An option is a right given for a consideration to another by a property owner to purchase
or lease a property as agreed within a specified time without obligating the person who
receives the right to exercise it. Thus, an option prevents the seller from selling the property to
another during the term of the option. Further, it obligates the seller to perform if the option
is exercised.

Question 132

An option becomes a binding contract on both parties when:
a. financing is available. c. it expires under its terms.
b. it is exercised. d. consideration is given.

Answer 132

b – Only when the option is exercised does it bind both parties to the transaction.

Question 133

No matter how vested, all property acquired jointly by a married couple is presumed to be:
a. public property. c. community property.
b. separate property. d. trade fixtures.

Answer 133

c – In California, when a married couple buys property jointly, it is presumed to be community
property. This is known as the community property presumption.

Question 134

The prosecution of a non-licensee who performed activities that required a license is handled
by:
a. the Real Estate Commissioner. c. the U.S. marshal.
b. a local district attorney. d. a county sheriff.

Answer 134

b – When a non-licensee unlawfully performs real estate services for which a license is required,
the local district attorney is responsible for adjudicating the violation. As the individual is
not a licensee, prosecution is beyond the scope of the Department of Real Estate (DRE). Further,
a federal authority has no jurisdiction when an unlicensed person performs a task requiring a
state license. A county sheriff is similarly not tasked with enforcing crimes of this nature.

Question 135

A lender may charge a borrower for preparing federal lending disclosures.
a. a reasonable fee c. $0
b. $25 d. 1% of loan amount

Answer 135

c – The required lending disclosures under the Real Estate Settlement Procedures Act
(RESPA) and the Truth-in-Lending Act (TILA), such as the TILA-RESPA Integrated
Disclosure (TRID), must be provided to borrowers at no cost.

Question 136

Just as disclosure laws are written to protect the consumer, who benefits the most when a
lender requires an impound account of property taxes and insurance for a real estate loan?
a. The lender and the trustee. c. The seller and the lender.
b. The beneficiary and the trustee. d. The lender and the trustor.

Answer 136

d – Both the lender and the trustor (borrower) benefit from the existence of an impound
account since it guarantees the necessary funds will be available for property taxes and
insurance when they are due.

Question 137

With only a few days left before the close of escrow, the buyer asks the broker for permission
to move into the vacant house. The broker is to:
a. ask the buyer to deposit the balance of the down payment into escrow first.
b. give the buyer access and approval.
c. refuse to give the buyer access and approval.
d. seek approval from the seller.

Answer 137

d – If a buyer asks the broker for permission to move into a vacant house prior to the close of
escrow, the broker needs to ask the seller for permission before granting access to the buyer.
Until escrow closes, the property belongs to the seller. Thus, the seller is liable and responsible
for whatever occurs on the property, including any injuries and property damage. Further,
if escrow fails to close, a dispute may arise regarding any alterations the buyer made to the
property.

Question 138

The authority a broker has when acting as an agent for a principal is:
a. that which is granted by the Commissioner of the Department of Real Estate
(DRE).
b. whatever the broker chooses to take.
c. that which is conferred by the principal.
d. whatever the broker accepts as limited by the statute of frauds

Answer 138

c – The authority of the broker, or the limits to that authority, are determined by what
the client grants. For example, if the client insists on being present during showings of the
property, this condition limits the authority of the broker

Question 139

An agency relationship in real estate between a licensee and a principal is terminated in
several ways. Which of the following does not terminate an agency relationship?
a. The death or incapacity of either the seller or broker.
b. Revocation at any time by the principal.
c. Destruction of the property.
d. None of the above.

Answer 139

d – This is a NOT question. All of the answer selections will terminate the agency relationship,
though some have negative consequences. For instance, if a principal revokes the agency
before the listing has expired, the principal will be liable to the broker for money losses.

Question 140

A lot 300 feet deep lost 10 percent of its depth. What is the effect of the loss in depth on the
value of the lot?
a. A 10% decline in value.
b. A decrease of value in excess of 10% due to the change in utility.
c. The price per front foot will increase.
d. The price per square foot will increase.

Answer 140

d – The loss of depth for any reason will most likely increase the price per square foot of the
property since, though the value of the lot may decrease, it will not diminish proportionately
with the reduction in size. For example, a rectangular residential lot that is 60 feet across the
front and 200 feet deep (12,000 square feet total) has a value of $360,000, or $30 per square foot.
If the depth loses 50 feet, either through natural causes or eminent domain, the lot would not
lose a proportional ¼ of its value. The now smaller lot (9,000 square feet) may still be worth
$360,000, with an increase in the price per square foot to $40.

Question 141

. When using the market comparison approach to appraise a single family residence (SFR),
property comparisons are based on:
a. the gross rent multiplier (GRM). c. the rental income the property generates.
b. price per cubic foot. d. the entire property.

Answer 141

d – When making property comparisons for the market approach, the appraiser considers
the entire property and the immediate area, including its location, schools and other offsite elements that affect value. Answer selections A and C are related to the income approach,
not the market comparison approach. Answer selection B is used for the cost approach and is
employed only for specific types of properties, such as warehouses.

Question 142

When changes are made in a residence to correct functional obsolescence, this activity is
termed:
a. reproduction. c. remodeling.
b. replacement. d. repair.

Answer 142

c – Remodeling is done to a property to correct functional obsolescence which limits the
practical use of a property. The functionally obsolete element needs to be updated through
remodeling, not simply resolved with repairs or the replacement of an item with the same
thing.

Question 143

What is the name of sheet metal that protects a building from water seepage?
a. Sill. c. Flashing.
b. Weep hole. d. Shingles.

Answer 143

c – The sheet metal on the edge of the roof and surrounding various exhaust pipes extending
above the roof is called flashing.

Question 144

Open roof sheathing is a component of a(n):
a. wood shake roof. c. composite shingle roof.
b. gravel and tar paper roof. d. fiberglass tile roof.

Answer 144

a – Wood shake roofs feature open roof sheathing to allow air to circulate. None of the other
answer selections share this design.

Question 145

Property is defined as:
a. rights or interests which a person has in a thing owned.
b. real if it is a trade fixture.
c. personal if it is a fixture.
d. a license to use something owned by another for a temporary period of time.

Answer 145

a – Property is broadly defined as rights or interest which a person has in a thing owned.
Property may be classified as real or personal. Answer selections B and C are both false as
trade fixtures are personal property and all other fixtures are real property

Question 146

Under which type of title insurance policy is a title insurance company least likely to
physically inspect the property?
a. Standard policy. c. Extended coverage policy.
b. Abstract of title. d. Preliminary title report.

Answer 146

a – This is a LEAST LIKELY question. A standard policy of title insurance is least likely to
require the title insurance company physically inspect the property. Note that answer selection
B. Abstract of title and D. Preliminary title report are not insurance policies. Answer
selection C. Extended coverage policy suggests something greater than the standard policy,
and thus would be more likely to entail a physical inspection.

Question 147

A residential duplex was purchased for $400,000. The buyer assumed an existing note and
trust deed against the property for $300,000. The documentary transfer tax for this county is
$.55 per $500 of consideration. The transfer tax is:
a. $110. c. $55.
b. $440. d. $220

Answer 147

a – The transfer tax is based on the cash and new debt created in the transfer. In this question,
the amount is $100,000 ($400,000 purchase price – $300,000 assumed note and trust deed).
Determine how many times $500 factors into $100,000: $100,000/$500 = $200. Multiply this
amount by the tax rate: $200 x .55 = $110.

Question 148

Two salespersons submit offers on the same property listed by a third salesperson within the
same office. Before any offer is presented, the salesperson who submitted the first offer argues
the seller should be given time to make a decision about their offer before being presented the
second offer. The listing agent is to:
a. agree to do so.
b. refuse to present the second offer at all if the seller likes the first.
c. present both offers in the order received, allowing the seller to make counter offers on
each.
d. present both offers at the same time.

Answer 148

. d – When multiple offers are submitted on a listed property around the same time, the
fiduciary duty of the listing agent requires them to present both offers to the seller at the
same time so the seller may make a decision while being aware of the existence of both offers.

Question 149

Which of the following is least likely to be searched by a title company when performing a
title search?
a. The county clerk’s office. c. The secretary of state.
b. The county recorder. d. The federal registry.

Answer 149

d – A title company performs a title search by viewing the records of the county clerk’s office,
county recorder and the secretary of state. A search of the public records of all entities is required
to determine a property’s chain of title and any relevant records for the buyer or seller (e.g. an
income tax lien). A federal registry of any sort of least likely to contain information relevant to
a property’s title.

Question 150

The Real Estate Settlement Procedures Act (RESPA) applies to:
a. agricultural loans written by a bank.
b. a U.S. Department of Veterans Affairs (VA)-guaranteed loan.
c. a commercial loan for a twenty-unit apartment complex.
d. automobile loans written by a federally chartered bank.

Answer 150

b – The Real Estate Settlement Procedures Act (RESPA) applies to residential one-to-four
unit properties only. RESPA is federal legislation prohibiting brokers from giving or accepting
referral fees if the broker or their agent is already acting as a transaction agent in the sale of
a one-to-four unit residential property which is being funded by a purchase-assist, federallyrelated consumer mortgage. Thus, only answer selection B falls under RESPA.