TEST 3 -- WRONG

Question 1

The owner of an apartment building could deduct all of the following as an expense each year on his income taxes, except:

(A) the depreciation of the improvements; (B) the cost of constructing a wall on the property; (C) the resident property manager’s salary; (D) the interest expense on the loans on the property.

Answer 1

(B) the cost of constructing a wall on the property

The cost of constructing a wall on the property would be a capital improvement, and would not be used as an income tax deduction. Instead, it would be added to the cost basis and depreciated over the life of the improvement.

Question 2

The zoning for a subdivision said that each lot must contain a minimum of 15,000 square feet. The deed restrictions said that each lot must contain a minimum of 10,000 square feet. Which would control?

(A) the most recent restriction; (B) deed restrictions; (C) zoning; (D) whichever restriction was created first.

Answer 2

(C) zoning

Whichever restriction is most restrictive will control. In this case the zoning is more restrictive because larger lot sizes restrict the number of homes which can be built.

Question 3

Mr. Brown purchased an apartment building for $1,000,000. The listed price was $1,200,000. Mr. Brown put $200,000 down and acquired a new first trust deed for the difference. Mr. Brown’s cost basis for income tax purposes would be:

(A) $200,000; (B) $800,000; (C) $1,000,000; (D) $1,200,000.

Answer 3

(C) $1,000,000

For income tax purposes, the cost basis is the purchase price of the property.

Question 4

Which of the following is an encumbrance?

(A) a freehold estate; (B) fee simple absolute; (C) a recorded homestead; (D) an estate for years.

Answer 4

(D) an estate for years

An estate for years is a lease. A lease effects and burdens the title to property.

Question 5

When a real estate broker is collecting payments on a promissory note for a lender as part of a loan servicing agreement, the broker may retain the funds in his trust account for:

(A) 10 days; (B) 14 days; (C) 25 days; (D) 60 days.

Answer 5

(C) 25 days

The broker collecting payments for a lender may retain the payments in his trust account for no more than 25 days without written authorization from the lender.

Question 6

An estate of inheritance is also called:

(A) intestate estate; (B) estate at will; (C) fee simple estate; (D) probate estate.

Answer 6

(C) fee simple estate

An estate of inheritance is also called a fee simple estate.

Question 7

When leasing industrial space, a landlord and/or property manager is required to make sure the property:

(A) complies with the Americans With Disabilities Act (ADA); (B) complies with all applicable building codes; (C) is in perfect shape; (D) has no encumbrances.

Answer 7

(B) complies with all applicable building codes

The lessor has an obligation to make sure the property is suitable for the purpose for which it is leased, including compliance with all applicable building codes.

Question 8

The correct method for a landlord to evict a delinquent tenant is by:

(A) giving him three days notice; (B) giving him thirty days notice; (C) calling the police; (D) bringing a court action.

Answer 8

(D) bringing a court action.

A landlord would bring an unlawful detainer action in court.

Question 9

When a piece of land is washed away by a flood or a dam giving way, this is called:

(A) accretion; (B) alluvion; (C) avulsion; (D) erosion.

Answer 9

(C) avulsion

The sudden violent tearing away of land by water is called avulsion. Accretion is when land slowly builds-up along a river. Alluvion is the dirt that builds-up. Erosion is the gradual wearing away of land.

Question 10

Every lease has an implied covenant to place the tenant in quiet enjoyment of the property for the purpose for which it was leased. This means the tenant has a right to be free from disturbances caused by:

(A) nuisances inflicted by adjoining property owners; (B) a loud air conditioning unit; (C) the landlord or another who has paramount title; (D) all of the above.

Answer 10

(C) the landlord or another who has paramount title

The landlord must protect the tenant from disturbances or claims made by another person claiming paramount title to the premises.

Question 11

An investor owns a parcel of land containing 3/4 of an acre and is 110 feet deep. He purchases an adjoining parcel of land which is 2/3 the size of the first parcel and also 110 feet deep, for $1,400. Both parcels are rectangles. The investor then divides the total acreage into lots which are 82.5 feet wide. He then sold the lots for $750 each; the total amount he received represented a 50% profit over the price paid for the two parcels. What was the price of the 3/4 acre parcel?

(A) $5,000; (B) $2,600; (C) $4,500; (D) $1,600.

Answer 11

(D) $1,600

(1) 43,560 x 3/4 = 32,670;
(2) 32,670 x 2/3 = 21,780;
(3) 32,670 + 21,780 = 54,450;
(4) 54,450 divided by 110 = 495 front footage;
(5) 495 divided by 82.5 = 6 lots;
(6) 6 x $750 = $4,500;
(7) $4,500 divided by 150% = $3,000 cost;
(8) $3,000 - $1,400 = $1,600.

Question 12

A prospective purchaser is interested in buying a lot in the desert from a subdivider. The buyer wishes to know about sewer assessments, liens, utilities to his lot, blanket encumbrances, and maintenance of streets. The best source of this information is the:

(A) County Engineer; (B) Real Estate Commissioner; (C) County Planning Commissioner; (D) Title insurance company.

Answer 12

(B) Real Estate Commissioner

The final public report issued by the Real Estate Commissioner would be the best source for information of this type.

Question 13

In the appraisal of an income-producing property, to arrive at a capitalization rate, no provision should be made for which of the following:

(A) depreciation; (B) federal taxes: (C) return of the investment; (D) return on the investment.

Answer 13

(B) federal taxes

Capitalization rate includes a return on the investment (interest) and return of the investment (depreciation). It does not include federal taxes.

Question 14

Capitalization rates must provide for a return on, and a return of, the investment in an improvement. This is provided for by means of:

(A) interest rates; (B) monthly savings; (C) depreciation methods; (D) principal investments.

Answer 14

(C) depreciation methods

In calculating capitalization rates, a factor for the depreciation of the improvement is figured into the return given the investor. This allows for a “return of” in addition to a “return on” the investment.

Question 15

Comparing a trust deed and a note, which of the following statements is true?

(A) the trust deed has a shorter statute of limitations than the note; (B) when there is a conflict in the provisions of the note and the provisions of the trust deed, the provisions of the trust deed will prevail; (C) the lien of the trust deed is merely incidental to the debt; (D) the note is less significant than the trust deed.

Answer 15

(C) the lien of the trust deed is merely incidental to the debt

The note is the evidence of the debt. The trust deed is simply the security for the debt. Therefore, the lien of the trust deed is merely incidental to the debt.

Question 16

A salesperson runs an ad in a newspaper. The ad must contain:

(A) the name and address of the salesperson; (B) the name and address of the broker; (C) the name of broker and name of salesperson; (D) the name of the broker.

Answer 16

(D) the name of the broker.

An ad placed in the newspaper by a real estate salesperson must also include the name of the broker.

Question 17

Henry, the holder of a $90,000 promissory note secured by a first trust deed, desires to borrow $60,000 to build a house. If the note is used as security for that loan, the agreement would be regarded as:

(A) a subordinated first trust deed; (B) a pledge agreement; (C) a chattel mortgage; (D) an illegal real property security agreement.

Answer 17

(B) a pledge agreement

When an existing note is used as the security for another loan, it is called a pledge agreement. The note is held by the lender as security for repayment of the new loan. The new borrower pledges the loan.

Question 18

The annual percentage rate (APR) is defined by the Federal Truth-in-Lending Law as:

(A) the total of all costs which the borrower must pay to get the loan; (B) the total of only the direct costs of credit paid by the borrower; (C) the total of only the indirect costs of credit which the borrower must pay; (D) relative cost of credit expressed in percentage terms.

Answer 18

(D) relative cost of credit expressed in percentage terms.

The annual percentage rate (APR) is the relative cost of the credit expressed in percentage terms. The total of the direct costs of credit which the borrower must pay is the definition of the finance charge.

Question 19

An acceleration clause is inserted into a note that is otherwise negotiable. Adding this clause:

(A) makes the note nonnegotiable; (B) is required to be negotiable; (C) does not limit the negotiability of the note; (D) has no effect on negotiability, but is of no benefit to the holder of the note.

Answer 19

(C) does not limit the negotiability of the note

An acceleration clause allows the lender to call the loan upon the happening of a certain event. This benefits the holder of the note and does not limit negotiability. The loan can still be sold to another lender.

Question 20

Under the Federal Truth-in-Lending Law, which of the following does not need to be included in the “finance charge” portion of the disclosure statement:

(A) loan arranger’s commission; (B) the cost of a credit report and appraisal fee necessary to make the loan; (C) credit life insurance premiums; (D)
the loan origination fees for FHA or VA loans.

Answer 20

(B) the cost of a credit report and appraisal fee necessary to make the loan

Fees for a credit report or appraisal need not be included in the finance charge portion of the disclosure statement.

Question 21

Which of the following will be contained in the “Statement of Purpose” section of a narrative appraisal report?

(A) the final valuation; (B) the type of value being estimated; (C) the reconciliation of values; (D) the method of appraisal approach to be applied to the appraisal.

Answer 21

(B) the type of value being estimated

The “Statement of Purpose” section of a narrative appraisal report contains a description of the type of value being estimated. \

Question 22

When a real estate broker negotiates a loan secured by a trust deed on real property, he must see that the trust deed is recorded (or deliver a written recommendation to record) within:

(A) 7 days; (B) 10 days; (C) 14 days; (D) 21 days.

Answer 22

(B) 10 days

Question 23

Adam sold his home to Tim, but negotiated a two year leaseback and remained in possession. Tim immediately placed the deed he received in a safe deposit box for safe keeping. Adam then sold this same home to Sally. Sally recorded the deed. Who owns the home?

(A) Tim, because he received the first deed; (B) Sally, because she recorded her deed; (C) Adam, because he still has three more deeds ready to be sold; (D) Adam, because both sales were improper.

Answer 23

(B) Sally, because she recorded her deed

The first valid deed that is recorded determines the owner unless that person, prior to recording, had either actual or constructive notice of the rights of others.

Question 24

Which of the following items would not normally be listed as a debit on a buyer’s closing statement?

(A) interest on a loan assumed by the buyer; (B)
homeowner’s insurance premiums; (C) prorations for property taxes; (D) discount points on a new FHA loan.

Answer 24

(A) interest on a loan assumed by the buyer

Interest on a loan assumed by the buyer will not be a debit on the buyer’s closing statement because interest payments are paid one month in arrears.

Question 25

When may an appraiser appraise a property owned by a corporation in which he is a shareholder?

(A) never; (B) only when the lender is that corporation; (C ) when he discloses his ownership of shares in the appraisal report; (D) only when the action is approved by the board of directors.

Answer 25

(C ) when he discloses his ownership of shares in the appraisal report

An appraiser may appraise a property which is owned by a corporation in which he is a shareholder if he discloses his ownership of shares in the appraisal report.

Question 26

An agreement to sell community real property signed by only one spouse is:

(A) enforceable; (B) unenforceable; (C) binding; (D) void.

Answer 26

(B) unenforceable

An agreement signed by only one spouse is unenforceable. It could be voided within one year by the non-consenting spouse.

(Not to be confused with the listing agreement)

Question 27

When looking at the closing statements prepared by the escrow, the total of the debit and credit columns on the seller’s closing statement, in comparison to the total of the debit and credit columns on the buyer’s
closing statement:

(A) must be the same; (B) must be different; (C) can be different; (D) any of the above.

Answer 27

(C) can be different

When comparing the total of the debit and credit columns on the seller’s closing statement, and the total of the debit and credit columns on the buyer’s closing statement, they can be different. In fact, they are usually different because the buyer and seller usually pay for different expenses.

Question 28

A house sold for $345,000, which was 9% more than the cost of the house. The original cost of the house was most nearly:

(A) $300,300; (B) $306,500; (C) $310,150; (D) $316,500.

Answer 28

(D) $316,500.

Divide the selling price ($345,000) by 100%, plus profit (9%). $345,000 divided by 109% equals $316,513.76. “D” is the best answer.

Question 29

When using a purchase money trust deed, the trustor:

(A) receives a promissory note for the amount borrowed; (B) lends money to the beneficiary; (C) signs the promissory note trust deed and gives it to the beneficiary; (D) only signs the trust deed.

Answer 29

(C) signs the promissory note trust deed and gives it to the beneficiary

The trustor (borrower) signs the promissory note and trust deed, then gives them to the beneficiary (lender).

Question 30

An offer of performance in connection with a contract is called:

(A) a conditional offer; (B) a tender; (C) a covenant; (D) a license.

Answer 30

(B) a tender

A tender is an offer of performance as part of a contract.

Question 31

In the metes and bounds method of describing land, bearings are read in degrees, minutes, and seconds from:

(A) north or south; (B) south or west; (C) north or east; (D) east or west.

Answer 31

(A) north or south

Metes and bounds angles (bearings) are read in degrees, minutes, and seconds from North or South.

Question 32

In describing the relationship between a seller and a salesperson employed by the listing broker, the salesperson is considered:

(A) an agent of the seller; (B) a subagent of the seller; (C) an employee of the seller; (D) an independent contractor, employed by the seller.

Answer 32

(A) an agent of the seller

When describing the relationship between a seller and a salesperson employed by the listing broker, the salesperson is considered an agent of the seller, not a subagent of the seller.

Question 33

Conditions of the sale will affect the:

(A) highest and best use of the subject property; (B) demand for the subject property; (C) scarcity of the subject property; (D) price of a subject property.

Answer 33

(D) price of a subject property.

Conditions of sale such as favorable financing or a forced sale would directly affect the price.

Question 34

Which of the following is the largest parcel?

(A) 2 miles square; (B) 3 sections; (C) 6% of a township; (D) 2 miles by 1 mile.

Answer 34

(A) 2 miles square

Two miles square is a square which is 2 miles by 2 miles, containing 4 square miles. The other choices each contain less than 4 square miles.