Test Exam #1

Question 1

Pest Control Reports

Answer 1

Pest Control reports are only required of US Department of Veterans Affairs (VA) and some federal housing Administration (FHA) transactions, such as where active infestation is observed.

Question 2

Appraiser Negligence

Answer 2

If an appraiser uses improper valuation methods or is negligent in completing a government loan assignment, they may be guilty of violating appraisal ethics.

Both ethics violations and possibly fraud have occurred. The keyword “may” in this question allows for the possibility of intent. Negligence is an Ethics violation. Fraud is a felony. Real estate law does not apply since this is an appraisal issue and not related to brokerage activity.

Question 3

Appraisals

• Dates
• Valid only on Date Issued
• Primary Concern

Answer 3

The calendar DATE THAT IS OF MOST CONCERN to an appraiser is the date the purchase contract was signed. The date that is most critical to an appraiser is the date the contract was signed since the fair market value for a property is established as the purchase price agreed to by the buyer and seller.

An appraisal is VALID for what length of time - the date stated in the report. An appraisal report is a snapshot of property and local market conditions. Therefore, and AN APPRAISAL IS ONLY VALID ON THE DATE STATED IN THE REPORT. As conditions of the market change and an appraisal becomes invalid.

The primary concern of an appraiser when analyzing property is marketability and acceptability. The best answer is marketability and acceptability. Each of the alternative answer selections may play a part in the decision of an appraiser analyzing a property but marketability and acceptability is the best answer.

Question 4

Investors of Income Property and Cap Rate

Answer 4

Gloria is considering an income-producing property to purchase as an investment. In analyzing its suitability for investment, what is Gloria most interested in?

The capitalization rate – cap rate – is the annual rate of return on invested Capital experienced by an investment property based on net operating income produced by the operations of an income property. The cap rate is of critical importance to income property investors. The cap rate is calculated by dividing the net operating income by the property’s price.

Question 5

Fully Executed Contract

Answer 5

A contract has been fully executed when it has been completely and fully performed.

Question 6

Megalopolis

Answer 6

A metropolitan area where the cities within it have grown together is known as a megalopolis.

Question 7

filtering down

Answer 7

The principle that housing passes down to lower economic groups would be known as filtering down.

Question 8

Listing Agreement provisions

Answer 8

Nathan agreed to list property for sale with broker Chan. In the listing agreement, Nathan specified broker Chan is not authorized to accept the deposit towards the purchase price from the buyer. What happens if broker Chan produces a buyer?

If he accepts a deposit, he holds it as an agent of the buyer until the offer is accepted by the seller. Due to the lack of authorization, broker Chan holds the deposit toward the purchase price as an agent of the buyer until the offer is accepted by the seller.

Question 9

Broker and Salesperson employment record keeping

Answer 9

The employment agreement between a broker and a salesperson needs to be retained by the broker and salesperson for 3 years from the date of the termination of the salesperson’s employment.

Employment records between a broker and a salesperson need to be kept for 3 years. The three-year time period begins to run on the termination of the employment.

Question 10

Fully enforceable contract

Answer 10

A broker presented a written offer to their seller from a buyer. The offer stated that upon acceptance, the buyer would deposit $25,000 in escrow. The seller made a counter offer but did not change the amount of the deposit and sent it back to the buyer. The buyer agreed to all of the changes but lower the amount of the deposit $10,000. Which of the following statements is not correct?

A. the broker needs to get the sellers acceptance of the counter offer
B. the buyer has created a counter offer due to the change deposit amount
C. the contract is fully enforceable
D. no contract exists.

Until both the buyer and seller have reached a mutual agreement and a meeting of the minds, there is no contract, and thus answer selection C the contract is fully enforceable is not correct.

Question 11

CCRs order of importance

Answer 11

A violation of a CONDITION in a HOA conditions, covenants and restrictions is MORE SEVERE than the violation of a covenant.

The violation of a condition in a homeowners association conditions covenants and restrictions is considered more serious than a violation of a covenant. The violation of a condition may result in the LOSS OF TITLE where as a covenant is simply a promise, the breaking of which will not result in the loss of title.

Covenant is simply a promise.
Condition must be met or potential loss of title.

Question 12

Property as security for a loan

Answer 12

Whether property functions as adequate security for a real estate loan depends on the value of the property.

To establish whether a property represents adequate security for a loan, the value of the property needs to be determined by an appraiser.

Question 13

Essential Elements of Marketing Materials

Answer 13

Successful marketing materials are generally held to include the following FOUR critical elements:

1. attention
2. interest
3. desire
4. action

For questions regarding marketing, remember this helpful acronym: AIDA. The Essential Elements of marketing materials are as follows attention, interest, desire, action.

Question 14

Listing Agreement Signature

Answer 14

A seller enters into an exclusive right to sell listing with an agent but does not receive a copy of the signed agreement. The seller, believing this relieves them of any obligations, personally sells the property while listing is in effect. What is the outcome? The listing is valid and enforceable, but the broker is liable to be disciplined.

The failure to deliver a copy of any signed document is a violation of agency law that may warrant disciplinary action by the department of real estate. However, the signed listing contract is still valid and enforceable against the seller.

Read carefully and make sure you know who the ‘action’ is related to in each of these questions.

Question 15

Binding Agreement

Answer 15

In order to form a binding agreement, an offer or counteroffer needs to be accepted in its entirety and without conditions. Any changes to a contract void the original contract. Thus, in order to be binding, both principles need to agreed to and sign the contract without changes.

Question 16

1031 Boot = UNLIKE KIND

Answer 16

In a 1031 real estate exchange, BOOT does not refer to like kind consideration.

BOOT refers to any unlike kind consideration in a 1031 exchange. Once again, the answer choices offer the reader important information regarding the subject of this and related questions.

BOOT can be:

• unlike property received
• cash received, or
• mortgage relief

Question 17

CalVET Home Loan is a Land Sales Contract

• Points
• Closing Costs

Answer 17

POINTS - No one pays the points on a CalVET home loan. No points are charged on a CalVET loan. It is a land sales contract.

CLOSING COSTS LOW - The lowest closing costs other than the down payment are realized using a CalVET home loan. Closing costs are charges related to the transaction that are paid through escrow. The CalVET home loan is a land sales contract and is therefore different from each of the other answer choices. There are no loan charges in this Arrangement and thus the escrow charges are lower.

Question 18

Buyers Closing Statement Details

Answer 18

In a buyer’s closing statement, the selling price is listed as a debit to the buyer. The seller is credited for the sales price in the buyers closing statement, the buyer is debited. The credit to the buyer comes from how the sales price is paid, typically a cash down payment and the purchase assist financing.

Question 19

Salesperson - Real Estate Law classification

Answer 19

Under real estate law, a real estate salesperson is an employee of the broker. This question requires us to accept a dichotomy unique to real estate. A salesperson is an employee and an agent of the broker for the purpose of the real estate law. However, they are generally classified as an independent contractor for tax purposes.

Real Estate Law classification - employee of broker
Tax Law classification - independent contractor

Question 20

Fictitious Business Name - aka DBA - valid for 5 years

Answer 20

A fictitious business name statement expires five years from recordation. The DBA doing business as also known as a fictitious business name needs to be renewed every five years.

Question 21

Land Sales Contract between Vendor and Vendee (seller and buyer)

Answer 21

A real property land sales contract does not need to show how a dispute is to be resolved if there is a disagreement.

All of the following things need to be known by both the vendor and the vendee (seller and buyer) in a land sales contract:

• legal description,
• existing loans encumbering the property, and
• length of time required to pay off the contract

A dispute resolution provision is good practice, though not required.

Question 22

check into Option Adjustable Rate Mortgage (ARM)

Answer 22

check into A loan that allows the borrower to make monthly payments less than the interest accruing is referred to as an option adjustable rate mortgage (ARM). The option adjustable-rate mortgage arm which results in negative amortization, is the correct choice.

Question 23

compensating balance

Answer 23

A bank loans Lauren $850,000. Part of the loan agreement calls for Lauren to keep $20,000 of the loan funds on deposit with the bank for the life of the loan. This is an example of compensating balance.

This question illustrates the need to select the best answer available. The correct term for what the bank has required is a compensating balance - leaving enough money with the bank to offset potential foreclosure costs. It can also be said to improve the yield and reduce the lenders risk, but compensating balance is the best answer available.

Question 24

Agency Duty owed to a buyer

Answer 24

The question states the agent is acting as a buyer’s agent. Therefore only answer choice a which is the agent represents the buyer only, fulfills this description. Agency Duty has nothing to do with Advance fees. Therefore the following is true regarding the agency Duty held by a buyer’s agent, the agent represents the buyer only.

Question 25

Statue of Limitations for DRE Commissioner against violations (or fraud)

Answer 25

Unless fraud is involved, and action against a licensee by the real estate commissioner needs to be initiated within THREE YEARS of the occurrence of the alleged violation. The statute of limitation allows a three-year period after the alleged violation for the Real Estate Commissioner to initiate an action against a licensee,

In the case of fraud - the limit is THREE YEARS from the occurrence or ONE YEAR of the discovery.

Question 26

Subdivision Desist and Refrain Order

Answer 26

The real estate commissioner is primarily concerned with financial arrangements in a subdivision. If the commissioner wishes to resend approval of a subdivision, they would issue a desist and refrain order.

If the real estate commissioner feels the need to retract approval of a subdivision, they issue a desist and refrain order. There are two laws that relate to subdivisions, the subdivision map act, which is handled locally through the planning department, and the subdivided lands law, which is handled by the department of Real Estate.

Question 27

Express Contract

Answer 27

An express contract is one that is structured in words, delivered in writing or orally. An express contract represents a mutual agreement between real estate participants. An express contract can be oral or in writing.

Question 28

Deeding a property back and forth

Answer 28

Amelia Deeds of property to Buster which is never recorded. How would Buster transfer title back to Amelia?

Buster would do this by creating a new deed.

A deed becomes valid once it is delivered. To transfer a property to another individual or back to the previous owner, a new deed is to be executed and delivered. Failure to do so may render the ownership ambiguous and create a cloud on title.

Question 29

fully amortized loan

Answer 29

A fully amortized loan has equal monthly payments. The portion of the payment applied to principal goes up each month.

With a fully amortized mortgage, the interest expense is subtracted from the payment first. As a portion of the principal is paid each month, the loan balance is reduced and therefore the interest portion of the payment goes down. This in turn causes the principal portion to rise/go up each month.

Question 30

California’s energy conservation disclosure requirements for newly built homes

Answer 30

California’s energy conservation disclosure requirements require that buyers of newly built homes receive a disclosure concerning the R-value of insulation used. The rating of the insulation installed in a property needs to be disclosed to buyers of newly built homes. The alternative items can be visually observed by the buyer. for example like the types of windows installed, gold star rating assigned to the property, energy consumption of the HVAC units.

Question 31

Replacement Cost Approach

Answer 31

The replacement cost appraisal approach is generally easier to apply to a new property than an old property because Depreciation is more difficult to estimate on an older property.

A new property requires no adjustment for depreciation. Under the replacement cost approach, the appraiser determines the dollar amount required to replace an improvement at its current cost. As the property ages, the depreciation is greater. The effective age of a property, which is what depreciation is based on, is affected by remodeling and maintenance variations unique to each property. Thus, the replacement cost appraisal approach is generally easier to apply to a new property than an old property.

Effective age is the age which reflects a true remaining life for the property, taking into account the typical life expectancy of buildings or equipment of its class and its usage. Actual age or chronological age is defined as the age of a structure (usually in years) since the building was complete.

Question 32

down payment when appraisal is lower than sale price

Answer 32

A home sold for $300,000. The buyer applied and was approved for a loan with an 80% loan-to-value ratio with a 20% down payment. The property was appraised for $290,000. How much will the buyer need as a down payment?

They will need 20% of $290,000 + $10,000.

The $300,000 selling price remains the same regardless of how the down payment is calculated. So with the appraisal at $290,000, the buyer will need 20% of this value. Presuming the sales price is not adjusted, the buyer will need to also place the difference between the sales price and the appraisal $10,000 as part of the down payment.

Question 33

Agency Disclosure Sequential Steps

Answer 33

Agency disclosure DEC is handled in the following sequential steps: 
1.  disclose, 
2. elect,
3. confirm
DEC

The agency relationship options are first disclosed. Then the agent elects what the relationship will be.
Finally the agent confirms that choice with all participants involved in the transaction.

Question 34

Deed provisions and restrictions

Answer 34

The following deed provision is enforceable, that the property may not be used for religious purposes. A deed restriction can prohibit religious use of a property but not discriminate against minorities or females.

Question 35

Broker receipt of Marketing Cost Deposits

Answer 35

A broker’s receipt of any deposit towards marketing costs from a seller is documented and accounted to the seller. Monies advanced to the broker for future marketing costs need to be accounted to the seller.

Question 36

Avulsion
Accretion
Reliction

Answer 36

The sudden physical loss of land due to a flood is an example of avulsion. Avulsion is the sudden loss (or addition) of land through Natural Forces.

Accretion is the gradual addition to property through accumulation of layers of soil.

Reliction is the gaining of land area.

Question 37

Newspaper Advertising only needs APR financial info

Answer 37

If a newspaper advertisement for the sale of a condominium states only the annual percentage rate APR, no other disclosures are required. The APR May stand alone as financial information without providing any additional financial information in a newspaper advertisement.