Test Exam #4

Question 1

16. The Federal Housing Administration (FHA) loan fee can be paid by the:
    a. Escrow officer. c. buyer.
    b. seller. d. Either b. or c.

Answer 1

16. The Federal Housing Administration (FHA) loan fee can be paid by the buyer or the seller.

The federal housing Administration loan fee can be paid by either the buyer or the seller. Market conditions and the agreement of the principals will dictate who pays.

Question 2

18. Which of the following positions requires the most advanced knowledge of accounting
    procedures?
    a. An escrow officer. c. A real estate broker.
    b. A real estate salesperson. d. An appraiser.

Answer 2

18. Which of the following positions requires the most advanced knowledge of accounting
    procedures?

a. An escrow officer

Escrow officers are most similar to accountants in the nature of their assignment in a transaction. Appraisal work is more analytical and brokerage practice is more concerned with selling, people and relationships.

Question 3

19. The Escrow Law is contained in the:
    a. Real Estate Law. c. Civil Code.
    b. Business and Professions Code. d. California Financial Code.

Answer 3

19. The Escrow Law is contained in the:

California Financial Code.

Escrow is guided by the California Financial code. It is often an ancillary service of the banks and title insurance companies.

Question 4

22. The U.S. Attorney General acts to enforce federal open housing laws whenever:
    a. state regulations are not properly upheld by state officials.
    b. a conspiracy exists to undermine federal open housing laws.
    c. a complaint filed involves more than four units.
    d. a complaint filed involves less than four units.

Answer 4

22. The U.S. Attorney General acts to enforce federal open housing laws whenever:
    b. a conspiracy exists to undermine federal open housing laws.

The US attorney general becomes involved in enforcing Federal open housing laws when a conspiracy exists to undermine the laws. Answer selection C is too restrictive as it is limited to complaints involving greater than 4 units, and does d also cannot be correct. Answer selection a fails since it calls for state regulations and the question concerns actions of the federal government.

Question 5

25. In May, 2018, Wayne leased a unit in his apartment complex to a tenant under a two-year
    lease. The tenant prepaid the last two months’ rent when they entered into the lease. For
    federal income tax purposes, the prepaid rent is considered as income for Wayne:
    a. in May, 2018.
    b. in May, 2020.
    c. that is “held in trust” until it is due.
    d. only when it is used as current rent

Answer 5

25. In May, 2018, Wayne leased a unit in his apartment complex to a tenant under a two-year
    lease. The tenant prepaid the last two months’ rent when they entered into the lease. For
    federal income tax purposes, the prepaid rent is considered as income for Wayne:
    a. in May, 2018.
    b. in May, 2020.
    c. that is “held in trust” until it is due.
    d. only when it is used as current rent

rental income is taxable when received.

Question 6

29. A voidable contract remains binding upon the parties until the contract is:
    a. voided. c. determined to be legal.
    b. rescinded. d. unqualified.

Answer 6

29. A voidable contract remains binding upon the parties until the contract is:
    b. rescinded.

A voidable contract is valid until it is rescinded. One principal has the option of completing the transaction or rescinding the contract due to a defect caused by the other principal.

Question 7

35. When a buyer purchases property without being informed it is on a septic system, the buyer
    may:
    a. report the seller to the Department of Real Estate (DRE).
    b. rescind the contract.
    c. demand the sewer be connected to the property.
    d. file a complaint with the local utilities.

Answer 7

35. When a buyer purchases property without being informed it is on a septic system, the buyer
    may:

b. rescind the contract.

When a buyer purchases a property without the disclosure that is on a septic system, the buyer May rescind the contract. The alternative answer choices can be easily refuted. The Dre has no authority over the seller and is this not involved. One principle to an escrow cannot unilaterally insist on something that has not been agreed to by both principles, such as the demand that the property be connected to the Sewer. Further, the utility company has no capacity to address complaints on this nature.

Question 8

45. Rental housing loans can be insured or guaranteed through:
    a. the Federal Housing Administration (FHA).
    b. CalVET.
    c. California Housing Finance Agency (CALHFA).
    d. the American Land Title Association.

Answer 8

45. Rental housing loans can be insured or guaranteed through:
    a. the Federal Housing Administration (FHA).

Of the choices offered, only the Federal Housing Administration FHA will insure rental property loans.

CalVET and CalHFA properties require owner occupancy.

The American Land Title Association provides title insurance.

Question 9

46. Rental income minus operating expenses, debt service and income tax payments equals:
    a. gross operating income. c. net spendable income.
    b. net operating income. d. the return of investment.

Answer 9

46. Rental income minus operating expenses, debt service and income tax payments equals:
    a. gross operating income. c. net spendable income.
    b. net operating income. d. the return of investment.

After all expenses of an income-producing property, including Debt Service and income tax payments, have been paid, the resulting income from rental properties is called net spendable income.

Question 10

56. Which of the following is not an encumbrance?
    a. A lease. c. A mechanic’s lien.
    b. A homestead. d. A mortgage.

Answer 10

56. Which of the following is not an encumbrance?
    b. A homestead.

This is a not question. A homestead declaration protects a portion of the owner’s equity in the property from seizure from creditors. An encumbrance is something that reduces the property owners rights or equity.

Question 11

59. Which of the following is not a true statement about easements?
    a. An easement is owned by the dominant tenement.
    b. An easement in gross is a right in another’s land created for the benefit of adjacent land.
    c. An owner cannot have an easement over their own land.
    d. An easement limits the use of the land by the owner.

Answer 11

59. Which of the following is not a true statement about easements?
    b. An easement in gross is a right in another’s land created for the benefit of adjacent land.

This is a not question. Answer selection B is not true since an easement in Gross is not for the benefit of an adjacent property owner, but frequently for a utility company.

Question 12

62. It is essential that every party to a real estate transaction receives a full and complete disclosure
    of who is representing whom because of:
    a. the federal law of agency.
    b. the mandate from private real estate associations.
    c. the doctrine of imputed notice.
    d. the good neighbor principle.

Answer 12

62. It is essential that every party to a real estate transaction receives a full and complete disclosure
    of who is representing whom because of:

c. the doctrine of imputed notice.

Imputed notice requires the full and complete disclosure of who was representing whom in a transaction. Agency is not federal law and therefore both answer Choice a cannot be right. Answer selection B is wrong because private trade associations have no such authority over agency law. Answer selection D is an unrelated concept.

Question 13

65. The simplest method of estimating the replacement cost of an improvement is the:
    a. quantity survey method. c. unit-in-place method.
    b. index method. d. comparative method.

Answer 13

65. The simplest method of estimating the replacement cost of an improvement is the:
    d. comparative method.

The replacement cost of a property can most easily be determined under the comparative method, which uses a private costing service that provides generic pricing for property types based on quality and Regional differences. Answer selection C Unit in place and a quantity survey, are more detailed and precise, while the index method is used for historic appraisals.

Question 14

66. Surplus utility is an example of:
    a. substitution. c. functional obsolescence.
    b. contribution. d. economic obsolescence.

Answer 14

66. Surplus utility is an example of:
    c. functional obsolescence.

Surplus utility is an example of functional obsolescence. Functional obsolescence is created by items on the property that are either outdated or over improved. Economic obsolescence refers to conditions off the property. The other alternative choices are principles of value.

Question 15

72. Escrow can legally prepare or do which of the following activities?
    a. Act as a mediator when there is a dispute between the buyer and the seller.
    b. Draft escrow instructions and the grant deed.
    c. Decide when escrow will close without the consent of the buyer and seller.
    d. Structure a wraparound trust deed.

Answer 15

72. Escrow can legally prepare or do which of the following activities?
    b. Draft escrow instructions and the grant deed.

Escrow officers can draft escrow instructions and the grant deed. They are neutral agents for the principles to the escrow. Thus, they are not permitted to make decisions for the principles nor mediate between them.

Question 16

77. On January 1, 1987, which of the following real estate disclosure laws went into effect?
    a. The Agency Law Disclosure.
    b. The Seller Financing Disclosure.
    c. The Transfer Disclosure Statement (TDS).
    d. The Real Estate Settlement Procedures Act (RESPA)

Answer 16

77. On January 1, 1987, which of the following real estate disclosure laws went into effect?
    c. The Transfer Disclosure Statement (TDS).

The transfer disclosure statement became effective January 1st 1987. The transfer disclosure statement 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.

Question 17

87. Condominium ownership is least applicable to:
    a. industrial properties. c. commercial properties.
    b. residential properties. d. properties built prior to 1978.

Answer 17

87. Condominium ownership is least applicable to:
    d. properties built prior to 1978.

Condominium is a form of ownership, not a building style or purpose. It has no relation to when a property was built. A condominium is an estate in real property in which an owner holds an undivided interest in common in a portion of real property, coupled with a separate interest in their individual space. One can create condominiums in Industrial and Commercial building, as well as Residential Properties.

Question 18

89. An easement over real property can be terminated by:
    a. a deed issued from the servient tenement.
    b. revocation by the servient tenement.
    c. a release signed by the servient tenement.
    d. a release signed by the dominant tenement

Answer 18

89. An easement over real property can be terminated by:
    a. a deed issued from the servient tenement.
    b. revocation by the servient tenement.
    c. a release signed by the servient tenement.
    d. a release signed by the dominant tenement

An easement is terminated on the release of the dominant tenement - the party that benefits from the easement.

Question 19

98. To estimate the value of rental property using the gross rent multiplier (GRM) method, an
    investor first determined that the monthly gross income generated by a property is $7,500.
    They then applied a GRM of 15. The estimated value of the property is most nearly:
    a. $1,125,000. c. $1,350,000.
    b. $112,500. d. $135,000.

Answer 19

98. To estimate the value of rental property using the gross rent multiplier (GRM) method, an
    investor first determined that the monthly gross income generated by a property is $7,500.

They then applied a GRM of 15. The estimated value of the property is most nearly:

$1,350,000.

C - the calculation is $7,500 rent * 12 months equals $90,000 annual rent. $90,000 annual rent x 15 for the gross rent multiplier equals 1350000 dollar value. Note the rent given was monthly, but the multiplier was annual. A helpful : a higher grm for example 150 in a question denotes use of the monthly rent for calculations, while a lower grm as in this question indicates annual rent will be used.

Question 20

99. The appraisal method used most often to value raw land or sites is the:
    a. land development method. c. subdivision method.
    b. land residual method. d. comparative method.

Answer 20

99. The appraisal method used most often to value raw land or sites is the:
    d. comparative method.

The comparative method is the most common appraisal method used for valuing real and or sites. Answer selections C subdivision method and a Land Development method are the same, both of which are used for valuing a large parcel intended for subdivisions. Answer selection B land residual method is only used when the property is improved by a building.

Question 21

106. A Uniform Commercial Code Financing Statement (UCC-1) is removed from record by:
     a. filing a termination statement. c. a notice of adjudication.
     b. a notice of abandonment. d. a reconveyance deed.

Answer 21

106. A Uniform Commercial Code Financing Statement (UCC-1) is removed from record by:

Filing a termination statement.

A ucc-1 financing statement is used to put the public on notice of a lien created by a security agreement on a personal property. A ucc-1 is removed from record by filing a termination statement with the secretary of state (SOS).

Question 22

108. The phrase “company dollar” most nearly means:
     a. capital funds invested in a new company.
     b. profit after expenses have been deducted.
     c. the broker’s share of the commission received.
     d. total fees received by all employees at an office.

Answer 22

108. The phrase “company dollar” most nearly means:
     a. capital funds invested in a new company.
     b. profit after expenses have been deducted.
     c. the broker’s share of the commission received.
     d. total fees received by all employees at an office.

The company dollar is that which remains after paying the salesperson their split of the commission earned on a closed transaction.

Question 23

109. If apartments are converted to condominiums, an existing tenant needs to be given a period
     of to either buy the condo or vacate.
     a. 30 days from public report issuance
     b. 90 days from public report issuance
     c. six months from public report issuance
     d. six months after notice of intent

Answer 23

109. If apartments are converted to condominiums, an existing tenant needs to be given a period
     of to either buy the condo or vacate.
     a. 30 days from public report issuance
     b. 90 days from public report issuance
     c. six months from public report issuance
     d. six months after notice of intent

Once the public report is issued on an apartment conversion to Condominiums, the tenant needs to be given 90 days to buy the unit or vacate the property.

Question 24

110. All of the following provide constructive notice, except:
     a. telephone poles across a property.
     b. knowledge of an unrecorded deed to a stranger.
     c. a recorded deed to a stranger.
     d. a stranger in possession of a property

Answer 24

110. All of the following provide constructive notice, except:

knowledge of an unrecorded deed to a stranger.

This is an except question. Knowledge of an unrecorded deed to a stranger does not constitute constructive notice. Constructive notice is either a recorded document or anything that is clearly observable by inspecting the property, including the existence of physical features such as telephone poles (as may be used to indicate the general location of property lines, for example) or a stranger in possession.

Question 25

124. Which of the following is least likely to appear as a debit on a buyer’s closing statement?
     a. Proration of property taxes.
     b. Interest on a loan assumed by the buyer.
     c. Discount points for a new Federal Housing Administration (FHA)-insured loan.
     d. Homeowner’s insurance premiums.

Answer 25

124. Which of the following is least likely to appear as a debit on a buyer’s closing statement?

Interest on a loan assumed by the buyer.

This is a least likely question. Answer selection be may seem like a tempting red herring. Interest on an assumed loan will be a credit on a buyer’s closing statement. The transaction didn’t require new financing, but rather the Assumption of an existing loan. Loan interest is paid in arrears. thus, when escrow closes, the buyer will be credited for however many days there were between the due date of the previous payment and the close of escrow. All other answer selections will likely appear as a debit on the buyer’s closing statement.

Question 26

134. The Federal Reserve’s (the Fed’s) monetary tools include all of the following, except:
     a. raising interest rates on government-insured mortgages.
     b. raising and lowering the discount rates to member banks.
     c. adjusting the reserve requirements for banks.
     d. buying and selling U.S. government bonds.

Answer 26

134. The Federal Reserve’s (the Fed’s) monetary tools include all of the following, except:

Raise interest rates on government-insured mortgages.

This is an EXCEPT question. the Federal Reserve does not raise interest rates on government insured mortgages as part of its monetary policy. Government-insured mortgages are originated by lenders. The interest rate charged on these loans is established in the marketplace between the lender and the borrower. The alternative choices are all appropriate monetary tools for the Fed.

Question 27

136. Which of the following statements is true concerning typical escrow procedures?
     a. Once escrow has closed, the escrow agency changes from a dual agency to a separate
     agency of each principal.
     b. The escrow officer may be an advocate for the best interests of both principals.
     c. Once the escrow officer is in possession of a binding contract between the buyer and
     seller, it is said to be a “complete escrow.”
     d. The escrow officer can be an advisor to both the buyer and the seller

Answer 27

136. Which of the following statements is true concerning typical escrow procedures?

Once escrow has closed, the escrow agency changes from a dual agency to a separate agency of each principal.

Escrow officers act as dual agents during the escrow process and become a single agent to both after the close of escrow. Wall the escrow office hoes and agency duty to both participants in the transaction, they are neutral and thus cannot act as an advocate or advisor for either.

Question 28

139. Appraising a multi-million dollar home in Beverly Hills requires a(n):
     a. Certified Residential License. c. Certified General License.
     b. Residential License. d. Either a. or c.

Answer 28

139. Appraising a multi-million dollar home in Beverly Hills requires a(n):

a Certified Residential License OR a Certified General License.

Appraising Residential Properties valued over 1 million requires a certified license. The license can be either a certified residential license or a certified General license.

Question 29

146. Which of the following transactions is exempt from use of the Agency Law Disclosure?
     a. The sale of an industrial building.
     b. The sale of agricultural land.
     c. Upon the entry into a two-year lease of a residence.
     d. The sale of a property that is five or more residential units.

Answer 29

146. Which of the following transactions is exempt from use of the Agency Law Disclosure?

Upon the entry into a two-year lease of a residence.

The agency law disclosure is required on the sale of any type of real estate, but not necessary for lease agreements.

Question 30

86. A lender who finances 100% of a property without government guarantees depends on what
    to function as security for the loan?
    a. Monetary policy. c. Appreciation of the value of the property.
    b. Deflationary pressures. d. The borrower’s good intentions.

Answer 30

86. A lender who finances 100% of a property without government guarantees depends on the appreciation of the value of the property to function as security for the loan?

Lending 100% of the value of a property without government guarantees requires property appreciation to overcome the risk of loan default. Thus, this type of no down payment loan is highly uncommon.