Real Estate Exam 2d

Question: The buyers made an offer on the exact terms of the listing contract on February 1, with the condition that the offer be accepted within 72 hours. The broker was unable to contact the sellers until February 6. When the sellers accepted the offer, the broker promptly notified the buyers. The buyers told the broker that they had changed their minds and did not want to purchase the property. The buyers demanded the return of their deposit: A: The buyers have grounds to demand the return of their deposit; B: The deposit would be forfeited because it was not the sellers' fault that the broker could not locate them; C: The broker would receive a full commission; D: The broker would receive one-half of his commission.

Correct Answer is : A Buyer or seller may make an offer contingent upon certain conditions. Since the offer was not accepted within 72 hours, the passage of that time terminated the offer.

Question: In determining gain or loss on real property acquired by purchase, for federal income tax purposes, the term "unadjusted basis" most nearly means: A: Original cost; B: Original cost plus improvements minus losses; C: Original cost plus or minus improvement costs, losses and depreciation; D: Original cost minus losses.

Correct Answer is : A For federal income tax purposes in determining gain or loss on real property, the term "unadjusted basis" most nearly means the original cost.

Question: Under the present method of establishing federal income tax rates, the rate: A: Increases as the amount to be taxed increases; B: Remains fixed regardless of the amount to be taxed; C: Decreases as the amount of income increases; D: Decreases as the amount of additional income declared under capital gains increases.

Correct Answer is : A Income taxes are progressive. As a person earns more money, his tax rate increases.

Question: Broker Jones had a listing to sell seller Smith's house. Broker Jones received an offer on the house and presented it to seller Smith who hesitated in accepting the offer. The broker promised Smith verbally to find Smith another suitable residence before escrow closed. On the basis of that, the seller accepted the offer. If broker Jones failed to perform during the time period, which of the following is most nearly correct? A: Seller Smith could initiate a civil suit and the broker would be responsible for damages; B: Since the promise was verbal, the broker has no liability; C: If Smith files a complaint, broker Jones may be liable for criminal negligence; D: Seller Smith may withdraw his acceptance of the offer without liability.

Correct Answer is : A Since the seller relied on the promise of the broker, the broker would be liable in civil court for breach of contract if he failed to perform. This is not one of the types of contracts which are required to be in writing by the Statute of Frauds.

Question: In order to secure an FHA loan, a new buyer would normally do all of the following, except: A: Find a lender who will be willing to grant him the loan; B: Apply to the nearest office of the FHA for an appraisal; C: Agree to pay for mortgage insurance protection; D: Buy a home which meets the FHA requirements and restrictions.

Correct Answer is : B A buyer who wants to use FHA financing must find a lender who will grant him the loan, agree to pay for the mutual mortgage insurance, and buy a home which meets FHA requirements.

Question: Mr. Reynolds constructed a $500,000 income-producing building on a lot for which he paid $100,000. Mr. Reynolds financed the construction of the building by paying $100,000 cash and obtaining an 8% per annum interest rate loan for $400,000 secured by a first trust deed lien against the property. Under these conditions, Mr. Reynolds can depreciate on future income tax returns: A: $600,000; B: $500,000; C: $400,000; D: $100,000.

Correct Answer is : B An owner is only permitted to take depreciation on improvements, not land.

Question: A contract between the seller of real property and a licensee, whereby the seller agrees to pay the licensee a commission if he produces a "ready, willing, and able" buyer and the licensee agrees to use due diligence in procuring the buyer, is called: A: A unilateral executory contract; B: A bilateral executory contract; C: A unilateral executed contract; D: A bilateral executed contract.

Correct Answer is : B Bilateral indicates that both parties are bound. Executory indicates that the contract is yet to be performed.

Question: When depreciation is taken on real property: A: The property has no salvage value; B: The basis is reduced; C: The value increases; D: None of the above.

Correct Answer is : B Depreciation reduces the cost basis of the property.

Question: When a real estate agent acts exclusively as a buyer's agent, he can: A: Present offers directly to the seller; B: Present offers to the seller and seller's agent; C: Withhold negative information about the buyer from the seller; D: Act as agent of the seller when his commission is paid by the seller.

Correct Answer is : B When the licensee is the agent of the buyer, he should present all offers to the seller through the seller's agent.

Question: A broker obtained a 6% listing on a selling price of $108,000. The seller incurred additional closing costs of $1,450. Based on the preceding information, the seller's total cost of sale would amount to: A: $10,750; B: $9,350; C: $7,930; D: $7,670.

Correct Answer is : C (1) $108,000 selling price x 6% broker's commission = $6,480 selling commission (2) $6,480 commission + $1,450 closing cost = $7,930 expense of sale.

Question: A real estate licensee submits a license renewal application, but his name is on a list of obligors who have not complied with a court-ordered payment of child support. Which of the following is most nearly correct: A: The license cannot be renewed until he has paid the delinquent amount; B: The renewal will be approved, but the license will be suspended until he makes up the delinquent amount; C: A temporary renewal will be issued, but the licensee must pay the delinquent amount within 150 days; D: The license will be renewed for a one-year term only, unless the licensee submits proof from the District Attorney that the debt has been paid.

Correct Answer is : C A temporary license will be issued when the applicant is on the list of obligors for delinquent child support. The license will be valid for no more than 150 days if proof of payment is not provided.

Question: If two parties want to create an enforceable broker-principal relationship concerning a right, title, or interest in real property, the most essential element to do so would be: A: Written authority for the broker to accept a deposit; B: A written offer to purchase; C: A written employment contract; D: An agreement concerning the commission.

Correct Answer is : C A written employment contract would be, of the items listed, most essential to create an enforceable contract.

Question: Broker Sullivan delivered an offer to purchase real property to Owner Mercer at 11 a.m. on Monday. Mercer asked for 24 hours to consider the offer. At 7 p.m. that same day, Broker Sullivan received two additional offers from different buyers through one of the broker's salespersons. Sullivan firmly believes the owner will reject all three offers. In order to comply with the law, Sullivan must: A: Hold the new additional offers until the owner has considered the offer handed him at 11 a.m.; B: Present the two additional offers to the owner in the same sequence in which the salesperson obtained them; C: Simultaneously present the two additional offers to the owner as soon as the owner is available; D: Do none of the above.

Correct Answer is : C In the situation given, the broker is in the employ of the seller and has a fiduciary obligation to present all offers immediately. It is the seller's decision on which of several offers to accept. The broker is permitted to make recommendations, but the final decision rests with the employing client.

Question: A buyer made an offer on a property but refused to give a $500 deposit to the broker, as specified in the listing. He agreed to give the broker $500 as deposit as soon as the seller accepted the offer. Which of the following should be written in the form: A: Buyer agrees to deposit $500 upon acceptance by the buyer; B: Broker to collect $500 from buyer on seller's acceptance; C: Buyer agrees to deposit $500 cash with the broker immediately upon seller's acceptance; D: This offer would be void since there was no consideration for the contract.

Correct Answer is : C This would be the best wording to place in the deposit receipt.

Question: If a real estate licensee misrepresents a property to a buyer while he is acting as an agent, he may subject himself to: A: Disciplinary action by the licensing authority; B: Civil action; C: Criminal action; D: All of the above.

Correct Answer is : D A licensee is subject to three separate and distinct bodies of authority: (1) Real Estate Commissioner's Rules And Regulations; (2) California Civil Codes; (3) California Criminal/Penal Codes. Action under, or by, one or two authorities does not exempt the licensee from action by the other authority(ies). This is not double or triple jeopardy.

Question: Escrow instructions can be executed by: A: The buyers; B: The sellers; C: Third parties; D: All of the above.

Correct Answer is : D Escrow instructions are executed (signed) by the buyer and seller; escrow instructions are executed (carried out) by the escrow agent, a third party who acts as agent of both.

Question: A broker who solicits and accepts a deposit on the purchase price of a parcel of real property without express written authorization from the owner to sell the property, is: A: Guilty of violation of his fiduciary duty to the owner; B: Guilty of commingling a customer's funds with his own; C: Acting under a restricted listing; D: Acting as agent for the buyer and not the seller.

Correct Answer is : D For this act, he is the agent of the buyer. A broker is generally employed by the seller (i.e., seller's agent), but a broker can be employed by the buyer. In either case, a fiduciary relationship exists from the broker to "employer."

Question: Broker Smith took a listing on commercial acreage and also received the right to purchase the property within 30 days. On the 28th day of the listing, the broker decided to buy the property. Before buying the property, he must: A: Disclose any outstanding offers; B: Give the owner any material information; C: Obtain written consent from the owner which acknowledges any profit or anticipated profit; D: All of the above.

Correct Answer is : D If an agent takes a listing and an option on the same property and wants to exercise the option, his responsibilities under the listing are greater than his responsibilities under the option since under the listing he is the agent and owes good faith and loyalty to his principal. Therefore, if he wanted to exercise the option, he would have to disclose any offers, reveal any material information, and obtain the written consent of the owner before he exercises that option.

Question: Seller Smith employed Broker Jones under an open listing. While Broker Jones was discussing Smith's property with Prospective Buyer Ford, the broker indicated that the roof was in good condition and did not leak. In fact, Seller Smith had instructed Broker Jones to explain to all prospective buyers that the roof was old and would have to be replaced. After purchasing the property, Buyer Thomas discovered a severe leak in the roof. The buyer, seeking relief, would most logically sue: A: The broker alone, for contract rescission; B: Both the broker and the seller, for specific performance; C: The broker alone, for damages for breach of warranty of authority; D: The seller and the broker, for damages and fraud.

Correct Answer is : D In the situation given, the injured buyer would in all likelihood bring a lawsuit against both the broker and the seller, due to the fact that under an agency relationship, the employing person is responsible for the acts of the agent. In reality, the seller would be entitled to file an additional suit against the broker for breach of the fiduciary relationship and fraudulent conduct.

Question: Which of the following closing costs would be classified as a recurring cost: A: Recording fees; B: Title insurance premiums; C: Escrow fees; D: Impound account items.

Correct Answer is : D Of the costs listed, impound account items are normally paid with the monthly payment of principal and interest, and thus "re-occur" throughout the loan. The other items normally are paid once, at the closing of the escrow.

Question: Hawkins wanted to purchase 200 acres of land for future subdivision, but did not have the necessary $65,000 cash. He persuaded his friend, Warner, to pay the $65,000 and purchase the land, and Warner then immediately signed a land contract for sale of the property to Hawkins for $88,000. This transaction would be: A: A discounted mortgage; B: A violation of the Real Estate Commissioner's regulations; C: Voidable by Warner; D: A valid purchase and resale.

Correct Answer is : D On the basis of the information given, no violation of the real estate law has occurred. A friend merely accommodated Hawkins in providing the "front money" to purchase the property, and will be paid for his act by a higher purchase price for the property.

Question: When property is being purchased under the California Veterans Farm and Home Purchase Plan, title is held by the: A: Veteran; B: Trustee; C: Veterans Administration; D: Department of Veteran's Affairs.

Correct Answer is : D The Department of Veterans Affairs of the state of California holds the title to the property and is selling the property to the veteran with an installment/conditional sales contract.

Question: Broker Hays took a 90-day exclusive agency listing to sell a property that was owned by Wilson. After 30 days, Hays had not sold the property, so Wilson sent him a certified mail letter canceling the listing. One week later Wilson listed the property with several brokers using open listings. Two weeks later, one of the brokers who had an open listing on the property completed a sale to new owners. In this situation Wilson most likely: A: Did not have the right to give open listings to the other brokers; B: Had a right to relist the property and also the right to cancel Hays' listing and his notice of cancellation would accomplish this without possible liability to Wilson; C: Owes the commission only to the selling broker; D: Is liable for payment of commission to Hays as well as to the selling broker.

Correct Answer is : D The owner has the right to cancel the exclusive agency listing before it terminates, but if he does, he is liable for any damages suffered by Broker Hays, the listing broker. Inasmuch as the property was sold within the 90-day period, the owner is liable for damages which would be a full commission.

Question: A man is buying a residence. After signing a valid agreement for sale, he asks the broker for permission to move into the property before the sale closes. The broker should: A: Deny the buyer permission; B: Give the buyer oral permission; C: Have the buyer sign a temporary lease on the property; D: Obtain written consent from the owner.

Correct Answer is : D The property belongs to the seller until the sale closes. The seller would have to give his permission before the buyer could move in, and this consent should be in writing for the protection of all parties involved.

Question: If a broker is an agent of a seller, he owes to the buyer: A: The same fiduciary obligations; B: Only the duty to answer questions honestly; C: Only a duty to disclose any items which relate directly to the sales price; D: A duty of fair and honest dealing.

Correct Answer is : D When a broker is an agent of a seller, he has a fiduciary relationship with that seller and must be loyal to the seller. He does have responsibilities toward the buyer which are not as great as his responsibilities to the seller. Of course, he must be fair and honest with the buyer.