Master Exam 5- California Real estate exam

Question: In appraising real property, a separate valuation for the site is considered least important: A: In applying gross rent multipliers; B: In applying the cost approach; C: For depreciation purposes; D: In applying the income approach.

Correct Answer is : A The gross rent multiplier method is a variation of the income approach and does not involve separate valuation for the site.

Question: When a lender "calls" a loan, he: A: Accelerates all sums owing; B: Liquidates the obligation by amortization; C: Seizes the property securing the loan by court action; D: Calls upon the maker to pay delinquent installments.

Correct Answer is : A The phrase "calling a loan," refers to accelerating the remaining payments of the loan and making them all due and payable at the present time.

Question: A neighborhood apartment house would suffer economic obsolescence from each of the following, except: A: Heating and cooling system is wearing out; B: Major retail stores which serve the neighborhood have moved to outlying shopping centers; C: Jet airplanes taking off over the property from a nearby international airport; D: Most tenants in the neighborhood receiving relatively low fixed incomes.

Correct Answer is : A The wearing out of heating and cooling systems would be physical deterioration, rather than economic obsolescence.

Question: A lessee renting a business office often attaches certain items to the real property. These items may, prior to the expiration of the lease, be removed provided no substantial damage to the property results. Of the following, which best exemplifies such items: A: Trade fixtures; B: Fixtures for manufacturing purposes; C: Articles affixed for domestic use; D: Any of the above.

Correct Answer is : A These would be trade fixtures. You would not attach manufacturing equipment in a business office and items attached for domestic use would not be trade fixtures.

Question: In the absence of court approval, which of the following acts may legally be taken by a minor or incompetent person: A: Acquire real property through gift or inheritance; B: Give a valid power of attorney to encumber real property; C: Sell the real property through a guardian; D: All of the above.

Correct Answer is : A A minor may receive title to real property without court intervention; if a guardian or power of attorney is desired, a competent court must approve that designation.

Question: Is there anything wrong with using a street address (i.e., 123 Starling Way) in the legal documents pertaining to a real estate sale transaction: A: A street address is not considered a legal description of the property; B: It is acceptable, but it may make it difficult to get a loan on the property; C: It is acceptable, but title insurers may choose not to insure the property; D: For all intents and purposes, it is an adequate means of description.

Correct Answer is : A A street address is not considered a legal description of the property, and is therefore insufficient identification for legal documents.

Question: A veteran purchased a home and financed it with the aid of a Cal-Vet loan. Twenty years later, he made the final payment on the loan. Which of the documents listed below was least likely used in such a transaction: A: Trust deed; B: Policy of title insurance; C: A fire insurance policy; D: A grant deed.

Correct Answer is : A A trust deed is not used in a Cal-Vet loan. The property is sold under a land contract. The policy of title insurance and the fire insurance policy would be required when the property was sold to the veteran and, also, when the veteran receives his deed. The deed that the veteran would receive when the loan was paid off would be a grant deed.

Question: Broker Stein entered into an oral listing agreement with the seller of real property, without a subsequent written verification. The payment of a commission to Broker Stein under these circumstances would be: A: Permissible if the seller elects to do so; B: A violation of the regulations of the Real Estate Commissioner; C: Regarded as contrary to public policy; D: A criminal violation of the law.

Correct Answer is : A An oral listing to sell real property is not enforceable, but there is no prohibition against receiving a commission under such a listing if the seller chooses to pay one.

Question: If a zoning law permits a use to be made of property that is restricted by construction and use limitations contained in a deed, which of the following will prevail: A: Deed restrictions; B: Master Zoning Law; C: A variance permit; D: The owner's planned use.

Correct Answer is : A Deed restrictions are usually stricter than zoning laws. The stricter regulation will prevail. A variance permit applies to zoning regulations and not deed restrictions.

Question: In which of the following situations would an IRS Section 1031 exchange not be allowed: A: The properties are not of a like kind; B: The exchanged properties are both vacant land; C: One of the properties is a leasehold over 30 years; D: One property is in California and the other is in Arizona.

Correct Answer is : A IRS Section 1031 states that the properties must be of a like kind. That means that you cannot exchange personal property for real property and have it qualify for a 1031 exchange.

Question: In a condominium complex a sidewalk would be: A: Part of the common area; B: At least 4 feet wide; C: Made of asphalt; D: Owned as a fee simple estate.

Correct Answer is : A In a condominium, a sidewalk would be part of the common area and could be used by all of the owners.

Question: Each owner in a tenancy in common: A: Has the right to possession of all of the property; B: Cannot institute a partition action to have the court divide the property; C: Cannot convey their interest without the consent of the others; D: Can exclude the other owners from possessing any of the property.

Correct Answer is : A In a tenancy in common, each tenant has the right to possess all of the property because each holds an undivided interest in the total property.

Question: Which of the following is not required for obtaining an easement by prescription: A: A confrontation with the owner; B: Open and notorious use which is continuous for five years; C: Having some claim of right; D: A hostile use which is adverse to the true owner.

Correct Answer is : A In order to acquire an easement by prescription, the person acquiring the easement must fulfill certain requirements. These include a continuous use for five years which is hostile and adverse to the true owner with some claim of right.

Question: In the appraisal of residential property, the cost approach is most appropriate in the case of: A: New property; B: Middle-aged property; C: Old property; D: Multi-family property.

Correct Answer is : A In the appraisal of residential property, the cost approach is most appropriate in the case of new property, because the depreciation is easy to determine.

Question: If a seller wanted to relieve himself of the primary liability for payment of a trust deed and note, he must find a buyer who is willing to: A: Assume the trust deed and note liability; B: Sign a release agreement; C: Take title subject to the trust deed and note; D: Execute a subordination agreement.

Correct Answer is : A Know the difference between assuming a loan and taking title subject to the loan.

Question: The difference between judgment liens and mechanic's liens is: A: Mechanic's liens may take priority earlier than the date they are recorded; B: Judgment liens are involuntary liens; C: Judgment liens are not enforceable until recorded; D: Mechanic's liens are created by statute.

Correct Answer is : A Mechanic's liens take priority from the date of the beginning of the scheme of improvements; judgment liens take priority from the date they are recorded. A mechanic's lien might not be recorded until after the work has been done and the workman unpaid; but in priority, it dates back to the beginning of the project.

Question: The factor which usually has the greatest influence on mortgage interest rates is the: A: Condition of the money market; B: Value of the property; C: Term of the loan; D: Stabilizing effect of combining ultraconservative and over-optimistic practices of mortgage lenders.

Correct Answer is : A The availability of money for loan purposes resulting from supply and demand has the greatest influence on the cost of borrowing money.

Question: A percentage lease specified that the rent would be computed on the average rent paid during the lease. The monthly payments on the lease were $205 plus 2 1/2% of the tenant's gross annual receipts over $10,500. The tenant's gross receipts averaged $12,750 per month. Based on this information, what was the tenant's average monthly rental on this property: A: $207.50; B: $231.75; C: $261.25; D: $501.88.

Correct Answer is : D (1) $12,750 x 12 = $153,000 (2) $153,000 - $10,500 = $142,500 (3) $142,500 x .025 = $3,562.50 (4) $3,562.50 divided by 12 = $296.88 (5) $296.88 + 205 = $501.88

Question: Seller Martin agreed to give a listing to Broker Hagg, provided that Martin would net $37,000 from the sale after paying the broker's 4% commission and settlement costs of approximately $600. Under these circumstances, Broker Hagg should list the property for at least: A: $37,000; B: $38,261; C: $39,228; D: $39,167

Correct Answer is : D (1) $37,000 net to seller + $600 closing costs = $37,600 pre-commission price (2) 100% selling price - .04 (4%) broker's commission = .96 selling net (3) $37,600 divided by .96 = $39,166.66. Therefore the most correct answer is $39,167.

Question: A broker would not be required to maintain trust records in which of the following transactions: A: A check promptly delivered to escrow; B: A check promptly delivered to seller; C: A check promptly delivered to the seller that was given as the deposit in an offer to purchase containing a contingency clause; D: None of the above.

Correct Answer is : D A broker is always required to maintain trust records. He is not required to maintain a trust fund account.

Question: According to the Real Estate Settlement Procedures Act, there are certain services which may be charged for, since they are settlement connected costs. The buyer or seller can be charged for all of the following except: A: Appraisals; B: Loan documents; C: Credit reports; D: Uniform Disclosure / Settlement Statements.

Correct Answer is : D A lender cannot charge for the preparation of Uniform Disclosure/Settlement Statements.

Question: Which of the following is an interest, but not an estate, in real property: A: Remainder; B: Mortgage; C: Reversion; D: Easement.

Correct Answer is : D A mortgage is a lien. An estate in reversion and an estate in remainder are freehold estates. An easement is the right of use as a non-possessory interest in the land of another.

Question: The consideration that is required for a valid contract could be: A: A promissory note without interest; B: A promise to paint a building not yet constructed; C: A promise made in consideration of marriage; D: All of the above.

Correct Answer is : D A promise can be the consideration for a contract.

Question: A real estate broker sent all of his title business to Wonderful Title Co. In appreciation of the business, the title company paid the broker $10 for each transaction. According to the Real Estate Settlement Procedures Act, "RESPA," this practice is: A: Acceptable if both buyer and seller are told about it and approve; B: Permissible if the seller is going to pay for the title services and is told about it and approves; C: Permissible; D: Forbidden.

Correct Answer is : D According to RESPA, kickbacks for referral of services are prohibited.

Question: Under current federal income tax laws, which of the following are tax-deductible items for an owner-occupied single-family dwelling: A: Mortgage interest payments, property taxes, and mortgage prepayment penalty; B: Mortgage interest payments, capital repairs, and real property taxes; C: Late charges, mortgage interest payments, and broker's commissions; D: Mortgage payments, property taxes, and fire insurance premiums.

Correct Answer is : A Under current federal income tax laws, the owner of an owner-occupied single-family dwelling may take tax deductions for mortgage interest payments, property taxes, and mortgage prepayment penalties.

Question: Of the following, which is the best definition of a balloon payment: A: The tenth annual payment on a 30-year loan; B: The required payment of the interest that has accumulated prior to the first regular installment; C: The required payment of the entire balance due; D: A payment required to prevent the imposition of a prepayment penalty.

Correct Answer is : C A balloon payment is a large lump-sum payment that is required to pay off the loan in full. It is normally the balance of the principal amount left after the installment payments have been made, plus any accumulated interest.

Question: A partial release clause is commonly used with which of the following: A: A single lot encumbered by both first and second trust deed loans; B: A conditional installment sales contract; C: A blanket mortgage; D: A construction loan which provides for obligatory advances.

Correct Answer is : C A blanket mortgage is a loan secured by more than one parcel of real property. When part of the loan is paid off, it permits part of the property to be reconveyed or released.

Question: In practice, the services of a broker on behalf of her principal are defined as all of the following, except: A: An agency relationship; B: A fiduciary relationship; C: An attorney in fact relationship; D: A broker/client relationship.

Correct Answer is : C A broker does not normally have a power-of-attorney.

Question: A joint tenant can dispose of an interest held in real property by all of the following ways, except: A: Lease; B: Sale for excess consideration; C: Will; D: Mutual agreement.

Correct Answer is : C A joint tenant cannot will his interest in the property, because when creating joint tenancy, joint tenants agree that upon the death of a joint tenant, that interest will terminate, and hence there is no interest to be willed to another upon the death of a joint tenant.

Question: Which of the following would not be classified as a specific lien, even if properly recorded: A: A mechanic's lien for labor furnished on real property; B: A blanket mortgage which does not contain a release clause; C: A judgment for punitive money damages; D: Taxes on an unimproved parcel of real property delinquent for three years.

Correct Answer is : C A judgment lien is a general lien; the others are all specific, in that they are a claim for money against a specific or particular asset.

Question: A trust deed can have a provision that allows future loans on the property to have priority. This would be called: A: An assignment clause; B: A release clause; C: A subordination clause; D: An acceleration clause.

Correct Answer is : C A subordination clause allows trust deeds or other liens which are placed on the property at a later date to take priority over the trust deed that has the subordination clause.

Question: Sampson owned a triplex valued at $160,000, with an adjusted basis of $70,000. King owned a duplex valued at $155,000. Both properties were owned free and clear. They exchanged their properties, with King giving Sampson $5,000 in cash. For Federal Income Tax purposes: A: Both will be taxed on the difference between the value and the basis; B: King has a taxable gain; C: Sampson has a recognized gain; D: Neither has a taxable gain.

Correct Answer is : C In an exchange, the lesser of the gain or the boot is taxable (recognized) in the year of the exchange. Since Sampson receives $5,000 in cash boot, he will have a recognized gain.

Question: Appraiser Irvine employed the land residual technique. The unknown factor and desired result would be: A: Net income; B: Building value; C: Land value; D: Capitalization rate.

Correct Answer is : C In employing the land residual technique, the end result would be the land value.

Question: When the circumstances are such that an award of money damages would not provide an adequate remedy for default in a contract, a suit for specific performance could be successfully brought by all of the following except: A: One who is purchasing a single-family residence; B: An attorney-in-fact for a principal who resides in another state; C: A licensed real estate broker acting as agent for the principals; D: The seller of vacant agricultural land.

Correct Answer is : C In order to sue for specific performance, one must be a principal in the contract. In this case, the broker is not.

Question: In addition to the land and those things that are attached to the land, certain things are called appurtenances and are real property. Which of the following would not be an appurtenance: A: Watercourses; B: Trade fixtures; C: A dwelling; D: A fence.

Correct Answer is : B Trade fixtures are considered personal property. All the other choices are real property and benefit the land.

Question: A real estate broker, acting as agent for a landlord, has the following instructions: Instruction I. Collect a larger deposit from single men than from single women or couples; Instruction II. Advertise only by encouraging existing tenants who are predominantly white to solicit prospective tenants from among their friends. Which of these instructions would be prohibited by the Federal Fair Housing Act: A: I only; B: II only; C: Both; D: Neither.

Correct Answer is : A Under the Federal Fair Housing Act, an owner or agent cannot discriminate on the basis of marital status. Federal law also states that the contents of advertisements cannot discriminate, but it does not dictate the method of advertising. This question indicates that some tenants are not white and are encouraged to solicit prospects from among their friends. It also does not indicate the race of the friends.

Question: In the parts of California where wood-destroying pests are found, a structural pest control report is required: A: When buying residences financed by FHA or VA loans; B: When requested by the buyer, whether or not the seller agreed to do so in the contract; C: In every sale involving a wood-frame residence; D: All of the above.

Correct Answer is : A When a buyer purchases a home financed by an FHA or VA loan in an area where wood-destroying pests such as termites, carpenter ants, etc. are found, there will be a required pest control report.

Question: In the closing statements prepared by the escrow agent, the total of the debit and credit columns on the seller's closing statement, in comparison to the balances on the buyer's closing statement: A: Can be different; B: Must be the same; C: Must be different; D: Any of the above.

Correct Answer is : A While the balance of debits and credits on a seller's statement could be the same as the balance of debits and credits on a buyer's statement, usually they are not, since each party pays for some costs which are not paid to the other party but are paid to a third party.

Question: In estimating the value of Rafael's single-family dwelling, Broker Jones, the appraiser, uses the same monthly gross rent multiplier that has been computed for comparable properties in the same neighborhood. The comparable properties each have a rent amount of $300 monthly and recent selling prices of approximately $45,000. The owner's property is currently renting for $320 per month. The broker therefore would estimate the value of the property to be: A: $45,000; B: $48,000; C: $51,000; D: $54,000.

Correct Answer is : B (1) $45,000 comparable selling price divided by $300 monthly rent (comparable properties) = 150 gross rent multiplier; (2) 150 gross rent multiplier x $320 actual rent = $48,000 approximate value.

Question: A single-family residence sells for $90,750 with an existing $30,000 first trust deed lien which the buyer assumed. There are no other liens or encumbrances in existence at this time. The property was subject to the documentary transfer tax at the rate of $0.55 per $500. This would result in a tax of most nearly: A: $57; B: $67; C: $83; D: $100.

Correct Answer is : B (1) $90,750 selling price - $30,000 existing lien (old money) = $60,750 new money (subject to tax) (2) $60,750 new money divided by $500 (tax base) = 121.5 tax units (3) NOTE: For documentary transfer tax, always round up to the next whole unit; therefore, 121.5 becomes 122 tax units (4) 122 tax units x $0.55 tax rate = $67.10 $67 (Choice B) is the closest choice.

Question: When a lender makes a loan regulated by the Real Estate Settlement Procedures Act, the loan applicant must be provided with which of the following: A: A bill of sale; B: A good faith estimate; C: Forms for applying for the homeowner's exemption; D: An application for private mortgage insurance.

Correct Answer is : B A RESPA loan requires the lender to deliver to the loan applicant a good faith estimate of the closing costs within three days of receiving the loan application.

Question: Of the following, which one would be classified as a lien: A: A notice to pay or quit; B: An attachment; C: A homestead; D: All of the above.

Correct Answer is : B A lien is a claim for money; an attachment (court order seizing and holding any assets for a possible future judgment) is considered a lien, the others are not.

Question: Ms. Wilson made an offer to purchase real property. However, she died of a heart attack before the listing broker could notify her of an unqualified, signed acceptance by the seller. Based on these facts, which of the following is true: A: Notification to the administrator or executor would bind the Wilson estate; B: The death of Wilson constituted a revocation of the offer; C: The offer and acceptance constitute an enforceable contract; D: The sale would not be binding because the deed was not delivered before Wilson's death.

Correct Answer is : B An offer may be terminated by the offeror at anytime for any reason (and death is as good a reason as any) up until the offeree's acceptance has been communicated back to the offeror. Until this takes place, there is no contract because the "meeting of the minds" has not been confirmed to both parties.

Question: Each of the following terms refers to types of soil conditions except: A: Alkaline; B: Deciduous; C: Adobe; D: Expansive.

Correct Answer is : B Deciduous refers to trees which shed their leaves during the winter.

Question: Which of the following is not an example of governmental police power: A: Quiet title suit invoking the doctrine of "highest and best use;" B: Eminent domain; C: Extraordinary police powers; D: Action to Quiet Title.

Correct Answer is : B Eminent domain is the right of government to take private property when necessary for public use. It is not part of the government's police power. It is a separate power of government.

Question: In the field of real estate, the doctrine of escheat most nearly refers to the legal process which is used to: A: Legally enforce the taking of private property for public use; B: Cause title to certain real estate to revert to the state; C: Legally enforce the partition of real estate; D: Distribute the assets of the estate of a deceased person.

Correct Answer is : B Escheat refers to property reverting to the state when a person dies and leaves no will and no heirs.

Question: The total positive balances due to all beneficiaries of a broker's trust fund account must at all times equal the account's: A: Shortage; B: Balance; C: Overage; D: Fidelity bond coverage.

Correct Answer is : B The total positive balances due to all beneficiaries must equal the trust fund account balance.

Question: Should a tight money policy be implemented by the Federal Reserve System (the Fed), the net effect would be the increasing of: A: Volume of sales of single-family homes; B: Use of second trust deed financing in real estate transactions; C: Use of new first trust deed financing in real estate transactions; D: Supply of lendable funds for housing construction.

Correct Answer is : B In the imposition of a tight money policy by the Federal Reserve System, a scarcity of money would develop. This scarcity would make funds available for home financing scarce, thereby necessitating a second trust deed to be carried back by the seller or by any other lender. Likewise, the tight money policy would inhibit the sale of single-family dwellings and reduce the supply of funds for construction purposes.

Question: Which of the following would be least likely to appear as a debit on a buyer's closing statement: A: Proration of taxes; B: Interest on an assumed loan; C: Discount points for a new FHA loan; D: Prorations of insurance premiums.

Correct Answer is : B Interest on real estate loans is paid in arrears; any interest due on an assumed loan would normally be the responsibility of the seller, not the buyer. FHA discount points can now be paid by either the seller or the buyer but they are usually paid by the seller.

Question: According to subdivision laws which the California Bureau of Real Estate enforces, all of the following could be defined as blanket encumbrances, except: A: Mortgages; B: Real property taxes; C: Trust deeds; D: Mechanic's liens.

Correct Answer is : B Real property tax is a specific lien (not a general lien) placed on one property, whereas a blanket encumbrance is a general lien on many properties. In a subdivision, the other choices could be placed on several parcels.

Question: When a judgment is duly recorded, subsequent buyers and innocent purchasers who are ignorant of the recording have received: A: Actual notice; B: Constructive notice; C: Voidable notice; D: Contingent notice.

Correct Answer is : B Recording gives constructive notice to everyone.

Question: When owners hold title as tenants in common, each person: A: Owns an unequal share in the property; B: Does not own a specific part of the property; C: Must have acquired his interest at the same time as the other two; D: Must be mentioned in the single title instrument (will or deed).

Correct Answer is : B Tenants in common hold an undivided interest in real or personal property; hence, tenants in common own no specific part of the property.

Question: The purchaser of a sale-leaseback transaction would be least concerned with: A: Location of the property; B: Depreciated book value of the building; C: Condition of the improvements; D: General credit of the lessee.

Correct Answer is : B The depreciated book value of the building refers to the adjusted cost basis of the seller of the building. Each new owner establishes his own book value and his own depreciation.

Question: The existence of an easement appurtenant requires all of the following, except: A: At least two tracts of land in separate ownership; B: Adjoinment at their respective borders by the dominant tenement and servient tenement; C: Transferability with the land as an incident thereto; D: A benefit to one tract of land and a burden to another.

Correct Answer is : B The dominant tenement does not have to adjoin the servient tenement in order to have an easement appurtenant.

Question: According to the Law of Agency, agents have certain legal responsibilities with regard to their clients. All of the following would be required of an agent, except: A: Ensure the recordation of a deed of trust, or deliver it to the beneficiary with a written recommendation to record unless otherwise directed; B: Prepare a five-year income forecast for any income property; C: Disclose all material facts about a listed property; D: Treat all parties to a transaction fairly, even if it means that the seller makes less money.

Correct Answer is : B The exception is that there is no requirement to provide a five-year income forecast for income properties.

Question: A purchaser of real property received a grant deed and a standard policy of title insurance. Which of the following items would be warranted by the seller, but not insured by the title policy: A: That the grantor was indeed the owner of the property; B: That there were no undisclosed liens against the property suffered by the grantor; C: That there are no forged deeds in the chain of title; D: That the grantor is competent to convey the property.

Correct Answer is : B The grantee receives from the grantor the implied warranty that the estate is free from undisclosed encumbrances. The standard policy of title insurance protects against matters of record. Extended coverage would have to be obtained to protect against matters not of record.

Question: In order to negotiate the sale of an existing promissory note that is secured by real estate, working on behalf of another and for consideration, you must be: A: A loan broker or his affiliated agent; B: A licensed real estate broker or salesperson; C: A real property securities dealer licensed by the Department of Business Oversight; D: Licensed by the Securities and Exchange Commission.

Correct Answer is : B The person described in the question must have a real estate license.

Question: When a new subdivision is sold to the public, the Commissioner's public report often requires that purchase monies be impounded, because the subdivision is subject to a blanket encumbrance which does not contain an unconditional release clause. The impounding provisions, under these circumstances, are primarily for the benefit of the: A: Lender of a subordinated loan on the land; B: Purchaser of a lot in the subdivision; C: Subdivider; D: Holder of the blanket encumbrance.

Correct Answer is : B The purchaser of the lot would benefit from the impounding of the money he pays for the purchase of the property until the blanket encumbrance is paid off. Otherwise, an unethical subdivider might spend that money without delivering clear title to the purchaser of the property.

Question: When title to real property is voluntarily transferred without receipt of monetary consideration, this is generally considered to be a(n): A: Writ of Execution; B: Gift; C: Eminent domain; D: Foreclosure.

Correct Answer is : B The question describes a gift, which is the only one of the given choices which is a voluntary transfer without consideration.

Question: When property is destroyed or taken by a governmental entity for public use, and money is paid to the owner, which of the following terms describes that event: A: Subrogated recessions; B: Involuntary conversion; C: Economic obsolescence; D: Extinguishment conveyance.

Correct Answer is : B The real property was converted into money, and in the situation described, the event was involuntary (not at the initiative of the owner).

Question: Jones listed his home with ABC Realty for $30,000. He agreed to carry a note secured by a trust deed for $30,000 with 9% interest. The note was to be payable over a 20-year period. Alex, a salesman with ABC Realty, received an offer on these exact terms. However, before the offer was submitted to the seller, Clair, another salesperson in the office, brought in an offer for $28,000 cash. Which of the following is true: A: Only the offer received by Alex must be presented since it meets the terms of the listing; B: The offer received by Alex must be submitted first. After the seller has considered it and declined it, the seller should be told about the offer received by Clair; C: Both offers must be submitted to the seller; D: The offer received by Alex must be presented first because the offer was written before the offer by Clair was written.

Correct Answer is : C All offers must be submitted immediately. The agent is the fiduciary of the principal and must inform the principal of all facts so that he can make an intelligent decision.

Question: "Of indefinite duration" is a characteristic which is particularly descriptive of an: A: Estate for years; B: Estate for period to period; C: Estate of inheritance; D: Estate less-than-freehold.

Correct Answer is : C An estate of inheritance is a fee simple estate. In order to be a fee simple estate, it must be indefinite in duration, capable of being conveyed during life, or upon death.

Question: Which of the following would most likely provide an investor with the best hedge against inflation: A: United States government bonds; B: A savings account at the bank; C: Ownership of real property; D: A note well secured by a first mortgage.

Correct Answer is : C Answers "A," "B," and "D" provide the investor with a return of a fixed dollar amount. However, when an investor places his money into real property, that real property will increase in value during an inflationary period, and he will receive more money if he sells it at a later date.

Question: Morgan wanted to obtain a 60-day option so that he could purchase a parcel of real property for $18,000. However, he wanted to pay only $1 for it. If this option were drawn and duly signed by the parties, it would be: A: Invalid because of the 60-day length of time; B: Invalid because $1 is not adequate consideration; C: Valid if the $1 was actually delivered; D: Valid even if the $1 that was referred to was not actually received by the owner.

Correct Answer is : C Any amount of consideration is adequate to make an option valid, but it must be delivered to the optionor.

Question: Deed restrictions are usually established by: A: The planning commission; B: Zoning laws; C: The grantor in the deed; D: The Department of Housing and Urban Development.

Correct Answer is : C Deed restrictions, which are found in the deed given by the grantor to the grantee, are usually established by the grantor.

Question: Which of the following is not an encumbrance: A: A lease; B: An easement; C: A homestead; D: A lien.

Correct Answer is : C Each of the choices would be some form of burden on the property, and therefore an encumbrance, except the homestead. The homestead is used to protect a limited amount of equity from certain types of liens, specifically judgment liens.

Question: The type of depreciation that would be the most difficult to cure would be: A: Physical deterioration; B: Functional obsolescence; C: Economic obsolescence; D: Physical depreciation.

Correct Answer is : C Economic obsolescence, because it is resulting from negative factors outside the property boundaries, would be the most difficult to cure.

Question: When a governmental body, such as a city or county, takes private land for public use, that process is governed by law. Such a taking is accomplished through the exercise of the right of: A: Rescission; B: Police power; C: Eminent domain; D: Reversion.

Correct Answer is : C Eminent domain is the right of the government to take private property for necessary public use.

Question: In a well established residential neighborhood, government officials offered to buy the front portion of all lots on both sides of the street. The plan was to widen the street to make a highway. Ms. Clark, one of the homeowners, objected and refused to sell. The city attorney began a condemnation action and Ms. Clark was eventually ordered by the court to sell. This illustrates an exercise of: A: Partition; B: Severance; C: Eminent domain; D: Police power.

Correct Answer is : C Eminent domain is the right of the government to take property for public use. Compensation must be paid.

Question: Leland purchased and took title to a residential property on 10th Street in Modesto. One week later, he employed Broker Wilder to sell the property. The listing was completed and signed. Being uncertain as to the correct address of the property, it was described in the listing as "James R. Leland's residential property on 10th Street in Modesto, California." Regarding the effect of this description on the listing, which of the following is true: A: The description is not sufficient to properly describe the property and the listing is unenforceable; B: Leland's signature on the listing gives only a tentative listing right to Wilder until the legal description is completed correctly; C: The description is adequate if Leland owns no other property on 10th Street in Modesto, California; D: The description is adequate and the listing contract enforceable regardless of the location of any property owned by Leland.

Correct Answer is : C If Leland owns no other property on 10th Street in Modesto, California, then this description in the listing unquestionably identifies the property.

Question: If the owner of a property thinks that his property has been over-assessed by the county assessor, he would contact the: A: California Bureau of Real Estate; B: Board of Supervisors; C: Assessment Appeals Board; D: County tax collector.

Correct Answer is : C If a homeowner feels that property has been assessed too high by the property tax assessor, the correct agency to appeal that to would be the Assessment Appeals Board.

Question: A broker used the following clause in his exclusive listing contract, "In consideration of the execution of the foregoing, the undersigned broker agrees to use diligence in procuring a purchaser." This clause: A: Is superfluous and unnecessary in current contracts; B: Is necessary for the creation of a unilateral contract; C: Is important to the creation of a bilateral contract; D: Requires that the broker advertise the property.

Correct Answer is : C In a bilateral contract, both parties promise to perform. This statement obligates the broker.

Question: All of the following statements regarding options are true, except: A: Some consideration must pass from optionee to optionor; B: In a lease/option, provisions of the lease are, themselves, sufficient consideration to support the option; C: The option binds the optionee to performance; D: Option rights do not give the optionee any "rights in the land."

Correct Answer is : C In the common use of options, the owner gives an option to a prospective buyer to buy the property. The prospective buyer would be the optionee, since he received the option. The prospective buyer does not have to perform and buy the property if he does not wish to. He will, of course, lose the consideration he gave if he does not purchase the property.

Question: When using the market data approach in the appraisal process, many adjustments are often made, and any differences in the: A: Subject property are averaged to a range of price; B: Comparables are adjusted to a market norm; C: Comparables are adjusted to the characteristics of the subject property; D: Subject property are adjusted to the standards set by the comparables.

Correct Answer is : C In the market data approach, in making adjustments for differences in properties, the comparables are adjusted to the characteristics of the subject property because the comparables are given and the subject property value is unknown.

Question: According to the Law of Agency, an agent is generally held to have the imputed authority of his principal when dealing with third parties. That imputed authority: A: Includes power of attorney; B: Always binds the principal to terms negotiated on his behalf; C: Usually binds the principal if within the scope of authority granted to the agent; D: Implies a fiduciary obligations to third parties.

Correct Answer is : C In this case, the agent's imputed authority is essentially his or her apparent authority. If the other party had a reasonable expectation that the agent was acting within his or her authority, then the principal would be bound by the agent's actions. The best description of this is choice "C."

Question: In a published advertisement for real estate, which of the following inclusions is considered adequate notice that the ad has been placed by a real estate licensee: A: Bro.; B: Agt.; C: Either of the above; D: None of the above.

Correct Answer is : C It would be sufficient to list the advertiser as "Bro." (broker) or "Agt." (agent) so that the advertisement would not be considered a "blind ad."

Question: Of the following costs and fees involved in purchasing real property, which is considered a finance charge under the Federal Truth-in-Lending Law and must be included on the disclosure statement: A: Document preparation fees; B: Notary and appraisal fees; C: Assumption fees; D: Fees for title insurance.

Correct Answer is : C Of the items listed, only assumption fees are considered a part of the finance charge.

Question: Which of the following statements concerning options is false: A: The provisions of the lease, in a lease option, are sufficient consideration for the option; B: The optionee has no rights in the land; C: The option binds the optionee to performance; D: The optionee must give the optionor some consideration.

Correct Answer is : C The optionee (potential buyer) has the right, but not the obligation, to purchase the property; he is not bound to perform.

Question: A description of property that reads "Commencing on the south side of 'O' Street, at a point 150 feet west of 'O' and 85th Street, running in a southwesterly direction..." would be an example of which of the following land description methods: A: Recorded lot and block system; B: U.S. Government Range and Township system; C: Metes and bounds; D: U.S. Coastal and Geodetic Survey.

Correct Answer is : C The question gives an example of the metes and bounds system of legal description.

Question: The primary justification for zoning ordinances is to: A: Maintain physical conformity of buildings in a zoned area; B: Prevent an oversupply of certain types of business enterprises within a zoned area; C: Promote the public health, safety, morals, and general welfare; D: Control the quality of building construction within a zoned area.

Correct Answer is : C Under police power, governmental agencies may regulate the use of real property in order to provide protection to the community in the areas stated in choice "C."

Question: In a sale situation, which of the following properties would be exempt from the Discrimination in Housing part of the Health and Safety Code: A: An unoccupied single-family dwelling financed through VA; B: An owner-occupied four-plex with FHA financing; C: A single-family unoccupied dwelling that is unencumbered; D: A ten-unit apartment house financed with a conventional loan.

Correct Answer is : C Under state law, discrimination is illegal in the sale of homes or apartment buildings of three units, or more, with governmental financing, apartment buildings of five or more units with conventional financing, and redevelopment projects.

Question: The Irwins made an offer to purchase the Greys' property. As part of the offer, the Irwins agreed to take title "subject to" an existing VA loan which the Greys obtained when they purchased the property in the approximate amount of $39,000. If the Greys sell to the Irwins under these conditions, which of the following is true concerning liability for a loss suffered by the government after a foreclosure on the VA loan: A: The Irwins will be primarily liable; B: The Greys and the Irwins will be equally liable; C: The Greys will be primarily liable; D: Neither couple is liable because the Irwins took title "subject to" the existing loan.

Correct Answer is : C When a buyer takes property "subject to" an existing loan, the seller remains primarily liable on the promissory note. It is the seller who signed the original note. The buyer has no personal liability on the note.

Question: A brother and sister held title to a duplex as joint tenants. Other than this property, their business and personal affairs were conducted separately. When the brother died, he was insolvent, and owed several creditors substantial unsecured amounts of money. Title to the duplex would now be held by the sister: A: Subject to the processes of probate; B: Subject to the claims of the creditors; C: Free of the debts of the brother; D: As tenant in common with the lessees of the duplex.

Correct Answer is : C When owners hold title to property as joint tenants, the death of one joint tenant terminates that interest in the property. Title is now held by the survivor (or survivors) without liability for the claims of creditors who hold unforeclosed liens.

Question: Under the terms of the Real Estate Law, a real estate salesperson is considered to be: A: A fiduciary; B: An independent contractor; C: An employee of the broker; D: Self-employed.

Correct Answer is : C While the salesperson might be an independent contractor for income tax purposes, the Real Estate Law consideres salespersons to be employees of their broker.

Question: When an escrow is closed on the purchase of a home, the closing statements usually reveal that the seller has paid certain items in arrears or in advance as they relate to ownership of that home. These items are usually prorated or adjusted. All of the following would be included in these prorated items except: A: Interest and fire insurance premiums; B: Property taxes and assessments; C: Interest and impounds; D: Delinquent interest and principal applying to an unsecured home improvement loan.

Correct Answer is : D Any loan that is unsecured by the property would not apply to the property itself and thus would not appear on the closing statement. The loan would have to be paid entirely by the seller of the property unless the parties agreed to some other provision.

Question: When a dam broke, the flow of water cut a strip of land from the river bank. This would be known as: A: Accretion; B: Alluvion; C: Reversion; D: Avulsion.

Correct Answer is : D Avulsion is the sudden violent tearing away of land by water. Accretion is the process of gradual additions to land bordering a river or stream. Alluvion is the dirt that is added by accretion, and reversion refers to the rights of someone to property at a later time.

Question: Ryan Mills sold his home for $21,500 and took back a $15,000 note with interest at 10% per annum. The note was secured by a first mortgage. The home had a fair market value of $20,000. Later, he decided to sell the mortgage and note and discounted the note to $13,500. He sold them to Cindy Lomez. On the back of the note, he wrote, "I hereby assign the within note to Cindy Lomez without recourse." If the maker of the note defaults before any principal payments are made, Lomez's best legal remedy is to: A: Foreclose to recover the $13,500; B: Recover from Mills based upon her $13,500 note; C: Sue her assignor based upon the endorsee's secondary liability; D: Foreclose to enforce payment of the $15,000.

Correct Answer is : D Because the endorsement was without recourse, Cindy Lomez's only recourse is against the defaulting maker of the note and she could bring foreclosure action for the full face amount of $15,000.

Question: A seller tells the listing broker that the roof leaks. The broker does not inform the buyer of that fact. Once the buyer discovers the defect, the buyer sues both the seller and the broker. The seller also files suit against the broker. The likely outcome of these lawsuits is: A: On the basis of the principle of caveat emptor, the buyer was not entitled to recover from either the broker or the seller; B: The buyer recovered from the broker, but the seller would not be considered liable; C: The buyer recovered from the seller, but the broker would not be liable; D: The buyer would be successful in the suit against both the seller and the broker; the seller being successful in the suit against the broker.

Correct Answer is : D Both lawsuits are likely to be successful. The broker was obligated to disclose the defect to the buyer, and the seller is liable for the actions of the broker. The seller would be entitled to damages from the broker for the broker's failure to disclose the defect.

Question: All of the following may be added to the original cost basis of real property to arrive at an adjusted basis for federal income tax purposes, except: A: Miscellaneous acquisition expenses; B: Real estate brokerage commission; C: Cost of improvements; D: Mortgage payments.

Correct Answer is : D In arriving at the adjusted cost basis for income tax purposes, mortgage payments may not be included in arriving at the adjusted cost basis; whereas, the brokerage commission, cost of improvements to the property, and miscellaneous acquisition expenses are all tax-approved adjustments.

Question: An appraiser would most likely use a "depth table" when confronted with a valuation problem involving: A: A capitalization rate; B: A sinking fund; C: A residential property; D: A commercial property.

Correct Answer is : D In using a "depth table," an appraiser assigns 40% of the value to the front 1/4 of the lot; 30% to the next 1/4 in depth, followed by 20% to the following 1/4; and the last 1/4 of the lot is assigned 10%. The rationale being applied is that the front portion of a lot is more valuable than the rear portion of a lot.

Question: The decline of mortgage interest rates would occur when: A: Businesses expand; B: The Federal Reserve System increases the member banks' reserve requirements; C: Inflationary trends increase; D: The mortgage money supply increases.

Correct Answer is : D Money is considered a commodity. The scarcity of a commodity (money) would cause a price increase. Should the supply of money increase, it would cause a decline of its cost which normally is identified as interest.

Question: Which of the following would be most likely to pay a premium for mutual mortgage insurance: A: The buyer with a Cal-Vet loan; B: A homebuyer with a conventional loan from a life insurance company; C: A homeowner who wishes to insure real and personal property; D: A homeowner who assumed an FHA loan.

Correct Answer is : D Mutual mortgage insurance is FHA's way of insuring the lender. A borrower using FHA financing, pays one-half percent per annum on the loan amount as premium for his insurance.

Question: Concerning depreciation, which of the following statements is least correct: A: Depreciation is a loss in value irrespective of cause; B: The difference between the value of improvements and their cost of replacement as of the appraisal date is defined as depreciation; C: Depreciation can be computed for the future or from the past; D: Depreciation results from influences inherent within the property itself and cannot result from factors extraneous to the property.

Correct Answer is : D One form of depreciation is known as social or economic obsolescence, which results from surrounding property such as having a junk yard located next to an extremely expensive home. The appraiser would consider the negative influence of such a situation.

Question: If two or more parties own property as tenants in common: A: The last surviving owner holds title to the property in severalty; B: Each party owns an equal interest; C: None of the parties may transfer their interest by will or intestate succession; D: Each party may transfer their interest separately.

Correct Answer is : D Tenants in common may transfer their interest to any person at any time. This may be by a conveyance such as a deed or by will or intestate succession.

Question: A Chicano prospective purchaser asks to be shown homes but does not specify that he wants to see homes located in a neighborhood where there are no Chicanos. How should a licensee decide what properties to show him: A: The licensee has no obligation to show homes in non-Chicano neighborhoods to the prospect; B: The licensee could assume that the prospective buyer is not interested in such homes; C: The licensee does not need to provide service for the prospect at all; D: The licensee may select homes for showing as he would for any other prospect.

Correct Answer is : D The Fair Housing Laws and the Commissioner's Regulations insist that real estate licensees treat all customers and clients in an equal manner.

Question: Usefulness of the cost approach would be limited when: A: An appraiser is appraising a new structure appropriate to its site and use; B: There exists an unusually inactive real estate market; C: Appraising for proposed construction; D: Appraising an old structure with many functional deficiencies.

Correct Answer is : D The cost approach usefulness becomes limited with increasing age of a structure due to the fact that the allowance for depreciation becomes more complicated.

Question: John sold a property to Sam on an installment sale for income tax purposes. The buyer assumed an existing loan which exceeded John's basis in the property. John thus had loan relief (excess mortgage over basis). The excess amount must be: A: Deducted from the basis; B: Made a part of the sales price; C: Added to the basis; D: Made a part of the down payment whether cash was received or not.

Correct Answer is : D The mortgage relief is considered part of the down payment and tax must be paid on it. For instance, the sales price is $9,000. The buyer is to pay $3,000 over the next 3 years and assume a $6,000 loan. The seller's basis is $5,000. The seller has a gain of $4,000. $1,000 is mortgage relief and recognized in the year of sale.

Question: On August 1, 1991, Wilson agreed to purchase Hansen's home. Both parties agreed that possession would be transferred on September 30, 1992, and that the property taxes on the property would be prorated as of the date of possession. On November 1, 1991, Hansen paid the property taxes for the tax year 1991-1992. According to the closing escrow statement, which of the following would be true: A: Wilson paid Hansen for nine months taxes; B: Wilson paid Hansen for three months taxes; C: Hansen paid Wilson for nine months taxes; D: Hansen paid Wilson for three months taxes.

Correct Answer is : D The property tax year runs from July 1 to July 1. Since Hansen, the seller, has the use of the property between July 1, 1992 and September 30, 1992, he would owe Wilson for three months taxes.

Question: Which of the following must be given by the seller of a condominium to the buyer: A: The CC&&R's; B: The bylaws; C: A copy of the most recent financial statement; D: All of the above.

Correct Answer is : D The seller of a condominium must give all of these to a buyer.

Question: If an agent discloses to his principal the race, creed, or color of a prospective buyer or tenant, has he committed a discriminatory act: A: No, because an agent is obligated to disclose to his principal all material facts that might influence the principal's decisions concerning any real estate transaction; B: Yes; however, that disclosure violates only a state law; C: No, because a fiduciary relationship exists between the agent and the principal and the agent must exercise good faith in working for the principal's best interest; D: Yes. An opinion of the California Attorney General states that race, creed, or color is not a material fact and should not be disclosed even though the owner requests the information.

Correct Answer is : D Yes. An opinion of the California Attorney General states that race, creed, or color is not a material fact and should not be disclosed, even though the owner requests the information.