Real Estate Practice Study Guide

17. . State law requires an exclusive listing agreement to include: A. the level of service the broker will provide B. the expiration date for the listing C. a preprinted commission rate D. the broker's home address and telephone number

Question 17. . Answer: BExplanation: By statute, an exclusive listing agreement must contain a termination date.

29. . An agent performing a CMA arrives at a value estimate by: A. calculating the property's replacement cost B. capitalizing the property's income C. analyzing sales of comparable properties D. None of the above

Question 29. . Answer: CExplanation: A competitive market analysis involves analyzing recent sales of properties that are comparable to the property the agent islisting.

1. . A seller contacts a broker to list property, but then asks that the broker not disclose that the property is in a dangerous slide zone. The broker should:' A. refuse to take the listing B. take the listing and comply with the seller's wishes C. take the listing and disclose to prospective buyers that the property is in a slide area D. suggest that the seller sell the property himself

Question 1. . Answer: AExplanation: The broker should refuse the listing. If she accepted it, she would have to choose between breaking the law by failing todisclose latent defects or disobeying the principal. Either of those choices would be a violation of the agent's duties.

10. . Broker Kurt negotiated an exchange agreement between Chris and Dave. Chris and Dave each signed a separate agreement,independently of each other, to pay Kurt a commission. Then Dave breached the exchange agreement, and Chris sold his property to another person through another broker. If Kurt isn't paid and decides to sue, he would sue: A. Chris and Dave jointly B. Chris and Dave separately C. only Dave D. Dave, who could in turn sue Chris for half of the commission

Question 10. . Answer: CExplanation: Chris and Dave are not jointly and severally liable for a commission; each independently agreed to pay a separatecommission. By breaching the exchange agreement with Chris--preventing the transaction from closing--Dave also breached hiscompensation agreement with Kurt. So Kurt would be entitled to sue Dave for a commission. On the other hand, it was not Chris's faultthat the exchange transaction failed, so he did not breach his compensation agreement with Kurt, and Kurt could not sue Chris.

100. . On an income property's operating statement, taxes and insurance are an example of: A. management expenses B. fixed expenses C. variable expenses D. None of the above

Question 100. . Answer: BExplanation: Fixed expenses are operating expenses that occur on a regular basis and generally do not vary with changes in theproperty's occupany level. Examples of fixed expenses include property taxes, property insurance, and licenses.

11. . A transfer disclosure statement is required in sales involving all of the following, except:A. single-family homesB. duplexesC. commercial propertyD. mobile homes

Question 11. . Answer: CExplanation: Transfer disclosure statements are required for residential properties with one to four units, including condominiums,cooperatives, and mobile homes. Commercial property is exempt.

12. . How is the maximum commission rate a broker may charge established? A. It is set by the local multiple listing service B. It is mandated by the state Real Estate Law C. It must be within limits prescribed by real estate professional associations' ethical codes D. It is set by agreement between principal and broker

Question 12. . Answer: DExplanation: There are no legal limits on commission rates. They are determined by agreement between the broker and the broker'sprincipal.

13. . Which of the following acts by a real estate broker involves a violation of California law? A. Using a net listing if the amount of commission is disclosed B. Claiming a commission based on an exclusive listing that did not specify a termination date C. Collecting a commission after the termination date for an exclusive listing has passed D. Selling his own property and claiming a commission for income tax purposes

Question 13. . Answer: BExplanation: It's a violation of California's Real Estate Law for a broker to enter into an exclusive listing agreement that does notinclude a termination date. The broker may be subject to disciplinary action.

14. . A broker acting in good faith received misinformation from the seller and passed it on to the buyer, who agreed to purchase theproperty. When the buyer discovered the truth, he rescinded the contract (though after incurring expenses). In this situation the :A. broker is entitled to collect his commission from the seller, and the seller must reimburse him for losses caused by a lawsuit bythe buyer B. the broker is entitled to collect his commission from the buyer C. the buyer and the seller each owe the broker one-half of his commissionD. the broker is not entitled to a commission

Question 14. . Answer: AExplanation: Because he found a ready, willing, and able buyer, the broker is entitled to collect a commission from the seller. By givingthe broker false information, the seller prevented the sale from going forward, so she is liable for the broker's commission (much as shewould be if she had simply changed her mind and backed out of the transaction).

15. . A buyer would like to rescind the purchase agreement after finding out negative information from the transfer disclosure statement. The buyer may rescind :A. within three days after personal delivery of the statement B. within five days after personal delivery of the statement C. within five days after the statement is deposited in the mail D. Either A or C

Question 15. . Answer: DExplanation: An agreement may be rescinded within three days after personal delivery of the transfer disclosure statement, or within fivedays after the disclosure statement is deposited in the mail.

16. . In order to be enforceable, an exclusive listing must be signed by: A. the broker B. the seller C. the broker and the seller D. the broker, the buyer, and the seller

Question 16. . Answer: BExplanation: A listing agreement must be signed by the seller. The broker is not required to sign, although she almost always does (orthe listing salesperson signs on her behalf).

18. . An employment contract between a property seller and a real estate broker is known as a/an: A. contract for hire B. listing agreement C. exclusive option agreement D. net listing

Question 18. . Answer: BExplanation: A listing agreement is essentially an employment contract between a seller and a broker. There are three basic types oflisting agreements: the exclusive right to sell listing, the exclusive agency listing, and the open listing.

19. . Under the Americans with Disabilities Act, modifications for accessibility must be made: A. regardless of expense B. if readily achievable C. in places of public accommodation D. Both B and C

Question 19. . Answer: DExplanation: The ADA requires readily achievable and reasonable modifications to be made in places of public accommodation.

2. . A real estate agent who is acting as a buyer's agent: A. will become a dual agent if she accepts compensation from the seller (a commission split) B. may disclose information that the buyer has instructed her to keep confidential if the disclosure could benefit the buyer C. should present offers to the seller through the seller's agent D. should present offers directly to the seller

Question 2. . Answer: CExplanation: If the seller is represented by an agent, a buyer's agent will generally present offers and negotiate through the seller's agent.She should not contact the seller directly. A buyer's agent's acceptance of compensation from the seller does not create an agencyrelationship with the seller or a dual agency.

20. . Broker Bill specializes in listings in a particular neighborhood. He may lawfully refuse to accept a listing in that area for which ofthe following reasons? A. The seller's price is substantially above fair market value B. The seller is a minority and most of the residents in that area are white C. The home is in an particular section of his area that has mostly minority residents D. All of the above

Question 20. . Answer: AExplanation: A broker is entitled to refuse a listing if the seller's asking price is substantially above the fair market value of the property.But a broker cannot refuse a listing based on race.

21. . Disclosure of what potentially harmful substance is important, since it tends to grow out of sight in damp, enclosed spaces?A. Radon B. Mold C. Urea formaldehydeD. Asbestos

Question 21. . Answer: BExplanation: While mold does not create health problems in all individuals who are exposed to it, it can cause respiratory problems inthose who are particularly sensitive to it. Therefore the presence of mold, flooding, or water leakage should always be disclosed.

22. . Which of the following actions would be characterized as steering? A. Warning homeowners about minorities moving into a neighborhood in order to generate listings B. Refusing to lend money in particular neighborhoods based on their racial composition C. Failing to show properties in white neighborhoods to minority buyers D. Charging non-white tenants higher rents than white tenants

Question 22. . Answer: CExplanation: Steering is channeling prospective buyers or tenants toward or away from particular neighborhoods because of their race(or another protected characteristic). This is prohibited under the Fair Housing Act.

23. . Of the following, who may directly compensate a salesperson?A. the principal B. the cooperating broker C. the broker holding the salesperson's license D. Both A and C

Question 23. . Answer: CExplanation: A salesperson may receive compensation only from the broker who holds the salesperson's license.

24. . Which of the following describes a tie-in arrangement? A. Two real estate agents in a brokerage agree to work together on listings B. A broker requires all her clients to use a certain escrow service C. A developer won't sell builders vacant lots unless the builders agree to list the completed houses with a certain broker D. Both B and C

Question 24. . Answer: DExplanation: A tie-in arrangement requires a consumer who wants to use one service or product to also use another product or service.

25. . In the financing of owner-occupied residences, a lender charges what it calls an "immigration-status review fee" if English doesn'tseem to be the borrower's native language. This fee is most likely: A. permitted, if it is disclosed to the borrower in the loan application documents B. permitted, if the money is used only for translation of loan documents C. permitted, if it does not exceed .01% of the loan amount D. in violation of the Housing Financial Discrimination Act of 1977

Question 25. . Answer: DExplanation: The Housing Financial Discrimination Act (also known as the Holden Act) prohibits lending institutions fromdiscriminating in the provision of financial assistance for housing based on race, color, religion, sex, marital status, national origin, orancestry. Charging a special fee based on a borrower's apparent ancestry or national origin would violate that law.

26. . A landlord has two apartments available for rent. Because he feels that married couples and women tend to be better tenants, hedecides to charge a higher security deposit for single men. Additionally, he places a newspaper ad stating "Women and married couplespreferred." Which of the following is true? A. The higher security deposit violates the Fair Housing Act B. The newspaper ad violates the Fair Housing Act C. Both the higher security deposit and the newspaper ad violate the Fair Housing Act D. Neither the security deposit nor the ad violates the Fair Housing Act

Question 26. . Answer: CExplanation: The Fair Housing Act prohibits discrimination based on sex. Thus, requiring a larger security deposit from single menwould violate the act, and so would running an ad indicating a preference for female tenants.

27. . Potential residential environmental hazards to be concerned with include: A. empty oil tank on property B. urea formaldehyde C. asbestos D. All of the above

Question 27. . Answer: DExplanation: Oil storage tanks, urea formaldehyde, and asbestos are all potential environmental hazards that an agent should be familiarwith.

28. . Which of the following is most likely to be considered a sale under normal conditions? A. Seller had to sell within one month because of job transfer B. Property sold to developer who needed parcel to complete large project C. Property exposed on open market for three months D. Seller was buyer's uncle

Question 28. . Answer: CExplanation: A transaction cannot be considered a sale under normal conditions if there was unusual pressure (such as the need for aquick sale, or the need to buy a property to assemble a larger parcel), or if the parties had a preexisting relationship (as in a sale betweenrelatives). A property that was offered on the open market for a reasonable length of time is likely to qualify as a sale under normalconditions.

3. . The seller's agent is most likely to be liable for damages to a buyer if she: A. executes a contract in the seller's name, as authorized in a power of attorney B. fails to disclose that the seller is forced to sell quickly and would accept considerably less than the asking price C. holds the buyer's check uncashed while waiting for the seller's acceptance, after authorization to accept deposits D. exceeds the authority given to her by the seller

Question 3. . Answer: DExplanation: An agent may be liable to third parties for actions that exceed the scope of authority granted by her principal (and theprincipal generally won't be liable for those actions).

30. . A comparable property has a feature that the subject property lacks. Under the market data approach, how will an appraiser treat thisfeature? A. The feature is identified in the appraisal report but disregarded in the valuation B. The feature's value is added to the value of the subject C. The feature's value is subtracted from the value of the comparable D. The feature's value is subtracted from the value of the subject

Question 30. . Answer: CExplanation: The value of the feature is subtracted from the value of the comparable. Since the subject property does not have thefeature, the adjusted comparable value will more closely reflect the value of the subject.

31. . If a property receives a low appraisal, an agent may try to salvage the sale by: A. having the seller lower the sales price to the appraised value B. having the buyer make a larger downpayment C. requesting a reconsideration of value D. All of the above

Question 31. . Answer: DExplanation: In the event of a low appraisal, the seller could lower the price or the buyer could make a larger downpayment, but theyboth may resist such a change. The best approach may be to contact the lender and request a reconsideration of value. The request shouldprovide alternative comparables that indicate a higher value than the appraiser's estimate.

32. . The three approaches to value are: A. the integration, substitution, and regression approaches B. the income, substitution, and sales comparison approaches C. the general data, income, and cost approaches D. the cost, sales comparison, and income approaches

Question 32. . Answer: DExplanation: The cost approach, the sales comparison approach, and the income approach to value are the three major methods ofappraisal.

33. . Which of the following is NOT a requirement for a sale under normal conditions? A. No undue stimulus or unusual pressure on either party B. Buyer and seller both acted prudently and knowledgeably C. Buyer offered cash or cash equivalent financing D. Property was offered in a competitive and open market

Question 33. . Answer: CExplanation: The criteria for a sale under normal conditions are that it was an arm's length transaction, the property was offered on theopen market for a reasonable length of time, the buyer and the seller acted prudently and knowledgeably and in their own best interests,and neither party was subject to undue stimulus or unusual pressure. Method of financing is an important consideration in an appraisal,but it is considered as a separate element of comparison, not as a criterion for a sale under normal conditions.

34. . All of the following would be classified as site data, except: A. orientation B. easements and encroachments C. zoning D. width and depth of the lot

Question 34. . Answer: CExplanation: Zoning is generally classified as neighborhood data rather than site data, since it applies to the surrounding properties aswell as the subject property. Site data include (among other things) the size and shape of the lot; the orientation of the lot in relation tothe surroundings; and any easements or possible encroachments.

35. . While using the sales comparison (market data) approach to value, an appraiser finds three comparable properties that recently soldfor $195,000, $202,000, and $207,000 respectively. In order to determine what the comparables indicate about the value of the subjectproperty, the appraiser should: A. add the three sales prices together and divide by three for an average selling price B. emphasize the middle property, as it represents the middle range of the value spectrum C. make adjustments for the differences between the comparable properties and the subject property D. ignore the comparables, because the differences between each of their selling prices is too great

Question 35. . Answer: C Explanation: The appraiser should make adjustments to each comparable's price for the differences between the comparable and the subject property. In effect, the adjustments make the comparable like the subject property, so that the adjusted price can be used as an indication of the subject property's value.

36. . A listing agent should give the seller regular progress reports that include information about: A. inquiries regarding the property B. advertising for the listing C. showings and open houses D. All of the above

Question 36. . Answer: DExplanation: A listing agent should keep in touch with the seller by providing regular progress reports that summarize inquiries,showings, and marketing efforts.

37. . The net proceeds to seller calculation: A. shows buyers what they can expect to spend B. shows sellers how much cash they are likely to receive from the sale after closing C. provides an estimate of the property's likely selling price D. provides a figure to determine IRS withholding

Question 37. . Answer: BExplanation: Brokerage software can produce a simple form to show the sellers approximately how much cash they can expect to comeaway with after the transaction closes.

38. . Showing a buyer properties that are outside of her budget: A. usually results in a sale B. typically increases the buyer's agent's commission C. may discourage the buyer from finding an affordable home D. is recommended by most brokers

Question 38. . Answer: CExplanation: Showing a buyer properties that she cannot afford is a waste of time for both the buyer and the agent. It may evendiscourage the buyer from looking altogether.

39. . A licensed real estate assistant may: A. assist a buyer with writing an offer in the broker's absence B. answer buyer questions about the property's price at an open house C. make cold calls D. All of the above

Question 39. . Answer: DExplanation: Writing an offer, answering buyer questions about listing price, and making cold calls (soliciting clients) are all activitiesthat require a real estate license. Unlicensed assistants would not be able to perform these activities, but a licensed assistant isn't subjectto the same restrictions.

4. . A broker showed one of his own listings to a buyer he was representing. The buyer decided to make an offer on the property, whichwas accepted. At no point did the broker disclose his dual agency status. The broker may be: A. forced to give up any payment received from the buyer and/or seller B. sued by the seller C. subject to disciplinary action by the Real Estate Commissioner D. All of the above

Question 4. . Answer: DExplanation: If a licensee acts as a dual agent without making the proper disclosures and obtaining the written consent of both parties, hemay be subject to disciplinary action, he may be sued by either party (or both), and he may be required to refund any compensationreceived in the transaction.

40. . If someone is on the Do Not Call Registry: A. she can be called only at her place of business, not her home B. she cannot be called by real estate licensees making "cold calls" C. real estate brokers must get special permission before allowing affiliated licensees to call her D. only members of the Better Business Bureau are allowed to make sales calls to her

Question 40. . Answer: BExplanation: Real estate licensees cannot make cold calls to those who are on the do-not-call registry.

41. . When taking a listing, an agent should: A. let the seller know what to expect regarding open houses, signs, and the escrow process B. give instructions on preparing the house for sale C. explain how the keybox works D. All of the above

Question 41. . Answer: DExplanation: Servicing the listing involves showing the seller how the keybox works, giving the seller instructions about preparing thehome for sale (what's worth doing and what isn't), and explaining to the seller how open houses, showings, and escrow will work.

42. . During a listing presentation to prospective sellers, the main purpose of a CMA is to: A. present the sellers with a list of all the other homes you've sold recently B. outline your plan to market the sellers' home C. help the sellers set a reasonable listing price D. illustrate your presentation skills

Question 42. . Answer: CExplanation: The main purpose of a competitive market analysis is to help the sellers set a reasonable listing price by showing them acomparison of similar homes that have recently sold, are currently on the market, or have expired listings.

43. . A seller is presented with multiple offers on his property. He may: A. reject all of the offers B. make a counteroffer on one of the offers C. accept one offer, but make a backup contingent offer to another offer D. Any of the above

Question 43. . Answer: DExplanation: When presented with multiple offers, the seller may reject all offers, accept one offer and reject all the others, make acounteroffer on one of the offers, or accept one offer while making a backup contingent counteroffer to another offer.

44. . To submit a counteroffer that makes several changes, the listing agent should: A. cross out unacceptable terms and write in the proposed terms on the purchase agreement form B. start over with a new purchase agreement form C. use a separate counteroffer form D. use a cancellation of contract form

Question 44. . Answer: CExplanation: For very simple changes, crossing out items on the original purchase agreement form might be acceptable. To preventconfusion and disputes, however, it's better to use a separate counteroffer form. And in this case, where the counteroffer makes severalchanges to the original offer, the listing agent should definitely use a separate counteroffer form.

45. . When does an offer to purchase become a binding contract? A. When the offeree decides to accept the offer B. When the acceptance is communicated to the offeror C. When the acceptance is communicated to the offeree D. When the deadline passes before a counteroffer is submitted

Question 45. . Answer: BExplanation: Acceptance must be communicated by the offeree to the offeror. At that point, a binding contract is formed.

46. . Most listing contracts authorize a broker to: A. find a purchaser and accept the buyer's offer on behalf of the seller B. guarantee to a prospective buyer that the seller will accept his offer C. deed the property over to the buyer D. find a buyer and accept a deposit with the offer to purchase

Question 46. . Answer: DExplanation: A typical listing agreement only authorizes the broker to find a buyer and accept the buyer's deposit. To authorize a brokerto accept an offer or convey title, a seller would need to execute a power of attorney that specifically empowers the broker to do thosethings.

47. . Like any contract, a purchase and sale agreement is formed by the process of offer and acceptance. The offeror - the one whomakes the offer - is usually the: A. buyer B. seller C. listing broker D. selling agent

Question 47. . Answer: AExplanation: In the process of creating a purchase and sale agreement, the buyer is usually the offeror. The buyer makes an offer topurchase, and if the seller accepts the offer, they have a binding contract.

48. . A seller's counteroffer: A. terminates the original offer B. is illegal in a real estate transaction C. binds the buyer if made before the deadline for acceptance of the original offer D. cannot be revoked by the counterofferor (the seller)

Question 48. . Answer: AExplanation: A seller's counteroffer terminates the buyer's original offer. It represents a new offer from the seller to the buyer, which thebuyer can then accept or reject. The counteroffer can be revoked by the seller at any time before he or she is notified that the buyer hasaccepted it.

49. . Before the seller's acceptance of an offer has been communicated to a buyer, the buyer may withdraw the offer: A. if the offer does not state that it is irrevocable B. if the offer was not scheduled to remain open until a particular date C. if the offer was not accompanied by a good faith deposit D. for any reason

Question 49. . Answer: DExplanation: Prior to the offeree's acceptance, an offeror may withdraw an offer at any time for any reason.

5. . Which of these is most important in the creation of an enforceable principal/agent relationship concerning a right or interest in realproperty? A. A written offer to purchase B. An agreement regarding a commission C. A written employment agreement D. The authority to bind the principal

Question 5. . Answer: CExplanation: For a relationship between a real estate agent and a principal to be enforceable (for instance, if there is a dispute overpayment of a commission), the statute of frauds requires that there must be a written employment agreement. This is ordinarily a listingagreement or a buyer representation agreement. Remember, however, that agency duties may arise even in the absence of an enforceablecontract.

50. . If a broker accepts a deposit from a prospective buyer without express written authorization from the seller, she is: A. guilty of a breach of her fiduciary duties to the seller B. guilty of commingling customer funds with her own funds C. operating within her implied actual authority D. acting as the buyer's agent in regard to the deposit

Question 50. . Answer: DExplanation: A seller's agent who accepts a buyer's deposit without the express authorization of the seller acts as the buyer's agent, butonly in regard to the deposit.

51. . A seller has accepted another offer, but your client doesn't want to give up. Even now, she can submit an offer to the seller, called a: A. fallback offer B. backup offer C. secondary offer D. bump offer

Question 51. . Answer: B Explanation: This kind of offer is called a backup offer. It's contingent on the failure of a previous sales contract.

52. . In choosing a closing date, you should take all of the following into account, except: A. inspections of the property and repairs that may be necessary B. time for the buyer to apply for a loan and have the application processed, or to finalize preapproved financing C. any other contract obligations that the parties will need to fulfill D. how long the buyer needs to save for a downpayment

Question 52. . Answer: DExplanation: A buyer who still needs to save for a downpayment is probably not yet ready to make an offer on a house.

53. . Which of the following items will be included in a real property transaction? A. All items not specifically listed as excluded items in the purchase agreement B. Only items listed as included items in the listing agreement C. Items advertised as included items in the marketing materials D. Items classified as fixtures, unless specifically listed as excluded items in the purchase agreement

Question 53. . Answer: DExplanation: Fixtures are considered part of the real property and are included in the sale, even if not specifically listed as included itemsin the purchase agreement. (If the seller wants to exclude certain fixtures, those must be listed in the purchase agreement as excludeditems.) In contrast, items of personal property--items not classified as fixtures--are included only if listed in the purchase agreement asincluded items.

54. . In the sale of an owner-occupied home for $400,000, the broker accepted a $25,000 deposit from the buyer on the seller's behalf. The buyer breached the contract, and the seller claimed that the buyer had forfeited the deposit. If the liquidated damages provision in the purchase agreement was initialed, the seller: A. may not retain any of the deposit B. may retain no more than $12,000 as liquidated damages C. may deduct any actual damages caused by the breach from the deposit D. may retain the entire deposit

Question 54. . Answer: BExplanation: In a sale of property with up to four units that the buyer intends to occupy as her residence, California law allows the sellerto keep no more than 3% of the property's sales price as liquidated damages. Three percent of $400,000 is $12,000 ($400,000 × .03 =$12,000). The remainder of the deposit, $13,000, must be returned to the buyer.

55. . The seller of a commercial building is a corporation. Who may sign the purchase agreement to accept the buyer's offer? A. An officer of the corporation who has been authorized to sell the property by a resolution of the board of directors B. Any officer of the corporation C. Any member of the corporation's board of directors D. The corporation's chief executive officer

Question 55. . Answer: AExplanation: Any officer of a corporation may sign the purchase agreement, but the officer must be expressly authorized to sell theproperty by a resolution of the corporation's board.

56. . The phrase "time is of the essence" is most likely to be found in a/an: A. purchase agreement B. listing agreement C. grant deed D. transfer disclosure statement

Question 56. . Answer: AExplanation: When a contract includes a "time is of the essence" clause, failure to comply with any deadline in the contract can betreated as a material breach of the contract. Almost all purchase agreements have a "time is of the essence" clause.

57. . After signing a purchase agreement, a buyer asks his broker if he may move in before the transaction closes. The broker should: A. tell the buyer it isn't allowed B. request written permission from the seller C. prepare a short-term lease for the period of occupancy D. allow the buyer to move in immediately

Question 57. . Answer: B Explanation: The property will belong to the seller until the transaction closes, so ordinarily the buyer can't take possession until the closing date. The buyer will need the seller's permission to take possession earlier. If the seller agrees, it would be a good idea for theparties to sign a short-term lease (an interim occupancy agreement).

58. . It has been agreed that the seller will not take the washer and dryer with him when he vacates the property. This would be specifiedin the: A. included items paragraph in the purchase agreement B. liquidated damages provision in the purchase agreement C. seller financing disclosure statement D. bulk transfer notice

Question 58. . Answer: A Explanation: The included items paragraph in the purchase agreement can be used to specify which items that might be considered personal property will be included in the sale.

59. . A home buyer placed $30,000 into escrow as a deposit toward a purchase price of $240,000. The buyer breached the contract, andnow he's demanding the return of his deposit. The purchase agreement included a liquidated damages clause that was initialed by bothparties. How much should the buyer receive as a refund? A. $0 B. $7,200 C. $22,800 D. $30,000

Question 59. . Answer: C Explanation: California law limits the amount that can be treated as liquidated damages if a buyer breaches a residential purchaseagreement to 3% of the purchase price. If the buyer made a larger deposit, the amount in excess of the 3% limit must be refunded. Threepercent of $240,000 is $7,200. The buyer has $30,000 on deposit, so subtract $7,200 from $30,000 to find how much must be returned tothe buyer ($30,000 - $7,200 = $22,800).

6. . If a broker sold one of her listings to a relative, but did not disclose that relationship with the buyer to the seller, she would: A. not be in violation of her fiduciary duties regardless of the price paid B. be in violation of her fiduciary duties if the buyer paid substantially less than the property's true market value C. be in violation of her fiduciary duties regardless of the price paid D. not be in violation of her fiduciary duties if the buyer paid more than the property's true market value

Question 6. . Answer: CExplanation: A seller's broker's failure to disclose a relationship with the buyer is a violation of the broker's fiduciary duties, and theamount paid for the property is immaterial.

60. . Which of the following types of contingencies may take the form of a "hidden contingency" even if it is not expressly stated in thepurchase agreement? A. Inspection contingency B. Sale of buyer's home contingency C. Subdivision contingency D. Financing contingency

Question 60. . Answer: B Explanation: A buyer may need to sell his existing home in order to be able to make the downpayment on the purchase of a new home. Ifhe is unable to sell his previous home, the purchase of his new home may collapse. This would be considered a "hidden contingency,"since the purchase of the new home depends on an event that wasn't specifically mentioned in the purchase agreement.

61. . An inspection contingency will usually state all of the following, except: A. who is responsible for paying for the inspection B. whether the seller has the option to make repairs C. which inspector the buyer is required to use D. the time limit for the buyer to inspect the seller's repairs

Question 61. . Answer: C Explanation: An inspection contingency will usually state who is paying for the inspection, whether the seller will have an option to make repairs, and the time limit for the buyer to inspect and approve the seller's repairs. The contingency clause doesn't ordinarilyrequire the buyer to use a particular inspector.

62. . The purchase agreement includes a financing contingency clause for the benefit of the buyer. Three weeks after signing theagreement, the seller receives notice that the buyer is backing out of the transaction. The seller will be required to return the buyer's goodfaith deposit if the buyer: A. never applied for financing B. applied and qualified for financing C. applied for financing and was turned down D. applied for financing and then withdrew the application

Question 62. . Answer: C Explanation: The buyer is only entitled to have the deposit refunded if the contingency clause was not fulfilled in spite of a good faith effort to get it fulfilled. If the buyer is withdrawing from the transaction without having made a good faith effort, or withdrawing eventhough the contingency has been fulfilled, she forfeits the deposit.

63. . What document authorizes the party holding the good faith deposit to disburse the deposit to the appropriate party in the event thatthe transaction terminates? A. Extension addendum B. Notice to perform C. Cancellation agreement D. Broker/salesperson agreement

Question 63. . Answer: C Explanation: If a sale falls through, the parties should formally terminate the transaction by completing a cancellation agreement. Onefunction of this agreement is to authorize the person holding the good faith deposit (for example, the selling broker or the closing agent)to disburse it to the party who's entitled to it.

64. . Carl agrees to purchase Anna's property, subject to a financing contingency. The contract gives Carl 20 days to fulfill or remove thecontingency. However, after 20 days he has provided no notice of having fulfilled it or removed it. At this point, what can Anna do? A. Give Carl a notice to perform, informing him that she will terminate the agreement if he does not remove the contingency B. Terminate the agreement immediately C. Terminate the agreement immediately and retain the good faith deposit D. Sue Carl for breach of contract

Question 64. . Answer: A Explanation: If the buyer gives no notice of having fulfilled or removed a financing contingency within the allotted time period, theseller may terminate the agreement. First, however, the seller must notify the buyer of the missed deadline and give him a finalopportunity to perform.

65. . A buyer wants to make an offer to purchase a new house, but she'll need to sell her old house to get the money for closing. Shemight want to apply for a/an: A. open-end loan B. package loan C. swing loan D. wraparound loan

Question 65. . Answer: CExplanation: A swing loan, also known as a bridge loan, will provide the borrower with the funds needed for a loan to purchase newproperty without waiting until property she already owns sells. The swing loan is secured by a lien against the currently owned property,and the buyer will pay it off with funds from the eventual sale of that property.

66. . An inspection contingency would be deemed to have been removed (so that the transaction will continue on to closing) under all ofthe following circumstances, except: A. The seller agrees to all modifications desired by the buyer B. Following the seller's refusal to make modifications, the buyer fails to terminate the agreement by the deadline C. The seller rejects the buyer's proposed modifications D. The buyer notifies that seller that she is waiving the contingency

Question 66. . Answer: CExplanation: If the seller rejects the buyer's proposed modifications, that does not mean that the contingency has been removed. Instead,the buyer must respond to the seller's rejection, either with a counterproposal, or by waiving the contingency, or by terminating theagreement.

67. . All of the following are usually found in contingency provisions, except: A. a procedure for notifying the other party that the condition has been waived B. a deadline for waiving or satisfying the condition C. the rights of the parties if a condition isn't waived or satisfied D. statutorily required language regarding the parties' obligation to seek the advice of an attorney

Question 67. . Answer: DExplanation: Although obtaining legal advice may be a good idea, there's no statute that requires the contract to contain languagerequiring the parties to do so.

68. . A contingent sale collapses because the buyer is unable to sell his own property. Which form is it appropriate to use at this point? A. Bump notice B. Bump notice reply C. Second buyer addendum D. Cancellation agreement

Question 68. . Answer: DExplanation: A cancellation (or rescission) agreement should be used to finalize the termination of any transaction that will not result ina sale. This is important even if the transaction terminated automatically because of failure to fulfill a contingency.

69. . The most basic protection for a lender who makes a loan secured by real property is: A. the good credit history of the borrower B. the value of the property itself C. the borrower's other assets D. the stability of key interest rates

Question 69. . Answer: BExplanation: The lender's ultimate line of defense against losing money on a loan is the value of the property. If the borrower defaults,the lender will foreclose on the property in order to recover its funds. So before approving the loan, the lender will order an appraisal tomake sure that the property is worth enough to serve as security for the loan amount.

7. . Which of the following duties does an agent owe to third parties?A. Good faith and fair dealing B. Disclosure of material facts about the property C. Reasonable care and skill D. All of the above

Question 7. . Answer: DExplanation: An agent owes third parties the duties of good faith and fair dealing, disclosure of known latent defects and other materialfacts about the property, and reasonable care and skill.

70. . In deciding whether or not to approve a mortgage loan application, a lender will evaluate the borrower according to which of thefollowing? A. Borrower's credit characteristics B. Borrower's marital status C. Borrower's ethnicity D. Age and size of the property

Question 70. . Answer: AExplanation: The three main considerations a loan underwriter will use to evaluate a borrower are the borrower's creditcharacteristics--income, net worth, and credit history. Consideration of marital status or ethnicity would violate antidiscrimination laws.Although the underwriter will consider the property separately, the property is not a consideration in whether to approve the borrower.

71. . Verification of self-employment income requires: A. W-2 forms and bank statements for the last two years B. an independent appraisal estimating the value of the business C. financial records and income tax returns for the last two years D. All of the above

Question 71. . Answer: CExplanation: Self-employed loan applicants are required to provide business and personal income tax returns for the last two years andmay also be required to provide business financial records.

72. . The Truth in Lending Act requires disclosure of: A. estimated closing costs B. the borrowers' credit scores C. the main features of the property securing the loan D. key terms of the credit transaction

Question 72. . Answer: DExplanation: The disclosures required under TILA include the key terms of a consumer loan transaction, such as the loan's annualpercentage rate and the total finance charges.

73. . If a prospective borrower's equity in another property is the sole source of money for the purchase of a new home: A. the lender may require a copy of the final settlement statement B. the borrower may be required to pay interim insurance C. the borrower's equity in the old home will not count towards total net worth D. the equity must be converted into cash before a new loan is approved

Question 73. . Answer: AExplanation: A lender will usually require the borrower to provide a copy of the final settlement statement for the sale of the old homebefore funding the loan for the purchase of a new home.

74. . Which of the following statements regarding income analysis is true? A. The more dependable the income source, the lower the quality of the income B. The less dependable the income source, the greater the durability of the income C. The more dependable the income source, the stronger the quantity of the income D. The less dependable the income source, the lower the quality of the income

Question 74. . Answer: DExplanation: The "quality" of a borrower's income refers to the dependability of the income source.

75. . When a lender decides whether or not to make a real estate loan, which of the following would it be most concerned with? A. Availability of mortgage funds B. Degree of risk involved C. Key interest rates D. Federal and state regulations

Question 75. . Answer: BExplanation: Because each loan is an investment that may prove profitable or result in a loss, a lender's primary concern in decidingwhether to make a loan is the degree of risk it would involve.

76. . As a general rule, subprime mortgage lenders: A. offer home equity loans, but not home purchase loans B. charge higher interest rates and loan fees than prime lenders C. have stricter underwriting standards than prime lenders D. cannot sell their loans on the secondary market

Question 76. . Answer: BExplanation: Because of the increased risk involved in subprime loans, subprime lenders often charge higher interest rates and loan feesto offset these risks.

77. . A lower loan-to-value ratio corresponds to a higher: A. degree of risk B. interest rate C. amount of equity in the property D. loan amount

Question 77. . Answer: C Explanation: A lower loan-to-value ratio means that the borrower has a greater equity interest in the property. For instance, with an 80%loan on a $100,000 property, the borrower has $20,000 in equity; with a 70% loan on the same property, the borrower would have$30,000 in equity. The more equity a borrower has, the less likely it is that she will default on the loan. So from a lender's point of view,a lower LTV corresponds to a lower degree of risk, not a higher degree of risk.

78. . Which of the following is not an advantage of FHA financing? A. Mortgage guaranty insurance that protects the borrower B. Prepayment penalties are not allowed C. Lower downpayment requirements that help lower-income buyers afford a home purchase D. More lenient underwriting standards that make it easier for borrowers to qualify

Question 78. . Answer: A Explanation: While insurance of the loan amount is a key feature of FHA financing, the mortgage insurance protects the lender (in case the borrower defaults), not the borrower.

79. . A property buyer has been approved for a loan, but will be unable to close the deal without obtaining a smaller second loan to coverthe remainder of the loan balance. Such financing is usually obtained from: A. pension funds B. private lenders C. savings and loan associations D. commercial banks

Question 79. . Answer: B Explanation: Most junior (or second) mortgages used in the purchase of property come from private lenders, often from the property seller himself. The use of seller seconds is particularly common in times of high interest rates, when a buyer's purchasing power isseverely limited.

8. . A real estate agent acting on behalf of a seller may: A. help a buyer fill out a purchase agreement form B. change the seller's terms to comply with the buyer's offer C. accept the buyer's offer D. make a counteroffer to the buyer

Question 8. . Answer: AExplanation: A seller's agent may help a buyer prepare an offer to purchase, as long as he doesn't advise the buyer about the terms of theoffer and makes sure the buyer understands he is representing only the seller. The agent may also relay an acceptance or a counterofferfrom the seller to the buyer, but may not accept the buyer's offer or make a counteroffer himself (unless the principal has authorized theagent to do so, in a power of attorney).

80. . Which of the following documents would be used when a veteran purchases a home through the California Veterans Farm and HomePurchase Plan? A. Deed of trust B. Mortgage C. Special warranty deed D. Land contract

Question 80. . Answer: D Explanation: When a home is purchased through the California Veterans Farm and Home Purchase Plan (generally known as the Cal-Vet program), the state purchases and holds legal title to the property, then sells the property to the veteran through a land contract.

81. . A prepayment penalty may be imposed in a real estate transaction. Who would pay the penalty? A. Buyer B. Seller C. Buyer assuming a loan D. Lender

Question 81. . Answer: B Explanation: A prepayment penalty would have to be paid by a seller who's paying off an existing loan, if the finance documents for that loan provided for such a penalty.

82. . Interest-only mortgages, temporary buydowns, and hybrid ARMs all might be of particular interest to home buyers who: A. have little money available for a downpayment B. are experienced property investors C. expect interest rates to increase sharply in the next few years D. expect their income to increase substantially in the next few years

Question 82. . Answer: D Explanation: Interest-only mortgages, temporary buydowns, and hybrid ARMs are all loans with lower initial payments, so they're likely to appeal to first-time home buyers who are just starting out in their careers and expect their income to increase substantially in the coming years.

83. . Negative amortization refers to: A. a reduction in interest owed on a loan due to a negative adjustment B. a situation in which unpaid interest is added to a loan's principal balance C. the fact that payments are made to the borrower rather than to the lender D. principal-only payments made on institutional loans

Question 83. . Answer: B Explanation: When the monthly payments on an ARM do not keep up with interest rate increases, unpaid interest may be added to the principal balance, with interest charged on this entire amount. This is called negative amortization.

84. . Lenders will often charge a fee to cover the administrative costs involved in issuing a new loan, which is expressed as a percentageof the face amount of the loan. This fee is known as: A. discount points B. a prepayment fee C. a lock-in fee D. an origination fee

Question 84. . Answer: D Explanation: The fee charged by a lender to cover the administrative costs involved in loan origination is called an origination fee. (Itmay also be called a loan fee or an administrative charge.)

85. . Which of the following costs in a real estate transaction is not ordinarily charged to the buyer? A. Origination fee B. Purchase price C. Appraisal fee D. Documentary transfer tax

Question 85. . Answer: D Explanation: The buyer ordinarily pays all of these except the documentary transfer tax.

86. . Which of the following is not exempt from the escrow agent licensing requirement? A. A broker in her own transaction who charges a separate escrow fee B. A broker in her own transaction who does not charge a separate escrow fee C. A broker handling escrow for other brokers' transactions D. An attorney at law

Question 86. . Answer: C Explanation: An attorney at law or a broker handling her own transaction is permitted to provide escrow services without being licensed as an escrow agent. However, a broker is not permitted to do so in a transaction in which she is not also acting as the broker (unless shecomplies with the escrow licensing requirements).

87. . Which of the following statements regarding RESPA is incorrect?A. RESPA applies only to federally related loans B. RESPA does not apply to seller-financed transactions C. RESPA requires advance disclosure of settlement costs in all real estate transactions D. RESPA applies to 1-4 unit residential properties

Question 87. . Answer: C Explanation: RESPA's disclosure requirements apply only to federally related loans secured by 1-4 unit residential properties.

88. . The holder of a standard coverage policy of title insurance is insured against losses resulting from: A. unrecorded liens B. defects in the chain of title known to the insured person but not disclosed C. forgery in the chain of title D. parties in possession of the property

Question 88. . Answer: C Explanation: Standard coverage title insurance insures against problems related to matters of public record (such as a forged signature on a deed), but not against matters that could be discovered only by an inspection of the property (such as an adverse possessor or a potential mechanic's lien claim), and not against matters known to the insured but not disclosed to the title company.

89. . A fire insurance policy began on April 1. It cost $1,900.80 for three years of coverage. The insurer canceled the policy on December16 of the same year it was issued. If you use a 360-day year, which of the following figures is closest to the premium for the unusedportion of the policy? A. $448.80 B. $1,399.20 C. $1,452.00 D. $1,504.80

Question 89. . Answer: C Explanation: If the policy began on April 1 and ended on December 16, it was valid for approximately 8.5 months. First, calculate theyearly premium for the insurance ($1,900.80 ÷ 3 years = $633.60). Then calculate the per diem rate ($633.60 ÷ 360 days = $1.76).Determine the number of days the policy was in effect: 8 full months (April through November) is 240 days. 240 days + 15 days inDecember = 255 days. Next, multiply the number of days by the per diem rate ($1.76 × 255 days = $448.80). Bear in mind, though, thatwe're looking for the unused portion, not the used portion, so subtract that amount from the total premium for the policy ($1,900.80 -$448.80 = $1,452).

9. . A broker misrepresented his principal's property when showing it to a buyer. The actions of the broker may subject his principal to: A. rescission of the sale by the buyer B. court action for damages resulting from fraud C. civil liability for the broker's misrepresentations D. All of the above

Question 9. . Answer: DExplanation: A principal is liable for the actions of his agent when the agent is acting within the scope of his authority. Therefore, theprincipal could be subject to court action (a civil lawsuit) for any damages that result from the fraudulent misrepresentation. Themisrepresentation would also be grounds for rescission of the purchase agreement.

90. . What will an escrow agent rely on in deciding how to disburse funds? A. Escrow instructions B. Rules spelled out in federal law C. Listing agreement D. Contingency addendum

Question 90. . Answer: A Explanation: An escrow agent will follow the escrow instructions. Often these instructions are included in the purchase agreement; if not, the parties sign a separate set of instructions.

91. . RESPA prohibits: A. a lender from requiring the buyer to use a particular settlement service provider B. a seller from requiring the buyer to use a particular title insurance company C. a lender from referring the buyer to an affiliated settlement service provider D. None of the above

Question 91. . Answer: BExplanation: In a transaction subject to RESPA, the seller is not permitted to dictate which title insurer the buyer will use. A lender isallowed to require the buyer to use a particular settlement service provider, or to refer the buyer to an affiliated provider, as long ascertain disclosures are made.

92. . A pest control company performs an inspection and finds no termite infestation. However, it does find evidence of conditions whichmay lead to infestation. The cost of corrective measures to prevent infestation must be paid by: A. the buyer B. the seller C. the buyer only if she chooses to have the conditions corrected D. the buyer and the seller, splitting the cost equally

Question 92. . Answer: C Explanation: If there is no infestation, the seller is ordinarily under no obligation to take further steps. The buyer may pay for thepreventative measures if she chooses to do so.

93. . All of the following duties would be typical for a property manager, EXCEPT: A. providing the owner with depreciation schedules for income tax purposes B. handling tenant disputes C. supervising maintenance and repair of the property D. negotiating leases on behalf of the property owner

Question 93. . Answer: A Explanation: Managing a property ordinarily involves negotiating leases, handling tenant disputes, and maintaining the property. Thedepreciation tables would be an accountant's responsibility.

94. . For a property manager, property taxes and hazard insurance are examples of: A. fixed expenses B. reserves for replacement C. maintenance expenses D. variable expenses

Question 94. . Answer: A Explanation: Property taxes and hazard insurance are considered fixed expenses, since they occur on a regular basis and do not vary with changes in the property's occupancy rate. (In contrast, variable expenses include items such as maintenance and utility costs.)

95. . How easily an asset may be converted into cash is referred to as: A. diversification B. liquidity C. yield D. leverage

Question 95. . Answer: B Explanation: A liquid investment is one that can quickly and easily be converted into cash, if the investor needs or wants to do so. Stocksand bonds are relatively liquid; real estate is not.

96. . As a property manager, you may: A. advertise that units are available, even when they're not B. use different application forms for minority applicants C. require credit checks for some applicants, but not for others D. offer inducements to prospective tenants

Question 96. . Answer: D Explanation: Property managers may offer inducements to attract tenants; a common example is waiving the first month's rent. Aproperty manager should perform credit checks on all prospective tenants, not just some, since arbitrary application of the requirementcould give rise to the charge that the manager is violating antidiscrimination laws.

97. . A property manager is likely to be concerned with all of the following, except: A. trends in family size and lifestyles B. local unemployment rates C. going commission rates on real estate sales D. market rental rates

Question 97. . Answer: CExplanation: Commission rates on real estate sales are not relevant to the business of leasing and managing properties.

98. . Which of the following would not be defined in a property management agreement? A. Manager's authority B. Lessee's intended use of the property C. Manager's duties and responsibilities D. Compensation

Question 98. . Answer: B Explanation: The management agreement is the contract between the property manager and the property owner (the landlord). It wouldnot discuss how tenants (lessees) are using or intend to use the property.

99. . The legal proceeding used to evict a tenant in default is called: A. an ejectment action B. an unlawful detainer action C. a quiet title action D. a suit for possession

Question 99. . Answer: BExplanation: A landlord files an unlawful detainer action to evict a tenant. The court will issue a writ of possession, which directs thesheriff to remove the tenant from the property if necessary.