California RE License - Real Estate Practices

Mr. Carter was able to purchase an apartment building for $725,000. The property had been appraised at $750,000 and the tax assessor had placed a value of $700,000 on it. If he paid $100,000 down and finance the balance his cost basis for income tax purposes would be:

$725,000

The "Standard Coverage" type of title policy insures against:

1) Acts of minor whose disability is undisclosed; 2) The priority and validity of liens upon the subject estate or interest; 3) Forged instruments

A signed listing, whether open or exclusive, when correctly designated is;

1) An agreement in which a commission could be paid; 2) A Contract of Employment; 3) An authorization

A deposit receipt should include all of the following:

1) Arrangements for financing; 2) Conditions for return of deposit in the event the offer is not accepted

After acceptance of an offer, the escrow may ask for which of the following to be furnished by the seller:

1) Bill of sale if personal property is involved; 2) Insurance policies on the property; 3) Latest gas meter readings

The termination of an escrow usually occurs when which of the following takes place:

1) Cancellation by mutual consent; 2) Escrow is a completed escrow; 3) When an event takes place that makes it impossible for one of the parties to perform

The following are methods of review when the licensee is faced with a partial acceptance of an offer:

1) Conditions and contingencies; 2) Time is of the essence; 3) Sales price

Which of the following are the two most important disclosures required under Regulation Z?

1) Finance charges; 2)annual percentage rates

When writing a deposit receipt the broker must clearly and adequately state certain items. In the case of a "Termite Report," which of the following is correct:

1) Government insured or guaranteed loans require termite reports; 2) FHA loans require a termite clearance

The deposit receipt is essentially like any other contract, and it must be writing and signed by the parties involved in order to be valid. Under the Statue of Frauds a contract must:

1) Have parties capable of contracting; 2) Have sufficient consideration; 3) Contain a lawful object

Clients will frequently ask the broker about the worth, fair price, fair rental or fair basis for trade of certain property. The broker should be aware of the factors that influence value. Which of the following statements is CORRECT?

1) Local ordinances, such as building codes and restrictions and zoning ordinances, affect the utility of a property ; 2) The type of soil, its size, shape and slope all affect the value of property; 3) Economic trends affect the value of property

It is generally accepted that there are three ways to approach a value estimate. Which of the following are accepted approaches?

1) Market comparison approach; 2) Income Capitalization; 3) Cost approach

A Policy of Title Insurance (according to our text) is:

1) One based on examination of applicable public records; 2) A contract of indemnity; 3) An insured statement of the condition of a property title

In preparing a listing information disclosure statement, the agent is advised to:

1) Point out any red flags and conditions affecting the property; 2) Recommend any further professional inspections; 3) Ask seller if any problems exist

According to our text, in California, almost three quarters of all the land is exempt from taxation. Properties qualified for taxation would include:

1) Properties owned by local, state or federal governments; 2) Properties owned by religious, charitable and educational institutions

An adjustment cost basis is the original basis or cost increased or reduced by:

1) Real Estate taxes assessed on property at the time of purchase (if purchased prior to 1954); 2) Settlement fee, cost of purchase commissions and legal and recording fees; 3) Depreciation deductions.

Although many think of value as being only monetary, there are other types of value that are frequently overlooked. Which of the following are a type of value?

1) Rental value; 2) Salvage Value; 3) Cash Value

In order to be eligible for capital gains benefits, the asset sold or exchanged must be a capital asset or must be an asset afforded the same treatment as a capital asset . According to our text, a capital asset is any property (whether or not connected with a trade of business except):

1) Stock-in-trade; 2) A copyright; 3) Depreciation property used in a trade or business.

When a broker deposits funds into his trust account, he is required to keep a record of all funds collected by clients. This record must contain:

1. Date funds received; 2. Check number and date of deposit; 3. Daily balance of trust account

Before showing a property, a salesperson would be more successful if he had complete understanding of:

1. Financing ; 2. Size of rooms; 3. Zoning laws.

A real estate license has the fiduciary duty to NOT do the following:

1. Modify or cancel the contract of sale after it has been made; 2. To act in agent's name even if the agent cannot be reached to authorize the decision; 3. Giving advice with respect to legal matters.

A power of attorney is the document used by principal to authorize an agent to:

1. Sell, exchange, convey, quit-claim, release, surrender, mortgage, encumber, lease or otherwise dispose of real property. 2. Change the form of title of any interest in Real Property.

Mr. Jones bought an income property for $700,550. His accountant figured that his net income for the year was $84,066. By using the capitalization method of appraising, what was the capitalization rate?

12%

The device that is often used by subdividers who are developing residential property and want to release certain lots when the purchaser's total payments have reached a pre-determined amount, is called:

A partial release clause

The compensation paid to a broker is generally:

A percentage of the selling price

The following would require a physical inspection of the property:

A.L.T.A. Policy

Title insurance is an important factor when buying real estate. An extended coverage policy is available for an additional fee and insures items not contained in a standard policy of title, The most commonly used extended form policy is the:

ALTA Policy

Under Article 3, 10175d, of the California Real Estate Law, a broker could not be disciplined for which of the following:

Acting for more than one party in a transaction with the knowledge and consent of all parties thereto.

Broker A takes a listing which he files with Multiple Listing Service. Multiple Listing Service members presenting offers on the listed property are considered:

Agents only of the buyer and must work through listing broker

The agent is required to disclose to the prospective buyer:

All facts that a visual inspection reveals which would materially affect the property's value and desirability.

Gross income constitutes ________________

All income not expressly exempt from tax.

A completed escrow is one in which:

All the terms of the escrow instructions have been met

Of the following, who would need a Real Estate License

An attorney PERFORMING real estate services as a broker.

An appraisal is considered to be:

An estimate and opinion of the value of the property

Item line number eighteen (18) of an Exclusive Authorization and Right to Sell contract deals with

Arbitration of disputes

Which property may not be depreciated?

Bare land

A real estate salesman canvasses an area to secure listing. He tells the prospective seller that minority groups are moving into the area and it would be advantageous to sell at this time. He would:

Be disciplined by the Real Estate Commissioner for canvassing in this manner.

All real estate contracts must:

Be in writing

Real Estate Law is contained in the:

Bus/Professions Code

The advantage of an individual proprietorship:

Business decisions can be quickly made

Bank, savings and loans, insurance companies, and title companies are but a few agencies exempt from being licensed as escrow companies. According to regulations in #17000 to 17614 of the California Financial Code, escrow companies must be licensed by:

California Corporation Commissioner

The selling function in real estate is divided into phases. Which of the following represent these phases?

Closing transaction by bringing seller and buyer together.

Which of the following is not a basic form of company formation found in the real estate business?

Co-ops

The appraising approach which is simply an estimate of the amount of money that would be necessary to duplicate property, is commonly called:

Cost Approach

The federal estate tax is basically a tax payable when property is transferred at death. It is an exercise tax on the right to transfer property at death and is measured by:

Exchange value

That type of listing where the owner has the right to sell his property and not have to pay a commission is called

Exclusive agency listing

From the broker's standpoint, which of the following is the most commonly used type of listing contract:

Exclusive right to sell

A real estate licensee may be held responsible to the Real Estate Commissioner for all of the following EXCEPT:

Failure to disclosure to the buyer that the seller must sell because of financial instability.

True of False: At-Risk Rules have been extended to apply to the holding of real property. The rules place no upper limit on the amount of deductible losses from certain activities are often described as "tax shelters".

False

True or False: The Statue of Frauds requires the deposit receipt to be accepted within three days

False

True or False: The laws are clear cut as to whether or not a real estate salesperson and/or broker is subject to UI, ETT, DI and state personal income tax withholdings. You can assume that you do not have these taxes deducted from your earnings once you have obtained a real estate license.

False

Information concerning the Federal Truth-in-Lending Law can be obtained from the:

Federal Trade Commission

By "market comparison approach" to appraising, we mean:

Finding recent comparable sales in the area

"This offer is subject to a structural pest control inspection report acceptance to both buyer and seller." This condition included in a deposit receipt actually does what to the seller and buyer:

Gives both buyer and seller a way of backing out

Parts of an ad may be thought of as the heading, body, and the closing. Which of these parts is considered the most important?

Heading

A subordination clause in a Note provides that:

If property done will give an existing or future loan priority over the loan in question

Funds for developing shopping centers, hotels and large industrial properties primarily come from:

Insurance Companies

A mobilehome which has been installed on a foundation system is:

Is taxable as real property

On June 8 of each year, the tax collector publishes a delinquent list of properties on which taxes have not been paid during the previous fiscal year. The property is automatically "sold" to the states on:

June 30

Veteran's tax exemption is based upon:

Liquidation value

Which of the following constitutes commingling:

Mixing personal funds with clients funds

If the offer to purchase was not prepared by the seller's agent, the buyer must receive the disclosure statement:

Not later than the next business day after the selling agent receives the offer to purchase.

Which of the following is a common reason for the purchase of real estate? (Use the text as the authority);

Occupancy

To avoid liability in the visual inspection of property, the agent must use the legal standard of care, best described as:

One that a reasonably prudent real estate licensee would exercise based upon his stand of knowledge, degree of education and experience.

A person who is required to have a Real Estate License:

One who sells or offers to sell real estate for compensation.

"Prospecting" as applied to the real estate business can be interpreted as:

Open houses

Mortgages and trust deeds differ with respect to:

Parties, title, statue of limitations, remedy and redemption

A deposit receipt should include all of the following, except:

Penalty for withdrawal of offer

Disadvantages to the partnership type of ownership include:

Personal assets of each are subject to interest of creditors

Actually, depreciation is a loss in value from any cause. A building that has depreciated due to wear and tear, negligent care or damaged by termites is best described as:

Physical deterioration

Which of the following is not a method of review when the licensee is faced with a partial acceptance of an offer:

Ratification

Regulation Z issued under the Truth-in-Lending Law, requires:

Requires that the consumer be fully advised of all of the details of his credit purchase; 2) Requires any advertising in whatever form, to fully advice the consumer of his credit purchase

Regulation 2905 which pertains to any infestation of wood-destroying organisms in any improvement or premises is taken from:

Rules and Regulations of the Commissioner

Item line number 5(c) of an Exclusive Authorization and Right to Sell contract protects the broker's commission and is called the:

Safety clause

Of the following, which would be considered an institutional lender

Savings & Loan Institution

From the time both parties have signed the deposit receipt until the close of escrow, which of the following will not take place:

Seller will provide buyer with a deed of reconveyance

After confirming the recording of transaction documents with the title company, the escrow officer proceeds to close the escrow by preparing a ______ for both buyer and seller.

Settlement of statement

Which of the following is based on a theory that depreciation occurs annually in proportion to its estimated economic life, and is also the most used method of computing depreciation:

Straight-Line Method

A description of real property must be:

Sufficient to identify the property

A real estate broker's license is required to:

Take open listing; Employ salesmen to sell subdivisions; collect rent for compensation

Among the major advantages of the corporation type of office ownership are:

Tax advantage

In addition to the Real Estate Commissioner, the number of members of the Real Estate Advisory Commission is:

Ten

In the exclusive right-to-sell listing, the seller agrees:

That should he sell the property himself during the period of the listing, he will be responsible for the payment of a commission to the broker.

Ratification

The adoption or approval of an act performed on behalf of a person without previous authorization after the acts have been performed.

When escrow opens and there is a conflict between the original contract and the escrow instructions, which of the following prevails (according to our text):

The escrow instructions usually have control

The California Constitution requires that all property shall be taxed in proportion to its value. Value is based on:

The highest price that a property will bring if exposed for sale in the open market allowing a reasonable time to find a purchaser who buys with knowledge of all the uses to which it is adapted.

An acceleration clause in a trust deed means;

The lender may require the loan to be paid upon the happening of a certain stipulated event

Clients will frequently ask the broker about the worth, fair price, fair rental or fair basis for trade of certain property. The broker should be aware of the factors that influence value. Which of the following statements is INCORRECT?

The location of the property is not a determining factor as long as the homes in the area are well kept and aesthetically appealing.

An increasing number of franchises are being sold today. When talking about the franchiser, we are referring to:

The parent company

For income tax purposes, the cost basis of a property is interpreted as:

The purchase price or cost to the taxpayer; improvement

A licensed real estate broker shall maintain a record of moneys collected. If money is placed into a trust account, records must be retained for a period of:

Three Years

Paragraph 25 in a CAR Real Estate purchase contract and receipt for contract contains:

Time is of essence

At times a seller would be exempt from providing a real estate disclosure statement. Which of the following would be exempt pursuant to the new disclosure laws?

Transactions resulting from a Probate sale.

True of False: "Useful Life" is the period over which the asset is expected to be of service to the taxpayer.

True

True or False - All-exclusive real estate listings must have a definite termination date:

True

True or False: Proposition 6 repealed the inheritance and gift tax laws, but also enacted the California estate tax.

True

True or False: The gift tax is an excise tax imposed on the exercise of the donor's right to transfer property as a gift. It is not a tax on property as such.

True

If a different purchase price is later negotiated, the licensee should:

Use an addendum or separate form

It is generally accepted that there are three ways to approach a value estimate. Which of the following is NOT an accepted approach?

Valuation Approach

A document transfer tax applies to transfer of all real property located in the county: where the value of the consideration exceeds:

When the consideration (exclusive of value of any lien and not removed upon consummation of the sale) exceeds $100