CE Shop Practice Test #2 (wrong answers) w/ explanations

What's the estimated value by cost approach for a property if the site value is $25,000, the new cost of improvements is $100,000, and the total depreciation estimate is $15,000?

$110,000 - To estimate value using the cost approach, an appraiser adds the site value to the cost to replace improvements, then subtracts the amount of depreciation. Here, that gives us $100,000 + $25,000 - $15,000.

The GRM for an apartment building is 147. If a three-bedroom, one-bath house rents for $820 monthly and sold for $125,000, what is the suggested value of a house that leases for $1,000 monthly based on the GRM?

$147,000 - This question asks you to find the value of a house based on the GRM of 147. The value of the home that rents for $820 monthly isn't relevant to your calculation, which is 147 × $1,000 = $147,000. Remember that GRM is just an estimate of value.

Juan purchased a property for $420,000 and financed $336,000 of it. The assessed value of the property is $387,000. The property appraisal came in at $432,000. Which of these amounts is used in calculating the property tax?

$387,000

A buyer is purchasing a property for $500,000. He has a down payment of $50,000 and is financing the rest. What's the amount of the loan origination fee if the lender charges one-and-a-half points?

$6,750

A property has 10 units and is 90% occupied. Rent is $500 per month. Total vacancy and collection loss equals 10%. What's the potential gross income?

$60,000 -Potential gross income is the income the property would realize if it were fully rented. 10 units × $500 = $5,000 per month × 12 months = $60,000.

Al is 70 years old and has held his real estate broker license in good standing for 30 consecutive years. His license is up for renewal soon. How many continuing education hours must he complete?

0 hours

As part of its penalty for violating antitrust law, Homes4Cheap, Inc. has been ordered to undergo court-ordered supervision. How long can this supervision last?

10 years - Court-ordered supervision may last as long as 10 years if a brokerage is guilty of violating antitrust law.

The Residential Earthquake Hazards Report must be provided to prospective buyers in residential transactions involving homes built before __________.

1960 -Homes built prior to 1960 may be more susceptible to damage from earthquakes and require this disclosure.

For how long may a commercial income-producing property be depreciated?

39 years

Sally is a real estate salesperson. How many hours of continuing education must she complete before the license expiration date in order to renew it for another four years?

45 hours

How many feet are in a mile?

5,280 feet

Glenn is purchasing a home for $400,000. The property appraised at $415,000 and Glenn is financing $300,000. What's the loan-to-value ratio?

75% -Lenders use the lesser of the sales price or appraised value. This results in an LTV ratio of 75% ($300,000 ÷ $400,000).

Which of these situations represents an illegal tie-in arrangement?

A licensee tells his seller client he'll only represent her if the client uses a specific company to close her transaction.

If your license is suspended, it's only temporary. If your license is revoked, it is permanently removed and requires ______.

A new license application after the penalty period -If your license is revoked, you must wait out any designated penalty period before you can apply for a new license.

What's the difference between a special use permit and a variance?

A variance allows a deviation from the requirements of the zoning ordinance; a special use permit allows a use not ordinarily allowed in the zone. - A variance is a deviation from the zoning ordinance and requires hardship to be shown. An example would be a change in setback requirements; without the variance, the owner couldn't build. Special use permits allow uses otherwise prohibited in that zone.

Stacy has gone into default on her mortgage. Her lender is demanding that the entire loan balance be paid in full. Which mortgage clause permits her lender to do this?

Acceleration -The acceleration clause gives the lender the right to accelerate payment of the loan if the borrower defaults.

Which economic principle states that the value of property today is impacted by the current value of the total expected future benefits?

Anticipation -Anticipation says that the value of property today is impacted by the current value of the total anticipated future benefits.

Which of the following actions toward an appraiser would be considered proper?

Asking an appraiser to correct errors in the appraisal report -Real estate licensees can ask appraisers to correct errors in reports. This is a proper action. They cannot, however, withhold or threaten to withhold payment based on an appraisal report or make that payment conditional upon reaching a certain value.

Cam is a broker. His licensees, Jane and John, represent two sides in a single transaction. Jane represents the seller; John represents the buyer. What relationship does Cam have to the buyer and the seller?

Cam is a dual agent to both the buyer and seller. -A dual agent represents both parties.

In California, an estate for years is known as ______.

Chattel real -An estate for years, such as a year-long lease, is known as chattel real in California.

John and Dale are married in San Francisco, and soon purchase a condo. They'll take title to it by default as ______ according to California law.

Community property - California is a community property state, where property acquired during a marriage or domestic partnership is held as community property unless the parties agree otherwise in writing.

When prices go down because there are too many homes on the market and too few buyers, what economic principle is at work?

Competition -Competition is related to supply and demand. Multiple similar properties on the market create competition, causing a decrease in value (lower prices) because the supply exceeds demand. Fewer homes on the market means less competition, increasing demand and driving prices upward.

Which of the following items directly increases the supply of real estate properties on the market?

Conversion of properties -The number of total properties on the market is directly influenced by the conversion of existing commercial properties to residential properties.

Which one of these is an example of the doctrine of estoppel?

Corrie shows Marvin several properties and prepares CMAs for each. She assists him in making an offer on one. He becomes difficult to work with, and she then says she's not his agent because they don't have a signed agency agreement. -The doctrine of estoppel prevents individuals from making an assertion or claim, even by actions or behavior, and later denying it.

Sue is selling her house for $265,000. Closing is set for June 19, and Sue owns the day of closing. She has a loan balance of $78,000 at a 4.2% rate, and she's current on her payments. She prepaid the property taxes ($1,350) and insurance ($925). Using a calendar-year proration method for calculations, how will these amounts appear on Sue's closing statement?

Credit of $721.50 -Since she already prepaid the property taxes, first determine the tax daily rate: $1,350 ÷ 365 = $3.70. Next, determine how many days from closing until the end of the year, which is 195 days. Next, multiply the daily rate you calculated in the first step, $3.70, by how many days from closing, 195: $3.70 X 195 = a $721.50 seller credit. Any prepaid seller's homeowners insurance will be refunded to the seller outside of closing, so this doesn't appear on the closing statements.

California law requires that any adverse action taken against the consumer that is based on the credit report be ______________________.

Disclosed to the consumer in writing

In addition to providing a disclosure of any lead-based paint hazards in homes built before 1978, what must a seller's agent provide to prospective buyers?

EPA lead safety pamphlet -The seller's agent must also provide knowledge of whether lead paint has been found and mitigated to prospective buyers.

What kind of contract exists after closing?

Executed -An executed contract is one in which the parties have met all terms of the contract.

Which of the following is an example of a government-sponsored enterprise (GSE)?

Fannie Mae -Fannie Mae, Freddie Mac, and the Federal Home Loan Bank are examples of GSEs.

When you're using the sales comparison approach to value a property, which of the following is considered a category of adjustment?

Financing terms and cash equivalency -Categories of adjustment include financing terms and cash equivalency, conditions of sale, market conditions at time of contract and closing, location, and physical characteristics.

Katy's home that was listed for sale was destroyed by fire. Under which of these methods will her listing agreement terminate?

Force of law -The listing agreement in this situation will terminate based on force of law (destruction of property).

A licensee decides to stop doing business with a local mortgage company that is charging clients hefty fees. The licensee convinces the buyer brokers who show her listing to follow suit. What is this an example of?

Group boycotting -This is group boycotting because it involves a group of licensees agreeing to not do business with another group.

What might Trina's mother have bequeathed to Trina?

Her jewelry and fine china - A bequest or legacy is a gift of personal property. In this case, Trina is the legatee (recipient).

Lisa purchased an older home with a large backyard that's perfect for her pack of collies to romp in. Six months after she bought the property, a total stranger knocked on her door and told her he's the true property owner. After investigating, it turns out the person who sold Lisa the property had forged the deed without the true owner's knowledge. What's true about Lisa's situation?

Her title insurance policy may protect her from loss. -Title insurance policies are used to cover the policy holder from losses, such as forged documents, that later put ownership into question.

Which of the following would be used to describe an item that is both a fixture and real property?

In-ground -"In-ground" is a word used to describe an improvement that's permanently affixed to the property.

Which of the following is considered unauthorized practice of law?

Interpreting the legal consequences of a client's actions -Interpreting legal consequences should be left to someone who practices law (an attorney). If a licensee does this, it's an unauthorized practice of law.

The Johnsons have owned a small restaurant for more than 20 years. It's open for lunch and dinner six days a week, and 80% of its weekday revenue comes from the happy hour drink and appetizer specials. The town in which their restaurant is located recently constructed a new middle school and stripped the liquor license from the Johnsons' restaurant, because it no longer complies with the ordinance to be 500 feet from a school property. The Johnsons have accused the town of _____.

Inverse condemnation -Inverse condemnation occurs when a property's value is negatively affected by government regulation, but the owner is not offered just compensation according to the requirements of the Takings Clause.

Which of these statements is NOT true about an extended title insurance policy?

It's typically used when the property is paid for in cash. -An extended title insurance policy is usually taken on behalf of the buyer's lender, so it won't be used if the property is paid for in cash.

Which of these situations addresses the fiduciary duty of confidentiality?

Jeanette, a seller's agent, tells the buyer's agent that her client must sell his home because of an illness. - The fiduciary duty of confidentiality prohibits licensees from disclosing confidential information about a client, even after the agency relationship ends.

Which of the following statements is true about usury laws in California?

Loans secured by real property and arranged for by a real estate broker are exempt from state usury laws. -Most residential real estate transactions will not be subject to usury laws because of the exemption for loans secured by real property and arranged by a real estate broker.

Marsha's title insurance policy was issued on closing day, which was June 18. The policy lists the standard exclusions as well as requirements for the company to issue the policy, such as paying off existing recorded liens. Which one of these will NOT be addressed in the schedule of exceptions?

Marsha's second mortgage on the property, which she plans to get next January -Title insurance typically covers events or claims filed on the public record before the title insurance policy's effective date but excludes disclosed and undisclosed easements.

In California, which lien can be filed later than other liens and still have priority over them?

Mechanic's lien - In California, a mechanic's lien can take priority over other liens if the starting date of the project was before the other liens' filing dates.

Meg is considering a move to a foreign country and wants to deed her property to her son, Christian, who's 16. Which of these must occur to make this transfer legal?

Meg must sign the deed and have her signature acknowledged. -As the grantee, Christian doesn't have to sign the deed, and he doesn't have to be legally competent or of legal age. The property can be conveyed only if some consideration is in place, but it doesn't have to have a monetary value.

Plants in a yard would be considered part of the real property because of the ______.

Method of annexation - The method of annexation—planting in the ground—implies that the plantings were expected to stay with the land.

How often should accounting records for trust fund accounts be reconciled?

Monthly

Mary contracted to buy her mother's house when her mother moves to a senior living community, but now Mary has to move because of work and no longer wants to buy the house. With their mother's agreement, Mary's sister, Tina, steps in, releasing Mary from her obligation. They write up a new contract, with the only change being that Tina is now the party to the contract rather than Mary. What's happened here?

Novation - Novation of a contract is the substitution of one party for another, with the full and complete release of the original party from any obligations under the terms of the contract.

In which phase of the real estate market would you expect to see properties selling for more than they're worth, many buyers in the market, and lots of new construction?

Over supply -Over supply is a phase that sees homes selling for more than their value. There are lots of buyers and lots of construction trying to keep up with the demand. This phase can't be sustained, and eventually the market heads toward a recession.

Parcels of land are valued at $50,000 each. However, when two of the parcels are joined, they are valued at $120,000. What economic principle is at work here?

Plottage -Plottage is an increase in property value when two neighboring parcels of land are joined together.

Derrick had two checks returned for insufficient funds. How does he record these?

Record them on the Bank Account Record (RE 4522) and the Separate Record for Each Beneficiaries or Transaction for Client's Funds Placed in Trust Fund Bank Account (RE 4523). -Checks that have been returned as non-sufficient funds (NSF) are recorded on the Bank Account Record (RE 4522) and the Separate Record for Each Beneficiaries or Transaction for Client's Funds Placed in Trust Fund Bank Account (RE 4523).

In California, a brokerage's listing agreements, deposit receipts, canceled checks, and trust records are all ______.

Records that must be held for at least three years - These are all records that the DRE requires brokers to keep for at least three years.

Bob signed a contract to purchase Ingrid's apartment building. Bob decided he didn't want to be a landlord, and Ingrid decided she didn't want to sell and move to Maui. They mutually agreed to cancel the contract, and Ingrid returned Bob's earnest money. This is referred to as ______.

Rescission - A rescission is a definitive end of the parties' commitments under an agreement—one in which the parties are returned to their pre-contract status. Each party gives back anything received under the contract.

Which of these statements about alien residents and non-residents of California is true?

Resident and non-resident aliens have the same property ownership rights as citizens in California. -California law specifies that resident and non-resident aliens have essentially the same property rights as citizens.

Amy purchased a new home and obtained financing through Natula Bank, a regional bank located in her city. Natula originated the loan, but before Amy's first mortgage payment was due, it sold her loan to CitiMortgage. What market is CitiMortgage operating in?

Secondary mortgage market -Institutions that purchase loans that have already been originated and that continue to service the loan operate in the secondary mortgage market.

The Housing and Community Development Act of 1974 added which protected class to federal fair housing law?

Sex -The Housing and Development Act of 1974 added sex as a protected class, which helped prevent discrimination and sexual harassment for individuals seeking housing.

Bart is selling his home and has accepted an offer from a buyer, who's obtaining a VA loan. The sale price is agreed upon and is in the purchase contract. Then Bart receives a call from his agent, explaining that the buyer is hoping that Bart will lower the sale price because ______, and there is a risk the buyer will not be able to get the VA loan as a result.

The VA appraiser completed the CRV and it is less than the sale price -A buyer request to lower the sale price when the property is already under contract likely means that the VA appraiser has valued the home lower than the sale price, which puts the VA loan in jeopardy.

In a residential real estate sale involving a federally related loan, what entity is required to provide Real Estate Settlement Procedures Act disclosures to the consumer?

The consumer's lender -The lender must provide the borrower with a written disclosure of the estimated and final settlement costs.

Which fiduciary duty requires agents to handle their clients' funds and paperwork properly?

The duty of accounting

Which fiduciary duty may continue even after the transaction closes?

The duty of accounting - The duty of accounting continues even after the transaction closes. For instance, any money the agent holds after a transaction closes must be accounted for until it's delivered to the appropriate party.

What does the quick and dirty 70% formula mean to investors?

The purchase price shouldn't be more than 70% of the repaired value -The 70% formula states that the purchase price should not exceed 70% of the expected value after repairs.

The Farm Credit System funds are acquired from ______.

The sale of debt securities and international money markets -The Farm Credit System money comes not from deposits, but from the sale of debt securities in the U.S. and in international money markets.

Daisy is a buyer who made an offer for an older house on three acres. Daisy reviewed the seller disclosures and ordered a professional home inspection. Based on the results of the inspection, which showed a number of latent defects that made Daisy uncomfortable, she decided to exercise her contractual right to cancel the agreement. What's NOT true about this situation?

The seller is obligated to repair the defects identified in the inspection report before accepting any other offer. -Daisy is entitled to get her earnest money back if she cancels the agreement according to the terms outlined in the RPA. The seller isn't obligated to make any repairs, although Daisy must provide the seller with a copy of the inspection report.

Jeremy, a buyer, refused to sign Calli's agency disclosure form. Later, he decided to use Calli as his agent. How many disclosure forms must Calli retain in her files?

Two -When a consumer refuses to sign, the agent must still sign and date the form and retain a copy for three years. If the consumer later signs a new form, that form must also be retained, and it supersedes the previous form.

You sign a contract to purchase a machine that will allow you to travel back in time and meet Abraham Lincoln. Assuming that time machines don't actually exist (for now), what type of contract is this?

Void - A party can't promise to do something that's actually impossible in a contract. This contract is void because the seller of the machine literally can't perform his side of it.

A lender and a borrower sign a mortgage agreement, placing a(n) ______ lien against the borrower's home.

Voluntary and specific -The mortgage lien is voluntary because the homeowner consents to the lien, and specific because it is attached to only one property.