Real Estate Principals Practice Exam

Gunther's gross monthly income is $3,800, and he has no monthly debt payments. The lender's qualifying ratios are 28% for the housing ratio and 36% for the total DTI ratio. What's the maximum housing payment Gunther can afford?

$1,064 -Calculate the debt and housing ratios that buyers need to meet both lending ratios. While Gunther qualifies for a payment of $1,368 under the total DTI, he only qualifies for $1,064 under the housing ratio ($3,800 x 28%).

A buyer is purchasing a $1.5 million property in a city that imposes a transfer tax of $12 per $1,000, in addition to the county transfer tax of 55 cents per $500. What is the total transfer tax this property is subject to?

$19,650 - this property is subject to $13.10 per $1,000. This is because there is a city rate of $12 per $1,000 and a county rate of $1.10 per $1,000. In total, this property is subject to $19,650 in transfer taxes.

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 The amount paid for points = loan amount × number of points. The buyer is financing $450,000 ($500,000-$50,000). Multiply the loan amount of $450,000 by 1.5% (or 0.015) to get $6,750.

Buyer Maria and seller Doug are closing on June 1. Maria's mortgage loan payment is $927.86, and $871.86 of that amount will go to interest in the first month. Maria will have to pre-pay interest for June using the 360-day proration method. If Doug owns the closing day, what Maria's prepaid interest cost be at closing?

$842.74 -Calculate the daily interest rate for 30 days ($871.86 ÷ 30 = $29.06). Because Doug owns the closing day, Maria will pre-pay interest for 29 days, June 2 - 30, so $842.74 ($29.06 x 29).

If a farm that's for sale measures one and three-quarter square miles, how many acres is it?

1,120 -One square mile is 640 acres. Three-quarter square mile is 480 acres (640 × .75 = 480). So, 640 + 480 = 1,120 acres.

Your buyer clients, the Fowlers, obtained an 80% loan on their $600,000 home. At closing, they paid $8,250 for points. How many points did the Fowlers pay to lower their interest rate?

1.72

Based on capitalization rate alone, which investment will have the higher appraised value: one with a 10% cap rate or one with a 4% cap rate?

4%

How large is a section used in the rectangular survey system?

640 acres

Which of the following is most susceptible to a predatory lender?

A borrower with poor credit

What must happen before a subdivision's tentative map can be approved?

A notice must be filed with the local planning board, with an opportunity for a hearing

This is a shared side of a structure; each owner owns his section of the wall in severalty, with the ownership subject to an easement by the other.

A party wall

Related to the legal description of land, what is a monument?

A permanent land marker sometimes used in legal descriptions

Jennifer is selling her property and hired Larry as her agent. Jane brings her prospective buyer client, Andrew, to see Jennifer's property. What is Larry's role in this scenario?

A seller's agent

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.

When a subject property has a feature that a comparable property doesn't have, what should the licensee preparing a CMA do?

Adjust the comparable price up. -To determine the value of a subject property, start with the comparable's selling price and adjust it from there. If the subject property has a feature the comparable doesn't have, that feature's "value" needs to be added.

Which of the following statements is true regarding trusts?

Any asset may be held in a trust.

When a complaint is filed against a real estate licensee in California, who is responsible for investigating the complaint?

California DRE

Real estate licensees turn to specific information sources when preparing CMAs for clients. Which of the following information sources is best for estimating the market value of a property?

Comparable sales

Which economic principle is related to supply and demand?

Competition

A new development is complete, and almost all the homes are now occupied. All is well for the first year, but after a season of heavy rains many homeowners are experiencing issues with sewage backing up into their homes. What process should have prevented this from happening?

Compliance with building codes and inspection by a local health official to ensure sanitation and drainage systems were adequate

The process in which the government actually takes someone's property through the power of eminent domain is called ______.

Condemnation

Bill and Mindy, who are neighbors, get into a disagreement about late-night noise. The two come to an agreement: Bill promises to stop having loud parties and Mindy promises to keep her dogs inside after 10 p.m. Their promises represent the ______ in their agreement.

Consideration

What type of notice results from publicly recording a title transfer?

Constructive notice -The purpose of recording is to give the public constructive notice of a transfer of ownership. Recording doesn't transfer title; it informs the public that a transfer of title has occurred.

Which economic principle pertains to how a change in a property affects its value as a whole?

Contribution

With the cost approach to value, what is the replacement cost?

Cost to build a functionally equivalent improvement

What does CC&R stand for?

Covenants, conditions, and restrictions -Covenants, conditions, and restrictions are there to codify contingencies, agreements, and limits regarding the use of a property.

How is the break-even point calculated for a percentage lease?

Divide the monthly base rent by the percentage the landlord established. -The landlord decides the percentage of gross sales the tenant will pay for a percentage lease. The percentage is due after the tenant reaches the break-even point.

Kurt bought a vacant lot in a development that was 85% completed. When he started working with the builder to lay out where the house and driveway would be, they found he would need an easement because his driveway would spill over onto the adjacent lot by a few feet. Kurt owns the _______ estate or tenement.

Dominant

What is the longest time (with extensions) a developer can have to file a final map after receiving tentative map approval?

Five years -A developer has up to a maximum of five years to file a final map before the time limitation expires and a new tentative map must be approved.

What may happen if a property lies in a designated floodplain?

Flood insurance may be required.

If a site has improper drainage, what might happen?

Flooding can occur.

Which structural component is described as "the concrete base that supports the foundation of a building"?

Footing

A poor floor plan is an example of which type of depreciation?

Functional obsolescence -Functional obsolescence is a form of depreciation or loss in value caused by defects in design.

Maxwell is a tenant. His lease has a fixed rent in which the landlord pays all taxes, insurance, and maintenance expenses. What type of lease does he have?

Gross

Jeb is performing work for a cousin and charging him $450. What requirements relate to Jeb?

If Jeb is not licensed, he must disclose it.

Which of the following describes a contract that exists based not on words, but on the parties' actions or behaviors?

Implied

Capitalization is the process of using ______.

Income to calculate value -Capitalization uses income to calculate value. The process uses a capitalization rate that's based on comparable companies.

When you're working with clients in California, how will you explain the grant deed to them?

It includes implied warranties from the grantor, and is commonly used in California. -The grant deed is used to convey title in most transactions in California. It includes an implied warranty that the property is free from encumbrances.

Susan Duffield died testate at age 49. What can be said about Susan's estate?

It will be put through probate. -Testate means with a will; the estate of a person who died with a will still must go through the probate process.

What could be a consequence if there were no secondary mortgage market?

Lenders might not have funds available to make new loans to the public.

How large is one square yard?

Nine square feet

June has worked with buyers and sellers for years. When homeowners default on their mortgage, June acts as trustee for the deed of trust. Under the deed of trust, June has the authority to sell the property. Does June have a real estate license?

No, trustees selling properties under a deed of trust are exempt from licensure. -Certain individuals are exempt from obtaining a real estate license to perform real estate activities. Trustees selling properties under a deed of trust are exempt from licensure.

What kind of contracts can a developer enter into if they have obtained an interim report?

Non-binding reservations

Jim would like to sell his own home. What is the minimum real estate license he must possess?

None

Which of these means, "A privilege sold by one party to another that offers the buyer the right, but not the obligation, to buy at an agreed-upon price during a certain period of time or on a specific date"?

Option -Options are just that: an option. If the option isn't exercised, both parties go on about their business. Only the option holder has the right to exercise the option.

Which type of listing can help a real estate professional determine how quickly a home in a given price range received an accepted offer?

Pending

Peter wants to set up a land trust so that his children can benefit from his real estate investments after he dies. He asked his financial advisor Tom to manage the trust, and Tom agreed. How is the trust created?

Peter conveys the real estate to Tom.

What is the purpose of a termiticide?

Prevents pest damage

Which of the following situations may result in inverse condemnation?

Property values decrease because adjacent property was rezoned.

Which of the following actions can an individual holding only a prepaid rental listing service (PRLS) license perform?

Providing listings of residential properties available for rent to prospective tenants for a fee

Many market conditions impact housing prices. Which of the following is a true statement?

Reduced consumer confidence makes new buyers wary of purchasing and homeowners hesitant to trade up. -A wary market means sluggish sales.

What is the difference between real estate law and Regulations of the Real Estate Commissioner?

Regulations are used to enforce and clarify the law. Real estate licensees must abide by both.

Madeline works for a single-agency firm. If she wants to represent both the buyer and seller in a transaction, what must she do?

She can't do this at her firm. -Single agency firms don't allow their licensees to represent opposing sides in a transaction.

In a contract, consideration is the giving of ______.

Something of value in exchange for something of value

Which type of subdivision is defined as parcels of land that purchasers own individually, with no commonly owned areas?

Standard subdivision

______ is the form of ownership used by married couples in certain states. It includes automatic survivorship rights.

Tenancy by the entirety -This is tenancy by the entirety, where each has an undivided interest in the entire property. If one dies, the other owns the entire property. If they divorce, their ownership automatically becomes a tenancy in common.

Which type of ownership includes the unity of time, title, interest, possession, and marriage, and dissolves to a tenancy in common after a divorce?

Tenancy by the entirety -This type of ownership is tenancy by the entirety. It's similar to joint tenancy in that it has the right of survivorship and includes unity of time, title, interest, and possession. The difference is that marriage is added to the mix.

How does the Office of Fair Housing and Equal Opportunity support real estate consumers?

The FHEO provides support for protected classes through the fair housing complaint process.

How does the "break-even point" relate to percentage leases?

The landlord doesn't charge a percentage of sales until the tenant's sales exceed a break-even point. -The percentage charge applies when the tenant's sales exceed a break-even point. This point is specified in the lease.

Rachel is talking with a co-worker, Shawna, about homebuying. Rachel shares some general market trends and talks about the impact of rising interest rates. She notes that the listing price of Shawna's neighbor's house seems lower than it should be, and then they talk about the importance of getting pre-approved for a loan early in the process. Which of her statements might have created an implied agency situation?

The listing price of the neighbor's property -General real estate discussions are safe. However, Shawna may mistake Rachel's comment about the neighbor's list price as an expert's opinion on value. Based on this, Shawna may make an offer, thinking she's getting a deal.

What is a requirement of the CalVet program?

The property being purchased must be located in California.

Which of the following is a potential consequence of overpricing a property?

The property won't appraise high enough and you could lose the contract if you do get an offer.

Which term refers to the tenant's right to live in a rental property without harassment or trespass by the landlord?

The right of quiet enjoyment

Which of these statements about tenant remedies is true?

The three types of remedies available include repair and deduct (aka rent deduction), abandonment, and rent withholding.

When a deed of trust is used as a security instrument, who holds the deed and the note?

The trustee holds the deed, and the lender holds the note.

What must a developer selling lots to a subdivision in another state do in addition to registering the project with the BRE?

They must have a disclaimer that the property has not been examined the BRE on all marketing and sales materials.

Your client, Ray, is worried about title issues that may arise after closing. Remind Ray of his secret protection: ______.

Title insurance

A living trust differs from a testamentary trust in that a living trust is established to convey property as well as to ______.

Transfer ownership before death and avoid probate

How long does a homeowner have to pay off outstanding liens against his property?

Until the foreclosure sale is held -The homeowner has until the foreclosure sale is held to pay off outstanding liens against the property.

Robert and Sarah enter into a contract for Sarah to purchase Robert's home. Robert decides he doesn't want to sell, and is elated when he finds out that Sarah's only 17 years old. Can Sarah force Robert to sell?

Yes, Sarah can require that Robert fulfill the contract terms. -In the same way that a legally incompetent party can void a contract while the competent party cannot, a legally incompetent party can enforce a contract should the competent party wish to terminate.